DOVER — With uncertain times ahead, Gov. Matt Meyer proposed Thursday a $6.58 billion fiscal year 2026 budget, representing a year-over-year increase of 7.4%, along with the most significant income tax reform Delaware has likely seen since the 1980s.
The budget amount is on track with what Gov. John Carney proposed on his final day in office. Between the General Fund operating budget, $937 million in bond and capital projects, grants-in-aid to nonprofits and one-time supplemental funding, the proposed FY 2026 budget allocates around $7.6 billion in total spending authority.
The new governor has immense challenges with uncertainty surrounding Delaware’s federal funding, including cuts to Medicaid. One in every three dollars spent by Delaware comes from the federal government. But Meyer said his budget reflects campaign promises and core values in investing in education, affordable housing and health care.
“At a time when we’re hearing a lot about cutting government, slashing government and slashing services, we’re thinking about how to strategically and intelligently invest in the services that Delaware relies on,” Meyer said in his introductory remarks. “We believe in a smart and strategic approach that delivers quality government to you.”
Notably, Meyer’s proposal does not draw from the budget stabilization fund, which was routinely allocated by his predecessor. Instead, the governor has proposed legislation to create three new tax brackets: for households that earn $125,000, $250,000 and $500,000.
Delaware has not seen substantive income tax reform for many years and the top rate has been set at 6.6% for households that earn $60,000 or more. The state has seen minor changes to the tax rate in the last decade; the Urban Institute Tax Policy Center told the Delaware Business Times that in 2010, the top rate was changed from 5.95% to 6.95%. That was lowered twice over the course of four years.
Meyer has maintained that this means there will be no tax increases for roughly 92% of the state’s population. The Delaware Department of Finance recorded that there were approximately 33,100 resident returns filed with taxable income between $125,000 and $250,000 in tax year 2023. There were also 11,000 resident returns with taxable incomes over $250,000 that year.
The three additional tax brackets would generate $16.4 million in FY 2026 and $35 million in FY 2027, according to the Office of Management and Budget (OMB).
“Too many Delawareans come home with dirt under their fingernails, their shirts stained from a hard day at work, and the burden of paying for the government falls on them,” the governor said. “We’re going to be adjusting some tax brackets to make sure the wealthiest Delawareans truly pay their fair share.”
Other increases and a new rainy day fund?
Meyer and OMB Director Brian Maxwell also revealed other substantive increases. Chief among them is a slate of fees for the Delaware Department of Transportation (DelDOT), which would raise $107 million. That would be spent on safety improvements, repairs, multi-modal connections, as well as improving frequently flooded roads and DART bus routes, and DMV mainframe upgrades.
The governor’s proposed budget also includes $6.68 million in increased fees at the Department of Natural Resources and Environmental Control (DNREC), though that will be done through legislation. There is also a proposed 50 cents-per-cigarette pack tax hike, as well as a similar tax increase for other tobacco products. Combined, the estimated revenue would be $13 million for fiscal year 2026.
Even with the budget stabilization fund remaining at $469.2 million, Meyer has also set aside $21.9 million to create a federal contingency fund to offset potential federal funding reductions. It’s an unusual measure, but Meyer notes these have been unusual times.
“[In] communication with the White House, we’ve had some success on issues engaging with them and saying that what they are doing doesn’t line up with your values,” the governor said. “It’s a case-by-case basis that starts with simply trying to get the information. Our cabinet secretaries are doing a lot of great work and are often the first to hear [regarding new federal policy].”
Meyer’s priorities
Meyer has spent roughly a year promising more investments in education and affordable housing, and his first budget proposal delivers on that. Top of the list is $75.5 million to increase teacher pay, raising the teacher starting salary to $52,515. The goal is to raise it to $60,000 by fiscal year 2026, Maxwell said.
The governor also proposes $8.4 million in additional funding surrounding mental health services for students; an additional $3.8 million in low-income and multilingual learner students; $500,000 to expand a pilot program to get cell phones out of schools; and $150,000 on tech programs regarding artificial intelligence.
Meyer also announced a new public-private initiative, where the state would allocate $3 million to provide direct classroom assistance to educators as they work to raise literacy rates. He believes the support is there to raise $3 million from the private sector.
In terms of affordable housing, the Meyer administration has committed $35 million across various projects, like the Housing Development Fund, Downtown Development Districts, state rental assistance programs and workforce housing programs.
The governor also plans to appropriate $10 million in direct payment and rate increase for Medicaid-approved skilled nursing facilities. He also proposed allocating $85.5 million in Medicaid and $61.3 million in other post-employment benefits.
There is also $250,000 set aside to study the possibility of a Delaware medical school, as well as $200,000 for a pilot program to identify areas with “planned infrastructure” to meet transportation, housing and economic development priorities.
A major departure of budgets seen in the past was the allocation for the Strategic Fund, which provides grants to employers that create or retain jobs or make significant investments in projects here. The fund would receive an annual allocation of $5 million.
It is a tool used by the Delaware Prosperity Partnership to help aid companies looking to expand or relocate in Delaware. The Carney administration had regularly supported it, and his final budget proposal included $20 million.
Meyer has included $9.5 million for the site readiness fund, $5 million for the Transportation Infrastructure Improvement Fund and $3.5 million for EDGE grants. He has made no new allocations for the Graduate Lab Space Fund, which still has $17.2 million. He has also cut the Sports Tourism Fund.
Reaction
At the end of the presentation, Maxwell pulled up a slide to show the state’s economic forecast, showing that revenue growth is expected to stay under 2% and the state’s spending averages at 5% while on the current track.
He cautioned legislators in the room that by next year, the state’s budget growth may require spending all of the budget stabilization funds. Even then, the state would be in a $480 million deficit.
“You cannot afford your appropriations in 2027 and 2028, so what the governor has talked about is a plan,” Maxwell said. “This is obviously step one, and with the uncertainty that we’re dealing with at the federal level, we don’t know if the problem is going to get bigger or smaller.”
Republicans like Sen. Dave Lawson (R-Marydel) and House Minority Whip Jeff Spiegelman (R-Clayton) said that Maxwell’s comments raise serious concerns about how the General Assembly had been used to prosperity—and a governor who still proposed a 7.4% budget increase.
“It’s just not sustainable, and we got to do some serious investigation about how we fund things. It was a real downer to hear that there’s no systemic changes being made and we’re going to continue to spend at the same rate,” Lawson said.
Spiegelman was concerned about the tax increases made in the Meyer agenda, arguing that small business owners would be targeted to pay for most of these increases and would still have a trickledown effect on working families.
“Most of small businesses employ the 92% of those Delawareans who will be facing a tax increase while facing other things that’s going on, some of which we have control over and some of which we don’t,” he said, noting that Meyer spoke at length about tariffs at Thursday morning’s state chamber’s manufacturing conference.
Meanwhile, Sen. Trey Pardee (D-Dover), who is the vice chair of the Joint Finance Committee, said that while he was encouraged to see the new governor follow through on promises in education and affordable housing, he did have some concerns about the income tax reform.
“We’ve essentially had the same tax brackets with a few minor tweaks for over 40 years, but personally, I’m concerned about the $125,000 bracket. That really does hit a lot of two-income families, with young children and those in college,” Pardee said. “That’s going to be tough costs to absorb, because those families are already living paycheck to paycheck. We’ll have some good conversations on that.”
