Legislative Priority: Budgeting for Leaner Times

BY TYLER MICIK

GOVERNOR CARNEY presented his FY25 state operating budget in late January. The proposed $6.075 billion operating budget marks the largest in state history just over an eight percent increase from the current year’s budget.

Despite extraordinary revenue growth over the past few years due to an infusion of federal pandemic relief money and a historic rise in Delaware’s largest revenue sources such as corporate income, realty transfer, corporate franchise, and personal income taxes – it’s expected that revenues will soften by almost two percent this year due to rising interest rates, lower capital gains, and a slow IPO market, among other factors.

The main highlights of the proposed operating budget include:

• $2 billion on health care costs for state employees and retirees, which includes the state’s share of Medicaid. This is a $200 million dollar increase from FY24 and accounts for nearly forty percent of operating budget growth.

• $2.1 billion for education – including $63 million in opportunity funding, $45.2 million in salary increases (to achieve their goal of increasing teachers’ starting salary to $60,000 by FY28), and $135 million in early childhood education.

• $129.6 million on environmental and climate action initiatives

• $52.5 million on economic development

Although the State may appear to be flush with cash, it’s important that members of the General Assembly refrain from adding recurring expenses to the state’s budget, which could be unsustainable if revenues decline as expected over the next couple of years.

Since 2018, the Governor and the General Assembly have achieved stability in the state’s finances. Upon taking office in 2017, Governor Carney faced a projected budget deficit of $400 million. Today, the State holds $410 million in reserves known as the Budget Stabilization Fund, which is designed to address revenue growth rates decline and help fund the budget if a shortfall were to occur, without having to dramatically cut expenses or raise taxes.

Additionally, the State’s Rainy Day Fund, which is separate from the Budget Stabilization Fund and more difficult for the General Assembly to access, totals around $329 million.

During his budget address, Governor Carney advised legislators to look ahead at the declining revenue projections and approach spending cautiously in FY25 to avoid having to dip into the Budget Stabilization Fund prematurely, which could prove to be challenging for sixty-two members of the General Assembly who have different ideas on how the money should be invested.

William Feather once said: “A budget tells us what we can’t afford, but it doesn’t keep us from buying it.” Our hope is that legislators will heed this wisdom and refrain from spending beyond Delaware’s means. By making these choices now, we can avoid the harsher realities of future budget cuts or tax increases that could negatively impact Delaware businesses, employees, and residents.

At the time of this writing, the Joint Finance Committee (JFC) has begun holding hearings to review the Governor’s proposed budget and make recommendations. In April and May, the Bond Bill Committee will convene to review the Governor’s capital budget, followed by JFC markup, and the process will conclude with the passage of a budget by June 30.

Tyler Micik is the Delaware State Chamber of Commerce's director of public policy and government relations.