Smart Fiscal Policy Pays Dividends

State finances in the Carney Administration’s final year

BY RICK GEISENBERGER

AS GOVERNOR CARNEY assembles his eighth budget proposal, Delaware’s financial condition is markedly better than when he took office. In January 2017, he faced a $400 million projected budget deficit. In 10 of the previous 17 years, the State ended its fiscal year with an operating cash deficit. Annual expenditures repeatedly outstripped revenues, placing regular pressure on policymakers to reduce budgets and raise taxes.

Since 2018, the Governor and General Assembly have partnered to stabilize State finances, benchmark operating budget growth at economically sustainable levels, create accessible reserves to help weather future downturns, and steer “extraordinary” revenue to one-time expenditures.

Smart fiscal policy has made a world of difference. Today, the State holds $410 million in usable reserves—a Budget Stabilization Fund. Cash balances are at record levels and Delaware has experienced six straight years of operating cash surpluses.

The State has also benefited from extraordinary revenue growth. Collections increased 8.2% annually from 2019 to 2023 versus an adjusted 3.8% average for the preceding 20 years. Delaware’s largest revenue sources— corporate income, realty transfer, corporate franchise, and personal income taxes—increased at annual rates of 27%, 12%, 11%, and 8%, respectively, versus their historic 20-year averages of 2%, 3%, 3%, and 5%.

No single factor explains this growth. Nationally, the Tax Cut and Jobs Act, accommodative monetary policy, and COVID-related stimulus had major impacts. Locally, more Delawareans are working today than at any time in our history—more than 30,000 jobs were created since Governor Carney took office. The Delaware Prosperity Partnership vigorously promotes business growth and retention. Public investments in the Transportation Infrastructure Investment Fund, Site Readiness Fund, EDGE grants, and biotechnology programs enable Delaware to move nimbly to help support growing businesses. Delaware and President Biden are investing record sums in critical infrastructure—roads, water, broadband, and more.

Of course, the laws of gravity still apply. The Delaware Economic and Financial Advisory Council (DEFAC) currently forecasts a reversal in the astonishing pace of revenue growth. Rising interest rates, lower capital gains, and a slow IPO market are having an impact. Fortunately, smart fiscal policy has positioned the State to weather this challenge.

While building the Budget Stabilization Fund, the Governor and General Assembly wisely set aside $2.3 billion of extraordinary revenues over the last three years for capital projects like schools, libraries, or parks. This leaves room in the upcoming fiscal 2025 operating budget to support spending growth for inflationary pressures like rising wages and healthcare. Less cash will be available for new capital spending. But that’s okay. Capital projects take two to five years to plan, design, and build. So Delaware’s economy will continue to benefit from scores of projects funded in prior years.

This is how the budget benchmark methodology is intended to work. Avoiding the temptation to build extraordinary revenues into the base budget pays huge dividends when revenue growth inevitably slows. These principles have served us well. Maintaining these practices and placing them in statute will help secure the State’s financial future for years to come.

Rick Geisenberger serves as Delaware’s Secretary of Finance.