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Tuesday, May 18, 2021

State budget surprise: Delaware on track to have $149 million surplus

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Despite fears that COVID would decimate state revenues, leading to higher taxes and fees, Delaware is on track to have a $149 million surplus for the fiscal year 2022.
 
That number could change between now and June, when the Delaware General Assembly must vote on budgets, noted Delaware Secretary of Finance Rick Geisenberger Thursday.
 
But the numbers themselves are a bit of a surprise to people who expected huge shortfalls.
 
 
 
Factors that helped include:
 
  • Massive COVID-19 stimulus efforts, including the $1,200 federal checks, higher state and federal unemployment checks, and CARES Act money spread out in a variety of business and nonprofit funds.
  • Personal income tax withholdings growing slightly, up about 1 percent, perhaps partly on the strength of start-of-the-year raises.
  • Lottery revenue rising as people bought jackpot and scratch-off tickets when casinos were closed for nearly three months, and then kept it up.
  • Delaware’s unusual mix of top revenue generators, which includes corporate franchise taxes and fees.
  • Higher real estate transfer taxes as parts of that Delaware market stayed hot.
  • Gross receipts tax rising slightly because of things like higher grocery store sales.
 
 
 
If the revenue numbers stay up through June, the state could expect to have a rise of about $155 million for its fiscal year 2022 budget over 2021’s $4.547 billion, Geisenberger said.
 

Delaware Secretary of Finance Rick Geisenberger
Delaware Secretary of Finance Rick Geisenberger

 
What happens with a COVID vaccine and federal coronavirus spending will affect that greatly, he said.
 
Geisenberger’s comments came after Delaware’s Economic and Financial Advisory Committee’s October meeting. That bipartisan group meets regularly during the year to look at revenue and expenditures and make projections about what the state budget will face.
 
Their calculations are based not just on revenue forecasts, but how money is spent during the year. For example, money budgeted for a specific item may not be spent. Or something — like a global pandemic — may require unexpected expenditures. Other factors the group considers include population growth and inflation in the cost of state goods and services.
 
Surpluses generally have been used for one-time expenditures as well as funding the state’s budget stabilizer fund, designed to help the state weather economic woes. That fund had $123 in it at the start of 2020. The General Assembly voted to pull $63 million out to help with revenue shortfalls because of COVID-19. The fund meant Gov. John Carney’s proposed budget only rose by 2 percent, instead of the 4 percent he wanted, but it didn’t backslide.
 
Having the stabilizing money is no financial miracle, Geisenberger said.
 
 
 
“I think it was sound management and planning,” he said.
 
Most states’ biggest revenue sources are personal income tax, sales tax and property tax, he pointed out. In Delaware, there are no sales taxes and the First State has lower property taxes than others. After personal property tax in Delaware top revenue sources are corporate taxes and unclaimed property income. The latter is money sent to state residents that they never cash in or find on the state’s website.
 
The mix of top revenue sources means Delaware’s finances don’t always track with national predictions, Geisenberger said.
 
The budget stabilizer fund helps take the volatility out of the process, he said. 
 
 
 
And, bonus: The budget stabilizer fund and the state’s Rainy Day Fund also act as reserves that financial rating companies such as Moody’s like. The funds help Delaware get the top AAA rating, which makes Delaware’s cost of borrowing money and doing business lower than it is for states or businesses that don’t rate as highly.
 
If the state is able to maintain the $149 million surplus — and it is still a big if in the face of COVID-19 — some of that money could be used to restore cuts that had to be made in this year’s bond bill.
 
Many budget watchers expected much worse.
 
“But we’ve seen this isn’t your garden variety recession,” Geisenberger said.
 
 
 
When the budget committee began meeting this year, everybody assumed the economic fall out would be as bad as the recession in 2008 and 2009.
 
However, the $1.7 million of stimulus money injected into Delaware by the federal checks and unemployment benefits, as well as the more than $2 billion sent to state governments and government agencies kept the economy moving and families and businesses afloat. Delaware’s stimulus money was used for testing, technology and access to broadband for students, and funds that helped different sectors of the economy pay for things such as payroll, rents and expenses related to the coronavirus.
 
“That stimulus has had significant impact in helping to keep people employed and keep them on the payroll,” Geisenberger said.
 
While the pandemic decimated the restaurants and the hospitality industry that caters to large groups of people, which hurt the gross receipt taxes, the pandemic also sent more business to grocery stores, which helped gross receipt taxes, he said. 
 
 
 
There were several business sectors such as finance, insurance, real estate and construction that never closed or cut back. Some even hired. State governments also didn’t cut or lay off workers, Geisenberger said, and he doesn’t believe many local governments did either.
 
He said the budget committee earlier in the year expected personal income withholding to drop 6 or 7 percent. Instead it rose a tad.
 
Now, Geisenberger said, the $2 trillion question is what happens to the economy if that federal stimulus money is now renewed. The current money must be spent by Dec. 30.
 
Without a big stimulus boost and without a good COVID-19 vaccine, the country might start to see some economic issues, he said. 
 
“Obviously, a big chunk of Delaware’s revenue relies on what’s going on in the national economy, not what’s going on in Delaware’s economy,” Geisenberger said. 
 
 
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