Delaware may have passed the peak of a rise in post-covid revenues, the Delaware Economic and Financial Advisory Council heard Monday.
Financial experts call that peak an “inflection point,” akin to that moment when roller-coaster riders feel a brief lift in their tummies before the coaster takes a plunge.
That doesn’t mean the state’s finances will plunge.
Only that they likely will return to the same kind of smaller, steady growth of 2% to 4 % per year, as opposed to the 16% of 2021, said Rick Geisenberger, secretary of the Delaware Department of Finance.
The council lowered its current fiscal year 2023 estimates by $79 million and lowered the amount that can be appropriated in fiscal year 2024 by $36.2 million to $6,268.7 billion.
That’s actually an increase of $270 million over the council’s October estimates.
Fiscal year 2024 starts July 1.
This is the first time revenue has fallen since April of 2020 when the pandemic started.
Even so, Delaware is still expected to have a nearly $1 billion surplus for 2o24 and council members characterized the revenue changes as marginal.
State Sen. Bryan Pettyjohn, R-Georgetown, a new member of the council, said he was surprised revenues weren’t softer.
“It’s better than the scenario I had in my head,” Pettyjohn said.
Coping with the loss of $36.2 million in a $6 billion budget is not a tragedy, both Geisinger and Pettyjohn said.
“We’re not talking about a $400 million hole or a $800 million hole that we have to fill as we get closer to the end of the year,” Pettyjohn said. “And when we get some of the final DEFACs, we may actually see the numbers improve marginally.”
It’s hard to predict what will happen, council members were told, partly because of what’s happening nationally.
While S&P Global has said it no longer believes there will be a national recession and instead predicts a “pause in activity,” which Pettyjohn said is a short type of recession, with a little bit of pullback and slowdown in economic growth, but nothing long enough or big enough to trigger a full recession.
All the data in the committee hearing was put together before Silicon Valley Bank went belly-up, leading to the last two weeks of turmoil in the stock market, including the takeover of international banking giant Credit Suisse.
Robert A. Glen, state Banking Commissioner told the council that Delaware banks seem solid and not at risk.
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Among the points helping the economy, the council was told was that Congress raised the national debt ceiling, jobs are back to pre-pandemic levels and are still being created, the student loan forgiveness program is on hold and gas prices are lower this year than last and expected to stay that way.
With the Fed continuing to increase interest rates, inflation is expected to ease to 4.4% this year and $2.7% in 2024, compared to the 8.8% of last year.
Among other things:
- The growth of personal income tax withholding has fallen to 3.3%, likely as a result of the state’s weakest employment growth in 15 months in December and January.
- Bonuses seem to be smaller for both large payers and small companies such as banks, law firms and car dealers who were dealing with inflation and more last year.
- Tracking personal income tax growth is difficult in economically turbulent years.
- Taxes from capital gains are expected to fall, perhaps dramatically, as financial experts believe many people took advantage of those gains in the last three years.
- Corporate tax revenues remain strong, but are expected to slow.
- Real estate transfer taxes were down 30% in the last three months and forecast to drop another 30%, amid suspicions the housing market has bottomed out and commercial property is slowing, but industrial and manufacturing remains strong.
- Revenue from slots has improved and sports betting is expected to be better than expected with a $3.6 million increase in taxes. The Eagles and Phillies being in playoffs didn’t really help with that because sales were so spread out, the council was told.
- Record Powerball and Megamillion jackpots have helped bring in another $2.5 million. Even so, the council was told, there’s a jackpot fatigue that seems to have kicked in with the last record jackpot pulling in fewer sales than the record jackpot before it.
- New games and extra draws are expected to begin in the middle of fiscal year 2024 and bring in an additional $2.4 million in 2024 and $6 million in fiscal 2025.
- Net corporate income tax collections have slowed from 31% year to day in December to 28% now with refunds up $11 million because of several extraordinary refunds.
- Income tax records will be easier to track and include after April, when federal and state income tax forms are due.
Betsy Price is a Wilmington freelance writer who has 40 years of experience, including 15 at The News Journal in Delaware.
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