State Budget Limit Surpasses $6.5 Billion as Revenues Rise – Delaware Business Times
Jacob Owens June 21, 2022
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Delaware tax analysts predict runaway revenue growth will slow in the coming years, but the state is currently sitting on a huge budget surplus. | PHOTO COURTESY OF UNSPLASH/PEPI STOJANOVSKI
DOVER – In their final report before the approval of the fiscal year 2023 budget, independent tax analysts in Delaware added $89.5 million to their estimated budget limit, which now totals more than $6.5 billion for the next exercise.
Governor John Carney’s $4.9 billion budget proposal and more than $200 million in one-time incremental funding projects have only cautiously dipped into the huge pit of available dollars.
The friday report continues a streak of years of strong returns. Those results helped convince the Carney administration and General Assembly to also approve a $300 direct stimulus check for nearly all adults, spending $236 million of the surplus on a program that would reach 750,000 Delawares. .
The June report from the Delaware Economic and Financial Advisory Council (DEFAC), a nonpartisan group of business and community leaders, academics and government professionals that compiles official state revenue estimates, predicts now that Delaware will end the current fiscal year with a surplus of $889.6 million.
Since the onset of the COVID-19 pandemic, DEFAC has steadily increased its revenue projections as the economy bounced back, fueled by rising corporate profits, rising personal incomes and record property sales despite the inflation, job losses and supply chain disruptions that have occurred simultaneously.
On Friday, the panel approved new estimates that would begin the next fiscal year on July 1 with spending authority of $6.57 billion. The jump in numbers comes in part from high personal income tax (PIT) withholdings — Delaware’s largest source of revenue. DEFAC raised its combined PIT revenue estimate by $27 million after another month of strong returns.
Year-to-date collections have exceeded the state’s original forecast, with nearly 7,000 additional filers this year. Collections grew by $100 million, with the average annual payout rising nearly 50% to $1,711, a byproduct of wage and salary growth in a competitive hiring market.
DEFAC also increased year-end estimates for corporate income tax (IRS) by $20.1 million and also revised upwards estimates of revenue sources for the next two fiscal years.
Analysts are closely watching the impact of inflation and the Federal Reserve’s corresponding fiscal policy on revenue sources. Last week the The Fed raises its key rate by 0.75 percentage points – its largest increase since 1994 – to reach a range of 1.5 to 1.75%. It aims to curb spending enthusiasm with a framework of higher rates to rein in inflation which hit 8.6% in May.
The move impacts a range of household products from credit cards to savings accounts, and specifically mortgages. The average 30-year mortgage is now around 6%, whereas a year ago you could find around half that.
Anecdotal evidence (and some data) indicates that the real estate market — which has produced historically high amounts of real estate transfer tax revenue — is already starting to slow in Delaware and across the country, according to DEFAC. While analysts now forecast a 10% drop in RTT’s revenue next year, they do not expect a housing market crash like that experienced during the Great Recession. They also expect the non-residential market to remain strong, a belief supported by continued record sales in the industrial and multi-family segments.