The fiscal challenges facing Delaware in the upcoming year are becoming clearer, as the costs of running government continue to rise while incoming revenues fluctuate.
The year-end projection from the Delaware Economic and Financial Advisory Council (DEFAC) is somewhat improved from September, when figures in many categories were flat or declining.
When revenues were on the rise last spring, the state undertook investments in a variety of one-time initiatives and raised the salaries of state workers. Cuts in state funding that were proposed to a variety of non-profit agencies were restored.
In the spring of 2012, lawmakers and budget-writers are expected to face a much different scenario.
“The revenues are flat, which is better than going down,” State House of Representative Speaker Robert Gilligan (D-Sherwood Park) said. “It’s going to be a difficult budget because demands are going to be going up, and the money is going to be standing still.”
DEFAC members voted Monday to approve nearly $27-million in additional forecast revenues for Fiscal Year 2012, which lasts until June 30th. The panel added $6.5-million to its forecast for FY ’13. Revenue projections currently stand at $3.4064 billion for FY ’12 and $3.566 billion for FY ’13.
However, the December upward revision does not fully offset the declines in revenue projections made in September. Also, major growing expenditures facing the state continue to include the growing enrollment in public schools and the increasing cost of Medicaid.
DEFAC revenue subcommittee chairman Ken Lewis, an economics professor at the University of Delaware, said the late-year fluctuations can be attributed in part to corporate income tax revenues.
“This is an extremely volatile category,” Lewis said. “A lot happens right at the end of the year.”
Revenue projections were more optimistic concerning personal income taxes, the bank franchise tax and income generated for the state from abandoned property, or escheat. The state is getting less than projected from the cigarette taxes, while lottery revenues – which include state taxes on casino winnings – are expected to be more accurately measured in 2012, when the full impact of expanded gambling in nearby states is documented.
State Office of Management and Budget Director Ann Visalli said the projections made by DEFAC this week will be the basis for the crafting of a state budget for FY ’13, which Governor Jack Markell will unveil on January 26th.
In the meantime, the state believes it made the right decisions last spring to target available funds toward several one-time initiatives – efforts Visalli called “one-time capital projects that were ready to go, so we were not only making capital investments for the future - preserving the state’s assets - but putting people to work right away.”
“We did that intentionally, so that we didn’t create an over-dependence on the funds that became available in the spring,” Visalli added.
Reaction to December's DEFAC state revenue projection.
State Representative Deborah Hudson (R-Fairthorne) found Monday's DEFAC numbers somewhat encouraging.
[audio:http://www.wdde.org/wp-content/uploads/2011/12/defacehudson.mp3|titles=State Representative Deborah Hudson]
House Speaker Robert Gilligan (D-Sherwood Park) believes the latest revenue estimate means the state will need to be very careful with its dollars
[audio:http://www.wdde.org/wp-content/uploads/2011/12/defacgilligan.mp3|titles=House Speaker Robert Gilligan]
Delaware Office of Management and Budget Director Ann Visalli said the state will continue to take a cautious approach into the budget process.
[audio:http://www.wdde.org/wp-content/uploads/2011/12/defacvisalli.mp3|titles=Delaware Office of Management and Budget Director Ann Visalli]
State Representative Deborah Hudson (R-Fairthorne), who is on the Bond Bill committee, said while it was an encouraging report from DEFAC, the state also needs to prepare for less in funding and stimulus dollars coming from the federal government.
Much will also depend on whether the economy gradually recovers as predicted - and how much Delaware will benefit.
“Our gross receipts are still up, which shows that our businesses in Delaware are still making money,” Hudson said. “That’s excellent – or, that could mean perhaps they’re over-taxed.”
“That’s always something we should look at.”
Delaware is required to have a balanced budget at the start of each fiscal year.
DEFAC also adjusted revenues available for the Transportation Trust Fund downward by $4.5-million, to $428.6-million in FY ’12. The Transportation Trust Fund relies on a combination of toll revenues, gas taxes, motor vehicle fees and other sources of revenue to pay for transportation projects. Revenues from the motor fuel tax were down nearly three-percent from September projections.
