The state’s latest economic forecast suggests the state may see key revenue sources decline after years of record-high revenue growth.
Monday’s Delaware Economic and Financial Advisory Council forecast suggests state revenues for the current fiscal year could drop nearly $80 million from its last report in December. And while the new report forecasts a revenue uptick in FY2024, the group expects lawmakers having $36 million less to spend next year's budget than projected in December.
A significant drop in personal income tax revenue is the main driver of the decline. Director of Research and Tax Policy David Roose told DEFAC that while Delaware has more than recovered jobs lost during the pandemic, a recent hiring slowdown and lower bonuses may be factors.
But after last year’s abnormally high increase in personal income tax revenue, Roose adds the decline could be part of a return to relative normalcy after the pandemic.
“Coming off of the surge in tax year 2022 makes things look not as quite as good as they are in actuality," he said.
Roose also notes that while the state is no longer preparing for a recession, recent financial instability could prompt a steep drop in capital gains tax revenue.
“But I think what we may see is a decline in capital gains as large as or even larger than what we saw in 2009 – and we agree that it will probably be larger, we think," he said.
The committee briefly discussed the value of a bipartisan proposal to raise personal income tax rates, though they generally expressed doubt any increase would be politically feasible. DEFAC also increased its projected corporate income tax revenue for fiscal year 2023 by nearly $50 million.
The group did not raise the alarm about the impacts of the recent collapse of Silicon Valley Bank on Delaware’s community banks.
But members noted some startups impacted by the collapse were incorporated in Delaware, and any unexpected ripple effects could present challenges in Delaware, where the financial sector employs a disproportionate share of the population relative to the national average.
The new forecast also projects a decline in realty transfer tax revenues as the housing market slows.
