Delaware’s Economic and Financial Advisory Council released its latest budget forecast on Monday, offering an outlook that hasn’t changed substantially since their conservative revenue estimate in March.
Earlier this spring, DEFAC scaled back its state revenue projection for fiscal year 2024, leaving lawmakers with roughly $36 million less to work than expected when Gov. Carney released his budget plan in January.
A new forecast released on Monday is slightly more optimistic, adding back about $11 million to the bottom line.
Director of Research and Tax Policy David Roose says the state got a boost from higher-than-expected personal income and corporate income tax returns this year, but much of that increase in revenue is canceled out by an increase in tax refunds.
“We would have about a $76 million increase in refunds, which nearly offsets the $89 million increase in final payments," he said.
Those numbers are slightly thrown off by a delay in issuing refunds for 2022 tax filings — a consequence of a change in the state's tax processing system that will mean some refunds aren't issued until July of this year.
Higher interest rates — a consequence of persistent inflation — also cut into increased tax revenue. DEFAC expects that trend to continue as the federal government leans in the direction of tighter fiscal and monetary policy; the latter will depend on the outcome of congressional debt ceiling negotiations.
Meanwhile, the number of new incorporations in Delaware has begun to decline, but only relative to a surge after 2020.
However, Health and Human Services Secretary Molly Magarik and Office of Management and Budget Director Cerron Cade warn that in the long term, revenue growth is not outpacing increases in healthcare and personnel costs.
Cade says the state may need to delay some capital projects to avoid shortfalls if national predictions of an economic slowdown are correct.
“We’re experiencing increased costs at a time when we may be experiencing down revenues," he said. "It is ominous. We have some fixed costs that we have to cover. Capital may be one thing where we can pull back and delay projects. But we can’t delay wages. We can’t delay healthcare costs.”
One driver of the state's rising expenses is the so-called "unwinding" of federal assistance for state-level Medicaid programs. While the process will involve disenrolling thousands of Delawareans who are no longer eligible for Medicaid, that population — who generally qualified for the program during the pandemic because of their low incomes — also use their insurance less frequently and cost the state less in healthcare expenditures.
In contrast, the most expensive Medicaid enrollees, including adults in long-term care or in treatment for substance use disorder, will generally not be disenrolled as part of the unwinding. Magarik says those populations continue to grow, as is the cost of their healthcare.
Delaware's booming retiree population is another key driver of state expenditures — a subject often at the center of budgeting discussions in the past year. During DEFAC's meeting on Monday afternoon, some Council members briefly raised the possibility of tax increases to both account for rising expenses and to slow the influx of retirees.
But some corners of the state's budget are contracting: during Monday's meeting, DelDOT noted that it will not need nearly $5 million within its personnel budget because it cannot fill vacant positions in the near term.
