The Joint Finance Committee (JFC) holds its first budget hearing for fiscal year 2026, and discussions on budgetary cuts are already underway.
The new Director of the Office of Management and Budget Brian Maxwell presented Delaware’s financial overview to representatives and senators who will be marking up the budget over the next few months, and the future appears grim.
As of December calculations, the state is authorized to appropriate just over $7 billion for FY26 with the general operating budget expecting to exceed $6.5 billion, compared to $6.1 billion last year.
JFC is currently working off of former Gov. John Carney’s recommended budget, which assumes an operating budget growth of 6.9% compared to last year.
Maxwell says the exorbitant amount of requests for more money from all sectors is positioning the state to enter a budget crisis.
“Since I've been here a week, I've gotten a list probably of 10 items that want to spend more money, and at 6.9% budget growth, I'm wondering what they want to cut or what revenues they want to raise to support that because at 6.9%, going above that is not something that I feel comfortable with," Maxwell said.
With carry over from last year, the state is expected to be able to foot the $7 billion bill, but the same cannot be said for fiscal year 27 and 28.
Maxwell says with no policy changes or budget cuts — and assuming 5% operating growth both years — the state would need to pull $325 million from the state’s Budget Stabilization Fund for FY27, and for the following year, the state would fully exhaust the fund, but still have an operating deficit of $407.7 million.
Maxwell worked within the Office of Management and Budget (OMB) during former Gov. Jack Markell's administration, which inherited an $800 million deficit in 2009.
Several JFC members brought up the 1,600 vacant state employee positions as a way to save some money, which Maxwell says was an approach taken by the Markell administration when faced with a similar problem.
"We had very similar to what the Controller General's Office has provided you with in regards to a vacancy report, and we had every agency look at their vacancy report, work with OMB as to were the positions actually funded and what dollars were associated with those positions, and we cut those positions," Maxwell said. "So I think, based on what I heard this morning from some of the questioning with regards to the positions, I think the cabinet should go through the exercise given the level of uncertainty that we have right now."
The state's two largest expenses for FY26 include public education, representing 36% of the budget, and health and social services at 27%, which includes the cost of Medicaid coverage.
While expenditures continue to soar, the state's revenue growth is plummeting.
While the state experienced close to 5% revenue growth in FY 25, that growth is expected to drop to 2% for FY 26, 1.4% for FY 27 and 1.6% for FY 28.
The majority of the state's revenue comes from personal income tax, making up 36% of Delaware's funding, and incorporation revenue at 28%.
Incorporation revenue includes corporate franchise taxes, business entity fees and limited partnerships and limited liability corporations.
As of Fall 2023, over 67% of Fortune 500 companies were incorporated in Delaware. But uncertainty around companies incorporating elsewhere have ensued following Tesla CEO Elon Musk's decision to reincorporate Tesla and SpaceX in Texas last year after the Delaware Court of Chancery rejected his $55 billion Tesla pay package.
Musk has called on other businesses to reincorporate in other states, and some seem to be listening.
Meta, the parent company of Facebook, Instagram and WhatsApp, has been in talks of moving its corporation to Texas, and file hosting service company Dropbox is considering a move to Nevada.
And most recently, Bill Ackman, the billionaire CEO of Pershing Square Capital Management, announced on X —formerly Twitter — on Saturday that he will move his management company out of Delaware to reincorporate in Nevada.
State Sen. Laura Sturgeon (D-Woodbrook) asked Maxwell what the Meyer administration plans to do to make up for potential revenue shortfalls if companies keep leaving, but Maxwell says Meyer is committed to protecting the franchise.
"I just want you to know we're extremely focused on it. We know how important it is, and so we're doing everything we can to make sure that that remains a solid revenue stream for the state," he said.
Although the state has the potential to drain the Budget Stabilization Fund created by Carney within the next two years, Meyer has previously expressed disinterest in maintaining the fund.
“If we're asking residents to pay us tax every year, that tax should be an accurate number of what we're going to actually spend. I'm not a big fan of collecting excess revenue and socking it away," Meyer said at Spotlight Delaware's Legislative Summit in January.
But Maxwell says he appreciates having the fund as one of the "tools in the toolbox," and has been working with Meyer to understand why it was implemented in the first place.
"It's going to be an education process as [to] how we got there. And it's really guardrails, right? It's to help you stay on track. I know he's had conversations with former treasurer Ken Simpler to get his background on the stabilization fund. So he's doing his homework," Maxwell said. "But I'm also there to remind him of the past. There are times when we can't forget about the past. And so it may be easy for us to say, 'Well, we shouldn't hold on to people's money. We should use it because the sky is falling in certain areas, right?' And so my job is to kind of talk through that and say, 'Well, what's working, what's not working? Can we reallocate?'"
State Sen. Darius Brown (D-Wilmington) says he hopes the practice of contributing to the stabilization fund remains in tact and encourages the General Assembly to avoid tapping into it.
"One of the reasons why I supported Gov. Carney in doing it is because we set the bar that we were going to take 5% — no more than 7% of our budget — and put it into the fund, and I think that is a very good practice that we ought to continue and not necessarily draw from it to meet our deficit, but do a better job in managing cuts and policy and all of those things that we need to do," Brown said. "So that part is very important to me, and I want to go on record around that. I know your presentation talked about using the stabilization fund, but I absolutely believe that's not something we should be touching."
The state's "rainy day fund" is a separate reserve account that sits at $348.7 million and has never been touched.
Delaware also joins the rest of the U.S. in facing uncertainty around how much federal funding it will continue to receive following a temporary federal assistance pause ordered by President Donald Trump.
The U.S. Office of Management and Budget has since rescinded that order, but Trump's administration continues to plan financial reviews to "end the egregious waste of federal funding."
"You can imagine some of the challenges as we're under a time pressure to present a budget to our state legislature. Joint Finance Committee meetings start [Tuesday], and how do you do that when between tariffs and federal funding freezes, it's hard to predict anything about the world tomorrow or next week or next month, let alone what our revenues, what the economy's gonna look like in the next year," Meyer said at a virtual briefing on the funding freezes Monday.
JFC announced all bills with fiscal notes within the General Assembly will be stalled until a clearer picture of potential federal funding cuts by the Trump administration is made apparent.
Meyer is expected to release his own recommended budget in March, which is also when state revenue and expenditure updates will be presented.