Delaware budget forecasters predict small dips in revenue for the current fiscal year and the next, citing the effects of national economic trends.
The Delaware Economic Financial and Advisory Council (DEFAC) — the body in charge of projecting state’s revenues and expenditures — estimates a $30 million decrease in spending authority for fiscal year 2026 compared to its December meeting.
While this is seemingly a drop in the bucket compared to the state’s close to $7 billion appropriation limit, Department of Finance Director of Research and Tax Policy David Roose explains uncertainty around the federal economy, and its impact on Delaware, continues to grow.
The expected layoffs of over a quarter of a million federal employees is projected to slow economic growth, in addition to January seeing the largest consumer expenditure drop in four years.
“Unexpectedly weak consumer spending in the first month of the year in January, partly due to the widespread winter weather, really hit economic activity, along with an expanding trade deficit, is nearly halving expected GDP growth in the first quarter of the year," Roose told the council,.
He says S&P Global believes the Trump administration’s proposed tariffs are a significant risk to the economy and discussions of a potential national recession are increasing, while noting Delaware’s economy historically follows national trends.
He says national forecasts for wage and salary incomes are weakening, which correlate directly to how much revenue Delaware earns from personal income tax — it's single largest revenue source.
“There is a weaker forecast for wage and salary income in the future, down almost a percentage point, so that does result in a $20 million reduction in the recommended estimate for fiscal 26 — growth slowing to 4.5%.”
On top of slowed personal income tax growth, the state is expected to pay $60 million more in personal income tax refunds over the next two years.
Roose adds the state is also awaiting the president’s solidified tax policy, which could affect Delaware’s general fund by anywhere from tens to hundreds of millions of dollars.
The state remains on track to spend just under $7 billion this fiscal year — 12.2% more than last fiscal year — largely due to salary increases, rising healthcare costs and Medicaid spend and capital cash projects.
DEFAC is projecting the state will spend 3.1% more in fiscal year 26 at an estimated $7.2 billion.
As of now, Medicaid expenditures are only projected to increase by $19 million next fiscal year, bringing the program to $1.15 billion.
But Delaware Department of Health and Social Services Secretary Josette Manning says that number is likely to change if the Trump administration follows through with federal Medicaid cuts.
"We don't know what to expect yet — it's difficult to plan when you don't know what to expect. We have estimated the impacts of the menu of options that could be selected, but until we know what things are selected, there's really not a lot for us to do at this point, expect for monitor and obviously plan in a fiscally conservative way, recognizing that we may have some of these impacts and some very difficult policy and financial decisions to make," Manning said.
The 1.7% Medicaid expenditure growth is significantly less than the current year's growth of 8.3% — an $87.1 million increase.
But due to the Medicaid "unwinding" process, where states began returning back to regular Medicaid operations following the end of the COVID-19 public health emergency, Medicaid eligibles and Medicaid newly eligibles have both decreased by around 10% in Delaware compared to this time last year.
State leaders continue to look at budget cuts and the high likelihood of dipping into the state's $470 million Budget Stabilization Fund in fiscal year 27 and 28.
Gov. Matt Meyer is expected to propose his recommended budget in the coming weeks.
