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The Pending Budget Crisis in Delaware-Get Candidates on the Record

By Charlie Copeland, Director, Center for Economic & Fiscal Policy (May 13, 2024)

 

"Responsibly managing our state budget remains a priority." - Governor John Carney Budget Proposal Introductory Chart January 2024

 

 

The Caesar Rodney Institute's review of the Governor's budget proposal last year revealed that he failed to achieve his vision for Delaware (which he had touted in his previous six budget proposals). In his eighth and final budget proposal this year, he omits any reference to his vision and instead touts his fiscal restraint.

 

While Governor Carney has built a limited budget reserve, he has ramped up spending faster than any governor in Delaware's history. Therefore, in 2025 the combination of a higher spending base, a spending-addicted General Assembly, and a new governor will look to keep the spending "spicket" open. To keep spending, the state will need to find new revenues.

 

Examining Delaware's Spending Growth in Three Trends

 

Graph 1 below shows the state's annual expenditures starting in 1970. There are three (3) distinct trends.

 

  • The "1970-1994 trend" (the dotted line). If Delaware continued to follow this trend, the 2024 budget would be around $3 billion (one-half the current budget of $6 billion), and Delawareans would be much wealthier.

 

  • The "Carper trend" from 1994 to 2019 (the dashed line). The name was inherited as it started under Governor Tom Carper. This trend was blessed by two new and large revenue sources: (1) escheat revenues and (2) gambling revenues. With these new revenues, Governor Carper increased state spending 60% faster than the 1970-1994 trend. Had Delaware remained under the "Carper trend," the 2024 budget would be around $5 billion.

 

  • The "COVID-19 trend" (the solid green line). This trend began when the federal government showered "free" money into the state starting in fiscal year 2021. The COVID-19 trend added $1 billion above the Carper trend (20% more).

 

GRAPH 1: Delaware's Spending Trend (1970-2024)

(Sources: Delaware Finance Office. (2023). Fiscal Notebook: Section 3 [PDF document])

 

 

As Delaware's Revenues Go, So Goes it's Spending

 

Graph 2 below illustrates a simple truth: state spending closely follows state revenues. During the COVID-19 pandemic, Delaware's government dramatically increased spending to match COVID-19 revenues. This higher spending base means there is an inherent demand for more spending to support the higher salaries and more programs added during the COVID-19 spendathon.

 

Graph 2: DE Revenue & Spending (1970-2024)

(Sources: Delaware Finance Office. (2023). Fiscal Notebook: Section 2 [PDF document]) and Section 3 [PDF document])

 

One example of higher spending is in education. Education spending has risen 34% in the last eight years despite the drastic decline in education outcomes. Another spending example comes from the Governor's budget proposal for Medicaid, which is "nearly 40% of the operating budget growth [in the proposed budget]." The state significantly expanded the Medicaid rolls in Delaware during COVID-19, and the costs are now "built-in." Education and Medicaid account for half of Delaware's spending.

 

Higher spending requires higher revenues, but the revenue forecast for the state is essentially flat for the next couple of years.

 

NOTE: Despite the flat revenue forecast, the major gubernatorial candidates are all touting 20% plus spending increases in education, "green" energy subsidies, Medicaid, etc. These spending proposals will rapidly eliminate John Carney's attempted budget reserve.

 

 

CONCLUSION

 

Governor Carney came into office in 2017 facing a $400 million deficit and vowed not to leave his successor with the same problem. He won't, but his successor's problem will likely be much worse. Governor Carney has dramatically increased the State's base spending level while presiding over a flat economy.

 

NOTE: Static revenues, a General Assembly addicted to spending, and campaign promises of large spending increases suggest tax increases are coming. A tax increase will further exacerbate Delaware's precarious and declining economic prospects and should be off the table.

 

During the upcoming election cycle, voters must hold political candidates accountable by asking them how they plan to fund future state spending.

 

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