Budget Smoothing Efforts Underway

by James DeChene

Last week Governor Carney and Treasurer Simpler released a bipartisan plan to help address Delaware’s economic boom and bust cycles. Last year’s $400 million budget shortfall highlighted the volatility in our state’s revenues, and this year’s $400 million increase in revenues, while a boon, is an $800 million swing in just one year. For a state with a $4 billion budget, that kind of shift is incredibly significant.

Enter in the budget smoothing idea. Making changes to smooth out these peaks and valleys in our revenue stream has been a Chamber priority since 2015 when DEFAC released its revenue report. This report highlighted how volatile Delaware’s revenues are and provided a blueprint on how to prepare Delaware for the future, putting it on a path toward sustainability. The state has undertaken some of that blueprint by making changes to Delaware’s escheat program and by changing how companies calculate their corporate income tax to a single sales factor. The next part of the process needs to happen now! A constitutional amendment, the first leg of which needs to be passed this year, would help create a true rainy day fund to be used in times of need, and added to in good times. In fact, the Joint Finance Committee itself voted this week to defer $46 million of this year’s revenue to future spending—exactly the way the budget smoothing process would be utilized. 

The benefits to budget smoothing are good for businesses, who won’t be subject to knee jerk reactions to raise money fast to balance a budget through tax and fee increases. It also helps Delaware’s nonprofits who receive Grant-in-Aid funding better plan year to year instead of facing last minute cuts in the down years and hoping for their replacement in the up years.

With revenues projected to be close to $500 million this year above last year’s budget, the time is ripe to make improvements to Delaware’s future. There’s no negative impact to funding, or to this year’s budget, and the case is strong to act now to plan for an uncertain future.