The News Journal | by Sarah Gamard
Delaware’s state revenue forecast continues to plummet, and officials warn that they could have to make cuts to government programs if they can’t more freely spend the federal aid they received from Congress to fight the pandemic.
The state expects a $784.5 million decline in revenue over the next two fiscal years, based on the latest estimates reported on Monday by the Delaware Economic and Financial Advisory Council.
Much of that money had already been squared away in the governor’s spending plan for next fiscal year, which officials now expect to drastically rework.
The latest forecast could get more or less grim before the state finishes out this fiscal year. Lawmakers, who postponed the legislative session indefinitely in mid-March, have to pass a budget for the next fiscal year by June 30.
The forecast includes a $150 million hole in the budget that officials will have to find a way to fill before the end of this fiscal year, said Office of Management and Budget Director Mike Jackson. The state could dip into its reserves or postpone capital projects that haven’t started yet, he said.
“But if it gets worse, our measures will be stronger,” Jackson said, without offering specifics.
In Pennsylvania, about 9,000 state workers stopped getting paychecks earlier this month after their offices were closed amid the pandemic.
“All options are going to be on the table,” said Jackson, adding that Delaware is in a better financial position than other states because of its reserves. “What they (other states) may employ as a strategy to cope with fiscal challenges, we may not employ.”
When asked about potential pay cuts in Delaware, Carney said during a Tuesday press conference, “Our focus will be on protecting our state employees. … But we’re going to have to take whatever measures are necessary, obviously, to close the gap.”
Carney on Thursday told leaders of Delaware’s nonprofits that the state may lose $500 million to $1 billion in state revenue, and the head of the state’s Finance Department concedes that the forecast could get worse when DEFAC meets again in May and June.
It’s unclear what the loss of that money, which the state was banking on to cover infrastructure, health care and state employee salaries, will mean for Delaware. The governor’s spokesman, Jonathan Starkey, said that the losses will “require extremely difficult decisions over the next many weeks and months.”
“I don’t have specific answers for you on how we would solve a problem that’s between $500 million and $1 billion,” Starkey said. “Delaware does not have … a lot of spending that isn’t required to fund certain things like health care and teachers and state employees.”
Other elected officials warn that budget cuts are on their way.
“We are absolutely in a position where we’re going to have to make some substantial cuts because this money is not just going to grow overnight for no reason,” said Rep. John Kowalko, D-Newark. “I do not see how we’re going to be able to avoid that.”
The lawmaker added that he’s unsure which parts of the government will be cut.
The state and its local governments are already getting help — about $1.25 billion — from the federal stimulus package. But that money can be used to pay only for costs related to the pandemic, such as buying personal protective equipment or setting up health care facilities for patients who test positive for the virus. It can’t be used to shore up lost revenue, and Delaware is asking the federal government to loosen that rule, according to state officials.
The state revenue forecast is based on current and expected drops in tax revenues, in part due to unprecedented levels of unemployment.
The state saw more than 50,000 unemployment claims during the weeks following Carney’s declaration of a state of emergency that lead to shuttering or slowing businesses across the state to slow the spread of the virus.
“In a typical recession, we certainly see these kinds of revenues drop,” said Finance Secretary Rick Geisenberger. “But they drop one or two or three percent. Not great, but something you can manage. To actually have business activity go to zero, as it has, say, for the casinos … that’s unheard of. … Here, it could get better or worse by five, 10, 15 percent.”
Before the pandemic, Delaware had started 2020 on a great footing. Carney promised to sign a $4.63 billion budget, plus the largest bond bill in the state’s history for the second year in a row.
State lawmakers and the governor, when beginning the legislative session in January, were looking to spend a projected $200 million surplus for the next fiscal year on projects such as cleaning up the state’s polluted water sources and building a new school in Wilmington.
But what was once a promise now feels like a distant dream, with no clear end to the pandemic or its economic repercussions in sight.
U.S. Sen. Chris Coons, D-Del., and Division of Public Health Director Dr. Karyl Rattay said during a virtual town hall earlier this month that lifting restrictions on businesses, schools and public spaces will depend on effective treatment and a vaccine, which could take more than a year.
“A reopening that we might have thought a month ago might have happened in end of April, early May, is probably now early June, middle of June,” Geisenberger said. “I wouldn’t say that any state or municipality is well-positioned for a prolonged period of revenues dropping this much this quickly, including Delaware.”
The longer the shutdown goes on, the worse revenues will get. And it’s unclear whether reopening will lead to a renewed spike in infection rates.
The U.S. will be able to watch how other countries reopen their economies to see whether they face a resurgence of cases. But much of Delaware’s economic recovery will also depend on the actions of neighboring states and the national economy, Geisenberger added.
“We could open up everything tomorrow, say everything’s open, it may not necessarily change how our economy recovers,” Geisenberger said.
A good chunk of state revenue including the corporate franchise tax, unclaimed property tax and bank franchise tax depend on national recovery, he said.
“It almost doesn’t matter what we do here in Delaware as it relates to some of those revenues,” Geisenberger said. “If we reopen but the national economy doesn’t recover strongly in those areas, then those revenue sources will not do well.”