School projects forward funded in 2023 budget

A hot real estate market has helped prop up this year’s $4.9 billion state budget, but budget writers know what can happen if those revenues dry up.

“If you think about the real estate market right now, it is on fire, and the state gets [2.5%] real estate transfer tax … this real estate market has meant tens of millions of dollars extra into our state revenue forecast,” said Gov. John Carney during a Jan. 28 presentation of his fiscal year 2023 budget.

Over the past decade, said Secretary of Finance Rick Geisenberger, the real estate transfer tax revenue has increased by about 7.5%, but it has shot up by 30% each year for the past two years.

“Obviously the downside risk is that it’s not unusual – and it’s happened at least twice in the last 25 years – where that revenue has dropped 45 percent in a single year,” he said. “That’s something we’ve got to be very careful about.”

That could turn into a $100 million loss of revenue in a budgeting cycle, which makes the budget vulnerable, Carney said. “The real estate market can go south in a heartbeat,” he said.  

For this reason, he said, tax cuts are not under consideration in the 2023 budget.

“It has to be structural in terms of dependable long-term revenue,” he said. “There’s a lot of uncertainty in the economy right now.”

But if the conditions are right, Carney said budget planners might think about it.

Geisenberger said businesses prefer stability instead of taxes that fluctuate every year.

“I think ultimately what people value and what the budget stabilization concept is about is to not be on a roller coaster with raising taxes and lowering taxes. What businesses want is certainty,” he said.

“At some point we may reach a point where it makes sense … but whatever we do, we don’t  want to come back two years later and take it on again,” Geisenberger said.

While low property taxes and no sales tax help keep Delaware’s overall taxes low, its personal income tax is one of the highest in the country.

Still, Carney said, compared to neighboring states, Delaware’s taxes are competitive.

“We’re a little bit on the high side on the PIT top rate, but all the others are just a fraction of what they are in Pennsylvania, New Jersey and Maryland, too,” he said.

Environmental initiatives get big boost

The 2023 operating budget is 4.6% higher than 2022, with $56 million earmarked for grants-in-aid funding, and more than $1 billion for state projects and transportation under the Bond and Capital Improvements Act. About $215 million is set aside for one-time spending, while $15 million will go into the budget stabilization fund, which is used to balance the budget in years when revenues are down.

With $404 million earmarked overall, environmental initiatives are getting substantial investment. Clean water programs make up the bulk of the funding, with $367 million coming from a $12 million state Clean Water Trust Fund and an extra $355 million in federal funds. Agland preservation and open space account for $30 million, and shoreline and waterway resiliency $7.5 million.

School construction in Sussex County also is a big winner, with $122 million going to the county out of the $339 million state total.

If approved by the state Legislature in June, Sussex Tech will get $32.5 million for a new high school and Indian River will get $47 million, also for construction projects.

Cerron Cade, director of the Office of Management and Budget, said a lot of school projects are being forward funded in this year’s budget.

“It may not have been due for funding until fiscal year 2024, but because of the amount of revenue we have, we thought it would be prudent and responsible to forward fund some of these projects,” he said. “It gets us a little bit ahead of the schedule and relieves some burden for next year of having to cover some of these major investments.”

By law, the General Assembly must pass the FY2023 budget by June 30.