A state review panel will recommend that Delaware not only keep a budget benchmark appropriation that limits the growth of the state budget, but also put it into law.
The Delaware Economic and Financial Advisory Council‘s Benchmark Evaluation and Review Panel also agreed to suggest that incoming legislators undergo training in how the state budget works.
DEFAC chairman Michael Houghton told the panel that the benchmark “has been working pretty well over the last five years.”
The benchmark uses projections of personal income growth, population growth and inflation to limit the growth of the state budget each year.
The idea for a benchmark first was suggested by Republicans and spread. After efforts to pass a law creating it failed, Gov. John Carney in 2018 issued an executive order asking the advisory council to create a benchmark and also establish a budget stabilization fund to smooth out any rough financial years.
The benchmark and the budget stabilization fund helped the state in 2020 when COVID-19 blindsided the economy.
Since then budget surpluses. aided by federal COVID money, have helped the state not only fund a lot of one-time projects, but also allowed the state to put money into the stabilization fund that’s now near $1 billion.
Fiscal year 2024 is not expected to have huge surpluses, but revenues are expected to grow more in 2025.
Even with surpluses from the last three years, though, the General Assembly Joint Finance Committee plans to take some money out of the fund, partly because the state was hit with some bigger than expected expenses.
Carney’s recommended $5.5 billion budget for fiscal year 2024, which starts July 1, was designed to rise 7.1% instead of the benchmarked 6.2% recommended under the benchmark because of an expected surplus.
Those expenses included the state needing to put more money into Medicaid as federal COVID programs wind down. In addition, more money was needed to pay health care costs of state retirees who sued to stop the state from shifting them to a Medicaid Advantage program instead of the generous plan they were — and still are — on.
Advisor council member Ed Ratledge said he felt like the benchmark hadn’t really been tested in up and down cycles, but Delaware’s Secretary of Finance Rick Geisenberger argued that it was tested by COVID.
“We really haven’t been through a full cycle on this where we’ve seen stuff bottom again,” Ratledge said. He said he liked to look back 10 years and project ahead 10 years.
Geisinger said COVID hit when the benchmark was still relatively young.
“We had not yet built up the Budget Stabilization funds to the level that it is today,” Geisingberger said. “But we were able to make a withdrawal that allowed us to grow the budget in the year of COVID or otherwise we probably couldn’t grow that budget.”
Carney’s executive order requires DEFAC to make recommendations about the benchmark every five years, including the methodology it uses. This will be the council’s first five-year report.
Houghton said he thought it was important to put the benchmark and budget stabilization fund into law and give it “a statutory infrastructure.”
Because it’s now simply an executive order, a new governor could dismantle it, he noted.
“I don’t think that they would,” he said. “I just think this is prudent fiscal policy.”
Ratledge said that the current financial atmosphere with inflation and the threat of recesson following COVID will create money pressures.
“We have very different political situations now,” he said. “We have a lot more new people in the General Assembly who wanteto do a lot of stuff. And I’m well aware of the many obligations that we have gotten, hopefully, one-time obligations.”
Ratledge said finances are expected to get tighter over the next two or three years, and that will pressure some of the new projects.
That could tighten people’s willingness to support new projects, compared to a time when “we’re just sloshing around with a lot of cash, which is not a typical kind of situation that we will usually run into.”
The benchmark and new programs
Rep. Danny Short, R-Seaford, a former House Republican leader, said he remembered having to budget during the recession that hit former Gov. Jack Markell’s early administration and then having Carney come into office with a deficit.
“It was kind of like what’s going on in Washington right now,” Short said.
He agreed that many newly elected to the state House or Senate don’t understand how state finances work.
“We’ve had training in the House of Representatives on civility and cordialness,” Short said. “I think there actually needs to be some sort of training from the leadership standpoint on what we are all talking about.”
Sen. Brian Pettyjohn, R-Georgetown, agreed with Short about training.
He said he often agrees with many ideas that legislators have, but that they have to be realistic about how much the state can take on. Their projects may not be able to be funded immediately, he said.
“Those new members have not been through a belt-tightening time,” Pettyjohn said. “They don’t know what it’s like to have to say we’ve got to pump the brakes on this bill that we really want because there’s not enough money for it.”
Pettyjohn said Senate Republicans had discussed what’s happening, and he hopes other caucus leadership will have one, too. because with one month to go in the session, “bills are coming in fast and furious.”
Ultimately, the full advisory council will report to the General Assembly and to Carney.
DEFAC’s next meeting is 10:30 a.m. Friday, June 16. The expenditure and revenue subcommittees will meet before that. A meeting link has not yet been posted.
Betsy Price is a Wilmington freelance writer who has 40 years of experience.
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