State revenues stable for 2022, but worries for 2023, 2024

Betsy PriceGovernment, Headlines

a large brick building with Delaware Legislative Hall in the background

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Buoyed by personal and corporate income taxes, as well as real estate transfer taxes, predicts of Delaware’s 2022 revenues, and therefore its state budget, remain stable. 

But state fiscal experts expect the financial good times to slow as the state enters its fiscal year 2023 on July 1.

With three months left in the 2022 budget, the Delaware Economic and Financial Advisory Council voted Monday to continue to approve the spending of the $5,050 billion budget. 

It also said an additional $206 million in revenue had come into state coffers since its December meeting.

The state surplus remains at more than $823 million, thanks to taxes and COVID-19 relief cash.

DEFAC also said that as of now, the amount of state money available to budget for fiscal year 2023 would be $5,683 billion.

Finance experts expect the high growth in taxes to slow into 2023 and 2024.

Among the interesting bits of information:

  • Many state construction projects, grants and contracts are having trouble finding workers as well as materials, thanks to inflation and supply chain issues. That’s slowing down the state spending of funds allotted to those projects, contracts and grants. 
  • As of February, Medicaid now has 291,423 people eligible for benefits, thanks to  expansions during the COVID-19 pandemic. That is nearly one-third of the state’s population and 26,982 more than it was a year ago. Thousands of those are expected to come off the rolls as programs expire and more people go back to work.
  • The Ukraine-Russian war is expected to lower national gross domestic product growth, but at this point not significantly. 
  • Personal income tax continues to show “pretty health growth,” with expected income raised by $20 million for 2022. Delaware’s tax season opened Jan. 31.
  • Real Estate transfer taxes continue strong, but that market can be volatile, and there have been years when the transfer tax was negative. The state has seen an increase in people who have sold homes paying estimated taxes because their houses sold for so more more than it was worth. In 2017, there were 1,000 people who sold property and paid estimated taxes; in 2021, there were 3,500.  In 2013, there were seven homes sold for more than $1 million each. In 2021, there were 193 that sold for more than $1 million. 
  •  Boomers may have a role in the continue rise of taxes. The leading edge of boomers, many of whom have huge savings in 401Ks or IRAs, must start taking required minimum distributions from those accounts by age 72. The first Boomers are 74 this year. The federal program makes retirees do that to start returning some of the deferred taxes to the government, and Delaware could reap benefits from that, but it’s hard to track or predict because the state does not know who has how much money in tax-deferred 401Ks or IRAs.
  • Delaware continues to dominant the market in registering new companies, with 93% of initial public offerings registered in Delaware, which means that’s where they pay corporate taxes. Many companies who went public in the last few years did it was COVID-19 monies. The number of LLCs is growing dramatic. That kind of filing could be a bubble, said Secretary of State Jeff Bullock, but it also shows the growth of Delaware’s brand. Too much of a good thing also can be a bad thing, he said, because a rapid raise in corporate franchises also puts more pressure on that state office and on courts. The number of companies registered with Delaware had doubled in 12 years, he said. He also wouldn’t be surprised to see it double again in eight years.
  • As the Federal Reserve Bank raises rates, revenue from bank franchises is expected to drop, as much as 9.6% in 2023.
  • Revenues from Unclaimed Property are up $50 million over two years as the state continues its MoneyMatch programs, sends reciprocal claims to other states and continues improved processes.
  • Taxes from the sales of new and used cars remain steady.
  • The tobacco tax estimate was reduced by 4.7% down to $111 million.

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