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The Governor’s budget kicks the can

Governor Carney announced his proposed Fiscal Year (FY) 2022 budget of $4.7 billion last week, a 3.5% increase from FY 2021. Although this meets the Delaware Economic and Financial Advisory Council (DEFAC) benchmark and replenishes reserve funds used during the pandemic, it also continues to kick the can down the road on major items.

The current budget proposal continues the trend of prioritizing spending increases, pay increases, and several massive one-time spending projects, instead of addressing long standing issues like a comparatively small Rainy Day Fund, unfunded pension obligations, and a ballooning health care budget.

Delaware’s percentage of its budget in Rainy Day Funds is less than 31 other states, resulting in only 20 days of operation on reserve funding. Delaware’s Rainy Day Fund allocations have been below the 50 state median since 2017. The COVID-19 pandemic and other recent state budget crises in 2017 and 2008 should push us to do more to build up these reserves.

Without the CARES Act federal assistance, which was drastically out of proportion to the state’s direct COVID-related expenses, our Rainy Day Funds would have only lasted us for 6% of the Governor’s State of Emergency that has been in place for over 300 days. When the next revenue crisis comes, Delaware may be forced to go back to bad practices like raising taxes to make up the difference, since our reserves are anemic.

Even more concerning is the state’s $1.9 billion in unfunded pension benefits, which have been largely ignored for years. This total is massive: for perspective, our pension debt is more than a quarter of the state’s annual budget. Our pension crisis is looming, and lawmakers have continued to turn a blind eye as they allocate surpluses to pet projects.

The responsible thing to do with any surplus at this point is put it towards paying down this debt. Last year’s surplus of $200 million would cover 10% of the state’s pension debt, and only 1.7% of the overall state debt of $12 billion.

If the legislature is forced to pay out its obligations at some point and turns to the taxpayer, each Delaware taxpayer would need to contribute $24,000 in order to fix the financial crisis. This is why Truth in Accounting’s audit of Delaware’s financial situation resulted in an F grade, because we are failing our residents and future.

Perhaps the biggest and most visible concern that we continue to kick down the road is Delaware’s unsustainable health care costs. For a long time, Medicaid was approximately 17% of the state’s budget, but in recent years has risen to over 25% of the budget.

For now, over half of Delaware’s Medicaid program comes from the federal government, but that money is expected to shrink in the future, placing the burden on the state. Delaware’s health care budget is already one of the highest per capita in the nation, and cannot sustain any more growth.

Delaware leaders must look to alternatives to our current system, especially since Delaware’s health outcomes are extremely poor compared to other states, despite the massive spending. Taking steps like eliminating the Delaware Health Resources Board, which raises costs and limits access to care, would be a step in the right direction to allow for a better system.

As we move into Delaware’s budget hearings throughout the month of February, it is critical for the Joint Finance Committee (JFC) members to stop kicking the can down the road. With the cushion of federal money and a resulting surplus, now is the time to address our budgetary concerns that could cripple us in the near future.