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Delaware: No Longer the First State

By: Jane Brady, Chair, A Better Delaware

The Urban Institute publishes the State Economic Monitor that tracks and analyzes economic trends at the state level.  Recently they published the numbers relating to state gross domestic product.  You may recall, from previous newsletters, that the gross domestic product is the value of the goods and services Delaware businesses produce. For the fourth quarter of 2023, Delaware was dead last. Not only was Delaware last in the nation, but Delaware was also the only state in the country in which the gross domestic product decreased. Every other state in the country grew their productivity in the fourth quarter of 2023.

So, what does that decrease in gross domestic product portend for the state’s economic future? Well, our state’s budget (spending) depends on revenue from business and personal taxes, as well as fees imposed for such things as auto inspections, real estate transfers, etc.  When business isn’t producing and growing, and is shrinking, fewer taxes are owed, fewer employees are paid, and the expectation of future revenue is placed in jeopardy.

Our economic productivity has not improved in some time. Our GDP was expected to remain static before the pandemic, and since, it has repeatedly declined. That reality did not stop Governor Carney from recommending, just a few months ago, a budget with an increase of over 8% in spending.  And among the candidates for governor in this year’s election are several who propose significantly more spending.

Delaware has been on a spending spree that is not supported by our revenue. During the past three years, Delaware has spent nearly $4 billion in surplus money we received because of the federal government’s excessive granting of funds during the Covid pandemic. Indeed, some of the funds for the expanded budget the Governor just recommended comes from residual federal funds.  Much of that federal money went to new programs, or the expansion of some, such as unemployment and Medicaid eligibility, which remain in effect. However, the federal money is now gone, and state revenue will be required to support those programs. That revenue simply is not likely to be there.

To his credit, Governor Carney has supported the Smoothing Fund, which is a stabilization fund into which the government has placed money to help the state through difficult economic times. He did so in the face of opposition from his own party. That program is established by Executive Order.  Governor Carney ‘s legacy to our future financial stability as a state should be to present that concept to the General Assembly in the form of a bill, and secure its passage, before he leaves office.

Much of our state revenue comes from the fees and taxes corporations pay to be incorporated in Delaware.  Many of them do not do business here, but we benefit from their choice of incorporation state.  Recent events threaten that revenue as well. You may have read that Elon Musk moved his corporation from Delaware as a result of some court decisions and the eroding business climate in Delaware.  Additionally, the passage of a bill creating government oversight of hospital budgets – private business entities – has the legal community abuzz with concern about for businesses being subjected to government oversight in order to do business with the government. And concerns even go beyond those which actually do business with the State, to those which choose to incorporate here.

The purported purpose of the oversight bill was to try to cut the cost of health care expenses the State incurs.  The intrusion into private fiscal operations is unprecedented (except for a plan in Vermont that, according to nearly all accounts is failing miserably).  The impact on business and our corporate revenue has not yet been felt, but concern is high.

The answer, of course, is to cut costs if they are not sustainable. The State seems unable to even contemplate that course. Incredibly, at the same hearing at which funding was approved for the previously mentioned oversight committee, the same legislators voted to expand Medicaid coverage and eliminated co-pays for state-insured patients for certain health services.

And, the State has failed to pass on increases in costs to those insured under State plans.  Failure to do so responsibly and periodically has resulted in opposition to huge increases of 25% or more in a single charge. The State owes it to the employees and other insured to be transparent and share the increases fairly.  Everyone understands there are increases in costs for every product and service, and while no one likes to pay more, the reality is they do, every day, everything else.

The state cannot sustain the spending it has incurred with decreasing revenues.  The Governor and the General Assembly need to take a close look at how and where they are spending our money and make some responsible decisions. That is only fair, after all. That is what they expect of the rest of us.

Jane Brady serves as Chair of A Better Delaware. She previously served as Attorney General of Delaware and as a Judge of the Delaware Superior Court.