Virus impact on state revenue may be less than feared

DOVER — New estimates show that the coronavirus epidemic’s impact on Delaware’s government coffers may not be as bad as officials initially feared.

The Delaware Economic and Financial Advisory Council on Thursday increased its revenue estimate for the current fiscal year by $92 million compared to April projections. The panel also increased its revenue estimates for the fiscal year starting July 1 by $73 million.

Changes to personal income tax withholding projections were the biggest factor in the revisions. Officials also noted that more Delawareans than expected have been filing tax returns, even though the deadline has been pushed back to mid-July.

The updated projections came on the same day that officials said the number of initial unemployment claims filed by Delawareans ticked up slightly last week. Almost 96,000 jobless claims have been filed since March 15.

But state finance officials said Thursday that they overestimated the impact on income tax withholding of the job losses, which have not been spread evenly among economic sectors but have hit lower-wage workers the hardest.

They noted, for example, that in the restaurant and lodging sector, which accounts for about 12% percent of Delaware workers, roughly 26 percent of jobs have been lost, but the average wage is only $413. By contrast, the finance and insurance sector, which accounts for about 11% of Delaware’s workforce and has an average wage of $1,746, has seen job losses of only about 1.4%.

“From a revenue perspective, the impact on withholding won’t be as large as the raw job numbers may suggest, at least in the short term, because the job losses are predominantly in both larger and smaller industries that are low-paid,” said David Roose, director of research and tax policy for the state Department of Finance.

“In many respects, things have not turned out quite as bad as we thought last month,” Roose added.

State finance secretary Rick Geisenberger said officials had taken $784 million out of the revenue forecast in March and April but restored $165 million, or 21%, on Thursday.

Other factors contributing to a brighter budget picture include $97 million in unspent money being reverted to the general fund by state agencies, and the federal government agreeing to pick up a larger share of Medicaid spending, retroactive to January.

With Thursday’s revisions, the budget for the current fiscal year went from being $150 million in the red last month to being $39 million in the black.

Nevertheless, revenue estimates for the current year are still down by $325 million since January, and by $294 million for fiscal 2021. At the same time, however, state officials typically leave themselves a cushion by limiting spending to 98% of estimated revenue.

They also have set aside $126 million in a new “budget stabilization fund” designed to help the state get through tough economic times without drawing on the $252 million “rainy day fund,” which has never been tapped.

The legislature’s Joint Finance Committee is scheduled to begin marking up Democratic Gov. John Carney’s proposed fiscal 2021 budget on June 2.

Before the coronavirus outbreak hit, Carney in January proposed increase Delaware’s operating budget by almost 4% next fiscal year, boosting spending to more than $4.6 billion.

“My guess is a lot of things will happen, they’ll just be a lot smaller than people had hoped,” Geisenberger said.

Helpful Coronavirus links

Delaware Division of Health Coronavirus Page
CDC: About the Coronavirus Disease 2019
CDC: What to do if You Are Sick
Johns Hopkins Coronavirus Resource Center
AP News Coronavirus Coverage
Reopening Delaware: Resources for Businesses
Delaware Phase 2 guidance

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