"Our perspective is that it is still bad, in terms of an economic forecast, it's just less bad."
Director of the Office of Management and Budget Mike Jackson said the Delaware Economic and Financial Advisory Committee (DEFAC)--which met for the final time Wednesday before a budget must be submitted to the state legislature--did some juggling to make up for the financial footing lost to COVID-19, but it's still not a great outlook.
"[Wednesday's] improvements in the revenue forecasts were, I would say, more related to tracking of revenue collections than they are an overall change to our longer term economic forecast given the coronavirus," Jackson said. "What it means for the spending plan that the governor introduced in January--the General Assembly, hopefully, will take up a variety of spending bills next week--is that the overall proposals continue to need to be reduced."
Those proposals need to be reduced by $367.3 million, which is a lot. But it's better than the $455.5 million that the state needed to find prior to Wednesday's meeting though a great deal of work still lies ahead over the next two weeks.
Next, a number of moving pieces need to play a role in reducing that budget shortfall as state lawmakers find ways to cut costs before lawmakers vote on the proposal. Jackson said departments have been working together to produce a spending plan that doesn't have any glaring winners or losers when it comes to budget shortfalls or enhancements. These efforts were aided by a savings account established the previous two years which will prop up general operations through Fiscal Year 2021.
"What our revenue forecast today really indicated is that maybe they don't have to use as much of the savings account, and can keep that in reserve as we learn more about [COVID-19], and whether there'll be a second wave later in the calendar year and what that will mean for revenue collections," Jackson said.
The Joint Finance Committee will have to sign off on the final budget before releasing it to the full General Assembly for a vote by June 30, 2020. But for that to happen, other cogs in the machine need to line up as well. First, the JFC will have to take up the Grant-in-Aid budget, which funds fire companies and non-profits. That happens on Monday, June 22, but first the Capital Improvement Committee will be meeting Thursday, June 18, to discuss additional issues for developing a capital spending plan based off DEFAC's latest revenue estimates.
The operating budget, as it stood Wednesday, included no additional budget cuts despite that looming shortage. Raises for all state employees and step increases for educators and other union employees were previously cut for the next fiscal year to save $55 million.
"You're in essence getting a current year budget being adopted for Fiscal Year 2021, where some of it is being sustained by our savings account. Which is one of the reasons why we have the savings account, and one of the reasons why the General Assembly, with the leadership of [Governor John Carney,] put such a mechanism in place--to deal with economic downturns and to help build a bridge from the beginning of a downturn to the end of a downturn," Jackson said. "I think what most Delaware should hopefully recognize is that, with the leadership of the governor over the last several years and leadership of the General Assembly and our Joint Finance Committee chairs and our Capital Budget Committee chairs, being fiscally prudent in setting money aside for the future, that [those actions are] really going to minimize the impact to residents."
Officials expected scaling back on monies set aside to enhance some programs and other improvements will likely be put off until the economy stabilizes. Economic development and clean water initiatives have tens of millions of dollars earmarked that could be diverted for other uses. Those cost-saving efforts would likely pose the most evident impact on everyday Delawareans would see in the immediate future. Longer term, these decisions get harder to predict.
"There are a lot of factors that are going to be involved in [future budget planning,] the largest being the coronavirus, and whether the state, or the surrounding region, experiences a second wave later in this calendar year," Jackson said. "It will depend upon how our businesses respond to the reopening as well as how Delaware consumers respond to the reopening."
Heading into Fiscal Year 2022, the state would likely dip into whatever remains of its savings account, but with better clarity on the impact of COVID-19 on the revenue forecast. Jackson said he's as satisfied as possible with the progress they've made in managing the hand the world's been dealt.
"The short answer is yes," he said. "Working with leadership in the General Assembly, the leadership of the governor, the one takeaway that we have is our fiscal prudence over the last two years has really paid dividends in our current economic downturn. Meaning that we are going to end up having a fiscal plan that, while it may not have enhancements to the budget, it will also not have budget cuts. And we're still hopefully going to be able to leave some of our savings account in place for the potential of future revenue downturns as we begin Fiscal Year 2021...We are in a strong position in a bad situation."
Those question marks on the horizon for the coming years still need clarification, but for the immediate future, officials said things are tracking slightly better during Delaware's economic reopening than some initially anticipated.
"We've had four revenue forecasts since the onset of the coronavirus," Jackson said. "We have gone from, potentially, a revenue estimate of losing $785 million to final revenue estimates where we are losing $520 million. When I say it's less bad, we're still losing a half a billion dollars worth of revenue over two fiscal years. That's a significant impact. It's just been, I would say, balanced by the fact that we did have a savings account in place to help us be able to manage such a significant revenue loss."