Governor Carney's Missed Opportunity
By Charlie Copeland, Director (pictured)
Center for Analysis of Delaware's Economy & Government Spending
February 4, 2022 (Also, published on 2/11/2022 by Delaware State News as a Commentary)
With a billion dollars in the American Rescue Plan Act funds and a Federal Reserve-stoked budget surplus in the hundreds of millions of dollars, Governor John Carney had a once-in-a-lifetime opportunity for boldness. He played "small ball," and that is a shame. In the end, Delaware will spend billions in one-time money this year to no real long-term effect.
A capital spending boom & a slight nod to a growing health benefit crisis
With so much money pouring in, it is right that the Governor put as much of this money into upgrading bridges, roads, highways, broadband, and other capital-intensive areas as is practicable. The Governor recommended spending almost $1.2B in this area. And in a state the size of Delaware, this is real money; these investments will provide years-long benefits. But, it will also take years to finish all these projects because Delaware lacks workers (according to the Governor, there are 33,000 open positions but only 26,000 people looking for work). Also, expect all these projects to cost much more than budgeted because... well... Delaware lacks workers.
The Governor also, wisely, recommends putting $50M into the retired state employee health benefits fund (OPEB - Other Post-Employment Benefits). Of course, this retirement fund is underfunded by $8.3B as of June 2019. So, $50M is a pittance, but it is at least a small recognition of this looming crisis. Rating agencies take note!
And lastly, the Governor continues his trend of "fiscal smoothing" by adding $15.2M to his "Budget Stabilization Fund," growing it to over $300M (a ~5% reserve account). This is an important set aside because his successor will need these funds when the COVID-spendathon is over 3-4 years.
Things that make you go "Hmmm..."
In his address, the Governor said, "Despite the pandemic, Delaware employers have added nearly 20,000 new jobs." The Governor does not cite his statistic (and no data source was provided with his remarks) but checking the Federal Bureau of Labor Statistics, his numbers seem very wrong. There were 471,262 Delawareans employed in December 2021, which is 2,000 workers less than the 473,206 employed in February 2020. Plus, labor force participation is down almost 2% over this time.
If the Governor was referring to January 2017 when he took office, Delaware employment has grown 5.6% (adding almost 25,000 jobs - not 20,000), but during that time, the overall eligible workforce grew at 6.1% - meaning job growth lagged workforce population growth during his administration. Hence the drop in labor force participation.
Either way, you slice it, the Governor's numbers are wrong according to Federal government data, and neither metric demonstrates success.
Additionally, the Governor proposes for the fifth year straight a supplemental "one-time" budget appropriation. This is absurd. Each of the previous four "one-time" appropriations was passed into law; each one increased the base level of government spending. It is a budget gimmick to hide the spending growth. Repeated "one-time" appropriations are not one-time.
Where he should have been bold? Education of our children
Every parent, every employer, and every college admissions officer knows that Delaware's public education system is broken. Delaware's educational achievement, as reported by the federally-run "Nation's Report Card," was lower in pre-pandemic 2019 than in 2005. Looking at another source, only 1 of 3 students is graduating at grade level in Mathematics according to the SAT, and post-pandemic results will be even worse.
The Governor barely mentions the Pandemic's impact on education. "Our children missed important time in classrooms" is such an understatement of the crisis as to be laughable. Of course, ignoring this crisis allows Governor Carney simply to default to his predecessors' failed spending playbook; that is, he is going to make education "investments."
There is no plan on helping our children who have lost 12-24 months of instruction and no proposal to implement proven education reform-a significantly missed opportunity.
Conclusion
Governor Carney has demonstrated over time that he understands the need to smooth the budget and keep an eye on spending. He continues that trend this year. However, strategic thinking would have been nice with billions in excess cash sloshing around Dover.
A lot of money is going to be thrown into a lot of areas that are ill-prepared to deal with the cash influx. Base government spending will rise, but other than better infrastructure (which CRI applauds), billions of dollars will slosh through the system with no long-term discernible impact.