Will Governor Carney's 2021 Budget finally bring an end to Delaware's failing economy?
Center for Analysis of Delaware's Economy & Government Spending
January 31, 2021
A growing economy matters for myriad reasons and, according to the St. Louis Federal Reserve Bank, Delaware's GDP has not grown for a decade. During this same period, Delaware's worker productivity has seen a 6% decline.
Thanks to better public schools, lower personal and business taxes, our neighboring states have been eating our lunch and stealing jobs and workers from Delaware for years.
With this backdrop, the Governor of Delaware delivered his State of the State Address and presented his budget recommendations to the General Assembly this week.
The question before Delawareans and the General Assembly is simply, "Will the Governor's proposals create a sound and growing economy in Delaware?" The answer to this question is largely "no."
The Good
During his last term, John Carney, a relative budget hawk, set aside reserve funds to handle Black Swan events, which kept the State's annual operating budget growth to under 3% over his first four years. In addition, Delaware's November Monthly Financial report (the most recent available) shows no outstanding short term debt and an operating cash balance of almost $700 million (compared with a negative $135 million 4 years prior).
Plus, the proposed budget sets aside $131.0 million in FY20 allocated expenditures (aka money that wasn't spent last year) into the Budget Stabilization Fund.
With this decent financial picture and a December DEFAC forecast of a $495 million surplus in June, Governor Carney has controlled the State's finances and built up its cash balance despite the Covid-19 Pandemic. Given this solid surplus, any new tax increases would crush any recovery, and the Governor has not recommended any.
The Bad
In the early 1990s, then-Governor Castle and the General Assembly set aside money for a Transportation Trust Fund (TTF) with the purpose of providing a stable source of one-time money for capital road projects. It was NOT to include any on-going operating expenses (such as paying State DMV employee salaries). The argument for the TTF was that the General Assembly (and Governor) had been underfunding road improvements.
But politicians cannot help themselves when it comes to spending money. Over time subsequent Governors and General Assemblies have "raided" the TTF to "hide" operating expenses inside the "Capital" Budget rather than provide a transparent view of the actual growth in State operating expenses.
Today, we hear the same arguments that were presented for road repairs in the 1990s being presented for water infrastructure in the 2020s. Despite Governor Carney's decades-long career in Delaware's government, this water problem suddenly appears so critical that a new "Clean Water Trust Fund" is needed.
If Delaware's water systems are in need of repair, the General Assembly should allocate, on an annual basis, the capital money to build this infrastructure rather than create another standalone slush-fund fund into which future Governors and General Assemblies can hide growth in spending by moving expenses "off-book."
The Ugly
Corporate welfare and cronyism remain alive and well in Dover. The Governor is proposing yet another fund, the "Site Readiness Fund," to be used when a Corporation wants taxpayers to pay for site prep work. This new fund is in addition to the existing "Strategic Fund" - a fund set up to provide free cash to companies who are invited to ask for it.
This new fund also adds to the existing Transportation Infrastructure Investment Fund (created by Governor Carney in 2019 and not to be confused with the Transportation Trust Fund created by Governor Castle in the early 1990s), which, just this month, doled out $1 million for improvements to Frawley Stadium which is not transportation at all.
If you are well connected, you can get access to millions of dollars parked in the plethora of funds created by Governor Carney and his predecessors. Please just stop.
Furthermore, Governor Carney's message makes no mention of improving Delaware's antiquated and anti-job growth permitting process. Delaware takes almost two years to complete the permitting process for business investment, while adjacent states are much quicker. Delaware could permit as quickly as six months. A fair and open process would benefit all businesses, not just Governor Carney's favored ones. This should be the priority, not doling out more crony cash.
In summary, Governor Carney has been a decent watchdog on overall operating expenses, and he should be recognized for that. However, he likes to create "special funds" that allow him to pay off favored friends and reduce government transparency.
This practice is wrong and should be ended.
(Picture Source: Delaware.gov)