CHAPTER 7: STATE FINANCE

Delaware’s financial activity is unique among states in the northeast Megalopolis region. Because of its comparatively small population and size, many government services are provided and financed at state level, which in other states are handled totally or partially at the local level. Local governments (counties and municipalities) are thereby relieved to some extent of the collecting and disbursing of revenue to provide services.

The City of Wilmington's early urbanization required that it provide sewers, central water facilities, local police and fire protection, trash removal and street cleaning. As population has increased throughout the state, cities and towns, such as Newark, Dover and Milford have deemed it necessary to provide and expand services, particularly to develop comprehensive planning regulations to ensure orderly growth and to preserve open areas.

State Budget Process

Delaware's fiscal year (FY) runs from July 1 of one calendar year to June 30 of the following calendar year.

Like many states, Delaware begins the state budget process for the next fiscal year only a few months after the current fiscal year begins. During the latter part of the calendar year, state-financed departments and agencies project their needs for the coming fiscal year and submit those estimates to the Budget Office. Public hearings are then held beginning no later than November 15, to review each agency's request. Beginning in Fiscal Year 1998, the departments and agencies now provide “performance-based” budget proposals at the fall hearings. They propose and present visual representations (e.g. charts) to show how effective they have been and to justify their current budget request. The Budget Director completes his review and revision of agency estimates by December 15. From the information received from the Budget Director, the Governor prepares his Recommended Budget and presents it together with the Budget Appropriation Bill to the General Assembly no later than February 1.

After a few weeks of legislative sessions, the General Assembly adjourns while its Joint Finance Committee holds budget hearings. That committee, which consists of the members of both the Senate Finance and the House Appropriations Committees, prepares a final budget to be reported out of committee to both chambers of the state legislature. Upon passage, it goes back to the governor for his signature or veto.

The state budget as drafted by the General Assembly is a "line item" budget in that it is broken down into specific amounts for each of several categories (e.g., personnel costs, travel, supplies, etc.) for each functional group within an appropriation unit or division. The Governor, if he so chooses, can "line item veto" any such category. An item so vetoed must go back to the legislature for override in order to be in the final approved budget.

Passage by the legislature and signing by the Governor constitutes both final authorization and appropriation. At all stages of consideration, the budget must be balanced, with expenditures not exceeding anticipated revenue. Recent constitutional amendments limit spending to 98% of estimated available revenue (except for emergency appropriations) and require a three-fifths vote for passage of any new tax laws.

State Budget

The total state budget consists of two funds: the General Fund and the Special Fund.

The General Fund refers to those resources (and transactions of such resources) which are used for the general operation of services traditionally provided by state government. Its disbursements are at the discretion of the General Assembly, and its receipts are a result of actions by the General Assembly in enacting taxes, fees, etc.

Special Fund refers to those resources (and the transactions of such resources) which are obtained from specific revenue sources and are used for the general operation of these restricted and specified government services

In FY 1998, General Fund budget disbursements were $1,900.0 million and those for the Special Fund were $2,336.3 million.

GENERAL FUND RECEIPTS FY 1998

Major GF Receipts Category
	$000’s	%
Taxes	1,724,721.3	84.29
Fees	55,886.0	2.73
Rental and Sales	205,848.5	10.06
State Govt/ Agency Revenue	24,848.3	1.21
Earnings and Investments	24,799.1	1.21
*Other	10,097.1	0.49
Total	$2,046,200.2	100.0

* Other – Licenses, Permits, Fines, Federal Grants, Government Contributions, Earnings & Investments

Pie Chart of General Fund Receipts – FY 1998

As might be expected, taxes make up the largest single source of revenue. Within this single revenue source are various types of taxes as shown by the following table and chart.

GENERAL FUND TAX REVENUE FY 1998

	$000’s	%
Personal Income	761,293.6	44.14
Corporate	84,754.4	4.91
Franchise	386,800.1	22.43
Business & Occupational	125,510.3	7.28
Public Utilities	21,434.0	1.34
Cigarette	23,171.0	1.34
Inheritance & Estate	36,927.3	2.14
Realty Transfer	37,581.5	2.18
Insurance	31,185.3	1.81
Alcoholic Beverage	9,649.0	0.56
Public Accommodations	8,087.0	0.47
Bank Franchise Tax	120,407.6	6.98
Miscellaneous Taxes	77,919.7	4.52
Total Taxes	$1,724,721.3	100.0

Pie Chart of Tax Revenue – FY 1998

GENERAL FUND DISBURSEMENTS FY 1998

	$00’s	%
Judicial	50,260.0	2.65
Executive	73,716.1	3.88
Other Elective Office	65,762.5	3.46
Legal	19,932.6	1.05
Finance	26,938.3	1.42
Administrative Services	51,707.8	2.72
Health & Social Services	454,347.2	23.91
Services for Children, Youth & their Families	78,796.2	4.15
Correction	120,443.0	6.34
Natural Resources & Environmental Control	35,422.8	1.86
Public Safety	79,024.5	4.16
Higher Education	175,392.8	9.23
Public Education	626,316.0	32.96
*Other	41,911.7	2.21
Total Disbursements	$1,899,971.4	100.00

*Other - Legislative, Legal, State, Finance, Administrative Services, Community Affairs, Labor, Agriculture, Elections, Fire Prevention Com., DE National Guard and Advisory Council for Exceptional Citizen

Pie Chart of General Fund Disbursements – FY 1998

The preceding table and pie chart indicate that the state is heavily involved in educational financing. Public schools receive 67% of their funds from state appropriations, 28% from local district appropriations and 5% from federal appropriations.. This ratio varies from one district to another according to need or ability and desire to supplement locally.

Temporary aid to Families with Dependent Children (AFDC)²⁰ and Medicaid costs in Delaware are paid by the state general funds and from earmarked federal funds. Residential facilities for the mentally ill, the mentally retarded, the aged, as well as a psychiatric center for children and juvenile corrections facilities are all financed by the state. These comprise a substantial portion of the Health and Social Services and Department of Services for Children, Youth and Their Families budget.

The Transportation Trust Fund was established in 1987 to facilitate the development of a unified transportation system and to dedicate transportation related revenues to transportation projects. The receipts in the Trust Fund are motor fuel taxes, motor vehicle documents fees and other transportation related revenues, which have been dedicated to that fund. City streets are paid by municipal and state funds. There are no county road systems. The Trust Fund provides several million dollars per year to the municipalities to aid in their street maintenance.

Higher education costs includes support for the University of Delaware (over $94 million in FY 1998); Delaware State University (over $29 million); Delaware Technical and Community Colleges (over $49 million); and DIMER, the Delaware Institute of Medical Education and Research. DIMER is a program to aid medical school education for Delaware residents and a continuing education program for practicing physicians ($1.65 million).

From FY 1993 to FY 1998, the general fund budget increased from $1,260.3 million to $1,900.0 million. The personal income, franchise and corporate income taxes were the major sources for the increased revenue. The proportion of the budget spent for debt service has been reduced to 5.7%. Authorization of General Obligation debt is limited to either 5% of projected net revenue or 15% of cumulative cash balance.

SPECIAL FUND RECEIPTS FY 1998

	$000’s	%
Taxes	$489,207.9	20.96
Licenses	2,062.6	0.09
Fees	67,331.1	2.88
Permits	523.8	0.02
Fines	4,774.0	0.20
Rental and Sales	37,414.1	1.60
Federal Grants	630,312.9	27.00
Governmental Contributions	435,903.9	18.67
Earnings and Investments	40,201.9	1.72
State Gov’t/Agency Revenue	626,433.2	26.84
Total	$2,334.165.3	100.0

Pie Chart of Special Fund Receipts – FY 1998

Tax receipts are from business, unemployment compensation and local school district taxes. The school district taxes are disbursed to the district of origin.

Grants and donations are mostly federal funds earmarked for particular programs or uses (e.g., community health, public welfare, highway projects, grants to Delaware Technical and Community College and Delaware State University and grants to the local school district because of the impact of the Dover Air Force Base). Non-revenue and transfer receipts include revenue from bond sales and federal unemployment insurance.

SPECIAL FUND DISBURSEMENTS FY 1998

	$000’s	%
Executive	552,992.1	23.67
Other Elective Office	237,306.0	10.16
Finance	97,332.9	4.17
Administrative Services	58,900.3	2.52
Health & Social Services	369,969.0	15.84
Services for Children, Youth & their Families	32,825.0	1.41
Natural Resources & Environmental Control	77,514.1	3.32
Transportation	347,929.6	14.89
Labor	42,874.2	1.84
Agriculture	38,150.8	1.63
Higher Education	69,012.0	2.95
Public Education	354,216.8	15.16
*Other	57,232.2	2.45
Total Disbursements	$2,336,254.9	100.0

*Other – Judicial, Legal, State, Finance, Services for Children, Correction, Public Safety, Community Affairs, Agriculture, Fire, National Guard

Pie Chart of Special Fund Disbursements – FY 1998

Bonded Indebtedness

Capital programs in Delaware which benefit a large number of citizens, such as schools, roads, prisons, parks, and state office buildings and facilities, are usually financed by the sale of tax exempt bonds. (The interest paid to investors who own state bonds is exempt from federal, state and local taxes.) Bonds are issued with ten- or twenty-year maturities, depending on the life of the project, and allow the cost of the capital project to be paid over the useful life of that project.

Delaware currently issues two different types of bonds: general obligation and revenue bonds. General obligation bonds are the cheapest form of finance capital available to the state since they are backed by the full faith and credit of the state, in which the state promises to repay the bonds as scheduled from the first revenues it receives. The rating agencies evaluate economic, fiscal and administrative factors of the state and assign a rating of the state's bonds based upon the perceived willingness and ability of the state to repay its debts as promised. The state's general obligation bonds are currently rated Aa1/AA+, judged to be high quality by all standards. On June 30, 1998, the state had $686.1 million of general obligation bonds outstanding. The General Fund portion of this was $564.2 million and the Special Fund, $121.9 million.

Revenue bonds are backed solely by a pledge of specified revenues and are usually issued by an authority of the state. For example, the Delaware Transportation Authority issues revenue bonds for transportation-related projects. These bonds are supported by a pledge of Transportation Trust Fund revenue, including motor fuel taxes, motor vehicle document fees, motor vehicle registration fees and turnpike tolls and concession revenue. The other debt issuing authorities in the state include the Delaware State Housing, the Delaware Solid Waste, the Delaware Health Facilities, the Delaware River and Bay, and the Delaware Economic Development Authorities. The bonds of these authorities generally do not have recourse to the state or its general fund revenue in the event of default by the issuing authority. The outstanding obligation on revenue bonds was $1,098 million on June 30, 1998.

The disbursements for bond interest and repayment are allocated to each appropriate operating group and do not show as line items in the above budget numbers.

²⁰ Aid to Families with Dependent Children (AFDC) has been replaced with A Better Chance (ABC), Delaware’s welfare reform initiative. See Department of Social Service in Chapter 4.