Recommendations

Conclusion: Delaware should look to economic growth and spending restraint to restore structural balance.

 

Delaware is a high public-service state, particularly when expenditures are measured as a percentage of its economy.

Although the state has, in the past, been able to export some of the costs of supporting these services through its reliance on revenues from multi-state companies (particularly through the abandoned property and franchise tax programs), it faces declining relative contributions from these sources, and now faces a structural budget shortfall that will expand over time, growing to 11 percent of its budget in 10 years unless steps are taken to bring the revenue and expenditure trajectories into line. It also faces an economic problem wherein it has seen jobs and per-capita income shrink relative to the rest of the nation over the past decade.

 

When considering options to deal with its long-term structural shortfall problem, it is important that the state focus on improving its economic growth and avoid further burdening its economy with over reliance on tax increases. The good news is that the state can go a long way toward restoring budget balance by restraining spending growth over time, especially in the areas of K-12 Education, Corrections, Public Welfare and personnel costs. There may also be significant opportunities to reduce state costs substantially by shifting some Medicaid costs to the federal government and reducing managed care rates. 

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