‘We’re not out of the woods’: Delaware passes legislation to shore up $400M budget shortfall

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Delaware Gov. Matt Meyer signed legislation designed to eliminate a $410 million revenue shortfall in the state’s budget over the next three years.

Meyer signed the bill Wednesday afternoon shortly after the state Senate passed it along party lines. The House approved the measure last week.

State Democrats said corporate tax breaks in the massive tax bill Congressional Republicans passed this summer, dubbed the so-called “big, beautiful bill,” would take a heavy toll on the state’s corporate income tax receipts.

The new law decouples parts of federal and state tax code. The federal tax bill provided immediate tax breaks for research and development expenditures, as well as the instantaneous expensing of business and qualified production property.

Delaware lawmakers amended the state code to allow businesses to still claim these deductions, but the deductions are spread out over multiple years, similar to how it previously worked. HB 255 decouples research and development tax breaks retroactively to tax year 2022, but allows them going forward. It also decouples federal retroactivity for full bonus appreciation expensing for tax year 2025 and future years.

“This bill takes our largest problem, when you look just mathematically, the largest problem we were facing,” Meyer said. “We were facing a problem that had nothing to do with any prior budgets of our state, but everything to do with action at the federal level and it addresses that issue.”

Corporate income tax makes up about 5% of the state’s $6.5 billion budget. During the Senate committee hearing on the bill before the floor vote, Minority Whip Brian Pettyjohn, R-Georgetown, argued that corporate income tax is just one area of the budget that depends on many sources of revenue.

“We have lots of buckets and if we were just dependent on one bucket of revenue, we’d be in big trouble,” he said. “But with a good diversified economy, you’re able to get revenue from different sources to help make up from that.”

Republicans said they are hearing from businesses in the state and from others outside Delaware concerned about the impact decoupling will have on them. They said they’re also concerned the new law will lead to fewer firms incorporating in Delaware.

State Sen. Eric Buckson, R-Dover, said the race to pass the bill sends the wrong signal to the business community.

“It’s this reactionary, again, crisis type of movement that we’re doing here in this General Assembly,” he said. “And I think we need to get away from it, especially if time can cure that and that’s my issue. Time can cure this. So I don’t understand this rush right now, and I think that’s the message we worry about.”

State Sen. Stephanie Hansen said larger corporations, not small businesses, will be impacted by these changes.

“We’re not talking about a big effect on mom and pop businesses,” she said. “We’re not talking about a big effect on antique stores and the corner coffee shop and the beauty shops and the small breweries, we’re not talking about those folks.”

The next revenue forecast for Delaware’s fiscal year 2027 budget is scheduled for December.