Civics 101: Delaware’s population is rising. But nowhere near as fast as the budget.

Part 5 of the Delaware Civics 101 Series:
Understanding How Delaware Organizes, Spends, and Balances Its Money

These are the facts of modern life: Populations keep rising. People’s needs keep growing. Costs keep heading higher. The big question facing Delaware’s lawmakers is this: How fast should state spending be rising to meet these realities?

Since 2020, Delawareans have watched state budgets begin a sharp, steep climb: Over the past five years, state spending skyrocketed by about 53%. Meanwhile, the population was up by just 7.6%.

Many in the state are closely (and warily) watching these diverging trajectories, and posing some questions: Could the gap between population growth and budget growth get wider in the years ahead? Just how much more are we willing (or able) to pay? And where will all that money come from?

A distinctly 21st Century trend

Since the start of the century, Delaware’s operating budget has more than tripled, jumping from about $2.1 billion in 2000 to $6.5 billion in FY2026 – an increase of nearly 210%. In the same time frame, Delaware’s population grew from 786,000 to about 1.05 million – a 33% rise.

The wide discrepancy is mainly a result of rising costs – especially in education and healthcare – but it’s also seen as a corollary of having plentiful revenue. Delaware has enjoyed some boom years in its corporate franchise business, which collects taxes and fees from companies across the world, and fuels a good portion of the rising budget.

Increased spending isn’t necessarily a bad thing in and of itself, as the thousands of Delawareans who receive services from the state might attest. Higher spending can mean better classrooms, more teachers, nicer roads, safer streets.

But the people guiding the process know they need to be mindful of realities as well, and in this case, those realities come in the form of revenue — and the up-and-down fortunes of finding it. The past 25 years saw Delaware’s overall revenue benefit from broader economic gains, and recent action from the legislature successfully avoided a big hit to revenue from federal tax changes.

It’s also important to realize that a good portion of Delaware’s recent revenue windfalls came from the federal government during the COVID 19 pandemic – and those funds have just about dried up. That’s one of the reasons Gov. Matt Meyer’s recent FY2027 state budget proposal keeps spending growth below 5%, for the first time in years. The budget grew by more than 7% in the current fiscal year and 9% in FY 2025.

Part of that growth was needed just to keep up with inflation. But looking ahead, it seems clear that cost pressures will only rise, for Delaware and every other state. An aging population demands more Medicare, and schools say they need increasing financial support to attract good teachers, and to care for special needs students. Some of the spending that began under COVID has become “sticky” – federal funds may be dried up, but there is pressure to maintain the programs it once paid for.

Faster and faster

There was a time when budget growth was a little more closely aligned with population growth in the state – but those were not very good times for many people. From 2000-2010, the state’s population grew by 14.6%, while the General Fund grew by roughly 55%, or at a rate of 3 times population growth. Those “slow growth” years of the Delaware budget were a time of budget cuts and freezes on spending, driven by the 2001 dot-com collapse and the Great Recession in 2008.

Spending growth resumed as financial turbulence receded, powered in part by a boom in corporate franchise‑tax revenues and that avalanche of COVID funds. But the cost pressures have only gotten more cumbersome for states.

In recent times, the pressures driving increased spending have been particularly people-centered. Spending had to be hiked to help resolve staffing shortages for key positions like police and teachers, who often have their choice of better offers elsewhere.

There’s also growing concern that Delaware and other states pay so much more these days to cover unfunded pension liabilities for retired workers — an unpaid bill that has been growing for some time, but is hitting harder now as more workers retire.

With federal COVID aid gone and corporate receipts softening, FY2026–27 marks a reset of sorts for Delaware — one that raises questions about how to sustain core services if costs keep outrunning revenue, population, and gross domestic product.

Economic and Demographic Comparison (FY2000 vs. FY2026)

Category	Year 2000	FY2026 (* Projected)	Growth/Change
Operating Budget	~$2.1B	$6.5B	+$4.4B (~210%)
Population	~786,000	~1.05 Million *	+264,000 (~33%)
GDP (Current $)	~$40B	~$97B *	+$57B (~142%)

Looking at the numbers a different way, Delaware’s general fund spends far more per resident than in 2000: $6,136 per resident today, but only $2,671 in the year 2000. That’s a 136% jump, but factoring in inflation, it’s the equivalent of a 23% rise.

A 53% surge in just 5 years

Delaware’s budget has been growing much faster in the past five years than it did over the prior two decades. From 2000 to 2020, the operating budget rose from about $2.1 billion to $4.5 billion — a +114% increase, or roughly 3.9% a year — driven by steady growth in Medicaid, education, and personnel costs. But from 2020 to 2025, the budget jumped again to $6.9 billion, a +53% surge in just five years — about 8.8% a year, more than double the long-term pace. Part of the increase was needed just to keep pace with rising costs: Inflation-adjusted budget growth was just. The rise was also fueled by federal COVID relief, a corporate franchise-tax boom (peaking in 2023), and higher Medicaid and education spending.

The implication is clear: Delaware’s budget grew faster in 2020–25 than in the entire 20 years before COVID, and much of that acceleration was temporary and federally fueled. With those one-time funds gone and corporate receipts softening, the FY2026–27 pullback represents a reset, even as underlying pressures in health care and education remain. And the impact of inflation still lingers.

Schools: More investment, more cost per student

• Operating support for K–12 rose from under $1B in 2000 to $2.3B+ today—about one‑third of the operating budget.
• Per‑student spending has risen sharply from ~$17,650 per pupil in 2022 and ~$20,502 in 2024.
• Growth Drivers: staffing/benefits, special‑education services, school construction in growth districts, and temporary federal infusions (ARRA; ESSER/ARPA) that funded ventilation, technology, tutoring, and learning recovery. Inflation is also a factor here.
• States have faced intense pressure to increase per-pupil spending to address pandemic-era “learning loss” and to cover the rising costs of special education and school security.

Health Care: The fastest grower

Delaware Health Care Spending (operating budget; approx.):

• 2000: ~$500M (~24%)
• 2010: ~$1.1B (~31%)
• 2015: ~$1.5B (~33%) — ACA expansion
• 2020: ~$2.0B (~34%) — COVID surge, higher federal match
• 2025: ~$2.6B (~37%)
• Drivers: Medicaid enrollment growth (post‑ACA), hospital and drug inflation, aging demographics, and federal policy shifts. Even as post‑COVID “unwinding” trims rolls, per‑member costs continue to rise; growth has often exceeded Delaware’s 3% benchmark, running 6–10% in recent years.

The franchise‑tax tailwind (and exposure)

Delaware’s role as corporations’ favorite home fueled a long rise in franchise‑tax receipts — crossing $1B in 2018 and peaking near $1.6B in 2023. It’s now about 25-30% of General Fund revenue. Policy changes and a growing incorporation base enabled bigger K‑12 and health budgets without a sales tax and with low property taxes. But this leaves the state exposed to federal tax changes and corporate activity cycles; receipts have eased since 2023.

Here’s the side-by-side bar chart showing the growth in Delaware’s major revenue sources from 2019 to 2025, including the Corporate Franchise Tax front and center:

🟦 2019 vs. 🟥 2025 (est.)

Revenue Source	2019 (approx.)	2025 (est.)	% Growth
Corporate Franchise Tax	$1.0B	$1.4B	+40%
Personal Income Tax	$1.6B	$2.0B	+25%
Realty Transfer Tax	$250M	$350M	+40%
Gross Receipts Tax	$250M	$325M	+30%
Lottery & Gaming	$200M	$275M	+38%
Corporate Income Tax	$400M	$375M	–6%

The chart above shows how Delaware’s revenue mix has shifted:

• The Franchise Tax remains a powerhouse.
• Realty Transfer Tax and Gaming surged during the pandemic and remain elevated.
• Corporate Income Tax is the only major source that declined, due to federal deductibility changes.

The risk ahead: costs vs. capacity

• Education: Per‑student spending is structurally higher (salaries/benefits, special ed, facilities).
• Health care: Medicaid and medical inflation outpace general growth.
• Revenues: Franchise‑tax softening post‑peak; federal one‑time funds gone
• Bottom line: If education and health care keep growing faster than revenue, population, and GDP, Delaware faces a structural gap that will require productivity gains, program tradeoffs, or revenue‑mix adjustments to protect classrooms and core services.

Who pays what share?

Delaware’s General Fund relies on two pillars: residents’ personal income tax (PIT) and business-centric revenues (franchise/entity fees, gross receipts, corporate income tax).

Residents (personal income tax)

• Under $100K: majority of households, smaller share of PIT due to progressive rates.
• $100K–$200K: about a quarter of households, outsized share of PIT.
• Over $200K: a small slice of households, but they contribute a disproportionately large share of PIT.

Illustrative split of PIT burden:

• Under $100K: ~40%
• $100K–$200K: ~32.5%
• Over $200K: ~27.5%
  

Changes in 2026 further increase their share

This year, Delaware will add higher brackets under the John Kowalko, Jr. Fairness in Taxation Act (HS 1 for HB 13), effective for tax years beginning after Dec. 31, 2025. Income between $60,000 and $125,000 remains at 6.6%, while income over $125,000 is taxed at 6.75%, and income over $250,000 at 6.95%—a shift aimed at increasing progressivity so top earners pay a slightly larger share. Sponsors and fiscal analyses indicate well over 90% of taxpayers won’t see an increase (some estimates put it around 94%), concentrating new revenue at the top. 

Why it matters now: The changes bolster revenue as federal one-time funds fade and healthcare and education costs keep rising, while limiting impacts on middle- and lower-income families.  However, increasing pressure on high-income taxpayers can reduce total income if they elect to move their primary residence to another state. 

Businesses (collectively)

• Franchise & entity taxes (~20–25% of the General Fund), gross receipts, corporate income, and bank franchise taxes together contribute a business share comparable to the resident PIT slice.
• Other notable sources (e.g., unclaimed property, lottery) add mid-single-digit shares and can be volatile.

Bottom line on tax burdens:

• High-income families already carry a significantly larger share of the income-tax load than middle- and lower-income families.
• Businesses collections central to Delaware’s “no sales tax/low property tax” model.

The risk ahead: When needs grow too fast:

• Education and health care are on long-term cost paths that tend to outpace inflation and general growth.
• Revenue sensitivity has increased as franchise-tax receipts cool and one-time federal funds disappear.
• If costs keep outrunning revenue, population, and GDP, Delaware faces a widening structural gap — forcing choices among productivity gains, program tradeoffs, or revenue-mix adjustments to preserve classrooms and core services.

Fact Box

• Budget growth (2000→2025):
  • ~$2.1B → $6.9B (+228%).
• Population:
  • +34%; GDP: +142% (current dollars).
• Education:
  • ~One third of the operating budget
  • Per-student;
    • ~$17,650 (2022)
    • ~$20,502 (2024)
• Health care:
  • ~37% of operating budget
  • ~$0.5B in 2000 → ~$2.6B in 2025).
• Franchise tax:
  • Exceeded $1B by 2018
  • Near $1.6B peak in 2023; softened since.
• Who pays: High-income households contribute a disproportionate share of PIT; businesses contribute a comparable share via franchise/entity and other business taxes.

About the Civics 101 Series: Civics 101 is a continuing explanatory series by Delaware LIVE and the Spotlight Delaware content marketing team designed to help readers understand how state government works and how budget decisions affect everyday life in Delaware. To read other stories in the series, visit the Civics 101 home page.