The US Supreme Court ruled against Delaware this week in a case centered on the state’s collection of unclaimed property as revenue.
Delaware relies on revenue from unclaimed property – anything from unclaimed gift cards to abandoned bank accounts – more than any other state in the country.
The outsized reliance on unclaimed property is a byproduct of the Delaware’s role as the country’s corporate capital. In cases involving unclaimed intangible property, a 1965 US Supreme Court case held that the property belongs to the state in which the owner is incorporated, giving Delaware an advantage over all other states.
At its highest, unclaimed property made up 13 percent of Delaware’s revenue, though that figure fell to six percent as of the last fiscal year.
Tuesday’s US Supreme Court’s ruling addresses Delaware’s collection of unclaimed checks issued by the cash-transfer company MoneyGram.
Delaware collected checks on the grounds that the company is incorporated here, but the court sided with thirty other states, including Pennsylvania and Wisconsin, by determining the checks fall under a decades-old federal law that returns unclaimed money orders to the states where they were purchased.
Pennsylvania’s State Treasurer estimated last fall that Delaware could owe $400 million to other states, but Delaware Finance Secretary Rick Geisenberger notes the Court didn’t determine Delaware’s liability and that the state likely has enough in its reserves to withstand the financial impact.
“I believe that our cash balances, which are at record levels, and the reserves that we’ve created will be able to carry us through this with no impact on our current budget,” he told Delaware’s Healthcare Commission this week.
Geisenberger also stresses that had Delaware not worked to reduce its reliance on unclaimed property and build its reserves over the past decade, the decision would have created a financial crisis.
“We’ve known this decision was coming since before I was secretary,” he said. “It is a lesson about why we need to keep to the decision we’ve developed over the past five years. If we hadn’t, that decision would have been a budget crisis for us. It’s not today.”
Gov. John Carney’s proposed 2023 budget puts more than $700 million in the state’s rainy day and budget stabilization funds.
The Court remanded the question of Delaware’s liability to a special master; meanwhile, their decision could open the door for states to challenge other streams of unclaimed property claimed by Delaware.