DOVER, Del. (AP) — Gov. John Carney on Thursday proposed a state operating budget of more than $6 billion for the fiscal year starting July 1, an increase of more than 8% even amid a projected revenue decline of 2% this year.

The Democratic governor’s proposed spending plan is slightly higher than the benchmark recommended by the panel responsible for Delaware’s official revenue projections. It follows an increase of almost 10% percent in the current year’s budget.

Carney said much of the growth is due to spending on pay raises for state employees and rising health care costs for state employees and retirees.

Despite the growth in spending, administration officials warn that state revenues will soften over the next two years and that they may have to dip into reserve funds to balance the budget. If so, they will rely on a “budget stabilization fund” created by Carney in 2018 to set aside extra revenue for potential shortfalls in the future.

The stabilization fund, which currently totals $410 million, is separate from Delaware’s never-tapped “rainy day” fund, which totals about $329 million.

“It looks like we’ll need a budget stabilization fund to cover some shortfalls next year and the year after,” Carney said.

“One of our primary messages to legislators is to be careful in this year because of the softening revenues next year and the year after,” he added. “You don’t want to build in spending in the budget that you’re not going to be able to sustain in the out years.”

Finance Secretary Rick Geisenberger said revenues are projected to be “pretty flat” over the next two years, declining by 2% this year and growing by an equal amount in fiscal 2025.

“As we look out to fiscal year ’26, unless revenues bounce back significantly, … we may well need to draw parts of the budget stabilization fund next year,” he said.

Carney’s spending plan includes a 2% across-the-board pay raise for state employees, and what administration officials describe as a “historic wage increase” for school employees. Their goal is to increase starting pay for teachers to $60,000 by fiscal 2028.

Officials noted that the average salary for state government workers has increased by 31% since fiscal 2017. It is unclear how that compares to average wage growth in the private sector.

The proposed budget includes $2.1 billion for education, including $63 million in weighted funding for low-income students and English language learners, $45 million for salary increases, and $17 million for mental health services for students. Carney also is recommending more than $135 million for early childhood education.

Administration officials said health care spending accounts for nearly 40% of the proposed budget growth. They are recommending an increase of about $200 million for Medicaid and health care plans for state employees and retirees.

In addition to the operating budget, Carney is proposing a capital budget of $944 million for construction, maintenance, transportation and economic development projects. That’s roughly $500 million less than this year’s capital budget. The proposed capital budget includes $329 million for transportation projects.

Carney is also recommending a grants package of $66.5 million for community organizations, nonprofit groups and volunteer fire companies. That’s down slightly from this year’s record $72 million.

The final component of Carney’s proposed spending plan is a one-time appropriation of $92 million for various programs, including $56 million for non-pension retiree benefits.

Members of the General Assembly’s budget-writing Joint Finance Committee will be holding hearings on Carney’s spending proposal next week.