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Philly Fed chief: Delaware faces uneven recovery

From Delaware Business Times

PHILADELPHIAThe head of the Federal Reserve Bank of Philadelphia told Delaware business leaders Tuesday morning that he expects the state’s banking and finance sectors to weather the coronavirus pandemic while manufacturing will “bounce back” as it subsides. But he also said traffic at the Port of Wilmington and the state’s tourism-dependent beaches may be in for a tough year.

Patrick T. Harker, president and CEO of the Federal Reserve Bank of Philadelphia and the former president of the University of Delaware, outlined an uneven economic recovery for the First State, where New Castle County will likely endure better than Kent and Sussex counties.

Delaware’s travel and hospitality sector – an area where the southern counties are particularly dependent — may face “a longer and more painful contraction,” Harker said in a conference call with the Delaware State Chamber of Commerce. That would be spurred by businesses reducing corporate travel amid the increasing use of teleconferencing software, like Zoom or Skype, and the hesitance of many families to visit crowded places such as Delaware’s public beaches.

“There will be demand. People will still, understandably, have cabin fever and they’ll want to get out on some sort of vacation, but they may take small steps before getting on an airplane or trying to go long distances,” he said.

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Central Delaware chamber pushing for more businesses to reopen Monday

From Delaware State News

DOVER — The Central Delaware Chamber of Commerce is pushing to reopen more businesses by Monday, and will make a pitch to Gov. John Carney during a teleconference this afternoon.

CDCC President Judy Diogo said the organization’s letter to the governor on Monday emphasized “well thought-out plans” to provide a healthy environment for arriving patrons and employees. The correspondence was shared with the state’s 13 other chamber branches, who will also join the call, she said.

Currently, Phase 1 economic reopening is scheduled for June 1 under the governor’s state of emergency order. While some essential businesses have stayed open throughout COVID-19’s arrival in March, others later opened with restrictions and some remain shuttered.

In the past month, Ms. Diogo said eight CDCC business members – small retail stores – have closed permanently.

“That’s devastating to hear,” she said. “They said there was no possible way to continue due to the financial impact of being closed.”

Other business owners are, Ms. Diogo said, “desperate and frightened, some of them are angry and they feel frustrated. They’re confident in the steps they’ve taken to provide safe and secure settings and are ready to open back up and get to work. “

The CDCC has approximately 850 small- and mid-sized company members who have about 36,000 employees combined. Ms. Diogo said the recurring theme during discussions is that companies have outlined in great detail their plans to provide best practices upon reopening. Businesses would be amendable if hours are initially restricted, Ms. Diogo said.

“Businesses need the option to reopen at this point, which some might not do if they don’t feel ready to do that for whatever reason,” Ms. Diogo said. “For those that do, however, we all feel very confident and trust that they’ve made serious and well thought-out efforts to safely accommodate anyone associated with them.”

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Open letter to Gov. Carney from business leaders

On May 6, Delaware business leaders authored a letter to Governor Carney requesting the opportunity to inform reopening decisions. The Delaware Business Roundtable and Delaware State Chamber of Commerce believe:

“the combination of a carefully considered, phased reopening of Delaware businesses and the implementation of a series of strategic, long-term policy changes will put Delaware and our citizens in a healthy and economically secure position in the future.”

The letter was released a day after the Governor announced plans to allow some small businesses to resume operations, beginning as early as May 8. While this is a step towards economic recovery from COVID-19, it is only one of many to come.

A path to recovery informed by business leaders—who understand firsthand the urgency of the economic strain—is perhaps the best step towards recovery that we could take at this time.

The two groups are offering a phased reopening guide for businesses to be sent to their memberships, and a series of policy recommendations to jumpstart the economy. “Creative use” of federal stimulus funds were also mentioned in their vision for strengthening Delaware’s economy, workforce, and business community post-coronavirus.

Delaware’s emergency order has been extended through May 31, as many business owners and workers fear for their livelihoods as each new day dwindles their reserves.

The time to partner with the business community was likely long ago, but it is better late than never to do so.

We hope the Governor and other state leaders accept the guidance being offered in order to protect Delawareans and the First State’s future.

__

Proposals:

COVID-19 Best Practices

Putting Delaware Back to Work: Economic Recovery in the First State

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Read the letter below:

Dear Governor Carney: 

Since the beginning of the COVID-19 pandemic and the necessary restrictions on economic activity enacted by the State, The Delaware Business Roundtable and the Delaware State Chamber of Commerce have been working together to provide our assistance to safely and responsibly enable a phased reopening of Delaware’s economy. At the outset, we want to be clear that we believe any action to reopen the economy must follow public health guidance to be certain Delaware does not experience a resurgence and put additional pressure on the state’s healthcare system. 

We are writing today to offer two specific pieces of work: 

  • COVID-19 Best Practices: This is a guidance document for Delaware’s business community, developed after surveying and discussing these issues with businesses statewide. We believe this document will provide a basic guide to businesses outlining essential activities they must consider as they execute a phased reopening. We are working to disseminate this document widely to our members and beyond; 
  • Putting Delaware Back to Work: Economic Recovery in the First StateThis is a series of strategic, long-term policy recommendations with consideration that the economic recovery from the pandemic will take far longer than any of us may have initially imagined. Thus, now is the time to make meaningful public policy changes and investments so that we can jumpstart efforts to create a higher skilled workforce, a streamlined regulatory approval process, easy access to broadband, and more. 

Many agree that the pandemic has brought to light some of the challenges Delaware faces in competing with other states for jobs, talent and investment. The goal is clear: we should act with urgency now! Why? So that in two or three years we can look back and assert unequivocally that in the midst of a national crisis Delaware leaders – representing both state and business interests – acted responsibly in the short term and also took the long view to put Delaware on a forward-looking, carefully considered path that resulted in economic prosperity for all Delawareans. We believe that, working closely with you and the General Assembly, many of the proposals articulated in the attached document should be enacted within the next 30 days as a means of generating jobs. As has been said before, we should never let a serious crisis go to waste; it’s an opportunity to do things we think we could not do before. 

Given the state revenue update from DEFAC on Monday, making such investments will represent a considerable challenge. However, the combination of a carefully considered, phased reopening of Delaware businesses and the implementation of a series of strategic, long-term policy changes will put Delaware and our citizens in a healthy and economically secure position in the future. With appropriate spending prioritization, creative use of federal stimulus funds and a careful balance between use of state operating funds and the state’s bonding authority, we are certain that Delaware can meet this challenge. 

As our State has seen in the past, a focused public-private partnership can surmount the most difficult challenges. Accordingly, we look forward to working collaboratively with you and your team on these urgent matters. 

Judge rules Delaware property tax system unconstitutional; major changes to residents’ bills could follow

From The News Journal

A judge has ruled that Delaware’s property tax system is unconstitutional, potentially triggering significant changes in annual tax bills for the first time in decades.

Vice Chancellor J. Travis Laster wrote on Friday that all three counties calculate tax bills with property values that are so outdated some taxpayers get an unfair discount while others pay taxes on a larger share of their property’s actual worth.

Those inequities violate the state constitutional requirement that property owners be taxed equally, Laster said in a 149-page ruling in Delaware’s Court of Chancery.

“By continuing to use the decades-old valuations when preparing their assessment rolls, the counties treat owners of similar properties differently,” Laster wrote.

The ruling could eventually affect every property that is taxed in Delaware, and begins a debate on how to make the state’s property tax system fair in the eyes of the courts.

Laster’s opinion asks attorneys for both sides to submit a schedule in 45 days to govern that discussion, which is likely to be litigated in court before any residents see changes to their tax bills

The plaintiffs, a group of education funding activists and Wilmington officials, want property values to be reassessed — a potentially costly, months-long process in which assessors visit each property and update its value in current housing market conditions.

It could lead to property tax increases for those who are currently underpaying relative to the market value of the property, decreases for those who are overpaying and some tax bills changing very little.

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Open letter to Gov. Carney from business leaders

From Delaware Business Times

Dear Governor Carney: 

Since the beginning of the COVID-19 pandemic and the necessary restrictions on economic activity enacted by the State, The Delaware Business Roundtable and the Delaware State Chamber of Commerce have been working together to provide our assistance to safely and responsibly enable a phased reopening of Delaware’s economy. At the outset, we want to be clear that we believe any action to reopen the economy must follow public health guidance to be certain Delaware does not experience a resurgence and put additional pressure on the state’s healthcare system. 

We are writing today to offer two specific pieces of work: 

COVID-19 Best Practices: This is a guidance document for Delaware’s business community, developed after surveying and discussing these issues with businesses statewide. We believe this document will provide a basic guide to businesses outlining essential activities they must consider as they execute a phased reopening. We are working to disseminate this document widely to our members and beyond; 

Putting Delaware Back to Work: Economic Recovery in the First State: This is a series of strategic, long-term policy recommendations with consideration that the economic recovery from the pandemic will take far longer than any of us may have initially imagined. Thus, now is the time to make meaningful public policy changes and investments so that we can jumpstart efforts to create a higher skilled workforce, a streamlined regulatory approval process, easy access to broadband, and more. 

Many agree that the pandemic has brought to light some of the challenges Delaware faces in competing with other states for jobs, talent and investment. The goal is clear: we should act with urgency now! Why? So that in two or three years we can look back and assert unequivocally that in the midst of a national crisis Delaware leaders – representing both state and business interests – acted responsibly in the short term and also took the long view to put Delaware on a forward-looking, carefully considered path that resulted in economic prosperity for all Delawareans. We believe that, working closely with you and the General Assembly, many of the proposals articulated in the attached document should be enacted within the next 30 days as a means of generating jobs. As has been said before, we should never let a serious crisis go to waste; it’s an opportunity to do things we think we could not do before. 

Read the full letter here

Taxes and Spending: The Real Economic Impact

DEFAC estimates show Delaware’s revenues for FY 2020 down by $416M and FY 2021 revenues down by $273.3M, creating a deficit of about $748.7M. Governor Carney expects as much as $500M to $1B in lost revenues.

In 2017, Delaware increased spending and raised taxes to answer a $400M deficit.

Increasing spending with such a high deficit is irresponsible. As for taxes, asking businesses and workers to fork over money when businesses have been forced to exact layoffs, limit operations, or even close seems incomprehensible, but Delaware leaders are considering doing just that.

On Monday, Delaware Department of Labor Secretary Cerron Cade said higher unemployment taxes (paid by businesses) could be implemented to refresh funding for unemployment benefits. According to Secretary Cade, the total for these benefits could be $850M over the next three months alone.

Looming tax hikes aren’t our only concern as we push forward. If we look at how the current leadership has handled deficits in the past, Delawareans can expect to see spending for projects that could have been delayed until the state was stable again. Some argue this is how we jumpstart economic growth.

According to an article in Forbes:

“More government spending has been widely-touted as a cure for unemployment, but support for that view seems to be eroding…there isn’t any net gain from government spending since it’s offset by the taxes needed to pay for it, taxes that reduce private sector spending.”

For example, massive spending hikes in the 1930s, 1960s, and 1970s all failed to spawn economic growth, but in the 1980s and 1990s—when federal government spending shrank—the U.S. economy enjoyed one of its greatest expansions.

Some government spending is beneficial, but only if government spending does not crowd out similar private spending, and only is spent wisely, such as education, job training, physical infrastructure, and research and development. In general, government expenditures can weaken the private sector by unproductively allocating resources and thus slowing income growth.

Government spending is entwined with taxes, and high tax rates reduce incentives to work, save, and invest. This leads to a less motivated workforce and less business investment in new capital and technology. Few government expenditures boost productivity enough to offset that lost due to taxes.

So why do our leaders insist on additional spending?

It boils down to politics. New spending programs seem to benefit those who implement them more than those who pay for them.

In a ploy to avoid cutting spending, the state has requested federal funds. Delaware leaders jointly sent a letter to Delaware’s congressional delegation asking for flexibility with how the state can spend more than $1B in stimulus funds.

The National Governor’s Association (NGA) also submitted a formal request to Congress for federal aid to offset state deficits. This request has been denied for now, with leaders arguing that if states face budget woes, it is due to decades of fiscal mismanagement.

Instead of returning time and time again with more taxes coupled with new spending, the state government can be responsible and allocate surpluses to reserves or implement reviews to assess the need and efficiency of certain programs.

If this had been the response in 2017, we may have been more prepared to weather this storm.

Delaware has been shut down for 38 days with no real end in sight, and the President has recommended an incremental reopening strategy. Seventeen percent of small businesses said that they would have to close down or sell if they experienced two-month loss in revenue, according to the latest Small Business Credit Survey.

They need help, not taxes or spending programs.

Unfortunately, we cannot turn back time. All we can do is move forward in a way that is financially sound in the short- and long-term, and in a manner that does not add undue burden to taxpayers and businesses.