DOVER – State fiscal analysts released their first look at the coronavirus’s economic impact on Delaware on Monday, when they estimated that the current fiscal year has taken a $416 million hit so far, now leaving a deficit of about $784.5 million in the governor’s nfe
With estimated general fund revenue of about $4.32 billion, the state would face a deficit of $150 million heading into next fiscal year – a stark turn from December when the Delaware Economic and Financial Advisory Council (DEFAC) estimated that the state would enjoy a $246 million surplus at the end of the year.
How that deficit is closed isn’t something that DEFAC, a non-partisan group of business and community leaders, academics, and government professionals that sets the state’s official revenue estimates, is tasked to consider, but the state does have reserve funds in tow for such an emergency. The larger question will be how the state contends with an expected downturn in revenues through next fiscal year, which runs July 1, 2020, to June 30, 2021.
Delaware State House and Senate leaders from both parties are asking the state’s Congressional Delegation for help in getting more flexibility in using more than $1 billion in federal coronavirus aid.
The authors of the letter noted that money from the Coronavirus Aid, Relief and Economic Security (CARES) Act provides $150 billion directly to states, territories, tribes and localities to combat the public health and economic effects of the COVID-19 pandemic.
Delaware is expected to receive approximately $1.25 billion under the omnibus measure. The funds will be transferred to states during the next two weeks.
“The CARES Act provides vital funding, but it restricts the money to unbudgeted expenses related to COVID-19. It cannot be used to address states’ revenue losses. This is far too restrictive for states like Delaware to effectively apply the federal funds. Being able to use these dollars to shore up Delaware’s operating budget is critical to maintaining services and recovering from this unprecedented crisis,” the letter stated.
While this seems to be a definitive move in the right direction, we must consider what good this task force can provide after businesses have been shut down or have suffered greatly for a month with little help. Businesses across the state continue to reduce capacity, lay off workers, and shut down after crumbling under the weight of this pandemic.
After all this time without action, this new effort seems to be too little, too late.
With Congress torn on whether to authorize more funding for the PPP, where does that leave Delaware businesses?
For many, these SBA loans were the only hope to pay bills, keep employees, or even remain in business. If a Delaware business does not qualify for the state’s Hospitality Emergency Loan Program (HELP), then they truly are left without help.
Delaware issued a stay at home order on March 22 (in effect on March 24), effectively closing non-essential businesses. Twenty days later, and after offering little help to the businesses forced to shutter, we have joined a regional task force that still offers no help to struggling and failing businesses at this time.
Michigan, a state with over ten times Delaware’s population, established their task force on “general economic impact on the workforce, business activity and supply chains” on March 3, twenty days before issuing a stay at home order.
Other larger states like Ohio, Utah, and Colorado have formed their own task forces to address business needs, economic impact and recovery, and reopening their operations.
Their leaders recognized that saving livelihoods went hand-in-hand with saving lives.
Delaware’s reserves, such as the Rainy Day Fund, Strategic Fund, and money from budget smoothing have yet to be released to help ease the economic impact. Hundreds of millions of dollars in these reserves has been set aside for use in times just like this—especially the Rainy Day Fund which currently totals over $250M.
It isn’t just raining right now—it’s pouring.
Over the past four weeks, nearly 62,000 unemployment claims were filed, almost twice the amount for all of 2019. New businesses are shutting down weekly, with no hope for the future. State revenues are shrinking just as fast as money from the gross receipts tax, realty transfer tax, income tax, and more are not being generated.
Instead of utilizing hundreds of millions of existing taxpayer dollars to help ease the impact of this crisis, leadership has let businesses fail and our economy suffer.
When small businesses started failing and asked for help, they were denied. When entire industries came and begged to be saved, leadership denied them as well. When they come to you, the taxpayer, at the end of this for help with a budget deficit, it will not be a request. It will be higher taxes imposed on a population that is struggling to recover their own finances.
Gov. John Carney told leaders of Delaware’s nonprofits Thursday that with so many businesses closed, the state may lose $500 million to $1 billion in state revenue.
Because of that, he said he can’t be sure what will happen with the state budget.
Carney and Lt. Gov. Bethany Hall-Long fielded questions from nonprofits during a virtual town hall focusing on the effects of the coronavirus pandemic. It was organized by the Delaware Alliance for Nonprofit Advancement.
One of the questions asked was what they could expect in the 2021 budget, particularly as it applies to bond funding and the grants-in-aid that keep many of them afloat.
Carney said that picture is not yet clear. The state normally would be getting a lot of revenue from casinos and other businesses now ordered shut to slow the spread of the coronavirus.
Because of that, there could be $500 million to $1 billion in lost revenue.
He said he hopes the Legislature can come together to create a budget by June 30. He also noted that federal stimulus money cannot be used to make up for that lost revenue.
I’ve watched Governor Carney’s press conferences about Delaware’s response to the coronavirus COVID-19. The Governor and public health officials are doing a professional job of talking about the trends and letting us know where Delaware stands. They fear that the next two weeks will be frightening in terms of positive cases and are working to preserve the necessary capacity at hospitals for the sickest patients.
The Governor admits that the forecasts in this area may be conservative. He credits working with hospitals and says, “they’ve had great ideas…This has been a great partnership.”
All Delawareans are thankful for the heroic efforts of our health care workers and first responders. We are also thankful for the type of partnership and cooperation with the health community that the Governor mentions that exists to fight this pandemic.
This column was originally going to focus on the need for a similar level of cooperation and partnership to finding finding a way to get Delaware working again as soon as possible. And as you probably read onour website, we learned just before going to press that that’s beginning to happen.
There are some who agree with New Castle County Executive Matt Meyer, who has made the argument that the best way to restart our economy is to test every Delawarean who hasn’t been tested. Dr. Fauci was on the Today show April 9th and said that the antibody test would be available in large numbers within weeks.
Meyer knows that weeks of sheltering in place will do great harm to our economy. We are a small state that prides itself on getting things accomplished. If this is a viable option that can be done cost-effectively and quickly, it would be great if we could become the First State of testing.
But I’m equally heartened by the news that Doug Gramiak and Tom McGonigle – two people with a distinguished record of serving our state – have been informally asked by Governor Carney to look into ways that we might jump start our economy.
Whether it’s serendipity or part of their effort, I am hearing that business leaders across the state are building lists that will support the efforts of Gramiak and McGonigle.
“If there was ever a time for the business community to work together, this is it,” Delaware Business Roundtable Executive Director Bob Perkins told me on April 9. “Now is the time, for example, to put the Ready in Six initiative on steroids” to help encourage business retention and attraction.
I believe there are a number of ideas beyond streamlining the permitting process statewide that we should consider, including expanding broadband internet services statewide – particularly in light of the number of people who might continue to work from home after the crisis – and finding ways to help restaurants restore customer confidence once they can reopen.
The question of how Delaware deemed specific businesses or industries “essential” during the coronavirus pandemic is being asked by a growing chorus of employees, business owners and customers.
Yet, Gov. John Carney’s administration has not provided clear answers. With Freedom of Information Act requirements rescinded during a state of emergency, the public may not know for a prolonged period of time how the state settled on the economic restrictions.
Responding to a ballooning health crisis last month, Carney declared a state of emergency in Delaware, and with it published a list of industries he would allow to remain open while others would be ordered to close.
On Wednesday, The News Journal sent Carney’s office a list of questions on the topic, including inquiries about specific exceptions to the state’s essential-business list.
In an emailed reply, Carney administration officials repeated past proclamations but did not directly answer each question. The response said the economic restrictions “are intended to prevent a surge in (coronavirus) cases, preserve our hospital capacity and save lives.”
The governor took advice from health experts and agencies outside Delaware while considering which businesses could operate while limiting the spread of the virus, and which products the public needs to be safe, they said in the email.
“The first priority has always been the safety of Delawareans. Within that context, we did our best to balance public health with keeping businesses operating when possible,” the email stated.
Despite the assurances, an outspoken owner of a Dover hemp and smoke shop called the government’s process of deciding essential businesses “arbitrary and unfair.”
Treasurer Davis believes that “Delaware is well positioned to weather this storm for a number of reasons,” but most of the examples fall short of being able to help thousands of small businesses and tens of thousands of laid off or furloughed workers in the state.
The Treasurer boasted Delaware’s Rainy Day Fund, a reserve of 5% of state revenues, as one of our protections. However, according to a PEW Research Center analysis, Delaware could run only on Rainy Day Funds for 20 days if necessary, 7.9 days less than the national average.
Other “positives” listed for our economic recovery include “consistently funding our pension,” despite Delaware having total unfunded pension liabilities (guaranteed to be paid) that are 30% of the state’s personal income, or $13.75 billion.
To effectively assess the impact of this crisis and accurately model revenues, it is important to acknowledge Delaware’s true fiscal standing.
The First State ranks 44thin the nation for fiscal health, according to a Mercatus study. Our long-term liabilities are higher than the national average per capita, and is in the bottom in the nation for solvency (ability to pay debts and financial obligations).
However, if our Treasurer is correct and Delaware can help its small businesses in this time, why hasn’t it?
Alabama and seven other states have postponed various tax payments for small businesses. Iowa, Vermont, and Mississippi have suspended interest and penalties for late payments on various business taxes.
Delaware has not provided tax relief to affected businesses.
Maryland has released $50 million from its rainy day fund to help with the response, Washington $200 million, Wyoming up to $150 million, and Ohio has granted access to their fund when needed.
Delaware has not released rainy day funds for response.
Minnesota has already publicly projected that their budget surplus and rainy day fund will both disappear over the next two years while responding to and recovering from COVID-19. Idaho’s Governor has required one-percent budget cuts for all state agencies not directly involved in coronavirus response efforts, and Ohio has called for cuts up to 20%. California’s
Department of Finance has notified legislators that there should be no expectation of ability to fund new or existing policy proposals, and that revenue predictions must be revisited. New Jersey has frozen $900 million in spending in preparation for emergency financial strain, and New Mexico has denied millions for spending projects due to the outbreak.
Delaware has not addressed revenues or spending in the wake of coronavirus.
Montana took the initiative to prepare for disaster in good times, and now has $115 million in its Budget Stabilization Fund, a general fund surplus of $300 million, and $360 million in Unemployment Insurance Fund reserves.
Imagine the help Delaware could offer if our spending and saving habits had been more like Montana.
Delaware will have to play catch-up more than usual now that COVID-19 is closing businesses and crippling private and state revenues. Without growth, we cannot build new schools, provide clean water, or help our residents.
“In these deeply uncertain times, it is imperative that we lead effectively by managing the challenges of today, while preparing for the next issue over the horizon,” Delaware’s Treasurer said in her commentary. We couldn’t agree more.
Unfortunately, we may be too late. The time to prepare and exercise mindful spending is not in the midst of a pandemic, but as President John F. Kennedy said, “The time to repair the roof is when the sun is shining.”
In its first round of grants, the Delaware COVID-19 Strategic Response Fund awarded $350,000 to 11 nonprofit organizations providing services to communities throughout the state.
Requests totaled $3.9 million.
The fund is managed by the Delaware Community Foundation. Click here for further information and to donate.
The grants will address a range of community needs during the pandemic.
Modern Maturity: $50,000 to deliver additional meals to seniors at their homes.
Brandywine Counseling: $25,000 to meet the increased demand for recovery services.
Family Counseling of St. Paul: $22,000 to meet the increased demand for family counseling services.
Westside Family Healthcare: $50,000 for telehealth equipment to provide care for prenatal and chronically ill patients.
YMCA: $50,000 for childcare for essential workers statewide.
Easterseals of Delaware & Maryland’s Eastern Shore: $29,000 for telehealth equipment to provide child intervention services.
CHILD, Inc: $36,000 to provide housing for battered women and their children, meeting increased demand because of social distancing requirements.
CHEER: $38,000 delivering additional meals to seniors at their homes.
Housing vouchers for the homeless: $50,000
Friendship House for New Castle County – $30,000
Community Resource Center for Sussex County – $10,000
Catholic Charities for Kent County – $10,000
In this first round, 95 applicants requested a total of $3.9 million. The initial awards represent 23% of the total $1.5 million raised to date for the COVID-19 Strategic Response Fund, which is housed at the Delaware Community Foundation (DCF).
The fund will award an additional $350,000 in grants this week.
The goal is for the fund, which launched March 18, to provide grants for several months, said DCF President and CEO Stuart Comstock-Gay, who chairs the fund’s decision-making council.
Eric Williams, who runs Mispillion River Brewing in Milford, said he’s lost about 60 percent of its business after the state prohibited dine-ins at food establishments to prevent the spread of coronavirus.
That’s lead him to have to lay off 10 of his 14 workers.
Now, Williams is one in a group of about 200 businesses in the First State who have applied for loans from state government to stay afloat during the during coronavirus shutdown. Half of them have been restaurants, according to the Division of Small Business.
Williams hopes the loans, which Gov. John Carney announced two weeks ago, can help cover his operating expenses and free up money to rehire his workers. The loans were initially created for certain hospitality-related businesses, such as restaurants, hotels and brewpubs.
“If we can save four, five or six people from going on unemployment with the support of our community, then that’s good not just for us … but it is good for our economy,” Williams said.
Carney closed down businesses to try to stop the spread of coronavirus after a March 11 positive test for COVID-19 in a University of Delaware professor. As of Friday, Delaware had 450 positive cases and 14 deaths.
Even though the virus has stopped people from coming in to enjoy a pint, costs such as rent, utilities and the cost of ingredients for beer haven’t gone away. His brewpub is still casing and selling to customers.
“We need to have beer when we open back up,” Williams said. “Especially coming out of a winter, because we’re fairly seasonal.”
Williams said the loans are only a “piece of the puzzle” to help businesses. He asks that Delawareans buy local, get takeout from their favorite restaurants when they don’t feel like cooking, and make sure to practice social distancing wherever you go.
The U.S. Small Business Administration and Treasury Department announced what was described as a mobilization effort of banks and other lending institutions to provide small businesses with capital.
The CARES Act establishes a new $349 billion Paycheck Protection Program. The Program will provide relief to millions of small businesses, a release stated.
“This unprecedented public-private partnership is going to assist small businesses with accessing capital quickly. Our goal is to position lenders as the single-point-of-contact for small businesses – the application, loan processing, and disbursement of funds will all be administered at the community level,” said SBA Administrator Jovita Carranza. “Speed is the operative word; applications for the emergency capital can begin as early as this week, with lenders using their own systems and processes to make these loans. We remain committed to supporting our nation’s more than 30 million small businesses and their employees so that they can continue to be the fuel for our nation’s economic engine.”
The new loan program will help small businesses with their payroll and other business operating expenses.
It will provide capital to businesses without collateral requirements, personal guarantees, or SBA fees.
All loan payments will be deferred for six months. The SBA will forgive the portion of the loan proceeds that are used to cover the first eight weeks of payroll costs, rent, utilities, and mortgage interest.