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April 1, 2020 In In The News

President’s Notebook: Very few businesses have a contingency plan for a pandemic

From the Delaware Business Times

Commentary from Rob Martinelli

These have been the hardest weeks of my business career. I’ve been through the crash of ’87, the dot com bust of 2000, the big recession in ‘08 and ‘09.

Nothing compares to what is going on today.

I’ve put my life into building this business – Today Media – a company of 130 people serving four communities and a robust custom media operation serving many more.

I didn’t have a contingency plan for a pandemic.

On average, companies with fewer than 500 employees have less than a month of cash reserves, according to a study by the JPMorgan Chase Institute. Smaller businesses often have just a couple of weeks’ worth of cash to keep running. Today Media is better prepared than average businesses, but few businesses are adequately prepared for an event of this magnitude.

Thirty percent of Delaware restaurants have chosen to close completely instead of continuing operations focused on takeout and deliveries. More drop daily as carryout fails to sustain operations.

Local hotel occupancies have started to drop below 50% and the stats I am hearing are in the teens. A decline of 15% puts many owners in a cash-flow negative. Many industries face the same bleak picture.

Emergency SBA economic injury loans could play a big role. They offer low interest rates and a 30-year payback. But, getting these loans can take time.

The US Chamber of Commerce said, “The SBA also should be given the authority to streamline its disaster-loan approval process for amounts below $350,000 in order to provide emergency capital more quickly.” The group urged removing a requirement that small businesses show they can’t get credit elsewhere before turning to the SBA. We would support both of these much-needed initiatives.

The State of Delaware needs to do more. The HELP program for the hospitality industry is a step in the right direction, but it seems like a modest measure, considering that tourism contributes $3.5 billion to the State’s GDP.

To be eligible, hospitality businesses must have been open at least one year, have annual revenue of less than $1.5 million (since upped to $2.5 million), and operate in certain hospitality-connected industries. These limits would exclude a huge number of hospitality businesses and thousands of their employees. In other industries, except for essential businesses, the vast majority have now been asked to close.

Surrounding states and cities are doing much more. Delaware has a Rainy Day Fund. Let me tell you – it’s not only raining it’s a Cat 5 Hurricane, especially for small businesses…

https://delawarebusinesstimes.com/news/coronavirus/presidents-notebook-pandemic/

March 29, 2020 In In The News

Commentary: Belt tightening in the near future, but not like 2008

From Delaware State News

Commentary from Dr. John Stapleford, Caesar Rodney Institute’s chairman, and past director of the University of Delaware’s Bureau of Economic and Research

There are two views among economists regarding the direction of the U.S. economy. The first anticipates a substantial recession similar to 2008-09. The second expects a severe dip in the second quarter of 2020 with a steady rebound thereafter. I favor the severe dip scenario.

The 2008-09 recession was prolonged because there were extreme price distortions in residential and capital markets that took time to correct. The wealth effect from stock market losses was compounded by a huge decline in residential housing equity.

The COVID-19 crisis, while painful to many families, will have a temporary sharp impact on the U.S. macro economy. The pandemic measures adopted will fall the most heavily on restaurants, hotels, and airlines. The wealth effect from the losses in the stock market will slow consumer spending in the short term, but the underlying prices and resource markets in the nation are sound and two consecutive quarters of declining GDP is unlikely.

How hard was Delaware hit by the 2008-09 recession? Employment dropped by 50,000 over 20 months, an 11% decline. Total wages and personal income declined for a year with losses of 3-4%, and output fell 6% over five quarters.

Structural changes in Delaware’s economy caused by the 2008-09 recession were profound. As happened following the 1973-75 recession, the 2008-09 recession dramatically altered manufacturing. Over $3.5 billion dollars of annual output was lost from the downsizing of the DuPont Co., Astra Zeneca, and the remaining automobile manufacturing, together with associated wholesale operations.

It took six years for total Delaware employment to recover to its 2008 peak level. And the state’s economy is still struggling. For five months now, based upon its leading economic index for Delaware, the Philadelphia Fed has been forecasting a second quarter 2020 contraction in Delaware’s economy.

https://delawarestatenews.net/coronavirus/commentary-belt-tightening-in-the-near-future-but-not-like-2008/

March 27, 2020 In In The News

Wilmington proposes business fee hikes amid coronavirus crisis

From The News Journal

Business owners across Wilmington face a hike in their annual license fees, while also facing the challenges of a pandemic.

City officials proposed an ordinance Thursday night to the City Council to raise fees for nearly all kinds of businesses that are licensed to operate in Wilmington, from contractors to financial institutions.

If passed by the City Council, the hike would take effect immediately, according to the legislation.

The proposal has been in the works for months, said John Rago, deputy chief of staff for policy and communications for Mayor Mike Purzycki. The city has not updated its fees in more than 15 years, he said.

The proposal was made separately from Purzycki’s proposed budget for the next fiscal year.

Some Wilmington business owners said the proposal was made with bad timing as bars, hair salons, some retail stores and numerous other nonessential businesses were shuttered either by the governor’s order or economic realities during a nationwide coronavirus outbreak. Restaurants are limited to takeout operations only.

“I’m hanging on off a prayer,” said Abundance Child, owner of the Riverfront vegan eatery Drop Squad Kitchen.

Sales have dropped more than 60% in the past week, she said, and the restaurant is making just enough to still pay staff, rent and utilities.

The city is proposing a more than 50% increase in the license fee, from $181 to $300 for restaurants.

“That’s a lot,” she said. “It’s just poor timing and poor judgment. Why would you have a 50% increase in a time of depression?”

https://www.delawareonline.com/story/news/2020/03/27/wilmington-business-owners-face-fee-hikes-amid-coronavirus-crisis/2922379001/

March 27, 2020 In Blog

The First State Falls Behind in Pandemic Action

In the wake of coronavirus, Delaware businesses are struggling, shutting down, and asking for help. Unfortunately, many are not receiving the assistance they desperately need.

The Hospitality Emergency Loan Program (HELP)—offering no-interest loans up to $10,000 per business per month—has recently been expanded from the hospitality industry to include relief for personal care services businesses such as hair and nail salons and barbershops.

While this expansion is good news for some, other businesses are still being left behind.

This week, the languishing hotel industry asked Delaware lawmakers for tax deferments and to help their laid-off workers, but were told this was not a priority and to wait. With over 10,000 Delawareans filing for unemployment in one week, helping businesses and laid-off workers are just priorities they are deferring to address.

Delaware, who consistently ranks in the bottom in the nation relating to business, should take note from what some of the most business-friendly states are doing to compliment the federal coronavirus relief.

North Carolina, a top ranked state for business, is keeping its businesses and workers in mind while addressing the health crisis. The state has offered help for businesses through:

Expanding unemployment eligibility without placing the cost of benefits related to the coronavirus on businesses.
Business Edge: layoff aversion strategies and activities to help employers prevent or minimize job losses, by assessing needs and options for “at-risk” firms and addressing those needs.
The North Carolina Small Business and Technology Development Center (SBTDC) is offering free assistance to small businesses to assess financial impacts of the pandemic, evaluate credit options, and apply for SBA disaster loans.

Georgia has delayed registration and registration fees for its corporations; Utah has combined health actions with economic responses in the “Utah Leads Together” program, and the Utah Governor’s Office of Management and Budget will oversee the project management to ensure the state’s economy can recover quickly from the pandemic.

A Better Delaware recommends our lawmakers enact similar policies to those listed above, as well as implementing the following recommendations from the U.S. Small Business Chamber’s “Resources to Help Your Small Business Survive the Coronavirus:”

Waiving fees for businesses with low margins
Offering no-interest loans for businesses
Cancelling or deferring payment of payroll taxes

Delaware leaders can help our businesses recover now. To do this, the Delaware Prosperity Partnership (DPP) can reallocate their funds used to attract new businesses to helping businesses in the state that have been impacted by the coronavirus pandemic.

The Governor and the legislature have a chance to minimize the impact of this health crisis on Delaware’s businesses, workers, and economy, and boost the First State’s standing nationally again. Policy decisions at this time must be made with caution, as the opportunity to further burden our businesses and economy is great.

Delaware’s senior most politicians admitted their focus is not on helping businesses at this time. Other states with more favorable business climates have already recognized the importance of this assistance and has taken steps early on to mitigate the problem.

Express the urgency of a dedicated response for businesses by contacting your legislator or reaching out to the Governor’s office.

March 23, 2020 In Blog

Coronavirus and Delaware’s Future

The COVID-19 (coronavirus) epidemic has changed the day to day for many across the globe. Grocery stores struggle to keep essentials stocked, employers are mandating work-from-home policies, and health care systems are feeling a strain from testing and treatment.

Over the past week, many businesses in Delaware and nationwide have been forced to reduce service or even close their doors. Workers are concerned about lost wages, and business owners are facing massive revenue shortfalls.

Both are concerned about their ability to pay bills.

New cases are cropping up every day in the First State, and things will only get worse. Businesses will need help that comes from both the community and the state, and that help should not come at the expense of others struggling at this time: taxpayers.

The U.S. Chamber of Commerce has released “Resources to Help Your Small Business Survive the Coronavirus,” including some temporary measures lawmakers can take to help business survive the impact such as:

Waiving fees for businesses with low margins
Offering no-interest loans for businesses
Cancelling or deferring payment of payroll taxes

Governor Carney has already taken some steps to help businesses with programs like the Hospitality Emergency Loan Program (HELP). Under HELP, businesses are eligible to receive state support to pay rent, utilities, and other major overhead costs.

The state has also formally requested loans from the U.S. Small business Administration’s Economic Injury Disaster Declaration to help support over 25,000 small businesses in Delaware. Small businesses and non-profits would be eligible for up to $2 million each in low-interest loans.

As for the worker, unemployment must be revisited in a manner that expands eligibility and benefits without adding a burden onto already struggling or inoperable businesses.

There is still no such thing as a free lunch, and as our state’s government works to protect small businesses and workers, the total cost must be monitored closely. Increasing taxes to cover these programs will hurt Delawareans, and so will cutting essential programs to cover loss of revenue.

While a health crisis may be an extreme scenario, it is the perfect example of why our government must watch its spending habits in better times. Luckily, Delaware has a Rainy Day Fund that could be utilized to offset some of the financial burden associated with the critical programs coming from the Governor’s office, but requires a super majority vote from the General Assembly to spend. Additional coverage could come from the reserved monies from budgeting 98% of revenues, or Budget Smoothing. This $100M+ can be spent at the Governor’s discretion. However, our savings account is only so big, taxpayer pockets so deep, and business revenues so sustainable.

As the situation improves, it is imperative that our state leaders move forward with caution in any new spending or programs while revenues recover. Earlier in 2020, a $200 million “surplus” was attempted to be spent on various new spending projects. Now, that $200 million likely does not exist, digging the state into a worse position to help Delaware businesses and workers, and to recover from the impact of the coronavirus.

That revenue was from increasing taxes on Delawareans in recent years. The same can happen again if the state raises taxes to cover spending from the coronavirus, or to fund new, long-term programs deemed necessary because of it.

There won’t be tax cuts or a return of your money—so what will the new “surplus” be used for in five years?

Irresponsible fiscal policy now will likely hurt Delaware residents and businesses in a way that cannot be ignored or excused.

A sound recovery from Coronavirus will be tough job for our state leaders in the coming months, who must consider how to not worsen our already struggling business climate and interstate economic competitiveness in the aftermath.

Let’s have the foresight to implement recovery policies that encourage economic and job growth, a better place for businesses to grow and thrive, and an economy that lifts up Delawareans as a whole.

February 27, 2020 In Blog

The danger of allowing tacked-on changes to the Delaware state budget

The Delaware state budget plays a significant role in citizens’ lives, but the process can be hard for anyone to follow – especially if there’s a lack of transparency. Groups like A Better Delaware, founded by Chris Kenny, are tracking budgeting, spending and taxes to help voters make heads or tails of how taxpayer dollars are being used. One area that may be tricky for taxpayers to follow is “epilogue language” – revisions to original bills – that they say is sometimes harmful.

How epilogue language is used

The state prepares three types of budgets: A general operating budget, capital budget and grant-in-aid budget. The Joint Finance Committee (JFC) holds a series of hearings on each, which involves rounds of tweaks and until final approval. During this process, the JFC can insert epilogue language — additional funding and/or policy changes inserted at the end of the three budget bills — which may include updates or general guidelines on how the funds should be used.

Despite being difficult to navigate, epilogue language can often be harmless and smooth the budgeting process from year to year. Sometimes, however, epilogue language isn’t good for Delawareans. When it is used to change policy, it can be an intentional play by lawmakers to pass legislation that otherwise wouldn’t stand on its own.

The Charter School Transportation Slush Fund shows how epilogue language can be abused

In 2019, and for nine years prior, epilogue language in the budget established what has been called the “Charter School Transportation Slush Fund.” This addition allowed charter schools to keep unused transportation funds, despite Delaware law mandating all schools return these funds to the taxpayer. According to one legislator, the additional funds kept by charter schools from 2016 through 2018 totaled over $3.5 million.

In 2018, the JFC wrote the Slush Fund into an official bill, Senate Bill 235. However, instead of letting it go to a vote, the JFC inserted the bill into the epilogue language of the FY 2019 budget bill, essentially guaranteeing its passage instead of allowing it to be up for a vote on its own merits.

This tacked-on spending is voted on by either the Bond or Joint Finance Committee, respectively, before the bond or budget bill makes it upstairs for a full vote, meaning that anything put in there has been heard and considered. Nothing in the epilogue of our budget bills is an accident or oversight.

Now is the time to change things

New people and ideas are the best way to change things for the better. With a sizable slate of freshman legislators this session, A Better Delaware sees an opportunity for reform and more transparency, so that epilogue language is only used for the good of Delawareans, not the good of legislators’ agendas.

As regular legislative session reconvenes, continue to be an active participant in the process. Your elected officials are here to work for you.

Keep up with important action regarding your taxes, the Delaware economy and more on A Better Delaware’s Facebook and Twitter.

Get involved by signing up for the ABD newsletter, or contact your legislator about important bills here.

February 24, 2020 In In The News

Delaware gives $4.5 million to bring Amazon to former Newport-area auto plant site

From the News Journal

It’s now safe to say that Amazon, with the help of $4.5 million in Delaware taxpayer grants, is coming to the Newport area.

The company, which reported $3.3 billion in profits for the three months that ended in December, says it is bringing about 1,000 full-time jobs to the former General Motors plant site on Boxwood Road.

The state’s seven-person Council on Development Finance approved the grant on Monday.

A Nevada-based distribution company that counts Amazon as a client plans those jobs and more seasonal ones for a 3.7-million-square-foot logistics warehouse, according to a presentation from the company at the Buena Vista conference center in New Castle.

Amazon’s application was not readily available to the public before or during the hearing. Monday’s agenda offered little more detail on the application, only revealing that Amazon was seeking the $4.5 million to “establish its operations in Wilmington, Delaware.”

https://www.delawareonline.com/story/news/2020/02/24/delaware-gives-4-5-million-bring-amazon-former-newport-auto-plant/4817576002/

February 19, 2020 In In The News

Amazon seeking $4.5 million from state for distribution center

From Delaware Business Now

Amazon plans to seek $4.5 million from the Delaware Strategic Fund for a fulfillment center.

An agenda item from the Delaware Council on Development Finance contained the request from Amazon and listed Wilmington as the location. The council will hold a meeting on Monday.

The Strategic Fund ties assistance from the state to the number of jobs created by the employer. Payback comes from additional income tax revenues.

The council passes its recommendations on to the state’s director of Small Business.

The Philadelphia Inquirer reported the request is related to a proposed distribution center at the former GM Boxwood plant west of Wilmington.

https://delawarebusinessnow.com/2020/02/amazon-seeking-4-5-million-from-state-for-distribution-center/

February 19, 2020 In In The News

What does Delaware’s $200 million surplus say about its budget management?

Earlier in 2020, the Delaware Economic and Financial Advisory Council announced revenue projections revealing a $200 million state budget surplus. While some lawmakers see this as an opportunity to fund new projects, political advocacy groups like A Better Delaware, founded by Chris Kenny, are concerned that the surplus is a sign of mismanagement, and are troubled about a lack of voter input into how lawmakers will spend the funds.

Where did the “surplus” come from?

New tax increases over the past few years resulted in over $200 million in additional revenues by raising taxes on corporate franchises, realty transfers, alcohol and cigarettes. The $200 million surplus is being treated as if it came from better fiscal policy, but A Better Delaware argues that it’s a sign that the state is overtaxing Delawareans.

Delaware’s portion of income that goes to state and local taxes is 10.2%, above the national average. Delaware taxes can also be difficult for businesses; not only do they have high corporate income taxes of 8.7%, but they’re also one of only six states to impose a gross receipts tax. Even so, lawmakers continue to propose and pass new taxes, despite these already high tax rates and the fact that they don’t seem to need the additional revenue if they’re collecting in excess of their budget.

A Better Delaware, therefore, wants taxpayers to know that they have been “overcharged.” Tax increases enable the government to authorize additional spending, when many people feel that they’re paying too much in taxes already.

What will happen to surplus funds?

When the “surplus” was announced, the initial plan was to wait for a final projection in June from the Economic and Financial Advisory Council in order to accurately disperse the funds. Shortly after the announcement, though, nearly all of the $200 million was promised to various projects at the call of Dover politicians.

House Minority Leader Danny Short, R-Seaford, cautioned that all new spending proposals be “scrutinized completely.” Unfortunately, says A Better Delaware, it appears that this won’t be the case and that voters won’t get a say in how the state spends the additional funds. The new proposed spending has been raised with minimal transparency or public input into how to remedy the situation. It also appears that a refund to taxpayers is not being considered as an option.

Building on a concerning past precedent

This isn’t the first time that Delaware is dealing with an unexpected surplus. Last year, Rep. John Kowalko, D-Newark, criticized another surplus issue resulting from excess charter school transportation funds, saying that letting charter schools keep the excess funds without further scrutiny was the wrong move, as it gave “no oversight and no accountability to the taxpayers or anyone else” and that the move was “a shocking display of disregard for taxpayer money.”

The same objections can easily be applied to the current $200 million in additional revenue from over-taxing, A Better Delaware says. That’s because once again, the state’s inaccurate budgeting means that taxpayers’ hard-earned funds will go to projects that weren’t designated as part of the initially agreed-upon budget.

How do Delaware taxes compare?¹

Delaware has the 9th highest combined corporate tax rate
Delaware ranks 41st for personal income taxes
Delaware has one of the highest real estate transfer taxes in the nation
Delaware is one of only 5 states to still have a gross receipts tax

How can taxpayers object to the current budget situation?

While funding key projects is important, A Better Delaware believes taxpayers should be concerned by the manner in which the state currently managing its budget and the general lack of accountability to voters. Given the group’s claims of mismanagement, A Better Delaware argues that excess funds would be better off back in the hands of the state’s taxpayers.

Delaware residents that want to object to register their objections to spending the budget surplus can call their legislators. Additionally, to prevent similar issues in the future, voters can call their legislators any time a new tax is on the table and demand better scrutiny by the Joint Finance Committee in budgeting.

The Joint Finance Committee will be meeting during February. Find the JFC public hearing schedule here.

Joint Finance Committee:

Chair:

Harris B. McDowell (302)-744-4147

Co-Chair:

Quinton Johnson (302)-744-4351

Senators:

Representatives:

(1) Sources:

February 18, 2020 In In The News

Black Entrepreneurship 2020: A Special Report and Definitive 50-State Ranking

From FitSmallBusiness

Delaware ranks 30th in the nation for Black Entrepreneurship.

Black Entrepreneurs, All 50 State Rankings:

1. Georgia
2. Texas
3. Florida
4. California
5. North Carolina
6. Oklahoma
7. Tennessee
8. New York
9. Mississippi
10. Colorado
11. Wyoming
12. Washington
13. Nevada
14. New Mexico
15. Michigan
16. Missouri
17. Virginia
18. New Jersey
19. Arizona
20. Louisiana
21. Maryland
22. Ohio
23. Arkansas
24. Kentucky
25. South Carolina
26. Idaho
27. Illinois
28. Indiana
29. Massachusetts
30. Delaware
31. Alaska
32. Alabama
33. Utah
34. North Dakota
35. Oregon
36. West Virginia
37. Vermont
38. Pennsylvania
39. Iowa
40. Hawaii
41. Nebraska
42. South Dakota
43. Montana
44. Minnesota
45. Kansas
46. Connecticut
47. Wisconsin
48. Rhode Island
49. New Hampshire
50. Maine

https://fitsmallbusiness.com/black-entrepreneurship-2020/