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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.

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.

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.”

Read more:

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

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.

Read more:

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

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:

Co-Chair:

Senators:

Representatives:

(1) Sources:

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/

Why the Delaware Way could prevent livestreaming of General Assembly

From The News Journal

The so-called “Delaware Way,” the bipartisan tradition in which First State politicians make decisions and work out tensions behind closed doors, could get in the way of the latest efforts to increase transparency.

In a state that’s been frequently criticized as having one of the least transparent governments in the country, a group of mostly Republican lawmakers is proposing that the General Assembly start recording its public meetings and posting them online for anyone to watch.

It’s something that the vast majority of states and several of Delaware’s local governments, in some capacity, already do.

But one of Delaware’s highest-ranking lawmakers, who controls the 41-member House chamber’s schedule, could try to block the effort over fears that private conversations could end up being recorded.

“I’m not too crazy about it,” said House Speaker Pete Schwartzkopf, D-Rehoboth Beach, when asked about livestreaming. “I’m not putting cameras and microphones installed in our caucus rooms because we’d be at the mercy of anyone who’d want to tap into it and listen to us have our discussion.”

The bill does not mention recording private caucus meetings, which take place in some of the same rooms used for public meetings. Those caucus meetings are about as common as public meetings when the General Assembly is in session.

The proposal, House Concurrent Resolution 69, would create only a blueprint for how to livestream public floor debates and committee meetings in the General Assembly. Lawmakers would have to introduce a separate bill to actually execute it.

Read more:

https://www.delawareonline.com/story/news/politics/2020/02/14/delaware-lawmakers-lack-transparency-could-prevent-livestreaming/4543708002/

Bloom’s latest blemishes: Delaware job cuts and multimillion-dollar ‘accounting error’

From The News Journal

Bloom Energy, the Silicon Valley company subsidized by Delaware, blamed an “accounting error” for misstating the amount of money it made in recent years.

Startling investors, Bloom said its revenues over the past four years are off by “less than 10 percent,” a limit that amounts to nearly $200 million.

“The adjustment has no impact on Bloom’s total cash,” said the company, which builds fuel cell electricity generators at a plant in Newark.

Released after stocks stopped trading on Wednesday, Bloom Energy’s statement follows rumors of layoffs at the company’s Delaware factory. Asked last week whether the claims were true, Bloom spokeswoman Natalia Blank said “some specific roles in Delaware were eliminated” because of changes to its operations.

Blank said a “small percentage” of its total Delaware workforce lost their jobs, but declined to disclose the number. She revealed only Bloom’s current Delaware head count when combined with the number of people it plans to hire.

Read more:

https://www.delawareonline.com/story/money/business/2020/02/13/blooms-latest-blemishes-delaware-job-cuts-and-multimillion-dollar-accounting-error/4741488002/

Banning Dollar Stores Hurts Underserved Communities More Than It Helps

From The Foundation for Economic Education

According to the US Department of Agriculture, at last count, 12.7 percent of US census tracts fell under the banner of “low-income, low-access.” This simply means a large portion of that tract’s population lives more than one mile from a food store in an urban area or more than ten miles from one in a rural area.

Dollar stores exist in these areas because of the lack of direct competition. Economically depressed areas often struggle to encourage new businesses, like full-service grocers, and struggle to maintain the ones currently operating. Dollar stores fill a very real need for families across this country. If they didn’t, they wouldn’t exist.

By banning dollar stores, especially without the assurance of a full-service grocer, governments are limiting families’ options, forcing them to travel farther and longer to purchase things like tuna, sugar, Pampers, or other name-brand, discount items.

Sarah Nassauer summed it up in her article about Dollar General:

“Dollar General is expanding because rural America is struggling. With its convenient locations for frugal shoppers, it has become one of the most profitable retailers in the U.S. and a lifeline for lower-income customers bypassed by other major chains.”

This statement rings true for both rural and urban low-income communities.

Banning or limiting dollar stores does not, in turn, usher in an age of full-service grocery stores in underserved neighborhoods. It just means fewer options for those who live there.

Read the whole article:

https://fee.org/articles/banning-dollar-stores-hurts-underserved-communities-more-than-it-helps/

Most business incentives don’t work. Here’s how to fix them.

From Brookings Institute

In 2017, the state of Wisconsin agreed to provide $4 billion in state and local tax incentives to the electronics manufacturing giant Foxconn. In return, the Taiwan-based company promised to build a new manufacturing plant in the state for flat-screen television displays and the subsequent creation of 13,000 new jobs.

It didn’t happen. Those 13,000 jobs never materialized, and plans for the manufacturing plant have been consistently scaled back. Even if the project had gone through as planned, there is no way the Foxconn subsidy would have made money for the state, or provided earnings benefits for residents that exceed its costs. It now appears that few of Foxconn’s promises will be fulfilled, even though local governments have gone into debt over the project.

From 1990 to 2015, the size of these types of business incentives tripled. Foxconn-level incentives would escalate them another 10-fold, to 30% of state and local tax revenue. Such a surge threatens public services and the social safety net, turning a tool used to promote jobs and growth into a political and economic disaster.

Research suggests that at least 75% of the time, typical incentives do not affect a business’s decision on where to locate and create jobs—they’re all cost and no benefit. Furthermore, even when incentives do tip a location decision, they do not pay for themselves. They may create new jobs, but frequently they also bring in new workers from outside the city or state, which raises costs to public services that offset at least 90% of any increased revenue.

On average, only 10-30% of new jobs go to state residents who are not already employed. Only when new jobs increase employment rates—thus boosting local earnings and putting upward pressure on local wages—can they provide large and broadly shared local benefits.

https://www.brookings.edu/blog/the-avenue/2019/11/01/most-business-incentives-dont-work-heres-how-to-fix-them/