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Does Your State Have a Gross Receipts Tax?

From: Tax Foundation

Today’s map looks at which states levy a gross receipts tax, which is often considered one of the most economically damaging taxes. Shifting from state gross receipts taxes would represent a pro-growth change to make tax codes friendlier to businesses and consumers alike, which is especially necessary in an increasingly mobile economy.

Gross receipts taxes are applied to a company’s gross sales, without deductions for a firm’s business expenses, like compensation and cost of goods sold. These taxes are imposed at each stage of the production process, leading to tax pyramiding.

Seven states (Delaware, Nevada, Ohio, Oregon, Tennessee, Texas, and Washington) currently levy gross receipts taxes, while several others, including Pennsylvania, Virginia, and West Virginia, permit local taxes imposed on a gross receipts base. South Carolina converted a local gross receipts tax into a tax on net income (profits) in 2020. Gross receipts taxes gained popularity among states in the 1930s but began to be repealed or struck down as unconstitutional by state courts in the 1970s. Although they have been dismissed for decades as inefficient and unsound policy, they have returned in recent years as states seek to limit revenue volatility and to replace revenue lost by eroding corporate income tax bases.

As the map indicates, states often designate multiple gross receipts rates, typically by industry, to mitigate some of the economic costs associated with these taxes. Businesses and industries with lower profit margins or more stages in the production process—each one taxed separately—are hit harder by gross receipts taxes than are high-margin businesses that are vertically integrated, meaning that more of the work is done in-house (resulting in less exposure to the tax because there are fewer transactions). Differential rates attempt, albeit somewhat crudely, to adjust for these differences on an industry-by-industry basis. Washington’s Business and Occupation Tax has the highest top rate of 3.3 percent, followed by Delaware’s Manufacturers’ and Merchants’ License Tax with a top rate of 1.9914 percent. Ohio and Oregon have flat rates of 0.26 percent and 0.57 percent, respectively.

The tax base and allowable expenditures vary depending on the design of the gross receipts tax. Texas’ Margin Tax allows for a choice of deducting compensation or the cost of goods sold. Nevada allows a firm to deduct 50 percent of its Commerce Tax liability over the previous four quarters from payments for the state’s payroll tax. And Oregon allows a 35 percent deduction for the greater of compensation or cost of goods sold.

Gross receipts taxes impact firms with low profit margins and high production volumes, as the tax does not account for a business’ costs of production as a corporate income tax would. These taxes can be particularly severe for start-ups and entrepreneurs, who typically post losses in early years while still owing gross receipts payments.

These taxes also do not focus on final consumption, as a well-structured sales tax would. They penalize companies that include multiple transactions in their production process, with the tax imposed on each stage of production—called tax pyramiding. Prices rise as these intermediate taxes are shifted onto consumers, impacting those with lower incomes the most.

Gross receipts taxes impose costs on consumers, workers, and shareholders alike. Shifting from these economically damaging taxes can thus be a part of states’ plans for improving their tax codes in an increasingly competitive tax landscape.

Community Workforce Act: Opportunity for All?

From: Kathleen Rutherford, Executive Director, A Better Delaware

Recently HB 435 was introduced in the Delaware House of Representatives. Otherwise known as Community Workforce Act, this bill would require that all state funded construction projects totaling over $3 million must be completed by union only project labor agreements. This decision would have disastrous consequences to Delaware’s economy. Currently, over 80% of construction work inside the state is done using non-union contractors. Taking away their ability to bid on high-cost projects would diminish competition in the bidding process and potentially lead to less-than-ideal results. Non-union employees should have an equal opportunity to complete state funded construction projects, otherwise contracts may not be awarded to the people who will perform the best work at the best price.

The bill claims that allowing these large public works construction projects to be governed by a Community Workforce Agreement with labor organizations would “provide structure and stability and promote efficient completion.” A New Jersey DOL study recently found that the cost of PLA projects was 30.5% higher per square foot than non-PLA projects. This same study also demonstrated that PLA projects take an average of 23% longer to complete than non-PLA projects. It comes as no surprise that placing limiters on the labor market leads to diminished results. Delaware is no stranger to construction projects running over budget and over the expected time constraints, but this would only exacerbate the issue. The recent Federal Bipartisan Infrastructure Law (championed by Tom Carper, Chris Coons, and Lisa Blunt Rochester) would give Delaware $48.5 million over a five-year period to address at-risk coastal infrastructure. Allowing this work to only be performed by union contractors would hinder these infrastructure projects.

One key way that states have prohibited this is by enacting bills to prohibit government-mandated PLA’s. Florida passed HB 599 in 2017, which required that construction projects that are projected to cost more than $200,000 must be competitively bid on. It also prohibits local governments from imposing discriminatory pre-bid mandates onto contractors when the project they are working on receives more than 50% of its funding from the state. Bills like this attempt to mitigate the  excessive costs and lower quality that unnecessary government mandates have on public construction projects. Wisconsin took a similar approach to the issue by signing SB 3 into law. This bill prohibits the government from mandating PLAs on state or local construction projects. The difference between this bill and HB 599 is that it still allows contractors to use PLAs with unions if they are operating outside of the governments method of ensuring fair competition. The goal of this bill was to create a fair and level playing field for publicly funded construction contracts by increasing competition and helping smaller businesses.

To keep Delaware on the right path to economic prosperity, it is essential to prevent barriers like HB 435 from hindering competition between contractors. With projects like these being funded by taxpayers, it is important to make sure that the best possible contractor receives the contract after they have demonstrated the ability to perform the job at the lowest cost and shortest timeframe. Contractors should have an equal opportunity to work on state funded construction projects regardless of their decision to affiliate with a union or not. It is the responsibility of the state government to be fiscally responsible and avoid showing any signs of favoritism to union contractors by mandating PLAs.

The Hottest Job Markets in the Country: What Policies are Driving Americans to These Cities?

From: State Policy Network

In April 2022, The Wall Street Journal released their annual rankings of the best job markets in the country. Top of the list? Not the big cities that may first come to mind. The cities with the hottest job markets are all mid-size, and each is in a different state. They are:

  • Austin, Texas
  • Nashville, Tennessee
  • Raleigh, North Carolina
  • Salt Lake City, Utah
  • Jacksonville, Florida

What state and local policies are creating jobs and attracting workers to these cities? We sat down with the local policy organization in each of these states to get their take.

Low taxes

As The Wall Street Journal pointed out, Florida, Texas, and Tennessee have no income tax—while North Carolina and Utah have an income tax rate of below five percent. A state with no income tax means people get to keep more of what they earn—an attractive policy for workers that also spurs economic growth.

The Beacon Center of Tennessee, Joh Locke Foundation (North Carolina), Libertas Institute (Utah), Texas Public Policy Foundation, and The James Madison Institute (Florida)—which are based in (or close by) the cities with the hottest job markets—pointed to their state’s income tax policy as one of the main reasons why those cities have seen such enormous job growth in the past few years.

And some of those state think tanks played a role in helping their state reduce or eliminate the income tax. In 2017, through a comprehensive campaign, the Beacon Center helped Tennessee become truly income tax free. In June 2021, the John Locke Foundation played a key role in North Carolina reducing its income tax rate from 5.25 percent to 4.99 percent.

It’s not just their income tax policy that leads to more job opportunities. Low taxes overall are also a key driver of job growth. Overall, the cities with the best job markets have a low tax burden.

Beacon Center’s Director of Policy and Research, Ron Shultis, observed: “Every year, thousands of people across the United States move to Tennessee. While their reasons may vary, many choose to live here due to state-level policies such as the lack of a state income tax, low taxes per capita, and low levels of debt.”

Dr. Robert McClure, president and CEO of The James Madison Institute, added: “Florida boasts responsible fiscal policies, great infrastructure, a reasonable regulatory load, and no state income tax.”

In their 2022 report, “Rich States, Poor States,” the American Legislative Exchange Council noted: “Generally speaking, states that spend less—especially on income transfer programs—and states that tax less—particularly on productive activities such as working or investing—experience higher growth rates than states that tax and spend more.”

Minimal regulations

Small businesses provide jobs for the people in their community. However, burdensome regulations make it hard for business owners and entrepreneurs to open and run a business. States that understand the plight of business owners and work to make it as easy as possible for them to run a business see more growth than states with more regulations. Austin, Nashville, Raleigh, Salt Lake City, and Jacksonville are all located in states with relatively minimal regulations.

These low regulations attract out-of-state businesses and are a big reason why so many companies are relocating to these five cities. Tesla, Space X, Oracle, and Hewlett Packard Enterprise have all moved from California to Texas. Tennessee has seen a similar pattern, with 25 California companies moving to the Volunteer State from 2018 to 2021. Those businesses bring thousands of job opportunities along with them.

The Texas Public Policy Foundation added: “It is no secret that pro-growth policies — low taxes and a light regulatory burden—have propelled population growth in Texas and Florida while the opposite has occurred in California, Illinois, and New York. Elected officials’ response to COVID-19 likely accelerated this trend in 2020, with Florida and Texas netting more than half of the nation’s 1.15 million population increase from mid-2019 to mid-2020.

In Utah, an innovative policy called a regulatory sandbox is attracting entrepreneurs and workers from all over the country. A regulatory sandbox is a legal classification that creates a space where participating businesses won’t be subject to onerous regulations—usually for a limited amount of time.

Pioneered by the Libertas Institute, Utah was the first state to pass an all-inclusive regulatory sandbox in 2021. Sandboxes allow new businesses to develop more easily—which can create jobs and opportunities for communities.

A regulatory sandbox is just one example of a Utah policy that is contributing to job growth in Salt Lake City and beyond. Connor Boyack, the CEO of the Libertas Institute, added:

“While Utah typically ranks well for having a low overall tax burden, good fiscal management, and low business regulations compared to most states, the state is particularly attractive to families who want friendly neighbors, and outdoor playground for all seasons, and a good place to raise their children. Salt Lake City and our surrounding communities boast a very low unemployment rate with high-paying jobs in an environment that supports entrepreneurship and attracts significant capital investment. For anyone looking to prosper, Utah is a great place to be.”

Ample housing supply

An affordable home is becoming out of reach for many middle class and lower income families. To address this problem, many states, including Florida, North Carolina, Tennessee, Texas, and Utah, are adopting housing reforms that increase housing supply and lower costs.

Brooke Medina, vice president of communications at the John Locke Foundation in Raleigh, noted:

“Affordability and opportunity make Raleigh one of the hottest cities in the country. The research, tech, and economic clout Raleigh boasts stem from an extensive talent pool and pro-growth policies that Locke has championed, such as reducing the corporate and personal income tax, creating a regulatory sandbox, a K-12 education environment that is teeming with innovations, and efforts to ensure the housing supply keeps up with population growth. For these reasons, and more, Raleigh is increasingly recognized as a place where individuals, families, and businesses can thrive.”

Logan Padgett, vice president of communications and government affairs at The James Madison Institute in Jacksonville, added:

“Jacksonville is like many of Florida’s major metropolitan areas—booming. More than 800 people a day move to the sunshine state and as south Florida becomes more congested, Jacksonville’s culture, climate, and proximity as a beach city make it extraordinarily attractive as a destination. In addition, it’s size in land mass makes it more amenable to growth.”

Right-to-work state

Another thing Austin, Nashville, Raleigh, Salt Lake City, and Jacksonville have in common? They are all located in right-to-work states.

Right-to-work laws state no person should have to join a union or pay union dues in order to have or keep a job. If a person wants to join a union, they can; right-to-work just ensures they have the freedom to choose for themselves. Twenty-seven states have right-to-work laws on the books. Studies show that right-to-work states attract more new businesses than non-right-to-work states. In addition, workers in right-to-work states enjoy higher incomes than workers in non-right-to-work states.

Ron Shultis, Beacon’s director of policy and research, added: “Right-to-work is one of the reasons—even if you didn’t understand or know what it is—why those people moved here [Tennessee]. It’s what creates the environment for you to be able to get that job, a good house, a lower cost of living. It’s what makes Tennessee attractive for people and businesses.”

Other states can learn from these cities driving job growth and opportunity

The cities with the hottest job markets all have policies that encourage innovation, reduce regulations, and incentivize work. These policies can serve as a model for other states looking to attract more jobs and opportunities to their state.

Kentucky’s big move in the Rainy Day Fund rankings

From: Bluegrass Institute

The progress Kentucky has made establishing legitimate budget reserves received some nice validation last week when the Pew Charitable Trusts reported their FY ‘21 “Rainy Day Fund” state trends. From their Fiscal 50: State Trends and Analysis update:

Rainy day funds, also known as budget stabilization funds, grew in more than two-thirds of states — 35 — during fiscal 2021, according to figures reported to the National Association of State Budget Officers (NASBO). A slightly greater number of states—36—posted increases in the number of days they could run government operations using rainy day funds alone compared with the previous year.

Their Rainy Day Fund Highlights section included:

Kentucky had the greatest increase in days (+51.2 days), followed by California (+40), Colorado (+34.4), New Hampshire (+34), and Connecticut (+27.6).

Pew’s website allows for graphical representations of longer term trends from the data. Look at how Kentucky moved past the 50-state median from FY ‘20 to FY ‘21:

Kentucky Rainy Day

Based upon the FY ‘21 figures, Kentucky ranked 12th among the states with the strongest budget reserves relative to their total spending. (Note from Pew on their metric to compare states: “One way to standardize the size of reserves and balances is to calculate how many days a state could run solely on those funds, even though the scenario is highly unlikely.”)

Frankfort’s arrival at a bipartisan Rainy Day Fund consensus has been impressive. It should not, however, be taken for granted.

For decades, government spending has been the first prerogative in Kentucky’s state capital. Establishing sufficient budget reserves to deal with cyclical revenue fluctuations or to prepare for unforeseeable circumstances hasn’t been a high priority.

This seems to be changing, due in no small part to the leadership of the current chairmen of the legislature’s Appropriations and Revenue Committees.

The next critical task is developing a statutory framework around the budget reserves. It must become more than an account with money tucked away. Instead, the Rainy Day Fund should become a program with clear guidelines on how to manage it, in good times and in bad.

State unemployment by race and ethnicity

From: Economic Policy Institute

EPI analyzes state unemployment rates by race and ethnicity, and racial/ethnic unemployment rate gaps, on a quarterly basis to generate a sample size large enough to create reliable estimates of unemployment rates by race and ethnicity at the state level.

We report estimates only for states for which the sample size of these subgroups is large enough to create an accurate estimate. For this reason, the number of states included in our maps and data tables varies based on the analysis performed. The following analysis contains data on the first quarter of 2022 and the fourth quarter of 2021.

First-quarter 2022 state unemployment rates, trends, and ratios

Two years into the COVID-19 pandemic, with over 80 million reported cases and nearly 1 million deaths in the United States, the labor market is approaching its 2020 pre-pandemic level of tightness. As the Omicron variant of COVID-19 subsided, many state economies continued their return to more normal economic activity. Unions worked to solidify the gains in worker power afforded to them by the conditions of the pandemic and the “Great Reshuffling,” with high-profile grassroots wins secured by Amazon and Starbucks workers.

Overall unemployment rates 2022Q1
  • Highest: D.C. (6.1%) • N.M. (5.6%) •
    Alaska & Calif. (5.3%) • Nev. & Penn. (5.1%)
  • Lowest:
    Neb. & Utah (2.1%) • Ind. (2.3%) • Kan. & Mont. (2.5%)
  • National: 3.8%

The national unemployment rate in 2022Q1 was 3.8%, matching its rate in 2020Q1 and continuing an overall labor market tightening that brought with it some measure of increased worker bargaining power. A majority of states had unemployment rates less than or within 1 percentage point of their pre-pandemic (2020Q1) unemployment rate.

The lowest unemployment rates were found in Nebraska (2.1%) and Utah (2.1%), while the highest rates were in D.C. (6.1%) and New Mexico (5.6%). Twelve states had unemployment rates under 3% at the beginning of the year, underlining the overall tightness seen in the recovery since the pandemic that began two years prior. Even so, the return to normalcy proceeded at different paces across different groups.

First-quarter 2022 trends among white workers

The white unemployment rate nationwide dropped to 3.0% in 2022Q1, matching its 2020Q1 level. A majority of states had white unemployment rates less than or within 1 percentage point of their pre-pandemic (2020Q1) white unemployment rate.

White unemployment rates fell as low as 1.7% in D.C. and Nebraska, even lower than their 2020Q1 rates (2.0% and 2.7%, respectively). Nearly half the states (24 plus D.C.) had white unemployment rates at or below 3%. The highest unemployment rates for white workers were found in California (4.5%) and Maryland (4.4%)—higher than their 2020Q1 rates (3.5% and 2.9%, respectively), but low by most standards of labor market tightness.

First-quarter 2022 trends among Black workers

At the national level, Black workers saw an unemployment rate of 6.5%, still slightly higher than their 2020Q1 rate of 6.2%. Georgia (5.0%) and Florida (5.3%) saw the lowest rates among those states with large enough samples to analyze. No state saw a Black unemployment rate below 5%. The Black unemployment rate remained above 10% in D.C. and Illinois, at 12.5% and 12.2%, respectively.

Less than half of states for which data are available had Black unemployment rates less than or within 1 percentage point of their pre-pandemic rate.

The national Black–white unemployment ratio remained unchanged at 2.2-to-1, reconfirming one of the most persistent trends in this area of research. This ratio remains highest in D.C., where it rose sharply over the previous quarter: A 31% decline in white unemployment combined with persistent high Black unemployment to bump the ratio to 7.2-to-1. In contrast, the Black–white unemployment ratio in the neighboring state of Maryland was the lowest in the country, at 1.3-to-1. This again points to the unique nature of the D.C. labor market and its emphasis on white-collar federal employment.

First-quarter 2022 trends among Hispanic workers

Hispanic workers had an unemployment rate of 4.6% at the national level in 2022Q1, slightly below their 2020Q1 pre-pandemic rate of 4.8%. Hispanic state-level unemployment was lowest in Georgia (2.0%) and North Carolina (2.5%), and highest in Massachusetts (7.5%) and New York (6.3%).

In eight states (among the 13 states with sufficient sample size for analysis), the Hispanic unemployment rate was at or below 5% in 2022Q1. In all but one of the 13 states analyzed, the Hispanic unemployment rate was less than or within 1 percentage point of the pre-pandemic rate.

Nationwide, Hispanic workers were 55% more likely than white workers to be unemployed in 2022Q1 (a Hispanic–white unemployment ratio of 1.55-to-1, rounded to 1.6-to-1).

Massachusetts had the highest Hispanic–white unemployment ratio at 1.9-to-1. North Carolina and Georgia both had unemployment ratios of 0.8-to-1, meaning that in those states Hispanic workers were less likely to be unemployed than white workers were.

First-quarter 2022 trends among Asian American and Pacific Islander (AAPI) workers

AAPI workers saw a national unemployment rate of 3.4% in 2022Q1, slightly above the rate for white workers yet below the rates for Black and Hispanic workers. The AAPI unemployment rate for 2022Q1 remains slightly above its 2020Q1 pre-pandemic rate of 3.1%.

Among the five states with sufficient sample size for analysis, AAPI state unemployment rates were lowest in Texas, New York, and Hawaii (all tied at 3.8%), and highest in New Jersey (5.0%) and California (4.7%). Of these five states, only New Jersey and Texas had AAPI unemployment rates less than or within 1 percentage point of their pre-pandemic rate.

Fourth-quarter 2021 state unemployment rates, trends, and ratios

The fourth quarter of 2021 saw steady improvement in the labor market, even as the Omicron variant of COVID-19 continued to spread across the country. Though the incidence of cases was relatively high throughout the Omicron outbreak, the widespread availability of vaccines and boosters limited the severity of those cases. As workers moved back into the labor market, the economy continued to grow, though at a slower pace than in previous quarters of the recovery from 2020’s recession.

Inflation remained a presence throughout the economy, leading Fed Chair Powell to announce an increase in the pace of the Fed’s tapering policy (slowing down their economy-stimulating strategy of purchasing bonds).

The national unemployment rate in 2021Q4 fell to 4.2%, consistent with what many economists refer to as a “tight” labor market. Unemployment rates fell to as low as 2.3% and 2.4% in Utah and Nebraska, respectively. No states had overall unemployment rates higher than 10%; the highest unemployment rates were found in D.C. (6.2%), New Mexico (6.0%), and California (5.9%). A majority of states had unemployment rates less than or within 1 percentage point of their pre-pandemic (2020Q1) unemployment rate. These trends of course mask disparities across groups.

Fourth-quarter 2021 trends among white workers

At the national level, white workers had an unemployment rate of just 3.3% in 2021Q4, nearly as tight as the labor market for white workers prior to the pandemic (3.0% in 2020Q1).  A majority of states had white unemployment rates less than or within 1 percentage point of their pre-pandemic (2020Q1) white unemployment rate.

White workers saw the highest unemployment rates in Hawaii (5.5%), Maryland (5.2%), and Connecticut (5.0%). That said, even these highest rates are relatively low in the context of other groups and previous periods. White unemployment rates fell to 2.0% or lower in Nebraska (1.9%), Utah (2.0%), and South Dakota (2.0%). Low rates were not experienced across all groups, however, as seen in the following sections.

Fourth-quarter 2021 trends among Black workers

Black workers saw a national unemployment rate of 7.2% in 2021Q4, higher than the highest state unemployment rate for white workers. It is also higher than the pre-pandemic (2020Q1) rate by 1 percentage point. Less than half of states for which data are available had Black unemployment rates less than or within 1 percentage point of their pre-pandemic rate.

There were still states in which the Black unemployment rate exceeded 10.0% this late into the recovery: Illinois (13.1%), D.C. (11.4%), California (11.1%), and Michigan (10.7%). Among the states with population sizes large enough for analysis, the lowest Black unemployment rates were found in Florida (4.7%) and Georgia (4.9%). These were the only states in which the unemployment rate for Black workers fell below 5.0%.

Nationwide, Black workers were more than twice as likely as white workers to be unemployed in 2021Q4, with the Black–white unemployment ratio at 2.2-to-1. Black–white state unemployment ratios were highest in D.C. (4.5-to-1) and Illinois (3.4-to-1), and lowest in Maryland (1.1-to-1). The sharp discrepancy between D.C.’s high ratio and Maryland’s low ratio reflects the specific makeup of the D.C. labor market, skewed as it is toward white-collar federal employment.

Fourth-quarter 2021 trends among Hispanic workers

Hispanic workers nationwide saw an unemployment rate of 5.2% in 2021Q4, in between the rates for Black and white workers, and slightly higher than their 2020Q1 rate (by 0.4 percentage points).

Of those states where population sizes met the threshold for analysis, the highest Hispanic state unemployment rates were found in Massachusetts (7.9%) and New York (7.1%), while the lowest rates were found in Georgia (1.7%) and Utah (2.9%). A majority of the analyzed states had Hispanic unemployment rates less than or within 1 percentage point of their pre-pandemic (2020Q1) Hispanic unemployment rate.

Hispanic workers were 60% more likely to be unemployed than white workers when considering the entire country (a Hispanic-white unemployment ratio of 1.6-to-1. Hispanic workers were twice as likely as white workers to be unemployed in Massachusetts, the state with the highest Hispanic–white unemployment ratio in 2021Q4 (2.1-to 1). In some states, Hispanic workers were significantly less likely to be unemployed than white workers; in Georgia and Washington state, the Hispanic–white unemployment ratios were 0.6-to-1 and 0.9-to-1, respectively.

Fourth-quarter 2021 trends among Asian American and Pacific Islander (AAPI) workers

AAPI workers saw a national unemployment rate of 4.1% in 2021Q4, above the rate for white workers but still below the rates for Black and Hispanic workers. The 2021Q4 AAPI rate was about 1 percentage point higher than the pre-pandemic (2020Q1) AAPI rate.

The highest unemployment rates for AAPI workers among those with a large enough population size for analysis were New Jersey (6.8%) and California (5.6%), while the lowest rates were found in Texas (2.8%) and Hawaii (4.0%). Only one of the five states for which data are available had AAPI unemployment rates less than or within 1 percentage point of their pre-pandemic rate.

Methodology

The unemployment rate estimates in this report are based on the Local Area Unemployment Statistics (LAUS) and the Current Population Survey (CPS) from the Bureau of Labor Statistics (BLS). The overall state unemployment rate is taken directly from the LAUS. CPS six-month ratios are applied to LAUS data to calculate the rates by race and ethnicity. For each state subgroup, we calculate the unemployment rate using the past six months of CPS data. We then find the ratio of this subgroup rate to the state unemployment rate using the same period of CPS data. This gives us an estimate of how the subgroup compares with the state overall.

While this methodology allows us to calculate unemployment-rate estimates at the state level by race and ethnicity by quarter, it is less precise at the national level than simply using the CPS. Thus, the national-level estimates may differ from direct CPS estimates.

In many states, the sample sizes of particular subgroups are not large enough to create accurate estimates of their unemployment rates. We report data only for groups that had, on average, a sample size of at least 700 in the labor force for each six-month period. Data collection for the BLS surveys used to produce this report was affected by the pandemic, in some cases limiting sample sizes such that some states that usually meet sample size thresholds no longer did so.

UD offshore wind proposal has scary-high cost

From: Cape Gazette

A recent letter dismissed my analysis of a University of Delaware proposal to force Delaware electric customers to pay for a large offshore wind project. The writer correctly states my analysis concludes I found such a project would cost 3.5 to 5.7 times as much as other options that would have comparable environmental results. Left out was the conclusion the average annual cost to a residential electric customer could be as high as $400 to $545 a year over the 20- to 25-year life of the project.

The writer says, “These higher costs from a few scary examples may lead voters to toss the entire plan into a dumpster.” My so-called scary examples include price forecasts from the U.S. Energy Information Agency that many consider to be the gold standard of forecasts. EIA forecasts are levelized over the entire expected life of the projects. EIA forecasts solar power coming online in 2027 will produce power at $36.49/megawatt hour, onshore wind $40.23 and offshore wind $136.51. That is about the amount of power a typical residential customer uses in a month. 

I also quote consultants hired by the Maryland Public Service Commission that very recently approved Skipjack offshore wind projects to be built off our beaches, and from an ongoing utility commission case in Virginia. These sources can hardly be considered unreliable. 

In contrast, the UD study found there would be no price premium. What did they do differently? Maryland and Delaware both mandate the use of wind and solar electric generation in ever-increasing amounts. Public utilities must buy Renewable Energy Credits issued every time one megawatt hour is produced from these sources with the cost passed on to consumers. The RECs are sold separately and represent the premium cost of power.

Onshore wind and solar RECs are sold to utilities in competitive auctions, and are forecast to sell for about $10 to $15 each. Offshore wind RECs for the Skipjack project were set at fixed prices. While the price schedule was redacted, a starting price of $71.61 in 2012 dollars escalating automatically at 3% a year was published. Adjusting to current dollars, the RECs will start in 2026 at about $100 each and average about $137 over the 20-year project, or perhaps 10 times as much as onshore wind and solar RECs.

The UD forecast ignored the average lifetime cost and only used the first year cost. They also assumed offshore wind would replace carbon-based power, and there would be health and global-warming savings to offset the premium cost. However, both Maryland PSC consultants concluded offshore wind would simply replace onshore wind, and one concluded offshore wind would increase emissions because of longer transmission lines. The UD study also assumed offshore wind would be cheaper in the future, but a Virginia-based project facing higher materials costs just increased its cost estimate 25%, a wind turbine supplier just increased its prices 20%, and the EIA forecast is for 2027.

Finally, the UD study took federal tax credits into account as if it was free money. We pay for those tax credits in higher taxes, and onshore wind and solar also receive federal tax credits.

Sorry, UD, all your key assumptions are wrong, and your idea belongs in the dumpster.

David T. Stevenson
Director, Center for Energy & Environment
Caesar Rodney Institute

Infrastructure Investments in Delaware, Let’s Make it Count!

From: Kathleen Rutherford, Executive Director, A Better Delaware

To quote one of the most famous rappers in popular culture, when it comes to the incoming and massive federal infrastructure funding, “You only get one shot, do not miss your chance…this opportunity comes once in a lifetime.”  Delaware: We have only one chance to get this right and we have every ability to do so. The state is set to receive a minimum of $2 billion in funding for roads, bridges, public transit, electrifying the transportation system, airports, water, and other infrastructure over the next five years. As we determine how best to allocate these funds, we must think differently, and we cannot rely on the same state and local agency-led project prioritization and delivery processes that have been used in the past. Those processes do not prioritize the leveraging of private funding, nor do they weigh heavily enough the importance of economic development. This is not meant to minimize the efforts of state agencies like the Department of Natural Resources and Environmental Control or the Department of Transportation as they do have prioritization processes in place, but those processes are not broad enough and have been utilized to make the most from extremely limited resources. With $2 billion in resources, Delaware’s agencies must be more forward-thinking.

Other states are thinking big and outside the box, and we should as well. For example, California has said it will use its funds to address the top public needs associated with climate change and wildfires. This is outside of their normal project prioritization process and has been deemed a priority. We can also look to West Virginia, where they have determined they will use some funding specifically for rural programming to connect Interstate 79 to Interstate 81 — a project which has been planned for over a half-century. West Virginia has also indicated they will use some funds to address the cleanup of toxins from abandoned mines at an estimated cost of $11 billion over 15 years. On the Gulf Coast, Louisiana officials are looking to fund a high-speed passenger rail system between Baton Rouge and New Orleans — a project that has been studied for decades. Florida has allocated hundreds of millions for rural communities to improve infrastructure while simultaneously expanding the local workforce. Funds from that program are designed to encourage job creation, capital investment and the strengthening and diversification of rural economies by promoting tourism, trade, and economic development. Florida is also dedicating more than a half-billion dollars to resilience efforts to protect the state against rising seas, stronger storms, and flooding. These are just a few examples of states that are thinking big with their incoming infrastructure dollars.

Delaware must also think big. We have a tremendous opportunity to bring together the business community with the state and local governments to take a comprehensive look at how we leverage public and private investments to get the most for Delaware’s infrastructure. Delaware could maximize its share by partnering with private firms to incentivize necessary projects. Just think about that for a moment: By partnering with companies that are looking to make their own investments in and around their businesses to expand and grow, Delaware can leverage its funds to create jobs, spur economic development and expedite the timeline for major infrastructure projects. The wonderful thing about this concept is — as a small state with highly productive business-led organizations such as the Delaware Business Roundtable and the state’s 14 chambers of commerce — it would only take some courageous moves from members of the General Assembly and the Governor to create this mechanism.

Infrastructure is not and should not be a partisan issue. Delaware has done a fine job — within its resources — to put mechanisms in place aimed at increasing and spurring economic development. Some examples include the Strategic Fund, Site Readiness Fund, and Transportation Infrastructure Investment Fund. Why not build on those mechanisms? Delaware is presented with a great opportunity — one of the greatest infrastructure investments in its history — and Delawareans must be concerned about our ability to meet the moment with sound policy that benefits everybody. As much as Delaware stands to gain, poor decision-making stands to jeopardize economic and sustainable growth, tens of thousands of jobs, safer communities, the environment, and overall increased quality of life for all Delawareans. We should all want these things for ourselves, our families, and our communities. So, let’s make sure we get this right! Talk with your legislators and make sure they hear you. With the entire General Assembly up for re-election, the temptation to not focus on the big picture is greater than ever. We cannot let that happen. “Look if you had one shot, or one opportunity…would you capture it or just let it slip?”

 

State Budget Writers Should Resist Temptation to Spend Surplus Funds

From: John Locke Foundation

With state revenue for the current fiscal year now projected to be $4.2 billion higher than originally predicted, state budget writers are sitting on a sizeable stack of funds. The revenue windfall, combined with another $2.4 billion in unappropriated funds and the $3.1 billion in the state’s Rainy Day fund no doubt creates temptation to aggressively finance new programs or even one-time initiatives. “We have the money, we shouldn’t just let it sit there!” is a common refrain coming from those always eager to increase government spending.

Legislators would be unwise, however, to give in to such temptation.

Signs of an economic slowdown, or full recession, are glaring. Runaway inflation, a stock market dive, a cooling of the overheated housing market, and consumer confidence dipping to levels not seen in a decade all point in this direction. Indeed, GDP decreased by 1.4% in the first quarter, so we may already be in recession territory.

Thankfully, North Carolina state government is far better positioned to withstand a recessionary period than it was leading up to the Great Recession in 2007-08. With little set aside in the Rainy Day Fund, growing debt obligations, and an unsustainable spending spree of 49% spending growth in the 8 years prior, state budget writers and then-Governor Bev Purdue were forced into a desperate situation when recession hit. Massive budget shortfalls had to be filled. That which wasn’t covered by federal ‘stimulus’ money was made up for by multi-billion dollar tax hikes imposed on North Carolina families when they could least afford it. And thousands of state employees were laid off, including teachers, while teachers went three straight years without a pay raise.

Fortunately, North Carolina can avoid such painful policies as long as they avoid the temptation to spend down their sizeable reserves. For context, we can look at the revenue impacts North Carolina experienced in the Great Recession.

For the beinnium of FY 2007-8 and 2008-9, total combined budgeted expenditures were $41.86 billion. Actual revenue, according to State Controller reports, over that two-year period came in at $38.92 billion, good for a $2.9 billion shortfall, with $2.1 billion of that in 08-09 alone.

Furthermore, even with a smaller biennial budget of $38.57 beginning with FY 2009-10, actual revenue still fell $750 million short during those two years

Indeed, state General Fund revenue never recovered to FY 2007-8 levels until five years later. In the intervening four years, revenue collections would have needed to be a combined $2.83 billion more just for each year to keep pace with the 07-08 revenue level. To accommodate even minor annual budget increases would have required billions more.

When a recession hits, revenue can nosedive quickly and dramatically. And, if the Great Recession is any indication, revenue can take several years just to get back up to pre-recession levels. To avoid massive layoffs and tax hikes, state budget writers would be wise avoid the temptation to spend down the surplus funds, and save them to plug in what may shape up to be sizeable budget shortfalls.

Death Spiral Demographics in Delaware

From: Caesar Rodney Institute

In 2011, the  Caesar Rodney Institute (CRI) published an analysis showing Delaware’s 2007-2009 migration trends. At that time, Delaware was gaining citizens from high-tax, low-growth Northeastern States (two-thirds of in-migration coming from New Jersey, New York, Massachusetts & Pennsylvania) while losing residents to low-tax, high-growth Southern States (two-thirds going to North Carolina, Florida, South Carolina, Kentucky, and Tennessee).

This report updates that analysis using US Census Bureau data for the years 2010-2020 and adds an overlay of age demographics to better interpret the data.

Retirees Moving in from the Northeast

Delaware continues to gain residents from the moribund and declining Northeast. But the reason is probably NOT due to economic opportunity, but for retirement purposes.

During the last decade, Delaware’s in-migration trends have become more concentrated, with over 76.2% of Delaware’s net in-migration coming from three states: Pennsylvania, New Jersey, and New York.

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(Table Source: Author’s own calculations using data from 2010-2019 US Census Bureau.)

Why does CRI assume that these migrants are coming to retire in Delaware? Because during this same time period, Delaware has become the 4th most rapidly aging state in the nation as measured by the growth rate in the 65+ age cohort. Delaware now has the 5th largest percentage of the population over 65 years old in the country at 20%.

In other words, from 2010 to 2020, Delaware’s 65+ population grew to become 20% of the state’s population, ranking 5th highest in the nation, and this growth rate was the 4th highest in the country.

And, where do these new Delawareans live? During this decade, Sussex County’s population grew by 22.6% and Kent County’s by 13.1%, but New Castle County only grew by 4.3%, which is less than one-half of one percent per year.

Given this data, it is likely that most of this net in-migration are retirees. It is important to note that Delaware has significant tax incentives for retirees (both on income and real estate) along with relatively inexpensive real estate prices. Incentives matter.

The Young and Working Age Moving South and West

With retirees relocating from the expensive Northeast, where are Delawareans moving out-of-state going? The answer to this question is a bifurcated one. A decade ago, two-thirds of our out-migration was heading to the southern states. Today the answer is more complicated.

While just under 50% of our net out-migration is still heading to states like Florida, Texas, and Georgia, another ~20% is moving to the West Coast – Oregon, Washington, and California.

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(Table Source: Author’s own calculations using data from 2010-2019 US Census Bureau.)

Could these out-migrants be the sign of a “brain drain” as our working-age population seeks jobs in the tech industry? The reason to ask this question is that Delaware’s working-age population (25 to 64) has been relatively flat over the last decade, growing at far less than 1% per year.

Furthermore, the under-25 population has declined by over 3% during this period. Delaware now has the 7th smallest youth population in the nation on a percentage basis – tied with Oregon.

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(Table Source: Author’s own calculations using data from 2010-2020 US Census Bureau.)

The Full Picture Means No Economic Growth for Delaware

Irrespective of why young people are leaving Delaware while retirees are moving in, these are very bad demographic trends. The following chart shows 2010 versus 2020 age breakdown in Delaware.

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Fundamentally, economic growth requires increases in worker productivity. With retirees moving in, youth moving out, and a flat working-age population, Delaware will not experience increases in productivity. Our economy is in a negative spiral.

For over a decade, CRI has presented policy options in education reform, tax reform, and regulatory reform that could have ameliorated these trends. CRI has been largely ignored.

On June 7th, Delaware state leaders from business, government, and related entities will be meeting in Dover. This meeting is a chance for these leaders to make a cool-headed appraisal of where Delaware is; where it is headed; and embrace different policy ideas to change direction and remake Delaware as the “Small Wonder.”

It happened under Governor du Pont in the 1980s. It is time again.

Commentary: Inspector General office will benefit citizens, state

From: Bay to Bay News

Delaware’s legislature has a golden opportunity to take a major step forward in addressing shortcomings in state agency management and a seemingly never-ending string of minor and major scandals involving agency operations. The bipartisan House Bill 405 would create a statewide Office of the Inspector General.

For the past three years, the Delaware Coalition for Open Government (DelCOG) — through contact with the Association of Inspectors General at John Jay College of Criminal Justice in New York City, presentations to good-government groups across Delaware and commentaries in the Delaware news media — has been raising awareness of the need for a Delaware inspector general for independent and nonpartisan oversight of state agencies and state-funded entities.

DelCOG is pleased to know Democrats and Republicans in both houses of the Delaware General Assembly have come together to establish an Office of the Inspector General in HB 405.

The bipartisan effort to create this office for the benefit of all Delawareans is a testament to the need for the oversight it will provide and the investigative authority that will address not only waste, fraud and abuse but also mismanagement, misconduct, corruption and neglect of office.

The inspector general will be authorized to investigate possible illegal activities in state agencies, as well as to investigate mismanagement and related issues that undermine the effectiveness of agencies and limit their abilities to help Delawareans. An inspector general also can act in concert with the Delaware attorney general to promote ethical and legal behavior and stop agency mismanagement and abuse of office.

When state agencies fail in their missions or ignore their inherent responsibilities, the public has the right to report issues, demand solutions and expect corrective actions to be implemented — a role that the Office of the Inspector General would fulfill through its mission of transparency and accountability.

Government functions best when transparency, accountability and “in the public interest” are the guideposts that state agency officials follow in making decisions and carrying out policies for the safety, well-being and happiness of Delaware’s citizens, as well as helping to ensure proper use of taxpayer money.

When state agency officials ignore or dismiss these guideposts, mismanagement and neglect of office swiftly can lead not only to conflicting policies and actions but also to waste, fraud, abuse or worse. Consequently, DelCOG believes Delaware needs a dedicated, nonpartisan and independent inspector general for oversight and investigation, ultimately to enhance public trust in our government.

An Office of the Inspector General, through its investigations and efforts to improve management, can contribute to agencies addressing chronic problems that Delawareans observe or perceive, such as suspicious bids and state contracts; questionable property and real estate sales and leases, as well as grants and loans; discrimination in agencies; failure to address widespread water pollution and related issues; and risks to the health and safety of citizens, residents in the care of the state and employees.

By exercising authority to oversee and investigate state agencies and state-funded entities for compliance with their missions and state laws, an independent, nonpartisan Delaware inspector general and staff can, among other things:

    • Ensure that government agencies act in the public interest and conduct agency affairs with honesty and integrity.
    • Investigate and evaluate state agency deficiencies to address questionable practices and to deter or stop waste, fraud, abuse, misconduct, mismanagement and neglect of office.
    • Receive complaints by residents and state employee whistleblowers about state agency officials or agency actions or inactions, investigate them and repair public confidence in the integrity of state agencies and officials.
    • Recommend changes to state laws, policies and practices to help rectify systemic problems.
    • Save state taxpayer money. Inspectors general in other states and the federal government have a history of reducing waste and costly mismanagement errors well in excess of the cost to fund the office.

Because chronic and unresolved problems are counter to Delaware’s ethical and legal directives and warrant oversight, investigation and remediation, DelCOG encourages the General Assembly to pass this legislation establishing the Office of the Inspector General and giving the inspector general the tools and resources necessary to fulfill the oversight mission benefiting all Delawareans.

Finally, DelCOG calls on all concerned citizens and entities throughout the state to contact their state representatives and senators and urge them to pass HB 405 during this Assembly session and urge the governor to sign it! If you aren’t sure who your state legislators are, type in your address at this link to find their names and contact information: legis.delaware.gov/findmylegislator.

Keith Steck is president of the Delaware Coalition for Open Government.