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Blogs and Articles

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.

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.

Why pro-business is not anti-worker

Supporting the economy isn’t a partisan issue—so why has it become one?

In Delaware, “pro-business” is frequently tied to “anti-worker,” but the opposite is true.

Who employs these workers that we want to support? Businesses!

By hurting these employers, workers and their families suffer lower incomes, less hours, and even layoffs.

Think of it this way: if the government passed a restrictive regulation on public housing, there would be an uproar about its impact on the recipients of that program and their access to housing. The move would be seen as one that hurts the people, or an “attack” on lower-income families.

The same is true with a restrictive regulation on business. In this instance, the providers are the companies, stores, and small businesses, while the good are the jobs they supply. Legislation that is anti-business is blatantly anti-worker and anti-jobs, and should be seen as a move that hurts the people as well.

It’s odd that a policy position that offers more jobs, better job security, higher pay, and higher government revenues divides Democrats and Republicans from the local level up through the Presidency. These benefits support groups that fall on both sides, including low-income families, middle-class families, communities, minority groups, children, schools, churches, and more.

In a better informed government, lawmakers would work across the aisle to support legislation that actually promotes job growth, supports businesses, and strengthens the economy, in an effort to work for the people, instead of duping them.

If our elected officials could agree on better fiscal policy, both sides would have the capability to help their respective communities, and the public would finally win in this political game, not to mention that more money would naturally go into the budget to support programs for education, health care, infrastructure, housing, and more.

So why is it so divisive? The answer is the same thing that causes most strife in governance: politics.

What is truly best for the people can make for bad headlines in the short-term and impact re-election or donor support.

“New Policy Erases Student Loan Debt for Millions Nationwide” is a far better headline for student loan forgiveness than what the headline for the true, long-term outcome would be: “Erasing Students Loans Cripples Economy as Trillions of Dollars go Unpaid.”

The next time you hear a lawmaker denounce a pro-business policy for being anti-worker or for putting business over the people, consider how a business can support its workers when their operations take a hit, and why both sides can’t align on this issue.

Thoughtful Spending—A Novel Idea

Evidence-based policymaking sounds like a non-negotiable, but is championed as a new approach to the legislative process.

Minnesota and New Mexico are trailblazing a path to better government spending through a partnership with Results First, an initiative that helps state and local policymakers use taxpayer dollars in a way that produces the best results at the lowest cost.

Business owners know this is the best way to operate in order to achieve success, and some legislators are finally catching up.

Through Results First, policymakers look at the effectiveness and return on investment of programs to determine where to allocate taxpayers dollars. In Minnesota, agencies were asked to provide evidence of desired outcomes along with their budget request for each program.

Imagine if Delaware took these steps.

Instead of above average spending for education and below average performance, our children could receive the education that taxpayers are actually paying for.

Instead of our per capita healthcare spending among the top in the nation, and being ranked 31st in health, Delawareans could receive better care and be a healthier state.

While we continue to watch our spending habits personally, maybe it is time for our legislators to do the same with our money.

Delaware Lawmakers Seek 169% Increase in Tip Wage

A proposed measure in Delaware would increase base wages for tipped workers (servers, bartenders, etc.) by 169.5% at the start, and as high as 573% if minimum wage reaches $15.

In reality, this is just another market manipulation tool and an example of state government micromanaging businesses.

Servers are averaging $25 an hour in areas like Sussex County, and are already guaranteed to earn at least the minimum wage. In fact, 69% of tipped workers said that they would favor keeping their tips over a “substantial increase” in their hourly wage.

This could push establishments to replace tipping with a mandatory service charge, actually putting less money in servers’ pockets at the end of the day, and resulting in less profit for restaurants that are not steadily popular.

When D.C. introduced similar legislation last year, over 100 local bar and restaurant owners spoke out against it, citing added labor costs, increased menu prices, and reduced employee hours as just a few of the associated consequences.

As if this wasn’t enough to deter such action, jobs are also at stake. A report from the University of Washington revealed a loss of over $100 per month for low waged workers and 5,000 fewer jobs from a similar bill.

Less pay, less profit, fewer jobs, and higher prices sound like more of an issue than the one Delaware lawmakers are trying to fix.

Why is this on the menu?

Market Manipulation: The Good, the Bad, and the Ugly

While government incentives are typically touted as great tools for economic development and job creation, they tend to have a negative impact on the community.

Should government decide which businesses operate within a market?

Tax breaks for businesses eliminate revenue, while employment incentives create an additional burden on local services, schools, and health systems by bringing in more residents. The net loss to the community can be exacerbated by the taxpayer burden of monetary incentives.

In addition to offering little benefit to the local community, they don’t target what actually drives a business to select a location to establish or expand: talent, geographic location, and markets.

When Bloom Energy located in Delaware in exchange for subsidies amounting to hundreds of millions of dollars, the company promised thousands of jobs. Now, Bloom employs a fraction of what it promised and its officials do not expect the company “to be profitable for the foreseeable future.”

But Bloom isn’t the only example of wasted money from incentives to businesses. In 2010, Fisker was allotted more than $20 million in taxpayer dollars, but went bankrupt three years later and left the plant empty. The company continues to operate in California today because that is where the talent to develop Fisker electric cars resides.

Jeffrey Dorfman, a professor of economics at The University of Georgia and consultant on economic issues to a variety of corporations and local governments put it best:

“When politicians give away six-figure sums of taxpayer money to attract a new employer, don’t think of it as an investment in the local economy. It is better thought of as a vote-buying scheme funded not with campaign contributions but with taxpayer dollars.”

The new Delaware Prosperity Partnership (DPP) offers some hope, utilizing research and data analysis, as well as promotion of the state’s innovation, business, and economic development to encourage entrepreneurship in the First State. However, with the steady stream of bad business legislation out of Dover, it is unlikely that great companies will want to establish in Delaware, no matter the incentive.

To attract and retain businesses, we must improve our business climate, tax rates, regulations, and talent pool. It’s simple: great things require the right environment to grow.

Real Estate Transfer Tax: State’s Way of Transferring its Financial Burden

A 1% increase in Delaware’s real estate transfer tax in 2017 brought the rate to 4%, worrying realtors in the state. The increase placed a burden on both buyers and sellers, who equally split the tax at closing.

Sellers lost dually with this legislation, facing a harder sell and receiving less profit at closing by having to cover the other half of the transfer tax. Buyers lost too, now having to save thousands more to cover the tax alone. As if a down payment on a home wasn’t a big expense already.

So, who won with the 1% increase?

It should come as no surprise to most that Delaware State Government is the sole winner in the deal, with the extra revenue going directly into the General Fund. The measure was enacted to combat the 2017 budget shortfall, to the detriment of realtors and homebuyers.

Bruce Plummer, president of the Delaware Association of Realtors, said “We know for a fact that home ownership builds strong communities,” with “better school systems, better health, higher volunteerism rates and lower crime rates.”

The legislature disregarded Delawareans when making a decision that impacted their ability to move from renting to owning a home—a big step for many. Realtors, businesses, and communities all lost with legislation that halted more homeownership. Those looking to move to the state were given a reason to reconsider.

When it came to the concern over the increase, Plummer asserted, “We’re not just trying to protect the industry, we’re trying to protect the home owner and Delaware’s private property rights.”

So are we. The real issue boils down to when our legislators will fight for these protections as well.

Unfortunately, this is yet another example of the General Assembly putting itself above residents and businesses. Delaware cannot continue to push key industries aside in favor of funding its bloated spending.

Transparency and Accountability: the “Delaware Way” can do Better

Delaware state government tends to minimize or even diminish the role of the citizen in decision-making, to the detriment of its constituency. Without transparency and accountability to influence better decisions, our officials are free to pass legislation to their own benefit, instead of that of its people.

The transparency issue with Delaware state government has been clear each time a bill is held until the last minute, or rules are suspended to bring forward a bill that was not on the agenda. Information is frequently withheld from constituents and stakeholders.

When the rules were suspended at two thirty in the morning on the final day of session to pass a bill, or when an important bill gets redrafted the night before a vote and the related agencies do not even get a chance to read it, transparency and accountability are abandoned at the door.

Our elected officials essentially halt proper governance when they do not show up to a hearing on a controversial bill, when decoy amendments are released to distract or deter from a bill change, or when a mid-session caucus wastes hours of participant time. Our legislators aren’t always transparent with each other, hiding key information and conflicts of interest, making it difficult to be held accountable by their peers when the people can’t.

Voters need to speak out against legislation that is detrimental to their savings, communities, and businesses, but have to be abreast of upcoming bills to do so. Our legislators aren’t working for the people when the people have no idea what is going on.

In order to do better, our lawmakers must act better. As we approach the second half of the 150th General Assembly, it is important to advocate for change by advocating for transparency and accountability in our state government.

First State Spends First, Taxes Second

It’s no surprise that Delaware lawmakers continue to promote new taxes and tax increases to cover their bloated spending. This has become the new norm and is likely to continue as healthcare spending balloons, new programs are established, and administrative costs climb.

Dover’s unquenchable thirst for additional spending means taxpayers are routinely called on to bail them out through higher fees and taxes. Promised, yet unfunded retirement obligations have resulted in a multi-billion dollar concern.

The state’s “taxpayer burden” would be $27,000 per taxpayer to cover a $9.1 billion deficit. To put this into perspective, Delaware’s FY 2020 state budget is $4.4 billion, or half of the state’s current debt.

The spend-then-tax structure that has been utilized through recent sessions has been to the detriment of many Delawareans, who cannot afford to pay more taxes. These groups include senior citizens and low-income families and individuals, who are meant to be some of the populations we help through government action.

This spend-then-tax structure also impacts the businesses that provide jobs to Delaware citizens. Since the 2007 recession, state lawmakers have raised every Delaware business tax, many of them multiple times. These tax increases have been passed on to the people in higher prices and lower gains in wages.

A statewide property tax, increased income taxes, and a statewide sugar tax are just a few examples of the state’s attempt to shift the burden to the people. At some point, taxpayers can’t afford to dole out their hard-earned money to cover an irresponsible spending structure. Instead of looking for new and pervasive ways to fund the budget, lawmakers should consider re-evaluating certain costs, programs, and regulations in order to reduce our spending.

This system isn’t just a burden, it’s unsustainable.

We will never stop playing catch-up with our current model. Taxpayers will continue to carry the burden of the state as debt accumulates. This is far from the path we should take to ensure a better future for our residents, families, and businesses.

The First State May be the First to have a Statewide Soda Tax

Delaware may be eyeing a sugar tax in the near future, as the Delaware Department of Health and Social Services begins exploring the possible effects of a statewide soda tax.

While no state has a state-wide soda tax at this time, all 7 U.S. cities that have enacted one have a tax structure that places the burden of the tax on the distributor. This increases the cost to companies like Coca-Cola and Pepsi to sell their product and passes off some of the burden in a cost increase to the consumer.

Businesses in these areas are already feeling the strain from the soda tax as exampled by Jeff Brown, owner of a now-closed ShopRite in Philly. Brown cites the Philly soda tax as the reason behind closing the doors of one of his stores, and says revenue has dipped by 20 percent.

“So the customers have a lot of choices outside the city where they can avoid this tax,” Brown said. “They voted with their feet.”

Delaware would likely witness a similar scenario, where consumers would make the short trip across state lines to purchase cheaper products. Moving profits out-of-state will harm businesses and the communities they serve– just like in Philadelphia.

These initiatives also place a disproportionate burden on lower income families, who consume more sugary drinks on average. Low income individuals also staff the jobs that are at risk of being impacted by these initiatives, proving the measure to be dually burdensome to this population.

According to the Tax Policy Center, this method of taxation is most beneficial if the goal is to increase tax revenue, but not to encourage healthy behavior.  So why are Delaware legislators considering a soda tax?

Good question.

Chicago and Santa Fe have already repealed their soda taxes after opposition from constituents, business owners, and companies distributing in these areas. In Philadelphia, the tax has fallen short of revenue projections and has dropped beverage sales by 51%.

If this measure has been less than successful in the cities it has been tested in, our legislators should avoid testing it across our entire state—at the detriment of Delaware families, communities, and businesses.