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Blogs and Articles

Time to Say Goodbye

Delaware is now on its 29th modification  of its State of Emergency related to COVID-19 which was first declared on March 12, 2020. This State of Emergency can only be declared or terminated by Governor Carney.

During the past 450 days of the COVID lockdown, our state has been in a gubernatorial stranglehold of power and Delaware has been put in a situation where the free market does not rule, and individuals are prevented from making personal choices.

Despite months and months of lockdown, dozens of studies now reveal that these mandates were an ineffective pandemic response and did not correlate with a lower COVID mortality rate, but did correlate with a higher unemployment rate.

According to Wallet Hub, Delaware is ranked 50th in economic recovery since the start of the pandemic. Unemployment claims are up 1356% compared to this same week in 2019 – approximately four times the increase of the next largest jump in unemployment claims, leaving employers struggling to find workers to fill jobs.

While the jobs are plentiful, many parents are still prevented from getting back to work because their children are home from school. Not all of Delaware’s schools are open for full-time, in-person learning yet. Only seven states have a higher percentage of online or hybrid students.

Students have been kept home despite their unlikelihood to contract or spread the virus. For the entirety of the 2020-2021 school year, only 1,773 of Delaware’s 139,000 school children (less than 1.3 percent of total students) tested positive for the virus, and the rate of infected students was actually lower at private schools which held classes in person at a higher rate than public schools.

This time out of the classroom has set students back months, if not an entire year in their educations. Teachers have seen plummeting attendance and unparalleled failure rates throughout this year’s remote and hybrid learning. The state is simply throwing money at this issue, hoping students will manage to catch up. Approximately $124 million have gone to school districts and charter schools for an “accelerated learning program” – a vague plan for schools to create new ways to get their students back on track.

Delaware’s economic prospects continue to look bleak, even as COVID rates decrease at a steady rate. Infection rates are the lowest they have been in a year and the state appears to be on track to reaching its 70 percent vaccination goal by Independence Day.

This leads one to wonder why a State of Emergency is necessary at this point.  New Jersey, New York, and Maryland have eliminated almost all restrictions and Pennsylvania lifted all restrictions on Memorial Day. Governor Carney has refused to commit to any benchmarks or dates at which he will eliminate restrictions or mask mandates, leaving the duration of his State of Emergency a mystery.

Delaware Republican Rep. Richard Collins of Millsboro  has pushed to limit Governor Carney’s emergency powers, starting with House Bill 49, a proposal that would limit his orders to 30 days without approval by the General Assembly. After the failure of HB 49, lawmakers may have been left questioning what power they have held over the past year, and they’re not alone.

For this year’s sessions, in at least half all states, Republicans and some Democrats have proposed limiting their governor’s emergency powers in some way, according to the National Conference of State Legislatures.

In Pennsylvania, voters were able to vote on their governor’s emergency powers and became first in the nation to curb their governor’s State of Emergency authority. On May 18, 2021, more than 2 million residents voted in the referendum which will now end a governor’s emergency disaster declaration after 21 days and to give lawmakers the sole authority to extend it or end it at any time with a simple majority vote. Even before the referendum, Pennsylvania’s governor had less power than Delaware’s – the legislature had the ability to end an emergency declaration with a two-thirds vote.

While legislative dealings in Delaware have continued, government transparency has been extremely limited as citizens were essentially shut out of participating in the legislative process. For more than 450 days, Legislative Hall remained closed to visitors and even now, after its reopening, only 25 visitors are permitted in each chamber and must register online in advance. Constituents are limited to sitting in the gallery and still may not meet with their representatives inside the building.

Gov. Carney’s overextended executive powers will have long lasting negative effects on Delaware’s economy. Now is the time to say goodbye to Governor Carney’s state of emergency orders and for our legislators and the citizens of Delaware to demand our freedoms be restored.  Let COVID-19 be a learning lesson of how quickly our freedoms can be taken when so much authority lies in the hands of a single individual.

 

 

 

Can Dover Resist the Bait?

John Dryden, famous English poet, once wrote “Better shun the bait, than struggle in the snare”. While written with a different context and sentiment in mind, it is a cautionary tale that can easily be applied to the situation currently being faced by leaders in Dover.

During this upcoming state budget cycle, Delaware finds itself in the fortunate and rare position of dealing with the largest budget surplus in Delaware’s history. The Delaware Financial Advisory Council (DEFAC) estimates the budget for 2022 will contain a surplus of $1 billion.  Much of the surplus is the result of federal stimulus monies.

As such, budget surplus, often viewed as found or free money, is tempting “bait” hard for elected officials, to resist to fund pet projects, appease special interest groups, or plug a financial gap left by poor financial planning. These are all efforts that typically provide only short-term gains and are often more fueled by political motivations with upcoming elections or re-elections in mind.

The “snare” is the continuing financial burden and obligation for these new or expanded programs.  Gov. Carney has already committed $347 million of the surplus to future projects, according to  Delaware Live,  including a $50 million Clean Water Fund. With a robust budget why are we not considering tax cuts as well to increase economic growth?

After a difficult year, we have been presented with a rare gift that could move Delaware forward financially and economically in this post pandemic world. Other states are already showing the way.

Our neighbors in Maryland have created a within their Financial Incentives for Businesses initiative a Job Creation Tax Credit for businesses that create a minimum number of new full-time positions may be entitled to state income tax credits of up to $3,000 per job or $5,000 per job in a “revitalization area.” https://commerce.maryland.gov 

New Mexico’s S.B. 1 2021 was signed by its governor on March 3 and grants a $600 income tax rebate to families and individuals claiming the state’s working families tax credit, and, for businesses, establishes a holiday on gross receipts taxes for food and beverage establishments. https://www.journalofaccountancy.com/news/2021/mar/federal-coronavirus-aid-could-hobble-new-state-tax-cuts-credits.html

The United States Treasury Department recently issued comprehensive guidance on how States could use funds from the American Rescue Plan that would help implement tax reform efforts that could have long term lasting impacts for better budget planning and forecasting.  These tax reforms include:

  1. Protect businesses from the factory tax
    Perhaps the most pro-growth change enacted in the 2017 Tax Cuts and Jobs Act (TCJA) was 100 percent bonus depreciation for business investments in machinery and equipment, also known as full expensing. This relieved manufacturers and other businesses of the so-called “factory tax.”
  2. Use revenue from interest cost deduction limitation to lower business tax rates States can remain conformed to the 163(J) limitation on business interest costs, which will produce additional revenues in upcoming years, and then use the resulting revenue to make a pro-growth change such as reducing the overall business tax rate in a manner that is revenue neutral.
  3. Cancel the upcoming innovation tax Current federal law allows businesses to deduct research and development costs in the year they are incurred. States could make costs permanently deductible in the year they are incurred. This would prevent a growth-reducing tax increase on the innovation economy and would not violate the “tax mandate” because it would reduce taxes relative to the FY 2019 baseline.
  4. Provide more rapid tax rebates for businesses that experienced pandemic losses from 2018-2020
    The TCJA also made changes to business net operating losses(NOLs) that restricted business ability to achieve rapid tax rebates when they experience income losses.

Spending the surplus was never going to be a problem for decision makers in Dover. Spending the funds in a way that resists the “bait” and puts Delaware on a path that is not just a recovery from COVID, but a path to longer-term economic growth is the challenge.

Our state’s fiscal year starts July 1st and the budget for it must be passed by the Delaware General Assembly by June 30th.  Contact your legislators if you believe that they should vote for a budget that focuses on proactive initiatives that sustain and grow Delaware’s economy.

 

 

How will Delaware overcome the workforce shortage?

With COVID-19 cases on the decline, restrictions lifting and businesses beginning to operate as usual, now seems like the perfect time for those unemployed due to the pandemic to get back to work.  But, in Delaware – a state with an unemployment rate above 6 percent – employers are struggling to find workers.

 

This is an unusual problem while recovering from a recession, but that is partly because the recession caused by COVID-19 was itself unusual. According to economist Douglas Holtz-Eakin,  three major factors changed during this recession. First, people did not need to prove they were seeking employment while on unemployment, self-employed and contractual workers became eligible for unemployment and, a $300 federal benefit was made available on top of existing unemployment insurance.

 

These changes have meant that 37 percent of those currently on unemployment are bringing home more than they made while employed pre-pandemic. This in large part contributes to the 8.1 million unfilled jobs across the country.

 

The Foundation for Economic Education says that the labor shortage caused by these compounding financial factors was an unintended consequence, but it wasn’t difficult to predict. It calls the supplemental unemployment benefits a “cautionary tale about what happens when lawmakers meddle in labor markets.”

 

Delaware’s worker shortage will likely be most visible this summer at the beaches. In 2019, Delaware’s tourism industry contributed nearly $4 billion to the economy – 42 percent of that came from Sussex County, home to Delaware’s top beach destinations. As tourists return in what are expected to be large numbers this summer, business owners predict they will not be able to offer the same quality of quantity of services as before.

 

According to Delaware Online, dozens of beach business owners are calling the employment crisis a “nightmare scenario.”  Some businesses quadruple their staff every summer with most the positions filled by spring break, but this year, the Rehoboth Beach-Dewey Beach Chamber of Commerce were compelled to host a job fair to help businesses fill their open positions – a need that has not existed in recent memory.

 

 

As of May 18th, Governor Carney’s office announced that the requirement of those on unemployment to be actively seeking a job will be reinstated beginning June 12. Will this be enough to improve the worker shortage?  Only time will tell what additional moves Gov. Carney will make to get Delaware back to work.

Carney’s Lockdown has left Delaware behind.

While the COVID-19 pandemic has been difficult on the nation, Delawareans are lagging far behind its neighbors as the world begins to find its way back to normalcy.

 

According to Wallet Hub, Delaware is ranked 48th in economic recovery since the start of the pandemic. Unemployment claims are up 998% compared to this same week in 2019 – nearly twice the increase of the next largest jump in unemployment claims, New Mexico at 508%.

 

Four of the top five states recovering the quickest – South Carolina, South Dakota, Iowa, and Kansas have had more relaxed restrictions compared to Delaware since the start of the pandemic and have adopted practical, pro-business common sense measures to keep their states thriving.

 

South Carolina kept its manufacturing sector open during the pandemic, allowing the $200 billion industry to sail smoothly through the past year with a job decrease of only 2% which is expected to bounce back to pre-pandemic employment by the end of 2021.

 

South Dakota, which has an economy that relies heavily on tourism, took quick measures to keep travelers safe and top destinations open. The state only saw a 3.5% decrease in tourism revenue while its state parks welcomed 8 million visitors – an increase of 31% over 2019. In 2021, the state is expected to top pre-pandemic tourism dollars, with hotels already seeing a 41% increase in bookings over 2020.

 

Kansas schools have been in session for full-time in-person instruction since the beginning of April, after Gov. Laura Kelly (D) ended all executive orders relating to the pandemic on March 31.

 

According to NPR, Gov. Henry McMaster (R-South Carolina) lifted mask mandates and banned vaccine passports earlier this month. He stated this week that “maintaining the status quo ignores all of the great progress we’ve made.”

 

Gov. John Carney should take a lesson from Gov. Kelly and Gov. McMaster. Despite Carney’s repressive policies, Delaware’s positive test rate is just 0.6 percent more than South Carolina’s , and can be seen  following a steady downward trend since January on the State of Delaware’s “My Healthy Community” website. Delaware is also slightly ahead with the percentage of adults having received at least one dose of the vaccine, 45 to 43.

 

Delaware is now on the cusp of its 28th modification to the original state of emergency order which will lift indoor capacity restrictions – as long as the space can comply with the new recommended social distancing of three feet (down from six). Despite these small improvements, customers must remain seated at both indoor and outdoor dining establishments and masks are still required.

 

While Delaware’s trends and modifications seem encouraging from a health and business perspective, from a financial one, they are not. Even as indoor locations increase their capacities, many employers are having difficulty finding new hires because they find themselves in competition with the government for labor.

 

The extra $300 per week unemployment benefit provided by the Federal Pandemic Unemployment program (FPUC) distorts incentives to work, and makes it more economically enticing for the unemployed to remain on the rolls rather than take available jobs.

 

Twelve states including South Carolina have announced cutting back on the federal emergency unemployment benefits with the goal of ending the labor shortage, hastening economic recovery, and saving taxpayer dollars.

 

Delaware is continuing with the assistance and in February, passed House Bill 65 which waived 2020 income tax on unemployment benefits.

 

This means a continual flow of generous benefits for the 6.5% of Delawareans who remain unemployed (the national unemployment rate is 6.1%) plus a tax break on those earnings. According to The Hill, some unemployed individuals could be bringing home up to 150% their usual earnings by relying solely on current unemployment benefits.

 

The Delaware Division of Small Business has been assisting small business owners throughout the pandemic, offering nearly $200 million in relief grants to approximately 4,000 businesses, but these businesses need to be open full-time at full capacity with a full workforce to be weaned off government assistance.

 

The combination of both employers and employees both relying on government assistance to stay afloat is unsustainable and will continually fuel the state’s labor shortage.

 

The responsibility of making the necessary changes to incentivize Delaware’s residents to work, allowing businesses to reach their full potential and giving Delawareans the return to normal that they desperately need lies in the hands of Gov. Carney.

Less is more: taxes and debt

One of A Better Delaware’s four pillars is lower taxes for Delawareans and businesses. While we usually focus on just state-level issues, new tax increases are being discussed at both the state and federal level.

Outside of President Biden’s new tax proposal, Delaware has had a few of its own recently, including a new income tax bracket that failed in the house. Despite still recovering from a pandemic and expecting over $2 billion from the federal government, state lawmakers said raising taxes was simply the right thing to do.

Why?

Raising taxes discourages economic development, business growth, and personal spending and saving. When our economy is looking to recover, how could this be the right thing?

Even the Secretary of Finance Rick Geisenberger worried the bill would risk decreasing personal income tax revenue. This is because high-income individuals, including tens of thousands of people who pay nonresident taxes, would simply leave Delaware or work from home in neighboring states to avoid the higher tax. The bill would also mean Delaware has more tax brackets than any other state except Hawaii.

Increasing the income tax would make Delaware less competitive with our neighbors, particularly Pennsylvania, as Delaware’s top marginal rate would be higher than the rates in neighboring states, with the exception of New Jersey.

Outside of this bill, raising any taxes over the next few years would be irresponsible fiscal policy. Delaware is looking at a surplus of over $600 million, plus over $2 billion total from federal stimulus. Any additional revenue grabs would serve no purpose for our residents.

You’ll hear many people tout Delaware’s status as a “tax-free” state, but that simply is not the case. Yes, Delaware does not have the sales tax, but we more than make up for that. Take for example the reason why we are able to avoid having a sales tax: the gross receipts tax. Delaware is one of only seven states with a gross receipts tax. These invisible sales taxes raise prices as these taxes are shifted onto consumers, and tend to impact lower incomes the most.

Delaware’s has the highest per capita revenue from corporate license fees and the fifth-highest per capita corporate income tax revenue. As if that wasn’t enough, Delaware has one of the highest individual income taxes and the highest real estate transfer tax in the nation.

Since 2016, Governor Carney approved large tax increases, but he did not work alone. The taxes started as bills heard and voted on in Dover that were approved for his final vote. Delaware’s tax increases over the last two General Assemblies (2016-2018, 2018-2020) were the 6th highest in the nation.

These tax increases were estimated to raise more than $200 million annually, the exact amount the state claimed was a “surplus” before COVID.

Instead of hurting residents, businesses, and the overall economy, we should avoid adding new spending programs that would require any tax increase, and focus on funding our $1.9 billion in unfunded pension benefits that have been largely ignored for years. This total is massive: for perspective, our pension debt is more than a quarter of the state’s annual budget.

Delaware’s fiscal condition is ranked 44th in the nation, in part due to its unfunded pension deficit, and is why Truth in Accounting’s audit of Delaware’s financial situation resulted in an F grade.

Delaware will eventually be obligated to pay its pensions, and lawmakers should turn their attention from what they believe is the right thing to do, to what is actually best for their constituents.

Note from ABD Executive Director

Friends of A Better Delaware,

For too long, Delaware lawmakers morphed our state into a place that is unrecognizable from what it was once known as: a low-tax business haven. While this may have been decades in the making, we don’t have to continue to accept the status quo and the Delaware Way and continue down the path to a dismal economy and fewer opportunities.

I tried to work in ways that I believed would change that course as I learned more and more about policy in our state, but everything was just how it had always been. Taxes kept rising, taxpayer money continued to flow into massive corporations in failed corporate welfare, and the ballooning spending never seemed to fix the problems we faced as Delawareans.

In 2017, Chris Kenny saw the same problem and had the means and courage to tackle it head on, and I was lucky to be a part of a new grassroots movement that was abandoning the status quo in hope of real change. Over the past year and a half, we have been thrilled to see thousands more join us in what we believe is possible: A Better Delaware.

In that time and with your help, we have been able to manage an outfit that has worked towards better policy outcomes in taxes, spending, regulations, and government transparency and accountability, and have won on issues that we truly believe in.

Fewer taxes help people keep their own money and can even lead to higher state revenues. A balanced state budget with strong reserves protects and serves the constituents. Over-regulation keeps small businesses from success and make it harder to enter or stay in the market. Better governance leads to better policy and a more informed public.

These principles can benefit both sides of the aisle politically and produce better outcomes, opportunities, and benefits for people from Selbyville to Talleyville.

As Executive Director of A Better Delaware, I have come to learn more than I had ever imagined about this state and what it could offer. Every day and every connection made it clear that the work we were doing mattered and resonated. This role has been unbelievably fulfilling and insightful.

As I exit Delaware and the role with ABD, I am left with a feeling of great accomplishment for the victories we have had and the work we put into everything, including our losses. Thank you to the thousands of Delawareans who have rallied behind our efforts to sway the tide on these issues. From a statewide soda tax, to higher income taxes, to holding our officials accountable for their decisions, we have started the change we hoped to see at our inception just a short time ago.

A Better Delaware is going to continue to make change, and I look forward to seeing you all continue to spread the word and grow the movement. Delaware can really be first again if we fight for better policy that truly uplifts and serves Delaware residents, businesses, and communities.

Take with you the main lesson I learned with ABD: Delaware is a wonderful place, but together we can make it better.

Thank you,

Zoe Callaway

Executive Director

A Better Delaware

Delaware can make health care better- why won’t we?

In Sussex County, one of Delaware’s most rural, and fastest-growing, areas, there are only three hospitals in more than 1,000 square miles. In August 2019, plans to bring an emergency medical center for the Georgetown area were squashed when the Delaware Health Resources Board, Delaware’s Certificate-of-Need (CON) entity, denied Beebe Healthcare’s application to expand.

It was one of the most recent casualties of Delaware’s outdated, harmful CON laws, which require health care providers to prove to the state that there’s a need for new facilities, devices and technologies before they can expand or upgrade.

The result is a health care a market where competition is unfairly limited and select health providers are able to get a stranglehold on competition. It’s the people of Delaware who ultimately suffer, faced with inflated prices and limited options for care.

In 1974, the federal government passed the National Health Planning and Resource Development Act, mandating that states have CON laws for health care in order to receive Medicare and Medicaid funding. Because the laws did not reduce costs or improve access as intended, in 1986 the federal CON laws mandate was repealed. The Federal Trade Commission (FTC) and Department of Justice (DOJ) Anti-Trust Division have pushed for the repeal of CON laws in the remaining 35 states – including Delaware – that maintain them.

In Delaware, CON laws create a barrier to entry into the market, inhibit expansion, and, as we’ve seen recently in Sussex County, fail to provide adequate health care services in some areas.

Delawareans have suffered the consequences of CON laws. At $9,509 per capita, Delaware has the sixth highest state government spending for health care, but also has some of the highest rates in the nation of obesity, cancer, diabetes, low birth weight, infant mortality and death before the age of 75.

Advocates of CON laws argue that they help the health care system by preventing duplication and keep prices down by restricting competition, but this contradicts the basic tenets of supply and demand. Instead, patients are forced to pay a higher price for care in older facilities with outdated equipment.

A report by the Mercatus Center at George Mason University estimates that by removing CON laws, Delaware could see a $270 saving on total health care per capita and $99 savings in physician spending per capita. The same study estimated increased access to services with a 42% increase in total hospitals and 17% increase in the number of ambulatory surgical centers.

In short, residents of the First State would have better access to care, and would pay less for it.

The benefits of repeal don’t stop there. The evidence from the Mercatus report suggests that hospital readmission, post-surgery complications and mortality rates would decrease in the absence of CON laws. Innovation and quality of health care would rise, in a market full of opportunity.

Delaware has had harmful CON laws on the books since 1978. Forty-one years later, and after a pandemic that strained our hospitals, it’s time to reevaluate, and make decisions that serve the health and well-being of every Delawarean.

These laws are hurting Delaware health care

The COVID-19 pandemic has shone a light on many issues in the state, from government transparency to education, but perhaps the biggest focus: health care.

Our Governor, along with many others, said that the mandatory shut downs one year ago were to prevent our hospitals from going over capacity. But was the problem COVID cases or our lack of hospitals in the state?

Delaware has certificate-of-need (CON) laws in the form of the Delaware Health Resource Board. These laws require that health care providers show a need in the community for new devices, certain technologies, or expand or establish a practice. However, research finds that CON laws are associated with higher health care spending per capita and higher physician spending per capita. In Delaware, CON laws create a barrier to entry into the market, inhibit expansion, and fail to provide adequate health care services in some areas.

Delaware has seen the consequences of CON laws in health care. The First State has the highest average monthly insurance premium and one of the lowest percentages of medical residents retained.

Additionally, Delaware spends more per-capita on healthcare than every nearby state excluding New York, and ranks 7th overall for state health spending. For health care spending for patients over 65, Delaware ranks 5th highest, 6th highest for state government spending.

This isn’t the only negative impact these laws have had on our state. The presence of a CON program tends to be associated with fewer rural hospitals. Last year, we saw a battle in Sussex County regarding an expansion of services, since currently only three hospitals service 1,196 square miles of the rural county. The request to expand was denied by the HRB.

Why does Delaware still allow a virtual monopoly in health care that drives up everyone medical bills?

Proponents of CON laws argue that they help to reduce health care costs and increase access to care. Contrary to typical supply and demand, they also argue that a shorter supply of health care services in the market results in a reduction of average prices.

report by the Mercatus Center at George Mason University estimates that by removing CON laws, Delaware could see a $270 saving on total health care per capita and $99 savings in physician spending per capita. The same study estimated increased access to services with a 42% increase in total hospitals and 17% increase in the number of ambulatory surgical centers.

If this outdated Board had been sunset by the Joint Legislative Oversight and Sunset Committee last year, our COVID story may have been different.

Residents of the First State deserve to have better access to care with lower costs. Delaware has had harmful CON laws on the books since 1978. Forty-one years later, it’s time to reevaluate, and make decisions that serve the health and well-being of every Delawarean.

Delaware’s damning debt

A huge benefit to working for the state: a pension. But what if your pension is unfunded—and has been for years? Not only should state employees be concerned about their future retirement, but lawmakers and taxpayers should pay attention to what may be a looming fiscal crisis.

Delaware’s $1.9 billion in unfunded pension benefits have been largely ignored for years. This total is massive: for perspective, our pension debt is more than a quarter of the state’s annual budget. Instead of addressing it, lawmakers continue to eye pet projects and kick the can down the road. Their willing ignorance to the issue is not sustainable or beneficial for the state.

Delaware’s fiscal condition is ranked 44th in the nation, in part due to its unfunded pension deficit, and is why Truth in Accounting’s audit of Delaware’s financial situation resulted in an F grade.

Last year’s surplus of $200 million would cover 10% of the state’s pension debt, and only 1.7% of the overall state debt of $12 billion. Each Delaware taxpayer would need to contribute $24,000 in order to offset the debt.

Federal data shows that public pension debt nationally is increasing much faster than the growth of the economy, and state and local government pensions have failed to fully fund the new benefits earned by employees each year, let alone address current debts.

Part of the issue stems from repeated pushing for increased benefits in terms of health care and pensions in addition to increased wages and salaries. Additionally, governors and legislators often lack the courage to set aside the amount of money their analysts told them the state would need to add into the pension funds. Delaware is no exception here.

Delaware will eventually be obligated to pay its pensions, but may not have the money to pay for them when that day comes. That would hurt other budget items if money needs to be shifted to cover pensions, or will hurt taxpayers if they are asked to pay more.

In an interview, Warren Buffett explained the effect this issue might have on individuals and companies looking to establish themselves in a state with underfunded pensions:

“I say to myself, ‘Why do I wanna build a plant there that has to sit there for 30 or 40 years?’ Because I’ll be here for the life of the pension plan, and they will come after corporations, they’ll come after individuals…[T]hey’re gonna have to raise a lotta money.”

Chicago, which also has a pension problem, handled it just how we hope to avoid in Delaware. Mayor Rahm Emanuel initiated numerous taxes, from a large property tax hike in 2014 to a 911 communication tax. These taxes resulted in the average Chicagoan paying around $1,700 more in taxes each year.

People vote with their feet, and Delaware is already teetering on shifting into an exodus with a poor education system, a bad business climate, one of the highest income taxes in the nation, and more taxes on the table. If our lawmakers continue to ignore this issue, we could be facing a real problem.

With a current surplus from massive federal stimulus, and more money potentially on the way, Delaware could address its current unfunded debts without forcing future generations to foot the bill. This would leave the state prepared to manage new pensioners and forge a better path for the state’s budget.

One Program is A Quarter of Delaware’s Budget!

Delaware’s budget has some glaring issues that lawmakers continue to ignore: unfunded pension benefits, an anemic Rainy Day Fund, and the ballooning cost of Medicaid. In light of COVID-19 and the recent spike in healthcare demand it created, Medicaid may be the issue lawmakers need to tackle first.

Delaware’s Medicaid problem started before COVID: according to the Federal Bureau of Labor Statistics, the cost of healthcare has been rising at a pace 5.2% per year. This is concerning as it is higher than the 1.4% inflation increase over recent years. Delaware’s spending on healthcare for Fiscal Year 2021 has been estimated at nearly 40% of the state’s budget.

This is a dramatic increase from the historic 17% that Medicaid used to claim of Delaware’s budget. Currently, 59% of Delaware’s Medicaid program comes from the federal government, which is scheduled to decline slightly in the near future.

Since its start in 1965, Medicaid funding has been a joint state and federal effort. The federal government creates the ground rules for state participation in the program in exchange for large subsidies to the states. Before the Affordable Care Act (ACA), states received a “match rate” based on states’ per capita income, where higher-income states had a 50% match rate, and lower-income states received higher percentages. Each state then funds the difference with general state revenues and taxes on health care providers.

The ACA’s Medicaid expansion covered newly eligible adults with 100% federal funding from 2014 through 2016, but was reduced to 95% in 2017, 94% in 2018, 93% in 2019, and 90% thereafter. The ACA essentially duped states into expanding their Medicaid programs: the initial “free money” prompted 30 states, including Delaware, to take the deal.

This has wrecked state budgets.

The Associated Press says that California expected 800,000 new enrollees after the state’s 2013 Medicaid expansion, but wound up with 2.3 million. Enrollment crushed estimates in New Mexico by 44%, Oregon by 73%, and Washington state by more than 100%. The additional enrollees equal additional costs.

Rhode Island has one-quarter of its population on Medicaid, and the program consumes roughly 30% of all state spending. To fix this growing problem, Rhode Island has levied a 3.5% tax on insurance policies sold through the state’s ObamaCare exchange. Delaware’s Medicaid burden is even higher at almost 50%: so what will that mean for taxes here?

States increased their FY 2015 spending by the biggest margin in more than 20 years, due to huge leaps in Medicaid spending under the first full year of the ACA. The national cost of the $500 billion program is expected to rise to $890 billion by 2024.

Just like many other areas, more money doesn’t mean better outcomes. Around 55% of doctors in major metropolitan areas refuse to take new Medicaid patients and Medicaid enrollees who do find a way to see a doctor typically experience outcomes worse than those under private insurance: more in-hospital deaths, more complications from surgery, worse post treatment survival rates, and longer hospital stays than similar patients with private insurance. Often the only place a Medicaid enrollee currently can get healthcare is in an emergency room or hospital, both of which are very expensive to the system.

The answer that will seem the most logical to Delaware lawmakers will be to increase taxes, but this is an unsustainable model. As the cost grows, so will taxes—for as long as it continues to expand, which may be indefinite without reform.

A better answer to this problem is to repeal Delaware’s outdated and harmful Certificate-of-Need laws, also known as the Delaware Health Resource Board. This entity drives up costs and limits access to care. Without this in place, Delaware could save $270 per capita in healthcare costs and could add 5 more hospitals to serve its residents. With cheaper and more accessible healthcare, there may be another option available for some Medicaid enrollees, and some of Delaware’s budget that could instead go towards other necessary programs, or even result in lower taxes on residents who are already seeing increased taxes with a poor taxpayer return on investment.

The time is now to address our ballooning Medicaid issue.