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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 150^th 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.

Certificate-of-Need Laws and Delaware Health Services

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

Delaware has certificate-of-need (CON) laws, which require that health care providers show a need in the community for new devices, certain technologies, or expand or establish a practice.

Instead, 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 these 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 7^thoverall for state health spending. For health care spending for patients over 65, Delaware ranks 5^thhighest, 6^thhighest 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. We recently 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.

Proponents of CON laws argue that they help to reduce health care costs and increase access. 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.

A report by the Mercatus Center estimates a savings of $270 on total healthcare per capita without CON law, and an increase in access to hospitals and ambulatory surgical centers. They also estimate an increase in local services without these restrictions, helping residents access healthcare and keeping spending local.

Delaware has utilized the CON process since 1978. Forty-one years later, we may need to re-evaluate and better serve our residents.

Could Delaware’s “Keystone Growth Industry” Also be Hurting the State Economy?

Healthcare typically is a necessity, not a want, and therefore remains a constant driver of our state and national economy.

While Delaware’s businesses earnings increased 8.4% from 2006-2016, health care earnings surged by 64.2% in the same period. Delaware’s health care industry earnings for 2016 were $4.3 billion—almost equivalent to Governor Carney’s 2020 budget.

The numbers look promising, but a staggering 95% of those earnings are from government provided health care insurance, making Medicare and Medicaid the top players. Medicaid, both a federal and state program to assist with medical costs and cover lapses in Medicare, is the single largest line item in the state budget.

Instead of being an economic driver, this turns health care into a major concern for future state spending. If this market continues to boom, so will the costs that Delaware burdens from it. The potential for another budget shortfall becomes immense and many routes to combat this are a detriment to Delaware businesses and families, such as increased taxes and fees or cuts in other critical areas.

Over the past decade, Medicaid spending in Delaware rose at twice the rate of the General Fund revenue. Eventually this bubble will burst, and the same people who sank us will be tasked with raising us up once again.

We can hope that they do better this time, or the next, but insanity is repeating the same thing, or electing the same people, and expecting different results each time.

Good Intent Doesn’t Guarantee Good Outcomes

Companies in Delaware may soon reach a breaking point. Recent legislation from Dover has made the First State less favorable for business, through various taxes, regulations, and other “bad business” bills.

These actions have been in the pursuit of a better standard of living for Delawareans, but could they be the ones at risk?

Delaware’s franchise tax, corporation income tax, and taxes on limited liability companies, limited partnerships, and general partnerships can add up to a big problem for businesses, who may owe more than one of these to the state. Add in a minimum wage increase and bottom lines come into question.

Unfortunately, the answer to this has been to replace workers with robots. McDonald’s has order stations, grocery stores feature self-checkouts, and a few Walmart stores in Delaware have brought in autonomous floor cleaners, or “Auto-C’s.” Technology has begun to replace what has become an expensive workforce.

Businesses are not in the wrong to take these actions—in fact, they are doing what is best for business, and therefore best for the employees they are able to retain, as well as the communities they serve. However, it does result in minimum and low-wage workers facing layoffs as companies seek to protect their own operations against the assault from our legislators.

At the end of the day, the decisions from Dover have hurt the people they were intended to help.