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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.
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:
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.
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.
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.
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.
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.