149
paged,page-template,page-template-blog-large-image-whole-post,page-template-blog-large-image-whole-post-php,page,page-id-149,paged-3,page-paged-3,stockholm-core-1.0.8,ctct-stockholm,select-child-theme-ver-1.1,select-theme-ver-5.1.5,ajax_fade,page_not_loaded,menu-animation-underline,wpb-js-composer js-comp-ver-6.0.2,vc_responsive

Blogs and Articles

Why won’t Delaware help small businesses?

A Better Delaware has consistently spoken out against poor leadership regarding economy and business in Delaware during the COVID-19 pandemic. We were not the only ones. The Delaware State Chamber of Commerce, the Central Delaware Chamber of Commerce, the Delaware Small Business Chamber of Commerce, the Delaware Prosperity Partnership, legislators, and business owners and leaders have all called for more attention to this critical issue Delaware faces.

When the Chambers and DPP offered to help, little was done. When industry leaders begged for help, state leaders told them that they were not the priority—only health was. While the health-related efforts here were commendable and necessary (Delaware currently has the 13th highest per capita case count in the nation), we firmly believe that saving lives and saving livelihoods goes hand-in-hand.

On April 13, three weeks after the mandatory stay at home order issued by Governor Carney, and after much outcry from the business community for a lack of attention, Delaware entered a multi-state task force to address reopening with New York, New Jersey, Connecticut, Rhode Island, Massachusetts, and Pennsylvania.

As if Delaware leadership was controlling the task force itself, transparency has been missing from the efforts of the task force. At the time of publication, we could not locate a website or report for the Covid-19 Regional Advisory Council. What we do know is that New York and New Jersey have recently turned their backs on Delaware despite the alliance.

On June 1, perhaps after realizing the futility of this partnership, Delaware announced its own entity that would, through a subcommittee, address business issues related to COVID-19. It took 69 days, a weak regional effort, and continued pressure from various stakeholders to finally establish Delaware’s Pandemic Resurgence Advisory Committee.

So far, the committee itself has taken little action, despite meeting twice a month and having supplemental weekly subcommittee meetings. The Business Subcommittee has met several times, and the most they have accomplished is asking for data on the impact of COVID-19 on Delaware’s agriculture industry and requesting better communication and more transparency (sound familiar?).

Frankly, Delaware’s efforts to help its own businesses have been next to nonexistent, spare the H.E.L.P. loans that are only available to the hospitality industry. It’s not that we can’t afford to help our small and family-owned businesses: we just gave $2.5M to a British bank that only a year ago took 500 jobs out of Delaware, and the state also received close to $900M in CARES Act funding that has yet to be allocated. We have simply chosen not to help.

Delaware can and mustdo better. Below is a list of what other states have done to help their small businesses, and shows what could be done for our own in the First State.

Arkansas: $7M for zero-interest loans from Arkansas’s Quick Action Closing Fund

California: $50M loan guarantee program

Washington DC: $33M Small Business Recovery Microgrants program

Florida: $49M for Small Business Emergency Bridge Loan Program

Illinois: $500M Small Business COVID Relief Program, $20M from Community Development Block Grant funds for small business grants, $60M for small business grants

Indiana: $30M for Small Business Restart Fund (funded by CARES Act)

Iowa: Iowa Small Business Relief Fund, Iowa Targeted Small Business Sole Operator Fund

Louisiana: $50M loan guarantee program for small businesses, $300M of CARES for small businesses

Maryland: Emergency Relief Grant Fund for small businesses, Emergency Relief Loan Fund for small businesses

Massachusetts: $10M Small Business Recovery Loan Fund, Empowerment Grant for Small Businesses

Michigan: Michigan Small Business Relief Program, $100M of CARES Act funding for Michigan Small Business Restart Program

Minnesota: Small Business Emergency Loans (interest free), $62.5M in CARES Act funds for a small business grant program

Mississippi: $300M of CARES Act for a grant program for small businesses, with priority for businesses that did not receive federal PPP loans

Montana: Will use some CARES Act funds for business stabilization, deploying funds over an immediate- to mid-term time frame for forgivable loans, and low- or zero-interest loans

New Hampshire: $400M of CARES Act funds for small business grants

New Jersey: $10M for New Jersey Small Business Assistance Loan program, $5M for the New Jersey Small Business Assistant Grant Program, $6M for Small Business Lease – Emergency Assistance Grant Program

New York: $100M for New York Forward Loan Program for small businesses

Pennsylvania: $60M for Working Capital Access Program for small business loans, $225M for micro-business grants

South Dakota: $10.5M for a Small Business Relief Fund

Tennessee: $200M of CARES Act funds for the Tennessee Business Relief Program

Vermont: $400M in CARES Act funds for an economic relief and recovery package

Washington: $10M for the Working Washington Small Business Emergency Grant program

Wisconsin: $75M for a small business assistance grant program

Wyoming: $50 million in grants through the Wyoming Business Interruption Stipend

Delaware ranked poorly in COVID standings

Four months ago, our world changed.

A recent study State Economies Most Exposed to Coronavirus revealed:

  • Delaware ranks 29th overall
  • Delaware ranks 39th for “Highly Affected Industries & Workforce”
  • Delaware ranks 51st overall for “GDP Generated by Highly Affected Industries as Share of Total State GDP”
  • Delaware ranks 46th for “Accommodation and Food Services”
  • Delaware ranks 47th for “Entertainment and Recreation”
  • Delaware ranks 50th for “Retail Trade”
  • Delaware ranks 42nd for “Educational Services”
  • Delaware ranks 51st for “Other Services (except government and government enterprises)”

We may be the First State, but we’re last where it counts.

If we look back at studies released in the past two years, it’s clear that Delaware’s economy and business climate were not suited for the corona-crisis.

A study from WalletHub ranked Delaware as the 7th worst state to start a business and the 2nd worst for small businesses. Delaware’s fiscal stability was 45th in the nation and ranked 44thfor overall fiscal health.

At the start of 2020, before coronavirus, Delaware’s economy was one of nine nationally predicted to shrink over the next six months.

The coronavirus forced people out of work and businesses to close their doors—some forever. At first, the effect of or economy was reminiscent of the Great Recession in 2008.

According to the Federal Reserve Bank of Philadelphia, Delaware’s business conditions recovered from the Great Recession at a noticeably slower pace than the rest of the nation, taking three more years to stabilize than the average.

This would mean that a return to our dismal economic position isn’t likely until at least 2023. Unfortunately, it is now clear that the economic impact of COVID-19 is worse than 2008.

What will that mean for Delaware moving forward from this crisis?

First, we hope that this will push Delaware to be more focused on the small and family-owned businesses right here in the state. Instead of being used to play a losing game of corporate welfare, taxpayer dollars could help the businesses in their own communities.

The COVID-19 pandemic should lead to wiser saving and spending habits from our state leaders in the future. During the next legislative session beginning in January 2021, A Better Delaware is looking for more serious consideration and evaluation regarding funding, programs, and expenses, as well as a codified savings plan.

If we use this as a much needed wake up call, we have the chance to truly make Delaware better in the future.

“A hell of an expensive lesson picking winners and losers”

Corporate welfare, or financial assistance from government to private businesses, has long been a game that is played in Delaware economic development. Unfortunately, this is a game that the state struggles to win.

Perhaps the most notable failure was Fisker Automotive, an California hybrid electric car company that received $21.5M in 2009. The deal, announced by Gov. Jack Markell and Vice President Biden, was intended to bring around 2,500 green jobs to the state. As time went on, the state had to cover utilities for the flailing company, and it was clear the deal had been a mistake.

Fisker never made a single car in Delaware.

Determined to continue giving away money, the state passed a bill in 2011 that put Delaware on the hook to energy company Bloom Energy until 2032. Part of this deal was a $12M grant given in 2012, on top of nearly $130 million in energy surcharges paid be Delawareans in the first 5 years alone.

Dan Simmons, former vice president of policy at the Institute for Energy Research, believed Delaware’s deal was unusual:

“Bloom was given a whole bunch of incentives and the surcharge, which is very strange. It looks like Delaware was doing everything it could to give Bloom money.”

But for the First State, aggressive incentives for major businesses is par for the course. In 2017, when the company was forced to repay the state $1.5M for failing to meet the proposed goals of the grants, legislators called the deal an “economic disaster” and “a hell of an expensive lesson picking winners and losers.”

That lesson faded quickly from memory.

Solenis,Amazon, and many more were given taxpayer dollars from Delaware’s Strategic Fund after it was clear that the massive Bloom deal was bust in 2017. Most recently, the state awarded $2.5M to British bank Barclay’s to bring 323 call center jobs into Delaware.

The kicker? This is only a year after the company moved 500 jobs out of Delaware into New Jersey, and 3 years since Barclay’s initially took 200 jobs from the state by closing another call center in Newark.

This announcement came as many businesses within the state are still awaiting help related to COVID-19, and some are forced to close their doors permanently. It’s a slap in the face.

While the state’s history of sweetheart-deals-gone-bad is enough to question the practice, since 1997, Delaware has given almost $500M in taxpayer dollars for business subsidies and grants, despite evidence showing that the main factors in a business’ decision to locate or expand in a state are the state’s business climate, tax codes, regulatory structure, labor force and education systems.

A Better Delaware would tend to these factors instead of continuously blowing money bribing companies to pick our state, only to under-perform or up and leave shortly after. Fixing these issues would improve the state overall, and use taxpayer dollars to help the taxpayers, as well as economic development.

Weakened trust and weaker growth

The COVID-19 pandemic has placed a massive spotlight on our local and state governments’ operations and spending; today, transparency isn’t just warranted, it’s demanded.

In the waning weeks of Delaware’s legislative session, it is clear that even a pandemic can’t push our officials to hold themselves accountable or be transparent with their constituents. Promises and trust have been broken, but that’s just business as usual here.

Transparency and the resulting ability to hold elected officials accountable have long been major issues in Delaware government with implications that span policy, spending, and public faith in government, but access should be easier than ever with virtual meetings and digital communication.

Delawareans were teased with the promise change in January this year, when Delaware General Assembly leaders Sen. McBride and Rep. Schwartzkopf announced a new rule that made June 10, 2020 the last day that House or Senate committees could consider bills that originate in their respective chambers.

In May, Rep. Schwartzkopf doubled-down on the promise, by asserting the General Assembly would “concentrate on the money bills,” and that anything beyond would need to be refiled in the start of the next legislative session in January 2021.

Legislators quickly went back on their word when session resumed virtually.

Since the June 10 filing deadline, over 35 bills have been filed that would violate the deadline rule announced in January. While some deal with COVID-19, criminal justice reform, or one of the three budgets, many are outside of the parameters of COVID or “emergency.”

The purpose of the rule was to encourage public involvement and prevent bills from being rushed through at the end of session. Despite this, multiple consent agendas are heard per session day and bills are being pushed under suspended rules to be heard and voted on without a hearing or public comment.

Even the capital budget was brought for a vote in the Senate without adequate time for lawmakers to review the content and vote, let alone the public.

After 22 modifications to the emergency order from the Governor that included shuttering businesses without explanation on what deemed an operation to be “essential” or “non-essential,” lack of input from business leaders on recovery, and delayed announcement on the plan for close to $1B in federal CARES Act money coming to Delaware, the lack of communication is at a tipping point.

Evidence shows that government secrecy can lead to a lack of accountability and abuse of power, and when a local government isn’t forthcoming, it weakens the trust between the officials and their constituents.

Weakened public trust in government can lead to citizens and businesses becoming more risk-averse and delaying investment, innovation and employment decisions that impact economic growth and development. Establishing and focusing on transparency is an investment in economic recovery the future of the state.

This concept may seem lost on Delaware leaders, but it was a major factor in the June 10 deadline.

“The public isn’t fully aware of what we’re doing,’ President Pro Tempore, Senator David McBride said. ‘It’s not that we’re trying to do it without their knowledge. It’s just that things come up.”

Delawareans understand having to deal with unexpected issues, like COVID-19. What we don’t understand is the inability to communicate legislative measures that impact the state’s residents and businesses in the digital age, the reluctance for legislators to hold themselves accountable, or the continued dedication to keeping the state in the dark.

Keep yourself informed throughout the remainder of session (June 30) by checking new legislation here.

Tell your legislator to stick to the rule and stop rushing bills through at the end of session here.

Are Black-owned businesses in Delaware being left behind?

Over the past few months, coronavirus and social justice demonstrations have highlighted the issues and disparities impacting black communities in health, criminal justice, and much more.

One area that should also be addressed is the inequality in business.

Just a few months ago, the requirements for the Payroll Protection Program (PPP) loans from the U.S. Small Business Association made it difficult for many to receive loans, but it was especially tough for minority-owned businesses. Combine that with the fact that Delaware was second to last in the nation in the first round of PPP loans issued, and Delaware’s black-owned businesses were left in the dust during the pandemic.

Coronavirus only worsened the landscape—it didn’t create it.

According to 2019 Census data, there are about 224,000 African Americans in Delaware, but only 553 black-owned businesses. The First State ranks 33rd in the nation for black owned business success.

Part of the issue is a lack of resources.

According to Guidant Financial, a lack of capital and cash flow is the biggest challenge for black small business owners. While those are the same problems most small business owners face, fewer African-American small businesses are approved for financing, and when they are, it is often for less money and with higher interest rates.

Delaware’s business resource page only lists one option specifically for black-owned businesses: the African American Chamber of Commerce. The AACC is actually regional and operates out of Philadelphia, serving Delaware, Pennsylvania, and New Jersey. Who in Delaware is fighting for Delaware’s black business owners?

Currently, only community level groups offer any support.

Among other issues, high business taxes and long wait times for permit approvals make it difficult for any entrepreneur to make it in Delaware. Add on the additional barriers for African Americans, and the cause of our low success rate for black-owned businesses becomes clear.

Better resources and advocacy for all businesses undoubtedly serves minority owned businesses as well. Lower business taxes, less regulations, and faster approvals from less bureaucracy would strengthen our business climate across the board.

However, when we have a group that clearly falls behind in the state and in the nation in their success, perhaps we should take the time to focus on their specific needs. Sure, helping all businesses is a step in the right direction for a lot of entities, and we at A Better Delaware have been advocating for that.

It is time to take steps to advocate and work for those who we have let fall further behind. It is time for Delaware to do better for its businesses—especially its black owned businesses.

If you are a minority business owner or entrepreneur, we want to hear from you. It is time someone asked what could be done so that our elected officials and communities could better serve those gaps.

Please email info@abetterdelaware.org to help us in the effort to create A Better Delaware for everyone.

Transparency is more important now than ever

The coronavirus pandemic has rocked communities and businesses nationwide. While we may be starting to slowly return to normal, normal may never return for those who were forced to wait for help for too long.

On March 24, Governor Carney implemented a mandatory stay at home order, forcing businesses statewide to shut down indefinitely. Many business owners wanted to understand what measures the Governor used to determine if an operation was “essential” but never received an answer.

Transparency has been a glaring issue and missing piece from the policy decisions surrounding COVID-19. It is difficult to hold a government accountable if the people are unaware of or do not understand the decisions being made.

Unfortunately, this is not a new problem in the First State.

In the A Better Delaware October 2019 blog, Transparency and accountability: the “Delaware Way” can do better, it feels as if we peered through the looking glass to this situation:

“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.”

As federal CARES Act money makes it way to the states, with Delaware set to receive $1.25 billion, transparency is more crucial than ever as livelihoods hang in the balance. Taxpayers deserve to know how their money will be spent—and if it will benefit them.

Other states, like Vermont and Alaska have all announced plans to use part of the CARES money to help their own struggling businesses. Two weeks ago, Alaska announced that $290 million of the funds would go to help small businesses and nonprofits, as well as offering aid in the form of grants instead of loans.

Vermont Governor Phil Scott recently announced a $400 million economic relief and recovery package funded by the $1.25 billion the state received from the Federal CARES Act: $310 million for immediate emergency relief to the most impacted sectors and businesses, and $90 million in long-term recovery investments.

If other states’ leaders can work with businesses and business groups to forge a path for small businesses and nonprofits to get back on their feet, Delaware can too.

On May 6, Delaware business leaders authored a letter to Governor Carney requesting the opportunity to inform reopening decisions. Shortly after, the Central Delaware Chamber of Commerce and the Small Business Chamber spoke out about recovery and the Governor’s action, or lack thereof.

Open lines of communications with informed parties and with the public are both necessary to move forward. Only businesses know what businesses need right now.

As our leaders work to parcel the federal aid how they see fit, the opportunity for a new era of transparency in Delaware state government is now.

Vermont spends $310M of CARES funds helping businesses– will Delaware?

Two months into its emergency order, Delaware has yet to reveal what help businesses may receive and how as we recover from the coronavirus, while other states are offering hope.

An upcoming episode of A Better Delaware’s livestream seriesA Better Discussionwill feature Betsy Bishop, President of the Vermont Chamber of Commerce to discuss Vermont Governor Phil Scott’s recently announced $400 million economic relief and recovery package (stay tuned on our Facebook page for an announcement of the date).

The proposal, funded by the $1.25 billion the state received from the Federal CARES Act, includes $310 million for immediate emergency relief to the most impacted sectors and businesses, as well as $90 million in long-term recovery investments, and offers support for Vermont businesses includes funding for financial, housing, and technical assistance.

“These ideas are the result of talking to many local employers over the last two months to identify what they need now, and what they will need on the other side of this,” said Agency of Commerce Secretary Lindsay Kurrle.

In Delaware, we have yet to take any similar action.

State leaders requested flexibility in use of CARES funds, with no plan in place for how to use it.

In Tuesday’s episode of A Better Discussion, guest Bob Older, President of the Delaware Small Business Chamber of Commerce, expressed that when it came to Delaware’s response to the virus, “our small businesses were left in the dark.”

Older continued, saying businesses have been forced to remain closed for longer than was necessary, and much to the detriment of their operations and ability to reopen. The two month long stay at home order will force many businesses to shutter permanently.

Delaware was near last in the nation in the U.S. Small Business Administration Paycheck Protection Program funds and offered state assistance through the H.E.L.P. loans, only to the hospitality industry, leaving many businesses helpless. State reserves, such as the $252.4 million in our Rainy Day Fund, tens of millions in the Strategic Fund, and $126.3 million from budget smoothing weren’t utilized to help either.

As we continue to wait for a phased reopening and an announcement of an economic plan, watching other states move forward with economic and business assistance feels like salt in the wound—a wound that has been left open for far too long.

Unfortunately, this isn’t the only instance of Delaware lagging behind in an economic response during the virus. Other states launched business and economic task forces weeks before announcing stay at home orders, whereas Delaware’s Governor joined with other states in a task force weeks after forcing businesses to close, and has yet to proceed with a state-focused initiative.

Early on, state leaders responded to industry pleas by telling them that the health side was their only priority, and businesses would have to wait.

Two months later, and with other states pushing forward, you have to wonder: just how long are our floundering businesses and 100,000 unemployed Delawareans expected to wait for our state leaders to act?

Harm vs. Good

The past six weeks have been an difficult and trying time. Jobs are being lost, businesses are closing, and the rules seem to change by the day.

A Better Delaware has been committed to advocating for you, your jobs, and your businesses at this time. We have been working to keep Delawareans informed and aware of the ever-changing situation.

Part of this effort has been hosting a recurring livestream series entitled A Better Discussion, where we cover current issues with experts in order to better inform the residents of the First State.

This week, we were pleased to have Dr. Michael Peterson, Chair of the Department of Behavioral Health and Nutrition at the University of Delaware join us for a candid discussion about the response to COVID-19 and its lasting impact on health and the economy.

Dr. Peterson shared what you won’t hear from many local leaders: much of our response has been ill-advised and more detrimental than the virus itself.

To start, you don’t quarantine the healthy, you quarantine the sick. We overreacted, and the reaction to a situation does not prove the severity of it. In this case, we continue to stand by our initial actions without the hubris to admit we were wrong.

Not only were we wrong in closing our economy, but we were wrong to ignore the unintended consequences of the policies enacted.

He went on to say that economic health is a driving force for individual health, making unemployment a health risk that leads to other detrimental health issues. These include anxiety, depression, opiate use, domestic violence, suicide, and more.

With recent unemployment numbers showing employment down nationally by 20.5M jobs, and an unemployment rate of 14.7%, the lasting impact of the response to the virus may be worse than the coronavirus.

In Delaware, unemployment claims increased 2244.31% from the start of COVID-19 through April.

As for the determination of “essential businesses,” for business owners, their businesses are essential because it is their livelihood. For workers, their jobs are essential because it is how they support themselves and their families, find purpose, and more.

Dr. Peterson was clear that keeping vulnerable populations—such as the chronically ill and the elderly—safe was very important to managing the coronavirus and keeping death tolls low. He believes we could have done this easily without shutting down and forcing people out of work.

As for re-opening, a full opening is likely best. He advocated for businesses to be allowed to do what they do best: adapt, thrive, and weigh risks.

Unfortunately, the damage has been done to the economy and it will take a while to recover. Printing money, shortages, and loss of work/business will have hard impacts on recovery.

Check out the full episode here.

Open letter to Gov. Carney from business leaders

On May 6, Delaware business leaders authored a letter to Governor Carney requesting the opportunity to inform reopening decisions. The Delaware Business Roundtable and Delaware State Chamber of Commerce believe:

“the combination of a carefully considered, phased reopening of Delaware businesses and the implementation of a series of strategic, long-term policy changes will put Delaware and our citizens in a healthy and economically secure position in the future.”

The letter was released a day after the Governor announced plans to allow some small businesses to resume operations, beginning as early as May 8. While this is a step towards economic recovery from COVID-19, it is only one of many to come.

A path to recovery informed by business leaders—who understand firsthand the urgency of the economic strain—is perhaps the best step towards recovery that we could take at this time.

The two groups are offering a phased reopening guide for businesses to be sent to their memberships, and a series of policy recommendations to jumpstart the economy. “Creative use” of federal stimulus funds were also mentioned in their vision for strengthening Delaware’s economy, workforce, and business community post-coronavirus.

Delaware’s emergency order has been extended through May 31, as many business owners and workers fear for their livelihoods as each new day dwindles their reserves.

The time to partner with the business community was likely long ago, but it is better late than never to do so.

We hope the Governor and other state leaders accept the guidance being offered in order to protect Delawareans and the First State’s future.

__

Proposals:

COVID-19 Best Practices

Putting Delaware Back to Work: Economic Recovery in the First State

__

Read the letter below:

Dear Governor Carney: 

Since the beginning of the COVID-19 pandemic and the necessary restrictions on economic activity enacted by the State, The Delaware Business Roundtable and the Delaware State Chamber of Commerce have been working together to provide our assistance to safely and responsibly enable a phased reopening of Delaware’s economy. At the outset, we want to be clear that we believe any action to reopen the economy must follow public health guidance to be certain Delaware does not experience a resurgence and put additional pressure on the state’s healthcare system. 

We are writing today to offer two specific pieces of work: 

  • COVID-19 Best Practices: This is a guidance document for Delaware’s business community, developed after surveying and discussing these issues with businesses statewide. We believe this document will provide a basic guide to businesses outlining essential activities they must consider as they execute a phased reopening. We are working to disseminate this document widely to our members and beyond; 
  • Putting Delaware Back to Work: Economic Recovery in the First StateThis is a series of strategic, long-term policy recommendations with consideration that the economic recovery from the pandemic will take far longer than any of us may have initially imagined. Thus, now is the time to make meaningful public policy changes and investments so that we can jumpstart efforts to create a higher skilled workforce, a streamlined regulatory approval process, easy access to broadband, and more. 

Many agree that the pandemic has brought to light some of the challenges Delaware faces in competing with other states for jobs, talent and investment. The goal is clear: we should act with urgency now! Why? So that in two or three years we can look back and assert unequivocally that in the midst of a national crisis Delaware leaders – representing both state and business interests – acted responsibly in the short term and also took the long view to put Delaware on a forward-looking, carefully considered path that resulted in economic prosperity for all Delawareans. We believe that, working closely with you and the General Assembly, many of the proposals articulated in the attached document should be enacted within the next 30 days as a means of generating jobs. As has been said before, we should never let a serious crisis go to waste; it’s an opportunity to do things we think we could not do before. 

Given the state revenue update from DEFAC on Monday, making such investments will represent a considerable challenge. However, the combination of a carefully considered, phased reopening of Delaware businesses and the implementation of a series of strategic, long-term policy changes will put Delaware and our citizens in a healthy and economically secure position in the future. With appropriate spending prioritization, creative use of federal stimulus funds and a careful balance between use of state operating funds and the state’s bonding authority, we are certain that Delaware can meet this challenge. 

As our State has seen in the past, a focused public-private partnership can surmount the most difficult challenges. Accordingly, we look forward to working collaboratively with you and your team on these urgent matters. 

Taxes and Spending: The Real Economic Impact

DEFAC estimates show Delaware’s revenues for FY 2020 down by $416M and FY 2021 revenues down by $273.3M, creating a deficit of about $748.7M. Governor Carney expects as much as $500M to $1B in lost revenues.

In 2017, Delaware increased spending and raised taxes to answer a $400M deficit.

Increasing spending with such a high deficit is irresponsible. As for taxes, asking businesses and workers to fork over money when businesses have been forced to exact layoffs, limit operations, or even close seems incomprehensible, but Delaware leaders are considering doing just that.

On Monday, Delaware Department of Labor Secretary Cerron Cade said higher unemployment taxes (paid by businesses) could be implemented to refresh funding for unemployment benefits. According to Secretary Cade, the total for these benefits could be $850M over the next three months alone.

Looming tax hikes aren’t our only concern as we push forward. If we look at how the current leadership has handled deficits in the past, Delawareans can expect to see spending for projects that could have been delayed until the state was stable again. Some argue this is how we jumpstart economic growth.

According to an article in Forbes:

“More government spending has been widely-touted as a cure for unemployment, but support for that view seems to be eroding…there isn’t any net gain from government spending since it’s offset by the taxes needed to pay for it, taxes that reduce private sector spending.”

For example, massive spending hikes in the 1930s, 1960s, and 1970s all failed to spawn economic growth, but in the 1980s and 1990s—when federal government spending shrank—the U.S. economy enjoyed one of its greatest expansions.

Some government spending is beneficial, but only if government spending does not crowd out similar private spending, and only is spent wisely, such as education, job training, physical infrastructure, and research and development. In general, government expenditures can weaken the private sector by unproductively allocating resources and thus slowing income growth.

Government spending is entwined with taxes, and high tax rates reduce incentives to work, save, and invest. This leads to a less motivated workforce and less business investment in new capital and technology. Few government expenditures boost productivity enough to offset that lost due to taxes.

So why do our leaders insist on additional spending?

It boils down to politics. New spending programs seem to benefit those who implement them more than those who pay for them.

In a ploy to avoid cutting spending, the state has requested federal funds. Delaware leaders jointly sent a letter to Delaware’s congressional delegation asking for flexibility with how the state can spend more than $1B in stimulus funds.

The National Governor’s Association (NGA) also submitted a formal request to Congress for federal aid to offset state deficits. This request has been denied for now, with leaders arguing that if states face budget woes, it is due to decades of fiscal mismanagement.

Instead of returning time and time again with more taxes coupled with new spending, the state government can be responsible and allocate surpluses to reserves or implement reviews to assess the need and efficiency of certain programs.

If this had been the response in 2017, we may have been more prepared to weather this storm.

Delaware has been shut down for 38 days with no real end in sight, and the President has recommended an incremental reopening strategy. Seventeen percent of small businesses said that they would have to close down or sell if they experienced two-month loss in revenue, according to the latest Small Business Credit Survey.

They need help, not taxes or spending programs.

Unfortunately, we cannot turn back time. All we can do is move forward in a way that is financially sound in the short- and long-term, and in a manner that does not add undue burden to taxpayers and businesses.