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In The News

Commentary: Belt tightening in the near future, but not like 2008

From Delaware State News

Commentary from Dr. John Stapleford, Caesar Rodney Institute’s chairman, and past director of the University of Delaware’s Bureau of Economic and Research

There are two views among economists regarding the direction of the U.S. economy. The first anticipates a substantial recession similar to 2008-09.  The second expects a severe dip in the second quarter of 2020 with a steady rebound thereafter. I favor the severe dip scenario.

The 2008-09 recession was prolonged because there were extreme price distortions in residential and capital markets that took time to correct. The wealth effect from stock market losses was compounded by a huge decline in residential housing equity.

The COVID-19 crisis, while painful to many families, will have a temporary sharp impact on the U.S. macro economy. The pandemic measures adopted will fall the most heavily on restaurants, hotels, and airlines. The wealth effect from the losses in the stock market will slow consumer spending in the short term, but the underlying prices and resource markets in the nation are sound and two consecutive quarters of declining GDP is unlikely.

How hard was Delaware hit by the 2008-09 recession? Employment dropped by 50,000 over 20 months, an 11% decline. Total wages and personal income declined for a year with losses of 3-4%, and output fell 6% over five quarters.

Structural changes in Delaware’s economy caused by the 2008-09 recession were profound. As happened following the 1973-75 recession, the 2008-09 recession dramatically altered manufacturing. Over $3.5 billion dollars of annual output was lost from the downsizing of the DuPont Co., Astra Zeneca, and the remaining automobile manufacturing, together with associated wholesale operations.

It took six years for total Delaware employment to recover to its 2008 peak level. And the state’s economy is still struggling. For five months now, based upon its leading economic index for Delaware, the Philadelphia Fed has been forecasting a second quarter 2020 contraction in Delaware’s economy.

Read more:

https://delawarestatenews.net/coronavirus/commentary-belt-tightening-in-the-near-future-but-not-like-2008/

Wilmington proposes business fee hikes amid coronavirus crisis

From The News Journal

Business owners across Wilmington face a hike in their annual license fees, while also facing the challenges of a pandemic.

City officials proposed an ordinance Thursday night to the City Council to raise fees for nearly all kinds of businesses that are licensed to operate in Wilmington, from contractors to financial institutions.

If passed by the City Council, the hike would take effect immediately, according to the legislation.

The proposal has been in the works for months, said John Rago, deputy chief of staff for policy and communications for Mayor Mike Purzycki. The city has not updated its fees in more than 15 years, he said.

The proposal was made separately from Purzycki’s proposed budget for the next fiscal year.

Some Wilmington business owners said the proposal was made with bad timing as bars, hair salons, some retail stores and numerous other nonessential businesses were shuttered either by the governor’s order or economic realities during a nationwide coronavirus outbreak. Restaurants are limited to takeout operations only.

“I’m hanging on off a prayer,” said Abundance Child, owner of the Riverfront vegan eatery Drop Squad Kitchen.

Sales have dropped more than 60% in the past week, she said, and the restaurant is making just enough to still pay staff, rent and utilities.

The city is proposing a more than 50% increase in the license fee, from $181 to $300 for restaurants.

“That’s a lot,” she said. “It’s just poor timing and poor judgment. Why would you have a 50% increase in a time of depression?”

Read more:

https://www.delawareonline.com/story/news/2020/03/27/wilmington-business-owners-face-fee-hikes-amid-coronavirus-crisis/2922379001/

Delaware gives $4.5 million to bring Amazon to former Newport-area auto plant site

From the News Journal

It’s now safe to say that Amazon, with the help of $4.5 million in Delaware taxpayer grants, is coming to the Newport area.

The company, which reported $3.3 billion in profits for the three months that ended in December, says it is bringing about 1,000 full-time jobs to the former General Motors plant site on Boxwood Road.

The state’s seven-person Council on Development Finance approved the grant on Monday.

A Nevada-based distribution company that counts Amazon as a client plans those jobs and more seasonal ones for a 3.7-million-square-foot logistics warehouse, according to a presentation from the company at the Buena Vista conference center in New Castle.

Amazon’s application was not readily available to the public before or during the hearing. Monday’s agenda offered little more detail on the application, only revealing that Amazon was seeking the $4.5 million to “establish its operations in Wilmington, Delaware.”

Read more:

https://www.delawareonline.com/story/news/2020/02/24/delaware-gives-4-5-million-bring-amazon-former-newport-auto-plant/4817576002/

Amazon seeking $4.5 million from state for distribution center

From Delaware Business Now

Amazon plans to seek $4.5 million from the Delaware Strategic Fund for a fulfillment center.

An agenda item from the Delaware Council on Development Finance contained the request from Amazon and listed Wilmington as the location. The council will hold a meeting on Monday.

The Strategic Fund ties assistance from the state to the number of jobs created by the employer. Payback comes from additional income tax revenues.

The council passes its recommendations on to the state’s director of Small Business.

The Philadelphia Inquirer reported the request is related to a proposed distribution center at the former GM Boxwood plant west of Wilmington.

Read more:

https://delawarebusinessnow.com/2020/02/amazon-seeking-4-5-million-from-state-for-distribution-center/

What does Delaware’s $200 million surplus say about its budget management?

Earlier in 2020, the Delaware Economic and Financial Advisory Council announced revenue projections revealing a $200 million state budget surplus. While some lawmakers see this as an opportunity to fund new projects, political advocacy groups like A Better Delaware, founded by Chris Kenny, are concerned that the surplus is a sign of mismanagement, and are troubled about a lack of voter input into how lawmakers will spend the funds.

Where did the “surplus” come from?

New tax increases over the past few years resulted in over $200 million in additional revenues by raising taxes on corporate franchises, realty transfers, alcohol and cigarettes. The $200 million surplus is being treated as if it came from better fiscal policy, but A Better Delaware argues that it’s a sign that the state is overtaxing Delawareans.

Delaware’s portion of income that goes to state and local taxes is 10.2%, above the national average. Delaware taxes can also be difficult for businesses; not only do they have high corporate income taxes of 8.7%, but they’re also one of only six states to impose a gross receipts tax. Even so, lawmakers continue to propose and pass new taxes, despite these already high tax rates and the fact that they don’t seem to need the additional revenue if they’re collecting in excess of their budget.

A Better Delaware, therefore, wants taxpayers to know that they have been “overcharged.” Tax increases enable the government to authorize additional spending, when many people feel that they’re paying too much in taxes already.

What will happen to surplus funds?

When the “surplus” was announced, the initial plan was to wait for a final projection in June from the Economic and Financial Advisory Council in order to accurately disperse the funds. Shortly after the announcement, though, nearly all of the $200 million was promised to various projects at the call of Dover politicians.

House Minority Leader Danny Short, R-Seaford, cautioned that all new spending proposals be “scrutinized completely.” Unfortunately, says A Better Delaware, it appears that this won’t be the case and that voters won’t get a say in how the state spends the additional funds. The new proposed spending has been raised with minimal transparency or public input into how to remedy the situation. It also appears that a refund to taxpayers is not being considered as an option.

Building on a concerning past precedent

This isn’t the first time that Delaware is dealing with an unexpected surplus. Last year, Rep. John Kowalko, D-Newark, criticized another surplus issue resulting from excess charter school transportation funds, saying that letting charter schools keep the excess funds without further scrutiny was the wrong move, as it gave “no oversight and no accountability to the taxpayers or anyone else” and that the move was “a shocking display of disregard for taxpayer money.”

The same objections can easily be applied to the current $200 million in additional revenue from over-taxing, A Better Delaware says. That’s because once again, the state’s inaccurate budgeting means that taxpayers’ hard-earned funds will go to projects that weren’t designated as part of the initially agreed-upon budget.

How do Delaware taxes compare?1

  • Delaware has the 9th highest combined corporate tax rate
  • Delaware ranks 41st for personal income taxes
  • Delaware has one of the highest real estate transfer taxes in the nation
  • Delaware is one of only 5 states to still have a gross receipts tax

How can taxpayers object to the current budget situation? 

While funding key projects is important, A Better Delaware believes taxpayers should be concerned by the manner in which the state currently managing its budget and the general lack of accountability to voters. Given the group’s claims of mismanagement, A Better Delaware argues that excess funds would be better off back in the hands of the state’s taxpayers.

Delaware residents that want to object to register their objections to spending the budget surplus can call their legislators. Additionally, to prevent similar issues in the future, voters can call their legislators any time a new tax is on the table and demand better scrutiny by the Joint Finance Committee in budgeting.

The Joint Finance Committee will be meeting during February. Find the JFC public hearing schedule here.

Joint Finance Committee:

Chair:

Co-Chair:

Senators:

Representatives:

(1) Sources:

Black Entrepreneurship 2020: A Special Report and Definitive 50-State Ranking

From FitSmallBusiness

Delaware ranks 30th in the nation for Black Entrepreneurship.

Black Entrepreneurs, All 50 State Rankings:

1. Georgia
2. Texas
3. Florida
4. California
5. North Carolina
6. Oklahoma
7. Tennessee
8. New York
9. Mississippi
10. Colorado
11. Wyoming
12. Washington
13. Nevada
14. New Mexico
15. Michigan
16. Missouri
17. Virginia
18. New Jersey
19. Arizona
20. Louisiana
21. Maryland
22. Ohio
23. Arkansas
24. Kentucky
25. South Carolina
26. Idaho
27. Illinois
28. Indiana
29. Massachusetts
30. Delaware
31. Alaska
32. Alabama
33. Utah
34. North Dakota
35. Oregon
36. West Virginia
37. Vermont
38. Pennsylvania
39. Iowa
40. Hawaii
41. Nebraska
42. South Dakota
43. Montana
44. Minnesota
45. Kansas
46. Connecticut
47. Wisconsin
48. Rhode Island
49. New Hampshire
50. Maine

https://fitsmallbusiness.com/black-entrepreneurship-2020/

Why the Delaware Way could prevent livestreaming of General Assembly

From The News Journal

The so-called “Delaware Way,” the bipartisan tradition in which First State politicians make decisions and work out tensions behind closed doors, could get in the way of the latest efforts to increase transparency.

In a state that’s been frequently criticized as having one of the least transparent governments in the country, a group of mostly Republican lawmakers is proposing that the General Assembly start recording its public meetings and posting them online for anyone to watch.

It’s something that the vast majority of states and several of Delaware’s local governments, in some capacity, already do.

But one of Delaware’s highest-ranking lawmakers, who controls the 41-member House chamber’s schedule, could try to block the effort over fears that private conversations could end up being recorded.

“I’m not too crazy about it,” said House Speaker Pete Schwartzkopf, D-Rehoboth Beach, when asked about livestreaming. “I’m not putting cameras and microphones installed in our caucus rooms because we’d be at the mercy of anyone who’d want to tap into it and listen to us have our discussion.”

The bill does not mention recording private caucus meetings, which take place in some of the same rooms used for public meetings. Those caucus meetings are about as common as public meetings when the General Assembly is in session.

The proposal, House Concurrent Resolution 69, would create only a blueprint for how to livestream public floor debates and committee meetings in the General Assembly. Lawmakers would have to introduce a separate bill to actually execute it.

Read more:

https://www.delawareonline.com/story/news/politics/2020/02/14/delaware-lawmakers-lack-transparency-could-prevent-livestreaming/4543708002/

Bloom’s latest blemishes: Delaware job cuts and multimillion-dollar ‘accounting error’

From The News Journal

Bloom Energy, the Silicon Valley company subsidized by Delaware, blamed an “accounting error” for misstating the amount of money it made in recent years.

Startling investors, Bloom said its revenues over the past four years are off by “less than 10 percent,” a limit that amounts to nearly $200 million.

“The adjustment has no impact on Bloom’s total cash,” said the company, which builds fuel cell electricity generators at a plant in Newark.

Released after stocks stopped trading on Wednesday, Bloom Energy’s statement follows rumors of layoffs at the company’s Delaware factory. Asked last week whether the claims were true, Bloom spokeswoman Natalia Blank said “some specific roles in Delaware were eliminated” because of changes to its operations.

Blank said a “small percentage” of its total Delaware workforce lost their jobs, but declined to disclose the number. She revealed only Bloom’s current Delaware head count when combined with the number of people it plans to hire.

Read more:

https://www.delawareonline.com/story/money/business/2020/02/13/blooms-latest-blemishes-delaware-job-cuts-and-multimillion-dollar-accounting-error/4741488002/

Banning Dollar Stores Hurts Underserved Communities More Than It Helps

From The Foundation for Economic Education

According to the US Department of Agriculture, at last count, 12.7 percent of US census tracts fell under the banner of “low-income, low-access.” This simply means a large portion of that tract’s population lives more than one mile from a food store in an urban area or more than ten miles from one in a rural area.

Dollar stores exist in these areas because of the lack of direct competition. Economically depressed areas often struggle to encourage new businesses, like full-service grocers, and struggle to maintain the ones currently operating. Dollar stores fill a very real need for families across this country. If they didn’t, they wouldn’t exist.

By banning dollar stores, especially without the assurance of a full-service grocer, governments are limiting families’ options, forcing them to travel farther and longer to purchase things like tuna, sugar, Pampers, or other name-brand, discount items.

Sarah Nassauer summed it up in her article about Dollar General:

“Dollar General is expanding because rural America is struggling. With its convenient locations for frugal shoppers, it has become one of the most profitable retailers in the U.S. and a lifeline for lower-income customers bypassed by other major chains.”

This statement rings true for both rural and urban low-income communities.

Banning or limiting dollar stores does not, in turn, usher in an age of full-service grocery stores in underserved neighborhoods. It just means fewer options for those who live there.

Read the whole article:

https://fee.org/articles/banning-dollar-stores-hurts-underserved-communities-more-than-it-helps/

Most business incentives don’t work. Here’s how to fix them.

From Brookings Institute

In 2017, the state of Wisconsin agreed to provide $4 billion in state and local tax incentives to the electronics manufacturing giant Foxconn. In return, the Taiwan-based company promised to build a new manufacturing plant in the state for flat-screen television displays and the subsequent creation of 13,000 new jobs.

It didn’t happen. Those 13,000 jobs never materialized, and plans for the manufacturing plant have been consistently scaled back. Even if the project had gone through as planned, there is no way the Foxconn subsidy would have made money for the state, or provided earnings benefits for residents that exceed its costs. It now appears that few of Foxconn’s promises will be fulfilled, even though local governments have gone into debt over the project.

From 1990 to 2015, the size of these types of business incentives tripled. Foxconn-level incentives would escalate them another 10-fold, to 30% of state and local tax revenue. Such a surge threatens public services and the social safety net, turning a tool used to promote jobs and growth into a political and economic disaster.

Research suggests that at least 75% of the time, typical incentives do not affect a business’s decision on where to locate and create jobs—they’re all cost and no benefit. Furthermore, even when incentives do tip a location decision, they do not pay for themselves. They may create new jobs, but frequently they also bring in new workers from outside the city or state, which raises costs to public services that offset at least 90% of any increased revenue.

On average, only 10-30% of new jobs go to state residents who are not already employed. Only when new jobs increase employment rates—thus boosting local earnings and putting upward pressure on local wages—can they provide large and broadly shared local benefits.

https://www.brookings.edu/blog/the-avenue/2019/11/01/most-business-incentives-dont-work-heres-how-to-fix-them/