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What’s New

Less is more: taxes and debt

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

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

Why?

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

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

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

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

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

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

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

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

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

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

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

Note from ABD Executive Director

Friends of A Better Delaware,

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

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

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

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

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

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

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

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

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

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

Thank you,

Zoe Callaway

Executive Director

A Better Delaware

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

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

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

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

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

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

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

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

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

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

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

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

These laws are hurting Delaware health care

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

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

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

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

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

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

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

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

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

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

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

Restaurant Chain Announces Bankruptcy, Says Minimum Wage Hikes to Blame

From the Foundation for Economic Education

Restaurants Unlimited, a Seattle-based chain with restaurant locations in 47 US cities, announced on Sunday it was seeking Chapter 11 protection, citing “progressive” wage laws.

The company, which has operated since the Lyndon Johnson Administration, said rising labor costs—part of a national trend of government-mandated minimum increases—were part of its decision.

“Over the past three years, the company’s profitability has been significantly impacted by progressive wage laws along the Pacific coast that have increased the minimum wage,” Chief Restructuring Officer David Bagley said in court filings, The Seattle Times reports. “As a large employer in the Seattle metro market, for instance, the company was one of the first in the market to be forced to institute wage hikes.”

The minimum wage was not the only factor Restaurants Unlimited blamed for their impending bankruptcy. The company also cited a pair of soft restaurant openings and a decline in casual dining.

The Congressional Budget Office released a report estimating that a House bill designed to raise the federal minimum wage to $15 an hour would cost 1.3 million jobs.

The announcement, however, mirrors labor trends on the east and west coasts. BLS data show that New York City experienced its sharpest decline in restaurant jobs since 9/11 following its passage of a $15 minimum wage law. In California, a local newspaper recently detailed how an entire business district virtually disappeared following the city’s aggressive minimum wage push.

Restaurants Unlimited’s announcement came a day before the Congressional Budget Office released a report estimating that a House bill designed to raise the federal minimum wage to $15 an hour would cost 1.3 million jobs.

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Delaware eases restrictions on restaurants, bars, sports as cases continue to surge: What to know

From Delaware Online

Starting Friday, Delaware bars and restaurants will no longer have a curfew, and the state is easing restrictions on sports competitions.

Gov. John Carney announced the eased restrictions in a press release on Friday.

The state’s stay-at-home advisory and mandate that everyone wear a mask when indoors with people whom they don’t live with, including in private settings, are still in place.

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Georgetown launches online financial ‘transparency center’

From Delaware Online

Much of Georgetown’s financial information can now be viewed online by anyone, anytime.

The Sussex County seat is the first Delaware municipality to use ClearGov software to provide residents with an online financial “transparency center.”

“These days, not everyone has the time to attend public meetings. The transparency center will make it easy and convenient for interested residents to stay informed,” Mayor Bill West said.

ClearGov aims to make financial information easy to access and understand. It breaks down Georgetown’s revenues and expenditures by category, each of which can be clicked to view further breakdowns. Clicking “download financials” at the top of each revenue and expenditure page provides even more information.

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Delaware’s damning debt

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

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

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

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

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

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

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

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

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

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

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

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

One Program is A Quarter of Delaware’s Budget!

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

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

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

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

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

This has wrecked state budgets.

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

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

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

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

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

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

The time is now to address our ballooning Medicaid issue.

Delaware restaurants plan to fight bill that would raise tip wages, raise costs for businesses

From Delaware Live

If signed into law, the bill would dramatically raise the base wage paid to people who earn tips. That could have a ripple effect that would actually destroy income for servers and bartenders; raise the cost of menu items; and put some restaurants out of business. It also will dramatically raise costs for employers who not only will have to pay nearly four times as much to servers, but must pay higher costs for things such workman’s comp insurance and unemployment benefits, which are based on payroll costs.

And everybody in the restaurant industry continues to point out: Restaurants still haven’t returned to full strength either in sales or employment and continue to struggle under COVID-19 restrictions. Changes like the a rise in the minimum wage or the tip wage will cause more and perhaps unsurmountable financial turmoil, they say.

Restaurants will advocate in full force against any effort that blocks their recovery, said Carrie Leishman, CEO of the Delaware Restaurant Association.

“We need the state to help do whatever it can to make restaurants healthy and whole so we can keep these people employed,” she said.

Right now, restaurants pay people who can earn tips $2.23 an hour. House Bill 94, introduced by Rep. Kim Williams, D-Newport, would raise that to 65 percent of the state’s minimum wage.

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