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What’s New

The Restaurant Industry: The Other COVID Fatality

You’re hearing it everywhere: this pandemic has really hurt small and local businesses. Perhaps one of the most impacted by COVID-19 restrictions has been the restaurant industry. Restaurants typically have extremely small profit margins, meaning any hit to their operations could spell disaster.

Nationally, the restaurant sector had already lost $120 billion in sales by May, only 2 months after the initial restrictions were enacted. The reach of this loss must be understood; a blow to this industry kills a large percentage of jobs, and hurts other businesses from florists, to food packagers, to liquor salesmen, and more.

The situation for restauranteurs is dire: Yelp reported that by May, 53% of the restaurants on their platform were now permanently closed, while OpenTable said one in four were at risk of foreclosure. These numbers were when other options, like outdoor dining, were available. As we move into the winter months, it is difficult to grasp the impact this may have.

Governor Carney’s new COVID-19 restrictions limiting restaurant capacity to 30% went into effect on November 23. This new Executive Order will further cripple an entire industry that has been struggling—and failing—due to similar orders for eight months.

These businesses cannot survive on takeout alone, which may soon be the case. The 100% costs of staying open aren’t covered by the 30% of sales they are able to bring in. For many, this year was the one in which their business, livelihood, and dreams shut down forever. According to the Delaware Restaurant Association, up to 30 percent of restaurants could close if they do not receive assistance.

If only 1.44% of Delaware’s positive COVID cases in November visited a bar, and 4.63% a restaurant, why are we targeting this industry?

The Delaware Restaurant Association reports close to 2,000 eating and drinking locations in the state, which provide around 50,000 jobs and $2 billion in sales. This sector is the largest small business employer in Delaware. Carrie Leishman, President of the Delaware Restaurant Association, estimates thousands of workers losing their jobs around the holidays due to the new limit.

Meanwhile, retail and other industries have operated without issue, despite being a major catalyst for public crowds. Black Friday produced a packed crowd at the Christiana Mall, even in the food court. The absolutely arbitrary parameters of what has made a business “essential” is precisely what is killing this massive industry nationwide.

Delaware’s economy cannot shoulder this burden. Pre-pandemic, we were ranked 34th for employment and one of the worst states for small business. Now we face hundreds or thousands more jobs on the chopping block with less unemployment assistance from the state than before. The Delaware restaurant industry has received about $25 million in state assistance so far, and anticipates $25 million more. Unfortunately, it may not be enough to counter the restrictions.

Add in the newly drafted minimum wage bill and other costly proposed employer mandates that are likely to be brought forth for a vote in the 2021 Legislative Session, and our restaurants—and the jobs that they offer—may never recover. It is far past time to take action and save livelihoods, not just lives.

Chancery judge: Counties ‘manufacturing excuses’ over property tax fix

From Delaware Online

The judge overseeing a landmark property tax lawsuit said on Friday that he felt officials from the state’s three counties were “manufacturing excuses” in delaying a resolution to the litigation.

The parties all agree that resolution will be the reassessment of property values used to calculate property taxes statewide, values that Chancery Court Vice Chancellor J. Travis Laster ruled were unconstitutional earlier this year.

But the education activist plaintiffs that brought the suit and Laster disagree with the counties in the form and timing of how that reassessment occurs, according to testimony Friday during a status hearing regarding debate on how to fix the system.

The plaintiffs want the counties to end the litigation by agreeing to a four-year plan for reassessing property values, plans that each of the counties commissioned from experts and submitted to the court recently.

But attorneys for the counties on Friday asked the judge not to bind them to those plans and instead to put court proceedings on hold while they explore different ways to do a reassessment. That could include asking the General Assembly to approve laws to govern statewide reassessments in the future.

In response, Laster accused the counties of holding up a plan to fix the problem.

“My perception is that there’s been backsliding going on on the county side,” Laster said.

The disagreement means he will order another trial proceeding over how the court will require the counties fix the tax system, and a final plan for the reassessment may not be sorted out before March or April.

“I am disappointed in where we stand,” Laster said. “I don’t feel like things are going swimmingly.”

In May, he ruled that the lack of a reassessment coupled with the counties’ current methods of assessing property values creates a system unfair to the point it violates provisions in the state’s Constitution that require property owners to be taxed equally. He then put the litigation on hold for several months as the COVID-19 pandemic grew.

In October, each of the counties told Laster they were optimistic about reaching a settlement to finalize a plan for reassessment based on proposals created by reassessment experts that would ultimately yield changes to property tax bills in 2024.

It is unclear from the hearing testimony on Friday why the three counties’ position has changed since October.

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COVID won’t be the only job killer with this bill

Delaware lawmakers wasted no time preparing for the 2021 Legislative session after the election. One may think the priority would be to help Delaware businesses and workers recover from the impact of COVID—19. Unfortunately, you’d be mistaken, since one of the first bills being circulated is legislation that would actually do the exact opposite.

A draft of a bill to raise the minimum wage to $15 an hour by 2026—which would amount to a 61.6% increase—has been drafted and circulated for co-sponsorship. If you thought COVID took jobs and hurt our small businesses, just wait until this upcoming session.

The unintended consequences of raising the minimum wage have already been seen in New York, San Francisco, and Illinois. In San Francisco and New York, the restaurant industry has been hit especially hard by the measure, with many businesses raising prices (and losing customers), cutting hours, reducing staff, and some even filing for bankruptcy. When New York City’s minimum wage was raised to $15 per hour, there was an overall decline in restaurant workers, despite total employment increasing by more than 163,000 workers.

Owners tried raising menu prices and adding an extra surcharge to customers’ bills, but restaurants were no longer profitable. Many industries will face the same problem and their businesses will reduce worker hours or the number of workers, scale-back production, turn to automation, or shut down. Businesses want to pay their workers more, but government-mandated increases in wages hurt employment and the overall economy.

The Delaware restaurant industry has had a particularly tough time during the pandemic, and would be crushed by a mandate like a minimum wage increase for at least a few years. It took the First State six years to recover from the 2008 recession. Despite the numbers being far worse than twelve years ago, the new minimum wage would start in just one year.

Our small businesses and low-skill and low-income workers would have no chance, though one is desperately needed. When asked about this, Central Delaware Chamber of Commerce President Judy Diogo told Delaware Live, “It’s going to take [Delaware businesses] a couple of years to recuperate from [COVID—19]. They are not going to get over that in a year. So we need to give them some time to get past that, but we also do not believe the state’s government should be mandating wages.”

Business groups aren’t the only ones who understand this. Make no mistake, the very people pushing for $15 understand the consequences this mandate presents. When signing California’s $15 minimum wage into law, California Governor Jerry Brown said that “Economically, minimum wages may not make sense. But morally, socially, and politically they make every sense.”

Feel good policy doesn’t always do good. In this case, it hurts the very people it claims to help: low-wage and low-skill workers, disabled workers, former inmates, and more. Prices will go up and goods will become too expensive for most and the new “livable wage” will no longer be livable. You cannot mandate a market shift.

Florida and Maine recently joined the list of places with a $15 minimum wage. Delaware shouldn’t join just to feel good. Our lawmakers in Dover must look at the real implications of their decisions and do what is truly best for Delawareans and Delaware businesses. Increasing the minimum wage in the midst of a pandemic that crippled the workforce and businesses alike is not in the best interest of anyone but themselves.

UD and DOJ present budget requests in unusual year

From Delaware State News

DOVER — While most of the country is caught up in the outcome of the presidential election, state government continues to function.
The Office of Management and Budget has begun its preliminary budget hearings for various state agencies and related entities, part of the annual process of crafting a budget proposal.
Working with his financial team, Gov. John Carney will unveil recommendations for a spending plan in January. That outline will look quite different from the one proposed at the beginning of this year, with COVID-19 causing revenues to dip, while creating new expenses.
Over the next week-and-a-half, various departments and related entities that rely on state funding, such as higher education institutions, will make their formal presentations to financial officials. These are being held remotely, a reminder of the ongoing pandemic.
The University of Delaware, which presented its request to budget officials Tuesday, projects a deficit of $228 million to $288 million for the fiscal year ending June 30. The institution has reduced discretionary spending, offered retirement packages to staff, cut salaries for some employees, reduced positions and pulled about $100 million from its approximately $1.64 billion endowment.
“The hard reality is that the financial difficulties facing UD — and all higher education institutions — are not a one-year event, and the road to recovery will extend over the next several years,” President Dr. Dennis Assanis said in prepared remarks. “We are already looking toward the challenges for (fiscal year 2022), including a reduced ability to recruit new students, a continuing need to increase student financial aid and the uncertainties of the economy and its effects on our students and their families.
“As you can see, to reduce our deficit we’ve tightened our belts, leaned on our endowment and even eliminated some of our core workforce. The university has very few cost-cutting options left to help us deal with the unprecedented challenges thrust upon us this year.”

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Documents show settlement is near for plan to finally reassess Delaware properties after decades

From Delaware Online

Officials from Delaware’s three counties are negotiating a lawsuit settlement that would see a multiyear process for reassessing the values used to tax individual properties up and down the state – a process that is likely to render widespread changes to residents’ and businesses’ tax bills in coming years.

Attorneys have told a judge they are working to settle, by the end of the year, a lawsuit that found the property valuations currently used by Delaware’s three counties to calculate tax bills to be unconstitutional, according to recent court transcripts and correspondence.

Newly revealed court documents shed light on the time frame and goals being contemplated by county leaders and the education activists who sued them over the local tax systems.

Each county has submitted reassessment planning proposals that outline a four-year process beginning in January for reassessing properties, according to court documents.

“Our goal is to have this done and have the reassessment baked into the bills by 2024,” New Castle County attorney Nicholas Brannick told a Chancery Court judge in a recent hearing.

Under each of the counties’ planning proposals – which are not final and subject to change – new tax bills would not be mailed before 2024. Residents, however, would be notified of new property values in 2023 and be allowed to appeal.

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University of Delaware confirms 122 employee workforce reduction

From Delaware Business Now

The University of Delaware has laid off 122 employees as it deals with a potential quarter of a billion-dollar shortfall.

University spokesperson Andrea Boyle Tippett confirmed that the university went through a reduction in force this week.

Tippett said job reductions were concentrated in areas“where operations have slowed because of the pandemic, including facilities maintenance, construction project management, and conference services.”

Tippett noted that President Dennis Assanis had announced that the reductions would be coming along with small salary cuts for top administrators and other actions aimed at dealing with the shortfall.

UD also tapped into its estimated $1.5 billion endowment to deal with the budget gap.

The layoffs are believed to have come from the ranks of nonunion employees.

Negotiations are underway with professors and others with union representation regarding early retirements and other options.

Read more

New Castle County reportedly makes high bid for Sheraton South hotel property

From Delaware Business Now

New Castle County was the reported high bidder in an auction for the Sheraton South hotel in the New Castle area.

WDEL and sources within the real estate industry reported the county’s bid was $19.5 million. Bidding had started at $5 million but rose rapidly in the final hours of the online auction.

A New Castle County spokesman did not immediately respond to a request for comment.

The bid will still have to go through an escrow process and perhaps other due diligence.

County Executive Matt Meyer had earlier confirmed that the governmental unit would make a bid for the property for use as a center for the homeless.

The conversion has earned scattered criticism, due to the relative isolation of the property, which sits in a marshy area off Interstate 95.

Meyer told WDEL the center would provide access to services for what is expected to be a growing homeless population as the Covid-19 continues to hammer the economy.

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Sussex County to build $11.4 million emergency operations center

From Delaware Online

Sussex County officials announced earlier this month plans to build a 20,000 square-foot public safety building that will house the county’s emergency operations center, EMS/paramedics and a 911 center.

Construction for the new facility, estimated to cost nearly $11.4 million, is slated to begin July 2021 and is an expansion of the county’s current Emergency Operations Center in the Delaware Coastal Business Park just off Airport Road in Georgetown.

The new public safety building will “produce significant efficiencies” by combining the 911 call center and paramedics department under one roof, county administrator Todd Lawson said during an Oct. 6 council meeting.

The facility includes a new commercial kitchen, renovated lobby, a training center that can accommodate 50 people, simulation rooms, an EMS warehouse for supply storage and bunk rooms for long-term emergencies.

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New Castle County wants to buy Sheraton hotel, convert it to emergency homeless shelter

From Delaware Online

The New Castle County Council plans to discuss and vote on a plan to purchase the Sheraton hotel on Airport Road and convert it into an emergency homeless shelter.

The Sheraton Wilmington South, located just off Exit 5A on I-95, is up for auction beginning Monday, according to a web listing. Bidding starts at $5.5 million. The auction ends Wednesday.

The county wants to use funding from the more than $190 million it has in “reserve allocation” from the more than $322 million it received from the CARES Act during the coronavirus pandemic.

The county, according to an agenda posted for an upcoming meeting Tuesday night, plans to purchase the hotel and operate it as “emergency shelter and temporary housing for our most vulnerable residents, and others as deemed necessary by the Department of Community Services, during and in response to the COVID-19 pandemic.”

The hotel, which just underwent a $6.4 million renovation, has 192 rooms and the property is more than 6 acres. It has a long history in Delaware despite being in operation for less than 10 years. The hotel was originally built for $25 million by principle developer Joseph L. Capano Sr. as a Radisson Hotel in 2000, but it sat empty for years after it was found to have been built, in a floodplain, one-third larger than specified in its permits.

A court battle ensued, and the owners filed for bankruptcy in 2001.

Pennsylvania-based Hersha Hospitality Management purchased the building for $15 million and converted it to a Sheraton. It opened in 2011.

It was announced in September that the hotel was going to auction.

Read more

Regulations: too many to be all good

The original intentions behind regulations were to address market failure, promote economic and social welfare, or advance other goals of policymakers, but even regulations with the best intentions have raised concerns for their unintended consequences. Additionally, many federal and state mandates have been reactive in nature, instead of forming or contributing to a coherent government strategy.

The reach the impact of regulatory bodies has had is immense. Small businesses feel the weight of the regulatory burden at the local, state, and federal levels, massive corporations base location and expansion based on regulations, and the sum total of regulation has led to slowed growth and competitiveness of many countries. Regulations impact a lot.

Take the occupational licensing regs of today. These requirements serve as a barrier to entry into the market, just as they were intended to decades ago as a response to racial or ethnic prejudices. are the legacy of earlier efforts to protect profits by limiting entry to the market. Modern occupational licensing is branded as necessary for quality control, but still works to protect the earning power of established providers. This is harmful to small businesses and entrepreneurs, and has recently been an issue with hair braiding at home.

Remember the EpiPen price scandal? The ridiculous price increase that left many in danger of serious complications from allergic reactions was possible because of regulations. There were few substitutes for EpiPen, which shielded it’s supplier from competition and allowed for a drastic price increase to around $600.

Some regulations and regulatory bodies are good and necessary. But when the Code of Federal Regulations has grown to 175,000 pages, and the small state of Delaware’s regulatory body alone includes 104,562 restrictions and would take 9 weeks to read in its entirety.

In normal times, state and federal government should examine their regulatory body and ask businesses for their perspective. Businesses are beholden to a high standard anyways if they want to keep customers, and too many regulations make it near impossible to make clear their margins, hire workers, or even get started in the first place.

Now, as we recover from the impact COVID-19 has had on our businesses, workers, and economy, our legislators must seriously consider the impact their policy decisions will have on rebuilding what was lost in 2020. In many cases, reducing and eliminating  current regulations that are job killers could help some small businesses endure the crisis. The recovery of small businesses and jobs will spawn economic growth and a healthy job market.

Below is a list of some examples of just the regulatory bodies that have an impact on this massive regulatory burden on businesses. Keep in mind that this is not a comprehensive list, and that every entity on the list issues and enforces their own regulations. Each one is another weight on the shoulders of entrepreneurs and business owners, and not all are necessary to ensure a safe and productive market. This does not include county and city regulations that are enacted in addition to those put forth by these entities.

Federal:

  • Federal Trade Commission (FTC)
  • Environmental Protection Agency (EPA)
  • Occupational Safety and Health Administration (OSHA)
  • National Institute for Occupational Safety and Health (NIOSH)
  • Internal Revenue Service
  • Social Security Administration
  • Defense Department
  • Centers for Medicare and Medicaid Services
  • Federal Energy Regulatory Commission
  • Consumer Product Safety Commission (CPSC)
  • Equal Employment Opportunity Commission (EEOC)
  • Federal Aviation Administration (FAA)
  • Federal Communications Commission (FCC)
  • Federal Deposit Insurance Corporation (FDIC)
  • Federal Reserve System (the FED)
  • Food and Drug Administration (FDA)
  • Interstate Commerce Commission (ICC)
  • National Labor Relations Board (NLRB)
  • Nuclear Regulatory Commission (NRC)
  • Securities and Exchange Commission (SEC)
  • Fair Labor Standards Act (FLSA)
  • The Employee Retirement Income Security Act (ERISA)

Delaware:

  • State Insurance Commissioner
  • State Bank Commissioner
  • Public Service Commission
  • Department of Labor (DOL)
  • Department of Natural Resources and Environmental Control (DNREC)
  • Safety and Homeland Security
    • Alcohol Beverage Control Commission
    • Office of Highway Safety
  • Merit Employee Relations Board
  • Public Employment Relations Board
  • Agricultural Lands Preservation Foundation
  • Food Product Inspection
  • Forest Service
  • Harness Racing Commission
  • Thoroughbred Racing Commission
  • Cash Management Policy Board
  • Delaware Health Care Commission
  • Delaware Manufactured Home Relocation Authority
  • Board of Manufactured Homes Installation
  • Delaware River Basin Commission
  • Delaware Solid Waste Authority
  • Professional Standards Board
  • Delaware Economic Development Authority
  • Division of Public Health
  • Fraud and Consumer Protection Division
  • Board of Cosmetology and Barbering
  • Human Relations Commission
  • State Fire Prevention Commission
  • Division of Motor Vehicles
  • Various professional boards