What’s New

Delaware’s economy is shrinking, but it does not have to

By Jane Brady, Co-Chair

You are probably familiar with the term “gross domestic product.” That is a figure that represents the total value of the goods and services produced by businesses in a country or a state.  The gross domestic product takes into account the productivity of an economy, measured by the creation of products or services over a particular period of time. Generally speaking, that figure represents the value of the products and services to the people who created them and to those who will be using those products and services. Governments and citizens like to see the value of those products and services grow over time as the workforce increases or technology advances production.  The increase in gross domestic product reflects a growing economy, which produces more jobs, new and different products, and prosperity.

In times of inflation, however, the value of those products and services is diminished by the higher prices that people are required to pay.  The increase in price does not represent any increase in value but rather, simply the reality that consumers are paying more for the same item or service.   In those instances, there is a calculation that can be made to reflect that overpricing, resulting in a figure which is called the “real domestic product.”  That figure, then, more closely measures the economic activity of the country or state.  In times of significant inflation, that figure can sometimes even be a negative number, representing the fact that the economy, despite a larger number, is not growing but is, in fact, shrinking.

Even before the COVID pandemic, in 2019, Delaware’s economy was expected to grow at 0% – that is, we were not expected to increase our gross domestic product in the State of Delaware at all.  Pretty bleak. The reality today is much worse. When you take into account the current gross domestic product for the state of Delaware, and you include in the calculation the impact of inflation on consumers’ buying power, the real gross domestic product is down 8.7%, that is -8.7%. This figure is supported by research from the Caesar Rodney Institute and also by the St. Louis Federal Reserve, which makes calculations of gross and real domestic product for the country and each state.

The United States has the largest gross domestic product in the world. Delaware is perfectly situated geographically to be a much bigger part of our nation’s production and export story. But our state’s business policies are putting us behind.  We need leadership that is going to be creative and innovative in restoring our manufacturing base, bringing good-paying jobs back to Delaware; to look at the opportunities in the Coastal Zone to make Delaware a player in the increased interest in returning the manufacture of vital medicines and technology back to the US. And, we need to support the current reality – increasingly, most of the new businesses in Delaware are small businesses – many employing 5 or fewer people.

Delaware has a proud history of leadership in business and driving our nation’s economy.  Our objective should be to bring prosperity to Delaware families by renewing our role as a leader in the business world.

Why the EV Mandate May Occur One Way or Another

From; Ethan Lang, Executive Director

In May, the Division of Air Quality of DNREC conducted statewide hearings to discuss its ban on new internal combustion vehicles by 2035. That discussion became rather heated in town halls across the state, with citizens on both sides expressing strong views.

But despite what has been said about this issue, the electric vehicle (EV) mandate IS being forced by the effort to reduce carbon dioxide emissions.  Most people do not realize that because of this irrational focus on reducing carbon dioxide emissions, Delaware may get an electric vehicle mandate regardless of Secretary Garvin’s decision and on a timescale much faster than in 2035. Let me explain.

Like other states, Delaware can adhere to regulations set forth by the EPA or adopt more stringent standards set forth by the California Air Resources Board (CARB). States may not develop their own regulations. Generally, northeastern and northwestern states adopt the CARB standards.

While the original proposition of the EV mandate was couched as an ozone-reduction measure, California notes clearly that one of the primary goals was to reduce carbon dioxide emissions. The press release by CARB^[1] noted that:

“Transportation is the single largest source of global warming emissions and air pollution in the state … In 2040, greenhouse gas emissions from cars, pickups, and SUVs are cut in half, and from 2026 through 2040 the regulation cuts climate-warming pollution from those vehicles a cumulative total of 395 million metric tons. That is equivalent to avoiding the greenhouse gases produced from the combustion of 915 million barrels of petroleum.”

Indeed, Governor Carney’s State of the State Address[2] tied Delaware’s EV focus to climate change – “The effects of climate change and sea level rise on Delaware communities are real. We see them every day. That is why we need to act. With the help of federal infrastructure funding, we will accelerate efforts to build out Delaware’s electric vehicle charging infrastructure.”

Why this is important is that the Delaware Climate Change Solutions Act[3] “establishes a statutory requirement of greenhouse gas emissions reductions over the medium and long term to mitigate the adverse effects of climate change due to anthropogenic greenhouse gas emissions on the State … and requires State agencies to address climate change in decision-making and rulemaking.”  This bill was introduced into the State legislature on June 2, 2022, and passed the State Senate by a vote of 13-to-6 (with one abstention and one absentee). It was tabled in the House to allow businesses to evaluate its potential impact. This Act was reintroduced during this session as House Bill 99 and will require the electric vehicle mandate to be implemented. It passed the House on June 6 and now awaits a vote by the Senate.

But surprisingly, the Act states, “the State shall implement greenhouse gas emissions reduction strategies to ensure that, no later than January 1, 2030, statewide greenhouse gas emissions on a net basis shall be reduced by not less than 50% from a 2005 baseline” (emphasis added). That is less than seven years from now and requires us to cut emissions by at least half. As CARB¹ noted, “transportation is responsible for approximately 50% of greenhouse gas emissions (when accounting for fuel production emissions) … in California.”  There is no way such a bill could go into action without addressing the carbon dioxide emissions from the transportation sector. Thus, the State legislature may enact a more draconian EV mandate even if Secretary Garvin decides against it.

But the possibilities for the enaction of the EV mandate continue beyond here. The New York Times^[4] (and other news outlets) reported that the EPA might propose an ambitious, almost innocuous climate regulation like the CARB standard. CARB proposed that 68% of all new car sales would be EVs by 2030; the new EPA rule would require two-thirds by 2032. Remember that Delaware has a choice – the EPA rule or the CARB rule – we cannot make up our own rules. If the EPA goes forward with its rule, the EV mandate is a fait accompli; the only question is how fast it will be implemented.

Note that none of these rules can mandate EV sales. But the Clean Air Act limits the pollution generated by the cars sold by each automobile manufacturer, with substantial fines and penalties levied against companies that fail to comply. These limits are so stringent that automobile manufacturers must sell a certain percentage of EVs to comply with the rule. Thus, while EV sales cannot be mandated directly, forcing automobile manufacturers to comply with pollution levels generated by the new cars they sell dictates the proportion of EVs sold.

So, our solution is not just to petition Secretary Garvin to reject the EV mandate. Many of those in opposition to the mandate have noted that it is being forced on us by non-elected officials, with the tacit assumption that it would be acceptable if elected officials voted for it. But the passage of the Delaware Climate Change Solutions Act will require a vote by our elected officials. Thus, concerned citizens must tell all our elected officials – in the Governor’s Office, the State Senate, and the Delaware General Assembly, as well as in Washington DC – how they feel. Otherwise, we will be forced to pay more for electric vehicles, both in initial and operating costs, all while being stripped of choice.

Is A Little Bit More Enough?

From: Kathleen Rutherford, Executive Director, A Better Delaware 

When John D. Rockefeller, once the richest man in the world, was asked by a reporter how much money is enough, he responded: “Just a little bit more.”

Rockefeller’s sentiment is one evidently shared by the Delaware state government under Gov. John Carney’s leadership, something he affirmed on Jan. 26 while presenting his record $5.48 billion proposed Fiscal Year 2024 budget.  While there where some highlights to his presentation, Governor Carney’s budget proposal missed the mark on providing practical common-sense solutions to our states most concerning issues.

Fiscal Responsibility

Gov. Carney Carney’s budget maintains the state’s untapped $316 million “rainy day fund,” and has directed nearly $19 million into a separate “budget stabilization” reserve fund. This leaves $421.5 million sitting in a bank account, essentially, available to use only if the state falls on hard times. The fiscal responsibility of building the state’s savings account is worthy of applause but ignores the elephant in the room: our states ballooning pension debt. This year  a proposal to allocate $51M to pay down Delaware’s  public pension debt, while the current debt is $8.9 Billion. Delaware’s financial problems stem mostly from unfunded retirement obligations, (it only had seven cents for every dollar of promised retiree health care benefits.)  A Better Delaware recommends significantly paying down Delaware’s public pension debt and reducing new state worker retiree health and pension programs, so that future taxpayers will not be burdened with paying the under-funded retirement promises.

 Taxes and Spending

To the governor’s credit, Carney’s budget reduces the effective tax burden on lower-income earners by increasing the state’s standard deduction from $3,250 to $5,700, a 75% jump. It also will increase the amount of refunded tax for those who meet federal Earned Income Tax Credit requirements to 7.5%. Those moves should provide some relief for struggling Delawareans, but the budget proposal fails to enact the type of long-term, meaningful tax cuts that would unleash the state’s economic potential.

According to The Tax Foundation’s State Business Tax Climate Index, Delaware ranks as having the 44th highest individual income tax burden in the nation. It leads the country with the highest corporate tax, and at 4%, Delaware’s realty transfer tax is the highest in the nation.

In a recent position piece, A Better Delaware outlined its legislative priorities, which include cutting the regressive gross receipts tax, reducing individual income taxes, slashing the realty transfer tax and lowering the corporate tax. Rather than celebrating the largest budget in state history, elected leaders should be asking why now isn’t as good a time as ever to make Delaware a more affordable place to live, work and do business.

Health Care

Carney’s budget proposal doesn’t call for any of the things most likely to reduce health care costs for Delawareans: reforms to the state’s Health Commission and Health Resources Board, the repeal of cumbersome Certificate of Need (CON) laws, nor expanding options for out-of-state health insurance plans.

Delaware ranks fifth highest in the nation for health care costs per capita. In 2020, 10.1% of Delaware adults chose not to see a doctor because of costs. The state Health Commission’s Health Resources Board, as designed, prevents and discourages health care providers from entering or expanding in Delaware due to onerous CON laws. These laws stifle competition, reduce access to care and promote monopolies.

Carney’s budget proposal should come alongside demands to audit Delaware’s Medicaid system for fraud and abuse, phase out the Health Resources Board, eliminate CON laws, and increase access to care, competition and choice. In its current form, the budget won’t do anything to alleviate these issues. The General Assembly must consider alternatives before approving Carney’s proposal.

 Education

Carney’s budget offers 9% pay raises for teachers and 3% raises for other public-school employees, as well as $53 million in “Opportunity Funding” for students with disabilities, low-income students and those whose first language is not English. This proposal follows a disturbing trend: As Delaware’s education spending grows, students’ test scores fall. That’s because throwing money at a problem doesn’t make it go away.

In 2022, Delaware ranked 47th in educational performance out of 50 states when combining the rankings in both math and reading for fourth and eighth graders. That’s despite spending more per-pupil than the other 41 states.

In light of the state’s teacher shortage, Delaware should expand pathways to becoming a teacher, accept out-of-state certifications and ease restrictions on educator licensing. The governor’s budget doesn’t call for any of that.

Also absent in the Governor’s proposal was support for school choice expansion. Expansion in the form of education savings accounts (ESA’s) and tax credit scholarships would give parents the financial freedom to choose where their kids go to school and create healthy competition in the education marketplace.

 Accountability and Transparency

This year the Bond and Capital Improvements Act totals $1.289 billion. That’s $1B in cash to the Bond Bill – up $150M from last year. It is the 5th “one-time” supplemental bill which is another 5.9% growth of overall spending. How much is sitting unspent? So why then, did Gov. Carney not include funding for oversight of the largest budget in our state’s history?

A Better Delaware recommends funding for the formation of a nonpartisan Office of Legislative Ethics and independent Inspector General’s office — ideas that nearly came to fruition in the last General Assembly. Neither does the budget include any funds to reform Delaware’s antiquated and toothless Freedom of Information Act, from which lawmakers have exempted their own communications. These offices would ensure accountability from our elected officials and state offices and give citizens recourse when they witness or fall victim to waste, fraud, abuse, or misconduct.

Workforce Development

Gov. Carney signed into law a bill that will increase Delaware’s unemployment benefit one day after announcing a whopping $46.6M investment for workforce development. Carney stated in his budget address that in Delaware “thousands more job openings than we have people looking for work.” Why then, make it attractive to not apply for a job? A Better Delaware believes that by tightening unemployment benefit requirements to have applicants prove that they are seeking work and showing up for job interviews will help in decreasing our states workforce shortage.

  The governor’s budget does nothing to reform burdensome business regulations, reduce occupational licensing fees, or increase apprenticeship ratios. Occupational licensing fees, which require trained professionals to pay for the privilege to work, particularly impact lower-income Delawareans. Those who can least afford it are shut out of job opportunities by costly regulations. Apprenticeship ratios, which often require three or even four journeypersons for each apprentice, restrict employers from creating opportunities for young tradespeople, crippling their ability to fill jobs that so many Delawareans need. If the governor was truly committed to workforce development, addressing these barriers to entry would have been highlighted as a priority in his budget proposal.

According to a study by Mercatus, Delaware is has the 2^nd most regulations per capita in the region.  Before passing the budget, the General Assembly should insist on a framework to reduce overburdensome, antiquated regulations. Reducing the number of regulations would refocus Delaware’s government on the issues that matter while also unleashing the job creating power of small businesses.

 Energy and Climate

One and a half years after allocating some $80 million to a Clean Water Trust Fund which hasn’t since completed a single project (or started more than one, for that matter), Carney proposed an additional $26.2 million for the fund, to be administered in large part by the notoriously opaque Department of Natural Resources and Environmental Control. Before this money is allocated, there needs to be a serious inquiry into the efficiency and transparency of the Clean Water Trust.

The Trust was pitched to the General Assembly on the promise that it would not run out of funds or require new legislation to replenish its war chest because it would be replenished year after year by interest from project loans. With no projects to point to, the Trust is far from self-sustaining. The General Assembly must take a hard look at this before authorizing additional funds.

Additionally, as the state moves toward a near-total ban of new gas-powered vehicles by 2035 (and without approval by the legislature), the governor’s budget proposal includes $57 million for EV infrastructure and other associated projects. Rather than allowing the free market to drive this technological “advancement,” Carney has signaled his intention to spend an ever-ballooning amount of taxpayer dollars to subsidize an initiative with questionable environmental benefits.

The General Assembly should assert its right to weigh in on the gas-powered vehicle ban and offshore wind projects by rejecting any budget that authorizes the spending of state funds on these initiatives without legislative consent. In this budget, lawmakers can assert their power over runaway executive agencies. In addition, establishment of an independent Energy Advisory Council is needed to establish a realistic state energy plan to be approved by the Delaware legislature.

With unprecedented Federal and State funds flowing through Delaware, Dover has a unique and historic opportunity to lead in the moderation of the governments overall share and control of those citizen taxpayer dollars.

Now is the time to ensure more access and freedom of those dollars go to the individuals and businesses permitting them to choose where it is most productive with less mandates and restrictions. All the while ensuring all the branches of governments portions are openly, rigorously, and independently reviewed to eliminate waste, fraud, and abuse at each level.