What’s New

Time to Say Goodbye

Delaware is now on its 29^th modification  of its State of Emergency related to COVID-19 which was first declared on March 12, 2020. This State of Emergency can only be declared or terminated by Governor Carney.

During the past 450 days of the COVID lockdown, our state has been in a gubernatorial stranglehold of power and Delaware has been put in a situation where the free market does not rule, and individuals are prevented from making personal choices.

Despite months and months of lockdown, dozens of studies now reveal that these mandates were an ineffective pandemic response and did not correlate with a lower COVID mortality rate, but did correlate with a higher unemployment rate.

According to Wallet Hub, Delaware is ranked 50^th in economic recovery since the start of the pandemic. Unemployment claims are up 1356% compared to this same week in 2019 – approximately four times the increase of the next largest jump in unemployment claims, leaving employers struggling to find workers to fill jobs.

While the jobs are plentiful, many parents are still prevented from getting back to work because their children are home from school. Not all of Delaware’s schools are open for full-time, in-person learning yet. Only seven states have a higher percentage of online or hybrid students.

Students have been kept home despite their unlikelihood to contract or spread the virus. For the entirety of the 2020-2021 school year, only 1,773 of Delaware’s 139,000 school children (less than 1.3 percent of total students) tested positive for the virus, and the rate of infected students was actually lower at private schools which held classes in person at a higher rate than public schools.

This time out of the classroom has set students back months, if not an entire year in their educations. Teachers have seen plummeting attendance and unparalleled failure rates throughout this year’s remote and hybrid learning. The state is simply throwing money at this issue, hoping students will manage to catch up. Approximately $124 million have gone to school districts and charter schools for an “accelerated learning program” – a vague plan for schools to create new ways to get their students back on track.

Delaware’s economic prospects continue to look bleak, even as COVID rates decrease at a steady rate. Infection rates are the lowest they have been in a year and the state appears to be on track to reaching its 70 percent vaccination goal by Independence Day.

This leads one to wonder why a State of Emergency is necessary at this point.  New Jersey, New York, and Maryland have eliminated almost all restrictions and Pennsylvania lifted all restrictions on Memorial Day. Governor Carney has refused to commit to any benchmarks or dates at which he will eliminate restrictions or mask mandates, leaving the duration of his State of Emergency a mystery.

Delaware Republican Rep. Richard Collins of Millsboro  has pushed to limit Governor Carney’s emergency powers, starting with House Bill 49, a proposal that would limit his orders to 30 days without approval by the General Assembly. After the failure of HB 49, lawmakers may have been left questioning what power they have held over the past year, and they’re not alone.

For this year’s sessions, in at least half all states, Republicans and some Democrats have proposed limiting their governor’s emergency powers in some way, according to the National Conference of State Legislatures.

In Pennsylvania, voters were able to vote on their governor’s emergency powers and became first in the nation to curb their governor’s State of Emergency authority. On May 18, 2021, more than 2 million residents voted in the referendum which will now end a governor’s emergency disaster declaration after 21 days and to give lawmakers the sole authority to extend it or end it at any time with a simple majority vote. Even before the referendum, Pennsylvania’s governor had less power than Delaware’s – the legislature had the ability to end an emergency declaration with a two-thirds vote.

While legislative dealings in Delaware have continued, government transparency has been extremely limited as citizens were essentially shut out of participating in the legislative process. For more than 450 days, Legislative Hall remained closed to visitors and even now, after its reopening, only 25 visitors are permitted in each chamber and must register online in advance. Constituents are limited to sitting in the gallery and still may not meet with their representatives inside the building.

Gov. Carney’s overextended executive powers will have long lasting negative effects on Delaware’s economy. Now is the time to say goodbye to Governor Carney’s state of emergency orders and for our legislators and the citizens of Delaware to demand our freedoms be restored.  Let COVID-19 be a learning lesson of how quickly our freedoms can be taken when so much authority lies in the hands of a single individual.

Can Dover Resist the Bait?

John Dryden, famous English poet, once wrote “Better shun the bait, than struggle in the snare”. While written with a different context and sentiment in mind, it is a cautionary tale that can easily be applied to the situation currently being faced by leaders in Dover.

During this upcoming state budget cycle, Delaware finds itself in the fortunate and rare position of dealing with the largest budget surplus in Delaware’s history. The Delaware Financial Advisory Council (DEFAC) estimates the budget for 2022 will contain a surplus of $1 billion.  Much of the surplus is the result of federal stimulus monies.

As such, budget surplus, often viewed as found or free money, is tempting “bait” hard for elected officials, to resist to fund pet projects, appease special interest groups, or plug a financial gap left by poor financial planning. These are all efforts that typically provide only short-term gains and are often more fueled by political motivations with upcoming elections or re-elections in mind.

The “snare” is the continuing financial burden and obligation for these new or expanded programs.  Gov. Carney has already committed $347 million of the surplus to future projects, according to  Delaware Live,  including a $50 million Clean Water Fund. With a robust budget why are we not considering tax cuts as well to increase economic growth?

After a difficult year, we have been presented with a rare gift that could move Delaware forward financially and economically in this post pandemic world. Other states are already showing the way.

Our neighbors in Maryland have created a within their Financial Incentives for Businesses initiative a Job Creation Tax Credit for businesses that create a minimum number of new full-time positions may be entitled to state income tax credits of up to $3,000 per job or $5,000 per job in a “revitalization area.” https://commerce.maryland.gov 

New Mexico’s S.B. 1 2021 was signed by its governor on March 3 and grants a $600 income tax rebate to families and individuals claiming the state’s working families tax credit, and, for businesses, establishes a holiday on gross receipts taxes for food and beverage establishments. https://www.journalofaccountancy.com/news/2021/mar/federal-coronavirus-aid-could-hobble-new-state-tax-cuts-credits.html

The United States Treasury Department recently issued comprehensive guidance on how States could use funds from the American Rescue Plan that would help implement tax reform efforts that could have long term lasting impacts for better budget planning and forecasting.  These tax reforms include:

1. Protect businesses from the factory tax
   Perhaps the most pro-growth change enacted in the 2017 Tax Cuts and Jobs Act (TCJA) was 100 percent bonus depreciation for business investments in machinery and equipment, also known as full expensing. This relieved manufacturers and other businesses of the so-called “factory tax.”
2. Use revenue from interest cost deduction limitation to lower business tax rates States can remain conformed to the 163(J) limitation on business interest costs, which will produce additional revenues in upcoming years, and then use the resulting revenue to make a pro-growth change such as reducing the overall business tax rate in a manner that is revenue neutral.
3. Cancel the upcoming innovation tax Current federal law allows businesses to deduct research and development costs in the year they are incurred. States could make costs permanently deductible in the year they are incurred. This would prevent a growth-reducing tax increase on the innovation economy and would not violate the “tax mandate” because it would reduce taxes relative to the FY 2019 baseline.
4. Provide more rapid tax rebates for businesses that experienced pandemic losses from 2018-2020
   The TCJA also made changes to business net operating losses(NOLs) that restricted business ability to achieve rapid tax rebates when they experience income losses.

Spending the surplus was never going to be a problem for decision makers in Dover. Spending the funds in a way that resists the “bait” and puts Delaware on a path that is not just a recovery from COVID, but a path to longer-term economic growth is the challenge.

Our state’s fiscal year starts July 1^st and the budget for it must be passed by the Delaware General Assembly by June 30^th.  Contact your legislators if you believe that they should vote for a budget that focuses on proactive initiatives that sustain and grow Delaware’s economy.