by James DeChene
The impact of the 2016 Election Day results will continue to resonate for the remainder of the year. Above and beyond the obvious implications of Republican Executive and Legislative branches federally, here at home, Delaware has a Senate where a special election in early spring 2017 will dictate which party has control for the remainder of the 149th General Assembly.
The pressing issues, however, remain. A major budget gap expected to be somewhere north of $300 million. An education system in need of reform in order to adequately prepare students for a career. A number of abandoned industrial sites currently sitting vacant, with limited prospects of seeing repurpose into economic development. An aging infrastructure system lacking dedicated funding to maintain, let alone expand, including road, rail, and clean water.
The good news is that I believe that our elected officials in Dover have the ability to make the difficult decisions necessary to help set Delaware on a course of growth. If we take nothing else from this election season, I believe that citizens expect to be engaged by their elected officials to outline the important issues and challenges we face. By doing so, our elected officials will find they are given a large measure of leeway to act in the interests of their constituents by making what are admittedly tough choices. Examples can be seen in Wisconsin, Michigan, West Virginia and other states where sitting by no longer remained an option for their respective legislatures.
The problems Delaware face are no different than our surrounding states, or many across the country. It is our size and ability to work together to tackle big problems that set us apart. It is my sincere hope that the next General Assembly and Governor work together, and by doing so continue to be an example to other states.
By James DeChene
On November 8th, Delawareans will head to the polls to choose candidates who will face big issues in 2017, both in Congress and here at home. Focusing on Delaware, the next Governor and General Assembly will tackle how our state government raises and spends money, on what programs and services the government will offer, and how to continue to build upon the recovery from the Great Recession. There are no easy answers to these issues, as has been documented in this space over the last months, yet the important issues of long-term economic stability, making Delaware an attractive place for businesses, and properly preparing Delaware students for the workforce remain.
Election Day is your opportunity to help shape the path of Delaware’s future. As Chamber of Commerce members, you are invested in this state, both professionally and personally, as are your employees. The decisions you make next Tuesday in the voting booth will have a direct impact on your life here in Delaware. While you may be suffering, as I certainly am, from election fatigue, I urge you to take the time to learn about the candidates in your district and make an informed decision on November 8th.
by James DeChene
In the last week, I’ve heard two presentations from the Office of Management and Budget on how they’re starting to put together next year’s budget, the November public hearing schedule (they start on November 22nd, and can be found here), and how DEFAC’s forecasting will be critical at their December meeting.
To date, DEFAC has estimated a $167 million revenue shortfall for FY2017. What remains to be seen this fall are how “door openers” will impact that number. Door openers include the final student enrollment numbers public schools report to the state, the final Medicaid numbers and, this year, the prorated raise amount for state employees. The best guesstimate on these additional increases are in the $150 million range, meaning budget writers need to find between $300 and $400 million in order to meet budget.
Shifting to how the state spends its money – 73% of the FY2016 budget is allocated to employee salaries and health care, pensions, Medicaid and debt service. Without cuts to personnel or programs, these numbers will increase next year. The largest growth of public sector employees are in education, as student enrollment in public schools continues to rise as more kids are transitioned from private/parochial schools back to public (1,500 students are added on average per year). Over 228,000 are eligible for Medicaid (over 25% of Delaware’s population). Revenue growth in FY17 is expected to be 1.5%, and FY18 will see 0% growth as currently forecast.
These are all items the State Chamber has talked about for the last few years—specifically on the need for there to be structural changes to how the state collects and spends money. Many of these ideas were highlighted in the Delaware Business Roundtable’s Growth Agenda, and we support their immediate adoption. This next year will be another difficult money year, with no easy solutions, but the business community, including the State Chamber, has proposed ideas on how to invest in economic development, make Delaware more attractive to outside entities, and to help turn our economy around. We hope the 149th General Assembly will discuss and debate these issues recognizing that without action, our budget will continue to suffer.
by James DeChene
This week Governor Markell addressed the members of the State Chamber’s Economic Development Committee to outline the recent successes focused on economic development, and to discuss how Delaware’s economy is faring as the recovery from the Great Recession continues.
Highlighting the importance of workforce readiness and development, the Governor featured the Pathways to Prosperity program currently providing industry developed curriculum to approximately 6,000 Delaware students statewide. This accomplishment comes on the heels of the first cohort of students who graduated this past May with a focus on advanced manufacturing. Their curriculum and required internship hours were provided predominantly by members of the State Chamber and the Delaware Manufacturing Association.
The Governor also highlighted successes in retaining the majority of DuPont’s presence in Delaware, while also helping local startups like The Mill, CoIN Loft and 1313 Innovation to bring and foster new and specialized jobs to Delaware.
Lastly the Governor focused on job growth in Delaware. Pointing to Department of Labor and Bureau of Labor Statistics figures showing Delaware leading the region in jobs and outperforming the national unemployment level. Governor Markell wanted to be sure that committee members saw these positive trends.
Committee Chairman Michael Vanderslice pointed to Administration proposed efforts that the State Chamber and business community had supported, but ultimately weren’t successful. These included having state employees contribute more to their health care plans, increasing the gas tax to fund much needed state infrastructure improvements, and addressing Delaware’s poor water quality. Governor Markell remained optimistic that these efforts would be addressed in future legislation as those issues not only aren’t going away, but must be resolved if Delaware is to be able to continue to meet its budget needs.
by Mark DiMaio
Last Friday, I had the pleasure of attending the Delaware Manufacturing Extension Partnership (DEMEP) program on Supply Chain Optimization Leadership. It’s a national program developed by the Manufacturing Extension Partnership network. The program focused on understanding the advantages of incorporating a strategic approach to supply chain management, and how it can provide a positive impact on local economies. Today’s manufacturers need to be more agile, flexible, and responsive to external pressures. Competition between companies has given way to competition between supply chains. The DEMEP Supply Chain Optimization program provided a road map for companies to focus on improved collaboration and supply chain integration. I learned that the enemies of supply chain effectiveness are: the destabilizing effects of dependency; forecast inaccuracy; variation; and lack of supply chain visibility.
The program provided a working session to better understand supply chain fundamentals and the strategic implications of a poorly functioning supply chain, as well as gained insight to supply chain system dynamics. The main take away was that a lack of understanding and communication within your supply chain will drive higher inventory levels and lower levels of service. Developing a sound supply chain risk management strategy that includes strong partner collaboration will drive supply chain optimization. Rustyn Stoops, Executive Director for DEMEP, put it best, “Eliminating the four walls of your business and looking at your business as the entire Supply Chain, while improving communication and collaboration along that same Supply Chain, has the opportunity to yield some incredible results.”
by James DeChene
This week, former Governor Mike Castle was the speaker at the Chamber’s Leadership series. He spoke on a variety issues, but focused on, how as a leader in public service it was important to surround himself with talented individuals and allowing them the leeway to do their job well.
Providing insight on his entrance into public service, from helping to organize the Young Republicans group, to his run for the State Senate, his time as Lt. Governor, Governor and ultimately Delaware’s Congressman for 18 years, he commented that many of his successful initiatives started from conversations he had with constituents, such as focusing on Delaware teacher pay and the importance of early childhood education. He also emphasized the role of government is not to create jobs, but to create an environment where businesses can grow and flourish, highlighting that as governor Delaware enjoyed one of the most prosperous times in the state’s history.
Governor Castle also spoke about the tone and tenor currently in Washington, D.C. Pointing to Delaware and its history of working together to solve important problems, like how the parties came together to create the Financial Center Development Act, Governor Castle was lamenting the relatively recent polarizing ideology from both parties that has crippled Congress’ ability to tackle and solve the important problems we face, a record national debt, the need for meaningful tax reform policy and for an education policy that prepares young Americans for life after school.
by James DeChene
Recently, the Internal Revenue Service proposed new estate tax regulations that would make transferring interests in family-owned businesses more onerous and costly than under current guidelines.
Proposed Estate Tax Changes
Under current law: Because of the estate and gift tax, many family owned, closely held business owners are challenged in how they can pass on their business interests to their heirs. If a business owner waits to transfer their business at death, the business interest is subject to the estate tax at full fair market value, less the exemption amount.
A popular technique is to gift small ownership pieces over time, such as 10% of a business in one year. That interest is a “minority interest.” The value for tax purposes is also discounted relative to fair market value because control remains with the older generation.
With multiple transfers over time, the entire business can be “gifted” at a minority interest discount. The total amount subject to tax is substantially less than if the entire interest were taxed at death at fair market value.
IRS Proposal: The Section 2704 regulations would eliminate the discount applied to these “minority” gift transfers for closely held, family owned businesses. This is causing a significant amount of concern for family-owned businesses throughout the country, and many are trying to plan around this consequence before the regulations become final.
This is one more example of a major regulatory change, like the recently proposed Treasury Section 385 regulations, that are being attempted at being finalized before the calendar year end and a new administration comes in. We will continue to monitor and provide further updates as they happen.
by James DeChene
This week, 21 states and over 50 business groups, including the U.S. Chamber of Commerce, the National Association of Manufacturers and the National Retail Federation, filed multiple lawsuits against the Department of Labor. All were seeking to overturn regulations that would change how millions of Americans are compensated for their labor by making them eligible to receive overtime pay.
Specifically, the salary threshold for exempt executive, administrative, and professional employees will increase to $47,476 per year (or $913/week), meaning that salaried employees earning less than this amount, regardless of job duties, must be compensated for overtime work.
Both lawsuits said the Department abused its authority by increasing the salary threshold so drastically, and failed to account for regional variations in the cost of living. In addition, the lawsuits claim the Department of Labor violated federal law by indexing the salary threshold to the 40th percentile of income, with automatic increases every three years.
It is currently unclear as to whether the lawsuits will force the Department of Labor to delay implementation of these pending regulations. However, the Eastern Texas District where the lawsuit was filed is known as a “rocket docket” court where cases move along quickly. The State Chamber of Commerce will keep you informed with updates as they happen.
by James DeChene
Congratulations are due to the winners of primary races in Delaware this past Tuesday. Special congratulations go to Chamber PAC supported candidates House Speaker Pete Schwartzkopf, House Majority Leader Valerie Longhurst, Representative Bryon Short, and Representative David Wilson.
Closer to election day, we will be getting you a list of general election candidates, along with a notice of who the Chamber PAC has supported.
Next year, as we’ve said before, is shaping up to be an active one from a legislative and regulatory perspective. It bears repeating that the issues important to your businesses—from employment law and health care provisions, to tax policy, to transportation and environmental regulations and all points in between, those you send to Dover will be making decisions that impact you and your employees directly. It is important to vote in November.
Of particular note, on Monday, September 19, DEFAC will be meeting to make their forecast on Delaware’s revenue for next year and for projections on what the FY18 budget may look like. This is an important belle weather of how Delaware’s economy is faring, and there have been signs that several key areas of funding may be in jeopardy. Monday will give us a glimpse of how big a fight over the budget we can expect next year, so stay tuned for more.
One other item to keep your eyes on is the upcoming change in overtime rules for employees. Following is a link to the most recent guidance on the issue if you haven’t been following it closely: https://www.dol.gov/whd/overtime/final2016/.
by James DeChene
Two stories mentioned in this week’s Legislative Report bear some additional coverage. The first, from the News Journal editorial “Hard Economic Lessons For Delaware” pinpoints what the State Chamber has been talking about for the last few years, specifically on what appears to be a lackluster recovery from the Great Recession. With metrics and rankings all over the map, the picture of how Delaware’s economy has fared over the last few years remains murky at best. What remains, regardless of economic rankings is that public education, and other quality of life issues such as public safety, remain areas where much work needs to be done regardless of how Delaware compares economically to other states across the country and within our region.
The other story comes from the Wall Street Journal outlining how factories are struggling to find workers. This is a story that rings true here in Delaware. For local manufacturers, a third of their collective workforce could retire within the next few years, leaving a major vacuum in employment. Add to that the profound difficulty manufacturers are having in finding suitable replacements, not just for engineering or management positions, but, most problematically, for entry level workers not requiring an advanced degree. Working together with the Delaware Manufactures Association, DelTech and the Governor’s office, we have started a successful program to help prepare high school students for these jobs. But and the range and scope of the education issues Delaware faces has become stark.
This is becoming a constant, and repeated, refrain, from the State Chamber of Commerce and our members—Delaware’s education system requires a revamp if we want to have a workforce competitive to those around us– regionally, nationally and internationally. We are currently the 5th highest spend per student for the end result of 33% of Delaware 8th graders are proficient in math and English, with 60% of high school graduates who enroll at DelTech requiring remedial classes.
These results do nothing to push Delaware forward, and will soon have even more of an impact on Delaware’s economic rankings when businesses choose not to come to Delaware because they don’t have access to a strong and vibrant (and educated) workforce. The News Journal has it right that education reform is a key component in securing Delaware’s future.
James DeChene is the Chamber's Senior Vice President of Government Affairs.