By James DeChene

Transportation Infrastructure Funding

In the aftermath of last year’s failed measure to raise the gas tax to help fund infrastructure projects, the goal this year was for the General Assembly to find $50 million to dedicate to infrastructure funding, with Governor Markell pledging to borrow another $50 million.  After spending months negotiating on how to come up with the required money, the General Assembly passed legislation that will raise just under $24 million by increasing a number of DMV fees as well as the document fee associated with new car sales.  In addition, $5 million of DOT operating expenses was transferred out of the Transportation Trust Fund responsible for funding infrastructure projects.  As part of the negotiated deal, the money will be placed into a “lock box” dedicated for spending on transportation, the threshold for prevailing wage projects was raised, and prevailing wage will not be applied to the $20 million allocated to municipal street aid and the Community Transportation Fund, both of which fund local transportation improvements, such as filling potholes. The State Chamber expressed early support for all three add-ons, and lobbied diligently in support of a larger overall package that would have raised the goal of $50 million, and we hope that further action is taken in 2016 to help overcome the expected $780 million in anticipated shortfall over the next six years in much needed infrastructure projects.

Beginning to Transfer DOT Operating Expenses from Transportation Trust Fund

In 1991, due to the recession, the General Assembly moved a portion of DELDOT operating expenses out of the General Fund and into the Transportation Trust Fund in order to balance the budget without resorting to a tax increase. Over the intervening years, with increases in salaries, retirements, health care expenses and other costs continually rising, the ratio of operating expenses to actual money used to fund projects has increased dramatically, resulting in an estimated $780 million shortfall over the next 6 years for transportation projects. The General Assembly took the first step of transferring $5 million of operating expenses back into the General Fund, and has indicated the goal of both continuing the process, and increasing the amount transferred, in future years.

Abandoned property

Two bills were passed related to how Delaware collects abandoned property, also known as escheat.  Currently representing 14% of the state’s operating budget, this $500+ million revenue stream has come under fire from the business community at large over the last few years, resulting in a taskforce that met over the summer and came up with many of the proposals that were contained in these bills. They include limiting the total number of audits any one outside contractor can be assigned and requires all contracts with such contract auditors to assure that they will not employ or compensate senior officials from the Department of Finance involved with their work for two years after such officials leave state employment. It also directs the Secretary of Finance to prepare and promulgate a detailed manual containing procedural guidelines for the conduct of Delaware unclaimed property examinations and to update its regulations accordingly. The second bill shortens significantly the “look back” period from 1981 to 1991, and going forward will be a rolling 22 year “look back” starting in 2017. The bill also changes how companies can be audited, specifying they must first be offered the opportunity to enter a Voluntary Disclosure Agreement program. The State Chamber was involved in the process from the outset, and is pleased to see sustentative modifications made to the program.

Studies on Revenues and Spending

The Delaware Economic and Financial Advisory Council (DEFAC) was directed by Executive Order to create a taskforce charged with reviewing Delaware’s revenue streams and how to plan for the future. The taskforce issued a lengthy report outlining ways in which to increase revenues to keep up with state spending. During the process, it was lamented that no similar taskforce was created to review state expenditures, and a concession was made by budget writers this year to have Pew Charitable Trusts study how and what the state spends money on in an effort to make government more efficient. That study should be completed in time for next year’s budget process.

Budget

As mentioned above the budget this year was a difficult process for the General Assembly to undertake, and ultimately did little to plan for the next fiscal year. The State Chamber was disappointed that one-time monies stemming from bank mortgage settlements were used to fill budget gaps, that there was no requirement that state employees contribute more to their health insurance costs, and that no serious review of overall state spending was undertaken this year. The State Chamber will continue to review areas in which the state can be more effective and efficient when creating its budget.

No change to the Estate Tax

The Chamber has called for the elimination of the Estate Tax, but no action was taken this year.  A disincentive to retirees, as well as a costly and inefficient program, the state has not seen the tax perform as a revenue stream in any meaningful way, and it puts Delaware at a competitive disadvantage to states like Florida.

Minimum Wage

A bill expected to be introduced next year will call for an increase in the minimum wage.  This comes on the heels of a taskforce created to study low wage workers and the impact an increase in the minimum wage would have on the economy, on workers and on businesses. With impacts being felt in cities like Seattle and Los Angeles, both of which saw dramatic increases in minimum wages—up to $15 an hour, the General Assembly should look to those examples as a cautionary tale before considering a mandated wage hike, and instead look to how businesses like Walmart and Target have already raised their minimum wages to above the Federal level as the economy has improved.

Adjustments to PIT, Corporate Franchise Tax and Gross Receipts Tax

Already on the table is a proposal to add two top tiers of personal income tax levels as well as a proposal to increase corporate franchise tax thresholds. These come on top of earlier proposals to cut corporate income tax rates, and increase the Gross receipts tax. The State Chamber is on record urging the General Assembly not to simply raise taxes to close budget holes, but to focus first and foremost on areas in state government that can be trimmed or eliminated.

By Emily Riley

Permits and paperwork is what most think of at the mention of Delaware’s Department of Natural Resources and Environmental Control. While those formalities are surely part of the DNREC outfit, newly appointed department secretary David Small wants you to know there’s far more education, policy and entrepreneurial initiatives at work for the First State. From the dynamic growth of Wilmington’s Riverfront destination to managing the state’s air and water quality, the corps of scientists and policy initiators at DNREC are hard at work keeping our state beautiful and environmentally (and economically) viable.

Secretary David Small had a few thoughts to share in regards to current work at DNREC:

What positions have you previously held with DNREC?

I served as acting secretary early in the Markell administration prior to arrival of former Secretary [Collin] O’Mara. For the past 15 years I served as deputy secretary, and prior to that I served as the executive assistant. I joined the agency in 1987 and was chief of the office of information and education, but prior to that, I was a journalist and editor in print media. I’m maybe a bit of an unlikely candidate to be secretary, but the nice thing about being chief of that office is that I had access to every nook and cranny and program and issue the department was dealing with, which has been a wonderful opportunity to learn about the agency.

How will your position as secretary expand on the work you’ve already done with DNREC?

I think having a working baseline knowledge of the agency has been an incredible asset to me – to know not only the issues but the people inside the agency and the challenges on the outside. I’ve come to know many of the regulated entities that we serve as customers and constituents, which has been very helpful to me because it’s given me insights that maybe other folks coming in from the outside haven’t had, so that’s definitely been one advantage.

What goals would you like to see accomplished during your tenure?

Water quality has been a huge priority for the department. Cleaning up the state’s water has been an ongoing effort, and it’s not going to happen overnight and it’s not something that we’re going to accomplish by regulation only. We live in an age where everyone’s attached to a handheld device, and we’re used to instant gratification – the environment doesn’t work that way, and we’ve got a long road ahead of us. Energy efficiency is another area where I think we’ve made good strides but there are still gains to me made there. The kilowatts and megawatts we don’t use are the best ones and the cheapest ones, so making those investments save consumers money and also put people to work.

The revamp of Wilmington’s Riverfront destination is certainly one of DNREC’s most visible achievements. Are there similar plans for other areas in the state?

The Riverfront development plan is our largest and most successful example of a Brownfield project. It was an area that had been previously used for heavily industrialized purposes that left a legacy of contamination. When former Gov. [Russell] Peterson and former University of Delaware Pres. [E. Arthur] Trabant shared their vision for the area, I’m not sure anybody could have imagined creating the economic engine in New Castle County that stands there today. I don’t know that we’ll ever rise to that scale again, but we strive for that “twofer” – repurposing and redeveloping an existing site and eliminating contamination in that area. Using this model, we have our sights set on places like Fort DuPont in Delaware City and Auburn Heights Preserve in Yorklyn, as well as a the Evraz Claymont Steel site, which presents an exciting and dynamic opportunity for commercial investment right along the Delaware River.

What will DNREC do to keep pace with advances in environmental engineering and technology?

Not surprisingly, and like many organizations, we’re aging. Fifty percent of our workforce is eligible for retirement, so our goal is to get the right people with the right skills to manage our agency into the future. We want to make sure that for our younger staff, they’re not only technically competent, but that we’re giving them the right skill sets to be effective managers for policy planning, human resource management and other areas. If we make these investments in our workforce, we can continue to make great strides over the coming years.

Beyond the paperwork and park fees, what is something Delawareans might not know about DNREC?

I would say there’s a lack of understanding or appreciation for all the responsibilities that the agency has. People know DNREC through a singular experience – getting a permit for an activity, buying their state park passes or gaining a surf permit to the drive-on beaches, but there’s really so much more that we do. We’re constantly trying to improve the air quality, protect public health through the quality of the drinking water, clean up contaminated sites, manage storm water and other continual goals. And it’s difficult to isolate these projects too. When you think about that environment and natural resources, you’re tugging on a thread that’s connected to so many other issues. It’s hard to manage them within individual programs, so what we try to do is connect the dots across our body of policies, which gives us a great advantage in trying to achieve those goals.

(This article was previously published in the 2015 July/August issue of Delaware Business magazine).

By James DeChene

As the sun rose on July 1st, the first half of the 148th General Assembly Session drew to a close. The first six months of 2015 saw legislative action on a variety of issues, though in terms of highlights, discussion and action education reform was the “it” topic. Bills ranged from the controversial “opt-out” bill, to starting the process to change how and where children in Wilmington are educated, to schools evaluating the amount of standardized testing offered each year. Thrown into the mix were broader discussions on transportation infrastructure spending, modifying the state’s abandoned property, or escheat collection, and looming over everything is the pending budget crisis expected next year. As the dust settles, it’s a good time to review a few key pieces of legislation that passed this year that will impact the business community.

Transportation Infrastructure Funding
In the aftermath of last year’s failed measure to raise the gas tax to help fund infrastructure projects, the goal this year was for the General Assembly to find $50 million to dedicate to infrastructure funding, with Governor Markell pledging to borrow another $50 million. After spending months negotiating on how to come up with the required money, the General Assembly passed legislation that will raise just under $24 million by raising a number of DMV fees as well as the document fee associated with new car sales. In addition, $5 million of DOT operating expenses was transferred out of the Transportation Trust Fund responsible for funding infrastructure projects. As part of the negotiated deal, the money will be placed into a “lock box” dedicated for spending on transportation, the threshold for prevailing wage projects was raised, and prevailing wage will not be applied to the $20 million allocated to municipal street aid and the Community Transportation Fund, both of which fund local transportation improvements, such as filling potholes. The State Chamber expressed early support for all three add-ons, and lobbied diligently in support of a larger overall package that would have raised the goal of $50 million, and we hope that further action is taken in 2016 to help overcome the expected $780 million in anticipated shortfall over the next six years in much needed infrastructure projects.

Abandoned property
Two bills were passed related to how Delaware collects abandoned property, also known as escheat. Currently representing 14% of the state’s operating budget, this $500+ million revenue stream has come under fire from the business community at large over the last few years, resulting in a taskforce that met over the summer and came up with many of the proposals that were contained in these bills. They include limiting the total number of audits any one outside contractor can be assigned and requires all contracts with such contract auditors to assure that they will not employ or compensate senior officials from the Department of Finance involved with their work for two years after such officials leave state employment. It also directs the Secretary of Finance to prepare and promulgate a detailed manual containing procedural guidelines for the conduct of Delaware unclaimed property examinations and to update its regulations accordingly. The second bill shortens significantly the “look back” period from 1981 to 1991, and going forward will be a rolling 22 year “look back” starting in 2017. The bill also changes how companies can be audited, specifying they must first be offered the opportunity to enter a Voluntary Disclosure Agreement program. The State Chamber was involved in the process from the outset, and is pleased to see sustentative modifications made to the program.

Privacy Policy
Based on California statute, this technical and complex bill proposed by the Attorney General’s office, has the following impact impact to the Delaware business community will be that for any business that operates a website that collects personally identifiable information, the company must post prominently on their website a privacy policy outlining what information is collected and how it is handled. The Attorney General’s office has pledged to draft the policy statement, with the input of the State Chamber and other business groups, and provide it for free so that it both meets the requirements, and does not force businesses to spend upwards of $5000 to have language drafted by legal counsel.

Budget
As mentioned above the budget this year was a difficult process for the General Assembly to undertake, and ultimately did nothing to plan for the next fiscal year. The State Chamber was disappointed that one-time monies stemming from bank mortgage settlements were used to fill budget gaps, that there was no included requirement that state employees contribute more to their health insurance costs, and that no serious review of overall state spending was undertaken this year. The State Chamber will continue to review areas in which the state can be more effective and efficient when creating its budget.

Next Year
According to the June Delaware Economic and Financial Advisory Council report, the state faces upwards of a $160 million budget shortfall for FY2017. What this means for the business community is that the needed money will come from either agency and program cuts or through increases in taxes, or, more likely, a combination of both. Already on the table is a proposal to add two top tiers of personal income tax levels as well as a proposal to increase corporate franchise tax thresholds. These come on top of earlier proposals to cut corporate income tax rates, and increase the Gross receipts tax. The State Chamber is on record urging the General Assembly not to simply raise taxes to close budget holes, but to focus first and foremost on areas in state government that can be trimmed or eliminated. The state has contracted with Pew Charitable Trusts to review the budget process and other groups have commissioned their own studies to find ways to make Delaware leaner. Next year will be a test of how well our elected officials lead. It’s also important to remember that next year is an election year, and that simple fact always throws a number of monkey wrenches into the process. The State Chamber will be on hand as the voice of Delaware business to ensure our elected officials know how their decisions impact the future of Delaware business.

The Delaware State Chamber of Commerce is supportive of the $30MM in additional revenue allocated by the General Assembly slated for transportation infrastructure investment, although it falls short of the proposed $50MM discussed at the beginning of the year.

“The passage of HB140, along with the transfer of $5MM into the General Fund means a total of $60MM in dedicated infrastructure investment,” said DSCC president Rich Heffron. “Though we had hoped for a total of $100MM to help fill the expected $780MM hole over the next few years, this is definitely a step in the right direction. The inclusion of a “lock box” provision and prevailing wage reform were welcome, and substantial, additions to the legislation. We hope when the General Assembly comes back in January they will make a concerted effort to continue to address Delaware’s desperate need for infrastructure investment.”

About the Delaware State Chamber of Commerce

The mission of the DSCC is to promote an economic climate that enables businesses of all sizes and types to become more competitive in a constantly changing, increasingly global, and unpredictable environment. The Small Business Alliance, a sub-committee of the DSCC, serves Delaware businesses with fewer than 150 employees. The DSCC is the principal political advocate for business interests of all sizes. For more info, visit www.dscc.com. Follow us on Twitter @DEStateChamber.