by James DeChene

In Matthew Albright’s recent op-ed for the News Journal, which was well written and with which I largely agree, he made the argument that it’s time for Delaware to answer the question of how much government it is willing to have its citizens pay for. Albright’s article echoes a sentiment I’ve made with elected officials—there needs to be an audit of what government should be, what services it wants to provide, and then, how to pay for them.
 
Delaware has done an excellent job of outsourcing its tax and revenue liability onto entities outside the state. From the $1.1 billion it collects from the Corporate Franchise Tax, $400 million in escheat, and about $100 million combined from the Corporate Income Tax and Bank Franchise Tax, that represents an easy-to-calculate roughly 40% of the state’s annual budget. That number doesn’t take into account tourism, other items visitors cross the border for – tax free shopping and low(ish)-taxed cigarettes – or tolls on I-95 and RT1, which pushes our percentage even higher.
 
As Albright outlines in his article, Delaware is one of the top five per capita spenders on government, based on studies from the Brookings Institution and the Kaiser Family Fund. This fact, in spite of Delaware having one of the lowest tax liabilities in the country, has allowed state spending to rise without its citizens feeling the pain. Or so the story goes. The business community, however, has seen its share of costs mount each year, from double digit increases in health care costs, increases in the costs of doing business from additional regulatory burdens imposed by the state, as well as increases in other operating costs such as utilities.
 
The answer to the question of whether an increase in taxes is necessary to cover increases in state government is, in our view, going after the solution the wrong way. Focusing first on what Delaware’s government should look like, and on making government more efficient, should be the answer. Simply saying more money is needed, without combined efforts to eliminate duplicate or wasteful spending is a recipe for the continued trend of businesses relocating, and residents moving across state lines.

by James DeChene

This week DEFAC met, and forecast an additional $64 million in revenue for FY19, if the budget were to remain the same. While positive news, the forecast did not consider the contract negotiations with Department of Corrections on salary increases, nor did it factor in student enrollment numbers and new Medicaid rates, which won’t be released until later this fall.  You may recall from last year that the student enrollment and Medicaid increases resulted in an additional $150 million the state budget writers needed to factor in, and represented about 40% of last year’s budget gap. Those numbers will be available for consideration at the upcoming December 18th meeting, which will also be the forecast Governor Carney will use when crafting his recommended budget.
 
Also this week, the board of the Prosperity Partnership, the P3 created to replace DEDO, met for the first time. The organization is officially up and running, and now comes the work of getting itself operational. The coming months will flesh out how the entity will operate.  We will continue to update our members as more information is available.

by James DeChene

Since 2002 Delaware had been ranked #1 in The Institute for Legal Reform’s Harris Poll Lawsuit Climate Survey. This year’s survey finds Delaware dropping to #11.

According to the report, “Participants in the survey were comprised of a national sample of 1,321 in-house general counsel, senior litigators or attorneys, and other senior executives at companies with at least $100 million in annual revenue who indicated they: (1) are knowledgeable about litigation matters; and (2) have firsthand, recent litigation experience in each state they evaluate.”

While Delaware still scores high in key element categories of scientific and technical evidence, trial judges' competence, quality of appellate review, and enforcing meaningful venue requirements, it fell significantly in Treatment of Class Action Suits and Mass Consolidation Suits (from #1 to #26) and Trial Judges’ Impartiality (down to #15).

When I asked about specifics that were factors in Delaware’s drop, I was given a handful of recent court decisions and specific pieces of legislation passed by the General Assembly. From my perspective, no one decision or bill by itself precipitated the drop, instead the reasons for the decline seem to be a shift away from supporting what made Delaware a top corporate legal environment for so long. In fact, even though Delaware scored #1 in 2015, I was given warnings then about a potential slide in rankings if Delaware continued to focus on legislation and issued court decisions that were increasingly plaintiff friendly.

I’ve written about these issues before, and seemingly often, which include Delaware’s approach to abandoned property, the fee shifting debate that took place a few years ago resulting in the passage of SB75 that reversed the “loser pays” model of litigation, and the ATP Tours, Inc. v. Deutscher Tennis Bund decision that precipitated SB75.

In fact, over the last few years, Delaware’s cache has dropped when reviewed by other organizations as well. For example:

• Forbes ranked Delaware 22nd among the states in 2016. The ranking lauded the state’s positive economic outlook, as shown by its increase in jobs and its business-friendly corporate law. Forbes’ cited Delaware’s low business costs and strong labor supply among its most positive factors, but gave Delaware poor marks for its quality of life, regulatory environment, and economic climate. This year marks a continued fall on the Forbes rankings from 11th in 2014 and 17th in 2015.
• Delaware also fell in CNBC’s “America’s Top States for Business” rankings. Delaware ranked 40th in 2017, its lowest score in recent years. It placed 37th in 2016, 38th in 2015, and 38th in 2014. Once viewed by CNBC as first in the nation for its business friendliness, Delaware came in 22nd in that category. The state’s greatest challenges are its high cost of living, education system, high cost of doing business, and lack of infrastructure. Its greatest drops from 2016, however, were in the areas of its economy (26th to 39th), quality of life (28th to 37th) and business friendliness (11th to 22nd).
• Chief Executive’s annual survey of CEO’s ranked Delaware 16th in 2017, a slight drop from the prior year. CEOs praised Delaware for public-private partnerships and new science-based businesses. Delaware placed 23rd in 2014, 20th in 2015, and 13th in 2016.
• Delaware’s business tax climate ranks 19th among states in 2017, according to the Tax Foundation. This is a 5-point fall from 14th place in 2016 and its lowest score in recent years.
• U.S. News & World Report’s 2017 “Best States” report ranked Delaware’s economy 9th, including 7th for business environment, 8th for growth, and 18th for employment. The state’s overall rank was 20th. This year is the first time U.S. News has ranked states.

The fact remains that the constant drip of decisions and legislation designed to support plaintiffs over business has led directly to where Delaware is today: a world where South Dakota is ranked as having the top business legal climate, and where Delaware is on the decline according to recent national ratings. 
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One thing remains constant, however. If Delaware continues its current trend, our image will continue to suffer. Delaware relies on the billion dollars in revenue it receives each year from companies choosing to incorporate here. We should be doing what it takes to retain our corporate image if there is to be any realistic expectation of that being the case in the future.

This past spring, Governor John Carney and the Delaware legislature put in place two key foundations for economic development: Modernizing the Coastal Zone Act and the Delaware Prosperity Partnership, the new public/private nonprofit responsible for recruiting new employers to the state. In addition, the City of Wilmington is undergoing the creation of a master plan to help revitalize Delaware’s corporate hub. An example of such a transformation lies just 20 miles to its north.

On Monday, September 11, The Delaware State Chamber hosted a trip to the Philadelphia Navy Yard. The Urban Land Institute has hailed the venture as one of the “most successful” redevelopment projects in U.S. history. The Navy Yard is a 1,200-acre urban development, offering the Philadelphia region a mixed use and centrally-located waterfront business campus. The Navy Yard is home to more than 13,000 employees and 152 companies representing industrial, manufacturing, office and research, and development sectors. To date, the Navy Yard has developed 7.5 million square feet of real estate in a mix of historic buildings and new high-performance and LEED® certified construction. Since 2000, more than $1 billion has been invested to transform the site into a world class location for corporations like GlaxoSmithKline, Urban Outfitters and Tasty Baking Company.

The PIDC (formally known as the Philadelphia Industrial Development Corporation) is Philadelphia’s public-private non-profit economic development corporation founded jointly by the City of Philadelphia and the Greater Philadelphia Chamber of Commerce in 1958. The PIDC serves as master developer, and oversees all aspects of the Navy Yard’s management and development, including master planning, leasing, property management, infrastructure development, utility operation, and the structuring of development transactions. Reed Lyons, Vice President Navy Yard Development, led our tour and pointed out that the Navy Yard had no public infrastructure when the U.S. Navy handed the site to Philadelphia. The Navy Yard transformation started with little but a vision, and 20 years later that vision has become a success story.   
 
Mike Vanderslice, Environmental Alliance, Inc. and Chairman of the DSCC Economic Development Committee, says, “From an economic development perspective, I appreciated what our friends at the Navy Yard had to offer for what's 'working' and lessons they've learned as they continue to develop the historic waterfront area. Being in the environmental consulting field, it was impressive to see how far they have taken this former heavy industrial, blighted area, and turned it around into a vibrant campus for businesses.”
 
Link to Urban Land Institute’s article on the Navy Yard:
https://urbanland.uli.org/development-business/historic-rehab-philadelphias-navy-yard/

Link to the Navy Yard:
www.navyyard.org

by James DeChene

This week the State Chamber’s Transportation & Infrastructure Committee heard from representatives from DELDOT and Whitman, Requardt & Associates, updating the committee on the status of the 301 Project (on time and on budget so far), as well as a major renovation project for I-95 starting in 2020.

Save periodic repavings, the highway between the I-95 and 495 split to above the Brandywine Bridge has remained virtually untouched for the last 60 years. The 2020 renovation project for I-95 will include a major structural and paving upgrade that will also include rehabilitation work for over 19 bridges and exit ramps, and will  include other traffic flow improvements in the surrounding areas.

Scheduled to take place over two years, this project will have a large impact on travelers both local and passing through Delaware. The purpose of the briefing was to alert the business community for potential planning purposes, including offsite or off-normal working hours for employees, as well as other logistics planning. More information will be forthcoming to the State Chamber membership, so stay tuned.