by James DeChene

The Delaware Economic and Financial Advisory Council (DEFAC) issued its December forecast on Wednesday afternoon. The December forecast is what Governor Carney will use when finalizing his recommended budget, to be released on January 4th. For the first time, his budget will utilize portions of the budget smoothing process, a legislative proposal that failed last year, but was issued in part via Executive Order.  The order places a limit on spending growth and sets aside a portion of the surplus into a Budget Reserve Account.

DEFAC reported spendable cash (98% of projected revenues) is up from the last forecast issued in September by $66.6 million. It also projects an increase of revenue of 1.7% for FY19 and 2.1% in FY20. It’s worth noting that the FY18 revenue growth rate was 9.5%. While there shouldn’t be a big budget showdown next year, there also won’t be a big windfall to be had under these predictions. One remaining unknown cost driver will be depend on how a court case is decided regarding how Delaware funds its schools, and how much more will need to be appropriated. More to come on that.

The Delaware Department of Labor released a statement with details about the minimum wage increase:
Minimum wage will be increasing for most individuals in Delaware twice in 2019. On January 1, it will be $8.75 and then on October 1, it will be $9.25. But, for the first time in Delaware history, we will now have a multi-tiered minimum wage. The General Assembly adopted a "Youth Rate" and a "Training Rate" that is $8.25. The youth rate applies to workers ages 14 through 17. 

The training rate applies to adult workers during their first ninety days on a new job. These new categories are $.50 less than the regular minimum wage rate. Effectively, that means workers under 18 and new employees with less than 90 days on the job won't see an increase on January 1st. Their first increase ($8.75) will come when they become eligible for the regular rate or on October 1, 2019, with the next general increase, whichever comes first. 

The labor law poster sets out all the rates. It is required to be displayed in all workplaces in a place accessible to employees and where they regularly pass. The poster is available on the Department of Labor’s website and can be downloaded in English here and Spanish here.

by James DeChene

This week the Senate passed the FY2019 $4.27 billion budget, where it will now come before the House for consideration before June 30. Contained within are raises for state workers, increases to special education funding, and it sets aside $46 million in deferred spending for next year’s operating budget. The Senate also approved a bill Wednesday that will provide 12 weeks of paid leave for state employees. Governor Carney signed the bill late Wednesday night. Also passed was a resolution creating a study group on the impacts of predictive scheduling on the retail, hospitality and food industries. The Chamber and the Retail Council have spots on the taskforce, and the measure must now pass the House to take effect.
 
Released from House Labor Committee was a measure mandating sexual harassment training in the workplace. The Chamber worked to amend this bill to reflect what the business community already does related to training. That bill now goes to the House floor for a vote.
 
HB409, related to the WARN Act governing how employers must notify Department of Labor of significant layoffs or plant closings, passed the House. It was released from Senate Labor Committee and now faces a Senate vote. This was another bill the Chamber worked to amend, with feedback from our members.
 
Four days remain in the 149th General Assembly.

by James DeChene
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The Senate introduced the FY19 budget this week and it is now under review by members of the Senate in preparation for a potential vote next week. This introduction is the earliest in, if not history, certainly in recent memory, and is a result of a windfall of projected revenues for this fiscal year and next. As mentioned earlier the budget total is $4.3 million with approximately $46 million set aside for deferred spending in the following year.
 
Also this week, an amended version of HB409 passed the House with State Chamber support. Making minor changes to how companies with over 100 employees alert the Department of Labor of pending significant layoffs or plant closures. The Chamber worked with the Department on modifying a number of provisions contained in the bill to protect small businesses.
 
A bill mandating sexual harassment training stalled in the House Labor Committee this week. The State Chamber has been working for the last 3 months to make changes to the legislation to take into consideration what the business community in Delaware already does for training. That bill continues to be worked on, and is expected back in committee next week.
 
With 7 days left of session, there remain a number of bills pending important to the business community—minimum wage, legalization of recreational marijuana and biometric privacy to name a few. Stay tuned for more details as they happen.

by Mark DiMaio

The Chamber’s annual End-of-Session Legislative Brunch was held on June 7 at Dover Downs. The brunch marked the last official event for retiring Chamber President, Rich Heffron.

Attendees heard from Kurt Foreman, President & CEO of the Delaware Prosperity Partnership. Kurt discussed Delaware’s current economic situation as being “a glass half full.” Delaware has experienced moderate employment growth, with the construction sector leading the way and other employment sectors showing modest growth. Housing starts are the strongest they’ve been in several years and Delaware’s housing affordability is more positive than the US market overall. Mr. Foreman shared the Delaware Prosperity Partnership’s four main areas of focus:

• Business Development (Recruitment of new companies)
• Existing Business Engagement
• Innovation Agenda – building on past successes in Delaware
• Talent Support – DPP will begin an initiative in late 2018/early 2019

James DeChene, the Chamber’s Sr. Vice President of Government Affairs, spoke about the “Tale of Two Budgets.” Last year Delaware faced a $400 million-dollar budget shortfall followed by a nearly $400 million-dollar budget surplus this year. The fundamental question here is how we can make the budget process easier, and more efficient and accurate. Boom and bust cycles may be natural, but helping to smooth the highs and lows will help put Delaware on more stable, certain financial footing. The Chamber strongly supports a bipartisan plan put forward by the Governor and State Treasurer to create a true “rainy day” fund to be used in lean budget times and added to in good economic times. This proposed plan requires a constitutional amendment, and requires passing changes to our tax structure and limits on spending. The constitutional amendment needs to be passed this year, as it takes two consecutive legislative sessions to become a part of Delaware Constitution.

Attendees also heard from Senate Pro Tempore David McBride and Speaker of the House Pete Schwartzkopf. Senator McBride highlighted the state’s budget and the fact that it would be completed well before the end of June. However, he wasn’t sure that the Senate would pass the minimum wage bill this year. He gave credit to the State Chamber for its role in the passage of the Coastal Zone Modernization Act last session. Representative Schwartzkopf spoke on the passage of legislation to bring $580 million dollars of private investment to the Port of Wilmington. He also pointed to the state budget’s restoration of the senior drug program, funding for special education and salary increases for teachers.  

This year’s Small Business Guardian awards were presented to Senator Brian Pettyjohn and Representative Harvey Kenton.

by James DeChene

The JFC completed work on a $4.3 billion budget this week, leaving roughly $61 million in additional spending between now and June 30th. Restoration of Grant in Aid funding from last year’s cuts are expected (about $8 million), but there will still be a hefty amount left to distribute, which may be sent to the Capital Improvement Committee for an increase in one-time infrastructure spending this year.
 
Next week, the General Assembly is back in session, and starting the countdown of 13 legislative days left until June 30. They will have their hands full with pending gun legislation, finalizing spending, and working on the remaining bills relevant to the business community including making changes to the WARN Act, Sexual Harassment Training, Minimum Wage, and Biometric Data Privacy. The Chamber hopes the General Assembly will introduce and pass the first leg of a constitutional amendment related to budget smoothing. We will keep you informed on all these issues, and others as they come up.

by James DeChene

Last week Governor Carney and Treasurer Simpler released a bipartisan plan to help address Delaware’s economic boom and bust cycles. Last year’s $400 million budget shortfall highlighted the volatility in our state’s revenues, and this year’s $400 million increase in revenues, while a boon, is an $800 million swing in just one year. For a state with a $4 billion budget, that kind of shift is incredibly significant.

Enter in the budget smoothing idea. Making changes to smooth out these peaks and valleys in our revenue stream has been a Chamber priority since 2015 when DEFAC released its revenue report. This report highlighted how volatile Delaware’s revenues are and provided a blueprint on how to prepare Delaware for the future, putting it on a path toward sustainability. The state has undertaken some of that blueprint by making changes to Delaware’s escheat program and by changing how companies calculate their corporate income tax to a single sales factor. The next part of the process needs to happen now! A constitutional amendment, the first leg of which needs to be passed this year, would help create a true rainy day fund to be used in times of need, and added to in good times. In fact, the Joint Finance Committee itself voted this week to defer $46 million of this year’s revenue to future spending—exactly the way the budget smoothing process would be utilized. 

The benefits to budget smoothing are good for businesses, who won’t be subject to knee jerk reactions to raise money fast to balance a budget through tax and fee increases. It also helps Delaware’s nonprofits who receive Grant-in-Aid funding better plan year to year instead of facing last minute cuts in the down years and hoping for their replacement in the up years.

With revenues projected to be close to $500 million this year above last year’s budget, the time is ripe to make improvements to Delaware’s future. There’s no negative impact to funding, or to this year’s budget, and the case is strong to act now to plan for an uncertain future.

by James DeChene
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In case you missed it, the News Journal, WDDE, and DE State News all had articles on a proposal by Governor Carney and Treasurer Simpler to create a budget smoothing process. Efforts would help avoid budget boom and bust cycles like last year where nonprofits and other agencies saw funding cuts. It helps the business community by providing certainty and avoiding knee jerk funding needs resulting in higher taxes and fees.

Here is a roundup of recent coverage on this issue:

• Governor Carney’s Statement on Budget Smoothing Report
• Panel seeks limits on annual spending growth in Delaware
• Delaware lawmakers propose revamping the budget process
• Report calls for change in state budgeting with spending limit​
• Bipartisan Budget Accord: Framing a Grand Bargain

The General Assembly is currently on Easter Break, and when it returns, it will address several issues important to the business community. Below are a few issues to keep an eye on.

In regards to the budget:

• The most recent DEFAC report shows an increase of $101 million over this fiscal year and next over previous predictions.
  
• The increases are primarily composed of increases to PIT (federal tax law having impact), and fewer abandoned property returns (based on higher level of scrutiny of applicants). Note that money is already earmarked for expenses, but the timing is pushed out. These are not things on which to base a budget.
  
• IRS guidelines on repatriation of overseas profits and how states will divvy up those taxes remain to be written. The hope is that Delaware will receive some of that money, but caution that it will most likely be one-time money.

  
Labor Relations:  

• Sexual Harassment — rewriting who is covered, including independent contractors.  This legislation would require all employees receive DEDOL created literature related to sexual harassment to be kept in their employee file; and employers with over 50 employees to provide two hours of sexual harassment training.
  
• Predictive scheduling — Industries like food, hospitality, retail would be required to set two-week schedules, with penalties for changing schedules without two weeks' notice to the employee and if employees arrive 30 minutes before/after their scheduled block. Employees would have to be paid if sent home early. Employers could have a pool of employees who can be called in emergency, but the employees would be able to decline. 

by James DeChene

This week’s legislative work was cut short a day to due weather. Bills that were to be heard in committee will be heard in the coming weeks. Of note, on Tuesday the Senate defeated SB10, which, as amended, would have raised the minimum wage by $1.00 over two years. It is expected that after work is completed providing casinos tax relief, the minimum wage bill will be reintroduced and voted on. Stay tuned.
 
In other news, DEFAC met earlier in the week and added $101 million in additional revenues for FY2018 and projected 2019. It is rumored that in the next meetings that number could grow even larger. This means a new round of budget fights this year—only this time on how to spend this windfall.

It is worth noting, however, that the two primary increases came from personal income tax (PIT), and fewer claims on abandoned property. The abandoned property money is already earmarked for returns, no matter the pace, and is not what you base a budget around. As PIT has increased from the federal GOP tax plan, corporate taxes (CIT) have declined.  One bright side is that Delaware may be due a onetime windfall as companies bring back money parked overseas to take advantage of the lowered US corporate tax rate. The IRS is still working to publish guidelines on how this tax money will reach the states.  More to come.