by James DeChene
Delaware Economic and Financial Advisory Council (DEFAC) met on April 19, and the news stemming from their latest forecast continues to be cause for concern. DEFAC anticipates the state will bring in about $4.8 million less this year and $11 million less in 2018. Between expenditure savings made by the state, an additional $9.1 million has been added to the budget gap, meaning the state is now facing a $395 million budget hole. What this means for the Governor’s recommended budget is unclear, as it was crafted to deal with a $386 million shortfall. Most of the decline came from the Corporate Income Tax, which dropped by an additional $14 million in 2017, and $15.8 million in 2018. Those projected losses more than offset $14 million in projected gains in personal income tax revenue this year and next. The next meeting is on May 15. The General Assembly is back in session next week, and will take up a number of bills relative to the business community, including the Homeless Bill of Rights, the legalization of marijuana, wage history reporting, the lodging tax, along with the continued conversations surrounding an increase in Personal Income Tax rates and increases to Corporate Franchise Taxes. More to come. by James DeChene
Delaware Economic and Financial Advisory Council (DEFAC) met on April 19, and the news stemming from their latest forecast continues to be cause for concern. DEFAC anticipates the state will bring in about $4.8 million less this year and $11 million less in 2018. Between expenditure savings made by the state, an additional $9.1 million has been added to the budget gap, meaning the state is now facing a $395 million budget hole. What this means for the Governor’s recommended budget is unclear, as it was crafted to deal with a $386 million shortfall. Most of the decline came from the Corporate Income Tax, which dropped by an additional $14 million in 2017, and $15.8 million in 2018. Those projected losses more than offset $14 million in projected gains in personal income tax revenue this year and next. The next meeting is on May 15. The General Assembly is back in session next week, and will take up a number of bills relative to the business community, including the Homeless Bill of Rights, the legalization of marijuana, wage history reporting, the lodging tax, along with the continued conversations surrounding an increase in Personal Income Tax rates and increases to Corporate Franchise Taxes. More to come. by Mark DiMaio
Delaware’s Medicaid enrollment continues to rise. Since 1999, Medicaid enrollment has grown from just under 100,000 to over 230,000. The growth has put a tremendous strain on Delaware’s budget. To combat Medicaid’s growth, it’s imperative that new jobs are created in Delaware. While some job sectors have grown, or at least stabilized, over the last 15 years, Delaware’s manufacturing sector has decreased by 12,000 jobs to 28,000. The decline mirrors much of what has taken place nationally, but over the past six years, Delaware’s manufacturing sector decline has slightly outpaced the national trend. Manufacturing employment can create not only well-paying jobs, but drive employment in the job sectors that service those businesses. Taking steps, like modernizing the Coastal Zone Act (CZA) could attract new business and jobs to Delaware. The State Chamber is working with stakeholders to modernize the CZA and enhance Delaware’s manufacturing climate. Medicaid spending isn’t the only state expenditure growing at a significant clip. In former Governor Markell’s final State of the State address, he points out that the current spending on state employee health care isn't sustainable. According to Governor Markell, Delaware’s cost estimates, with no increase in state or employee retiree contributions, would result in the state facing a deficit of $484 million by 2022. The continued growth in Medicaid spending, combined with a steep increase in employee health care costs, presents Delaware with a substantial problem. More jobs, especially manufacturing jobs, should help decrease the state’s Medicaid population. Bending the cost curve for state employee health care expenditures will require more than negotiations with service provides. Some measure of additional state employee contributions needs to be considered. An increased share of employee health care contributions is already a reality for most Delawareans. by Mark DiMaio
Only one age demographic of Delawareans is expected to grow significantly over the next 33 years and that’s our 65+ population. According to Ed Ratledge, Director of the Center for Applied Demography & Survey Research at the University of Delaware, research shows that Delaware’s 65+ population will increase by roughly 60% from 159,000 in 2015 to an estimated 263,532 by 2050. National surveys show that the average US wage earner’s income peaks around age 55 and decreases considerably as the earners approach age 65. Delaware relies heavily on personal income taxes (PIT) to fund state government and the state’s two largest population groups, 20-44 and 45-64 (2015), provide a high percentage of the state’s PIT collections. Those two age groups are only projected to increase by 20,000 over the next 30 years while the 65+ population will increase by over 100,000. How will an additional 100,000 seniors affect the state and its future budgets? A storm is coming. Our increasing 65+ population, that historical provides less PIT and coupled with an increased need for services will put a strain on Delaware’s future budgets. How is Delaware preparing for this drastic population change? What can Delaware do proactively to lessen the impact of the demographic shift? Many tough decisions lay ahead for present and future elected officials. Delaware already faces a structural budget situation where state expenditures out pace revenues for the foreseeable future. Ed's slides regarding this can be found below. Click on an image to view larger. by Mark DiMaio
On Wednesday, March 8, the State Chamber’s Board of Governors was honored to have Mr. Ed Ratledge, Director of the Center for Applied Demography & Survey Research at the University of Delaware, as their guest speaker. Mr. Ratledge has more than thirty years of experience and expertise providing policy and survey research for federal, state and local government agencies and non-profit organizations. His presentation focused on Delaware’s economic and demographic trends projected for the next thirty years. Mr. Ratledge’s research shows that number of Delaware households will increase to over 400,000 by 2030, but will level off until 2050. Additionally, the research shows that by 2050 the state’s 65+ population will increase from 158,999 (2015) to an estimated 263,532. However, Delaware’s 0-19 population will remain relatively stagnant over the next 35 years, averaging 232,900 per year until 2050. Mr. Ratledge’s research also showed that Delaware’s general fund expenditures will grow faster than projected revenues at present, and continue to do so beyond 2020. While the state’s pension and debt service expenditures have gradually increased from FY12 to FY17, active and retired employee healthcare expenditures have accelerated significantly from FY15 to FY17. Chamber President Rich Heffron believes Mr. Ratledge’s analysis of our aging population and expenditures should give everyone pause. “Ed Ratledge’s research is very sobering and reinforces Governor Markell’s 2016 State Financial Overview (presented on 1/28/2016, slide 16) that forecasts a $484 million dollar deficit in the state’s group health insurance plan for employees and retirees by 2022, if employee contributions remain the same. Ed does a great job of laying out the facts and we look forward to working with stakeholders to find sound solutions to the state’s budget issues,” said Rich Heffron. Mr. Ratledge's research will kick off a 3-week series in the Chamber’s Weekly Report email that will further explore some of his data. by Chip Rossi
DSCC Chairman of the Board The Delaware State Chamber of Commerce Board of Governors met with the candidates for the special election in Senate District 10. Both candidates shared their thoughts on how to turn Delaware’s economy around and improve education. Each acknowledged that Delaware’s economy and budget should be the primary focus of the Delaware General Assembly and the Governor – and need to be addressed. After the presentations, the Chamber’s Board of Directors discussed if the Chamber should endorse a candidate. Both candidates presented well and focused their remarks on many of the things the Chamber advocates for every day, including the growth of small business, infrastructure, good jobs and safe, healthy communities throughout the state of Delaware. Our focus quickly shifted from the candidates themselves to what this election means long-term for Delaware. The spirited discussion that followed highlighted the importance of a change election if Delaware is to improve its political and economic standing. We find ourselves, year after year, facing budget deficits that underscore a fundamentally broken system and legislative remedies that are too often short-sighted. Given the urgency of the moment, the questions raised by the Board included:
For all the reasons stated above, this district election has statewide impacts. The answers to these questions, and others, are critical if Delaware is going to succeed as a place where businesses want to relocate or expand, where families want to raise their children, and where those children don’t have to leave our state to find gainful employment. On February 25th, the voters in the 10th Senate District have an opportunity to consider these questions and determine the path forward. Read coverage of this piece in The News Journal here. by James DeChene
A reminder for residents of the 10th Senate District, as if you needed one with all the mailers, ads, door knockers and other campaign activities blanketing the area, that the special election is Saturday, February 25th. The Chamber’s Board of Directors message on what we feel voters should focus on can be best summed up as:
Delaware Economic and Financial Advisory Council (DEFAC) cuts official state revenue forecast12/29/2016 by Mark DiMaio
Delaware’s projected state revenues have deceased by an additional $26 million over DEFAC’s September 2016 revenue forecast. DEFAC now projects that state revenues for the 2017-2018 fiscal year will be about $200 million dollars less than the current 2016-2017 fiscal year. The decreased revenue projection to $3.9 billion equals about 5% less than the $4.1 billion being spent during the State’s current fiscal year. In addition to the decrease in projected revenues, the cost of state government is projected to increase by $150 million dollars with Medicaid spending, state employee health care costs and increased school enrollment driving the escalation in state spending. The DEFAC report points to flat revenue growth for upcoming fiscal years, which could lead to an annual cycle of seeking revenue enhancements. Even if Delaware can successfully restructure its future revenue portfolio, state spending could outpace new revenues. Delaware’s murky fiscal picture has been static for the past several years, with many elected officials focused solely on generating and increasing revenues to the state. If Delaware has finally reached a fiscal crossroads, maybe it’s time to take a serious look at state spending. The old playbook of raising corporate franchise taxes, raising gross receipts taxes and many other fees may not be sustainable. At some point, companies that incorporate here may seek out other states or nations for incorporation. The sky isn’t falling but sticking to the same formula of increasing revenues without serious consideration of reducing state spending will not be viable in the long term. 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
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. |
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