Good news this week from Milford and Smyrna as the Delaware State News highlighted a number of development projects stemming from the Downtown Development Program. The five-year-old program was designed spur economic development in targeted downtowns throughout Delaware in need of revitalization. Of particular note the article stated, “The 12 projects announced Thursday, with nine taking place in Wilmington, received $5.5 million in rebates leveraging $103 million in total investment.”

Also this week, the National Lieutenant Governors Association was in town, hosted by Lt. Governor Bethany Hall Long. The meeting featured a number of topics that related to Delaware—how states have successfully leveraged FEMA in disaster relief, innovative ways to address the ongoing opioid crisis, how states are working with private employers and associations to address the jobs needs across the country (it’s estimated there are 7.3 million jobs currently available—more than the available unemployed workforce), and how criminal justice reform is helping bring ex-offenders into the workforce and stemming recidivism.

In the coming weeks the Council of State Governments and the National Council of State Legislatures will be meeting, and I hope to get feedback from local attendees on any trending policy initiatives that could Delaware could see next year. Stay tuned.

by James DeChene

The General Assembly was out this week, and will be back on Tuesday.  Last week I highlighted a number of bills having seen action so far this year, and below is the second half of that list.
 
SS1 for SB37: Expungements
This bill makes a number of misdemeanors eligible for mandatory expungement based on the passage of time with no subsequent offenses.  The bill has also been amended to make more than two misdemeanors eligible for discretionary, rather than mandatory, expungement. The Chamber was involved in the process insofar as to make the case that employers have a right to know an applicant’s history balanced with the fact that an offender has paid their debt to society and should have the opportunity for gainful employment.  The amendment makes the bill better, and has passed the Senate unanimously.  It makes its way over to the House to be heard in committee.
 
HB80: Earned Income Tax Credit (EITC)
The Chamber supports this bill making the EITC a refundable credit in Delaware. This type of measure does more to support low income workers than minimum wage increases. A 2007 study by the University of New Hampshire found that seven out of 10 economists agree that the EITC is the best antipoverty program available to us, while only one out of 10 said the same thing about minimum wage hikes. The bill makes the EITC a refundable tax credit for Delaware state returns, an initiative the Chamber’s Tax Committee supports.
 
HB130: Plastic Bags
This bill expands upon the existing at-store recycling program regarding the use of single-use plastic bags. The existing requirements will continue, however stores subject to this program will now be limited from providing single-use plastic bags for only specific uses thereby encouraging a shift to reusable bags. The purpose of the bill, as detailed in the preamble, is to clean up Delaware’s communities and watersheds, reduce storm water and trash management costs to taxpayers, and promote the health and safety of watersheds, wildlife and humans, and the ecosystem’s food chain. On January 1, 2021 this bill enacts a ban on stores providing single-use plastic bags at check-out.
 
Legalization of Recreational Marijuana
While no bill currently has been introduced, the State Chamber of Commerce membership was polled and 71% of our members oppose the legalization of recreational marijuana.  Consistent responses to the survey highlighted issues ranging from the availability of a drug free workforce, concerns about liability in the workplace (offices, manufacturing facilities, warehouses, construction sites, delivery drivers, etc.), the lack of a “spot test” to determine impairment, and on the potency of edibles and other delivery systems.
 
All of these issues will be discussed in depth next Thursday at our Small Business Day in Dover event. Click here to register.

More to come next week when the GA is back in session.  Stay tuned.

by James DeChene

Legislative Rosters! Rosters are here! For those interested in purchasing, please email Linda Walsh at [email protected].
 
This week a bill raising the purchase age of tobacco products passed the Senate, and now goes to the House to be heard in committee.
 
The Chamber is in the process of reviewing the 19 criminal justice reform bills announced last week and the impact they may have on employers. More info to come.
 
Next week we expect the Youth and Training Wage repeal bill to be heard in the House Economic Development, Business and Insurance committee on Wednesday at 2:30. If this bill impacts your business, please make plans to attend and comment. For more information on the bill, you can email me at [email protected].

by James DeChene
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This week in Dover saw the announcement of a 19 bill criminal justice reform package highlighted at a press conference Thursday. While the vast majority of these bills have yet to be introduced, we know several are designed to help those with arrests or records navigate an easier path to employment. One bill involves mandatory expungements for single misdemeanor offenses and for arrests with no conviction if no further offense takes place for 5 years. Another eases licensing requirements for electrical, HVAC and certain other professions requiring professional licensure. The Chamber has been supportive of those efforts in the past, and awaits review of the current language.

It was a light week on the Senate side, as much of their business was put on hold due to a significant number of members out sick. We hope they feel better soon are able to make it back to Leg Hall for work.

In the House, the National Popular Vote interstate compact passed and now is headed to the Governor for signature. The bill would change how Delaware awards its Electoral College delegates during a Presidential election. Current policy awards Delaware’s three votes to the winner of the popular vote in Delaware. The new proposal would award Delaware’s three votes to the winner of the national popular vote. This process would change once enough states (representing at least 270 electoral votes) agree to participate.

Next week we expect the Tobacco to 21 bill (raising the age to purchase tobacco and e-cigarette products to 21) in the Senate. Also, we expect HB47, the bill to revoke the youth and training wage rates related to minimum wage, to be heard in the House Economic Development  next Wednesday at 2:30 p.m.  If your company would be impacted by this change, I urge you to come and make comment during the hearing to let legislators know how this would impact your business. 

​By Bob Perkins

The State of Delaware faces a structural budget challenge with multiple dimensions – a revenue portfolio that is not responsive to the economy, unsustainable expenditure growth and the need for more robust economic growth, according to an independent study released today by the Delaware Business Roundtable.  The study projects that, absent policy changes, annual operating budget deficits will expand to over $600 million, or 11 percent of expenditures, by 2025.
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Commissioned by the Roundtable, the study was conducted by Michael C. Genest and Brad D. Williams of Capitol Matrix Consulting, a leading economic consulting firm whose work focuses on a wide range of fiscal, economic and policy issues, particularly related to state government.
The study reviews the work of the DEFAC Advisory Council on Revenues, created by Governor Markell, noting that it provides a potential framework to construct a portfolio of revenues that will demonstrate better economic responsiveness and lower volatility than Delaware’s current portfolio.  Successful implementation of pro-growth economic policies are an important way to improve state revenue growth by boosting income and consumer spending.

“Notwithstanding the strong headwinds of the recession, Delaware has begun to make economic progress, as a number of recent reports and data suggest,” said Mark Turner, President and CEO of WSFS and Chairman of the Delaware Business Roundtable.  “However, there is much more that needs to be done, and it is essential that the business community play a significant role in helping to meet this challenge, particularly with regard to the creation of a growth agenda for Delaware.”

The study points out that because more robust economic growth is an important factor necessary to resolve Delaware’s structural budget challenge, a high priority should be given to policies that will boost, rather than hinder, economic growth and job creation.  Given its relatively small size, talented workforce and solid higher education system, the state is uniquely positioned to identify and act on opportunities to build strategic alliances with the private sector and remove regulatory and workforce barriers to potential growth.

As a result, the Roundtable plans to collaborate with state, business and community leaders to assist in developing a growth agenda to increase capital investment and job creation statewide.  The Roundtable has contracted with TIP Strategies, a leading strategic planning firm whose planning model combines rigorous data analysis with the latest thinking in economic development, workforce training and community-based principles.

With regard to state spending, the study by Capitol Matrix Consulting indicates that Delaware spends 23 percent of its economy on state and local government services, ranking it 7th highest in the nation, according to the U.S. Bureau of the Census.  The state can make significant progress toward resolving future budget shortfalls by restraining spending growth over time in key areas of the budget, according to the study.
“The results of this independent review and the difficulty our elected officials faced in preparing a budget for this fiscal year clearly indicate that the structural budget challenge we face will require creative solutions and political courage,” said Robert W. Perkins, Roundtable Executive Director.

Specifically, the study identifies a number of areas where state expenditures are inconsistent with neighboring states or national averages and where policymakers should spend time further analyzing potential spending reductions.  For example:

Corrections: The study notes that expenditures for corrections are significantly higher than the national average and that over the last two decades expenditures in this area have taken a growing share of Delaware’s operating budget.  Delaware spends substantially more on a per-prisoner basis than the national average, and for this reason, the study suggests policymakers conduct a more detailed analysis of corrections expenditures to identify opportunities to reduce costs without jeopardizing public safety.

Public Welfare/Social Programs:  The study suggests there may be opportunities to improve on Delaware’s federal shares in the Medicaid program and recommends a thorough analysis be conducted.

Education:  From 2008 through 2014, while other states were cutting K-12 per-pupil funding by 4 percent, Delaware was increasing funding by 12 percent.  Slowing the growth of spending over time would bring costs in line with the average of neighboring states.  The study notes that while maintaining and expanding such spending is laudable, the budget impact is problematic.

Personnel Costs:  The study recommends that Delaware consider reducing the size of its state and local government workforce over time, either through hiring freezes and attrition or by targeting specific programs for reduction or elimination.  Delaware also could reduce spending by changing premium cost sharing ratios for healthcare coverage for state employees and retirees.

In 2009, the Delaware Business Roundtable worked with the Markell Administration to assist in developing the Government Performance Review (GPR) plan by offering loaned executives trained in Six Sigma and Total Quality Management (TQM) to work with cabinet secretaries and their staffs.  A number of recommendations from the GPR plan were implemented, but there may be opportunities to review that report and identify additional budget savings.  In addition, at the request of the General Assembly, the Pew Foundation is conducting a study to identify potential state spending reductions.

It also has been reported that the Governor’s Office is planning to create an expenditure committee to review state spending.  The Roundtable looks forward to contributing ideas and resources to that committee if requested.
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“Historically, the Roundtable has worked in partnership with state government, and we would like to continue that partnership in a meaningful way at this pivotal point in the state’s economic history,” Mr. Turner said.

by James DeChene

The Delaware Chancery on Wednesday found Dole Food Co. Inc. CEO David Murdock and General Counsel C. Michael Carter liable to investors to the tune of $148 million for fraud intended to drive the company’s price down ahead of Murdock’s 2013 go-private deal.

In his opinion, Vice Chancellor J. Travis Laster wrote that although the Dole board’s merger committee made a Herculean effort to overcome Murdock and Carter’s efforts to keep investors in the dark, it was deprived of information about the company’s ability to negotiate on a fully informed basis and potentially say no to the Merger.

Going so far as to accuse Murdock of being a “liar” and a “fraudster”, Laster stopped short of making accusations of any criminal wrongdoing. The case will be appealed to the Delaware Supreme Court, which will deliver the final verdict in the case.

By James DeChene

In a front page Wall Street Journal article, Delaware’s continued status as the premier corporate friendly location is called into question.  The article highlights two specific provisions, fee-shifting and appraisal arbitrage, as the primary stumbling blocks to Delaware’s long standing reputation.  Legislation on fee-shifting, authorized by a state Supreme Court decision last year, was passed in order to reverse the Court’s decision that would have curtailed shareholder derivative litigation in the state by requiring the losing party to cover the attorney’s fees and costs for both sides. In addition, the article outlined the proposal of new language that would change the rate of interest paid to shareholders until their appraisal case is decided. Shareholders now accrue 5.75 percent in annual interest on the deal price while waiting the years it takes to decide an appraisal case. There are those that feel that the rate is too high and limits the downside for hedge funds, encouraging them to exercise appraisal rights. Currently, if the court decides that the amount paid in the merger was fair and the hedge fund receives nothing extra, it still receives the interest. The proposed language permits companies to pay the amount of the merger price they do not dispute and then pay interest only on the amount of any difference if the court determines a higher value, but again, this language is not expected to be voted on by the General Assembly until 2016.At the end of the day, the takeaway from the article is that:

1. Other states are working to enact provisions making them more business friendly in an attempt to lure companies away from Delaware
2. The General Assembly needs to work to protect Delaware’s brand—corporate fees make up 26% of the state’s budget.  After all, as quoted in the article on how other’s states are ramping up their efforts to attract businesses, “You look at Delaware and say, ‘why does it have to be that way’? We have 50 states,” said state Rep. Jon Echols, the Oklahoma Republican who co-sponsored that state’s bill.
3. Delaware’s judicial system will become more and more important as time goes on.  As a practical matter only our judges can decide whether the referenced Dole and Ancestry cases come down on the side of “wheat” or “chaff”.    What I can say is that the below examples seem to show that our Courts are clearly sensitized to the issues and are demonstrating that they tread carefully on a case by case basis based on the facts of the case.

Here’s a blog posting (via Reuters) highlighting two cases last week where Vice Chancellors Laster and Noble sent pretty clear messages around so-called “disclosure only” settlements. These rulings are illustrative of the Delaware judiciary’s deep concerns about awarding legal fees in cases where little to nothing of substance is achieved for either the corporation or its shareholders.  Two other recent cases further illustrate the Court of Chancery’s ability to sort out cases on their merits:

• Last week’s dismissal (via National Law Journal) of a derivative lawsuit against GM’s directors related to faulty ignition switches (Vice Chancellor Glasscock)

• The Ramtron Int’l appraisal case (via Mondaq) where the appraised price came in below the deal price (Vice Chancellor Parsons)
  

The referenced bill on fee-shifting/forum selection created a vehicle allowing companies to ensure that Delaware is the venue for their internal corporate disputes and it’s altogether appropriate that the business world watch carefully to see if the State’s judges fairly and actively filter out weak cases brought to Delaware. No doubt there will be many strong cases where litigants (and their counsel) will be well rewarded  — but each of the above rulings show that Delaware’s courts are well equipped to combat meritless litigation and mindful of a responsibility to separate the wheat from the chaff.