This Week in Dover—Chamber End of Session Brunch and CZA bill clears House Committee
by James DeChene
June 7th was the Chamber’s End of Session Legislative Brunch held at Dover Downs. Over 200 attendees heard from Ed Ratledge, Director of the Center for Applied Demography and Survey Research at University of Delaware, and Bob Perkins, Executive Director of the Delaware Business Roundtable, on issues impacting Delaware, the state budget going forward, and how best to foster economic development growth. Among the highlights were items previously mentioned in this space:
Attendees also heard from Senate President Pro Tempore David McBride and Speaker of the House Pete Schwartzkopf, who highlighted the state’s budget issues, their respective positions on economic development legislation, including modernizing the Coastal Zone Act, and the reorganization of the Delaware Economic Development Office. They also stressed the need for increased revenues to fund health care and education, the state’s two fastest growing expenses, which together account for over half of the budget. Their remarks adumbrated the potential for further revenue increases beyond the Governor’s proposed 50-50 split of new revenue and expense reductions.
The House Natural Resources Committee voted 9-1 to release HB 190, a bill to modernize the Coastal Zone Act. It will face a floor vote next week. The hearing featured passionate testimony from both supporters and opponents, with supporters focusing on the need for the redevelopment of industrial sites currently a blight on Delaware’s landscape. Chamber President Rich Heffron suited up (literally and figuratively) to deliver the Chamber’s position of support. More updates to come next week as the bill continues to see action.
by James DeChene
Last week news broke that the Diamond State Port Corporation has agreed to purchase the Edge Moor facility from Chemours in an effort to expand the Port of Wilmington, which is nearing its capacity. The State Chamber has supported expansion at the port to take advantage of Delaware’s attractive position in the mid-atlantic region—able to take advantage of the channel, close to the majority of the country’s population, proximity to rail and an interstate highway system that’s a direct pipeline to Chicago and points west. In fact, port expansion was featured prominently in the Delaware Business Roundtable’s Growth Agenda as a driver towards long term economic development and sustainability for the state.
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.
by Mark DiMaio
Fantastic work by Delaware Economic Development Office, City of Wilmington and many others in securing Chemours as a Delaware headquartered company. It was no small feat, keeping the approximately 800 jobs in Wilmington. By some estimations, losing Chemours could have resulted in losing over 3,400 direct and indirect jobs and over $550 million dollars in revenue. This is more than a symbolic win for Delaware, it demonstrates that our state can and does compete at a regional level. A key factor in landing Chemours was the passage of the Delaware Competes Act, which modernized Delaware’s corporate income tax code to be competitive not only with surrounding states but nationally. The General Assembly swiftly passed the legislation, demonstrating not only to Chemours but to the business community that Delaware can make policy changes to keep the state competitive.
But there’s more to be done. The reality is that there may not be another economic “silver bullet” to provide a springboard for economic prosperity. Time and time again, Delaware has demonstrated that it will successfully react to a crisis business situation by bringing public and private sector stakeholders together and making necessary legislative or regulatory changes. The state should be commended for these yeoman efforts. But has the time finally come to formalize these ad-hoc efforts and establish a public-private economic development organization? Many states have already implemented these economic development tools. Recently, the Delaware Business Roundtable (DBRT) published the Delaware Growth Agenda and a key framework component is establishing a public-private economic development organization responsible for crafting a new comprehensive statewide economic development strategic plan with a marketing campaign that pursues new investment and jobs in key industries. We have a great opportunity to be proactive in formalizing our “ad-hoc system” by developing and implementing a public-private economic development partnership. Let’s not wait until the next crisis brings everyone together.
by James DeChene
The Dog Days of Summer are upon us. The last two weeks have been filled with national party convention drama, heat waves making for great vacation/beach weather (see you next week, Lewes), and mixed in are polls for the City of Wilmington mayoral and Congressional races, with results showing that many people are not yet focused on local elections. Faster than some sunburns will fade, Fall and the September primaries will be here, and, as the State Chamber has mentioned (repeatedly), there are hot button issues on the horizon next year. Many of them have been outlined in the recent Delaware Business Roundtable’s Growth Agenda (available for your beach reading pleasure), and can help serve as an election guide for the business community to choose who is best served to help guide Delaware into the future. For now, we hope you enjoy your summer, that your AC is working, and that you’ll spend some time reading up on your specific candidates up for election.
Delaware Growth Agenda: State Must Pursue New Long-Term Approach To Economic Development Over Next Five Years
By Robert Perkins
Executive Director, Delaware Business Roundtable
PerkinsDelaware must fundamentally change its approach to economic development and nurture a growing entrepreneurship base in the face of intense competition for jobs, investment and talent, according to a framework commissioned by the Delaware Business Roundtable released on Wednesday.
The Delaware Growth Agenda provides the private sector’s strategic framework for pursuing a new long-term approach to economic development in the state, including public policy recommendations centered on three strategic goals to be implemented over the next five years.
“The vision of the Delaware Growth Agenda is that our state will focus its efforts on becoming a global magnet for leading-edge technologies, talent and investment,” said Mark Turner, chairman of the Delaware Business Roundtable and president and CEO of WSFS Financial Corporation. “This framework puts forth clear-eyed, achievable strategic goals and strategies that can accelerate Delaware’s economic engine – but only if the public and private sectors work together to make that vision a reality.”
The non-partisan, forward-looking framework is based on interviews and guidance from more than 100 Delawareans, including representatives from economic development organizations, higher education institutions, businesses, government, labor and non-profit organizations. The framework envisions an even stronger and more robust partnership between the public and private sectors to guide future success.
The framework recommends:
Building an entrepreneurship and innovation ecosystem. This includes bolstering federal, state and private investment in higher education, and emphasizing the healthcare, science and technology fields, engineering and entrepreneurship programs. The framework calls for the creation of an “Innovation District” as a destination for entrepreneurs and startups, as well as for marketing Delaware to regional and national angel investors and risk capital networks.
Pursuing a new approach to economic development. The framework calls for establishing a public-private economic development organization, crafting a new comprehensive statewide economic development strategic plan, and a marketing campaign that pursues new investment and jobs in key industries – including financial services, business services, education and knowledge creation, manufacturing, and distribution.
Enhancing Delaware’s business climate. The Growth Agenda says the state must ensure Delaware’s infrastructure meets the needs of a 21st century economy, including updating the Coastal Zone Act to provide greater flexibility in redeveloping brownfield sites. The framework also calls for improving the state’s public education system, taking a leadership role in facilitating more efficient development and permitting processes, and creating a Futures Council of Delaware.
The full recommendations under each of the goals and strategies can be found in the framework, which was developed collaboratively by TIP Strategies and the Delaware Business Roundtable. TIP Strategies is an economic development strategy firm that has worked with states and communities across the country.
In addition to presenting a strategic vision and goals, TIP Strategies also examined Delaware’s economic health over time compared to other states in the region.
Among the findings of the framework:
We are facing real challenges, but the Growth Agenda encourages a reset of economic development in Delaware over the next five years. First and foremost, things cannot continue as they have because Delaware’s existing companies – nor the industry sectors themselves – can be counted on to serve as engines of future growth. We must take a new approach, and the public and private sectors must work together to get it done.
The Roundtable’s intention is for the Delaware Growth Agenda to spark a much-needed discussion of how to expand economic opportunity and jobs throughout the state during the 2016 election cycle that will result in concrete action thereafter. It comes on the heels of the Roundtable’s 2015 study of state finances, which clearly articulated the structural budget challenge facing the state as it wrestles with unsustainable revenue sources and spending patterns and strongly recommended that Delaware focus on expanding economic growth as one part of the solution.
The Delaware Business Roundtable plans to continue to promote sustainable economic expansion and growth in Delaware.
About the Delaware Business Roundtable
The Delaware Business Roundtable is a non-partisan, volunteer consortium of CEOs whose companies collectively employ over 75,000 people in Delaware. Since its inception in 1981, the Roundtable’s broad mission is to enhance the quality of life in Delaware by promoting commerce, job creation and select public policy issues. In recent years, the Roundtable has been a leading supporter of public education transformation and entrepreneurs in Delaware.
About TIP Strategies
TIP Strategies, Inc. (TIP) is a privately held economic development consulting firm, with offices in Austin and Seattle. Established in 1995, TIP is committed to providing quality solutions for public and private sector clients. TIP has completed more than 300 engagements across 38 states and 4 countries. The firm’s primary focus is strategic economic development planning. In addition, TIP has experience with entrepreneurship, target industry analysis, workforce, and redevelopment. The firm’s methods establish a clear vision for economic growth. Community leaders across the country have embraced the TIP model of Talent, Innovation, and Place to achieve successful and sustainable economies.
Delaware State Chamber of Commerce Applauds “Delaware Growth Agenda” Released by Delaware Business Roundtable
Delaware State Chamber of Commerce President & CEO Richard Heffron released the following statement applauding the Delaware Business Roundtable releasing their Delaware Growth Agenda, which outlines steps Delaware should take to secure its economic future.
“Today’s release of the Delaware Business Roundtable’s Delaware Growth Agendareinforces what the Delaware State Chamber of Commerce, and other business groups, have been saying—that in order for Delaware to have sustained and successful long-term economic growth there needs to be a commitment by elected leaders to make difficult decisions.”
“The industries that have long defined Delaware are changing, and Delaware must adapt and change to remain relevant to business on decisions to expand or relocate here. A renewed commitment to education and workforce development, developing an entrepreneurship climate, continuing a nimble approach to economic development and focusing on pro-business legislation and regulations all must be a part of a successful Delaware.”
The Delaware State Chamber of Commerce is dedicated to promoting an economic climate that strengthens the competitiveness of Delaware businesses and benefits citizens of the state. Founded in 1837 as the Wilmington Board of Trade, the Delaware State Chamber of Commerce has a long history as the largest, most influential business organization in the state. Learn more at www.dscc.com.
DEFAC Forecasts Stormy June
by James DeChene
When members of the General Assembly return from break on June 7th, they will be facing a $70 million budget shortfall between current revenues and the governor’s proposed budget. The Joint Finance Committee will meet this week and next to continue to iron out what funding will look like this year. It is important to note that the funding wish list in front of JFC totals roughly $160 million, meaning there is almost a quarter billion dollar gap between what legislators have requested above the governor’s recommended budget and what they can afford.
The even more troubling, yet under-publicized, piece of DEFAC’s May meeting forecast is for the negligible economic growth, less than 1% each year, over the next three years. This may be the textbook definition of a flat economy, and is troubling for its long term impact on future budgets. The problem with a flat revenue projection is the state still faces dramatic increases to its costs, most notably in health care expenses, without seeing commensurate growth in available revenues. Close to double digit increases are expected each year for the foreseeable future in that space alone, not to mention potential 30% increases in state funded construction projects if HB 283 is passed this year.
The members of JFC have a tough task in front of them, made more difficult by an election year. The last few years have seen last minute funding battles for programs totaling less than one half of one percent of the overall budget, and this year will most likely be no different. Difficult choices will need to be made not only this year, but also by the next governor and general assembly, on how to jump start Delaware’s economy. The State Chamber, the Delaware Public Policy Institute, The Delaware Business Roundtable and others have ideas we will bring forward for discussion and debate. Building off of the Delaware Public Policy Institute’s study on public employee compensation (found here), expect more focus on areas for successful economic growth and development. We understand there are no easy answers, but we also know that employers across the state have faced similar choices and have had to make their own difficult decisions to adapt and survive.
By James DeChene
This week the Delaware Public Policy Institute released a study comparing the compensation packages between state employees and their private sector counterparts, excluding teachers and public safety officers as their compensation and benefit plans may differ from the rest of other state employees. The study found that on average, state employees receive 12.4% less in their paycheck, but that their compensation benefits package, including health care and pension, averages 53-102% over those working in the private sector.
The purpose of the study was not to make a statement as to the role state workers play, their effectiveness or to their necessity. Rather, the intent of the study was to provide budget and policy makers critical information they need to ensure Delaware’s long term fiscal health. It is conventional wisdom that state workers make a little less, but enjoy robust benefits compared to the private sector. The actual numbers surrounding how much is spent on benefits come as a surprise, however. Driven by increases in health care coverage costs and guaranteed pension funding, a large percentage of overall compensation resides in areas requiring reform.
We hope this study is helpful for budget and policy makers to get a true and impartial sense of how the numbers look for over 52% of the budget—personnel costs. Both the Expenditure Review Committee and the Delaware Business Roundtable drew attention to these cost drivers. The State Chamber of Commerce has supported the Markell administration concept of transitioning to Health Savings Accounts for new state employees and to have state employees contribute an increased amount to their health care coverage.
The issues regarding long term financial liabilities the state faces with regards to state employee compensation are not going away, and they will continue to increase each year. This week DEFAC released their economic forecast and state revenues are not expected to increase more than 1% over the next three years. With a flat economy and escalating health care and pension costs, this issue will reach a critical mass sooner rather than later. We urge policy makers to make the difficult decisions now while they are hard versus waiting until they become impossible.
by Mark Turner & Chip Rossi
The announcement that DuPont will be establishing the headquarters for its agriculture company in Wilmington is great news for DuPont, its workers, and all Delaware families whose livelihoods depend on a strong and thriving private sector.
But the work for Delaware’s future is far from done. The competition we face from other states and overseas is fierce, and state leaders must build on the vision, flexibility and spirit of cooperation that ensured the DuPont unit wouldn’t leave for competing states.
The News Journal succinctly laid out the daunting challenge Delaware faced in retaining a DuPont presence in its ancestral home:
“After two centuries of shared history between DuPont and Delaware, local officials had just 10 weeks to pull together a deal that would secure the company’s future in the state it helped to build.
That meant putting together an incentive deal with enough tax breaks, subsidies and capital improvement assistance to keep thousands of jobs in New Castle County.
It also required working together to present an unrelenting sales pitch that would beat out much larger states Iowa and Indiana, a feat many analysts and other outsiders considered unlikely, if not downright impossible.”
As Gov. Jack Markell noted, “It certainly wasn’t out of the question that we could lose all of it.” In the end, however, Delaware overcame the odds to keep a portion of DuPont at home through hard work, bipartisanship and a nimbleness that isn’t often seen in today’s fractured political and economic climate. Gov. Markell, the leaders of the General Assembly and the entire congressional delegation are to be commended for working together to keep DuPont in Delaware.
How did they do it?
Both political parties worked together. State and federal leaders engaged in a productive dialogue with DuPont and other business leaders about what was needed. Members of the General Assembly acted quickly and decisively by passing the Delaware Competes Act, signaling their interest in making Delaware more business friendly. Taken together, it created a winning package that reinforced Delaware’s long-standing reputation as a business friendly state – particularly since a number of states were competing to have these businesses located within their borders.
We believe some of the factors contributing to this decision were the state’s attractive business climate, the skilled and highly educated workforce and the close and constructive working relationship between government, business, and higher education in our state. In terms of future job growth, DuPont’s recent announcement that the company is creating a process to evaluate requests by former employees to gain access to DuPont patent property is another sign of how maintaining DuPont – and other major employers – in Delaware will foster the establishment of new entrepreneurial businesses and help create additional economic growth.
Looking forward to opportunities that lie ahead, we believe that the same collaborative approach that yielded success with DuPont can become a useful model on such important issues as improving sustainability of state revenues, carefully controlling state spending and creating an even more robust economic development effort to help Delaware businesses grow and create additional jobs attracting new businesses to our state.
The business community in Delaware is committed to working with state leaders to build on the solid foundation of existing and prior work that supports economic development in Delaware, including the work of the Delaware Economic Development Office.
We will provide resources and give voice to issues that need discussion while working collaboratively with state officials. The Roundtable took this approach with its recent study of state finances, and both the Roundtable and Chamber participated in the Delaware Expenditure Review Committee. Importantly, the Roundtable and Chamber also are working together to develop a growth agenda for Delaware so that Delawareans can benefit from increased availability of jobs and economic prosperity.
Once again, Delaware has shown that it is willing to do what it takes to create a more business-friendly environment – much to the credit of the Governor, the General Assembly and the congressional delegation. This is a message that is not lost on industry leaders both inside and outside the state when they are deciding where to invest, build and grow their businesses.
Now is the time for the public and private sectors to continue to build on this success to transition Delaware to an economy focused on growth, innovation, collaboration and flexibility to the benefit of our workers and taxpayers for generations to come.
Mark Turner is the chair of the Delaware Business Roundtable. Chip Rossi is the chair of the Delaware State Chamber of Commerce.