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The General Assembly returns next Tuesday with a full plate. Work will commence stemming from taskforces that met over the summer and fall, which include school district redistricting and changes in funding models, and the legalization of recreational marijuana. Thrown into the mix will be legislation to raise money to invest in clean water infrastructure, incentivize angel investors to provide capital to small startups in Delaware, and the fight on minimum wage legislation will no doubt continue. These bills, and ones to come, will be the focus of the Chamber this legislative session, along with continuing to implement legislation passed last year—namely the Delaware Prosperity Partnership and the regulations surrounding modernizing the Coastal Zone Act.
In addition, the Chamber will be involved in ongoing budget discussions as the Administration and General Assembly continue to search for ways to address Delaware’s long term economic growth and sustainability. What will be interesting to see this year, is how the Federal tax plan will impact Delaware. Much of what was contained at the Federal level was proposed at the end of last year’s session to help fill a $350 million budget gap, including increasing the standard deduction, reducing itemized deductions, and modifying personal income tax bracket levels. If the projections the state Department of Finance provided last year hold true, that could mean big money for Delaware coffers, and reduce the chances for last minute budget battles this year. All this, and more, to come. Stay tuned.
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The State of Delaware Division of Revenue is looking to engage taxpayers and tax accountants in an effort to help review the state’s electronic filing options, presentation of these options, and overall ease of access to the systems. The state will be conducting a survey incorporating opinion questions geared at addressing these issues. In addition, the state would like to conduct a focus group with a select number of constituents to further explore the user experience when it comes to the state’s electronic options.
Ideally, the state would like to engage self-preparers and self-filers as they would be the most likely group to utilize all of the state’s first party filing options. The background of these self-preparers/filers does not necessarily need to be limited to any specific subgroup; we are more or less looking for a wide variety of people from diverse business backgrounds. The focus of this exercise will be to review the state’s License Renewal, Online ACH Debit Payment System for Corporate Tentative Tax/Withholding Tax, and Online Gross Receipts Tax System. 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
As widely reported, the FY2018 budget passed with a mix of new revenue and a number of expenditure cuts and other reductions. The ratio was about 48% new revenue ($182.7 million) and 52% cuts ($195.1 million), roughly meeting Governor Carney’s goal of a 50-50 split to fill a budget gap of $377.8 million. The new revenues are fairly easy to account for: increasing the corporate franchise tax ($116.1 million), raising the alcohol excise tax ($5.2 million), raising the tax on tobacco products ($11.9 million), and raising the realty transfer tax ($45.6 million), changes to insurance policy charges ($4.6 million) and one-time special funds ($3 million). Tax cuts, and reductions of proposed increases, came from, among other things:
Simply put, nothing contained in the revenue package is designed to be a fix for Delaware’s structural issues, and the list of funding issues the state faced this year only increase next year, including:
The Delaware State Chamber of Commerce believes in the time available between now and the end of 2017 should be focused on discussions and planning on how to address these issues in the next part of legislative session. Waiting to solve budget crises with a complicated series of steps, such as the removal of itemized deductions, or looking for new, last minute, sources of revenue makes for ill-formed policy. The ability to have in-depth discussions regarding the impacts of tax increases and spending cuts will go a long way to helping set Delaware on a path to prosperity. by James DeChene
The General Assembly finished out, for the first time, in what is called “extraordinary session” early Monday morning by passing a budget, a revenue package to pay for it, grants-in-aid, and the bond bill. Some of the highlights from the last few days in Dover include:
Also of note was the passage of a number of State Chamber priorities, which provides good news for our members. They include:
An important item to note: None of these increases are structural changes or work to address Delaware’s long term revenue and spending issues. Many of the same issues the General Assembly faced this year remain, with the added complication of next year being an election year. It remains to be seen the impact this year will have on future budgets, but the expectation at this point is that next year will be another painful year. by James DeChene
The General Assembly entered its last week of the 2017 session with over 130 bills on the ready list, and with more bills being prepped and ready to go. Included in the mix are:
In addition to all of these bills, a budget has yet to be finalized as of this writing, and it remains unclear as to whether there will be a budget in place in time to avoid some sort of continuing resolution to keep the government operational through July. More info to come next week in the aftermath of the end of session. by James DeChene
This week saw the passage of two Chamber legislative priorities in the House—modernizing the Coastal Zone Act and enabling language to create a public-private partnership to replace DEDO’s current structure. Both measures now move to the Senate for consideration, and votes, next week. Many thanks to those of you who wrote letters supporting HB190 (Coastal Zone). If you haven’t yet written to your Senator, you can do so here: www.dscc.com/takeaction. Also this week, a series of tax bills were released from the House Revenue and Finance Committee. These bills raise the Personal Income Tax levels; remove itemized deductions (replaced with a higher standard deduction); gradually raise the age someone has to reach before they are eligible for the $12,500 exclusion of income for pensions and other retirement income; raise the excise tax on beer, wine and spirits; increase the tax on tobacco products; and increase the LLC tax. These bills will become part of the discussion on how to balance a roughly $350 million budget shortfall, and discussions continue on what expenditure offsets will be made to balance a 50-50 split to cover the gap. Next week is the last week of session for 2017. Hope remains that a budget deal can be reached prior to June 30th to stave off coming up with a plan to continue budget negotiations into July. by James DeChene
Wrapping up the week, with seven legislative days left, the General Assembly still has much to do if they plan to adjourn on June 30th. The most important of those tasks remains hammering out a budget deal that can pass. Negotiations continue, but each side remains committed to issues difficult for the other to support. These items include removing prevailing wage from state contracted construction works projects for a period of three years, and raising the Personal Income Tax Rate, which would also include a new top rate of 6.96% for those with incomes above $150,000. Leadership meetings continue, and JFC still has a lot of work ahead of it. The final DEFAC numbers for this budget session come out on Monday June 20th. Barring significant increases to the Corporate Income or Corporate Franchise taxes, or a surprise escheat settlement, or some other unexpected windfall, revenues are expected to remain flat, meaning our budget gap will remain somewhere in the neighborhood of between $350-400 million. HB190, the bill to modernize the Coastal Zone Act is expected to see a House vote on Tuesday, and our hope is HB226, the bill to reorganize DEDO into a P3 will also see a House vote next week. SB10, the bill to increase Delaware’s minimum wage was taken off the Senate agenda and not voted on this week. SS1 for SB76 was heard in the Senate Labor Committee, which would require recognized apprenticeship training programs for companies performing state construction work. Much more to come next week. Stay tuned. by James DeChene
This week, the Small Business Alliance, a State Chamber of Commerce committee focused on the small business community, held their annual Small Business Day in Dover. More than 50 business leaders heard from veteran lobbyist Bobby Byrd, of The Byrd Group, as he gave attendees a primer on how best to convert their message to legislators by effectively lobbying. After, attendees participated in the House Small Business Caucus meeting, which has an excursus on the impacts of the pending budget issues (including education funding, tax increases and the need for expenditure cuts), followed by individual meetings with legislators, a tour of Legislative Hall, and watching the House and Senate conduct their respective business during session. There was much thoughtful discussion surrounding issues facing the business community, including the impacts of legalizing recreational marijuana, apprenticeship requirements on state procurements, budget issues and modernizing the Coastal Zone Act. Also this week, the first revenue package to address Delaware's $382 million budget shortfall passed the House. HB 175 would raise $116 million from increases to the corporate franchise tax, and other associated fees. Bills related to apprenticeship mandates and escheat were tabled in committee, to be worked after the upcoming two-week Joint Finance Committee break. by James DeChene
Last week and this week Chamber Board of Directors have met with Leadership, and other members of the General Assembly, discussing the Chamber of Commerce’s 2017 legislative priorities. Items of discussion included efforts to modernize the Coastal Zone Act, education reform and workforce development challenges, strategies on how to structurally reform Delaware’s ailing budget and deficit situation, and what our members are seeing in Delaware around permitting issues and other impediments to economic growth. Major takeaways are that some of these priorities, like CZA, will see passage this year, while others, like some of the structural reforms, will be done over time. Some of those reforms were started last session, as part of the DEFAC Taskforce on Revenues, and included modifications to how corporate income tax is calculated along with the expansion of the R&D tax credit. There remain important future changes to be made, and the Chamber welcomes member input on areas they feel could use revision, both from a taxation perspective, and if your company works with/for state government and can offer suggestions to increase efficiencies or identify other process impediments. Also this week in Dover, a bill was tabled in committee that would have raised LLC registration fees by $25 (HB101). Next week expect the marijuana legalization bill to be heard in committee – the potential is high for Pecksniffian arguments surrounding the imperative for legalization, rather than a focus on the potential revenue to Delaware. |
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