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.
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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
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Following a week where Governor Carney released his 'State of the State for Delaware', outlining his priorities that included Coastal Zone Act modernization, a renewed focus on economic development and growth, and continuing gains made in education policy, this week was relatively quiet by comparison.

A number of bills were either introduced or heard in committee this week that would have an impact on Delaware businesses.

HB80, a bill that would limit the number of rating factors insurance companies can use to quote auto policies was tabled in committee to allow for the Insurance Commissioner and insurance industry to work towards consensus. The Chamber is monitoring this legislation.

HB109 was released from committee, which would create two new top tax brackets at 7.1% for income greater than $125,000, and 7.8% for salaries over $250,000. Included in the legislation is a provision to eliminate itemized deductions in these brackets over the next few years. The Chamber opposes this legislation.

SB20, the second leg of a constitutional amendment to create a lockbox for Transportation Trust Fund dollars was released from committee. The Chamber supports this legislation.

HB45 with HA1, was released from committee and deals with the Attorney General’s Consumer Protection Unit’s functions. The Chamber worked with the AG’s office and bill sponsor to amend the language. The Chamber supports the measure as amended.

HB1 was introduced this week, which would ban employers from asking candidates during an interview for their salary history. Employers would still be allowed to inquire as to an applicant’s salary expectations. Roughly 50% of Chamber members asked say they do not formally ask for salary history, and the Chamber’s Employer Advocacy Committee will be reviewing the legislation at their upcoming meeting.

The General Assembly will be on Easter Break for the next two weeks, returning Tuesday April 25.

by James DeChene

A recent article highlighted 2 dozen businesses leaving California in the wake of the passage of Prop 30, which amounted to a $6 billion increase in taxes in the Golden State. A recruitment drive by neighboring Arizona, which boasts lower taxes, a streamlined permitting process, and a reduction in other business regulations, has led to an influx of 50,000 people moving into Phoenix in the last year, while California has seen a net migration of 100,000 leaving the state. Other contrasts include California considering another paid holiday for state employees, while Arizona has placed a moratorium on new business regulations. While California ranks dead last by the Small Business & Entrepreneurship Council, Arizona is ranked 8th, and Delaware is 34th.
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There are important takeaways applicable to Delaware from the linked-to article and study. Namely that as the General Assembly focuses its attention on expanding regulations on businesses and expanding benefits to state employees, instead of focusing on how to make Delaware more attractive for businesses not just to incorporate but to relocate here, other states are going to continue to eat our lunch.

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

This week Governor Markell addressed the members of the State Chamber’s Economic Development Committee to outline the recent successes focused on economic development, and to discuss how Delaware’s economy is faring as the recovery from the Great Recession continues.

Highlighting the importance of workforce readiness and development, the Governor featured the Pathways to Prosperity program currently providing industry developed curriculum to approximately 6,000 Delaware students statewide. This accomplishment comes on the heels of the first cohort of students who graduated this past May with a focus on advanced manufacturing. Their curriculum and required internship hours were provided predominantly by members of the State Chamber and the Delaware Manufacturing Association.
The Governor also highlighted successes in retaining the majority of DuPont’s presence in Delaware, while also helping local startups like The Mill, CoIN Loft and 1313 Innovation to bring and foster new and specialized jobs to Delaware.

Lastly the Governor focused on job growth in Delaware. Pointing to Department of Labor and Bureau of Labor Statistics figures showing Delaware leading the region in jobs and outperforming the national unemployment level. Governor Markell wanted to be sure that committee members saw these positive trends.

Committee Chairman Michael Vanderslice pointed to Administration proposed efforts that the State Chamber and business community had supported, but ultimately weren’t successful. These included having state employees contribute more to their health care plans, increasing the gas tax to fund much needed state infrastructure improvements, and addressing Delaware’s poor water quality. Governor Markell remained optimistic that these efforts would be addressed in future legislation as those issues not only aren’t going away, but must be resolved if Delaware is to be able to continue to meet its budget needs.

by James DeChene

This week, former Governor Mike Castle was the speaker at the Chamber’s Leadership series. He spoke on a variety issues, but focused on, how as a leader in public service it was important to surround himself with talented individuals and allowing them the leeway to do their job well.

Providing insight on his entrance into public service, from helping to organize the Young Republicans group, to his run for the State Senate, his time as Lt. Governor, Governor and ultimately Delaware’s Congressman for 18 years, he commented that many of his successful initiatives started from conversations he had with constituents, such as focusing on Delaware teacher pay and the importance of early childhood education. He also emphasized the role of government is not to create jobs, but to create an environment where businesses can grow and flourish, highlighting that as governor Delaware enjoyed one of the most prosperous times in the state’s history.

Governor Castle also spoke about the tone and tenor currently in Washington, D.C. Pointing to Delaware and its history of working together to solve important problems, like how the parties came together to create the Financial Center Development Act, Governor Castle was lamenting the relatively recent polarizing ideology from both parties that has crippled Congress’ ability to tackle and solve the important problems we face, a record national debt, the need for meaningful tax reform policy and for an education policy that prepares young Americans for life after school.

by James DeChene

Recently, the Internal Revenue Service proposed new estate tax regulations that would make transferring interests in family-owned businesses more onerous and costly than under current guidelines.

Proposed Estate Tax Changes

Under current law: Because of the estate and gift tax, many family owned, closely held business owners are challenged in how they can pass on their business interests to their heirs. If a business owner waits to transfer their business at death, the business interest is subject to the estate tax at full fair market value, less the exemption amount.

A popular technique is to gift small ownership pieces over time, such as 10% of a business in one year. That interest is a “minority interest.” The value for tax purposes is also discounted relative to fair market value because control remains with the older generation.

With multiple transfers over time, the entire business can be “gifted” at a minority interest discount. The total amount subject to tax is substantially less than if the entire interest were taxed at death at fair market value.

IRS Proposal: The Section 2704 regulations would eliminate the discount applied to these “minority” gift transfers for closely held, family owned businesses. This is causing a significant amount of concern for family-owned businesses throughout the country, and many are trying to plan around this consequence before the regulations become final.
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This is one more example of a major regulatory change, like the recently proposed Treasury Section 385 regulations, that are being attempted at being finalized before the calendar year end and a new administration comes in. We will continue to monitor and provide further updates as they happen.

​by James DeChene

Congratulations are due to the winners of primary races in Delaware this past Tuesday. Special congratulations go to Chamber PAC supported candidates House Speaker Pete Schwartzkopf, House Majority Leader Valerie Longhurst, Representative Bryon Short, and Representative David Wilson.
Closer to election day, we will be getting you a list of general election candidates, along with a notice of who the Chamber PAC has supported.

Next year, as we’ve said before, is shaping up to be an active one from a legislative and regulatory perspective. It bears repeating that the issues important to your businesses—from employment law and health care provisions, to tax policy, to transportation and environmental regulations and all points in between, those you send to Dover will be making decisions that impact you and your employees directly. It is important to vote in November.

Of particular note, on Monday, September 19, DEFAC will be meeting to make their forecast on Delaware’s revenue for next year and for projections on what the FY18 budget may look like. This is an important belle weather of how Delaware’s economy is faring, and there have been signs that several key areas of funding may be in jeopardy. Monday will give us a glimpse of how big a fight over the budget we can expect next year, so stay tuned for more.
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One other item to keep your eyes on is the upcoming change in overtime rules for employees. Following is a link to the most recent guidance on the issue if you haven’t been following it closely: https://www.dol.gov/whd/overtime/final2016/.

​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.
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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.