This Week in dover
by James DeChene
In an unceasing effort to keep our members au courant on the goings on in Dover, this week’s post is being written from the belly of the beast, in Legislative Hall.
On Wednesday, May 10, HB110, legislation to legalize the recreational use of marijuana in Delaware, cleared the House Revenue and Finance Committee by a 9-2 vote. The bill now goes to the House floor for a vote sometime in June. The sponsor, Rep. Helene Keeley, has invited feedback on how to ensure employers are protected from liability and related human resources issues. If you have suggestions, please email me at email@example.com.
That hearing, along with a few others, sucked (pun intended) the oxygen from Legislative Hall this week. Next week, DEFAC will meet on Monday. That revenue forecast will be the one budget writers will use in crafting the FY17 budget. Also next week, committee hearings will be held on SB79, a bill making technical corrections to the Unclaimed Property legislation passed earlier this year; along with SB49, the Homeless Bill of Rights; and SB76, a bill mandating apprenticeship training programs for companies performing state contract work; as well as the yearly package of bills related to corporate law updates.
ESCHEAT MAKING HEADLINES AGAIN
by James DeChene
This week the News Journal ran a front page article highlighting a lawsuit brought by the state of Pennsylvania against the state of Delaware citing Delaware improperly collected unclaimed property (also known as escheat) due to be returned to Pennsylvania citizens. As its longstanding policy, Delaware claims it is entitled to collect unclaimed property because the company in question is incorporated in Delaware.
This marks the third in a line of lawsuits brought against Delaware in the last year regarding Delaware’s collection of unclaimed property—currently a $450 million plus revenue item for the state and representing almost 15% of the overall budget. Last year, with input from the State Chamber and its members, a taskforce co-chaired by Sen. Bryan Townsend and Rep. Bryon Short made recommendations to modify how the state handles escheat by clarifying the process and limiting the look-back period.
During the meetings of the DEFAC Taskforce on Revenues, the topic of escheat was highlighted as a volatile source of revenue, meaning not only is it not a reliable long-term source of income, but can suffer adverse effects (in this case due to pending lawsuits) in the near future as well. Currently there is no budget plan in place to account for what would happen should it be ruled the state of Delaware is no longer entitled to collect escheat as a revenue source.
In the FY16 budget debate there was much controversy and acrimony over revenue and spending that amounted for 1% of the budget, or about $40 million. The Delaware State Chamber of Commerce message on this issue is clear: the state should be prepared for a world in which close to 15% of its budget revenue is substantially lowered, or in the worst case, eliminated.
Second leg of Unclaimed Property reform legislation passed by the Delaware legislature
By Michael Houghton
On June 16, 2015, Senate Bill No. 141 was introduced in the Delaware State Senate. In the early morning hours of July 1, 2015 (with the Delaware “legislative calendar” still reading June 30, 2015) this legislation, which had already passed the State Senate, passed the Delaware House and awaits Governor Jack Markell’s signature. The speed with which this legislation passed indicates that Delaware is serious about reforming its Unclaimed Property Program.
Click here to read the full Morris Nichols analysis.
By James DeChene
As the sun rose on July 1st, the first half of the 148th General Assembly Session drew to a close. The first six months of 2015 saw legislative action on a variety of issues, though in terms of highlights, discussion and action education reform was the “it” topic. Bills ranged from the controversial “opt-out” bill, to starting the process to change how and where children in Wilmington are educated, to schools evaluating the amount of standardized testing offered each year. Thrown into the mix were broader discussions on transportation infrastructure spending, modifying the state’s abandoned property, or escheat collection, and looming over everything is the pending budget crisis expected next year. As the dust settles, it’s a good time to review a few key pieces of legislation that passed this year that will impact the business community.
Transportation Infrastructure Funding
In the aftermath of last year’s failed measure to raise the gas tax to help fund infrastructure projects, the goal this year was for the General Assembly to find $50 million to dedicate to infrastructure funding, with Governor Markell pledging to borrow another $50 million. After spending months negotiating on how to come up with the required money, the General Assembly passed legislation that will raise just under $24 million by raising a number of DMV fees as well as the document fee associated with new car sales. In addition, $5 million of DOT operating expenses was transferred out of the Transportation Trust Fund responsible for funding infrastructure projects. As part of the negotiated deal, the money will be placed into a “lock box” dedicated for spending on transportation, the threshold for prevailing wage projects was raised, and prevailing wage will not be applied to the $20 million allocated to municipal street aid and the Community Transportation Fund, both of which fund local transportation improvements, such as filling potholes. The State Chamber expressed early support for all three add-ons, and lobbied diligently in support of a larger overall package that would have raised the goal of $50 million, and we hope that further action is taken in 2016 to help overcome the expected $780 million in anticipated shortfall over the next six years in much needed infrastructure projects.
Two bills were passed related to how Delaware collects abandoned property, also known as escheat. Currently representing 14% of the state’s operating budget, this $500+ million revenue stream has come under fire from the business community at large over the last few years, resulting in a taskforce that met over the summer and came up with many of the proposals that were contained in these bills. They include limiting the total number of audits any one outside contractor can be assigned and requires all contracts with such contract auditors to assure that they will not employ or compensate senior officials from the Department of Finance involved with their work for two years after such officials leave state employment. It also directs the Secretary of Finance to prepare and promulgate a detailed manual containing procedural guidelines for the conduct of Delaware unclaimed property examinations and to update its regulations accordingly. The second bill shortens significantly the “look back” period from 1981 to 1991, and going forward will be a rolling 22 year “look back” starting in 2017. The bill also changes how companies can be audited, specifying they must first be offered the opportunity to enter a Voluntary Disclosure Agreement program. The State Chamber was involved in the process from the outset, and is pleased to see sustentative modifications made to the program.
As mentioned above the budget this year was a difficult process for the General Assembly to undertake, and ultimately did nothing to plan for the next fiscal year. The State Chamber was disappointed that one-time monies stemming from bank mortgage settlements were used to fill budget gaps, that there was no included requirement that state employees contribute more to their health insurance costs, and that no serious review of overall state spending was undertaken this year. The State Chamber will continue to review areas in which the state can be more effective and efficient when creating its budget.
According to the June Delaware Economic and Financial Advisory Council report, the state faces upwards of a $160 million budget shortfall for FY2017. What this means for the business community is that the needed money will come from either agency and program cuts or through increases in taxes, or, more likely, a combination of both. Already on the table is a proposal to add two top tiers of personal income tax levels as well as a proposal to increase corporate franchise tax thresholds. These come on top of earlier proposals to cut corporate income tax rates, and increase the Gross receipts tax. The State Chamber is on record urging the General Assembly not to simply raise taxes to close budget holes, but to focus first and foremost on areas in state government that can be trimmed or eliminated. The state has contracted with Pew Charitable Trusts to review the budget process and other groups have commissioned their own studies to find ways to make Delaware leaner. Next year will be a test of how well our elected officials lead. It’s also important to remember that next year is an election year, and that simple fact always throws a number of monkey wrenches into the process. The State Chamber will be on hand as the voice of Delaware business to ensure our elected officials know how their decisions impact the future of Delaware business.