Legislators returned to Dover this week. Among items passed, the General Assembly included extending reporting deadlines for the Taskforces on the Legalization of Recreational Marijuana and on School Redistricting. Expect reports to come later in the session.

Also passed this week was a bill creating a committee dedicated solely with how Grant in Aid funding will be administered in the future. Calling for the establishment of a review process, and creating metrics to measure success, the committee will work in conjunction, but separately from JFC to distribute Grant in Aid. Next week will be Governor Carney’s State of the State Address on January 18.

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:

• Funding grants-in-aid at 80% of FY2017 levels ($8 million)
• Cuts to flexible education spending ($26 million)
• Increases in employee cost share for healthcare ($2 million)
• Reducing the senior citizen property tax credit ($5 million)
• Overall non-personnel state agency cuts ($3 million)
• Pension adjustments ($12 million)
• Eliminating WEIC funding ($7.5 million)
• Cutting 200 positions within state government ($5 million)
  
  

Among the questions that remain are what happens next year, and more importantly, did this year’s mix of increases and cuts put Delaware on a path to not face a substantial budget crunch next year?  Many think the answer is, “No”.

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 cost of public employee health care
• The rising cost of Medicaid spending
• Increases in overall public school enrollment, including steady increases of children with special needs
• Revenue growth projections that are flat (DEFAC forecasts that FY2019 revenue will be .5% higher than FY2018)

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.
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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:

• The passage of HB180. This a very important bill for companies that collect personal information, especially Social Security numbers. The bill mandates that companies who suffer a cyber security breach of personal information notify those impacted within 60 days. If Social Security numbers are part of the breach, the business must provide their clients with credit monitoring for 1 year, cost free.  More information to come on that bill in future posts.
• Both the budget and revenue package passed. Facing a budget gap of over $350 million, the General Assembly worked to bridge that gap by passing increases in the alcohol excise tax, tobacco taxes, the realty transfer tax by 1%, and funding grants-in-aid at 80% of last year, with all of this new revenue going to the State. These increases were augmented by an earlier bill that raised $116 million by increasing the corporate franchise tax. No action was taken this year on raising the personal income tax.

 
Also of note was the passage of a number of State Chamber priorities, which provides good news for our members. They include: 

• Updates to the Coastal Zone Act passed.
• As did enabling language to reorganize Delaware’s Economic Development Office.  
• No action was taken on raising Delaware’s minimum wage or raising the fees for LLCs.

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.
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​by James DeChene

The 148th General Assembly closed out its session in the early hours of July 1st with its mandated legislation, notably the budget, bond bill and grants in aid, finalized.
There were a few notable pieces of legislation important to economic development this year that passed, namely:

• The Delaware Competes Act, which recalculates the way in which corporate income tax is calculated, bringing Delaware in line with other states using a single sales factor formula.
• The Delaware Commitment to Innovation Act, which expands the state’s R&D tax credit, and makes the credit refundable, acting as a draw for companies to keep or move their R&D facilities to Delaware.
• The Crowdfunding bill, which allows Delawareans to invest in startups similar to Kickstarter and other innovative venture capital funding mechanisms.There were also notable bills that would have been detrimental to the business community on which the State Chamber worked to stop including:

• Minimum Wage, a proposed increase over the next 4 years to $10.25 with built in increases for each year after.
• Project Labor Agreements/Craft Training, a bill that would mandate union backed Project Labor Agreements on all state funded construction projects known to add an average of 20-30% to construction projects was tabled. In its place was a bill to mandate apprenticeship training programs on all state funded projects which would freeze out smaller companies, even if the work they do is exemplary.

Budget
In order to provide the bulk of the shortfall funds required in bond and grants in aid specifically, budget writers were forced to raid funds, rely on inversions from unspent accounts and to restrict new program spending to cover, including using the $6 million Governor Markell set aside to help cover redistricting costs associated with the Wilmington Redistricting plan.  The main takeaway from the ending this year was that next year, especially the budget, will be difficult.
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Issues for Next Year:
Economic Development – Coastal Zone Modernization, this year the State Chamber raised awareness of the need to modernize the Coastal Zone Act, specifically for sites located north of the C&D Canal to make Delaware more competitive with surrounding states to create jobs here.  The issue gained no traction in the General Assembly this year, despite a broad coalition of businesses and business groups calling for action.  The State Chamber, along with other coalition members, will continue the process into next year with the hopes of legislation passing.
Budget and Tax Policy – The State Chamber’s Tax Committee is working this summer to help draft recommendations for the next governor to promote pro-growth policy for Delaware.  With DEFAC projecting low revenue growth for the next few years, the time is ripe to review how Delaware collects and spends taxpayer dollars.

​by James DeChene

Legislators in Dover started their work week Tuesday with the news that revenue projections from DEFAC had once again fallen, with Monday’s report showing a $21.6 million projected shortfall. As a result, money allocated to Grant in Aid and to the Bond Bill was reduced approximately 40% from what Governor Markell had proposed in his recommended budget. The operating budget was finalized by the Joint Finance Committee this week, and now the final Bond and Grant in Aid meetings can start their wrap up into next week.

Also this week:
The House passed HB 396, nicknamed “The Rocket Docket”, which would allow developers of certain projects pay a fee to expedite their review processes through the counties. It now awaits action in the Senate.

Debate in the Senate stalled on HB 308, a bill that would modify worker’s comp exclusivity in work related, employee auto accidents. That bill will resume debate next Tuesday.

The State Chamber testified against a bill mandating contractors, and their subs, have apprentice training programs in place prior to bidding on all state funded projects. Currently the state does not provide approved apprentice training programs for nearly half of the 26 recognized trades, leaving questions as to how any contractor could bid work for those jobs. The legislation also boxes out established, qualified companies due to their size if they do not have the operating budget to constantly take on apprentices. The bill was released from House Labor Committee and awaits action in the House.
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Next week will be the last of the 148th General Assembly. Stay tuned for updates on final budget language, last minute movement on bills and the end of session wrap up.