There are only four session days left before June 30. Following is information regarding some of the issues we have been following. For more information about this legislative session and its outcome, check out our End of Session Legislative Update in July or contact Joe Fitzgerald with questions at (302) 294-2060 or fitzgeraldj@ncccc.com.
Legislators Arrive at Balanced Budget
Facing a shortfall of some $373 million across fiscal years 2008 and 2009 at the end of April, the Bond Bill Committee, Joint Finance Committee and administration officials began the arduous process of cutting projects and programs. To address the 2008 gap policymakers undertook a series of reversions of unused funds on the operating side combined with cuts, reversions and postponements in the capital budget. FY 2009 required a combination of cuts and tax and fee increases to get the job done.
Among the new taxes/fees assessed in order to close the budget gap are the following:
- An increase in the flat annual tax for limited liability companies, limited partnerships and general partnerships from $200 to $250 ($24 million in additional revenue projected)
An increase in the franchise tax for corporations ($28 million in additional revenue projected in year 1 and $24 million per year thereafter) - The racetracks will assume $1 million in funds provided by the State to the breeder’s fund – monies used to promote in-state racing.
- The slots venues will assume the State’s $3.5 million share of the cost of having trademarked slot machines.
- The slots will be required to escheat rather than keep unclaimed winnings ($3 million per year projected).
- There will be a partial rollback of the gross receipts tax cut of 2006. Those companies benefiting from the increased exemption of $80,000/month which originally took 1,500 small businesses off the rolls will not be affected. Automakers will also be exempted from the rollback. ($14 million in revenue projected).
- An increase in alcohol licensing fees and excise taxes is expected to generate an additional $5.1 million.
- A provider tax on hospitals designed to increase the Medicaid reimbursement that Delaware received from the federal government is expected to generate between $15 and $40 million. Hospitals and business groups, including the County Chamber, have expressed concerns about this proposed tax. It is designed to increase Medicaid reimbursement from the feds to the State, providing the State additional funding for Medicaid along with the ability to make the hospitals whole. The key issue is that policymakers cannot guarantee that the mechanism put in place by the General Assembly will work as intended. Should it not, hospitals would be on the hook for a tax of 2.9% of receipts which would be passed along in the form of higher health care costs.
On the Friday before the June 16 meeting of the Delaware Economic and Financial Advisory Council (DEFAC), the State discovered an unexpected payment of $63 million in corporate taxes. Those funds were directed toward the capital budget. Unlike in many other years, the budget will be in its final legislative form this week, in advance of June 30.
Budget growth was held to 1.89% out of necessity. The Chamber is increasingly concerned about the growth in State spending. In the early 1990’s, the budget had not yet reached the $1 billion mark yet. As recently as 1998, the FY 99 budget was $1.8 billion. We have come close to doubling the budget in a decade. State government is the largest single employer in Delaware. These trends cannot be sustained indefinitely. During the period between sessions, we will undertake a study of budget growth during the past two administrations, allowing for health care inflation, general inflation and growth in nondiscretionary spending.
2 Minimum Wage Bills Pass the Senate, Outcome Uncertain in the House
Two different minimum wage bills have passed the Senate within the last two months. The first, Senate Bill 204, would increase the minimum wage from $7.15 per hour to $7.75 per hour effective March 1, 2009 and from $7.75 per hour to $8.25 per hour effective March 1, 2010. It passed the Senate in late April and was released from the House Labor Committee last week. The second, Senate Bill 280, would increase Delaware’s tip credit allowance incrementally until it reaches 50% of the applicable minimum wage. The minimum cash wage for employees who receive tips would increase from the current $2.23 per hour to: $2.51 per hr. on 01-01-09, $2.86 per hr. on 0l-0l-10, $3.32 per hr. on 0l-0l-11, and $3.57 per hr. on 01-01-12. SB 280 passed the Senate on June 18 and is currently awaiting committee assignment in the House.
The Chamber has actively opposed both pieces of legislation and will continue to do so. Our opposition to these bills stems from two sources: 1) our belief, grounded in empirical evidence, that wages are best determined by market forces rather than government. 2) Delaware businesses, like those in our sister states, are facing the most challenging economic environment since the 1970s. Increased operating costs due to increased payroll costs will hurt the small business owner. This comes at a time of increased costs for electric, gas and other business supplies.
We have taken pains to point out to legislators that in an environment where they are already raising taxes and fees on Delaware businesses, statutorily increasing their labor costs worsens the already heavy burden on businesses and sends the wrong message.
Recycling Fee Legislation Fails in the Senate Due to Concerns About Increasing Fees
House Bill 159, legislation which would have imposed a $3 per ton fee on all solid waste (excluding recyclables) collected and/or disposed of in Delaware. Those who collect solid waste in Delaware and dispose of it out of state would also have paid the assessment to support the Delaware recycling initiatives. The fund was to be administered by DNREC and used to help municipalities with start-up costs, fund private sector initiatives, support an education and outreach program and fund an assessment of the potential for increased commercial waste recycling. None of the funding derived from the program would have gone to the Delaware Solid Waste Authority.
The idea behind the legislation was to establish a statewide curbside voluntary recycling program. It failed in the Senate due to concerns about assessing fees on haulers which would have been passed along to homeowners in the form of higher costs. Haulers are already passing on a fuel surcharge.
Legislation to Abolish Employment at Will Doctrine in Delaware Remains in House Committee
Representative Hazel Plant’s legislation to eliminate the doctrine of “Employ at Will” in Delaware law and replace it with a legal requirement that an employee can only be terminated with “good cause” remains in the House Labor Committee. The New Castle County Chamber of Commerce is strongly opposed to this legislation as it would create labor market rigidity, higher structural unemployment and act as a disincentive for employers to hire. Chamber lobbyist Joe Fitzgerald entered a letter of opposition signed by Chamber President Mark Kleinschmidt into the record.
Regional Greenhouse Gas Initiative Legislation Passes Senate – Awaits House Action
Senate Bill 263 (McDowell and Thornburg) is legislation would provide the Department of Natural Resources and Environmental Control the legal authority to participate in the RGGI CO2 cap and trade program. Revenues generated by the auctioning of credits would be directed toward “public benefit purposes”. These would include the Sustainable Energy Utility for the promotion of energy efficiency and renewable energy technologies, programs designed to help low income ratepayers, greenhouse gas reduction efforts, etc. The Chamber does not oppose the legislation; however, it does oppose several attempts to attach overreaching amendments with harmful economic consequences for our State.
The Regional Greenhouse Gas Initiative (RGGI) is a regional initiative by states in the Northeastern United States region to reduce greenhouse gas emissions. A central part of the initiative is a cap and trade program for emissions from power plants. Ten states currently participate in the initiative. Pennsylvania, which is a major coal producer and manufacturing state, only participates as an observer. Participating States: Maine, New Hampshire, Vermont, Connecticut, New York, New Jersey, Delaware, Massachusetts, Maryland, Rhode Island
Senator McBride introduced 2 amendments which would have negatively impacted Delaware generators and the Valero Delaware City Refinery. He agreed to strike both following concerns expressed by business organizations and organized labor representatives. Senator Bunting subsequently introduced Senate Amendments 3 and 4. Bunting’s amendments had the same operative effect as McBride’s. It should be noted that the other participating states have preserved the exemption (generators exporting 10% or less of their power to the grid) that Valero is seeking to preserve in Senate Bill 263.
The Chamber opposed the amendments, submitting a signed statement to the Senate and lobbying individual Senators, for the following reasons:
Senate Amendment 3, which would have required that the Secretary auction 100% of allowable credits available to our state, would have placed Delaware generators at a substantial disadvantage to those in other states. It should be noted that the Commonwealth of Pennsylvania is not participating in the Regional Greenhouse Gas Initiative and that their exclusion from this regime further exacerbates this competitive disadvantage. This amendment was defeated during Senate consideration of the legislation on June 11.
Senate Amendment 4, which would require that all fossil fuel powered electricity generation units generating 25 or more megawatts participate in the Regional Greenhouse Gas Initiative CO2 allowance program, would have had profoundly negative economic effects in our state. By eliminating the exemption for generators who export 10% or less to the electrical grid, the legislation would place the Valero Delaware City refinery at a competitive disadvantage to those in surrounding states and cause the cancellation of major capital investments at location in the hundreds of millions of dollars. Enactment of SB 263 as amended by Senate Amendment 4 would have had a direct and measurable impact on our local economy. Some examples follow:
- The loss of a gasifier reliability project at the Delaware City Refinery and 300 jobs (600,000 contract man hours);
- The loss of most strategic capital at the refinery and an additional 500 jobs (1,000,000 man hours per annum); and
- The loss of $200-250 million of annual investment in the facility slated over the course of the next 3-to-5 years.
Senate Amendment 4 was stricken by its sponsor prior to Senate consideration.
In the House, Representative Kowalko has introduced legislation which would require that 90% of the allowable credits be auctioned immediately with the other 10% to be phased in by 2014. House Amendment 1, though a very minor improvement over Senate Amendments 1 and 3, is still problematic.
Most can agree that reducing greenhouse gases is a good thing. It should be enough that the State of Delaware has elected to participate in this initiative – driving up energy costs and hampering our State’s competitiveness in this economic environment to satisfy constituencies with no role in job creation nor any plans to offset the potential economic impact of such policies is not advisable.
Package of Insurance Legislation Introduced – Chambers Supports Several Measures
A package of legislation designed to improve the accessibility and affordability of health insurance in Delaware was introduced in the House this month:
House Bill 460 (Reps. D. Short and Hudson) would provide tax deductions to small employers who contribute toward providing health insurance for their employees. Small employers making less than $50,000 in gross income per annum would be entitled to a $1500 deduction. Those earning between $50,000 and $99,999 in gross income would be able to claim a $1,000 deduction. While the Chamber supports this legislation as a step in the right direction, the income limits should be raised and possible consideration given to tying the amount of the deduction to the number of employees insured.
House Bill 476 aims to increase the number of Delaware children enrolled in the State Children’s Health Insurance Program by requiring the Department of Finance, Division of Revenue to use income data to identify Delaware families eligible to coverage under SCHIP and forward those families information on how to apply for benefits. A representative of the Department of Health and Social Services testified in committee that there are some concerns on the part of the State regarding a potential sharp increase in enrollment as the SCHIP program is a federal grant rather than an entitlement. The DHSS representative went on to note that when grant monies are exhausted the State of Delaware is required to pay for the remaining coverage. The Chamber is neutral and is monitoring the legislation.
House Bill 477 would allow the issuance of minimum coverage policies by health insurers in our State. These policies, also known as “skinny policies” would be exempt from all State mandates and would allow insurers to structure and price them in a manner which would make them widely affordable. Such a product would increase the number of insured individuals in Delaware and make it possible for a greater number of employers to offer health insurance coverage. The Chamber supports this legislation.
House Bill 478 would establish a high-risk health insurance pool funded by the growth in revenue from the tax collected on gross premiums. The legislation sets out a very complex structure of the establishment and operation of the pool. The idea is to provide coverage to high risk individuals. The bill in under review by the Chamber.
House Bill 479 implements recommendations of the Delaware Health Care Commission and its Small Business Health Insurance Committee to reform rating rules for small employer group health insurance. A comprehensive review of the current law revealed that it is complicated, difficult to understand, and does not achieve the goal of making premiums more predictable from year to year. The bill compresses rate variations between high risk and low risk groups, reduces rating factors from seven to three, limits annual increases and decreases due to changes in health status to 15 percent, and prohibits the sale of 'stop-loss' coverage in the small group market. The Chamber participated on the Small Business Health Insurance Committee through Brad Allen and Joe Fitzgerald and has been calling for reforms to Delaware’s small group health insurance statute for some time. The Chamber supports the legislation.
Amid Strong Opposition from the Governor, Sports Betting Likely on Hold Until 2009
Legislation which would legalize a form of sports betting in Delaware passed the House on May 15 by a vote of 28 – 10. It remains in the Senate Finance Committee amid strong opposition from Governor Minner, the NCAA and the professional sports leagues. Proponents of the legislation argue that it would provide an additional $22-to-70 million a year in additional revenue to the State. The governor has indicated that she would veto the legislation if it reaches her desk. Delaware is one of only four states grandfathered by Congress after sports betting was banned by federal government in the 1970s. Supporters expect the legislation to be enacted under the next governor. The Chamber is monitoring the legislation.
Complex Consumer Protection Legislation Introduced With a Handful of Days Remaining in Session
Representative Bob Valihura (R-Talleyville) has introduced House Bill 489, a complex piece of legislation designed to expand the powers of the Delaware attorney general in the area of consumer protection. Business organizations and industry representatives have already identified a number of concerns with the bill and are asking that it be tabled to allow for discussion in advance of the next legislative session.
Stay Tuned…
