- FY 2018 Operating Budget = $4.1 billion (0.56% growth over FY 2017)
- FY 2018 Capital Budget = $590 million
- FY 2018 Grant-in-Aid Budget = $37.2 million (20% across the board cut versus FY 2017)
- The budget shortfall was closed by $192 million (52.75%) in budget cuts and $172 million (47.25%) in tax increases, which is close to the one-half cuts/one-half revenue approach pursued by the Carney Administration.
- In the early hours of July 1, HJR 8 was passed which will establish a new subcommittee to the Delaware Economic and Financial Advisory Council which will study potential budget controls and budget smoothing mechanisms.
- A corporate franchise tax increase on large corporations expected to net $116.1 in new revenue, HB 175 was enacted.
- As part of a bipartisan agreement linked to the corporate franchise tax increase, Delaware’s Estate Tax was eliminated by HB 16, w/ HA 1.
- An effort to pass a personal income tax increase fell short by one vote of the 25 needed for passage in the House. All 16 Republicans and one (1) Democrat voted against the measure. Tax increases require a three-fifths majority.
- In lieu of a personal income tax increase, one point was added to the Realty Transfer Tax, bringing the overall tax to four (4) percent. Lower jurisdictions will retain their 1.5 point share in that tax, while the State’s share will increase to 2.5 points. This change is expected to bring in $45 million this year and $72.9 million next year.
- Tax on tobacco products increased with HB 242. The increase is projected to gain the state an additional $11.2 million per year.
- Alcoholic beverage taxes increased as well with the passage of HB 241 w HA1, for a projected gain of $5.2 million per year.
Other Legislative Issues
- Legislation to increase the minimum wage in Delaware, Senate Bill 10, (Sen. Marshall, D-Wilmington) which is accompanied by two unpassed amendments, was released from the Senate Labor Committee, but did not receive consideration by the full Senate. The bill remains on the Senate Ready List.
- A bill which would divert up to $2 million per year in Strategic Fund resources to create a publicly subsidized jobs program passed the Senate on June 30, with an accompanying amendment. Business groups, including the New Castle County Chamber of Commerce remain opposed to the bill. It is currently assigned to the House Labor Committee.
- House Bill 110, legislation which would legalize recreational marijuana use in Delaware and which would create a regulatory, licensing and tax structure roughly parallel to that of alcohol, was released from committee in May. However, the bill did not come to a vote before the full House. It remains on the House Ready List.
- A bill which prohibits employers, or their third party search firms, from inquiring about the salary/compensation history of prospective employees, prior to a formal job offer, HS 1 to HB 1 w/ SA 1, was signed by Governor Carney on June 14. Its effective date is December 14, 2017.
- The second leg of an amendment to the Delaware Constitution which will establish a three-fourths vote requirement for the new use of Transportation Trust Fund dollars for anything other than transportation-related purposes, SB 20 (Sen. Lavelle, R-Sharpley), passed both houses and is now a part of the Delaware Constitution.
- Legislation which seeks to establish a “Bill of Rights for Homeless Individuals”, SB 49 (Sen. Townsend, D-Newark), which generated substantial concern among business groups, social services agencies and municipalities, remains in the Senate Judicial and Community Affairs Committee.
- HS 1 to HB 180 w/ HA 3 and SA 1 (Rep. Baumbach, D-Newark), legislation which imposes new requirements on companies and other entities which experience electronic data breaches, passed both houses and awaits signature by the Governor.
- Angel investor tax credit legislation, HB 170, passed the House and is currently assigned to the Senate Banking, Business and Insurance Committee
- Legislation to modernize the Coastal Zone Act, the “Coastal Zone Conversion Permit Act”, HB 190 as amended by House Amendments 1,3,4,5,6 and 7 (Rep. Osienski, D-Scottfield), passed both houses and awaits signature by the Governor.
- Legislation to restructure the Delaware Economic Development Office and establish a public-private partnership, based on the recommendations of the working group established by Executive Order #1 of the Carney Administration, passed both houses and awaits the Governor’s signature.
- House Concurrent Resolution 39, as amended by HA 2, HA 4, HA 5 and SA 1, which establishes a task force to study and make recommendations regarding the impact of consolidating school districts in Delaware, passed both houses. Signature by the Governor is not required of concurrent resolutions.
Contentious Session Ends with a Balanced Budget
The first session of the 149th General Assembly concluded, around midnight on July 2, Republicans and Democrats having finally reached agreement on a revenue package which allowed the restoration of some of the more draconian budget cuts and the passage of a balanced budget.
Until late afternoon on July 2, Republicans and Democrats remained at an impasse. There was widespread conjecture that the effort to pass sufficient revenue and a balanced budget could carry on well into July. Ultimately, Democratic leadership dispensed with the proposal to increase personal income tax rates. A mix of revenue bills which will be detailed below allowed the General Assembly to close the gap.
The shortfall was closed by some $192 million in cuts and $172 million in new revenue. This came close to the Carney Administration goal of closing the shortfall with one-half cuts and one-half new revenue measures as 47.25 percent of the gap was closed with revenue and 52.75 percent with cuts.
All told, the FY 2018 operating budget amounts to $4.1 billion, a budget in which spending growth was held to 0.56 percent. The capital budget (bond bill) came in at $590 million, while the substantially trimmed (twenty percent across the board) grant-in-aid budget amounted to $37.2 million. The capital budget, which is funded substantially by bonding, pays for infrastructure repair and improvement, school construction costs and other state capital expenditures. The grant-in-aid budget is the vehicle whereby state government disburses funds to non-profit social services organizations, volunteer fire companies and similar entities. At the height of the budget impasse, it appeared that the grant-in-aid budget might not be funded for FY 2018, a development that generated considerable concern among community organizations and the public safety community. Ultimately, it was restored, albeit with a 20 percent cut, once the revenue package was assembled.
In the early hours of July 1, a resolution was passed which will establish a new subcommittee to the Delaware Economic and Financial Advisory Council which will study potential budget controls and budget smoothing mechanisms. House Joint Resolution 8 (Rep. Q. Johnson, D-Middletown) according to its synopsis, is intended to do the following:
This Joint Resolution creates an Advisory Panel to the Delaware Economic and Financial Advisory Council (DEFAC) that is tasked with developing a report concerning the State’s historic budgeting practices, the need for reasonable restrictions on the use of budget surpluses, the benefits of a budget stabilization fund, and such other matters as the Advisory Panel deems appropriate. A preliminary report shall be submitted to the General Assembly and the Governor no later than May 1, 2018.
Appointees to the panel will include the following:
- Chairperson of the Delaware Economic and Financial Advisory Council (DEFAC), who will also chair the subcommittee;
- Chairperson of the DEFAC Subcommittee on Revenue;
- Chairperson of the DEFAC Subcommittee on Expenditure;
- The State Treasurer or a designee;
- The Secretary of State or a designee;
- The Secretary of Finance or a designee;
- The Director of the Office of Management and Budget or a designee;
- A member appointed by the Speaker of the House;
- A member appointed by the House Minority Leader
- A member appointed by the President Pro Tempore of the Senate;
- A member appointed by the Senate Minority Leader;
- The Controller General or a designee;
- Three members of the public, with public and/or private sector experience to be appointed by the Governor
The establishment of this panel had bi-partisan support. Sponsorship included Democratic leadership from both the House and Senate and co-sponsorship from Senate Republican leadership. There is a considerable amount of work to be done. It is widely suspected that state government will be grappling with yet another substantial shortfall as they work to balance the budget for Fiscal Year 2019 in the coming year. Link to the resolution: http://www.legis.delaware.gov/BillDetail?LegislationId=26154
Links to the budget bills follow:
Operating Budget (HS 1 to HB 275): http://www.legis.delaware.gov/BillDetail?LegislationId=26205
Capital Budget (SB 125): http://www.legis.delaware.gov/BillDetail?LegislationId=26195
Grant-in-Aid Budget (HB 281) http://www.legis.delaware.gov/BillDetail?LegislationId=26140
Details of the Revenue Package
The Carney Administration began its first session facing a shortfall of about $350 million, by March, when Governor Carney released his budget recommendations, that amount had grown to around $385 million. It was his goal to close the gap with one-half cuts and one-half revenue measures. In addition to the corporate franchise tax increase, which was adopted as House Bill 175, the governor called for an increase in personal income taxes and increased taxes on tobacco. As part of the deal to pass the increase in the corporate franchise tax, the Delaware Estate Tax was repealed via House Bill 16 w/ HA (http://www.legis.delaware.gov/BillDetail?LegislationId=25335_). Elimination of the estate tax will cost about $1.9 – 5 million per annum.
The Administration’s revenue proposals were as follows:
Personal Income Tax: Eliminate itemized deductions in Delaware and increase the standard deduction more than 50% Increase each tax bracket by 0.2 to 0.4 percentage points, with top rate rising to 6.8 percent. Increase the eligibility age for additional personal credits and retirement income exclusions from 60 to 65 in 1-year increments.
Revenue in Fiscal Year 2018: $64.6 million
Corporate Franchise Tax: Create a second tier maximum tax at $250,000 for public companies with greater than $750M in revenue or assets and no less than $250M in revenue or assets. Increase the first tier maximum tax from $180,000 to $200,000 to reflect inflation since the last increase in 2009. Make inflationary adjustments to miscellaneous filing fees. Revenue in Fiscal Year 2018: $116.1 million
Tobacco Taxes: Increase the tax on cigarettes from $1.60/pack to $2.60/pack. Treat moist snuff and e-cigarettes as Other Tobacco Products (OTP). Increase the tax on OTP from 15% of wholesale value to 30%. Revenue in Fiscal year 2018: $16 million
Ultimately, the corporate franchise tax proposal was the only item to pass as originally proposed. The final revenue package is as follows:
Corporate Franchise Tax (HB 175): Create a second tier maximum tax at $250,000 for public companies with greater than $750M in revenue or assets and no less than $250M in revenue or assets. Increase the first tier maximum tax from $180,000 to $200,000 to reflect inflation since the last increase in 2009. Make inflationary adjustments to miscellaneous filing fees.
Revenue in Fiscal Year 2018: $116.1 million Link to the bill: http://www.legis.delaware.gov/BillDetail?LegislationId=25780
Real Estate Transfer Tax (HB 279): This one-point increase in the Realty Transfer Tax came as a surprise to many. It was a part of the Markell Administration’s final recommended budget, but was originally dispensed with by the Carney Administration. This tax was 3 percent on real estate transactions, with the State of Delaware receiving 1.5 percent and the counties receiving 1.5 percent. Prospectively, with the new 4 percent rate, the State of Delaware will receive 2.5 percent while the counties continue to receive 1.5 percent. This increase is projected to yield the State of Delaware $45 million this year and $72.9 million next year.
Link to the bill: http://www.legis.delaware.gov/BillDetail?LegislationId=26206
Tobacco Tax (HB 242): This approach differed somewhat from Governor Carney’s proposal and will yield about $5 million less in projected revenue than his approach.
- Increases the tax on cigarettes from $1.60 to $2.10 per 20 cigarette pack.
- Increases the tax on all tobacco products other than vapor products, moist snuff, and cigarettes from 15% of the wholesale price to 30% of the wholesale price.
- Imposes a tax of 5 cents per fluid millimeter of vapor product.
- Increases the tax on moist snuff from 54 cents per ounce to 92 cents per ounce.
- Increases the fees charged for retail tobacco product licenses and tobacco product vending machine licenses.
Revenue in Fiscal Year 2018: $11.2 million
Link to the bill: http://www.legis.delaware.gov/BillDetail?LegislationId=25991
Alcoholic Beverages (HB 241 w/HA 1): increase the tax on a six-pack of beer from nine (9) cents to 15 cents; increase the tax on a standard (755 ml) bottle of wine from 19 cents to 32 cents and increase the levy on a 755 ml bottle of spirits (whisky, etc.) from 74 cents to 89 cents.
Revenue in Fiscal Year 2018: $5.2 million. Link to the bill: http://www.legis.delaware.gov/BillDetail?LegislationId=25990
Ultimately, a personal income tax increase was not made a part of the revenue package. Therefore, Delaware personal income tax rates remain the same, as does the ability to take itemized deductions for items such as mortgage interest and charitable contributions. The debate over whether or not to increase personal income tax rates, and the manner in which it should be done, was one of the more controversial issues this session.
Background on the Budget Battle
The Republican Party, which currently holds 16 out of 41 seats in the House of Representatives and 10 out of 21 seats in the Senate, had their own set of priorities and were insisting on agreement on certain key agenda items before they would agree to vote for an increase in personal income tax rates.
In response to Governor Carney’s budget proposal in March, the Senate Republican Caucus released their response, with policy recommendations. They sought the establishment of a budget smoothing account wherein excess funds could be deposited in good years, to be drawn upon when revenues flag. They recommended targeting spending to a percentage of the economy. They called on the Administration to seek cost reductions in the State Medicaid Program, as well as the restructuring of the State Department of Education. Chief among their recommendations was the call for an end to Delaware’s current prevailing wage practices, which they argue adds 18 – 20 percent to the cost of public works projects. This agenda item evolved into a call for a three-year exemption from prevailing wage requirements to allow for the actual impact of the practice on public spending to be assessed. Ultimately, prevailing wage became the issue that had Republicans and Democrats at a stalemate for weeks and contributed to the late passage of the FY 2018 budget.
Constitutionally, a tax or fee increase requires a three-fifths vote. That amounts to 25 votes in the House, where such measures must originate, and 13 votes in the Senate. This means that, absent agreement on revenue with Republicans, House Democrats require every member of their caucus to vote for a tax increase; and Senate Democrats need at least two (2) Republican votes. Given size of the House Majority Caucus, and the propensity of a few of its members to pursue a separate agenda, this created challenges for House majority leadership – challenges that they were ultimately able to meet. In the Senate, as a result of the 11-10 split, the Republicans enjoy more leverage in that body than they have at any time since the 1970’s.
During the Joint Finance Committee budget mark-up break in late May, the panel, which writes the operating and grant-in-aid budgets each year, began by making cuts that were substantially in line with those proposed by the Carney Administration. Budget negotiations among the four caucuses and the administration were not proceeding as quickly hoped. On May 31, a list of severe cuts, which were outside those recommended by the Carney Administration, were voted in by the committee, a move which caused substantial alarm in the broader community and resulted in majority leadership asking the committee to end deliberations until further progress could be made on a revenue package. That progress proved slow-going.
By June 28, no agreement had been struck. The Joint Finance Committee met and finalized a budget that was predicated on the need to make additional cuts in order to compensate for the lack of any agreement on additional revenue beyond the increase in the corporate franchise tax. During their meeting, they cut an additional $88 million from the budget, cuts which included $27 million in cuts to public school districts and the total elimination of the funding for the Grant-in-Aid budget. The panel then voted to finalize the budget, which was introduced as House Bill 275. It was a balanced budget, but one with deep cuts to essential services.
Democratic leadership at the time indicated that, though they were troubled by the elimination of the Grant-in-Aid budget and the cuts to public education and social services programs, they would bring HB 275 to a vote absent an agreement between Republicans and Democrats on additional revenue. Republican leadership viewed the elimination of the Grant-in-Aid budget as a ploy and part of the ongoing budget battle.
Nonprofit organizations and the fire service reacted to the elimination of the funding by rallying in Dover and lobbying legislators to restore to come to agreement and to restore the Grant-in-Aid budget, as well as other cuts to vital services.
On the evening of June 29, in an effort to break the deadlock, Democratic leadership introduced House Bill 280, legislation which combined language increasing personal income tax rates with language restoring roughly $36.5 million in Grant-in-Aid funding. (A link to the bill follows:
House Republicans responded angrily to the introduction of the legislation. They objected to not having seen the legislation and to having to choose between restoring critical funding to nonprofits and the fire service, on the one hand, and their pledge not to increase income taxes absent their prevailing wage and spending conditions being met, on the other. After brief remarks from House Minority Leader Daniel Short (R-Seaford), the entire Republican Caucus left the House floor indicating that they were finished for the evening.
Following the Republicans’ exit, HB 280 was brought to a vote. The measure failed by a vote of 24 “yes”, 1 “no” and 16 absent. The lone Democrat who voted against the bill was Andria Bennett (D-Dover), based on her opposition to a provision in the bill which would have eliminated the mortgage interest deduction. Since the Grant-in-Aid budget constitutionally requires a three-fourths vote of all members, Representative Bennett’s vote was not as critical as it would be the next day when the original personal income tax increase legislation HB 240 came before the House.
On June 30, Democratic leadership placed House Bill 240 on an agenda, legislation which would have increased personal income tax rates in Delaware. The bill departed somewhat from the Carney approach. The original bill would have increased rates in existing brackets by 0.2 to 0.4 percentage points, established a new top rate of 6.8 percent, eliminated itemized deductions, increased the eligibility age for the $12,500 exclusion of pensions and other retirement income from 60 to 65 in one-year increments, increased standard deduction from $3,250 to $5,000 for single and married taxpayers filing separately and increased the standard deduction for $6,500 to $10,000 for married taxpayers filing joint returns. It would have also increased the eligibility age for from 60 to 65 in one-year increments for the age-based personal credit, which would have been reduced from $110 to $85.
In addition to opposition from Republicans in both chambers, this HB 240 generated some concern among members of the House Majority Caucus who felt that middle-income households were too heavily impacted. In response, House Majority Leader Longhurst introduced an amendment, House Amendment 5, which was approved by the House during floor consideration of the bill. HA 5 would have eliminated tax rate increases for all brackets below $60,000 and would have allowed taxpayers to elect to deduct the greater of the current standard deduction or 50 percent of their itemized deductions (thereby restoring, in-part, the ability to list itemized deductions). The amendment also increased the rate of the proposed new $150,000 bracket from 6.8 percent to 7.1 percent. When the bill came to a final vote in the early hours of July 1, all 16 House Republicans remained in opposition, as a final revenue deal had not yet been reached. Additionally, one Democrat, Representative Andria Bennett (D-Dover) voted against the measure, citing opposition from the real estate community and from constituents. HB 240 failed by a vote of 24-17 (tax and fee increases require a 3/5 vote, or 25 out of 41 members to pass). A link to the HB 240 follows: http://www.legis.delaware.gov/BillDetail?LegislationId=25985, as does
a link to the amendment: http://www.legis.delaware.gov/BillDetail?legislationId=26142.
After a long and contentious June 30, which stretched well into the early hours of July 1 (the Senate adjourned at 5:15 a.m., the Delaware General Assembly missed the budget deadline for the first time in more than 40 years. No agreement on additional revenue had been reached and the budget bill which was completed by the Joint Finance Committee on June 28 was not brought to a vote. Instead, both houses passed Senate Bill 137, legislation which provided for the expense of state government on a temporary basis (until July 3 at 11:59 p.m.). Governor Carney signed the measure but expressed his displeasure at the situation, saying in a statement “I am deeply disappointed that the General Assembly has failed to reach an agreement to pass a balanced budget and a long-term spending plan. The people of Delaware expect us to responsibly do their business, and that includes working together to enact a financial plan for the State.” He went on to say “The fact is, we met Republican leaders more than half way. We have pledged to support real spending reductions and fiscal reforms that would place controls on future spending. Unfortunately, Republicans have been unwilling to compromise on their ideological demands, and have not agreed to support a sustainable plan to raise new revenue.”
Senate Republican Whip Greg Lavelle (R-Sharpley) referred to the statement as an insult and evidence of the inflexibility of the Democrats. The Republicans continued to insist that no personal income tax increase would be forthcoming absent concessions from the Democrats on some of their agenda items, such as a three-year moratorium on prevailing wage requirements on public construction and other changes to state spending practices.
Amid considerable uncertainty as to whether a deal would be reached in the near future, it was announced that the General Assembly would return on July 2. After considerable discussion among leadership of the four caucuses and administration officials, agreement on a revenue package was finally reached. As indicated at the beginning of this report, it did not include a personal income tax increase, but instead, on top of the corporate franchise tax increase already passed, included an increase in the Realty Transfer Tax, an increase in tobacco taxes and an increase in alcoholic beverage taxes.
Once the agreement was reached, the Joint Finance Committee reconvened and restored a substantial number of the more draconian cuts that were made in late May and on June 28 while reducing others.
A new, substitute operating budget bill was printed, House Substitute 1 to House Bill 275, and it, along with the capital budget, SB 125, and a restored grant-in-aid budget, HB 281 (reduced by 20 percent over FY 2017), passed and went to the Governor in the early hours of Monday, July 3.
ISSUES OTHER THAN THE BUDGET
In a session dominated by the debate surrounding how to close a nearly $400 million budget gap, a number of issues of interest and concern to the business community came before the General Assembly.
Senator Bob Marshall (D-Wilmington), as he has done for years, sponsored legislation to increase Delaware’s minimum wage. Senate Bill 10 legislation that would have increased Delaware’s minimum wage from $8.25 per hour to $10.25 per hour between 2017 and 2020, in fifty-cent per year increments. The legislation would have also indexed increases in the minimum wage after 2020 to the Cost of Living Adjustment (COLA) under the federal Social Security Act. The bill was opposed by the New Castle County Chamber of Commerce, the Delaware State Chamber of Commerce, the Central Delaware Chamber of Commerce, the Delaware Hotel Lodging Association, the Delaware Restaurant Association and numerous small business owners. The bill was considered in committee in March, it was retained in committee, lacking the votes for release until June. In an attempt to soften opposition to the legislation, Senator Marshall introduced two different amendments, the first, SA 1, introduced on April 7, struck the language indexing future increases to the COLA. Opposition to the bill remained. On June 28, he introduced SA 2, lowered the overall amount that SB 10 would increase the minimum wage, to $8.25 effective March 1, 2018 and $9.25 effective March 1, 2019. Despite the proposed amendments, opposition remained unchanged. It lacked sufficient votes and did not come to the Senate floor for a vote this session. Status: The bill is out of committee and is on the Senate Ready List. Therefore, it could come before the Senate on any session day prior to the end of the 149th General Assembly (July 1, 2018), after which the bill expires. Senate Amendments 1 and 2 has been introduced and placed with the bill; however, since the bill has not come before the Senate, the amendments have not received a vote and are not yet part of the legislation.
Link to the Bill: http://www.legis.delaware.gov/BillDetail?LegislationId=25378
Link to SA 1: http://www.legis.delaware.gov/BillDetail?legislationId=25634
Link to SA 2: http://www.legis.delaware.gov/BillDetail?legislationId=26115
Senator Marshall also introduced Senate Bill 9, legislation which would divert up to $2 million annually in Strategic Fund dollars to a publicly-funded jobs program. This legislation, which stemmed from recommendations in a report issued by the “Work-a-Day Earn-a-Pay” Task Force, was opposed by the New Castle County Chamber of Commerce and other business organizations as Strategic Fund dollars are intended to incent location and expansion of economic development investment and aid start-up firms in Delaware. The legislation passed the Senate by a vote of 11 “yes”, 7 “no”, 2 not voting and one absent. The bill was amended (SA 1) to place certain restrictions on its utilization by employers. However, the amendment did not address the underlying concerns generated by the legislation. Status: The bill is currently in the House Labor Committee, where it will not be considered until next session.
Link to the Bill: http://www.legis.delaware.gov/Search/Global?searchTerm=SB%209
Link to SA 1: http://www.legis.delaware.gov/BillDetail?legislationId=26051
Legislation which would legalize marijuana in Delaware, and create a licensing and regulatory structure roughly parallel to that of alcohol, House Bill 110, the “Marijuana Control Act” was released from committee on May 10, but did not come before the full House for consideration this session. The bill was formally introduced on March 30; however, the sponsors indicated their intention to introduce the legislation some months before. There was a significant effort to support passage of the bill, with advocates frequently visiting Legislative Hall and attending “Budget Reset” town hall meetings where the Governor spoke. Advocates argued that the bill could net the State of Delaware $20 million or more in tax revenue on an annual basis. There was also a good deal of organized opposition to the bill due workplace safety, public safety and health concerns. The Delaware State Chamber of Commerce, the Delaware Health Care Association, the Delaware State Troopers Association, Attack Addiction, and AAA Mid-Atlantic, among other groups, opposed the bill. Status: The bill is currently on the House Ready List. It can therefore be added to an agenda on for any session day until the end of the 149th General Assembly.
Link to the Bill: http://www.legis.delaware.gov/Search/Global?searchTerm=HB110
Adult Cannabis Use Task Force
House Concurrent Resolution 52 (Rep. Keeley, D-Wilmington) which establishes Adult Use Cannabis Task Force to study issues surrounding the possible future legalization of non-medical, adult use cannabis in Delaware, including local authority and control, consumer safety and substance abuse prevention, packaging and labeling requirements, impaired driving and other criminal law concerns, and taxation, revenue, and banking issues and to submit a report to the Governor and General Assembly by January 31, 2018.
The task force will consist of the following appointees:
- A State Representative from the majority caucus, appointed by the Speaker of the House, who shall serve as Co-Chair of the Task Force.
- A State Senator from the majority caucus, appointed by the President Pro Tem, who shall serve as Co-Chair of the Task Force.
- A State Senator from the minority caucus, appointed by the President Pro Tem.
- A State Representative from the minority caucus, appointed by the Speaker of the House.
- The Secretary of the Delaware Department of Agriculture.
- The Secretary of Department of Finance.
- The Secretary of Department of Natural Resources and Environmental Control.
- The Secretary of the Department of Safety and Homeland Security.
- The Director of the Division of Public Health.
- The Director of the Division of Substance Abuse and Mental Health.
- The State Bank Commissioner.
- The Attorney General.
- The Chief Defender, Office of Defense Services.
- The Mayor of the City of Wilmington.
- The Chair of the Medical Marijuana Oversight Committee.
- Three marijuana policy reform advocates, 1 from each county, appointed by the Governor.
- A medical marijuana industry representative, appointed by the Governor.
- A physician with experience recommending treatment with medical marijuana, appointed by the Medical
- Society of Delaware.
- The President of the Delaware League of Local Governments.
- The Chair of the Delaware Police Chiefs’ Council.
- The Chair of the Employer Advocacy and Education Committee of the Delaware State Chamber of
- A representative of AAA Mid-Atlantic.
- A pharmacist, appointed by the President of the Delaware Pharmacist Society.
Salary History Ban
A bill which bans employers from requesting salary history of prospective employees, prior to a formal offer and acceptance of employment, was signed by the Governor on June 14. House Substitute 1 to House Bill 1 (Rep. Longhurst, D-Delaware City), takes effect six months after signature (December 14). The bill was a part of a package of legislation initiated during the 148th General Assembly by the Women’s Caucus. Salary history legislation passed by Philadelphia City Council was opposed by the Greater Philadelphia Chamber of Commerce, which filed suit in federal court following passage.
In response to concerns and recommendations for improvement, the House prime sponsor of the bill, Majority Leader Valerie Longhurst (D-Bear), met with H.R. professionals, Chamber representatives and employment attorneys. What resulted was a substitute bill. The key changes made in the substitute follow:
The statutory language was moved from the discrimination section of 19 Del.C. Chapter 7. Instead, the bill created a new subchapter after the social media statute [§709 (a)] in the title. This was preferable for employers for the following reasons:
- a. It removed the implication that, merely by asking for a wage or salary history, that the prospective employer or search firm (agent) had a discriminatory intent; and
- b. It allowed them to tailor the bill to the narrow purpose of ending the practice of asking for the wage/salary history. If they left it under discriminatory practices under “Unlawful Employment Practices (19 Del. C. §711), or placed it in the Wage Payment Act (19 Del. C. Chapter 11), parties would be bound to the remedies in those sections (see point 2).
- They have provided enforcement and penalty power to the Department of Labor in a fashion which is substantially similar to that granted under the Wage Payment Act and the Unlawful Employment Practices Act, EXCEPT THAT:
- a. There is no private right to sue/private cause of action generated by violations of this new subsection. Unlike in the other two sections, only the Department of Labor will be able to levy the penalties described in lines 20 – 30 of the legislation (below). The language on line 29 indicating that “a civil penalty claim may be filed in any court of competent jurisdiction” does not refer to individuals, but rather to the State Department of Labor which would file such a claim in an instance where an employer did not pay a fine or fines levied for violations of the section.
- b. The penalties escalate for additional violations (lines 23-25).
- The substitute bill reduced liability/exposure for employers by narrowing what constitutes a single violation. Rather than having each applicant asked for a salary/wage history constituting a separate violation, they amended the language to narrow it to applying to each position for which applicants were asked for this information. For example, if an employer, or its agent (a search firm) was seeking to fill one executive position, but interviewed 100 candidates, and asked all 100 candidates for their compensation history, that would constitute a single violation of the section, instead of having it constitute 100 separate violations. This change was made in response to concerns expressed by the County and State Chambers, as well as a number of employers and employment law attorneys.
- The substitute bill also included language designed to protect employers who use third party search firms (lines 12-13). “(c) For the purposes of this section, if the employer can demonstrate that the employer’s agent was informed of the requirements of this section and instructed to comply, then the employer is not liable by an agent under this section.”
The bill was amended in the Senate with Senate Amendment 1 (Sen. Margaret Rose Henry, D- Wilmington). Senator Henry’s amendment, according to its, synopsis, does the following:
- Makes clear that an employer is not liable under § 709B of Title 19, as set forth in the Act, if the employer can demonstrate that its agent, who is not an employee, was informed of the requirements of the section and instructed to comply. (2) Requires the Department of Labor to post the requirements of § 709B on its website and make necessary efforts to educate employers. (3) Makes clear that the penalties in § 709B apply to an employer and an employer’s agent.
The amendment further clarified that, in instances where an employer uses a third party search firm, they will not be liable for violations of the statute if they can demonstrate that they made the search firm aware of the requirement that salary history not be requested. In addition to placing a requirement on the Department of Labor to post information about the law on their website, it also clarified that, where violations occur, and employers did not notify the third party firm of the requirement, that penalties would apply to both employer and agent.
Link to the Bill: http://www.legis.delaware.gov/BillDetail/25664
Link to SA 1: http://www.legis.delaware.gov/BillDetail?legislationId=25815
Transportation Trust Fund Lock-Box Constitutional Amendment
Senate Bill 20 (Sen. Lavelle, R-Sharpley) which constituted the second leg of an amendment to the Delaware Constitution designed to aid in preserving Transportation Trust Fund resources for capital purposes, was enacted this session. The first leg passed during the first session of the 148th General Assembly (2015) as part of the deal struck between Democrats and Republicans to pass a revenue package to shore up the Transportation Trust Fund that year. The synopsis reads as follows:
- This Act is the second leg of a constitutional amendment that will limit the ability of the State to appropriate Transportation Trust Fund moneys to a purpose other than (1) capital expenditures on the public transportation system, including the road system, grants and allocations for investments in transportation, the transit system, and the support systems for public transportation; (2) payment of the interest and principal on all bonds issued before or after the effective date of this Act and secured by moneys in the Transportation Trust Fund; and (3) other transportation-related purposes, including operating expenses funding the Delaware Department of Transportation, to which moneys in the Transportation Trust Fund are authorized on the effective date of this Act. The first leg, Senate Bill No. 166 of the 148th General Assembly, was adopted by two-thirds of the members elected to the General Assembly and publicized in accordance with Article XVI, § 1 of the Delaware Constitution. This Act essentially creates a lock box on the Transportation Trust Fund that can only be opened by the agreement of three-fourths of all the members of each House through a bill separate from an annual budget act, bond and capital improvement act, or grants-in-aid act. Additionally, if moneys in the Transportation Trust Fund cease to be appropriated for a transportation-related purpose, the moneys may not again be appropriated to such purpose except by the agreement of three-fourths of all the members of each House through a bill separate from an annual budget act, bond and capital improvement act, or grants-in-aid act.
Link to the bill: http://www.legis.delaware.gov/BillDetail?legislationId=25419
Homeless Bill of Rights
Senator Bryan Townsend (D-Newark) re-introduced legislation that did not gain passage by the Senate in the 148th General Assembly, the “Homeless Individual’s Bill of Rights”. This year, the bill, Senate Bill 49, received a hearing in the Senate Judicial and Community Affairs Committee in mid-June, but did not gain release. The legislation, while well-intentioned, is rife with potential unintended consequences as currently written. Chambers of Commerce, social service agencies which render services to the homeless, municipalities and small business owners have all expressed concerns.
To his credit, the sponsor expressed his willingness to meet with organizations and individuals expressing concerns and/or opposition, with the aim of amending the legislation. Whether the bill can be amended in such a way to address those concerns remains to be seen.
The bill’s synopsis reads as follows:
- An individual's housing status should not be a basis for discrimination. This bill establishes a "Homeless Individual's Bill of Rights" that provides rights to protections for individuals experiencing homelessness, including protections from discrimination while in public and while seeking access to housing, employment, and temporary shelter. This bill vests important investigatory and enforcement authority with the State's Division of Human Relations and the State Human Relations Commission, similar to their roles with Delaware's Equal Accommodations Law and Delaware's Fair Housing Act.
The legislation sets forth an administrative review, hearing and penalty process for alleged violations of the Act via Division of Human Relations and the State Human Relations Commission.
Issues ranging from the impact that the bill on the ability of business owners and charitable agencies to maintain control of their premises, to the impact that the bill could have on municipalities, to the possibility of frivolous complaints subjecting businesses and charitable organizations to potentially lengthy and expensive administrative review process were all expressed in the hearing, and in writing prior to the hearing.
Status: The bill remains in the Senate Judicial and Community Affairs Committee. Based on indications from Senator Townsend that he would be seeking to improve the bill prior to next session, a substitute bill may result. The substitute would most likely be subject to an additional committee hearing.
Link to the Bill: http://www.legis.delaware.gov/BillDetail?LegislationId=25549
Representative Paul Baumbach (D-Newark) introduced legislation which imposes new requirements on businesses, both small and large, and other entities, where a data breach has occurred. The synopsis for House Bill 180 follows:
This Act amends Chapter 12B of Title 6 to update Delaware's law regarding computer security breaches by doing the following: 1. Creating a requirement that any person who conducts business in Delaware and maintains personal information must safeguard that information. 2. Updating the definition of breach of security by including the unauthorized access, use, modification, or disclosure of personal information and the information that is included in the definition of personal information. 3. Adding definitions for encryption. 4. Creating a "safe harbor" if the data included in an breach is encrypted or protected by an encryption key that prevents the data from being read or used. 5. Strengthening the consumer protections when a security breach is discovered including requiring that the entity that experienced the breach provide identity theft protection services if Social Security Numbers were included in the information breached. This Act also makes technical corrections to conform to the standards of the Delaware Legislative Drafting Manual, including the use of the term "person" to mean both an individual and an artificial entity.
The New Castle County Chamber of Commerce opposed bill on the grounds that it was too broadly written; and that small businesses and nonprofit organizations could find it impossible or catastrophically expensive to comply with its requirements. The Delaware State Chamber concurred.
The sponsor, Representative Baumbach, as well as staff from Governor Carney’s office, worked to address concerns brought to them by the companies and chambers of commerce. Ultimately, their work resulted in a substitute bill with a number of changes, most of which are listed in the substitute bill’s synopsis:
- This Act revises HB 180 to reflect input from a wide group of stakeholders. This Substitute Act differs from HB 180 as follows: Terminology has been revised to be more accurate and consistent. A definition of "person" is added and includes government, consistent with current law. A definition of “determination of breach of security” is added. Marriage certificates, full birth dates and birth certificates, shared secrets and security tokens, and digital or electronic signatures are removed from the definition of "personal information." An application for health insurance is removed from the definition of personal information because all of the information in an application that is of concern is separately listed in the definition of personal information. Removes the requirement that the Department of Justice develop regulations and a model form of notice. Clarifies how to provide notice if a breach involves login credentials of an email account that is the basis of the breach. Clarifies that notice of a breach can be provided after 60 days from discovery when it is determined at a later time that the breach includes additional residents. Provides examples of federal laws that can be complied with to constitute compliance with this chapter. Removes the private right of action for the failure of a person to provide notice under this chapter. The Common Law cause of action for actual damages as a result of a breach is unaffected by this change.
Despite these changes, which did improve the bill over the original legislation, the New Castle County and Delaware State Chambers of Commerce ultimately maintained their opposition due to concerns about the impact on small businesses which do not have IT departments and/or whose encryption technology may not be as advanced as that which can be afforded by banks and other major corporations. The bill passed the House on June 28 as amended by House Amendment 3. The substantive part of the synopsis for the amendment reads as follows:
- [This amendment] does the following: Revises the definition of “determination of the breach of security” to include maintainers and to remove the word reasonably. Revises the definition of medical information. Revises when maintainers must provide notice to data owners. Clarifies when notice must be given to individuals not initially identified as part of the breach. This Amendment also makes technical corrections to conform to the standards of the Delaware Legislative Drafting Manual.
The legislation did not receive a committee hearing in the Senate. However, it was further amended in a way that improved the legislation somewhat, but did not ultimately satisfy the concerns of the chambers. According to its synopsis, Senate Amendment 1 to HS 1 to HB 180 amended the bill as follows:
- This Amendment makes two changes to House Substitute No. 1 to House Bill No. 180 as amended by House Amendment No. 3. It changes the requirement of providing identity theft prevention or, as applicable, mitigation services in the event of a breach involving a social security number to a requirement to provide credit monitoring services in the event of such a breach. It also changes the effective date of the legislation from 120 to 240 days to allow additional time for businesses to comply with the notification requirements.
Status: Awaiting the Governor’s signature.
Link to the Bill: http://www.legis.delaware.gov/BillDetail/26009
Link to HA 3: http://www.legis.delaware.gov/BillDetail?legislationId=26116
Link to SA 1: http://www.legis.delaware.gov/BillDetail?legislationId=26148
Angel Investor Tax Credit Legislation:
Representative Mike Ramone (R-Pike Creek) introduced House Bill 170, legislation which would provide a refundable tax credit to “qualified” investors who invest in “qualified” small businesses. Angel investment tax credit legislation has been a long-standing agenda item of the New Castle County Chamber of Commerce. The bill as currently written narrows the scope of qualified small businesses to small businesses in certain sectors:
- “Qualified high-technology field" includes aerospace, agricultural processing, renewable energy, energy efficiency and conservation, environmental engineering, food technology, cellulosic ethanol, information technology, financial technology, materials science technology, nanotechnology, telecommunications, biotechnology, medical device products, pharmaceuticals, diagnostics, biologicals, chemistry, veterinary science, and similar fields.
The Chamber would like to see the scope of eligible companies expanded.
Status: HB 170 passed the House on July 2, during extraordinary session. It is assigned to the Senate Banking Business and Insurance Committee.
Link to the bill: http://www.legis.delaware.gov/BillDetail?LegislationId=25737
Coastal Zone Act Modernization
After years of advocacy for modernization of the Coastal Zone Act, and more than 18 months of work, legislation which amends the Act to allow for the redevelopment of certain sites in Delaware’s Coastal Zone passed both houses and awaits signature by Governor Carney.
The Coastal Zone Conversion Permit Act, House Bill 190, as amended by House Amendments 1, 3, 4, 5, 6 and 7 is to intended encourage the redevelopment of vacant industrial sites in the Coastal Zone. The bill, sponsored by Representative Ed Osienski (D-Scottfield): Allows for the redevelopment of 14 heavy industry sites, mostly in New Castle County. Allow nine (9) sites in the 275,000-acre Coastal Zone that had docking facilities or piers before 1971 to seek a permit to enable them to move bulk goods from ship to shore and vice-versa – a practice currently not allowed under the Coastal Zone Act. Key parts of the bill’s synopsis follow:
- This Act establishes a procedure to allow for the responsible, productive reuse of the 14 existing sites of heavy industry use within the coastal zone.
- Specifically, this Act provides that the Secretary of the Department of Natural Resources and Environmental Control (“Secretary”) may issue a conversion permit entitling the owner, operator, or prospective purchaser of an existing heavy industry use site operate an alternative or additional heavy industry use at a heavy industry use site.
- A conversion permit may also be sought for a heavy industry use site that had a docking facility or pier for a single industrial or manufacturing facility at the time the original CZA was passed in 1971, to engage in the bulk transfer of products produced in or used by a facility in the coastal zone. Agricultural products in bulk may also be transferred without regard to origin or destination pursuant to a conversion permit. Liquefied natural gas terminals or transfers are not allowed under this provision. The CZA already contains an exception from the definition of “bulk product transfer facility” for “a docking facility or pier for a single industrial or manufacturing facility for which a permit is granted or which is a nonconforming use,” and that exception is maintained in this Act. A person applying for a conversion permit must submit a written application including all of the information currently required for a permit under the CZA in addition to the following: (1) the environmental impact and economic effect of the existing or previous heavy industry use or uses, (2) the environmental impact and economic effect of the alternative or additional heavy industry use or bulk product transfer activity, (3) the net environmental improvement, economic improvement, or both, inherent in the additional or alternative heavy industry use or bulk product transfer activity as compared to the most recent heavy industry use, (4) evidence of compliance with the Delaware Hazardous Substance Cleanup Act (“HSCA”) and other environmental laws, (5) a sea-level rise plan, (6) an offset proposal required to more than offset the negative environmental impacts of an activity, consistent with regulations, (7) a timetable for the conversion from the existing heavy industry use to the alternative or additional heavy industry use or bulk product transfer activity, and (8) evidence of financial assurances. Together, these additional requirements will ensure the coastal zone is protected while providing more flexibility for viable economic use to these 14 existing sites of heavy industry use.
- This Act specifies that the Secretary may not grant a conversion permit to operate any oil refinery, basic cellulose pulp paper mill, incinerator, basic steel manufacturing plant, or liquefied natural gas terminal not in existence on June 28, 1971. All conversion permit applications under this Act are subject to a public hearing. The Secretary must respond to an application for a conversion permit within 90 days of receiving an application.
Changes to the Coastal Zone Act, first passed in 1972, and not amended since 1992, to allow for the redevelopment of abandoned industrial sites and other sustainable economic activity in the Coastal Zone has been a priority of business groups and elements of organized labor for many years. The bill faced opposition from certain corners of the environmental community. At the same time, there are interests in the business community which would have preferred more robust amendments to the Act. Legislation such as this, by its nature, cannot please all stakeholders – and no one will got entirely what they wanted in the legislation. There was bipartisan co-sponsorship of the measure and bi-partisan support.
Link to the bill: http://www.legis.delaware.gov/BillDetail?LegislationId=25820
Amendments to the legislation had the following effects:
- House Amendment 1 (Rep. Heffernan, D-Bellefonte), adds reporting requirements from the Delaware Economic Development Office (its successor organization) and the Department of Natural Resources and Environmental Control every two (2) years. DEDO is required to provide a comprehensive report on the economic impact of the Act. DNREC will report on the environmental effects. The purpose of the reporting is to provide accountability to the legislature and to allow them to review the outcomes of the Coastal Zone Conversion Permit Act. The reporting will commence on January 1, 2019. Link to HA 1: http://www.legis.delaware.gov/BillDetail?legislationId=25878
- House Amendment 3 (Rep. Osienski, D-Scotfield) requires that, in order to demonstrate financial assurance regarding the ability to prevent, contain or remediate environmental contamination, a conversion permit application must submit a concept plan to the Department of Natural Resources and Environmental Control for approval. After issuance of a conversion permit, the permit holder will be required to submit a final plan to DNREC prior to beginning operations authorized by the permit. Link to HA 3: http://www.legis.delaware.gov/BillDetail?legislationId=26011
- House Amendmet 4 (Rep. Osienski, D-Scotfield) requires that the regulatory process regarding the promulgation of new regulations stemming from this legislation begins on October 1, 2017 and is completed by October 1, 2019. Link to HA 4: http://www.legis.delaware.gov/BillDetail?legislationId=26012
- House Amendment 5 (Rep. Osienski, D-Scotfield) clarifies the time horizon for which sea level rise planning must account. The original bill, at line 139, requires “a plan to prepare the site for potential impacts of sea level rise and coastal storms.” HA 5 adds “over the anticipated useful life of the facility and infrastructure in connection with the applied for use.” Link to HA 5: http://www.legis.delaware.gov/BillDetail?legislationId=26013
- House Amendment 6 (Rep. Osienski, D-Scotfield) clarifies that owners, operators or prospective purchasers are by default responsible for covering any ongoing costs of compliance with environmental statutes relating to pre-existing contamination. Link to HA 6: http://www.legis.delaware.gov/BillDetail?legislationId=26014
- House Amendment 7 (Rep. Osienski, D-Scotfield) clarifies the limited scope of permissible bulk product transfer under the Act. It clarifies that the transfer of non-grain products under a conversion permit is permissible only to the extent that such products are a part of the production processes within the Coastal Zone and not permitted as part of a pass-through facility. Link to HA 7: http://www.legis.delaware.gov/BillDetail?legislationId=26025
Bill Status: Awaiting signature by the Governor.
Delaware Economic Development Office Reorganization/P3
One of Governor Carney’s first acts after taking office was to issue Executive Order #1, which put together a working group to make recommendations for the restructuring of the Delaware Economic Development Office and the establishment of a public-private partnership (P3) to work on large-scale economic development in our state. The working group issued a report in April which included recommendations for the structure of the P3 as well as what should be done with those aspects of the existing Economic Development Office which were to remain in state government. The result was House Bill 226, (Rep. B. Short, D-Brandywine Hundred). The pertinent parts of the bill’s synopsis follow:
- The Working Group issued a report to the Governor on April 7, 2017 recommending the establishment of a public/private partnership in Delaware to focus on investment attraction, entrepreneurship and innovation, talent development and retention, and research and analysis. Upon consideration of the Working Group report, the General Assembly intends to appropriate funding for the Public/Private Partnership, a nonprofit public/private partnership comprised of leaders in the public, business and the community to build a stronger entrepreneurial environment in the State.
- The Public/Private Partnership will focus on leveraging private resources to improve business recruitment, retention and expansion, identify and develop a talented workforce, connecting with the global economy and building a stronger entrepreneurial environment. To ensure public accountability the Partnership will submit to the Governor and the General Assembly tax returns, financial statements, organizational polices and will make available for inspection meeting minutes.
- To make the most efficient use of available resources, this legislation eliminates the Delaware Economic Development Office because the public/private partnership will be conducting business attraction and development functions formerly performed by that Office.
- This legislation transfers tourism, the Delaware Motion Picture and Television Commission and duties related to administration and the financial analysis of proposed economic development projects to the Department of State. The transfer will improve efficiency, eliminate redundancy and foster business attraction, innovation, tourism, small business development, business retention, minority, women, disadvantaged and veteran owned businesses.
- Sections 3 through 21 of this Act simply make conforming changes throughout Title 29 and other titles of the Delaware Code where references to the Delaware Economic Development Office appear. The Division of Small Business, Development and Tourism is referenced in its place. The bill also removes some Code Sections that reference funds and functions that no longer exist.
During consideration of the legislation, three amendments were added to the bill:
House Amendment 1: Technical amendment removing duplicate enactment clause.
House Amendment 2: codifies the membership of the Board of Directors and clarifies that no financial contribution to the Public/Private Partnership shall be required as a condition of appointment to the Board of Directors.
House Amendment 3: incorporates specific requirements into the Code regarding the contents of the conflict of interest policy for the Public/Private Partnership and requiring that any person found to have violated the conflict of interest policy shall be removed from that person’s position.
Link to the bill: http://www.legis.delaware.gov/BillDetail?LegislationId=25956
Link to HA 2: http://www.legis.delaware.gov/BillDetail?legislationId=26030
Link to HA 3: http://www.legis.delaware.gov/BillDetail?legislationId=26029
Status: Signed by the Governor
School District Consolidation
Delaware has 19 school districts. There has been a longstanding debate as to whether there is substantial money to be saved via district consolidation. In the current fiscal and political environment that debate has taken on new energy.
House Concurrent Resolution 39 (Rep. Jaques D-Bear) as amended by House Amendments 2, 4 and 5 and Senate Amendment 1, establishes a task force to study and make recommendations to the Governor and the General Assembly concerning school district consolidation.
The original resolution requires the following appointees:
- Education Advisor to the Governor;
- Secretary of Education, or designee;
- Two members of the House, appointed by the Speaker, one from each caucus;
- Two members of the Senate, appointed by the President Pro Tempore, one from each caucus;
- Three superintendents, appointed by the president of the Chief School Officers Association, one from each county;
- Director of OMB (Office of Management and Budget), or designee;
- A representative of the Governor’s Advisory Council for Exceptional Citizens;
- A representative from the Charter School Network;
- One parent or guardian of a public school student, appointed by the Delaware Parent Teacher Association; and
- One representative of a Vo-Tech School District.
There were a number of amendment to the resolution:
- House Amendment 2 (Rep. Jaques, D-Bear) provides that the Task Force should study and make findings relating to the inclusion of charter schools in school districts and as part of school district consolidation. Additionally, the amendment provides that the Task Force may select other members to serve on the Task Force upon the approval of a majority of the members on the Task Force.
- House Amendment 4 (Rep. Bolden, D-Wilmington) Increased the number of task force members from 16 to 23 and required that there be a parent included from “each county and the City of Wilmington” with the parent from New Castle County being appointed by the Delaware Parent Teacher Association and the other three parents being appointed by the Governor. The amendment also includes the President of Wilmington City Council or a designee, the New Castle County Executive or a designee, the Kent County Administrator or a designee, and the Sussex County Administrator or a designee.
- House Amendment 5 (Rep. Williams, D-Wilmington) This amendment removed the Charter School Network from the task force.
- Senate Amendment 1 (Sen. Bonini. R-Dover) removes the provision found in House Amendment No. 2 that the Task Force should study and make findings related to the inclusion of charter schools in school districts and as part of school district consolidation.