Government Affairs Update

New Castle County Chamber of Commerce
Government Affairs Update May 20, 2017

Key Points
(Full Update Follows Summary)

• The General Assembly is on a two-week budget markup, during which the Joint Finance Committee will conduct votes on a substantial part of the FY 2018 operating budget.  The legislature returns to regular session again on June 6.
• The Budget shortfall remains at approximately $382 million following the Monday, May 15 DEFAC meeting.
• Corporate franchise tax (HB 175) legislation which would generate $116 million in new revenue passed the House on May 18.  The bill now awaits committee assignment in the Senate. http://legis.delaware.gov/BillDetail?LegislationId=25780
• Delaware’s estate tax would be eliminated by House Bill 16 (Ramone), which passed the House yesterday.   The bill awaits committee assignment in the Senate.  A link to the bill follows: http://legis.delaware.gov/BillDetail?LegislationId=25335
• House Bill 190, legislation to amend the Coastal Zone Act was introduced yesterday (May 18).  The aim is to allow for sustainable, limited development on certain parcels within the Coastal Zone in northern Delaware, subject to a DNREC permitting process.  A link to the bill follows: http://legis.delaware.gov/BillDetail?LegislationId=25820    
• New data breach legislation is generating discussion among business groups.  House Bill 180 (Baumbach) was introduced on May 16.   A link to the bill follows: http://www.legis.delaware.gov/BillDetail?LegislationId=25794
• Senate Bill 76, legislation which would impose apprenticeship requirements on contractors and subcontractors doing construction work for the State of Delaware, was introduced on May 11.  The New Castle County Chamber, ABC Delaware and other business organizations oppose the measure.  The bill was table in committee on Wednesday, May 17.  The sponsor is seeking an amendment to satisfy certain concerns expressed by DelDOT.  A link to the bill follows: http://legis.delaware.gov/BillDetail?LegislationId=25712
• HS 1 to HB 1, was released from the Senate Labor Committee on Wednesday, May 18.  The legislation would bar employers, or third party agents in the hiring process, from asking for salary/compensation history of applicants prior to a formal offer of employment being made. Following its release from committee, three amendments were introduced and placed with the bill.   A link to the bill follows:    http://legis.delaware.gov/BillDetail?legislationId=25664
• Senate Bill 20 (Lavelle), which constitutes the second leg of an amendment to the Delaware Constitution, passed the House on May 18, completing the requirement to become a part of the Delaware State Constitution.  The language requires a two-thirds vote in order to shift any new operating expenses to the Transportation Trust Fund.   A link to the bill follows: http://www.legis.delaware.gov/BillDetail?LegislationId=25419
• Senate Bill 10 (Marshall): Legislation which would increase Delaware’s minimum wage by $2.00 per hour in increments of 50 cents per year between 2017 and 2020,  and would index future increases to the COLA under the Social Security Act, remains in the Senate Labor Committee, currently lacking two votes for release.  There is an amendment, SA 1, which would strike the COLA indexing language from the bill, which the bill’s sponsor introduced himself.  A link to the bill follows:  http://www.legis.delaware.gov/BillDetail?LegislationId=25378
• Governor Carney releases outline of his economic development reorganization proposal.  DEDO is slated for elimination as an independent cabinet department.  Certain functions and personnel would be shifted to the Department of State (small business and tourism promotion).  The remainder would reside with the public-private partnership.

Budget Mark-Up Commences

After the close of session yesterday, May 18, the General Assembly commenced a two-week budget mark-up break.  They will return on Tuesday, June 6 to regular legislative session.  While the four caucuses and the administration work to negotiate a revenue package, a number of substantial issues continue to occupy the General Assembly. 

The Chamber maintains a daily presence in our state’s capitol during legislative session and during budget hearings.   We will be monitoring the progress of budget discussions and will be working to advance the interests of our members and the principles of sound public finance.  

Budget Background

Following the Monday, May 15 meeting of the Delaware Economic and Financial Advisory Council (DEFAC), revenue estimates indicated an additional $13 million in available revenue for FY 2018 (beginning July 1).  This additional revenue was the result of reversions of unspent funds in certain state accounts.  However, the overall revenue trend remains negative, as is evidenced by a projected $24.5 million decline in personal income tax revenue for FY 2018.   At this point, the structural revenue shortfall stands at approximately $382 million.   
 
Yesterday, the House passed legislation which is projected to bring in an additional $116 million in revenue.  House Bill 175 would create a new, higher, corporate franchise tax bracket for companies with $750 million or more in revenue or assets, and would increase the tax at the for the second highest bracket as well. The new top bracket would not apply to companies which have less than $250 million in either category, even if that company crosses the $750 million threshold in one of the two categories.    The top corporate franchise tax would increase from $180,000 per year to $250,000.  At the second highest bracket, the rate would be $200,000 per year.   HB 175 passed the House by a vote of 39 – 1 (one absent) and currently awaits committee assignment in the Senate. 

As part of the negotiations among the four caucuses and the Carney Administration, a bi-partisan agreement was reached to eliminate Delaware’s estate tax.  Currently, estates worth more than $5.49 million are subject to a tax of up to 16 percent.  The tax generates an average of $5 million per year for state government.  It is however, a difficult tax to forecast.  Legislation to repeal the tax, House Bill 16, passed the House yesterday.  It currently awaits committee assignment in the Senate. 

Assuming passage of House Bill 175 (corporate franchise tax increase) by the Senate, the General Assembly will still need to pass measures to generate an additional $85-$100 million in revenue, as well as enact between $180 -to- $200 million in cuts in order to reach a balanced budget for Fiscal Year 2018.   Additional revenue proposals are expected shortly.  The Joint Finance Committee will be considering cuts over the next two weeks.

The Chamber supports the elimination of the Delaware Estate Tax.  Concerning corporate taxes and fees, the Chamber recommends careful monitoring of the impact that increases have on our state’s status as the jurisdiction of choice in which to incorporate.    

Coastal Zone Act Legislation Introduced

On Thursday, May 18, House Bill 190, legislation which would encourage the redevelopment of vacant industrial sites in the Coastal Zone was introduced. The bill, sponsored by Representative Ed Osienski (D-Scottfield) would: Allow 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. 

Amending the Coastal Zone Act to allow for sustainable uses and redevelopment has been a longstanding legislative agenda item of the New Castle County Chamber of Commerce.

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.

Amendments to the Coastal Zone Act 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 faces opposition from certain corners of the environmental community.  At the same time, there are interests in the business community which would prefer more robust amendments to the Act.  Legislation such as this, by its nature, will not please all stakeholders – and no one will get entirely what they want in the legislation.  There is bipartisan co-sponsorship of the measure and bi-partisan support, which should bode well for its passage.  However, more will be clear after the opposition has an opportunity to coalesce.   

Data Breach Legislation Introduced

HB 180, legislation intended to combat data breaches, was introduced on Tuesday, May 16.  The legislation which has bi-partisan sponsorship and the support of the Governor (whose office issued a press releases indicating their support) is generating some questions and concerns among some significant employers. 

The bill’s synopsis 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. 

The Chamber is gathering input on the bill to submit to the Governor’s Office and the sponsors of the legislation and will also be analyzing the legislation to determine an initial position.   With prior legislation in this issue area, the Chamber has generally found that federal rather than state legislation is preferable to combat these issues.  A national standard, rather than a 50-state patchwork of varying requirements works more efficiently.   


Apprenticeship Legislation Tabled in Committee, NCC Chamber and other Business Organizations Oppose the Measure

SB 76, legislation which would impose apprenticeship requirements on contractors and subcontractors doing construction work for the State of Delaware, was introduced on May 11.  The New Castle County Chamber, ABC Delaware and other business organizations oppose the measure.  The bill was table in committee on Wednesday, May 17.  The sponsor is seeking an amendment to satisfy certain concerns expressed by DelDOT.

The New Castle County Chamber of Commerce expressed the following concerns:

1. It would favor union over merit shop contractors in the state bidding process.
2. The bill would have the effect of shrinking the pool of qualified bidders.  Less competition of state work would translate to higher costs for Delaware taxpayers in an already cash-strapped budget environment. 
3. The bill could negatively impact the ability of smaller contractors and women-owned and minority owned firms to bid on work. 

Associated Builders and Contractors of Delaware made the following observation regarding this legislation: “New Castle County has tried this requirement and since its inception Delaware contactors winning county work has dropped from 51% to 35%.  Since its inception, New Castle County has awarded $31 million in construction bids to out of state contractors.  Currently the State of Delaware without this requirement, awards 80% of its construction projects to Delaware contractors.”


Salary History Bill

House Substitute 1 to House Bill 1, was released from the Senate Labor Committee on Wednesday, May 17.  The bill would bar employers, or third party agents in the hiring process, from asking for salary/compensation history of applicants prior to a formal offer of employment being made.  As has been discussed in prior updates, after input provided by the New Castle County Chamber of Commerce, the Delaware State Chamber of Commerce, employment law attorneys and human resources professionals, the bill’s sponsor made substantive changes to her original legislation (HB 1). 

Following release from committee, three amendments were introduced and placed with the bill.  The amendments and their synopses follow:
 
Senate Amendment 1 to HS 1 to HB 1   This amendment does the following: 1) 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.

Senate Amendment 2 to HS1 to HB 1: This Amendment limits the applicability of this section to external applicants for employment.

Senate Amendment 4 to HS 1 to HB 1: This Amendment lowers the civil penalty for violating this section so that it is similar to the penalties for violations of other labor laws.

A Senate Amendment 3 was introduced, but stricken.

More information on the amendments and the bill will be forthcoming.

Transportation Trust Fund Constitutional Amendment Passes Second Leg

Senate Bill 20, which constitutes the second leg of an amendment to the Delaware Constitution, passed the House on May 18, completing the requirement to become a part of the Delaware State Constitution.  The language requires a two-thirds vote in order to shift any new operating expenses to the Transportation Trust Fund.  

Currently, Transportation Trust Fund resources, which ideally should be solely dedicated to capital infrastructure costs, are also spent to cover all, or substantially all, of the operating budget for the Delaware Department of Transportation.  Raising the threshold required to shift new operating expenses to the Transportation Trust Fund will aid in preserving the fund’s resources for capital infrastructure. 

Constitutional Amendments require passage by a two-thirds vote in both houses in two consecutive General Assemblies.  The first leg of this proposed constitutional amendment passed as a part of a deal brokered in order to pass an infrastructure funding package in 2015. 

The New Castle County Chamber of Commerce supported this Constitutional Amendment on its first and second leg.  The removal of operating expense obligations from the Transportation Trust Fund has been a long-standing legislative priority of the Chamber.  

Minimum Wage Legislation Remains in Committee

Senate Bill 10 (Marshall), legislation which would increase Delaware’s minimum wage, remains in the Senate Labor Committee, lacking two votes necessary for release.  The legislation would increase Delaware’s minimum wage (currently $8.25 per hour) by $2.00 per hour, in increments of 50 cents per year, between 2017 and 2020, and would index increases after 2020 to the federal Social Security Act Cost of Living Adjustment (COLA).  

In testimony before the Senate Labor Committee on March 22, Chamber lobbyist Joe Fitzgerald entered the following reasons for the Chamber’s opposition into the record:

1. The minimum wage is designed to be an entry level wage.  Increasing it has the effect of increasing labor costs throughout the wage scale.
2. Small businesses in Delaware are already struggling with substantial health care costs and regulatory compliance costs due to the requirements of the Affordable Care Act.  They cannot afford yet another increase in the cost of doing business.  
3. There is currently a $385 million structural shortfall that needs to be closed in order to balance the budget for Fiscal Year 2018.  In environment where State government will most assuredly be seeking increases in taxation and fees, raising payroll costs is both unfair and inadvisable.
4. The Chamber is particularly opposed to indexing future increases in the minimum wage to the COLA under the Social Security Act, or any other metric.  Any statutorily imposed increases in the payroll costs should only be undertaken with the benefit of a vote by our elected representatives. 

On April 6, the sponsor of Senate Bill 10, Senator Marshall, introduced Senate Amendment 1.  Senate Amendment 1 would strike the language indexing increases after 2020 to the COLA (under the Social Security Act).  The amendment has been placed with the bill.  In the event that the legislation gains release from committee, the amendment would require approval by the Senate to become a part of the bill (amendments are voted on during the course of a bill’s consideration before the full House or Senate).  

The introduction of Senate Amendment 1, while it would improve the bill slightly if adopted, does not change the Chamber’s position.

Economic Development Reorganization

This past week, the Carney Administration released the following outline of plans to restructure the Delaware Economic Development Office and to establish a Public-Private Partnership to carry out economic development in Delaware:

Function/Mission of Public-Private Partnership

The creation of a Public-Private Partnership (P3) will re-establish the framework for economic development in the State of Delaware.  The P3 will be the primary entity responsible for business recruitment, retention, and expansion; building a stronger entrepreneurial and innovation ecosystem; and identifying and developing a talented workforce.  Specifically, it will be responsible for:

• Statewide business marketing and attraction – to include attracting early stage, technology focused enterprises and entrepreneurs, recruitment of large employers, and expansion of international business opportunities.  It will also develop strategies for marketing Delaware as a business-friendly state.
• Strengthening Delaware’s innovation-based economy – provide support for startups and early stage ventures, focus on high-growth firms and industries, and coordinate with existing Delaware organizations that are already developing this ecosystem
• Talent – work with employers, the K-12 education system, and other workforce related organizations to identify and fill key talent gaps in the State
• Research – conduct continuous, forward-looking analyses on specific industries, trends, and opportunities that could impact Delaware’s economy

Function/Mission of the Division of Small Business Development and Tourism
The Division will be responsible for providing services and outreach efforts related to establishment, retention and expansion of small businesses into local and regional marketplaces, as well as the promotion of local commerce and tourism, to specifically include:

• Support - Provide guidance to small business owners navigating local, state and federal laws and regulations; provide guidance and direction on topics like local incubators, financing programs, and nearby networking events; and render specialized services and outreach to women, minority, and veteran-owned small businesses and entrepreneurs
• Continuing Promotion - Strengthen, market, and promote supplier diversity initiatives throughout state and local government; stimulate public interest and participation in the development of local commerce and tourism
• Management – Administer Delaware’s publicly-funded economic development incentive programs, such as the Strategic Fund, Main Streets program, and Blue Collar Workforce Training grant program. 

Cost: $2 million / year.  For FY 2018, the funding will be authorized through the Strategic Fund with certification from the Director of OMB.  In subsequent years, the funding will be part of Administration’s Capital plan.  All public contributions should be contingent on private sector matching funds.

Timing 
By June 30, 2017:

• Pass budget and bond bills with needed language

Q3 / Q4 2017:

• Development of P3 articles of incorporation
• Appointment of board members
• Apply for federal 501c3 status
• Draft and approve P3 by-laws
• Hire P3 Chief Executive Officer
• Certify private sector contributions and release public funding to P3

Q4 2017 / Q1 2018:

• P3 begins hiring staff, strategic planning

Q1 / Q2 2018:

• Draft and pass legislation formalizing the elimination of DEDO and creating new Division within the Dept. of State.
• Include public funding for P3 in FY 2019 Capital plan