July 19th, 2013
The First Session of the 147th General Assembly Comes to a Close
In the early morning hours of July 1, the first session of the 147th General Assembly came to a close. The freshmen lawmakers in this class were initiated in a year dominated by major issues and challenging decisions. Following a running start in January which featured a contentious debate over legislation governing the General Assembly’s role in a potential deal at the Port of Wilmington, marriage equality, death penalty repeal, a gun control package, rent justification and transgender antidiscrimination all came before the legislature. Taken alone, each issue could set the tone for a session; taken together they made for the most challenging and dynamic combination of bills in recent memory. As is always the case though, the session ended with the General Assembly accomplishing its constitutional obligation to pass a balanced budget.
New leadership at the helm in both houses deftly navigated their chambers and caucuses through the session. Senator Patricia Blevins (D-Elsmere) took over as the president pro tem of the State Senate in January. A consensus building leader with two decades of experience as a legislator – as well as experience in leadership as a whip and majority leader, Senator Blevins’ received compliments from colleagues and observers alike for her open-door leadership style. Another legislative veteran, Senator David McBride (D-Hawk’s Nest) served as majority leader. A highly organized and efficient floor manager, Senator McBride was key to handling the volume of complex and controversial issues that came before the Senate this year while still engaging in more routine legislative business. Senator Margaret Rose Henry (D-Wilmington) once again served as whip. In the House, former majority leader Representative Pete Schwartzkopf (D-Rehoboth Beach) was elected speaker, replacing Robert F. Gilligan (D-Sherwood Park) who retired from public office at the end of last session.
A retired Delaware State Police Captain and troop commander, Speaker Schwartzkopf ably guided the House through a turbulent year. Affable and approachable, there was still no doubt that the speaker was in charge. Former whip, Representative Valerie Longhurst (D-Delaware City) was elected majority leader. Her leadership garnered favorable reviews from colleagues and observers alike. She managed one of the most challenging agendas confronting a first year majority leader very well by all accounts. The House majority leadership team is completed by Representative John Viola (D-Bear).
Leadership in the minority includes Representative Daniel Short (R-Seaford) as House minority leader, Representative Deborah Hudson (R-Fairthorne) as House minority whip, Senator Gary Simpson (R-Millsboro) as Senate minority leader and Senator Greg Lavelle (former House minority leader, R-Sharpley) as Senate minority whip
The Budget and Revenues
In keeping with their constitutional obligation to pass a balanced budget, the General Assembly approved a $3.7 billion operating budget for FY 2014 (which began July 1). Budget growth was somewhat constrained at 3.7 percent. The administration’s budget proposal, introduced in January, called for a 3.5 percent increase in spending. The capital budget (bond bill) comes to $477.8 million. This year’s grant-in-aid totals $44.7 million. The grant-in-aid budget is the budgetary mechanism by which the State of Delaware provides funding to fire companies and other community non-profit organizations.
Due to fiscal concerns for the coming fiscal year and outlying years, the Markell Administration pressed for a revenue package mid-session. A number of tax increases and extensions were enacted in March.
In an unusual move, revenue bills were dealt with in March rather than later in the session. In 2009, in order to stem a greater than $800 million structural budget deficit, the General Assembly and the Markell Administration raised taxes by some $150 million. The New Castle County Chamber of Commerce led an effort to place sunset provisions on those tax increases. The rates were scheduled to sunset at the beginning of FY 2014 (July 1, 2013).
At the outset of this session the Administration determined that they could not afford to allow the FY 2010 (July 1, 2009) tax rates to sunset and return to their previous levels. As a result, as of July 1, the rate on personal income will fall slightly from 6.75% to 6.6% as opposed to returning to the 2009 rate of 5.9%. Gross receipts tax rates will fall by 1% with additional carve-outs for manufacturers. The monthly revenue exemption for a number of small businesses will be increased. Corporate income tax and franchise tax rates will not go down. The sunset on the estate tax, at the state level, was repealed. The estate tax is levied against estates that are valued at $1 million or more. The three counties of Delaware charge different estate tax percentages; however, all three counties keep them around a general range. If the property is assessed below $3.5 million, the estate tax hovers around 7 percent. For properties of greater value than $3.5 million, the estate tax is around 10.4 percent. Efforts by the New Castle County Chamber of Commerce to attach new sunsets to the governor’s revenue package did not garner sufficient legislative support.
Proposed Additional Tax and Fee Increases
In early June, a tentative revenue package was floated at Legislative Hall designed to direct about $80 million in additional revenue toward infrastructure projects. While formal legislation was not drafted, ideas discussed included a 5-cent per gallon increase in the gas tax, higher motor vehicle document fees, increases in tolls and a tax on vacation rentals in Delaware’s resort communities. Insufficient support in the General Assembly and concerns on the part of elements of the business community ultimately forestalled these proposals.
Bottom Line Business Issues
Early this session, Senate Bill 6, legislation which would have increased Delaware’s minimum wage to $8.00 per hour effective January 1, 2013 and to $8.75 per hour on July 1, 2014. The original legislation also would have indexed Delaware’s minimum wage to the cost of living adjustment (COLA) under the Social Security Act and would have required that Delaware’s minimum wage be at least $1.00 higher than the federal minimum wage prospectively. The New Castle County Chamber of Commerce opposed this legislation vigorously in the Senate. In March, the Chamber’s lobbyist, Joe Fitzgerald, testified before the Senate Labor and Industrial Relations Committee in opposition and before the full Senate the following week. The Chamber opposed the legislation based on the fact that employers in Delaware are already facing significant cost pressures due to workers compensation increases, rising health care costs and the pending unemployment insurance surcharge. The Chamber found the indexing language and the requirement that Delaware’s minimum be higher than the federal level particularly objectionable.
In response to the concerns expressed by the Chamber and other business groups, the bill’s sponsor, Senator Bob Marshall (D-Wilmington), amended the legislation to reduce the amount of the increase to $7.75 on January 1, 2014 and $8.25 on January 1, 2015. The legislation passed the Senate by a vote of 11-9.
In the House of Representatives, Joe Fitzgerald testified before the House Economic Development, Banking, Insurance and Commerce Committee on behalf of the Chamber. The bill was tabled (defeated) in committee by a vote of 7-3.
Another cost increase Delaware businesses will be facing in the coming year is a surcharge to be paid with their unemployment tax in order to repay the remaining $71 million balance on a $78.5 million federal loan that Delaware was forced to take in order to shore up the State Unemployment Insurance fund in the wake of the economic crisis of 2009. To implement the plan agreed by the Unemployment Compensation Advisory Council, House Bill 168 was passed.
The legislation increases the taxable wage base from its current level of $10,500 to $18,500, effective January 1, 2014 and links the taxable wage base to a trigger mechanism based on the balance of the Unemployment Insurance Trust Fund as of September 30 of the year prior based on a sliding scale. The higher the fund balance, the lower the taxable wage base.
Based on administration projections, this legislation could pay off the loan by 2015 – the deadline at which higher federal taxes would be assessed in order to recoup the money. Given the current condition of Delaware’s UI Trust Fund, the near-term effect of this legislation will be to increase the taxable wage base to $18,500 on January 1. That will mean an additional cost (surcharge) of $24 per employee on the existing $42 per employee tax (for a total of $66). Another key provision is a one week waiting period for the receipt of benefits to begin January 1, 2014 and sunset (end) January 1, 2017. The waiting period is expected to net approximately $2.3 million in savings per year – a figure that would just cover the current amount in interest due to the federal government this year.
This legislation will avoid an eventual cost of about $350 per employee in 2017 should this loan remain outstanding.
In response to the astronomical 2013 rate increases sought by the Delaware Compensation Rating Bureau in their summer of 2012 rate filing with the Insurance Department and the lowered, but still substantial increase approved by the Department, the Workers’ Compensation Task Force was formed by House Joint Resolution 3 in January. This body, chaired by Lt. Governor Matt Denn, included representatives from business groups, organized labor, the plaintiffs and defense bars and other key constituencies. House Economic Development, Banking, Insurance and Commerce chairman Byron Short (D-Brandywine Hundred) and Senate President Pro Tem Patricia Blevins (D-Elsmere) also participated. The group met weekly between January and May and came to agreements which resulted in House Bill 175, legislation designed to curb rate increases by implementing four key recommendations of the Task Force:
- Place tighter controls on workers compensation medical costs. These recommendations include a two-year inflation freeze on the fee schedule for medical treatment of workers compensation recipients, a permanent reduction in the inflation rate allowed for hospital treatment of workers compensation recipients, and reductions in allowed reimbursements in a variety of medical categories.
- Ensure that insurance carriers’ requests for rate increases receive a high level of scrutiny. These recommendations include the retention of a part-time attorney to represent businesses during the workers compensation rate-setting process, and a system to ensure that insurers are diligently enforcing the state’s medical cost controls.
- Make the state’s laws encouraging injured workers to return to work more effective; and
- Improve the state’s workplace safety program to both increase its usage and ensure that it accurately determines which workplaces are using appropriate safety practices.
The Path Forward
Now that the Capitol is quiet and policymakers and observers alike are busy assessing the full import and impact of what occurred this session, we at the Chamber will continue our commitment to work to bring focus in Dover and in Washington to the issues that effect businesses’ bottom lines.