Government Policy Closed Claymont's Steel Mill

Products made in the EVRAZ Claymont, Delaware, steel mill are less profitable than two other manufacturing facilities in Portland, Oregon, and Regina, Saskatchewan. As prices and volume slipped from foreign competition it was an obvious choice to close the Claymont facility. We estimate the net effect of high electric rates and high corporate tax rates add almost 4% to steel plant operating cost in Delaware. That is three quarters of EVRAZ’s 5.3% before tax earnings in 2011.

Misguided government efforts de-regulated the power industry without building adequate electric generation infrastructure within Delaware. The result is Delaware imports electricity at substantial premiums compared to using in-state generation. Delaware also adopted a regional greenhouse gas tax on Delaware power plants. Electric rates soared and will get worse as coming new rules result in a six-fold increase in the carbon tax.  Industrial electric rates are 36% higher than Canada and 56% higher than Oregon. The US Energy Information Agency ranks Delaware eighth highest for industrial power in the contiguous states. We estimate the Claymont plant pays an $8 million a year higher price for electricity than it would in Portland.

The Markell administration provided development grant money for natural gas pipeline infrastructure to support the construction of a new conventional power plant in Dover. The result is high paying construction and permanent jobs and lower electric rates for everyone in the state. We need similar support for pipeline infrastructure to build at least four more power plants in Delaware.

We have met the 10% carbon reduction goal of the carbon tax and now it just adds cost. The state also requires the use of more expensive wind and solar power. These policies will add 15% to residential and small business power bills over the next decade. About 80% of the renewable power requirement will be met by out-of-state wind farms. Delaware sees no economic benefit when wind farms are built in other states but higher electric rates costs jobs here. Global carbon dioxide emissions have increased 10% since 2007 while Delaware dropped 48%. Enough is enough! Even if we cut carbon emissions to zero it would be a drop in the proverbial bucket. We can’t try to save the world on the backs of blue collar workers like the 375 people losing their jobs in Claymont!

The US corporate tax rate is 38.2% compared to 25.5% in Canada. Delaware’s combined tax burden on the Claymont facility for the Corporate Tax and the Gross Receipts Tax is 12.3% compared to 10% in Saskatchewan, and 7% in Oregon. We estimate taxes are almost $850,000 a year higher in Claymont than they would be in Portland. About $560,000 of the premium is based on Delaware’s Gross Receipts Tax. EVRAZ lost money two out of the last three years but would pay the Gross Receipts Tax anyway, as it is levied on sales, not earnings. The tax drains cash just when it is needed most. Without the Gross Receipts Tax Claymont would be roughly competitive on state taxes with both Portland and Regina. The difference in federal taxes adds $2 million a year to US operations.

The Tax Foundation just released its annual report showing Delaware has the highest corporate tax rate in the country. A big reason is Delaware is only one of five states with a Gross Receipts Tax and a corporate income tax (8.75%). Three of the other states have no other corporate tax and the fourth has lower rates. The Gross Receipts Tax was slated for repeal before the recession hit.    

To be clear, the Markell administration did not create these problems. The Governor’s strong support for new jobs at the Data Center in Newark and the poultry plant in Millsboro in the face of public opposition is admirable. It is time for the Governor to step up and slay some sacred cows if we want to keep, and grow, jobs in Delaware:

·         Repeal the Gross Receipts Tax

·         Repeal Delaware’s participation in the Regional Greenhouse Gas Initiative, the carbon tax

·         Delay increases in the required use of expensive out-of-state wind power until it becomes competitive with conventional power without subsidies

·         Help build natural gas pipeline infrastructure to encourage the construction of new electric generation capacity

·         Encourage our Congressional delegation to lower federal corporate tax rates

Please click on this link to see facts about the EVRAZ Plant power usage costs and taxes and what the tax rate on the plant was in comparision to Saskatchewan and Oregon.                


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About the Contributor

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John Stapleford

John holds a Ph.D. in urban and regional economics (University
of Delaware), M.A. in government and planning (Southern Illinois University) and B.S. in chemistry (Denison University). He is director of the Center for Economic Policy and Analysis for the Caesar Rodney Institute and a professor emeritus of economic development from Eastern University. He most recently worked as an associate director and senior economist with Moody’s Economy.com. John was Director of the Bureau of Economic Research at the University of Delaware and the co-founder of the Delaware Small Business Development Center. He is author of a book, numerous articles in professional journals, and over one hundred applied research monographs.

4 Comments

  • Very well stated, because of Delaware’s size, we sometimes think as if we were a county instead of a State and fail to see the Big Picture on issues.

  • Talk to me. I’m a former employee. A lot of the workers there don’t see the big picture. This article is part of the big picture. I can list the full picture but what’s it matter now. Place is closed and getting tore down. End of an era. Biden didn’t save us like he said he would. Politics played a part in this. Now it’s just a part of steel history. Ashame and sad. Working on mill equipment is like no other. You have to be cut for it. This area will eventually have no steel mills.