Delaware’s goods-producing sector, like manufacturing and construction, declined 24% from pre-recession levels to 2012! The rest of the country was only down 2% and is on the way to full recovery. There are policy barriers that can be fixed to get manufacturing and construction moving. I offer a few suggestions below:
We need to reform our three vocational technology schools that have transformed into quasi-college preparatory schools. We also need to provide parents a way out of poor performing schools with Education Savings Accounts. Parents would be able to keep their children in their current school or choose another—including private school options.
Companies making actual products are required to get entrance permits from the Department of Transportation, emissions permits from DNREC, and plan approval from the State Fire Marshalls’ Office. In Delaware we have two excellent examples of how government can do customer service well. Both the Incorporation Center and the Division of Motor Vehicles have built efficient and user friendly systems for their clients. How about transferring those skills to departments that now delay permit requests and who treat applicants, at best, as an annoyance, and, at worse,as the enemy?
Industrial companies in Delaware pay 25% more for power than the average state. DNREC is about to increase electric bills by up to $1 million a year for some companies by changing the target for greenhouse gas reduction from 10% to 53%. Emissions are already down 48% and the rule change is basically being made to increase revenue. See our recent article “The Cost and Benefits of Delaware’s Carbon Tax” for details. We need to kill this rule change.
By 2025, twenty percent of electricity will likely come from out-of-state wind farms that will increase electric rates without bringing jobs to Delaware. We should freeze this part of the Renewable Portfolio Standard until wind power is competitive or we find a way to meet the renewable energy goal cost effectively from power generation in Delaware.
Taking advantage of the regional abundance of natural gas will reduce electric rates and heating bills. This can be accomplished by building a major north-south natural gas transmission pipeline. Pipeline construction is controlled by the Federal Energy Regulatory Commission whose rules dump the cost of construction on the first user and that cost cannot usually be justified. Maine has found a way around the FERC problem. The state buys pipeline capacity from a trading market to lower the amount private companies need to pay. The state can eventually sell the capacity to late adopters. We can leverage the effort regionally by asking gas exporting Pennsylvania and gas poor eastern shore Maryland to join us. We estimate pipeline and power plant construction could add 1000 multi-year construction jobs in Delaware with a larger impact of creating perhaps 2,000 to 3,000 permanent jobs.
We are down to about 7,000 private sector union jobs which is less than 2% of the workforce. Most large manufacturing companies will not move to a state that does not allow workers the freedom to choose whether to join a union. States with Right to Work Laws have faster growing economies and incomes than states without the law. It is time to pass Right to Work Laws.
Contractors working on state projects such as schools and roads must pay their employees prevailing wages. The state surveys local contracting companies to calculate prevailing wage for various job categories. A similar survey is done for the US Bureau of Labor Statistics which has five times as many responses and doesn’t over represent union shops. Using the BLS survey to set wages would leave workers with fair wages but would also save up to $130 million a year to either fill a budget gap or to put more people to work.
Delaware has the highest corporate tax rate in the country when corporate tax on earnings is combined with our Gross Receipts Tax (GRT) on sales. Only five states have a GRT and three of those have no additional tax on corporate earnings. The big problem with the GRT is it has to be paid whether a company is making a profit or losing money. It is a real job killer during a recession when companies need cash the most. We need to phase out the GRT.
We hope the state considers these ideas to rebuild Delaware’s economy and improve the morale of Delaware’s citizens and entrepreneurs.