What Are You Doing To Help Delaware?
There is a clear divide in opinion as to what is best for the futures of America and Delaware One camp believes that greater government control and centralization will lead to a society that is both prosperus and failr. This approach depends upon government controlled schools and health care, a web of inefficient government programs and bureaucracies, increased government spending, reduced personal freedoms, and a expanding and crushing tax and debt burden on our citizens.
The other camp believes that America's historical model of individual liberty and freedom of choice, within a stable legal framework, will sustain the incredible prosperity and freedoms our country has enjoyed up to now.
Delaware is following the liberal national model -- adding more and more rules and taxes, failing to educate our children and prepare them for success, and taking away our personal liberties through a growing state administration that ignores the wishes of our citizens and elected officials. Education is not improving, unemployment is high, businesses are hammered by higher taxes and electric rates, crime erupts, regulations are suffocating and expanding, and the detached government is growing
In 2015 we must reverse this decline by sending a strong message to the state's elected officials -- we want more freedom, a smaller and more efficient government, less spending and taxes, less regulation, an education system that cares about parents and children, and a state that encourages economic growth and job creation.
Below are important questions for those in Delaware government to answer. If you would like to participate in this dialogue and Impact Delaware's future, please contact CRI to volunteer or support CRI with your donations.
1. Delaware spends more per student on kindergarten through high school education than most other states -- the 9th highest at an inefficient $18,000 and more per student. The new budget increases education spending by 5% and adds new unproven programs without adding any means for measuring success.
What have you done to reduce wasteful spending on education and get more results for each taxpayer dollar?
2. Delaware education is not performing up to expectations.
Who benefits from a system that each year directly spends over $18,000 per student, from which over 25% will not graduate, that does not provide a workforce with skills required to compete, that has nearly a one to one ratio of support staff to classroom teachers, and whose costly and inefficient programs just generate even more ineffective programs?
3. Until recently more money was spent on education than any other state effort. Now Medicaid expenses are growing faster than education costs.
What effect will out of control Medicaid spending have on resources available for education? Will you transfer state pension costs to counties that will then increase property taxes to pay them?
4. Public schools spend over $18,000 per year per student. Charter schools get much less per student. But how satisfied are the people of Delaware with their public schools? A survey of residents shows 59% rate overall school performance as fair or poor; and 58% of parents would send their children to private independent or religious schools if they could afford it. If public schools were as efficient as charter schools it would reduce the state budget by well over $400 million per year. A recent survey shows that over 70% of registered Delaware voters favor more charter schools and a school voucher system.
What have you learned from charter schools to help public schools better educate our children at lower cost? Why can't parents use most of those funds to send their children to schools of their choice? Isn't this an issue of equal opportunity to quality education?
5. Newark Charter School, which is one of the best performing schools in the state and nation, applied to add a high school. This sparked objections from the ACLU and others. Newark Charter School and others have as many as 10 applicants for each seat. Many families – including minorities - want to send their children to charter schools but they are not available. In 2011 only 1 new charter school was added. There are 22 in Delaware with a total enrollment of about 10,000 students – less than 8 percent of total enrollment.
What are you doing to support current charter schools and add more?
1. Medicaid, which provides medical coverage to low income and disadvantaged people, is the fastest growing state expense and the second highest cost, after education. Delaware has more generous benefits than most states and has the eighth highest Medicaid expense per person in the continental states, because of lax eligibility standards. With state debt continuing to increase, smart changes to eligibility, coverage, and contributions will be needed.
What are you doing to preserve Medicaid for people who truly need it most in Delaware?
2. The state's answer to out of control Medicaid costs is the Delaware Healthcare Innovation plan. This top down plan allows the major interest groups in Delaware's healthcare industry to "coordinate" everything from healthcare records, to the labor market for healthcare workers, to the amount of competition among physicians.
Are you aware that Delaware is moving toward socialized healthcare and aware of how it will impact your family?
1. Delaware's economy is not growing fast enough to support government spending through tax revenue or to reduce unemployment, especially among non-college graduates. Delaware small business, which is the source of 70% of job growth, is swamped by new state and county laws and regulations – over 6000 in the last decade.
What are you doing to stop the flood of regulations and repeal unnecessary government rules?
1. When it comes to jobs in Delaware there are two societies: people with limited education (a high school degree or less) and people with higher education (a college degree or more). People with limited education have been hammered by the economic downturn while those with higher education were less affected. Those with higher education dominate state decision making to the disadvantage of people who have a limited education, thereby creating a war on the poor and middle class.
Education is the primary determinant of employment and earnings. Delawareans with less education have an unemployment rate three to five times greater than workers with higher education. Over half of Delaware's 28,000 unemployed are persons with less education, while only 15% have higher education. More than one-fifth of Delaware's unemployed live in households that fall below the poverty line. The poverty rate for Delawareans with limited education is three to seven times higher than among those with higher education. Only 4% percent of Delawareans with higher education lack health insurance compared to 11% of high school graduates and 22% of dropouts.
The higher education crowd dominates public policy making because they live in a different and more advantaged world. For example, they focus on environment and quality of life issues at the expense of economic growth, and are unwilling to confront Delaware's mediocre public education system.
What are you doing to improve opportunities for people with less education and grow the small businesses that are the largest employers of these people?
2. In response to the worst recession in many years, the policies of the state of Delaware have been mostly counterproductive. The bold leadership necessary to change the long run decline of Delaware's economic fortunes has been absent. Today, total employment in Delaware is exactly equal to what it was in 2007. Industries that continue to lag include manufacturing, construction, and retail trade. Government has added jobs, as has healthcare, but the majority of new jobs are part-time and temporary positions.
The state's response to this crisis has been to raise taxes, increase regulations, support union controls, and waste money on failing green energy initiatives.
What are you doing to make the state more business friendly and encourage job growth?
On Financial Control and Debt
1. The state's politicians have been writing checks that will be impossible to cash. Delaware has an almost $6 billion unfunded healthcare liability to retired state employees. The state pension trust is not fully funded. Legislators have created a Medicaid program with such generous eligibility that Medicaid commitments can't be maintained.
There is an increasing lack of oversight of tax and other money passing through state government in Delaware. The Department of Finance has regulatory oversight on only a minority share of state spending. In 2011, while general fund expenditures were $3.5 billion, overall disbursements through the state were $8.3 billion. Very little supervision is given to the almost $5 billion that comes from special funds, including bond money and Federal grants. All of this while publicly issued state debt continues to increase over $1 billion per year and is nearly $9,000 for every person in the state.
What are you doing to ensure a systematic review of all state expenditures, including ineffective state programs, higher costs imposed by prevailing wage rules, and the extensive use of overtime and other extra pay to employees?
2. Delaware is like the federal government; it spends too much and puts its citizens in increasing debt. A recent report estimates Delaware's debt (publicly issued plus accrued liabilities) is about fourteen and a half billion dollars (one billion is a thousand million dollars). This is almost four times the state's operating and capital budget of four billion dollars for next year. The debt grows every day as the state spends millions more than it collects in taxes and other revenue. In addition, the state spends about $5 billion per year that is not included in the budget or covered by state taxes -- it is funded by Federal and some local sources that will probably not be available as the Federal government and local municipalities are forced to limit spending going forward.
What are you doing to cut unnecessary spending and get Delaware debt down?
We Must Have Answers
The right answers to these key questions will put Delaware on the road to recovering its dire financial condition, improving education, healthcare and public safety, and providing a better quality of life and future for all of our citizens. We believe the discussions among candidates for office in Delaware in 2012 should be focused on these issues – almost to the exclusion of other subjects, most of which can wait. We outline below key issues and suggested solutions for consideration by the voters of Delaware and discussion by the candidates.
Delaware Education: Lagging Performance and Leading Cost
Delaware's children are not adequately prepared to be contributors in an increasingly more competitive, technical society and workforce. Student performance is alarming despite Delaware's cost of education being among the highest in the country. Employers will continue to locate in other states with more qualified workforces; family, teacher, taxpayer and voter dissatisfaction will grow and they will demand more choices.
Student scores over the past ten years have only slightly improved and remain at poor to mediocre levels. Only 32% of 8th graders are rated as proficient in math and 30% proficient in reading (The National Center for Education Statistics).
SAT scores are 41st among all states and the graduation rate for entering high school freshman is 74% compared to 80% in Maryland, 83% in Pennsylvania, and 85% in New Jersey. Spending on education is the 9th highest of all states. Nearly one-third of the annual state budget, or $1.1 billion, goes to education, and the total budget is over $2 billion when district and federal funding is included. Another way of looking at cost is the average daily expense per attending student: Delaware spending per student is 22% higher than the national average and the total cost per student per year is over $18,000 (some say it is almost $23,000).
Families will vote with their feet while the underperforming education experience continues: parents with financial resources will enroll their children in private school or leave Delaware for neighboring states with better performing schools; enrollment in charter schools, already up 230% (which is less than it should be due to difficulty securing approval from school districts for new or expanding charter schools), will continue to grow; the economic and social gap between those who have or do not have a high school degree will continue to grow; and Delaware will lose employers who want better schools and less restrictive labor laws.
Corrective actions should focus on: curing the lack of results in student improvement; reduction of the large bureaucracy (almost a one-to-one ratio of support staff to teachers); better management of education costs and funding; and switching the misplaced focus on teacher accountability to more accountability of administration, the state education department, and unions, with their costly work rules and programs. The current solution -- spend more, hold only teachers accountable, and blame families -- does not work.
The Delaware legislature needs to quickly give families the ability to control tax dollars set aside for their children and transfer those dollars to the institution they choose. It should also free teachers, through the Public Employee Freedom Act, by allowing them to opt out of paying union dues (and saving about $900 per year).
We should enable continuous improvement in quality by having schools compete for students, and reduce the cost of education by reducing the size and complexity of state and district bureaucracy.
Local communities closest to the classroom need to be relieved of imposed regulations and directives that take focus away from students and emphasize the system. Families, teachers, boards of education and administrators need freedom to work collaboratively to select and be accountable for curriculum and learning strategies that best fit their students' needs. The state administration and legislature should give teachers the right to choose whether to be in a union or not, and preserve the 10th Amendment by avoiding federally mandated programs that require restrictions or commitments in exchange for funding.
Delaware Financial Mismanagement
As with many other states, Delaware's government is increasingly irresponsible with its money. The state has made commitments to citizens and employees that cannot be met. It is relying on borrowing and on Federal government funds more than ever. There is an overall lack of due diligence to how and where state funds are being spent.
Without consideration of future projected obligations, the state's politicians have been writing checks that will be impossible to cash. Most astounding, the state has incurred an almost $6 billion unfunded healthcare liability to retired state employees. The state pension fund has dropped from 103% funded to 94%. Legislators have created a Medicaid program with such generous eligibility requirements that Medicaid commitments are consuming the state budget and can't be maintained.
There is an increasing lack of oversight of tax and other money passing through state government in Delaware. Spending through the general fund is monitored by the state Department of Finance. But the Department of Finance has regulatory oversight on only a minority share of state spending. In 2011, while general fund expenditures were $3.5 billion, overall disbursements through the state were $8.3 billion. Very little supervision is given to the almost $5 billion that comes from special funds, bond money, and Federal grants.
Despite payroll records being totally electronic, the state has no systematic review of the use of overtime and other pay to employees (e.g., shift differential, uniform allowances). Nearly 40% of all staff in the Department of Health and Social Services received overtime and other pay in 2010, as did 100% of employees in Safety and Homeland Security. Hundreds of state workers more than doubled their salaries through use of overtime and other pay supplements. All of this while state debt continues to increase at over $1 billion per year and is nearly $9,000 for every person in the state.
The responsibility of the Joint Finance Committee, the Department of Finance, and the state Office of Management and Budget needs to be legislatively extended to the 60% of state spending that currently goes without systematic oversight. As in private companies, state software that is used to manage day to day financial transactions should be modified to automatically identify potential abuses of sensible financial management (e.g., overtime pay that exceeds 20% of an employee's salary).
Delaware Over-Spending and Debt
Delaware is like the federal government; it spends too much and puts its citizens in debt. We must cut unnecessary spending and drive economic growth to get out of the hole.
A recent report (State Budget Solutions) estimates Delaware's debt is about fourteen and a half billion dollars (one billion is a thousand million dollars). This is almost four times the state's operating and capital budget of four billion dollars for next year. The debt grows every day as the state spends millions more than it collects in taxes and other revenue. In addition, the state spends about $5 billion per year that is not included in the budget or covered by state taxes -- it is funded by Federal and some local sources that will probably not be available as the Federal government and local municipalities are forced to limit spending going forward.
This state debt estimate adds current state funded debt of almost eight billion dollars, plus unemployment insurance loans, and unfunded future pension and retiree healthcare liabilities. Just the funded portion – eight billion dollars -- adds up to $9,000 for every citizen in the state (Delaware ranks 7th highest in debt per capita in the nation). Add this to the federal debt of fifty thousand dollars per person, and a family of four in Delaware owes almost two hundred and forty thousand dollars to government lenders -- and that does not count local town and school debt and the enormous pension and healthcare payments still to come.
Government spending is out of control. With below average growth forecast for Delaware's economy over the long-term, the state will not be able to "outgrow" this debt through major increases in tax revenue.
State government must act seriously and quickly to counter this looming debt. It should cut unnecessary spending -- like subsidies for unproven energy companies; restructure our future liabilities -- like state pensions, Medicaid, disability, and other entitlements; and drive business and job growth through smaller government, less regulation and lower taxes.
Thwarting Economic Development
In response to the worst recession since WWII, the policies pursued by the state of Delaware have been mostly counterproductive. Bold leadership necessary to change the long run course of Delaware's economic fortunes has been absent.
Since 2007 the Delaware economy has been in a swan dive. Today, total employment is down 20,000, with net job losses in manufacturing, financial services, professional and business services, and retail trade. Government has added jobs, and healthcare has been the growth industry. Almost 16,000 more Delawareans are unemployed even though the state's civilian labor force is down by over 6,000 persons.
The state's response to this crisis has been wrong. Rather than cutting back on state spending, the state has raised taxes. The gross receipts tax was raised almost 34%. This tax is levied regardless of whether a business has a profit or a loss. It impacts almost every industry in Delaware, including manufacturing, wholesale, restaurants, retail trade, contractors and lessors.
It is the equivalent of a 6% sales tax and over time takes its toll on companies.
Following the same logic, the state also increased the corporate franchise tax, reinstated the estate tax on wealthy households, initially raised and extended the scope of the public utility tax, and left one of the highest corporate income tax rates in the nation unchanged.
The state raised the top personal income tax rate—applied to household income over $60,000—from 5.95% to 6.95%. The result has been a drop in income tax filings by higher income tax households as they flee Delaware or change their place of primary residence to avoid this almost 17% tax hike.
Strong labor unions have left in place mediocre schools, crushing work rules, and a prevailing wage rate for government contracts that is 40% above market. State development funds have been steered to high risk alternative energy projects such as Fisker Motors and Bloom Energy. Meanwhile the labor market for Delaware residents with less education has been devastated.
Delaware's economy is projected to grow more slowly than the nation for the coming decade. To change this will require bold leadership that sets Delaware apart from the pack and encourages private sector investment and development. High energy costs and faltering public schools must be addressed, taxes made more competitive, and a right to work law enacted. The long term financial problems of the state government must be addressed, including unfunded healthcare liabilities to state employees and exponential increases in Medicaid spending.
Over- Regulation Threatens Liberty and Jobs
The continuing flow of new regulations from state and local governments, in the interest of some people's view of an "ideal quality of life", is threatening our personal liberties and slowing economic growth and job creation.
An early initiative to "improve our quality of life" was New Castle County's Uniform Development Act (UDC) land use regulation. The UDC sought to manage growth, "control density," "preserve agriculture," and "protect (who?) from "adverse consequences" of development. It was a clear no-growth, quality of life enhancing regulation.
Since its passage in 1998 job growth in NCC has ground to a halt. Residential construction has collapsed and, with little growth in the tax base, property taxes and user fees have soared. The UDC, for whatever modest impacts it has had on the quality of life, has come at great economic cost.
Recently the quality of life thrust has been centered on green energy. The state enacted an aggressive Renewable (Energy) Portfolio Standard, requiring power companies to shift to more expensive solar and wind power sources. Delaware also joined RGGI, a regional carbon cap and trade program that has cost power companies in the 10 member states billions of dollars in fees from 2009 to date. These costs are passed on to electricity consumers, as are the costs of complying with "green energy" supply mandates and aggressive subsidies to "clean energy" companies like power cell producer Bloom Energy. Green energy policies are driving up the cost of electricity and reducing Delaware's ability to attract businesses that provide good employment opportunities.
Public education in Delaware is tightly controlled by a large teachers' union. Despite mediocre performance that seriously disadvantages children in public schools, any serious efforts at reducing unnecessary rules and work practices in public education have been thwarted. Delaware parents with limited education are knocking down the doors of the available charter schools. But the Delaware State Education Association, the teachers union, favors more regulations to slow the growth of charter schools.
Many other state and local regulations – 6000 of them in the last decade – have been enacted to control and limit the actions of individuals and businesses – in zoning, transportation and road access, land and environment management, labor and work practices, etc. A small businessman recently reported the need to deal with six different government agencies and pay an unnecessary private inspector to get approval for additions to his manufacturing plant. Another advised he is moving to Texas to escape over-regulation in Delaware.
The state administration should immediately adopt a standard of being "friendly" to individual liberty and economic development. It should begin to change its culture, operating practices, and people toward these objectives – in a real, not political, way. It should start and maintain an ongoing, comprehensive, and serious review of all state laws and regulations, evaluating them against a few defined standards of cost versus benefit, effect on economic growth and jobs, personal freedom, and preservation of property rights. This review should be managed by two co-managers, one from each political party, and should employ outside professionals to help develop the review process and complete the review. Findings and corrective actions should be reported to the public weekly. The review process should be shared with county and local governments, and similar reviews there should be supported by state funding. Every new proposed law should be scrutinized in a similar way before being enacted. Sunset laws, to extinguish current and new laws after a certain period, should be enacted.
A Balanced Market Based Energy Policy
In the last decade legislative and regulatory initiatives have been added to the basic task of providing inexpensive, reliable electric power. Whether emphasis is on cost or the environment, results have been disappointing. New regulations have had almost no positive impact on the environment, will add $750 million a year to electric bills, will cost Delaware 5000 to 6000 jobs, and will reduce electric service reliability.
As recently as 2003, Delaware electric prices equaled the national average. Delaware residents are now paying 34% more for electricity than the national average and our industries are paying 48% more. Historically, most electric companies both generated and distributed electricity in a regulated environment that guaranteed profits but also capped prices. In 2006 the generation portion was moved from local regulation to regulation by the regional grid manager, PJM Interconnection, which is run by and for power companies.
Prices were supposed to go down after de-regulation of electric generation, but government initiatives lead to unintended consequences. Now, every hour generators make bids to provide power and the highest price bid accepted becomes the price for every watt generated in that hour by every plant. Peak pricing can now be six times costlier than average. There are also three year advance bids to promise base load capacity and generators receive an extra fee to participate. There are additional penalties for causing grid congestion and Delaware is a big offender, because it imports 60% of its power from other states. Building generation capacity in Delaware would eliminate the high congestion costs in long and short term power markets. Other state policies established new programs, such as regional cap and trade permit auctions and the required use of expensive wind, solar, and fuel cell power. These programs will drive electric prices higher. At a minimum, they could raise electric rates $310 million a year or 18% by 2025 and will cost electricity consumers $2.3 billion between 2017 and 2025. Those costs will reduce employment by over 2000 jobs and will lower wages by $944 a year for each worker. Revenue from the regional cap and trade program was to be used for government financed energy saving programs, but the funds have largely been wasted. Alternatively, natural gas fired generators can improve air quality ten times faster than renewable sources for the same investment and will lower electric rates while improving service reliability.
1) Assist natural gas pipeline expansion and encourage private industry construction of new advanced natural gas electric generating capacity in Delaware.
2) Repeal regional cap and trade and the required use of expensive and un-reliable wind, solar, and fuel cell power.
3) Encourage municipal utilities to either allow electric generating source choice or to sell their utilities to the Delaware Electric Co-op, which sells power for 25% less.
Reverse the "Green" War on the Poor and Middle Class
Environmental groups always claim the moral high ground as they agitate for cleaner air and water and brand everyone who opposes them as polluters. They are willing to accept any cost and use any means to achieve their goals. One result is a "green" war on the poor and middle class.
Consider these moral imperatives that environmentalists ignore:
- Support for corn based ethanol in gasoline, with limited if any environmental benefits, has raised global costs at least 20% for the grains that provide 87% of the world's food, forcing over 100 million people below the minimum subsistence level.
- Requirements for expensive alternative energy raises the cost of power, services, and manufactured goods, with most impact felt by those who can least afford the cost
- A blind fight against the use of clean burning natural gas and nuclear power that will reduce pollution and greenhouse gas emissions faster and cheaper than alternative energy is actually delaying environmental gains
- Forced, marginal new regulations based on weak and exaggerated scientific claims are threatening energy reliability, causing higher power costs, and losing millions of jobs
- Support for un-wise government investments in "green" energy startup companies force electric ratepayers and tax payers into becoming involuntary venture capitalists when they can least afford this very high risk
Environmental groups attack the power of "Big Oil" and "Big Chemicals". But now Big Green, made up of powerful environmental lobbying groups and some elected, regulatory, academic, and appointed officials, have control. Legislation and regulations are routinely passed using questionable tactics. Consider a few examples in Delaware:
- Introduced and passed the billion dollar Fuel Cell Tariff, without broad notice to the public, in the last few days of the 2011 legislative session
- Approved $70 million in capital expenses for energy saving projects for government buildings through a non-government organization outside the transparent and competitive capital budget process
- Adopted automatic Delaware compliance with any extreme new regulations issued by the California Air Resources Board without legislative approval, after a single public hearing
- Adopted a complex subsidy process to hide the true cost of renewable energy
- Is using questionable sea level rise data to override county control of land use decisions
1) Work with the Federal government to repeal EPA restrictions on coal fired electric generating plants and mandated ethanol use.
2) Repeal state regional cap and trade, required use of wind and solar power, and automatic adoption of California environmental regulations.
3) Assist natural gas pipeline expansion and encourage private industry construction of advanced natural gas electric generating capacity in Delaware.
4) Require economic impact studies and legislative approval of new environmental regulations, and make all existing rules subject to automatic "sunset" and review.
The Growing Threat to Delaware Medicaid
Medicaid, which provides medical coverage to low income and disadvantaged people, is the fastest growing state expense and the second highest cost, after education. With state debt continuing to increase, smart changes to eligibility, coverage, and contributions will be needed to preserve Medicaid for people most in need.
Delaware will spend $680 million on Medicaid in the 2012 fiscal year, 40% higher than the $487 million spent in 2010. The federal government also spent over $700 million on Medicaid in Delaware in 2010. Delaware has the eighth highest Medicaid expense per person in the continental states, according to the Kaiser Family Foundation.
Delaware has more generous benefits than most states, with no co-pays for many medical services. The state also covers a wider range of people. For example, Delaware is only one of eight states paying Medicaid for childless working adults (and two of those eight don't accept new participants). Almost one in four Delawareans receive Medicaid assistance. Just providing benefits more in line with the national average would save Delaware over$100 million a year.
By accepting federal stimulus money, Delaware agreed not to reduce income eligibility requirements or enrollment policies that were in place on March 23, 2010. State and federal coverage requirements and mandates continue to drive up the cost of Medicaid and place the program in danger for all.
Medicaid coverage and costs are complicated. But the state should move aggressively to get eligibility and coverage more in line with national standards, and introduce more personal responsibility into Medicaid use through co-pays and income limits.
Caesar Rodney Institute 2015 Approved Policy and Advocacy Areas
CRI has officially released its 2015 approved policy and advocacy ideas. To view the full list of what areas of policy CRI will be focusing, click HERE.
Which do you prefer, a tax increase or a reduction in state government spending?
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