CRI Focus Areas


State Regulatory Burdens: How Does Delaware Compare?

11/28/2018

The recovery from the 2008-2009 recession has been the longest and weakest since WWII. Typically an upswing in domestic real investment initiates a recovery. The two main components of real investment are residential housing and nonresidential (business) investment. The bursting of the housing bubble explains the extraordinarily slow recovery in housing construction but nonresidential investment has also been slow to recover.   Many economists blame the tidal wave of bailouts, new regulations and changes in policies_OLD that have poured out of government over the last six years for creating a climate of uncertainty for investors. New legislation, such as Dodd-Frank, the Affordable Care Act and changes in environmental regulations and enforcement, make new projects hard to value and compliance problematic and expensive. For new entrepreneurs, who are short of money and time, this is especially true; this may partly explain the precipitous drop in new business formation since 2008.   There is little state governments can do to stem the regulatory flood from Washington, DC but they can help reduce the cost burden by providing information and fast response times to local businesses. Objective measures on how well states perform on this front are few. Recently, Thumbtack and the Kauffman Foundation have conducted surveys of business friendliness. Thumbtack’s membership is an Internet-using small business community so the sample is not random. Moreover, adequate sample size after 2012 does not exist for Delaware. Nevertheless, the results for Delaware (from 2012) and nearby states (from 2014) shed light on where Delaware can improve:   How business-friendly is your state?  DE MD NJ PA VA Overall small business friendliness C C- D D A+ Ease of starting a small business D+ C+ D D+ A- Ease of hiring a new employee A- B+ C F A- Overall regulatory friendliness B D+ C- D+ A+ Friendliness of health/safety regs C- C- C- D+ A+ Friendliness of labor regs A- B- C- D+ A Friendliness of tax code A+ D+ C D A Friendliness of licensing regs A- D+ C- D+ A+ Friendliness of environmental regs D+ D+ B- D B+ Friendliness of zoning regs D+ D+ C- D+ A- Source: Thumbtack/Kauffman Foundation 2014 (all except DE) and 2012 (DE)   Delaware compares well on many measures but several areas stand out for remedial action: ease of starting a business, environmental regulations and zoning regulations.   In addition to compliance, difficulty in getting information, delays in processing applications and the need to hire legal and technical help add to the costs of new business investment. Delaware’s state government does provide some resources for small business startups. There is Start It Up Delaware which has a website with information on classes, networking and programs.   The state economic development office (DEDO) website connects to a list of businesses that cater to the needs of small business. Help for negotiating site selection and permitting is offered but there is no link to a contact. The department of natural resources (DNREC) website has a link to the small business assistance program and a contact. There is the regulatory advisory service but limited specific information (e.g. requirements for dry clearners). Information on time required for permit processing or guidelines regarding turnaround time are not readily available.                  Virginia offers a website Business One Stop. This appears to be an actively managed website that weaves together information across agencies, includes nongovernmental sources of help and adds an array of useful tips for new entrepreneurs. Hotlines and online chat are available. Licensing requirements are listed. Guidelines on the time needed for environmental permitting and the current status of permits are posted online. Contact information for individuals responsible for environmental regulations in each region are available. However, Business One Stop does not have any information on zoning or site selection except the advice to contact local governments.   Virginia also ranks well in Forbes’ survey of states’ business climate. In addition to Business One Stop, there are other government and nongovernment programs listed as resources. Delaware compares well in other surveys, for example, Mercatus Center’s ranking of states’ economic freedom. This survey comments favorably on the court system and some property rights but unfavorably on zoning and asset forfeiture. The bottom line is that Delaware has some clear institutional, legal and regulatory strengths but that some parts of the regulatory bureaucracy should be more responsive to business needs for quick, accurate and complete help and information. These add to the cost of doing business, especially small business and reducing them is a relatively inexpensive way to promote economic growth.    Stacie Beck, PHD CRI Advisory Council Click HERE to see the full survey.


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