How does Delaware stack up against the other 49 states, not in size (we can’t compete in that regard) but on a per capita basis? Based on various surveys published in recent years, the state’s rankings are often disappointing. And come to think of it, the “small wonder” promotional campaign (launched in 1982) seems to have disappeared. Delaware a small wonder no more? Melissa Nann Burke, News Journal, 1/5/15.
Surveys can be tricky in terms of the attributes measured and data comparability, but let’s consider some of the results to see what they may indicate. In sum, corrective action appears to be called for in several areas – especially the last one discussed - and it needs to start sooner than later.
FREEDOM –Delaware has experienced significant losses in personal and economic freedom, according to a recently released study, and is now accorded a rank of #43 in this regard. The only less free states are said to be Oregon, Maryland, Vermont, New Jersey, California, Hawaii and New York. Freedom in the 50 states, Delaware, William Ruger & Jason Somers, Cato Institute, 2018.
Dozens of factors are taken into account for this ranking. Among the reasons cited for Delaware’s low standing: Overall tax burden at 9.8% of personal income is “worse than average,” government finances are highly centralized at the state level, no right to work law, relatively strict gun control laws, renewable portfolio standards for utilities, massive legal sector, and stringent asset forfeiture laws.
While this kind of study is interesting, there must be a lot of qualitative judgments in determining how the laws of the several states stack up re all the factors considered. Take the results as a reminder that Delawareans need to scrutinize new or expanded government programs, bearing in mind the adage that “as government expands, liberty contracts.”
STATE ECONOMY – Delaware’s overall economic results (which primarily reflect the efforts of the private sector) have been middling. Although the state’s overall ranking was reported as #19 in a recent study, the results cited (see below) seem to paint a less favorable picture. Which state tops list for having the best and worst economies? Michael Sauter et al., usatoday.com, 8/27/18.
• 5 yr. GDP annual growth rate: +1.3% (20th smallest increase, i.e., a rank of #30) • 2017 GDP: $61.5 billion (9th smallest) • June 2018 Unemployment: 3.9% (tied - 25th highest) • 5 yr. annual employment growth: +1.4% (16th largest increase)
The survey reports that over half of all publicly traded US companies are registered in Delaware, which is attributed to Delaware’s “highly permissive business laws.” Regulatory requirements for business operating in the state are rather onerous, however, and the manufacturing sector has been in a long-term decline.
Rather than firms that export goods and services, thereby generating an inflow of funds into the state, the two top employers in Delaware are reportedly the state government (including agencies) and Christiana Care Health System. Top 5 [DE] employers, M.A. Smith, newsmax.com 2/23/15.
EDUCATION – In terms of spending on secondary schooling, Delaware is ranked near the top (11) with average expenditures per pupil of $14,713 for 2016. Of this total, 1/3 goes for support services (perhaps reflecting the large number of school districts in the state) versus classroom instruction. Education spending per student per state, governing.com, accessed 8/28/18.
Delaware’s secondary schooling quality is ranked somewhat lower (18), reflecting mediocre school test scores (math 34, reading 36). Best states, Education ranking, US News, accessed 8/28/18.
In sum, Delaware taxpayers aren’t clearly getting their money’s worth from the states’ educational outlays. It’s time for a serious look at reducing the administrative bloat at the top and improving educational results.
HEALTHCARE – Delaware’s healthcare quality scores fall primarily in the middle of the pack, i.e., #25 on an overall basis and #21 for healthcare affordability (from a patient standpoint). Nursing home quality is highly rated (6), but the Infant Mortality Rate is abysmal (49). Best states, Healthcare ranking, US News, accessed 8/28/18.
From a taxpayer standpoint, healthcare is a major driver in projected budget deficits. According to a 50-state analysis by the Center for Medicare and Medicaid Services, Delaware’s per capita healthcare spending rate (which includes state and federal government subsidies) was $10,254 or more than 27% higher that the US average. DHSS Secretary Walker sent healthcare spending and quality recommendations to Governor Carney, Delaware.gov, 8/27/18.
The proposed benchmarking system would supposedly help to slow the growth of healthcare spending by creating greater awareness of healthcare costs, but it remains unclear how this would be done without imposing de facto healthcare rationing. State budgeting doesn’t add up, CC of DE newsletter, 4/2/18.
GOVERNMENT FINANCES – The General Assembly must pass a balanced budget every year, and it always manages to do so (although this wasn’t easy in 2017). Yet somehow the state’s debt and liabilities keep growing at a brisk pace. A recent study by “Truth in Accounting” may help to explain why. Delaware finances continue to crumble, statedatalab.org, May 2018.
First, capital expenditures are financed via the bond bill rather than general revenues. Second, the current budget doesn’t include future outlays for post-retirement benefits of state employees except to the extent that said outlays are being covered by contributions to trust funds. Not only are pension benefits underfunded (currently by $1.9 billion), according to this study, but retirement healthcare benefits are being largely ignored (resulting in an unfunded liability of $8.4 billion).
By Truth in Accounting’s reckoning, each Delaware taxpayer’s share of the $10 billion shortfall works out to $30,400. The study gives the state a grade of “F” for financial responsibility, along with 8 other states with a shortfall of $20,000 per taxpayer or more. The other states with failing grades are California, Connecticut, Hawaii, Illinois, Kentucky, Massachusetts, New Jersey and New York.
The implication of this study is clear, namely Delaware needs to take a serious look at how these future liabilities are being recognized and provided for within the overall context of the state’s finances. Most companies in the private sector have taken steps to phase out post-retirement healthcare benefits and replace pension plans with defined contribution (e.g., 401k) plans; it may behoove the state to consider similar action.
Otherwise, the day may come when rising outlays for retirement benefits will force painful cuts in services for younger Delawareans and/or major tax increases.