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Archive for the ‘Economy’ Category

This week many people will be snowed in for Valentines Day (stay safe on the roads!), but we at CRI are pleased to announce our new Director of the Center for Economic Policy & Analysis (CEPA), Dr. Stacie Beck.

You can visit our website link at www.caesarrodney.org or click on “our staff” in the “About” section on the top right of the page to view Dr. Beck’s complete bio. Dr. John Stapleford, currently a member of the advisory council, left his position as CEPA director in October. Dr. Beck will be responsible for continuing CRI’s economic policy & analysis work and keeping you up to date on the most recent and relevant studies of Delaware’s economic policies. Dr. Beck will be quite busy: with the potential for a 10 cents per gallon gas tax increase, revenue from the casinos drying up and a new revenue stream needed, and the prevailing wage law still in place, CRI will be busy advocating for policies which benefit Delawareans and keep the size of state government in check.

 

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State Treasurer Flowers’ office has posted new economic numbers in the “Delaware mini economic index”as of this November. Here are some of the numbers:

The State’s economic climate over the last 60 days is rated as “Fair”, which is the middle rating. The national growth is listed as “weak”.

The weakness is being led by a slowing housing market. After all, one can only buy so many homes at artificially low interest rates, can we?

There was an increase of 50 Delawareans per week filing jobless claims. This number will likely change when the EVRAZ steel plant in Claymont and the Georgia-Pacific plant in Harrington shut down.

Delaware had 440,172 people in the labor force in August 2013 (Delaware Dept. of Labor). 32,116 were part time, the rest full time. There are 1,600 fewer Delawareans working in August than in July, and likely fewer now than in August when the new numbers come out. The U-3 unemployment rating went from 7.3% to 7.4%, which is about the national average. A few places like CarMax and Kraft Foods are adding some new jobs or expanding on existing ones, but the numbers are small.

Gas prices have been dropping slowly but steadily, to the point where some are wondering if $3 a gallon gas by New Year’s is possible.

When September and October numbers come out, we will post them for you. Overall: Delaware could be in worse shape, but we could be in better shape as well. CRI has been offering ideas and solutions to address our economic growth issues. Visit http://www.caesarrodney.org to learn more.

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By now, many of you, especially those of you who live or work in New Castle County, are aware that Bloom Energy has been, over the last year or so, collecting fees from Delmarva Power ratepayers but not disclosing the cost to consumers; nowhere on people’s utility bills will you see any surcharge for Bloom Energy, though you have already been paying it. The cost? Over $1 BILLION in subisidies from both Delaware taxpayers and Delmarva Power ratepayers, combined. From the original article:

”      Delmarva and Bloom admitted electric ratepayers would be stuck paying above market prices for power. They said it would be worth it because of claimed economic development benefit of jobs at a new fuel cell factory, offsetting higher future electric prices for conventional power, the avoided cost of buying renewable energy credits, and environmental benefits. Two years down the road our predictions are coming true:

·         The cost will be at least three times expected and could go to a half billion dollars over the twenty year life of the project
·         Overall economic development potential will be one third expected and the Delaware solar industry has been decimated by the offsets in Solar Renewable Energy Credits
·         Environmental benefits would have been eight to ten times higher if a conventional natural gas power plant had been built and electric rates would have gone down instead of up”
Some are trying to argue that CRI and those who oppose the Bloom Energy deal are not giving the company time to develop its business model and hire the workers they promised to do. The problem is not just that they are behind; that would in of itself be the least of the problems. CRI has doubts there is any work going on at all in the plant, and an attempt by the News Journal’s Aaron Nathan to visit the site to inspect the plant was denied. Why would Bloom Energy not want Aaron to visit? It’s not like the facility was off-limits to outsiders. Secretary of DNREC Colin O’Mara was allowed to walk into the plant and announce that Bloom Energy was still on schedule to complete its stated objectives of operating their Delaware plant on schedule. Keep in mind the News Journal editorial board still supports the Bloom Energy deal, so it isn’t like Bloom is showing their facility to a hostile entity.
We hope our elected officials learn a lesson and realize that gambling with taxpayer money, even in the name of “investment in the future” “jobs” and “green energy” is not a smart idea. Had Bloom been required to have competed with other companies for the technology (Fuel Cell Inc. is suing Governor Markell and five members of the Public Service Commission for not giving other companies a chance to bid on the contract) and focused more money and time on building the facility and not lobbying, they may have been able to succeed. Instead, as CRI believes, Bloom will begin construction of their fuel cells in Delaware and then realizing the cost it would need to keep the operation going, will cease operations in Delaware and move them elsewhere.  As Dave wrote in “The Bloom Prophecy”:
“The first 6 megawatts of a 50 megawatt power supply contract with Delmarva Power can come from Bloom’s California manufacturing facility.  We expect Bloom will deliver the first 6 megawatts and then will pull out of the contract and abandon plans to manufacture in Delaware so the funds can be invested in India or elsewhere in Asia.  It makes no economic sense to build a manufacturing plant for one large order for fuel cells to be utilized by Delmarva Power.

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Today we will focus on three articles from three different newspapers to explain where the economy is and what to make of news of our recent resurgence. The first article, Article One, is from the Delaware State News, “Chips are down, Dover Downs executives say” (http://bit.ly/15votif).  Delaware’s casinos have suffered heavy losses due to two main factors: high casino taxes at 43.5% (along with 11% for the horsemen at the racetrack and 7% to vendors) and, required by law, high payouts to slot-players.

“With $60 million in debt, declining share prices and consistently lower quarterly revenues, the casino can no longer produce enough income to weather state taxes, Dover Downs Gaming & Entertainment Inc. President and CEO Denis McGlynn said.

Mr. McGlynn said the casino has had 150 layoffs over the past four years, frozen pension plans, pushed more medical benefit costs onto employees and lost its ability to pay dividends to shareholders.

“We’re left with nowhere else to cut,” Mr. McGlynn said. “You get in a death spiral where you can’t recover.”

In 2012, $118.9 million in gaming revenue went to the state, leaving Dover Downs with $74.4 million.

However, after net expenses for payroll and payout to stakeholders, Mr. McGlynn said the casino garnered only $4.8 million for capital improvements.”

Delaware’s economy will suffer if the casinos reduce services or shut down completely. Harrington Raceway in particular, which is smaller than Delaware Park and Dover Downs, is particularly vulnerable. Competition from other states has hurt business, but the main reason the casinos are struggling is directly due to government meddling. The problem is, the state spends so much money they cannot afford for the short-term to allow for tax cuts, and so Markell’s office has been on record stating they do not intend to touch the tax rate right now. Assuming nothing is done before June 30, that means if the casinos are being forthcoming about their losses, they may be forced to lay off more workers, reduce tables or slot machines, or cut hours, or do other things to reduce costs.

OK, so if employees get laid off, they can qualify for unemployment insurance from the state until they find work, right?

Not so simple. This brings us to Article Two, from the News Journal, “1-week waiting period, higher taxes proposed in jobless benefits reform” (http://delonline.us/ZomTxO)

The state of Delaware took on a a lot of debt to give checks to unemployed workers in the state over the past few years, running up a deficit of about $70 million by borrowing money from the Federal government, which now needs to be paid. Seeing as how the Feds and many states are either broke, going insolvent, or running deficits (Delaware does, even if they insist by law they must balance the budget), Delaware is going to need to get the money from somewhere. Turns out it will be businesses and the unemployed who will pay. A bill will be circulated this week to increase taxes on businesses, and to ask the unemployed to wait 1 week before collecting benefits. The intent is to pay the bill before 2015, when higher Federal taxes would kick in to make up the pay. Although Delaware’s official unemployment is 7.2%, a study of DE’s employed in Delaware Today showed that 15% of workers are public sector, and another 15% work in health and social services, heavily reliant on public funds. There are now only 26,000 manufacturing jobs reported in the state.

OK, so working in Delaware is a toss-up, but not bad. At least housing is affordable, right? Well yes and no; Delaware has more affordable housing for residents, but the current resurgence in home prices may be a false alarm. Moving to Article Three Heidi Moore, a U.S. finance editor at The Guardian newspaper in the U.K., believes the current housing “comeback” is really a sham predicated on just seeing housing prices go up. (http://yhoo.it/14oD24G) and (http://bit.ly/1aykQZQ)

Basically what has happened is that the Federal Reserve is holding interest rates to record lows by printing money to subsidize purchases on things like cars, homes, student loans, and personal loans, all of which have seen an increase in volume moved over the last 3 years (this includes the fact that the government has bought many of these items with taxpayer money), that does not mean people have more money necessarily. What it means in housing, for example, is that “house-flippers” (those who buy homes, fix ‘em up, and sell ‘em quickly for profit) are driving up the cost as their bids become more and more ridiculous. Who is buying homes? The banks, using fresh money hot off the printing presses (literally) to buy homes to make even more money off future sales, and also who are collecting on foreclosed homes.

The point is, when the media tells you home prices are surging, the implication is that housing has recovered and people are finally looking forward to buying a nice home or property. In reality, the same sharks who made money off the last housing bubble are the ones who are making money off this one, set to burst at any time.

________________________________________________________________________

Later, we’ll address health care law and what you need to know. Stay tuned.

 

 

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2013 is already upon us, and three days in things are headed downhill. Congress just passed a bill to respond to the so-called “fiscal cliff” by increasing EVERYONE’S taxes at least a little bit, and a lot if you have a high income (note: if your money comes from investments and assets, such as Warren Buffett, your taxes will be unchanged). More battles will come up on the debt ceiling, automatic defense cuts, and future budget deals (if any come), and no doubt the partisanship will continue.

Delaware has its own problems to deal with: unfunded pension liabilities, out of control Medicaid spending, bad deals with Fisker and Bloom Energy, education performances moving sideways and not up, and taxes such as the gross receipts taxes which harm business growth. These are just a sample of the issues facing the state. While CRI would like to resolve every major issue within the state, that is not very likely.

Therefore CRI will spend 2013 focusing on three elements: improving education standards, discouraging corporate subsidies, and preventing the state from passing any legislation which pushes single-payer healthcare by abolishing private healthcare insurance.

Education reform will be CRI’s top priority in 2013. There is general consensus that the education system as currently structured is not serving the students well, particularly those in areas like Wilmington and Dover, where parents usually do not have the  financial means to send their children off to private schools, and who cannot be guaranteed a slot in the charter schools due to bureaucratic processes. CRI is calling for legislative actions to allow the money to “follow the student”, where parents have options such as Education Savings Accounts (ESA) that give parents the financial opportunity to choose where they want to educate their child. We hope to inform and engage the public and the legislators into some serious action this year that will give students a big victory for their future.

Our second goal is to reduce, if not eliminate, subsidies for preferred businesses and special interest friends of the government. Bloom Energy and Fisker Automotive are two prime examples of the government handing over “subsidies” for “investment” in these companies, meaning hundreds of millions in tax dollars to give to these companies, money we will in reality never receive payback for. There is no industry in Delaware receiving taxpayer money that can be said to be worth the corporate welfare. Our aim is to educate the public and legislators, and push Delaware to either reduce/eliminate current government subsidies to preferred parties, or else to agree to prohibit future government subsidies via “corporate welfare”.

Our third goal will be to discourage the Legislature from passing any bill which bans private health insurance in favor of “single payer” government. While CRI acknowledges the issues in containing healthcare costs, such as Tort reform, allowing insurance to be purchased across state lines, and using means-tested methods to determine who qualifies for Medicare or Medicaid as opposed to just handing it out to anyone who asks, there is no way the government can raise all the taxes needed to pay for this without destroying job opportunities or sending them out of state. Plus, the government will not be able to manage the insurance aspects of healthcare policy without setting up a massive, inefficient bureaucracy, just like they do with everything else.

What do you think? Are there any goals CRI should work for that are no mentioned above?

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from the Caesar Rodney Institute:

 

Lawsuit against the Bloom Energy Deal to be Heard Next Week

Wilmington- The lawsuit against the Bloom Energy deal approved by Governor Jack Markell and five members of the Public Service Commission will be heard at the US District Court on Wednesday, November 14, at 2 PM. The hearing will be in Courtroom 6C on 844 North King Street in front of Judge Christopher J. Burke. The hearing is open to the public, and all are encouraged to attend.

The plaintiffs are John Nichols and Fuel Cell Energy of Connecticut. Mr. Nichols is a citizen who believes his rights as a taxpayer and local resident are being violated as a result of a government-backed deal to provide over $600 million in taxpayer stimulus. Fuel Cell Energy believes they were unable to sell their products in Delaware because Bloom Energy had already been chosen to take the deal offered by the government.

The plaintiffs are being represented by Cause of Action, a non-profit which works to protect the public and taxpayer interests in favor of government accountability and transparency. The Caesar Rodney Institute provided expert testimony in Mr. Nichols’ hearing at the Coastal Zone Industrial Control Board on June 13 of this year. CRI’s testimony and research data on the Bloom Energy deal will be considered as part of the lawsuit.

Please contact:

Barrett Kidner

Chairman and CEO

(302) 734-4935

bek@caesarrodney.org

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DOVER, DE – Cause of Action, a Washington D.C.-based legal advocacy group, has filed suit today in US Federal Court, District of Delaware, against Governor Jack Markell and five members of the Delaware Public Service Commission.

The Caesar Rodney Institute (CRI), a Delaware-based non-partisan think tank, has challenged the merits of utilizing high-cost Solid Oxide Fuel Cells to produce electrical power for sale to ratepayers of Delmarva Power, Delaware’s largest energy utility provider.  CRI was the sole entity opposing the contract between Delmarva Power and Bloom Energy at the Delaware Public Service rate hearings in October of 2011, on the basis the economic impact on Delaware’s economy would be negative because of the contract.  CRI has been concerned about the constitutionality of the contract from the very beginning.

Since CRI and John Nichols, a citizen activist, were not able to convince the Public Service Commission to change its views on either the economic or environmental impact of the permit application, Mr. Nichols decided to take his case to the Coastal Zone Industrial Control Board.  He challenged the permit application on whether Bloom Energy had the right to build its Solid Oxide Fuel Cell technology in lands that were considered protected for wildlife. CRI funded expert testimony as part of Mr. Nichols’ motion to appear the permit decision.

The Board voted to deny Mr. Nichols standing at the hearing, which allowed Bloom Energy to proceed with installation of its Solid Oxide Fuel Cell units in the Coastal Zone.  Mr. Nichols opted to file a lawsuit against Governor Markell and five members of the Public Service Commission, using information CRI provided during testimony.  He was joined by Fuel Cell Energy, Inc., a company which makes fuel cells, and which feels it was denied the opportunity to do business in Delaware because of the government’s decision to not open the bidding process to outside companies.

Caesar Rodney Institute 

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By Joanne Butler, Senior Fellow at CRI’s Center for Economic Policy and Analysis

Although many folks may not ever feel free from government these days, according to the Tax Foundation national “Tax Freedom Day” occurs on April 9th and the date for Delaware taxpayers is April 11th.  Freedom Day is the date at which taxpayers will have earned enough money to pay this year’s tax obligations at the federal, state and local levels.  It takes Delawareans 100 days to just pay their government tab.  When compared to the dates for other states, Delaware ranks 20th, with the worst ranking (#1) going to Connecticut (April 30) and the best ranking to Alaska (March 23).  The following are other current Tax Foundation rankings for the First State.

State and Local Per Capita Tax Burden (FY2008):  With a ranking of 16th, Delaware has a state and local per capita tax burden that is above the median (Wyoming, at #25).  When compared to its neighbors, Delaware has the lowest ranking.  Delaware also has a better ranking than Rhode Island (the other small East Coast state), and Virginia, which traditionally is viewed as a low-tax, business friendly state.

State

Tax Burden:

State & Local

Ranking
Connecticut $7,007 1
New Jersey $6,610 2
Maryland $5,669 4
Virginia $4,669 9
Rhode Island $4,533 10
Pennsylvania $4,463 11
Washington State $4,334 15
Delaware $4,253 16
Wisconsin $4,194 17
Wyoming $3,714 25

State Business Tax Climate (2010) :  Delaware (#8) significantly outperformed its neighbors with regard to its business tax climate.  New Jersey is dead last (#50), with Maryland not far behind at #45 and struggling New York is #49.

State Rank
South Dakota 1
New Hampshire 7
Delaware 8
Washington State 9
Virginia 15
North Dakota 25
Pennsylvania 27
Maryland 45
New York 49
New Jersey 50

State and Local Tax Burden as a Percentage of State Income (FY2008):  Again, when compared to its neighbors, Delaware has a lower state and local tax burden as a percentage of state income.  New Jersey has the highest state and local tax burden as a percentage of state income.  Delaware ranks just above the median (Kentucky at #25).

State State & Local Taxes as

Percent of State Income

Rank
New Jersey 11.8% 1
Maryland 10.8% 4
Pennsylvania 10.2% 11
Virginia 9.8% 18
Massachusetts 9.5% 23
Delaware 9.5% 24
Kentucky 9.4% 25

State Debt Per Capita (FY2008):  Delaware’s state debt per capita is in the top 10 of the nation; it is higher than its neighbors, outpacing New Jersey by $471.  Significantly, Delaware is $3,332 above the median (Pennsylvania at #25).  This is a result of Delaware in recent fiscal years covering the gap between spending and revenues by floating debt.

State State Debt

Per Capita

Rank
Massachusetts $11,024 1
Connecticut $7,882 4
Delaware $6,574 5
New Jersey $6,103 6
Maryland $4,086 14
Pennsylvania $3,242 25
Virginia $2,820 31

Joanne Butler, Senior Research Fellow

Center for Economic Policy and Analysis

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(Editor’s note: a high-resolution PDF version of this story can be found in CRI’s Special Reports section.)

A nine-month investigation by the Caesar Rodney Institute has uncovered lucrative no-show jobs and no-bid contracts for campaign donors, allegations of fraud and a systemic misuse of millions of taxpayer dollars.

By Lee Williams

Attorney Steve Kinion receives $16,000 taxpayer dollars per month to serve as director of the Delaware Department of Insurance’s Captive Insurance Bureau, even though he works and lives in Springfield, Illinois, where he maintains a thriving law practice.

A staffer in Delaware’s Captive Insurance Bureau – who asked not to be identified – at first said Kinion “commutes” to Delaware from Illinois.

The same staffer later admitted Kinion hasn’t been in the office for months.

Kinion’s two colleagues, who receive $16,000 and $10,000 dollars per month in similar contracts, have backgrounds that raise questions and concerns about the overall stewardship of the Captive Bureau.

All three well-compensated officials were handpicked to run the newly-created bureau by Delaware Insurance Commissioner Karen Weldin Stewart. Kinion donated thousands of dollars to Stewart’s 2008 election campaign.

Karen Weldin Stewart

The Department of Insurance (DOI) Stewart heads is entirely self-funded because of the fees and taxes it receives from insurance companies doing business in the state. What the DOI doesn’t spend on operating costs, it is required to contribute into the state’s General Fund.

A nine-month investigation by the Caesar Rodney Institute has found that Delaware taxpayers may not be getting their fair share of the millions of dollars the DOI rakes in annually – at a time when state employees’ salaries are being cut and services scaled back because of the worst economic crisis in recent memory.

Based on numerous interviews, court records and nearly a dozen Freedom of Information Act (FOIA) requests, including one for all of Stewart’s e-mail correspondence, and another for Global Positioning Satellite (GPS) data for her state-owned Dodge Avenger, CRI found an agency fraught with problems, some of which include: questionable hiring practices, questionable contracts for campaign donors, failure to comply with state law and most troublesome, millions of taxpayer dollars paid to out-of-state consultants.

Meanwhile, hardworking DOI staffers – longtime state employees who’ve seen insurance commissioners come and go – say they are keeping their heads down, waiting for the shoe to drop. They say something ultimately must change, and the department’s out-of-control spending must end. They just don’t want to get involved or caught up in the inevitable fallout.

Nowhere, they say, are the problems within the DOI better exemplified than at the Captive Insurance Bureau which Stewart created.

A ‘revenue generating’ bureau

The commissioner unveiled the “Captive-Financial Revenue Generating Division” on July 30, 2009.

Right from the start, the intent behind the Captive Bureau was to make money.

“The mission of the bureau will be to accelerate the formation of all types of new captive insurance companies in Delaware, while developing, implementing and growing several other potential revenue streams,” Stewart is quoted as saying in a press release announcing the new unit.

According to her written statement, captive insurance companies are “owned by the entities that they insure, are usually formed by businesses that wish to better manage the cost and administration of their insurance coverage, and are established with the specific objective of financing risks emanating from their parent group or groups.”

Captive insurance, or reinsurance, is provided by a company that is formed primarily to cover the assets and risks of its parent company or companies.

Basically, captives can be thought of as in-house insurance.

Companies turn to captives to reduce costs, enhance risk management, gain greater control over their insurance, and to directly access the reinsurance market.

Several offshore jurisdictions, such as the Cayman Islands, Anguilla, Barbados or the British Virgin Islands, have lower capitalization requirements that allow captives to be established with less initial investment and lower reserves.

Delaware has to compete nationally for its share of the lucrative captive market.

Like a more-traditional insurance company, a captive pays taxes and fees to the DOI in order to operate in Delaware.

Questionable appointments

Commissioner Stewart chose three outsiders to run the Captive Bureau. Bill White, who had been contracted for $15,000 per month to administer the DOI’s captive efforts, when it was a program rather than a bureau, did not renew his contract with the department.

According to Stewart’s press release, Steve Kinion was appointed as Director of the bureau. Kinion had been serving as “senior advisor” to Stewart and as a member of her transition team. There was no mention of his Illinois residency or law firm. He is not admitted to the bar in Delaware.

Stewart appointed her longtime acquaintance Mary Jo Lopez as the Captive Bureau’s Director of Business Development.

Lopez is the founder of Affinitee Group, LLC, which Stewart described in her written statement as an “insurance management and consulting firm.”

Wilmington attorney Edmond Ianni was chosen by Stewart to serve as the bureau’s Director of Strategic Development.

Stewart included an italicized disclaimer in the July 30 press release about the three appointments: “The positions of director, director of business development, and director of strategic development are independent contractor positions subject to Delaware’s procurement law and open bidding process.”

Kinion

According to Stewart’s 2008 campaign finance reports, Kinion paid $900 for a breakfast fundraiser on Sept. 23, 2008, and donated $1,200 to Stewart’s election campaign in May of that year.

Kinion’s Illinois-based law firm Zack Stamp, Ltd. names him as the lead attorney employed by the office. His bio on the company’s Web site describes his employment as “1999-present.” His Zack Stamp office phone includes the message “This is Steve Kinion. I am currently away from my desk.” There is no mention about his directorship of Delaware’s Captive Bureau or instruction on how to contact him at the Wilmington office.

The Caesar Rodney Institute obtained a copy of Kinion’s contract with the DOI through a request made pursuant to the state’s Freedom of Information Act (FOIA).

In the contract, he’s identified as “Zack Stamp Consulting,” which is abbreviated as “ZSC.”

“In consideration for work being performed by ZSC, the Department shall pay ZSC a monthly fee, in advance, of $16,000,” the contract states. “ZSC shall be paid the initial monthly fee of $16,000 upon signing this Agreement and the sum of $16,000 per month no later than the 15th day of each month thereafter for the remaining term of this Agreement.” There is no residency requirement in the contract.

Stewart’s Chief of Staff Elliott Jacobson, who many say is actually running the day-to-day operations of the DOI, described how Kinion’s $16,000 per month salary compares to actual state employees.

In an e-mail sent May 4, 2009, Jacobson tells Kinion, “If we subtracted what estimated annual expenses would be, as well as subtracting an estimate of the cost of the benefit package an employee receives from your fee, it would bring us to a figure that favorably compares with the Deputy Commissioner’s salary, plus the benefit package, plus expenses.”

Kinion did not respond to calls, e-mails or personal visits made by CRI to the Captive Bureau seeking comment for this story.

Ianni

Stewart’s pick for the Captive Bureau’s Director of Strategic Development, Wilmington attorney Edmond M. Ianni,  also did not respond to calls, e-mails or personal visits made by CRI to the Captive Bureau seeking comment for this story.

Stewart sent an e-mail May 11, 2009 to Ann Visalli, director of the Office of Management and Budget, seeking OMB’s approval of Ianni’s $16,000-per-month contract. The insurance commissioner described Ianni as a “nationally recognized authority on the ‘Delaware advantages,’” who had already begun working at the department, and who could provide “critical services to me and the Insurance Department.”

“All of this will result in generating revenue for Delaware and retaining and creating jobs here in our First State,” Stewart wrote. “This agreement (which does not include the provision of legal services) is consistent with existing OMB-approved agreements that the Insurance Department currently has with others serving our Department.”

Ianni began billing the DOI before OMB had even approved his contract.

In an e-mail sent to Stewart on June 13, 2009, he attached an invoice for June, and complained that his payment for May was late.

“How can you bill me for June before the month has ended?” Stewart wrote in her reply. “The State still has not approved the contract. Stop dunning me. I have been trying everything to get the Department’s contracts approved.”

Visalli did not respond to interview requests for this story.

Lopez

Mary Jo Lopez began working as the Captive Bureau’s Director of Business Development in February 2009, after Stewart signed off on the contract with her newly-created New Jersey-based corporation, Affinitee Group, LLC.

According to the contract, which was obtained by the Caesar Rodney Institute through a FOIA request, Affinitee Group, LLC was chosen to provide “business development and marketing services for State of Delaware, Department of Insurance, Captive Insurance Program.”

In her July 2009 press release that announced the formation of the Captive Bureau, Stewart said Lopez was the “founder” of Affinitee, which she described as “an insurance management consulting firm.”

Affinitee, however, has no working Web site, no client list, a minimal Internet presence and appears to consist of just Lopez.

According to the New Jersey Secretary of State’s Office, Lopez created Affinitee Group, LLC in November 2007. Lopez is the only officer, director or board member listed on the business entity status report.

Affinitee’s phone number is answered by a machine, in which a recorded voice states: “This is Mary Jo Lopez.” There is no mention of Affinitee Group, LLC in the recording.

According to the contract, Lopez/Affinitee can work from home or the Delaware office, and the state will pay her travel costs, which amounted to nearly $5,000 for just three months of 2009.

Despite her title of Director of Business Development and hefty $120,000 annual salary, e-mail correspondence obtained through FOIA indicates that Lopez acts more like Stewart’s personal assistant, arranging meetings, planning travel needs and sending thank-you notes.

An unannounced visit

Rather than housing the Captive Bureau in DOI’s offices in Dover or Wilmington, the bureau is housed in a $4,000-per-month suite on the sixth floor of the One Custom’s House building, located on King Street in Wilmington, across the hall from KISS 101.7 FM.

There are no other DOI offices in the building.

Insurance department insiders say the bureau was moved to an offsite to cut down on scrutiny.

The Caesar Rodney Institute visited the bureau last month.

The Captive Bureau is not marked or identified as a state office. It’s only identified by a “602” on the door, in self-adhesive mailbox numbers.

Neither Kinion nor Ianni or Lopez were present.

None of their offices were labeled. There were no names on desks or doors. Their offices had no pictures, photos or bric-a-brac on the walls or desks. One office had cardboard boxes piled where a visitor would sit. It appeared as though they weren’t being used.

The entire suite has a temporary, just-moved-in feel.

When asked whether Kinion was in the suite, a staffer who asked not to be identified said he may arrive later in the week.

“He commutes,” she said. “He doesn’t get reimbursed for travel.”

Lopez, she said, was absent because the electricity was out at her New Jersey home.

She did not know Ianni’s whereabouts.

“They haven’t been here for March or February because of the snow,” she said. “March and February were pretty bad.”

Kinion, Ianni and Lopez received a combined total of $84,000 taxpayer dollars for March and February.

Where’s the money going?

Of all the state insurance departments in the country, the Delaware Department of Insurance, at $25 million, has the 14th largest budget, according to the most recent data available from the National Association of Insurance Commissioners (NIAC).

Delaware DOI’s budget is greater even than Pennsylvania’s, whose insurance office operates on $23.5 million, even though they bring in nearly eight-times more revenue than Delaware, and have nearly four-times as many employees: 303 compared to the 81 employees working for Stewart.

Delaware’s insurance department is also the least efficient office in the region. Employee efficiency ratios show that Pennsylvania, Maryland, New Jersey and Virginia all produce more revenue for their states, per employee. In addition, Delaware spends more money to collect its revenue dollars when compared to the surrounding states.

A history of not commenting

None of the current or former DOI staffers interviewed by the Caesar Rodney Institute for this special report were willing to allow their names to be used in this story.

Many former DOI employees are still involved with the insurance industry, and are concerned their current employers would suffer if they spoke on-the-record. They said their firms could be banned from the state’s lucrative insurance market.

Current DOI staffers say they’d be fired for speaking publically about the department’s failings.

Commissioner Stewart was not willing to be interviewed for this special report.

Instead of the standard, face-to-face interview sought by the Caesar Rodney Institute, Stewart and her Chief of Staff Jacobson insisted they would only respond to questions submitted in writing.

“I need a list of questions, so that I can have the information available to answer any question(s). We do that with every reported (sic) and/or individual,” Stewart wrote in an e-mail.

“It is the policy and practice of the Commissioner of Insurance and the Department of Insurance to respond to all proper and legitimate inquiries from news organizations and other parties concerning matters affecting the Department and Delaware’s citizens,” Jacobson wrote in an e-mail sent March 12.

The Caesar Rodney Institute explained that it resists submitting written questions because often they are answered by a team of lawyers and spokespersons, rather than the elected official. Also, requiring written questions prohibits follow-up questions.

The Caesar Rodney Institute told Jacobson its reporting had uncovered issues Stewart would undoubtedly want to address.

“What are those issues?” Jacobson wrote. “Perhaps we can negotiate an arrangement. The Commissioner will be away until next Wednesday so I propose in the meantime we try to come to some kind of an agreement.”

Jacobson never explained what the “arrangement” entailed.

Stewart’s e-mails indicate it is highly unlikely the commissioner would ever personally answer any written questions submitted by the Caesar Rodney Institute or anyone else.

Instead, Stewart relies on a team for guidance on dealing with the media, and for damage control, which includes Jacobson, various DOI staffers and Wilmington blogger Nancy Willing.

One e-mail Jacobson sent to Stewart in March 2009, indicates he and the DOI’s chief insurance examiner spent two days “putting together talking points” for the commissioner, prior to a phone call from a newspaper reporter seeking quotes for a daily story.

In an e-mail Willing sent to Stewart and Jacobson in March 2009, the blogger points out a story discussed on WDEL’s Rick Jensen Show was picked up by local blogs.

“Karen, if you or Elliott have a public statement, you might give it to me. Not answering the phone for the WNJ reporter wasn’t so great,” Willing wrote. “Would you like to provide commentary for the public consumption, or do you want the public to assume that what the radio and press are saying to be the last word.”

Two days later, in an e-mail titled “This is a disaster and it doesn’t have to be,” Willing expressed her disappointment with the response Jacobson had posted on the local blog.

“This was poorly played and will haunt you,” Willing wrote.

Use of outside experts

On July 17, 2008 the New York-based law firm of Stroock & Stroock & Lavan, LLP donated $1,000 to Stewart’s election campaign.

On Sept. 15, 2008, two partners from the law firm each donated $1,200 to Stewart’s campaign.

Two weeks later, the firm gave her an additional $1,200.

A month later, another Stroock employee made a $250 campaign donation.

Why would a New York-based law firm donate to a relatively unknown candidate running for insurance commissioner in Delaware?

According to the Delaware State checkbook, an online listing of payments made by the DOI and every other state agency, Stroock & Stroock & Lavan, LLP became one of a large and growing list of out-of-state law firms and consultants who began receiving millions of Delaware taxpayer dollars after Stewart was elected – money that could have gone into the state’s General Fund.

In June 2009, Stroock received five checks from the DOI, totaling more than $45,000, for “consulting.” By the end of the year, they’d been paid an additional $20,000.

The Caesar Rodney Institute obtained a copy of Stroock’s contract with the DOI, which is valid for three years.

According to the contract, the New York-based firm agrees to “serve as Expert Legal Consultant and perform such consultancy duties as assigned by the state.”

Two of the firm’s attorneys were chosen for the project. One bills the DOI at $712 per hour, and the other receives $399 per hour, but these totals pale when compared to the taxpayer dollars paid to other firms.

Regulatory Insurance Services and it’s sister firm INS Consultants Inc. receive millions of dollars from the DOI.

According to its Web site, four of Regulatory Insurance Services’ five “principals” have previously worked at the DOI, including John Tinsley, who Stewart named as “Special Deputy for Examinations” of the Captive Bureau.

Regulatory Insurance Services conducts financial examinations for the DOI. It’s not known what type of consulting services its sister firm provides to the department. The two firms use the same address.

From the start of FY-09 through the first two quarters of FY-10, Regulatory Insurance Services received $19 million – an average of more than $1 million per month.

INS Consultants Inc. was paid more than $1.2 million over the same time period.

Apparently someone within the DOI noticed the large amount of money being funneled regularly to these two firms.

An e-mail sent between DOI staffers in March 2009, which was copied to the commissioner and Jacobson, titled “INS Aging reports as of 3/20/09” asks: “Why are the 90 day and over receivables so high, over $72,000?”

It is not known what actions were taken. No response to the e-mail was provided to the Caesar Rodney Institute as part of its FOIA request.

Alan Shaw, president of Regulatory Insurance Services, did not return calls seeking comment for this story.

In addition to consultants and accountants, the DOI pays million of dollars to outside law firms. Like Stroock & Stroock & Lavan, many are located out of state.

The DOI itself is having difficulty tracking all the contracts it has given to these out-of-state lawyers. Stewart’s e-mails contain dozens of references to problems locating these contracts within the agency.

Violating state law

Title 29, Chapter 100 of the Delaware Code spells out the state’s Freedom of Information Act.

“It is vital in a democratic society that public business be performed in an open and public manner so that our citizens shall have the opportunity to observe the performance of public officials and to monitor the decisions that are made by such officials in formulating and executing public policy; and further, it is vital that citizens have easy access to public records in order that the society remain free and democratic,” the Act states.

The FOIA law codifies what type of documents are public records – obtainable under the act – and what type of records are not public, and therefore not subject to FOIA.

These exceptions to FOIA include: trade secrets, labor negotiations or collective bargaining, personnel files, medical files, criminal files or intelligence files compiled for law-enforcement purposes.

The list of exceptions does not include personal communications, if made on the state’s e-mail system, messages that may be embarrassing to an elected official, or documents the official simply doesn’t want someone to have.

The Delaware Department of Insurance is violating the state’s Freedom of Information Act.

On July 14, 2009 the Caesar Rodney Institute submitted a FOIA request to Stewart for “copies of all e-mails sent or received from your state electronic mail account.”

Jacobson immediately wanted to know why CRI wanted the e-mails, and who was talking.

“May I ask, in the interest of FOIA, what inspired these requests?” he stated in an e-mail.

Jacobson was told that state law does not require the public to provide the inspiration behind a FOIA request.

“You are quite right,” Jacobson said in his reply. “The law does not ‘require’ you to provide the ‘inspiration’ behind a FOIA request. However, it also does not ‘prohibit’ you from providing the ‘inspiration.’ More to the point, this request comes out of the blue for God knows what reason. Therefore in the interest of transparency, elementary fairness and ethical journalism it would not prejudice your ‘sources’ to voluntarily answer the questions ‘Why?’ and  ‘Why Now?’”

Jacobson was told that the Caesar Rodney Institute never reveals confidential sources, and that when elected officials seek to identify these sources, it produces a chilling effect on the First Amendment.

“I did not mean to suggest I was inquiring about your sources,” Jacobson replied. “I tried to make the point of mentioning that I did not want to ‘prejudice (i.e. not revealing) your sources.’ I made this inquiry on my own. The Commissioner most certainly did not order me to investigate your actions.”

The DOI started to process the request.

The Caesar Rodney Institute paid the Delaware Department of Technology and Information to retrieve the commissioner’s e-mails from the state’s computer system.

In November, Elayne Starkey, DTI’s chief security officer, said the email archive search resulted in 3,641 emails.

Starkey then gave all 3,641 e-mails to Stewart and Jacobson, along with their in-house counsel, Deputy Attorney General Julie “Jo” Donoghue, so they could review them before turning them over to the Caesar Rodney Institute.

During one phone conversation, Jacobson said he’d be withholding all of the “personal” e-mails sent or received by his boss.

During the review process, Deputy Attorney General Donoghue abruptly quit the DOI. Her reasons for leaving are not known. She was not willing to be interviewed for this story.

The Caesar Rodney Institute was forced to retain an attorney who threatened to sue the DOI unless they responded to the institute’s FOIA request.

After receiving the attorney’s letter, Jacobson began turning over the e-mails, in batches, one or two CDs at a time.

Even though DTI located more than 3,600 e-mails, the Caesar Rodney Institute has only received 1,500, and of the ones furnished, many are heavily redacted with a black marker.

CRI has posted some of Commissioner Stewart’s e-mails on its Web site. The e-mails can be accessed here.

A car of her own

Commissioner Stewart did not own a car when she was elected. After taking office, she used a state-owned vehicle as if it was her own – during the workweek, on weekends and on holidays.

The Caesar Rodney Institute submitted a FOIA request for the Global Positioning Satellite (GPS) data for her Dodge Avenger.

The data, which can be seen here, shows that Stewart took the car to and from work, on shopping trips, to hair salons, restaurants and night clubs, at all hours – often at excessive rates of speed.

This personal use of a state vehicle came after the February 2009 order from Markell, which required a “zero-based approach with respect to the use of the state fleet vehicles and take-home privileges. In other words, the use of all fleet vehicles will need to be justified. Previous use will not be viewed as sufficient justification to keep a car.”

Unprecedented travel

According to several DOI staffers, during the 15 months she’s been commissioner, Stewart has traveled out of state twice as much as any previous commissioners did during their entire four-year term.

Often accompanied by a retinue of staff, the commissioner has visited San Diego, San Francisco, Minneapolis, Chicago, Scottsdale, Arizona and other cities, along with frequent trips to New York City and Washington, D.C.

Last week, Stewart took a dozen DOI staffers with her to Denver, including the newly-hired Deputy Attorney General who replaced Donoghue.

Several of the trips have been to lawyers’ offices for “Meet and Greets,” where the commissioner and her staff have presented what they call the “Captive Road Show.”

The department’s frequent flying has been noticed by other state agencies.

Lt. Gov. Matt Denn served as Insurance Commissioner before he ran for the state’s second-highest elected office. Stewart succeeded him as commissioner.

Denn and Stewart have sparred, via e-mail, over files she claims are missing from the department.

“Thank you for your March 10, 2009 letter,” Denn wrote in an e-mail reply. “I tried to contact you earlier but was told that you were staying in San Diego with your senior staff.”

In February 2009, Delaware Gov. Jack Markell slashed $28.7 million from the FY-09 budget shortfall partially by trying to reduce out of state travel by state employees.

Markell instructed the Office of Management and Budget to cut costs by curbing trips they considered non-essential.

His order produced a harsh memo to the DOI from OMB director Visalli, which was not provided to CRI as part of its FOIA request.

Some of the DOI staff questioned whether they should follow OMB’s directive, or whether they should continue to travel to out of town meetings as directed by Stewart and Jacobson.

Jacobson, in an e-mail, told one of these worried staffers that Stewart had spoken to Visalli, who gave the DOI “quite a bit of leeway” to attend the meetings.

As to how often the DOI staffers were traveling out of town, Jacobson wrote “every employee that travels to these meetings sacrifices a month of weekends a year. They deserve our gratitude.”

Caesar Rodney Institute research fellows Sara Clark and Danny Russell contributed to this report.

Contact investigative reporter Lee Williams at (302) 242-9272 or lee@caesarrodney.org

The Caesar Rodney Institute is a 501(c)(3) non-partisan research and educational organization and is committed to being a catalyst for improved performance, accountability, and efficiency in Delaware government.

© Copyright March 30, 2010 by the Caesar Rodney Institute

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By Shaun Fink

The future of our state’s economy, and the standard of living for all Delawareans, will rise and fall upon our ability to encourage small business owners to invest and expand the size and scope of their enterprises; and our success at attracting new companies and corporations to relocate to Delaware.  The General Assembly and Governor Markell must recognize that a strong recovery and new hiring depends on the confidence businesses have in the future.

Uncertainty is a fact of life for all businesses, but when Dover adds materially to that uncertainty, businesses invest less and hire less. This is especially true following a deep recession, with so many producers still struggling with excess capacity. The most powerful strategy the General Assembly can adopt is to stop threatening those in a position to hire.  That means no more tax increases, less regulation and a serious look at whether we should be engaged in the Regional Greenhouse Gas Initiative (RGGI).

Last year, President Obama pushed through a massive $862 billion jobs bill emphasizing “shovel-ready” projects. Yet the 2009 stimulus did little to promote new private investment; unsurprisingly, it failed to create jobs. This failure was expected because government spending only shifts spending in the economy. It neither increases overall demand nor gives private businesses a reason to invest in new projects.  Nowhere was that felt more deeply than right here in Delaware.  The stimulus dollars spent here may have helped fix, repair and build some roads and bridges.  But it did nothing to spur confidence or create new jobs.

The General Assembly should jettison ideology and instead promote entrepreneurship and investment with proven ideas that have worked time and again in the past.  Presidents John F. Kennedy, and Ronald Reagan had at least one thing in common.  They both understood the long term effect of substantial tax reform on the spirit and psyche of the risk-taking entrepreneur.

Only when those who are creating jobs and wealth are convinced that their efforts will not be punished through excessive taxation and regulation, will they once again reinvest into their business specifically, and the economy in general.  Tax cuts do “cost” in the initial year, inasmuch as they reduce the expected revenue for that first fiscal year.  However, as history has shown, the reduction of taxes on profits actually has a net positive result on total revenue to the state.

This past budget cycle reveals that there is an interesting converse in that relationship between taxes and revenue, as well.  The General Assembly, in an attempt to close a huge budget deficit without properly dealing with the issue of overspending, raised taxes an unheard of $200 million.  And, as DEFAC has met since the institution of that budget, it has continued to decrease its projected revenue forecasts.

So, the net result of a tax increase is a decreased revenue forecast.  The plain explanation to this phenomenon is that businesses will not invest and take risks when the government punitively increases its share of the profits.  The Laffer Curve plainly shows the relationship between tax rates and revenue.  There is a point where taxes fail to increase a government’s take.  In other words, the government never took the negative effect of their tax hikes into consideration, but rather assumed businesses would continue to function as though they were not being punished through higher taxes.

It is apparent that the General Assembly should not have increased taxes last year and should seriously consider rescinding those increases to invigorate the business community.  This proves the point that priority one ought not to be balancing the budget for the sake of having a balanced budget.  The consequences of the actions necessary to balance a budget must be considered.  What good is a balanced budget if the anticipated revenue never materializes?  Certainly, this is not a recipe for a healthy and vibrant economy.  And the latter should be the state’s number one goal.

The governor has issued this year’s budget with claims to be balanced without raising taxes as was done last year.  The flip side is that the FY 2011 budget also lacks real substantial spending cuts other than the superficial reorganization of a few state departments.  Should the JFC have the courage to tackle the issue of government spending and find some ways to save a couple hundred million, the tax increase of last year could be eliminated.  The effect that action would have to our economy could be staggering.

If the governor and legislators are truly looking to bring companies and business to Delaware, there is no better way than to offer a low tax, low regulation environment friendly to innovation and creativity.  It is time for bold leadership; will anyone step up to the plate?

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Shaun Fink is Executive Vice President of the Caesar Rodney Institute.

The Caesar Rodney Institute is a 501(c)(3) non-partisan research and educational organization and is committed to being a catalyst for improved performance, accountability, and efficiency in Delaware government.

© Copyright Feb. 22, 2010 by the Caesar Rodney Institute

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