DOVER — If the seven lawmaker members of the Senate Judiciary Committee had not passed Senate Bill 21, Shelly Cecchett would have a question – how will the state move forward?
“How will we make up the $2 billion? Do we cut critical services for nonprofits, raise taxes, reduce school funding, implement a sales tax,” asked Cecchett, the executive director of the Kent Sussex Leadership Alliance. “These choices put the burden squarely on the backs of Delawareans. Why should we jeopardize what makes our state strong?”
Cecchett spoke on behalf of the dozens of businesses in Kent and Sussex County last Wednesday, testifying in support of a controversial bill that amends the corporate law in Delaware. But her comments reflect a larger question that many business leaders who have testified for or endorsed the bill are grappling with: what would a mass exodus of incorporated companies mean for Delaware?
Right before SB 21 was heard in the Senate Committee last week, several business and trade organizations rushed to issue statements. Many others testified in support of the measure, like ChristianaCare, the Central Delaware Chamber of Commerce and the Home Builders Association of Delaware (HBADE).
HBADE Executive Director Katie Gillis testified last week on behalf of the 350 homebuilders and contractors in her organization, but also stressed that she was a lifelong Delawarean. She spoke about her worries of a trickle-down effect if companies abandon plans to incorporate in Delaware, leaving billions in state revenue from corporate franchise fees in limbo.
“A significant downturn in Delaware’s housing market would affect property values statewide and make Delaware a less desirable place for people to live and work,” she said. “Delaware’s infrastructure networks are already lagging, and the state cannot afford to have anything risk funding for needed improvements [that] support current Delaware residents and the people who would like to move here.”
Lobbyists, like Joe Fitzgerald who represents the New Castle County Chamber of Commerce, issued alerts to its members, urging them to call legislators and tell them to vote for the bill.
Others had quieter presences in support of the bill. The Delaware Bankers Association endorsed the bill and board members like JPMorgan Chase & Co. Executive Director and Delaware Site Lead Don Mell, were on hand during the Senate Judiciary Committee hearing, although Mell did not testify on SB 21.
“The Delaware Corporate Franchise is critical to the economic health and quality of life in our state. The Franchise funds 35% of the Delaware state budget, supporting education, safety and public health services, infrastructure projects and many other vital programs. The Delaware Bankers Association supports the wellbeing of all Delawareans and believes SS1 to SB21 is another step in the right direction to ensure economic prosperity well into the future,” David Mench, director of government affairs of the Delaware Bankers Association, said in an email to Delaware Business Times.
Many trade organizations, like the HBADE, stressed how the loss of corporate franchise income would rock Delaware’s economy. The corporate franchise tax brought in $2 billion in Fiscal Year 2023 from the annual fees from millions of limited liability companies and limited partnerships.
The Delaware Secretary of State office told the Delaware Business Times that the lag on data would prove it impossible to see the threat of a “Dexit” in real time or how quickly that possibility is realized.
Regardless, some like Christina Crooks Bryan, the vice president of the Delaware Healthcare Association (DHA), argue it’s not worth the risk. The DHA represents the seven hospitals and other health care organizations throughout the state and are already under pressure if the federal government cuts Medicaid. Another revenue hit would make it harder to support the public services that support more than 260,000 Delawareans using Medicaid.
“Unless the state is able to step in and help fill the funding gap, these cuts could lead to thousands losing their health coverage,” she said. “This will mean less people seeking preventive, preventative care, more delayed care, worsening conditions, more hospital visits and low to no reimbursement for health care providers strain critical resources.”
The Delaware Hotel & Lodging Association, which represents 45 hotels, also endorsed the bill in a direct letter to the General Assembly. In that letter, DHLA President Michael Hayes wrote that the hospitality sector is tied to Wilmington’s corporate business as the 15 hotels in New Castle County serve thousands of lawyers and law firm clients.
“It’s important that we maintain the favorability of the corporate climate in Delaware. This is especially important to the lodging industry as it provides thousands of guests to our member hotels and non-member hotels,” Hayes told DBT. “This is true as well not only in New Castle and Kent County but in Sussex. As guests travel in our state, they discover not only these hotels for business, but also leisure travel which can affect the Delaware beaches.”
The day of the Senate Judiciary Hearing, two of the most powerful Delaware business organizations, the Delaware State Chamber of Commerce and the Delaware Business Roundtable, issued a joint statement of support of SB 21. The two organizations applauded Meyer and the General Assembly for their quick action to ensure that Delaware remains the top choice for businesses looking to incorporate amid rivals in the corporate realms like Texas and Nevada.
“Delaware’s business community has always been committed to supporting policies that are in the best interest of our state,” the statement reads. “The state’s reliance on substantial sums coming from outside of the state to fuel state government spending demonstrates the need for pro-growth policies and diversification of the Delaware economy.”
Both organizations have different legislative endorsement processes. The DSCC, which includes a variety of business types and sizes in its membership, solicits feedback before taking a formal stance. The Delaware Business Roundtable, which represents top executives and CEOs in the state, relies on its executive committee for direction on legislation before speaking out after a general consensus has been reached.
“Delaware’s business community has always been committed to supporting policies that are in the best interest of our state,” the statement reads. “The State’s reliance on substantial sums coming from outside of the state to fuel state government spending demonstrates the need for pro-growth policies and diversification of the Delaware economy.”
Bob Perkins, executive director of the Delaware Business Roundtable, told DBT that he found the idea of amending the corporate code unremarkable. But he did note that the stakes were high.
“Every few years or so, we have a change in the corporate code, and it’s needed to ensure that Delaware is the gold standard of corporate law,” Perkins told DBT. “We have to take the long view and trust the experts because the franchise is too great to risk.”
Editor’s note: This story has been updated with a statement from the Delaware Bankers Association.
