Talking to Delaware’s governor about spending

November 11, 2013

I spend almost no time looking at the balance sheets of the healthiest states in muniland. They happily chug along collecting taxes and providing services, with rarely anything newsworthy to make me crack their books. When I was contacted last week to do an interview with Delaware’s Governor Jack Markell, I wondered if there was even anything I wanted to discuss about his AAA-rated state.

In fact, it was wonderful to hear a public official talk about his approach to refining and improving the way government delivers public services. It was a change from battling fiscal crisis with a budget ax.

Moody’s wrote about Delaware in a February, 2013 General Obligation bond rating action:

The outlook for Delaware is stable. The combination of the state’s strong structural governance features (including frequent revenue forecast revisions), speedy actions to deal with downward revenue revisions, the use of recurring solutions to solve gaps, a low-risk debt profile and high pension funding ratio will result in the state coming out of this recession in a strong position relative to its peers.

Delaware has an independent economic advisory council – the Delaware Economic and Financial Advisory Council (DEFAC) – composed of several dozen business leaders and academics who annually project how much revenue will be available to budget. This process, established in 1977, creates a non-partisan platform to build a state budget. Markell says that he and the legislature stick with the DEFAC numbers when developing the budget.

Markell, with support from the general assembly, undertook pension reform in 2010. He invited public union leaders to a meeting to understand the increasing health care and pension spending obligations by the state. He invited the unions to be a part of the reform process. They agreed and brought their own actuaries to the table. The unions agreed to longer hours, paying more toward pensions and getting a little less at retirement. The state saved $480 million.

Markell didn’t want to drive a wedge between public employees and the broader public during the process. He spoke at meetings across the state, stressing the value and importance of the state’s employees. Today Delaware has one of the highest-funded ratios of any U.S. state pension system.

Delaware’s economy was hurt in 2008 and 2009 when two car plants closed. Banks laid off a large number of employees who were packaging securitizations and supporting their credit card businesses. When asked how he attracted new business to replace what was lost, Markell said he visited with over a 1,000 companies. He said that companies shared the same checklist of their needs:

  1. A high quality workforce
  2. A high quality lifestyle
  3. A low cost of doing business including taxes
  4. Good infrastructure

After Markell held three public hearings to solicit input from a broad range of constituents, 130 state regulations were either refined or eliminated to promote better business.

Delaware was first place in the federal government’s Race to the Top competition in 2010. The Department of Education awarded $119 million over 4 years to the state for this achievement. Markell also launched an international education initiative to supercharge students to be the best workforce:

International Education provides Delaware students with a developmentally appropriate set of experiences and a broader context in which to actively participate in a multicultural society and global workforce. International Education in Delaware inspires students to explore beyond their state and country by providing them with:

  1. Knowledge of world regions and international issues;
  2. Skills in communicating in languages other than English and working with information from a variety of worldwide sources;
  3. Cultural perspectives for comparison of worldviews, dispositions and attitudes;
  4. International experiences to exchange information with peers around the world.

In the International Education program 850 kindergarteners begin to learn math and science in a foreign language in 20 World Immersion Schools.

Delaware’s early care and education programs participate in the Stars Quality Rating and Improvement System (QRIS). The goal of Delaware Stars is to invest in participating programs to increase access to high-quality care for all of Delaware’s children, especially those from low-income families. The rating system is linked to reimbursement rates for educating children. The higher a school’s rating, the more money they are given for educating low income, at-risk children. The reimbursement scheme incentivizes the best schools to educate the children with the fewest resources.

The State Department of Education brings in school districts and unions to discuss collected data and share best practices across districts. Once again, unions are at the table.

Markell expects 30-35,000 state residents to get health care under the Affordable Care Act. Markell wants to invest in more community-based healthcare programs, especially for mental health. During our talk, he was more interested in the inefficiency of healthcare delivery than in the problems of insurance. He used the example of an elderly woman living alone with no air conditioning. In the summer, the state is not reimbursed for providing her with an air conditioner, but it would be reimbursed for providing ambulance service, a hospital stay and medication for the woman if she suffered heat exhaustion.

Markell is a believer in data collection for new programs and initiatives. The information is fed back to the government to determine how to deliver services more efficiently and economically. According to the Tax Foundation, Delware’s 2010 tax burden of 9.2 percent ranks 20th lowest out of 50 states and is below the national average of 9.9 percent. Markell proves that there is plenty of opportunity to provide better government at a lower cost.

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