Governor Markell’s Address to the General Assembly

Read in its entirety below the fold. I am working on getting video as well, and I will have analysis later.

Lt. Governor Denn, President Pro Tem Adams, Speaker Gilligan, members of the 145th General Assembly, Chief Justice Steele and members of the Judiciary, other statewide elected officials, members of the Cabinet, our state employees, my wife Carla and the people of Delaware.

We gather today in a hall whose walls have echoed from great debates over the most pressing issues of our time. Seventy-six years ago, this building was dedicated by the people for the people as a place where their elected leaders could forge consensus and move with purpose, bold purpose, to set a new course for our state and, through its example, offer guidance to the nation.

Then, Delaware’s dreams were held down by the cold hand of economic uncertainty. That year, 1933, marked the darkest moment in our nation’s financial history. But it was also that year – in the depths of the Great Depression – that our nation began down the road to economic recovery. It was that year, in this building, that Delaware looked forward and saw that its greatest days were ahead.

Each new administration and General Assembly brings new ideas and energy for a better future for our state. So again this year, in this building, we must start down our own path to prosperity together. We will find that our greatest days do still lie ahead.

We begin this journey in the grip of the most serious economic downturn since that Great Depression. We begin at a time when more Delawareans – more than 30,000 – are unemployed than at any time in recent history. The Delaware Buildings and Construction Trades Council, for example, finds 2,000 of its 5,000 members out of work. Families who worked hard and played by the rules their entire lives find themselves facing a future that seems less certain than ever. Many businesses find themselves unsure how they will pay their bills, keep employees on the job, and survive the year.

Our state government also faces a challenge: the largest budget shortfall in our state’s history, almost $780 million. And growing. Like you in this hall, I believe there are many worthy ideas and issues to tackle, from universal healthcare to providing additional funds to leverage university research. In the past, joint addresses like this one provided the opportunity to announce grand plans. I still want to tackle them, and I know many of you do, but if we don’t work on our fiscal crisis first, we will not be able to do them, let alone do them well. So as we gather here today, our first order of business must be to repair our state’s economic and financial foundation. It is time we get to work.

Tackling the Budget Problem

Just last week, the Delaware Economic and Financial Advisory Council projected that our already historic budget shortfall grew by another $28 million, eroding that foundation further and making it more difficult to make ends meet. DEFAC also projected that this fiscal crisis is not only deep but wide – likely extending beyond FY 2010, to FY11 and FY12. Together, we must balance our budget; we must live within our means. We cannot walk away from the tough decisions or pretend there are easy answers. We must face this responsibility firmly.

I will be the first to acknowledge that my budget proposal is not easy or popular. There is much in it to dislike and much in it that I dislike. One of the things I dislike the most is proposing that our state employees take such a significant cut in pay, especially those who can least afford it. But our fiscal crisis is dire and I want to avoid layoffs, like many in the private sector have been forced to endure. To state employees I say this: I very much value your service. You do incredible work. I will work with you to minimize these painful cuts but we all need to be realistic about our fiscal situation.

My proposal is a realistic and responsible solution to a serious problem and meets the challenge of balancing the budget while maintaining three core principles: fiscal responsibility, keeping our core commitments and shared sacrifice. By insisting on fiscal responsibility, we will avoid irresponsible cuts that generate short-term savings at the expense of long-term prosperity. We must not make long-term commitments with short-term revenues.

We must keep our government’s core commitments, such as protecting the health and safety of our families, fostering the growth of our economy and protecting the quality of our air and water. We must give every child an opportunity to succeed and assist our senior citizens and those with disabilities.

Finally, when the sacrifice required is as great as it is here, we must ensure that it is fairly shared.

Guided by these principles, our solution to the initial $750M shortfall was to: (1) Cut spending by $331M; (2) Cut funding to special funds by $40M; (3) Utilize $155M in one-time federal stimulus funding; (4) Raise at least $55M by re-authorizing a sports lottery and getting a fairer deal for taxpayers; (5) Increase our revenues by $166M; and (6) raise fees and fines by $12M. With this proposal, we cut much more than we raise because we cannot tax our way out of this problem. We looked line-by-line for savings. And, to be fair, we made sure the burden of these solutions is shared across our state.

When I proposed this budget I made it very clear, it solved the crisis as we knew it at the time – no more and no less. We now know the crisis has gotten $28 million worse and we still have two additional DEFAC meetings before we are required to enact a balanced budget. I fully recognize there are many things in this proposal you may not want to do – and frankly that I don’t want to do, but understand this: any cut we restore or any revenue proposal we reject, we must find cuts or revenue proposals to make up the difference. At the end of the day, the numbers must add up; our budget must be balanced. And so the response of “don’t look here, look elsewhere” to balance the budget is no longer an answer we can afford to hear.

We heard this very response from our state’s casino owners just last week when they rejected our recent sports lottery proposal. That was very disappointing, especially given the very significant and painful sacrifice we are asking of our own hardworking and dedicated state employees.

Let me be clear: the exclusive franchise for video lottery and sports lottery belongs to the taxpayers of this state, not the casino owners. The owners are the taxpayers’ partners in this venture and they need to act like partners. House Substitute 1 for House Bill 100 is a fair way to do that. Looking at the report the casino owners themselves commissioned, the question is not whether they will lose money under this proposal, but rather how much more revenue will they reap. So to the members of the General Assembly, I urge you to reject their arguments. Ensure they act as our partners. Offer up the competitive advantage of sports betting that casino owners have long sought and in return, hold the casino owners accountable to the principle of shared sacrifice by striking a better deal for Delaware taxpayers. This is a critical step towards balancing our budget.

Starting today, we have just ten weeks left to solve this budget shortfall. Where other budgets have been built by Governors and legislators who had months to decide how to solve much smaller problems, we must enact this budget in record time to solve record deficits. Time is of the essence – we need to move forward with those things we can agree on and begin resolving our differences. To that end, my team and I will meet this week with the leadership of each of the four caucuses to begin to forge consensus on the broad parameters of revenue increases and spending cuts. Working within those parameters, we will meet with the members of the Joint Finance Committee and the Bond Bill Committee, as well as individual members of each caucus to talk about solutions to these challenges. This is a daunting task but it is time to get to work.

Long-Term Fiscal Stability

While we keep our focus on resolving the FY 2010 shortfall, we must also set our sights on significant structural changes to our state and local governments. To repair our financial foundation long-term, we must abandon business as usual.

One of my first actions as Governor was to get to work on a statewide performance review that looked at each government agency for improvement. This effort began what must be a statewide shift toward consolidating our operations, eliminating redundancies and removing inefficiencies. While some of the results of these efforts are included in my FY 2010 proposal, many of the structural changes will need to be encompassed in future budgets.

We need to think differently about how we deliver government services, delving deep into the base budgets of each agency to evaluate every dollar spent and every program offered. We need greater accountability – creating performance metrics and tracking tools to ensure we are meeting our commitments to taxpayers. We must take a hard look at consolidating many of the back office services that are provided in each agency, such as human resources, accounting and information technology. In the end, government must be smaller than it is today.

We must also take a fresh look at the actual services we provide. We must ask hard questions such as – should we provide this service at all? And how can we make this more cost-effective? For example, we must consider how we provide long-term care for the elderly. Delaware is in the midst of an historic demographic shift as the baby-boomer generation is in need of more medical care and many retirees move to Delaware to enjoy our low taxes and high quality of life. This shift will have significant consequences for our state’s budget and economy. Seniors require more services, sometimes including expensive institutional nursing home and assisted living care.

We must shift our reliance on expensive institutional care for our senior population by fostering community and home based care. Most of our seniors prefer to stay in their homes, provided they can get the medical care and help they need. With the state’s Medicaid program leading the way, we must weave together a social, medical and community fabric that makes expensive institutional care a last resort, not a first stop for those that need help as they age. If we do this, we will prevent this coming financial crisis while at the same time ensuring that our seniors are able to have as many healthy and happy years as possible living in their community. We must get to work on this and I have directed Rita Landgraf, my Secretary of Health and Social Services to produce a plan to do just that.

Making state government smarter and more cost-effective is not enough. The state funds local governments in a variety of ways. We need to review whether Delaware taxpayers are getting the most for that money. To that end, we are launching a work group that will take a top-down look at savings across governments – the state, counties, cities and towns. Keeping those we serve foremost in mind, we will look at ways to share services like libraries, paramedics and procurement, as well as those provided by the county row offices, for potential consolidation and efficiency.

One of our most significant budget demands is education. Delaware ranks in the top ten in per pupil spending, but we are not getting top ten results in our classrooms. That is in part because too much of that spending does not make it from the back rooms of administration to the classrooms where teachers teach and students learn. In fact, Delaware ranks just 26th in the nation in that regard. Many have pointed the finger of blame at the number of school districts we have. This may be a significant part of the problem, but others believe that these school districts provide a level of local control that parents very much value. Parents want a significant say in where their children will go to school and which programs their schools will support. But I don’t think many parents care whether their school district has its own back rooms, staffed with its own team of procurement officers, human resources advisers, lawyers and accountants. These duplicative functions drive too many of our investments from the classroom to the back room.

For those that call for consolidating school districts and for those opposed, let’s agree on this. We will take a serious look at consolidating school districts and report back next year. For now, we can maintain the current school districts for the purpose of making the decisions parents care most about at the local level. But we must move dollars out of those back rooms and into classrooms by consolidating those back office functions. This will require the surrendering of fiefdoms and turf but it must be done. I ask for your support as we get to work on this important task now.

Creating an Economic Climate for Growth

Our core commitment to education needs to be more than creating efficiencies among the various school districts; it must ensure our children learn to the best of their ability. Just as the Nemours Foundation does each day with student health, we must challenge old assumptions, if we are to deliver better results for our children and better performance from our schools.

I’ve talked with thousands of parents and teachers about how to improve education for our children, and the same answers emerge: We need to let Delaware’s dedicated and talented teachers teach. We need to get parents more involved. We need to push individual decisions down to the school level. We need to measure student progress throughout the year, not just at the end of the year. This year, under the leadership of Senate Education Committee Chair Dave Sokola and House Education Chair Terry Schooley, working with Lt. Governor Matt Denn and Secretary Lillian Lowery, we propose legislation that makes three critical changes:

First, it’s time to eliminate the Delaware Student Testing Program. We will replace it with a testing program that measures student progress over the course of a school year. Currently, my daughter gets her DSTP results when the school year is over. This does not help her learn and does not help her teachers adjust to her needs. It does not measure the progress of individual students or the excellence of any particular teacher. Our new system will offer far greater insight into what a student brings to class on the first day and what they need to learn so they can end the school year with the skills required to succeed.

Second, with money saved from moving investments from the back room to the classroom, we will reward excellence in education by paying the state’s highest-performing teachers more and better reward truly great teachers in high-risk schools.

Third, we will offer greater flexibility to our local schools, so they can better solve problems and encourage them to be more innovative. In exchange for this freedom, districts will be held more accountable for results and will need to be more transparent in how they spend state money.

But education must not end with a diploma. To ensure our financial and economic foundation, while we better educate our children for a brighter future tomorrow, we must continue to educate our current workforce today and create an economic climate where businesses and employees can thrive across a range of industries.

The only long-term answer to our problem is getting Delaware back to work. In that spirit, I am introducing today a series of initiatives that, taken together, will result in the Creation of Real Economic Prosperity, which is why I call it our CORE Prosperity Agenda for Delaware.
CORE Prosperity Agenda

The CORE Prosperity Agenda recognizes that creating more and better jobs is the best solution for most of the problems we face as a state. It reflects my view that education is the foundation of both a strong economy and strong citizenship. It calls for a new vision that a strong economy and a clean environment are very much linked as one.

One of the best ways we help businesses grow is to provide a workforce trained to succeed in the jobs they need. I’ve heard so many heartbreaking stories of people in their mid-40s or 50s who gave twenty years of their lives to a company, only to be laid off. They have quality skills but their backgrounds are deemed too single-industry specific for potential employers to hire them. CORE Prosperity means that we offer help to adults who need to learn new skills to succeed in a changing economy.

To help get them back to work, we will use federal stimulus money to reform our worker training. We will give citizens the chance to assess their skills through a Career Readiness Certificate program that gives employers proof of their potential.

We will focus on re-training adults who lost their jobs so they can get back to work and assist approximately 1,200 young adults with on-the-job training so they can get to work as well. We will use our small size to our advantage by working with the business community to launch a “Quick Start / Rapid Response Training Program” to develop curriculum based on the up-to-date needs in the employer community. Instead of training potential workers with whatever curriculum is currently available, we will build on the great work being done by Delaware Tech and our four-year institutions to train them for available jobs.

CORE Prosperity also means we must focus on the small businesses within our state. Last week, we launched our Small Business LIFT program which supports small businesses with sound plans for success. Across the country, small businesses are having trouble gaining access to affordable capital so they can invest in new technology or, more importantly, new jobs to grow their business. Delaware will be different. By making up to $5 million available in low-interest loans from our state’s Strategic Fund, several hundred small businesses together can leverage about $50 million in private bank financing. This will give them a chance to invest in success. The loans will be repaid, but it is the best deal a sound small business will be able to find to finance their growth and get Delawareans back to work. This program will help between 200 and 500 small businesses keep thousands of jobs and keep their employees working.

This CORE Prosperity Agenda will also turn our small size into our biggest strength. Delaware must be known as more responsive, flexible and dedicated to employers than large states could ever be. We can lead the nation’s economic recovery if we streamline and are faster than others. There is no excuse for a state our size to make employers jump through so many hoops before they can get to work and create jobs. We will cut red tape and eliminate redundant and archaic regulatory hurdles. We should establish a single statewide business license, so that businesses are not forced to run down multiple business licenses to do business in our state. To achieve CORE Prosperity, we must use our size and speed to make Delaware the best place in the nation to start and grow a business, including minority and women-owned businesses. We need to get to work so people can get back to work.

While helping small businesses, training our workforce and empowering growth are critical to getting our economy moving again, CORE Prosperity also means we seize the opportunity that is presented by our nation’s commitment to energy independence and the growing concern over climate change to make Delaware a leader in green jobs. These two forces are leading our nation toward a green economy. These same forces create real opportunities for Delaware workers if we get to work and grab them.

To seize these opportunities, we must lead by example by launching a renewed statewide campaign for energy conservation and efficiency. Long before it was popular, Senator Harris McDowell was preaching the need for conservation. He was right, because he understood that the cleanest energy of all is the energy that we don’t use. Today in Delaware, our low-income families and seniors living on social security and fixed incomes spend more than 20% of their income on energy costs – one of the highest percentages in the nation. Conservation and efficiency put money back in people’s pockets and give Delaware’s citizens more money to save and more to spend close to home.

To that end, I will propose the Energy Efficiency and Conservation Act of 2009 – to establish mandatory energy efficiency reduction targets for our state. Specifically, I will seek legislation that requires utilities to achieve, by 2015, a per capita electricity consumption reduction and peak demand reduction of 15%. To meet these targets, we will partner with the Sustainable Energy Utility to use stimulus funds to launch the Delaware Modernization Service. This will provide energy efficiency services including audits and retrofit loans, grants, and rebates to cut monthly energy costs and put people to work.

We will work to update building codes; encourage energy efficient appliances; reward investment in renewables; modernize our net-metering laws, and remove restrictions that hinder the use of renewable energy. The effect will be new jobs, money saved and a cleaner environment.

CORE Prosperity requires our state government to lead by example. To that end, I will also propose that we establish a statewide priority order for new electricity generation – requiring that we look first to cost-effective efficiency measures to meet new demand, followed then by cost-effective renewables. Only after those resources have been exhausted should we look to conventional fossil fuel sources.

I am also directing the Office of Management and Budget to work with DNREC to develop a statewide energy efficiency policy, including a retrofit plan for existing state buildings, standards for construction of new state buildings, additional energy efficiency measures and a roadmap to make state government powered by renewable sources. This reduces our cost while supporting the growth of our green economy.

CORE Prosperity means that as a state, and as a nation, we must avoid trading our dependence on Saudi oil for dependence on solar panels, electric vehicles and wind turbines produced in China, Japan and Scandinavia. We must put Americans, and I hope more than our fair share of Delawareans, to work producing these products. I am absolutely confident that if we work together, Delaware will emerge as a national leader in this effort. We already have a strong foundation. Across the nation our state is recognized as a leader in high-efficiency solar, hydrogen fuel cells, vehicle-to-grid power, tidal energy technology and off-shore wind.

Just last year, through the leadership of Senator Deluca and Representative Gilligan, Delaware became the first state to secure a Power Purchase Agreement for off-shore wind. While the economic future of the sponsoring company is less than certain, the future of off-shore wind as a renewable energy resource for the East Coast is promising, as it continues to be at the forefront for those, including President Obama and Interior Secretary Salazar, who will craft this country’s energy policy. For Delaware, as the only state with a valid PPA and easy access to all shore points off the East Coast, we must seize our advantage. Let’s work to ensure that the Claymont Steel Mill produces the steel for the windmill towers and foundations, not just for Delaware, but other projects as well. This is a project the former Lt. Governor John Carney and his team have worked hard on and I commend them for it. We have an incredibly skilled manufacturing workforce. So let’s work to encourage turbine manufacturers to make the turbines and assemble the towers here in Delaware, with easy access to the Atlantic Ocean. These wind turbines require thousands of parts and we should work to make sure they are made in Delaware. These projects and others may not come to fruition but the point is we must constantly work to create these types of synergies where we can.

Let’s be clear. Talking about the green economy is easy. Capitalizing on the opportunities it represents is not, because few if any states have really figured it out yet. The state which most effectively marshals its resources in support of an intelligent strategy is likely to reap real dividends. That’s why we’ve got to assemble our natural resources – including the wind off shore; our intellectual resources – including the great work done at DuPont, WL Gore, Ashland Hercules and other local companies as well as at our four-year institutions of higher education; and our human resources – including the training expertise of Delaware Tech to help Delaware lead the way.

By taking decisive action in the coming years, we will look back at this as the time when we laid the foundation for decades of economic growth and a clean environment. We will be able to look ahead with pride and know that our collective efforts have paid dividends for our children and grandchildren and will continue to do so for generations to come.

Closing

I understand how significant the tasks before us may seem. It’s as if our ship of state is stuck in the middle of a financial storm and it seems the only option available is to keep busy bailing us out. But bailing out without sailing ahead is not a long-term solution. It is not our solution.

Today is our day and now is our time. The challenges that confront us are opportunities, not obstacles.

We can, and must, move together with a purpose that makes clear that we have the power to define our future; that we have the energy to turn our obstacles into opportunity and lead our state boldly into the future.

Let’s get to work.