Jack Markell sheds his suit coat, grabs the mike, then steps down from the auditorium stage, putting him at eye level with his audience. They are some 200 Delawareans who have come to Brandywine Springs Elementary School near Wilmington to hear their governor speak about the state’s economy. Community meetings such as this have produced ugly scenes across the nation in what has become a confrontational political climate. But there will be none of that on this warm September evening, because Jack Markell is in his element.
Markell is good on his feet. He is articulate, sincere and, despite a typically sober mien, humorously self-deprecating. He paces in front of the auditorium, talks about his administration’s successes, explains his plans and takes questions, including two or three that are politely critical of his decisions. The former Nextel vice president deflects them with the skill of a corporate leader turned deft politician.
This is Markell’s second round of public meetings since his election in November 2008. The first and more intense series occurred in the early days of his administration, when he went up and down the state nearly 30 times with a Power Point presentation, outlining his budget and revenue proposals. The first-term governor faced a record deficit, the worst housing downturn since the Great Depression, and the highest unemployment rate in decades. His proposals included higher taxes and an 8 percent pay cut for state workers, two flash points that earned him the enmity of many, prompted at least one death threat, and evoked signs such as “Impeach Markell” and “Paybacks are Hell.”
He subsequently endured a stressful budget battle and, after an expensive legal fight, was rebuffed by the courts in his efforts to supplement state coffers by making Delaware a sports gambling mecca. He also inherited a school system that ranks eighth in the country for spending per student but only 27th in overall performance, and a prison system in danger of being taken over by the U.S. Justice Department because of sub-par healthcare for inmates.
Despite all this, the 49-year-old Newark native says, “I love this job. It is a great job.” The words are spoken with a broad, convincing smile.
Markell announced his long-rumored gubernatorial candidacy in June 2007, while serving a third term as state treasurer. The next year, after a hard-fought primary against the party-backed candidate, then-Lieutenant Governor John Carney, he won the Democratic nomination. In the general election, a nationwide Democratic flood tide helped sweep Markell into office. Markell buried Republican Bill Lee, a retired judge, with 67.5 percent of the nearly 400,000 votes cast. That was the largest percentage of any winning candidate, including Vice President Joe Biden, who got 64.7 percent of the record turnout.
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Election night euphoria dissipated almost immediately, though, as the governor-elect began putting together a team and a plan to solve the state’s financial crisis. Markell quickly filled 15 of 16 cabinet positions, and he, his cabinet and advisers began brainstorming ways to cut expenses while finding revenue sources.
Making the new administration’s task tougher was the near collapse of two industries that underpin Delaware’s economy—banking and automobile manufacturing. Chrysler’s Newark assembly plant, with 1,125 workers, closed in December 2008. The General Motors Boxwood Road assembly plant would follow some eight months later. Markell and one of his earliest appointees, Director of the Delaware Economic Development Office Alan Levin, scrambled to stop the bleeding. They made the Chrysler Plant a primary target and found a buyer in the University of Delaware. Then Fisker Automotive bought the GM plant. (See related story, page 23.)
Nearly two months after his inauguration, Markell presented a budget aimed at closing a $750 million deficit in state revenues. It featured $331 million in spending reductions and a projected $55 million from an increase in the state’s share of video lottery proceeds and a dramatic expansion of sports gambling. His administration spent the next three months wrangling over the numbers with Republicans and some in his own party. Finally, just before sunrise on July 1, a bleary-eyed Markell signed the $3.091 billion budget.
It contained most of his proposals, including a 45-cent tax increase on each pack of cigarettes, a 1 percent increase on taxable income over $60,000, and increases in the corporate franchise tax, the gross receipts tax and the public utility tax. Those measures were projected to raise $181.7 million in 2010 and $222.7 million in 2011. All told, tax and fee increases are forecast to raise $206 million in 2010.
Markell failed to get the 8 percent reduction in state employees’ pay (a proposal he came to, he says, after getting sick to his stomach). He settled for a 2.5 percent cut, coupled with a furlough plan that gives workers five days off in return. The plan, which affects about 18,000 state workers and 13,500 public education employees, will save about $28.5 million. He also failed to win a tax that would add 2 cents to the cost of a can of beer.
Despite a few failed proposals, which Markell blamed on the GOP, the governor can point to a state operating budget that is 8.1 percent smaller than the previous one. Criticism focuses mostly on a failure to significantly cut payroll, which is 46 percent of the state’s operating costs. Among the most vocal critics were Senator Colin Bonini and Representative Greg Lavelle, both Republicans. Bonini pointed out that state payroll had increased 15 percent during former Governor Ruth Ann Minner’s eight years in office. “We’ve got to find a way to shrink that number” in a humane way, he says. Says Lavelle, “I’m still scratching my head as to how you cut about $300 million or so in government spending and you don’t eliminate a single job.”
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In response, Markell says he has cut jobs. Most of the 485 positions he de-authorized were already vacant. Of the positions yet to be eliminated, Lavelle says, “This was a House Republican Caucus effort that I’m glad the governor and Senate agreed to. We pushed hard to save money up front by getting agreement that 525 positions would be eliminated via aggressive attrition efforts. This money was taken out of the budget up front.”
Meanwhile, Markell continued his attempt to make Delaware Las Vegas East. In May the General Assembly approved a sports wagering bill, which the governor promptly signed into law. But major sports organizations, led by the National Football League, quickly took notice. In U.S. District Court in Wilmington, they argued that Delaware’s plans for single-game bets and wagers on other sports would violate federal law. They also claimed Delaware would violate its own constitution, which prohibits all gambling except state-run lotteries.
The state hired outside legal counsel and fought back, but the courts continued to thwart them, and on September 29, the U.S. Court of Appeals essentially ended Delaware’s sports betting initiative by denying a petition for a rehearing on the state’s effort to offer single-game bets and wagers on sports other than pro football.
Many political observers supported Markell’s “in for a penny, in for a pound” attitude, but lots of Delawareans struggling to pay their bills felt the state had spent good money after bad on outside legal counsel to fight the major sports leagues. Markell spokesman Joe Rogalsky says the lawyers charged a discounted hourly rate, but he admits a few of the fees approached a rumored $500 per hour. Another administration spokesman estimated the total legal bill at about $600,000.
“We don’t have the flexibility we had hoped for,” Markell says of the court’s decision, “but we are still the only state east of the Rocky Mountains that can offer a legal sports lottery. It’s a competitive advantage, an opportunity to create jobs and generate revenue.”
The budget passed last June 30 included $17 million from sports betting on football and other sports: $3 million from direct bets and $14 million in “crossover” money from sports gamblers who also play slots. After the court decision in September, Finance Secretary Tom Cook issued a new estimate of $6.7 million—$500,000 for direct revenue from sports betting and $6.2 million from crossover bets.
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A more lucrative possibility is to expand the state’s casino offerings to table games. Regulations would have to be approved by the General Assembly, but Rogalsky has said, “The state is moving ahead with preparation work needed for table games.” Besides revenue, the games could create up to 800 jobs for dealers and pit bosses, according to estimates from casino officials.
Most observers give Markell high marks for his aggressive and almost tireless first-year efforts, but one decision drew nearly universal censure: the March hiring of former Secretary of Health and Social Services Vince Meconi, at a fee of $6,250 a month, to make sure Delaware gets the maximum from the federal stimulus program.
“I’m very disappointed” in the appointment, says John Flaherty, a lobbyist and former head of Common Cause of Delaware, “and I certainly don’t think the salary is worth it. We have a congressional delegation, we also have a lobbyist in D.C., and we have a lieutenant governor heading up stimulus stuff. I think we have enough help in attracting the stimulus money.”
Meconi originally was to be a three-month hire, but as of September, he was still on the state payroll. In addition to the more than $37,000 he had been paid for working on the stimulus package, he receives $7,634 each month from his state pension. Lavelle, who has become one of Markell’s severest critics, set up a Website to detail his attempt, through the Freedom of Information Act, to get more information about Meconi’s contract. Lavelle notes that Meconi “is reaping nearly $165,000 in state money each year, topping the salary he made last year as DHSS secretary by more than $20,000.”
Lavelle echoes Flaherty’s comments. “It defies common sense that we need to pay someone more than $73,000 per year to track stimulus money when we already have the lieutenant governor’s office, our congressional delegation, and the collective staffs of all our state departments overseeing this process.”
Despite the public outcry, Markell stood behind the appointment, citing Meconi’s government experience as a key to squeezing the most out of the stimulus package. “I knew I would take a hit for bringing that person in,” he says, “but one thing’s for sure: You have only one chance to get this right.”
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Rogalsky says the exact amount of Delaware’s share of stimulus funding will not be known for several months because the state has applied for many grants that have not yet been awarded. He says Delaware can expect to receive at least $800 million in stimulus money over the life of the program, “But it is very, very important to remember that most of those funds are earmarked for specific programs and cannot be used toward the general fund operating budget or to repair any shortfall we face. There is about $200 million of stimulus funding included in the current year’s budget that will not be available for next year’s budget and will have to be replaced.”
The Delaware Economic and Financial Advisory Council’s September report revealed some bad news: State revenues were down more than $47 million from what was projected when the budget was passed in July. That means the next two to three years may be even more challenging for Markell. He raised taxes and reduced salaries. Now what?
John Taylor, executive director of the Delaware State Chamber of Commerce’s Public Policy Institute, thinks the governor and legislature should have been bolder in a non-election year.
“He has started to deal with the fiscal problems,” Taylor says, “but more should’ve been done in this past session of the legislature because I don’t see the economy turning around. They didn’t cut deep enough or do enough of the hard things they need to do. They’re going to have to make some very tough choices on programs and people next spring during an election year, where there’s going to be a reluctance to do anything. But I don’t blame the governor for that.”
Taylor says the 2.5 percent cut in state employee’s pay “was certainly reasonable, and maybe it should have been a little more.
State employees would differ with that opinion, of course, and so does Flaherty. “I agree with John Kowalko’s proposal to increase fees for corporations who incorporate here,” says Flaherty. (That proposal was defeated.) “I don’t think state employees should bear the brunt of a fiscal deficit. State employees get a bad rap. Hopefully in the long term we’ll start taxing the corporations rather than the middle class.”
Overall, Flaherty likes what Markell has accomplished. “He was faced with an unprecedented fiscal crisis, and he did a really good job at reaching out with his town hall meetings, looking for ideas and suggestions. He’s the right person at the right time. He’s a very bright man, very open, doesn’t take criticism personally. And he’s got some really good people working for him, like Alan Levin and Collin O’Mara (DNREC secretary).”
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But Flaherty knows the road ahead is rocky. “He will have to call in all his resources and all his chips next year (2010). I think we’ve eliminated all the low-hanging fruit. He’ll probably hold more town hall meetings.”
And that’s what Markell is doing, with gatherings like the one at Brandywine Springs Elementary. In the meetings, he continues to list his primary duty as creating jobs, even as the state registers an unemployment rate of 8.4 percent. “That’s 35,000 people who are our friends, our families, our co-workers,” he says.
During the campaign, he talked about creating 25,000 jobs. So far he’s made only a small dent in that number, according to figures from Rogalsky. Through loans and grants from DEDO to 20-plus companies, a little more than 1,000 jobs have been created. The governor also regularly ticks off his list of “saves” in the business arena. He prefaces the list by noting that Delaware “can’t write the big check, like some (big) states,” but because of its small size, it “can be more responsive, more agile.”
He cites several firms his administration has kept in the state, beginning with the former AIG offices near Naamans Road and Concord Pike. AIG recently was sold to Farmers Insurance, and the 850 jobs at the site were set to move out of state. Markell met with Farmers’ chairman and CEO and, Markell says, managed to save the jobs.
Markell, Levin and other officials are conducting a holding action, at best. The Delaware Department of Labor has reported that between August 2008 and August 2009, Delaware lost 23,600 jobs.
Among the governor’s priorities, right behind creating jobs, is “shrinking the expense of government,” which he says is related to job creation. He’s convinced that companies are attracted to a responsive, effective and efficient government. “So as we shrink the expense of running government, I think we send a signal to businesses that this is the kind of place they want to be,” he says. His Government Performance Review continues to look at all agencies for savings in overhead, information technology, procurement and other areas. He says his new budget will reflect some of those savings.
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To help businesses cut through red tape, Markell recently appointed an economic ombudsman, Cleon Cauley Sr. Cauley, deputy legal counsel to the governor, will coordinate activities across agencies to foster a rapid response to business requests.
Markell’s third priority is improving the schools. His choice of Dr. Lillian Lowery from the Christina School District as secretary of education was widely applauded. A bipartisan effort helped him eliminate the state’s much-criticized Student Testing Program and replace it with a testing program that measures student progress over the course of a school year. He also has consolidated such functions as purchasing and human resources among the state’s 19 school districts, and he has backed a bill giving local schools and districts substantially more discretion to make financial and other decisions while holding them more accountable for spending.
Public schools will need continued vigilance. Enrollment is increasing as the recession forces some parents to take their kids out of private schools. And according to the secretary of education’s office, every 20 students equates to one teacher at a total cost of about $60,000.
Markell says his administration “spent six months choosing between bad and worse scenarios” involving budget cuts and taxes in the last legislative session. Now he’s girding for more of the same. He did his part by taking a 10 percent pay cut in fiscal year 2009 (which ended June 30) and a 20 percent cut this year. But as he is fond of saying, “Unlike the federal government, we can’t print money.” The natural question, then, is where will the money come from?
“We are not going to be able to cut our way to prosperity,” he says. “What we’ve really got to do is focus on improving the economic climate. Obviously, it’s a very challenging time to be governor of any state, but I think it’s an incredible opportunity, and I think we are working on the right things for the people of the state.”
And there, once again, is that convincing smile.
Driving the Fisker Deal
It turns out that “Small Wonder” isn’t just a catchphrase tossed about by Delaware tourism boosters. When it comes to attracting auto manufacturers, it seems the second smallest state really can work wonders. Case in point: Fisker Automotive, the Irvine, California, firm that bought the former General Motors Boxwood plant near Newport.
In June GM dealt another blow to the state’s reeling economy when it targeted Boxwood as one of 14 plants to be closed. Just four months later—on October 27—Fisker announced it would purchase the plant for $18 million to support its NINA project, developing and producing $39,900 (after federal tax credits) plug-in, hybrid sedans.
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After production start-up in 2012, the company expects to crank out 75,000 to 100,000 cars a year by 2014, creating 2,000 factory jobs and 3,000 vendor-supplier jobs. More than half the cars will be exported. Production of Fisker’s luxury, $88,000 Karma, currently built in Finland, is expected to move here by 2014.
The announcement was the culmination of effective and prompt cooperation among Governor Jack Markell’s administration, Delaware’s congressional delegation and the United Auto Workers. It could occur only, some would say, in a state whose citizens are separated not by the proverbial six degrees, but by two or three.
The day after the closing announcement on June 1, Markell, director of the Delaware Economic Development Office Alan Levin and Delaware Secretary of Labor John McMahon met with about 300 workers at the plant to explain that they had done their best to persuade GM to keep the plant open.
“We started working with the governor and Alan on that Tuesday,” says Dave Myers, president of UAW Local 435. The first step was to persuade GM not to dismantle the facility, thus keeping it saleable. Myers credits Markell and Levin, as well as U.S. Senator Tom Carper, for getting a letter of intent from GM to delay dismantling for six months.
“In hindsight, that was a brilliant move on the governor’s part,” says Joe Riccio, chairman of UAW Local 435. “When Barny Koehler (Fisker’s chief operating officer) came in and saw a fully functional plant, that was instrumental in getting them interested.”
Bernhard Koehler and CEO Henrik Fisker first visited Wilmington on August 14, unannounced. Hosted by representatives from Motors Liquidation Co., the firm engaged to sell assets from GM’s bankruptcy, they toured Boxwood, contacted Carper’s office to let him know they were interested in the facility, then left town.
On Monday Carper’s office told Markell about the visit. Markell conferred with Levin. Knowing they had to act quickly—Fisker was considering other options—they set up a return visit for Fisker for September 1.
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Koehler and Fisker began that critical day with another tour of Boxwood. Though the plant was officially closed, many management and union employees were working, removing parts and chemicals and performing maintenance. Plant manager Bob Dolan, along with Riccio and Myers, met with the visitors. “We took them around basically to meet the workforce,” says Riccio. “They saw the excitement these people still had about their jobs and the way they were interested in talking to them and making them feel part of the plant.”
The tour also gave the Fisker representatives a sense of the union-management relationship at Boxwood, which was unusual, if not unique. “We sit down on a daily basis and resolve our issues rather than waiting on that three-year expiration date on the (union) contract,” Myers says. “That’s gone a long way in taking the emotion out of issues and being able to resolve them.”
GM had rated Boxwood No. 1 in paint quality, and its robotic paint department was an enticing feature. Levin says replicating the line would cost up to $350 million.
The group then went to Levin’s Wilmington office at 2:30 p.m. to meet with DEDO representatives. At 4 p.m. they went upstairs to the governor’s office and met with Markell, Congressman Mike Castle, aides of U.S. Senator Ted Kaufman, and Larry Windley, Carper’s state director.
During the meeting, Fisker said it wanted the facility rejuvenated, “making it look like a 2010 automaker and not a 1965 automaker,” Levin says. That included new air conditioning, heating, lighting and facade.
That evening a group that included Fisker, Koehler, Levin, Windley and Markell’s Wilmington chief of staff Tom McGonigle had dinner at the Wilmington Riverfront. They were joined by Jim Wolfe, president of the state Chamber of Commerce and former manager of the Newark Chrysler plant. “He made a big difference,” says Levin. “Jim knows the secret handshake for car manufacturers.” During the visit, Vice President Joe Biden called Henrik Fisker to talk about the company’s interest in Delaware.
Two days later, Levin says, “We put our first, and best, offer on the table.” It included a $12.5 million low-interest loan that converts to a grant if Fisker hires 2,500 people within five years. The company must also spend $175 million on upgrading the plant.
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Fisker was impressed by the administration’s responsiveness and the Boxwood employees, so Koehler returned September 11. He did a walk-through of the plant with Levin, then mentioned about 11 a.m. that he’d like to see the Port of Wilmington. Levin quickly arranged for lunch there. At 12:15, he and Koehler sat down to lunch and a Power Point presentation by Tom Keefer, deputy executive director of the port.
On October 6, Koehler returned for a three-day visit. He met with Markell, New Castle County Executive Chris Coons and local business leaders, including DuPont CEO Ellen Kullman. Reports are that Fisker will continue to use DuPont finishes at the plant.
On October 15, Levin sent Fisker a letter reiterating the original offer, with the additional incentive the carmaker had requested: a five-year abatement of county taxes, which equals about $1.3 million over that period.
Fisker accepted the offer the next day. Meantime, the firm received an assist in getting the plant up and running through a U. S. Department of Energy award of $528.7 million, part of $25 billion appropriated by Congress in 2007 for advanced technology vehicles. The Markell administration had lobbied the DOE to grant Fisker’s application for the award.
During the October 27 announcement at the plant, Fisker praised Markell for the speed with which he organized the project, and in getting congressional representatives to come to his office in less than five minutes. Said Fisker, “I can’t get my family of four together that quickly to go out to dinner.”
While Markell and Levin drove the deal, many others deserve credit. Says the UAW’s Myers, “We get things done fast because of the size of the state. Everybody knows everybody. They make a phone call and make it happen today. It’s not like Michigan or Tennessee (sites of other closed GM plants) or somewhere.”
No, it’s not like somewhere else. It’s Delaware—Small Wonder.