Legislative Update

Senator Christopher Dodd (D-Conn) has sponsored the Senate version of the Consumer Financial Protection Agency Act. The House version of the bill, H.R. 3126, sponsored by Representative Barney Frank (D-Mass) passed in December. The Chamber opposed the House version of the bill as it does the current Senate version. Should the Senate version pass, both measures will be reconciled in conference and a final version will go before both Chambers.

The Senate version of the legislation was released from the Senate Banking Committee on a strict party line vote with no Republican amendments. Republicans had crafted some 200 amendments, which were subsequently withdrawn after negotiations stalled.

A United States Chamber of Commerce analysis of H.R. 3126 yielded the following conclusions:

• The CFPA would likely reduce an important source of credit to small businesses. This induced credit squeeze comes at a time when it is likely that small business credit will be already highly restricted as the lending industry digs out of the current financial crisis.

• The CFPA credit squeeze would likely result in business closures, fewer startups, and slower growth. Overall, this would cost a significant number of jobs that would either be lost or not created. It is not possible to give an exact accounting of the magnitude of this impact, since counterfactual conditions are never directly observable, but there certainly would be an effect similar to opportunity costs.

• The CFPA adopts a "one-size-fits all" approach to consumer protection that ignores the fact that small businesses use consumer financial products in different ways than the average consumer. Rules that are designed to protect ordinary consumers are likely to impose collateral damages on informed and sophisticated small business owners who depend on consumer loan products.

• Many suppliers of consumer financial services products are small firms such as community banks. The CFPA would harm these smaller suppliers because the new agency would impose fixed costs of compliance that weigh disproportionately on smaller firms, and because it would encourage product standardization that benefits larger firms. Also, only larger firms have the sophisticated legal staff to cope with waves of new regulations.

The bill creates the Bureau of Consumer Financial Protection, a new bureaucracy with sweeping and unprecedented power to regulate consumer financial markets. Rather than truly protecting consumers, the legislation is far more likely to significantly constrain access to credit for small business and consumers at a time when it is needed most - as the American economy begins a nascent recovery.

This legislation would also have a very negative impact on Delaware's economy and threaten our status as a corporate and financial services center.

Senator Tom Carper

301 N. Walnut Street, Suite 102L-1

Wilmington, DE 19801

(302) 573-6291 (phone)

(302) 573-6434 (fax)

e-mail: http://www.carper.senate.gov/contact/

Senator Edward ÒTedÓ Kaufman

1105 N. Market Street

Suite 2000

Wilmington, DE 19801

(302) 573-6345 (phone)

(302) 573-6351 (fax)

e-mail: http://kaufman.senate.gov/services/contact/

April revenue estimates from the Delaware Economic and Financial Advisory Council (DEFAC) increased estimates for the current year by some $39 million and those for next year by $64.6 million. The Joint Finance and Joint Bond Bill Committees are in the process of crafting the state operating and capital budgets for FY 2011.

The Governor's proposed operating (SB 196) and capital (HB 325) budgets were introduced in January. The proposed operating budget comes to a total of $3.17 billion. The administration also proposed setting aside $41.4 million for Grant-in-Aid and $60 million in cash for the capital budget, bringing total proposed General Fund appropriations for FY 2011 to $3.272 billion.

The recommended capital budget comes to $356.5 million.  Of this amount, $222.7 million is allocated to state capital projects and $133.8 million is allocated to transportation projects.  Of the $222.7 million allocated to state capital projects $162.7 million is derived from General Obligation Bond Authorization and $60 million is cash from the general fund referenced above.

Following the introduction of the Governor's Recommended Budget each January, the legislatures budget writing committees - the Joint Finance and Joint Bond Bill Committees - begin work on the operating, Grant-in-Aid and capital budgets which will be considered by the House and Senate in June and sent to the Governor for signature. In Delaware, governor's rarely veto the budget. The most recent instance was Governor Pete du PontÕs veto of the FY 1978 budget in the first year of his administration.

Legislators who serve on the Joint Finance Committee face a particularly difficult task this year as they work to craft an operating budget in the face of significant revenue shortfalls. Many of the cuts recommended in January's recommended budget could prove practically and politically untenable.

According to leadership and the administration, tax increases are not being considered this session. This session and last, in light of the economic challenges facing our state and our nation, the Chamber has urged policymakers to avoid tax and fee increases.

In his March 17 budget address, New Castle County Executive Chris Coons proposed a $235 million budget for fiscal year 2011. In order to close a $6 million structural deficit, the budget includes dozens of layoffs and a 4% sewer fee increase. No property tax increases are in the proposal.

Three unions will be impacted by the proposed layoffs: Local 3109 (managers and supervisors), Local 1607 (clerical and technical workers) and Local 459 (parks and maintenance workers).

The FY 2010 budget included pay cuts of 5% for county employees, a 10% sewer fee increase and a 25% property tax increase.

The earned income tax ordinance 09-063, sponsored by Councilman Charles ÒBudÓ Freel, generated particular concern among both small businesses and large corporate employers. The ordinance will require employers to withhold 100% of the earned income tax (wage tax) potentially due on nonresident employees who have a work location in the City. Employees will be required to submit documentation for time that was worked outside of the City to apply tax refunds from the City.

Three key areas of concern were the audit and cost recovery components, the definition of which employees fall under the requirements of the legislation and the City's treatment of S-corporation generated income. Business concerns about the City's audit and collection practices are many and span the spectrum from small businesses to the WilmingtonÕs largest corporate citizens. There is a broad consensus that this has become an economic development issue.

Originally slated for a vote on the Thursday before Thanksgiving, the New Castle County and Delaware State Chambers of Commerce, contacted Councilman Freel and administration officials. Consideration of the legislation was delayed until December 3 as the Chambers gathered member input and sought to amend the legislation.

Councilman Freel agreed to amend the legislation to address a number of concerns expressed by our membership. Additionally, the City agreed to consult with the business community as the regulations were promulgated.

Any member interested in receiving a copy of the draft regulations and/or more information can contact Joe Fitzgerald at (302) 294-2060 or

May 19 A Day on Capitol Hill