Legislative Update

May 24, 2010

On May 20, the Senate passed, by a vote of 59-39, its version of the Consumer Financial Protection Agency Act, sponsored by Banking Committee chairman Christopher Dodd (D-Conn.). The House passed its version, sponsored by Barney Frank (D-Mass.) in December. As the debate evolved and became more centered on Wall Street investment banks and their part in the recent financial crisis, proponents and observers began to refer to it as the ‘Wall Street Reform Bill”. Both bills will be reconciled into a final version for consideration.

There are aspects of both versions of the bill which could prove problematic for small businesses, community lenders and for the State of Delaware. One particularly troubling aspect of the initial versions of both bills was a provision to eliminate federal pre-emption of state banking laws. Dispensing with pre-emption would have created substantial regulatory uncertainty as banks sought to comply with a 50-state patchwork of legislation and regulation enforced by 50 attorneys general. Additionally, it would have essentially eliminated Delaware’s advantage as a jurisdiction to charter financial institutions. Senator Carper performed yeoman’s work in defeating this provision by amendment.

While much has been made of the aspects of the bill that increase regulation of Wall Street firms by House and Senate sponsors and members of the Obama Administration, we are primarily concerned with the impact that this legislation will have on Main Street. Regardless of the outcome in the conference process, we still anticipate increased borrowing costs, constrained small business and household access to credit and a significant regulatory burden that many smaller financial institutions – such as community banks – may find too great to bear.

Substantial concerns about a disproportionately negative effect on Delaware still exist. Corporate governance language, similar to provisions in Senator Charles Schumer’s (D-NY) Shareholder Bill of Rights Act, survived debate. Senator Carper expressed confidence in a meeting with NCC Chamber members on our May 19 trip to Washington, DC that the language would be removed during the conference process.

The New Castle County Chamber of Commerce has consistently expressed our concerns to the members and senior staff of our Congressional delegation over the course of the past year. We will continue to monitor developments and advise our membership of the final outcome of this proposal.

The General Assembly began budget mark-up break after session on May 13. June promises to be hectic, as the last month of any session always is. Adding to the sense of urgency is the fact that the end of this session also marks the end of the 145^th General Assembly. Any legislation not passed will expire with this General Assembly and will have to be reintroduced.

The May meeting of the Delaware Economic and Financial Advisory Council yielded no changes to last month’s revenue forecast of $39 million additional for FY 2010 and $64.6 million for FY 2011. Since, unlike in recent years, the State is not deficit spending toward the end of the fiscal year, that $39 million can be carried into next year, making for a total of $103.6 million additional for FY 2011.

Though a relatively modest structural shortfall of approximately $130 million for FY 2011 still exists, legislators on the Joint Finance Committee appear optimistic and are restoring certain cuts, including last year’s 2.5% pay cut to state employees.

In response to continuing concerns from Chamber member companies large and small, the Chamber formally asked the City of Wilmington to delay its implementation of regulations arising from earned income tax legislation passed last December. For a copy of the letter from Chamber President Mark Kleinschmidt to Chief of Staff Bill Montgomery click Here.