| Report: | 
Joint Sunset Committee
2007 Final Report
The Council on Development Finance
May 2007 _______________________________________________________________
Table of Contents
Pages
2007 Final Recommendations
Laws and Policies
Background 1
The Delaware Economic Development Office and
the Delaware Economic Development Authority 1
Joint Sunset Committee Review History 2
Powers and Duties 2
Administrative Procedures Act 3
Audits 3
Judicial Decisions, Executive Orders and Interagency Agreements,
Memoranda of Understanding and Federal Laws 4
Performance
Mission 4
Goals 4
Challenges 4
Accomplishments 4
Performance Measures 5
Policymaking Structure
Council Membership 5
Removal of Council Members 7
Compensation and Training 7
Subcommittees 8
Meetings and Minutes 8
Executive Session 9
Organization
Staff Assistance 9
Budget 10
Funding Programs 10
Funding Appropriations 11
Notification to the Business Community and Public Regarding
Funding Programs 12
Application Review Process 13
The Council on Development Finance
On June 7, 2006, the Joint Sunset Committee voted to hold over its Sunset Review of the Council on Development Finance through 2007, or later if determined to be necessary.
On May 7, 2007, the Joint Sunset Committee voted to continue the Council on Development Finance from Sunset Review, but only upon its meeting certain conditions or making certain modifications as identified in the Committee’s Final Recommendations.
2007 Final Recommendations
The Joint Sunset Committee recommends continuance of the Council on Development Finance, but only upon its meeting certain conditions or making certain modifications as identified below.
A. The Joint Sunset Committee recommends the following statutory changes:
1. Amend the statute to designate the term of office for the members appointed by the President Pro Tempore of the Senate and the Speaker of the House. The term shall be the same as the other 7 members – 3 years.
2. Amend the statute to provide that members are eligible for reappointment.
3. Amend the statute to provide that members that are appointed to serve out the term of a vacant position are eligible for reappointment.
4. Amend the statute to remove the language referring to the “members of the Council on Industrial Financing whose terms…”
5. Amend the statute to provide that appointees to the Council on Development Finance shall all be Delaware residents.
6. Amend the statute to provide that appointments to the Council shall be made in a way to effect equal distribution of Council members per county.
7. Amend the statute to provide that a designee from the Office of Management and Budget
and a designee from the Controller’s Office shall be appointed by their respective offices and available to assist the Delaware Economic Development Office’s Council on Development Finance staff upon request from the CDF staff with relevant analysis and research and further that they be available to attend all Council on Development Finance meetings.
8. Amend the statute to provide that the Council on Development Finance Chairman, with prior notice to the Controller General, will engage professional contractual services, when necessary, to provide analysis and research for specific application(s) recommended to the Council on Development Finance by the Delaware Economic Development Office. Any contract for such services shall be administered by the Office of the Controller General.
9. Deleted
10. Issue a Resolution urging Congress to put an end to the practice of “smokestack chasing.”
B. The Joint Sunset Committee recommends the Council on Development Finance do the following:
11. Encourage the Governor to fill any Council vacancy promptly.
12. Encourage the CDF to develop an economic matrix that includes information concerning the unintended consequences a company may have on the general economy and existing business
13. Mandate that certain information contained in the application be available to the public after finalization of the Agreement.
14. Meeting locations should be centrally located or geographically balanced in number.
15. Deleted
16. Any substantive changes made to any agreement or contract, excluding any agreement, contract or associated document related to any bond issued by The Delaware Economic Development Authority, after initial review by the Council on Development Finance shall be resubmitted to the Council on Development Finance for additional review and recommendation.
For purposes of this regulation, “substantive changes” shall mean: i) a 10% or lower decrease in the interest rate for any fixed rate loan made by DEDO or DEDA; ii) any changes in the collateral of a loan which would cause a decrease in the security position of DEDO or DEDA; and iii) a 10% or greater increase in the amount of any loan or grant.
17. Mandate that all current and future Council on Development Finance members receive, as part of their orientation, a briefing on Delaware’s public integrity laws. This briefing will be conducted by staff of the Public Integrity Commission and will include, but not be limited to, the following topics: conflict of interest, disclosure, etc.
18. Mandate that the Council on Development Finance receive periodic update reports with regard to each recipient of all funding.
19. Encourage the Council on Development Finance to seek out and identify potential companies to become “candidate companies.” (Recommended course of action is for Council on Development Finance members to turn leads over to Council staff.)
20. Mandate that the Council on Development Finance review, establish and implement a statewide marketing program for each of the programs. (Delaware Economic Development Office already establishes a statewide marketing plan, as such it will inform the Council on Development and solicit the Council members’ input as part of the annual review and establishment of that plan.)
21. Mandate that the Delaware Economic Development Office provide information about the Council on Development Finance on the Delaware Economic Development Office website. The information shall include meeting dates, times, locations; meeting agenda; meeting minutes; member contact information and a list of members with term information.
22 and 23. Mandate that there be no announcement by the Delaware Economic Development Office regarding the awarding of any funding prior to review and approval by the Council on Development Finance or mandate that an announcement regarding the awarding of any funding include that the funding is subject to review and recommendation of the Council on Development Finance
24. Mandate that in an effort to enhance the coordination between the Council on Development Finance and the Delaware Economic Development Office, the Council on Development Finance in conjunction with the Delaware Economic Development Authority shall promulgate the following regulations:
a. The Council on Development Finance will be informed of any project that has negotiated changes from the terms and conditions recommended and approved by the Council on Development Finance.
b. Delaware Economic Development Office staff will bring to Council for review: employment levels, percent above sustainable wage, company investment and repayment status for loans two times a year.
c. Projects with approvals that are more than 2 years old without an executed agreement will be brought to the Council’s attention.
d. The Delaware Economic Development Office Director will brief the Council on Development Finance chair on projects under consideration as soon as Delaware Economic Development Office completes its internal review and before Delaware Economic Development Office makes an offer.
e. Delaware Economic Development Office will organize and provide basic training for all new Council on Development Finance members and should organize and provide an annual retreat for all Council on Development Finance members. The basic training would feature: the responsibilities of Council on Development Finance members, Delaware Economic Development Office staff and applicable state law/regulations. This retreat will feature a report on industry trends, emerging issues and emerging financing programs.
f. Delaware Economic Development Office staff will provide Return on Investment, Gross State Product and Personal Income Tax data related to each project where these data were used to determine its value.
g. Delaware Economic Development Office will continue to inform the Council on Development Finance biannually on the fiscal status of all projects including the total funds available, amounts encumbered (and corresponding dates of encumbrances), funds committed to future projects and available balances.
h. Delaware Economic Development Office will make sure the original offer letters are presented to the Council on Development Finance when the original offer letter resulted in an application.
i. Delaware Economic Development Office will present the Council on Development Finance with recommendations regarding how the Strategic Fund and Competitiveness Fund balances should be used on an allocation basis to help various economic development sectors.
Laws and Policies
Background
The Governor’s Council on Industrial Finance was created in 1968 during Governor Terry’s administration. In November of 1981, the Council on Development Finance (“Council”) was established. 63 Del. Laws, c. 189 The initial members of this Council were the seven members of the Governor’s Council, whose terms were still active. Joint Sunset Review Questionnaire (JSR Questionnaire), pg. 5
The Council was created to serve in an advisory capacity to the Director of the Delaware Economic Development Office, in matters relating to the financing and modernization of agricultural, commercial and other facilities in the State. In that capacity, the Council may study, research, plan and advise the Director and the Governor on matters it deems appropriate to enable DEDO to function in the best possible manner. 29 Del. C. § 5007(a)
In July 2004, epilogue language in the FY’05 Bond Bill increased the membership of the Council from 7 to 9, with the 2 additional members being appointed by the President Pro Tempore of the Senate and the Speaker of the House, respectively. The Governor continues to appoint the other 7 members. Although the Legislature amended the number of members, it did not amend the political balance provision of 29 Del. C. §5007(d), which requires that “[a]t least 3, but no more than 4, members of the Council shall be affiliated with 1 of the major political parties and at least 2, but no more than 3, of the members shall be affiliated with the other major political party; provided, however, that there shall not be more than a bare majority representation of 1 major political party over the other major political party.” The Council has indicated this amendment is problematic in that it is not clear how the expansion of the total Council membership to 9 is to be harmonized with the political balance provision, which seems to assume a membership of no more than 7. JSR Questionnaire, pg. 5
The Delaware Economic Development Office and the
Delaware Economic Development Authority
The Delaware Economic Development Office (“DEDO”) is an Executive Department that is administered by a Director. The Director is appointed by the Governor, with the advice and consent of the Senate, and serves at the Governor's pleasure. DEDO serves as the Governor's staff agency in all general and economic development matters. 29 Del. C. § 5003
The Delaware Economic Development Authority (“Authority”) is an instrumentality of the State and is a separate, stand alone entity whose primary purpose is to provide bonds and other types of financial assistance from funds under its control. October 18, 2005 email from Lee Porter The Director of DEDO serves as the Chairperson of the Authority (ex officio). The Authority does not have officers. 29 Del. C § 5053
Joint Sunset Committee Review History
The Joint Sunset Committee’s (JSC) Review History reveals that the JSC reviewed the Delaware Development Office in 1985. The Delaware Development Office was created in 1981. It was the successor agency to the former Office of Management, Budget and Planning and the Division of Economic Development.
The 1985 Final Report contained only one reference to the Council.
“Business Finance
The Council on Development Finance reviewed 80 applications for industrial revenue financing. Bonds were issued for 7 industrial projects, 30 commercial projects, 5 health care facilities, 4 pollution control projects and 3 re-fundings for a total of $108 million. These projects created 1,223 new jobs.
The section also reviewed 8 applications for Small Business Administration (SBA) 503 financing and 6 of these were financed by SBA.” Joint Agency Review, Sunset Committee Final Report 1985, pg. 57
In the 1985 Final Report, the JSC recommended that the Delaware Development Office not be terminated, but rather that it continue in existence with the implementation of the following sole recommendation:
“1. It is recommended that the current act be amended to make the remaining employees in the Delaware Development office exempt employees rather than Merit System employees.”
Powers and Duties
The Council’s powers and duties are defined in 29 Del. C. §§ 5007(a) & 5055(a)(d). Below is a brief synopsis submitted by the Council describing the method by which the Council carries out its statutory powers: JSR Questionnaire, pg. 6
1. Serves in an advisory capacity to the Director.
The Council receives an application with a written analysis prepared by DEDO’s staff, for financial assistance from various companies. The Council reviews that material and at the monthly Council meeting, the Council makes a recommendation to the Director as to the approval or disapproval of the financial request. (The application process and the advisory capacity are discussed further under the headings “Application Process” and “Points to Consider).
2. Consider matters relating to the financing and modernization of agricultural, industrial, commercial and other facilities in the State and such other matters as may be referred to it, by the Governor, or by the Director.
When reviewing the applications requesting financial assistance, the Council makes certain findings regarding the abandonment standard, employment standard and capability standard before making a recommendation. The terms abandonment standard, employment standard and capability standard are defined in the Appendix – Regulation No. 5 – Procedures Governing The Delaware Strategic Fund, §§ 10.3.1.1, 10.3.1.2 & 10.3.1.3 The Council also asks the applicant for additional information or clarification of information submitted.
3. Study, research, plan and advise the Director, and the Governor, on matters it deems appropriate to enable the Council to function in the best possible manner.
When necessary, the Council will ask that it be provided additional information on all new applications, such as the amount of tax revenue that will be generated as the result of this financial assistance. The Council adopted regulations that established procedures to enable members of the public to make comments at the Council hearings.
Additionally, the Council is delegated the power and responsibility to hold public hearings on all financial assistance projects of The Delaware Economic Development Authority (“Authority”), which constitute the majority of financial assistance grants and loans made by various economic development programs. 29 Del. C. § 5055(a)(d) The Council also holds public hearings on tax exempt bonds to be issued by the Authority in accordance with the public hearing requirements of Treasury Regulation 5f.103-2(g). JSR Questionnaire, pg. 5
Administrative Procedures Act
The Council is statutorily granted the power to promulgate rules and regulations under 29 Del. C. § 5055(d). The Council has complied with the APA with respect to promulgating rules and regulations pursuant to APA requirement 29 Del. C. § 10113(b)(2).
In November 2004, via a memorandum to the Council, Director Judy McKinney-Cherry recommended that the Council adopt rules and regulations “to ensure all future meetings are orderly, fair and comply with Delaware laws and regulations.”
In February 2005, the Council adopted an Order amending its rules and regulations “to establish procedures to enable members of the public to make comments at the hearings that the Council conducts in a manner consistent with the fair, efficient and orderly conduct of the Council’s business.”
Audits
The Council indicated in the response to the Sunset Review Questionnaire that it has not been audited or evaluated by the State Auditor or any other external organization. JSR Questionnaire, pg 8
Judicial Decisions, Executive Orders, Interagency Agreements, Memoranda of Understanding and Federal Laws
The Council noted there are no known judicial (state or federal) decisions, Executive Orders, interagency agreements or Memoranda of Understanding applicable to the Council. JSR Questionnaire, pg. 7 & 8
Additionally, when asked to list and briefly explain any federal laws applicable to the administration of the Council or any of its programs or activities, the Council responded “none known.” JSR Questionnaire, pg. 7
Performance
Mission
The Council stated that its mission is to recommend for approval those projects presented before them which have been determined that they will contribute to the prosperity, health and general welfare of the citizens of Delaware by contributing to the creation or retention of gainful employment of the citizens of the State. JSR Questionnaire, pg. 9
Goals
The Council listed its goal as basically the same as its mission, as well as providing assistance to companies that request financial assistance, which in turn will benefit the State in various forms, such as revenue received, increase in employment, a better quality of life, etc. JSR Questionnaire, pg. 9
Challenges
The Council stated that the biggest challenge it faces is a vacancy on the Council. JSR Questionnaire, pg. 8 The Council must have a quorum, five of nine members present, to conduct its business at meetings. In the recent past, there were two vacancies and this posed a problem with regard to quorums.
Accomplishments
When asked to list its accomplishments, the Council noted that since it is an advisory board, it does not have the power to actually approve a project, but because of its due diligence in considering the requests for financial assistance, as well as the financial, accounting and legal expertise of its members, the Council has been instrumental in recommending approval/disapproval of all of the financial assistance projects of DEDO such as Astra Zeneca, AIG, and other noteworthy transactions. Often the Council suggests changes to transactional terms or structures, and these suggestions are usually helpful. JSR Questionnaire, pg. 8
Performance Measures
The Council provided the following answer when asked how the Council measures its performance, and to list all performance measures and any other method of evaluation:
“Each Council member reviews each project by the application submitted and analysis provided and they address any concerns they may have at the Council meeting. Each member is aware of the value/impact of each project to the State.” JSR Questionnaire, pg. 9
When asked to explain (clarify) the statement “Each member is aware of the value/impact of each project to the State,” the Council provided the following statement:
“In the project information submitted to the Council members, they receive specific information on the value each project will provide to the State. The two primary tools used are the Personal Income Tax (“PIT”) calculator and the IMPLAN economic impact software. The PIT calculator was developed in cooperation with the Division of Revenue and calculates the estimated PIT receipts the State will receive or save as a result of the project. The IMPLAN software uses economic data published by the U.S. Bureau of Economic Analysis to calculate the effect of each project on the Delaware’s Gross State Product (“GSP”).” Joint Sunset Review Follow-Up Questionnaire, Section 3 (H), (JSR Follow-Up Questionnaire)
Policymaking Structure
Council Membership
By statute, the Council is comprised of 9 members. Seven of the members are appointed by the Governor and serve for a term of 3 years. The President Pro Tempore and the Speaker of the House each have one appointment. The statute is silent as to the terms of these appointments. Senate confirmation of members is not required.
Composition of the Council is also designated by statute. The Council shall include:
· A member of the Bar of the Supreme Court of the State;
· A certified public accountant certified by the Board of Accountancy of the State;
· An officer of a bank or trust company located in the State;
· One member appointed by the President Pro Tempore of the Senate; and
· One member appointed by the Speaker of the House.
· At least three but no more than four members of the Council shall be affiliated with one of the major political parties and at least two but no more than three of the members shall be affiliated with the other major political party, provided, however, that there shall be not more than a bare majority representation of one major political party over the other major political party.
Member Name | Address | Occupation | Political Affiliation | Appointment Information |
| Steven L. Biener, Esquire | 124 Yardley Ln.
Wilmington, DE 19810 | Attorney | Democrat | Appt. Date:
9/12/95
|
| Thomas A. Gilligan, CPA | Horty & Horty
29 Hill Road
Wilmington, DE 19806 | Accountant | Republican | Appt. Date:
8/24/05
8/24/08 |
| Andrew M. Lubin | 110 S. Poplar St. Suite 101
Wilmington, DE 19801 | Businessman | Independent | Appt. Date:
10/6/87
Term Expires:
1/11/08 |
| Donald J. Lynch | Animal Health Sales
44 Rte 113
Selbyville, DE 19975 | Businessman | Democrat | Appt. Date:
1/23/80
Term Expires:
5/6/05 |
| Fred C. Sears, II | Delaware Community Foundation
100 W. 10th St., Suite 115
Wilmington, DE 19801 | Businessman | Democrat | Appt. Date:
11/28/01
Term Expires:
1/11/08 |
| Richelle A. Vible | Citizens Bank
919 N. Market St. 8th Floor
Wilmington, DE 19801 | Banker | Republican | Appt. Date:
1/11/05
Term Expires:
1/11/08 |
| Sen. Nancy W. Cook | Delaware State Senate
Legislative Hall
411 Legislative Ave.
Dover, DE 19901 | Senator | Democrat | Appt. Date:
7/15/04
Term Expires:
7/15/07 |
| Rep. Roger P. Roy | 3 Citation Court
Wilmington, DE 19808 | Representative | Republican | Appt. Date:
7/15/04
Term Expires:
1/15/07 |
| VACANT | --- | --- | --- | --- |
As previously noted, the Council stated the statutory provision regarding political affiliation is problematic in that it is not clear how the expansion of the total Council membership from 7 to 9 is to be harmonized with the balance provision, which seems to assume a membership of no more than 7.
Currently, the Council chooses a Chairperson at each meeting. JSR Questionnaire, pg. 4 This practice is contrary to what is prescribed by statute. The enabling statute requires that the members of the Council chose a Chairperson from among its membership and that the Chairperson shall serve in that capacity for a one year term with eligibility for re-election. 29 Del. C. § 5007(f)
The statute is silent as to whether members are eligible for reappointment.
Any member appointed to replace a member whose position becomes vacant prior to the expiration of the term shall serve for the remainder of that term. The statute is silent as to whether that member is eligible for reappointment.
Removal of Council Members
The enabling statute does not address the removal of a Council member prior to the expiration of his/her term. In its response to the Joint Sunset Questionnaire concerning the process for removal of a Council member prior to the expiration of his/her term, the Council indicated that removal could be done through an impeachment process or one of two additional methods provided for in the Delaware Constitution. JSR Follow-Up Questionnaire, pg.3
First, Article III, §13, of the Delaware Constitution provides in part, "The Governor may for any reasonable cause remove any officer, ...upon the address of two-thirds of all the members elected to each House of the General Assembly."
Second, Article VI, §2, of the Delaware Constitution provides in part, "The Governor and all other civil officers under this State shall be liable to impeachment for treason, bribery, or any high crime or misdemeanor in office." Article VI, §1 of the Delaware Constitution provides in part, "The House of Representatives shall have the sole power of impeachment; but two-thirds of all members must concur in an impeachment. All impeachments shall be tried by the Senate, and when sitting for that purpose, the Senators shall be upon oath or affirmation to do justice according to the evidence. No person shall be convicted without the concurrence of two-thirds of all the Senators."
Finally, Article XV, §6, of the Delaware Constitution provides in part, "The Governor shall remove from office any public officer convicted of misbehavior in office or of any infamous crime." JSR Follow-Up Questionnaire, pg. 3 & 4
These Constitutional provisions for removing a member of the Council are rigorous, costly and appear to be impractical as an effective measure
Compensation and Training
The members of the Council serve without compensation. They may however be reimbursed for reasonable and necessary expenses related to their duties as members of the Council, such as mileage and parking.
The Council indicated that members do not receive formal training, although three of the nine members must have professional and educational backgrounds specifically designated by statute.
Subcommittees
The Council indicated that it does not have committees/subcommittees.
Meetings and Minutes
Council meetings are open to the public and scheduled for the fourth Monday of each month, unless it falls on a holiday. If the fourth Monday is a holiday, depending on the timing of the projects to be presented, the meeting could be held on the third Monday or the meeting for the following month could be scheduled earlier.
If the meeting requires a TEFRA (Tax Equity Fiscal Responsibility Act) notice, which is required when there is a qualified private activity bond Qualified private activity bond - Very generally, private activity bonds are bonds whose proceeds are used for the benefit of private business, rather than government purposes. Qualified bonds are defined in IRC § 141(e), which contains a list of types of private activity bonds that may constitute qualified bonds. DEDA generally issues exempt facility bonds, qualified small issue bonds and qualified 501(c)(3) bonds. These three types of bonds are subject to their own rules set out in separate sections of the IRC. (Sunset Review Additional Questions, attachment) project hearing at the meeting notice, and agenda are posted in DEDO’s Dover and Wilmington offices at least 14 days prior to the meeting date. Notice is also published in the Delaware State News and The News Journal at least 14 days in advance of the meeting.
If there are no qualified private activity bond projects on the agenda, but there are other requests for financial assistance, the notice is posted in DEDO’s Dover and Wilmington offices and published in the Delaware State News and The News Journal at least one week prior to the meeting date. Additionally, each of the 62 legislators is notified of every Council meeting either by writing or e-mail. JSR Questionnaire, pg. 7
Meeting minutes are transcribed and can be obtained by contacting DEDO and making a formal FOIA request. JSR Questionnaire, pg. 7 A review of the minutes from the past two and one half years reveals that the Council does routinely approve meeting minutes.
In 2003, all Council meetings were held in DEDO’s Wilmington office. In 2004, all but one of the meetings were held in Wilmington with the remaining one being held in DEDO’s Dover office. In 2005, three of six meetings were held in Wilmington, two were held in Dover and one was held at Buena Vista Conference Center.
Executive Session
In the past three calendar years, the Council conducted executive sessions at two meetings. (September 20, 2004 and May 23, 2005)
The executive sessions were called during a “regular” meeting to discuss confidential commercial or financial information. The applications presented by businesses seeking assistance almost always contain nonpublic information, such as financial statements, tax returns, employment targets, and descriptions of proprietary information that would be of use to business competitors. The Council noted that minutes of those executive session meetings are available to the public upon a FOIA request and upon the minutes being reviewed by DEDO’s legal counsel and redaction of any confidential commercial or financial information. JSR Questionnaire, pg. 7
Organization
Staff Assistance
The Council is supported by two full-time exempt positions within DEDO (Bond and Finance Administrator and Director of Capital Resources) as well as a full-time Merit position Deputy Attorney General.
The Bond and Finance Administrator (paygrade 15) arranges the Council meetings and verifies that a quorum will be in attendance. The Administrator also prepares and posts the agenda, disseminates information to the Council members and takes and distributes meeting minutes. These responsibilities take approximately 20 percent of the Administrator’s time. JSR Follow-Up Questionnaire, Section 5(F)
The Director of Capital Resources (paygrade 21) prepares the financial analysis of each project that is presented to the Council members and coordinates the Council meetings by insuring that all material presented is comprehensive and accurate. The Director also attends the meetings and presents project requests to the Council members. These responsibilities take approximately 10 percent of the Director’s time. JSR Follow-Up Questionnaire, Section 5(F)
Of note is the fact that the current Director of Capital Resources, John Dascher, left DEDO on October 14, 2005. He was the Director for approximately 18 months, having replaced the former Director, James A. Burke, who served for 10 years.
New hires within DEDO receive an orientation session. In addition to this orientation, the Council also points out that the State offers many training courses through the State Personnel Office and employees can also attend training courses that relate to their specific jobs. JSR Questionnaire, pg. 11
In response to the JSC’s request for an organizational chart showing the Council and its relationship to DEDO, the Council provided an organizational chart for DEDO. The Council did not provide the requested chart and stated that the Council is not a part of DEDO’s organizational chart because it is an advisory board to the Director only on financial assistance projects. JSR Follow-Up Questionnaire, Section 5(F)
Budget
The Council indicated that it does not have an operating budget, as it is an advisory board and does not incur any expenses. Any miscellaneous expenses such as charges for meeting space, lighting, and advertising are paid by DEDO. Joint Sunset Review Additional Questions, pg.1 (JSR Additional Questions)
Funding Programs
Strategic Fund
The Strategic Fund was established by epilogue language in the FY ’94 Bond Bill (HB 350). In the FY ’95 Bond Bill (HB 626) the Fund became part of the Code. The Strategic Fund was created to consolidate the existing DEDO development finance programs. 69 Del.Laws, c. 77, Section 23
The Strategic Fund was established to assist DEDO through the Authority with efficiently administering financing programs, as well as with developing new programs to retain, attract and expand Delaware employment. DEDA Regulation No. 5, Section 1.0
The Strategic Fund includes the Small Business Innovative Research Program (SBIR) that provides financial assistance to research and development project that received matching grants from the government. The Strategic Fund also includes the Brownfield Assistance Program for projects that receive financial assistance for the reimbursement of costs incurred in environmental assessments and remediation of brownfield sites. Oct. 7, 2005 email from Lee Porter
Statute requires that the Authority draft rules and regulations regarding Fund eligibility, and establish criteria to administer the Fund. Statute also sets out reporting requirements for DEDO.
New Economy Initiative
The New Economy Initiative was established by epilogue language in the FY’05 Bond Bill (HB 550), with the intent of expanding the range of new initiatives for retaining and expanding high-paying jobs in a rapidly transforming global economy. Epilogue language in the FY’06 Bond Bill (SB 190) continued the initiative – New Economy Initiative – Year 2.
Delaware Competitiveness Fund – This fund is a New Economy Initiative, created in the FY’05 Bond Bill, and is to be used to induce Delaware manufacturers to make capital investments to preserve and expand productivity, competitiveness and jobs at existing Delaware plant sites that face decline due to national and global competition.
Technology-Based Seed Fund - This fund is a New Economy Initiative and was created by epilogue language in the FY‘05 Bond Bill (HB 550) with the intent to foster high-wage, fast-growing small businesses in technology fields such as biotechnology, advanced materials, clean energy, information technology, and new chemical applications.
Per the epilogue language, DEDO was instructed to establish guidelines. In response to JSC’s request for a copy of the Guidelines, a copy of Memorandum from Judy McKinney-Cherry, Director, addressed to the Delaware Entrepreneurial Community and dated March 1, 2005 was submitted. There was a notation to the Memorandum stating that the Director of Capital Resources stated the guidelines “aren’t current.”
Venture Capital Investment - This appropriation is a New Economy Initiative and was created by epilogue language in the FY ‘05 Bond Bill (HB 550). The program is intended to stimulate long-term equity capital investment in emerging Delaware companies including, but not limited to, those that are technology-based and considered poised to grow quickly, generating jobs that enhance the standard of living in Delaware.
Funding Appropriations
Appropriations for the Strategic Fund and the New Economy Initiative are listed in the Bond and Capital Improvements Act (“Bond Bill”). Below are the appropriations and allocations for the fiscal year indicated:
FY ’06 Bond Bill Appropriations
Strategic Fund $ 13,000,000
New Economy Initiative II ($12,000,000)
DE Competitiveness Fund 5,300,000
*DuPont Innovation Center
Partnership 5,000,000
*Clean Energy Center Partnership 200,000
*Experimental Program to Stimulate
Competitive Research (EPSCOR) 1,500,000
FY ’05 Bond Bill Appropriations
Strategic Fund $ 10,000,000
New Economy Initiative ( $20,500,000)
DE Competitiveness Fund 12,500,000
*Emerging Technology Center 1,000,000
Technology-Based Seed Fund 1,500,000
Venture Capital Investment 3,000,000
*Clean Energy Center Partnership 200,000
*Clean Energy Performance Grants 800,000
*Experimental Program to Stimulate
Competitive Research (EPSCOR) 1,500,000
FY ’04 Bond Bill Appropriations
Strategic Fund $ 10,000,000
* These New Economy Initiatives are not required to go before the Council.
Notification to the Business Community and
Public Regarding Funding Programs
The JSC Questionnaire (Section 8 Public Information) asked the Council to identify any educational resources, such as newsletters, guidelines, policy reports, or other documents, that the Council distributed to the public. The questionnaire also asked whether there are any other means by which the Council informs the public. The Council replied “not applicable.” JSR Questionnaire, pg. 13
Continuing under the same section, the Council was asked to complete a chart listing groups affected by the Council’s action, or represent others that are served or affected by the Council’s actions. The Council did not complete the chart. It appears the Council intended the former “not applicable” response to apply to this request.
Again under that same section, the Council was asked to complete a chart listing any national organizations or other government entities that serve as an information clearinghouse or that regularly interact with the Council. The Council did not complete the chart. It appears the Council intended the former “not applicable” response to apply to this request.
In a further attempt to find out how the business community and the public find out about DEDO funding programs, Council was sent JSC Additional Questions, dated Oct. 12, 2005. The Council was asked to provide an explanation detailing how businesses/general public were informed about the availability/ existence of each source of funding for FY ’05 and FY’04 and to provide a copy of any marketing/sales information.
The Council responded that “DEDO worked with banks, Chambers of Commerce, the Small Business Development Center, the Delaware Manufacturing Extension Partnership and at various other functions in which DEDO was involved, in spreading the word about DEDO’s funding programs. Specific presentations for the Competitiveness Fund were held to announce that program.”
In its response to the Additional Questions, Council stated it did have one piece of marketing literature. This marketing brochure, entitled “Citizens Business Bank Technology Fund,” is a full color brochure that includes a forward, by Governor Ruth Ann Minner and Richelle A. Vible, President and CEO of Citizens Bank (also a member of Council), promoting a partnership between the State of Delaware and Citizens Bank with regard to the New Economy Initiative. The brochure includes the “It’s good being first” logo on the front cover, and a photograph of Governor Minner and Ms. Vible on the inside page. The brochure also prominently displays the Citizens Bank logo twice, and appears to be a marketing tool for the bank. This was the only marketing piece submitted by Council.
The Council was also asked to provide an explanation detailing how businesses/general public will be or have been informed about the availability/existence of each source of funding for FY ’06 and to provide a copy of any marketing/sales information. The Council indicated the response was the same as the above response.
The Council was also asked to provide a response detailing how many unsolicited inquiries DEDO received regarding information about available funding sources in the calendar year 2004. The Council was also asked to state how the inquiries were made, (email, telephone, letter, etc.,) and from whom the inquiries were made. The Council replied that the requested information was currently unavailable. They indicated that they “are working towards developing a centralized tracking system for those inquiries and staff members.” JSR Additional Questions, pg. 2
Application Review Process
From the information provided, it was not possible to determine what methods of marketing, advertising or notification were used by DEDO to inform the public or the business community about the various sources of funding available and as such identify prospective companies. More specifically, it was not possible to determine whether the methods employed by DEDO were expended in a limited or broad based nature, done on a continual and consistent basis, competitive, statewide or effective.
As illustrated in the Application Review Process flow chart, before a business can receive an application, DEDO staff must meet with the company, gather information, prepare a written analysis for the Council, hold internal meetings at various levels, and hold an Investment Committee meeting. The Investment Committee consists of the following DEDO staff: Capital Resource Director, Business Finance Specialist, Director of Centers for Excellence, the Cluster Director and the Director of DEDO. At the Investment Committee meeting, it is determined whether a company will be denied, tabled or sent an application.
If the Investment Committee determines that the company is eligible, the company is sent an application. In the flow chart, the application is referred to as an “Offer Letter.” A company not determined to be eligible is notified by the Capital Resource Director.
The Council is given the completed application along with the detailed written analysis prepared by DEDO staff. The Council then meets to vote as to whether to recommend to the Director the approval or denial of the financial request. JSR Questionnaire, pg 6
The Council indicated that the specific criteria used by the Council when making these decisions regarding recommending approval or denial are contained in 29 Del. C. 5055(a) and in the various enabling statutes and the regulations for specific programs under which the application is being made. JSR Follow-Up Questionnaire, Section 7(E)
Application Review Process
The following chart illustrates the application review process. CAPITAL RESOURCE FLOW CHART
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When reviewing the applications for financial assistance, the Council makes certain findings regarding the abandonment standard, employment standard and capability standard before making a recommendation. The Council may also ask the applicant for additional information and/or clarification of submitted information. JSR Questionnaire, pg. 6
During FY’04 and FY’05, sixty-three project applications were brought before the Council. All of the projects were recommended for approval. Of the 63 applications recommended for approval, six businesses were located in Kent County, ten were located in Sussex County, and the remainder were located in New Castle County, with 27 of the businesses located in Newark.
Of these 63 applications, 36 have received funding. Many projects receive funding approval based on a performance basis. A performance review means the company does not receive funds until specific criteria are met. A few examples of “criteria” could include a specific number of jobs created and in place for a certain time period, the construction of a facility, or the relocation of employees. After a project has received Council approval, any major changes to that project would require that the project application be amended and brought before the Council again. The Council noted in its response that the Council makes a recommendation of approval of a project to the Authority. Unless specifically stated by the Council, the “actual funding mechanisms” are handled by the Authority. JSR Additional Questions, pg. 2
In the application process outlined by the Council in the above flow chart, the cornerstone of the application process, as well as the success of the funding programs to the economic development of the State, is identifying the companies that become “candidate companies” that DEDO staff review for eligibility before being offered an application. As previously noted, it was not possible to determine how DEDO notified the business community and the general public about the availability and existence of funding sources.
DEDO staff at all levels, including the Director of DEDO, are involved in the process to determined whether a company is eligible for funding prior to an application (Offer Letter) being sent to the “candidate company.” DEDO staff prepare a written analysis for the Council to use when making its recommendation.
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