How Delaware companies can get taxpayer dollars without creating jobs
Every year, Delaware competes against other states to attract businesses and development projects. The state's war chest is filled with millions of state taxpayer dollars, dolled out directly to companies that promise to create a certain number of good-paying jobs over a specified timeline.
While the largest sums in recent years have gone to international companies like pharmaceutical maker WuXi STA and e-commerce giant Amazon to build state-of-the-art facilities from the ground up, companies already in Delaware had been eligible, too, if they had a project that produced new jobs.
That changed last week when state officials implemented a new funding mechanism that allows Delaware companies to receive taxpayer grants without the promise of creating jobs.
Up to $5 million of Delaware's Strategic Fund, the state's main pool of incentive money, previously earmarked for business attraction and job creation can now be used on companies that aren't boosting jobs or salaries.
State officials believe the new program will benefit Delaware by making companies here more likely to invest in upgrading their existing facilities, especially if they operate in multiple states and are choosing between them. If a multistate business is contracting operations, perhaps they will stay in Delaware if they have improved facilities, they argued.
"We hear from existing businesses that they don't feel as supported," Becky Harrington, Delaware Prosperity Partnership vice president of business development, told Delaware Online/The News Journal. "This is a way for existing businesses to have opportunities to grow."
"It's always hard for us to have to say to the company, 'We don't have anything that will work for you,'" Division of Small Business Director Regina Mitchell said, referencing conversations with existing Delaware companies. "It's another tool to make sure that companies stay here."
How Delaware Strategic Fund grants are awarded
From the outside, it's difficult to determine whether Delaware faces a risk of losing a business or the level of competition for a new project.
The state's economic development has operated under an air of confidentiality since Gov. John Carney in 2017 introduced the Delaware Prosperity Partnership, a privately run organization, to lead the state's efforts. It replaced a state office whose activities could be unveiled through the Freedom of Information Act.
Most conversations that DPP has with site selectors and companies begin with confidentiality agreements, Harrington said. She said confidentiality is a priority of the businesses that DPP interacts with and violating it could cause the state to miss opportunities.
Companies seeking Strategic Fund grants first interface with DPP. They then work with the Division of Small Business to prepare a grant application. The division handles the "underwriting," Harrington said, which entails the structure of the agreement and an evaluation of the applicant's financial stability.
Grant applicants are then brought to the Council on Development Finance for a vote. It's at this stage of the process that grant applicants are made public. The council has not denied a grant applicant since the formation of DPP.
"We strive to bring things to the council that are in a ready and approvable state," Mitchell said. "We don't want to put a company into public scrutiny and not be in a position where the grant is approved."
When asked how DPP validates a company's claims that they are considering other locations, Harrington said the agency can ask the site selector and company for additional information and has a team that will "do their own homework."
She described a "checks and balances" system between DPP and the Division of Small Business.
"We bring the opportunity, they do the underwriting," Harrington said. "They're — I wouldn't say agnostic — but they're there to make sure that the taxpayers are protected."
Harrington did not mention any companies by name that would have benefited from the new program, presented last week as the Modernization Investment Support Initiative.
She said there was a business whose parent company is outside the country that was deciding whether to invest in new equipment at their Delaware facility or another location. The company was also considering third-party solutions. Ultimately, without Delaware giving the company money, the company did expand in Delaware.
Harrington said there is a company that plans to end operations at either its Maryland or Delaware facilities. They have not made a final decision, she said.
Mitchell cited Kraft Heinz Co. in Dover as a business that could have benefited from MISI years ago. After Kraft and Heinz merged in 2015, the company announced plans to close seven factories nationwide including a nearby plant in Federalsburg, Maryland.
The state did award Kraft Heinz a Strategic Fund grant the following year worth nearly $1.2 million to create 28 full-time jobs and expand the Dover plant's baking capabilities.
When presenting to the Council on Development Finance last week, Harrington and Mitchell said they didn't draft the program with any particular companies in mind. When the state previously loosened rules for the Strategic Fund in 2019, allowing developers to recoup 3% of construction costs for projects of at least $75 million that would eventually employ 500 workers or more, Delaware Online/The News Journal reported the change was made to accommodate a Kansas City company planning a warehouse development near Delaware City.
Details of the program
Modernization Investment Support Initiative is in a pilot phase. The details of the initiative, approved by the Council on Development Finance on Aug. 28, were hashed out by DPP, the Division of Small Business and the governor's office, Mitchell said.
Companies have to prove that their projects are outside of regular maintenance or improvements.
Companies have to spend at least $1 million to get 20% back. There are reimbursable grants, meaning the money is given only once the company has spent what they said they were going to spend.
Like with other Strategic Fund grants, there are "claw backs" built in should a company not uphold the terms of the deal. For MISI, companies need to remain in operation in Delaware for five years following the grant.
Contact Brandon Holveck at bholveck@delawareonline.com. Follow him on X @holveck_brandon.
This article originally appeared on Delaware News Journal: Delaware adds taxpayer grant that doesn't require job growth
