State Finance chief: Context matters when looking at stats

Peter Osborne
Editor

So, how’s the state’s economy doing? Dr. John Stapleford made a strong case in our Aug. 6 issue that it’s been performing poorly and will remain constrained despite many positive efforts that are underway.

Delaware Secretary of Finance Rick Geisenberger is responsible for promoting Delaware’s fiscal health. He oversees the State’s Division of Revenue, Division of Accounting, Office of Unclaimed Property, and the State Lottery Office. Together these agencies collected a record $3 billion for the state’s General Fund in Fiscal Year 2019. Geisenberger serves on several financial oversight bodies, including the Delaware Economic and Financial Advisory Council (DEFAC).

I spoke with Geisenberger this week, and while he doesn’t want to debate Stapleford about the numbers and what they say, he does believe there is some context that might be valuable in how dire a picture is being painted.

What’s the biggest challenge in quantifying and analyzing monthly and quarterly GDP growth in a state like Delaware?
I think it’s an inherently tricky thing. I also suspect that it is particularly challenging when looking at states that are geographically small and therefore have disproportionate amounts of cross-border activity as well as states with small populations where short-term economic activity can be heavily influenced by what may be happening at just one or two large employers (e.g., larger merger and corporate reorganizations) or one or two industries like banking in Delaware or mining in the West. We ranked 50th in 4Q 2018 and in the top quintile a quarter later. That’s why I take month-to-month figures with a grain of salt.

Please elaborate.
Since 2005, there have been 56 quarterly periods and we’ve ranked among the highest growth in the country in three cases and the lowest growth in 10. I think the reasons include corporate changes including Du Pont, the downsizing of our auto industry for reasons that had less to do with the state and more to do with supply-chain costs, but also the growth of businesses like JPMorgan Chase and Incyte. The reason is simple: More than one- quarter of our real GDP comes from finance and insurance in Delaware. That compares with New York at 14.8% and the United States as a whole at 6.1%. As goes that industry — which is a major part of our brand — goes Delaware.

What supports your positive view?
The volatility of state-by-state GDP statistics are demonstrated in the Bureau of Economic Analysis’s (BEA) first-quarter 2019 figures released in late July. Delaware reported growth of 3.9% that outpaced the nation, ranking in the top quintile of all states, and trailed only West Virginia among states east of the Mississippi. Given that the BEA reported particular strength in finance, insurance, retail and health care, our performance is not entirely surprising as those areas have historically been strengths for us. 

If you look across the 20 NAICS codes that the GDP tracks, only two industries have shrunk since the end of 2016 — agriculture and finance/insurance. But in Delaware, the finance sector shrank 2.6%, just over half the decline of the rest of the country at 4.8%. That industry has certainly had a rough nine quarters, but we seem to be holding our own in that industry relative to the nation, thanks to fintech and the expansion at JPMorgan. In contrast, mining and oil and gas grew 24% nationwide, and we have very little in that industry, so we didn’t benefit from that.

What’s the solution to spurring economic growth in Delaware?
I think Delaware’s strength is that we realize that one size doesn’t fit all. There’s no straight line, and in a state this size, a few employers can have a big impact, both positively and negatively. You can’t just focus on electric rates (which is a regional concern), on education, on workforce development. Marketing the state has to play a role, and the new Delaware Prosperity Partnership is doing just that. The state can improve its efforts to help businesses through faster permitting times, the Department of Labor’s Mobile One Stop, coastal zone reforms, and comprehensive tax reform, which we are moving forward on. Similarly, public/privated partnerships in the development of infrastructure like the STAR campus and the Port of Wilmington and research oartnerhsps with the State’s three institutions of higher education through the Higher Education Economic Development Fund and the Delaware Innovation Space will help the economy grow.  As your publication has pointed out, we have a lot of people in state government, in business, and in other areas who are working together to address all these issues.

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