A Better Deal for Delaware

Today the Independent Party of Delaware (IPOD) endorsed Mike Protack for Governor. In their press release, Independent Party of Delaware State Chairman Wolfgang Von Baumgart said Mike is:

“an energetic, innovative, insightful, independent and sincere advocate for the people in major issues of education, economic opportunity, open government, energy, environmental quality, and health care. The voters have a real chance to change the politics of Delaware for the better.”

Q: How concerned are you that Congress might create a national corporate law code or national incorporations law?

A: As Governor I would be very concerned that the Federal Government would intercede into an area of the law normally left to the states without any tangible benefit to businesses, shareholders or employees. Given the track record of the Federal Government in making the Federal Tax Code so complicated and inefficient for businesses and individuals I shudder at the detrimental impact the Federal Government would have on the seventy five plus years of Delaware Corporate Law which has provided stability, predictability and fairness to national business companies, shareholders and law firms throughout the country.

In fact, we already have a working and viable national business corporate law code-it is called the DELAWARE GENERAL CORPORATION LAW and the talented practicing attorneys and presiding Judges in Delaware are the keys to keeping us as the preferred location for incorporation in America.

The benefits of Delaware Corporate Law are numerous and substantial while the possible move of the Federal Government in to this area would simply be a move to take something from Delaware which is working very well for the benefit of the Federal Government. This potential ‘grab’ by the federal government has no merit and should be a big concern to everyone in Delaware.

Q: What could you and the state do to protect Delaware from federal intrusion and the loss of this crucial source of income?

A: First of all failure, is not an option. As Governor in cooperation with the Legislature and the Delaware Bar there are many things I would do to preclude any encroachment of the Federal Government into the pre eminent position of Delaware Corporate Law; 1) continue to appoint the world class Judges who try and review our corporate law cases both at the Chancery Court and Delaware Supreme Court, 2) Keep corporation laws flexible and current with today’s challenges and investor rights, 3) preserve the Judge as the decision maker and not the “random or runaway jury”, 4) Continually remind everyone involved of the value of precedence of Delaware Corporate Law, 5) continue to keep the costs low to all participants, 6) maintain the privacy of the Corporation process.

Also, I would call upon our Federal Delegation (Senators and Congressman) to use their collective influence to protect our eminent position plus rally our allies in the business community and national law firms.

In order to plan for the future I think it would be beneficial to examine the merits of financing, building and staffing a top notch Law School in Delaware with an emphasis in extending, refining and growing our future Corporate Legal Professionals.

Q: Is Delaware too dependent on the monies that flow from corporate taxes and fees? Does it have too many eggs in this basket?

A: Delaware does indeed rely heavily on the large percentage and total dollars of the corporate taxes and fees but that is a reflection of success which has developed over the years. However, I am running for Governor to lead Delaware in the future and my leadership will be defined by strategically expanding the economic pie to prevent undue concentration in any one industry. Still, as we move to expand, innovate and grow as a state we must protect our corporate taxes and fees. As Governor I will meet the dual challenge of protecting our corporate law position while growing and diversifying our economy.

My responsibility towards revenues is simple. They should always be diverse, fair and have the potential for future growth while supporting long term economic growth. The taxes and fees from our world renowned leadership in corporate governance should be a source of pride for Delawareans but in the future we must always be refining the structure of these valuable revenues as the business world adapts to new challenges.

Delaware has a law that regulates filling and alteration of tidal wetlands, but efforts to adopt similar legislation to protect the state’s ecologically fragile freshwater wetlands failed to win approval more than a decade ago.

Q: Do you believe Delaware needs its own freshwater wetlands law, or should we continue to rely on federal permitting and oversight?

A: Yes, as Governor I believe safety and security would be my most important job and preserving our natural resources in Delaware is almost as important as protecting lives. You and I would be well served by enacting our own Freshwater Lands Law. To put things in perspective Delaware has lost around half of its freshwater wetlands resources to drainage and filling since the founding of the First State. Certain areas of Delaware like the Inland Bays Watershed, have lost much more. Such a loss is not an event without consequences because it is a great concern for wildlife, flood control, and water quality.
Furthermore, the freshwater wetlands that remain are not in good condition and many do not provide high levels of function for which they are so highly valued. Importantly, recent Supreme Court decisions have greatly weakened federal protections for freshwater wetlands and the capacity of the EPA and the US Army Corp of Engineers to enforce these protections has long been inadequate. Delaware should enact is its own wetlands law to protect these ecosystems which protect the quality of our rivers and bays, particularly for the most valuable wetland types, some of which have no Federal protection.

Q: If you support an effort for state regulation of freshwater wetlands, how would you build consensus among the stakeholders, especially the farm and development lobby?

A: There is no better time than now to explore a common sense and logical win-win solution for all of Delaware. Given the current housing/development slowdown there is a window of opportunity to reflect on the past and smartly move into the future. As Governor I respect individual property rights as key to economic growth but property rights are much like the First Amendment right to free speech, it is sacred but not absolute and any clarifications will be directly compensated.
The first step is education on the functions of wetlands. It is a key component because many do not realize the great importance of these areas and new economic analyses have finally begun to quantify their functions in dollars. Their functions are highly valuable and in some cases irreplaceable. Delaware will not be a place worth living if we do not protect these wetlands.
As Governor I feel those who act as good stewards of wetlands, particularly in agricultural landscapes, should be rewarded for maintaining the services that wetlands provide to all Delawareans. In addition to regulation, there should be defined incentives for stakeholders to protect and conserve freshwater wetlands. The program should also include more responsive permit decisions for developers and maintaining current agriculture exemptions for existing farming practices. Yes, consensus building it is important but we must have a bottom line on resource protection and work towards positive commitments from all stakeholders.

Q: What do you see as the strengths and/or weaknesses of restoring key pieces of degraded wetlands on state land and paying for the cost of restoration by using the property as a wetland mitigation bank?

A: Wetland mitigation banks have a greater chance of replicating the functions of wetlands damaged or destroyed through a regulatory permitting process than do piecemeal wetland restoration or creation projects. As Governor I am committed to a well thought out mitigation banking program as it would be a positive move for Delaware’s future.
However, before a program like this one should be considered its crucial that a strong freshwater wetlands law be developed that minimizes wetlands loss. There is a strong upside to using State Land: this can help to provide funds to improve the condition or restore key pieces of wetlands, many of which are owned by the State.
Still there are restrictions on using many State lands for mitigation offsets for private sector projects, particularly if certain federal funds were used to purchase the land as is the case with State wildlife areas. Additionally, use of State lands would limit private entrepreneurial wetlands banking which would be a market-based system that would promote wetlands conservation.
However, there are potential weaknesses: in using State lands relative to purchasing privately owned wetlands for mitigation, the real costs of mitigating a wetland impact greatly decrease. This use could encourage greater levels of wetland impacts. Also, by not purchasing privately owned wetlands for mitigation you miss out on an opportunity to fully protect more wetland acreage.

SLOPPY FOURTH QUARTER; According to Morningstar, the average returns by mutual fund category for the fourth quarter of 2007 were:
taxable bonds: +1.3%
municipal bonds: +0.5%
international stocks: -0.8%
U. S. stocks: -2.8%
SLOPPY WEEK: For the week, the Dow declined -1.5%, the S&P 500 -0.75%, Nasdaq -2.6%, and the Russell 2000 -2.4%. Year-to-date, the Dow is now down -4.9%, the S&P 500 -4.6%, Nasdaq -8.0%, and the Russell 2000 -8.0%.

GROWING RETIREMENT ASSETS: According to a recent study by the Investment Company Institute, total U.S. retirement assets climbed to $17.4 trillion at the end of the second quarter of 2007, up from $16.7 trillion at the end of the first quarter of 2007. Retirement savings account for almost 40 percent of all household financial assets in the U.S.. IRAs held $4.6 trillion at the end of the second quarter of this year, up from $4.4 trillion at the end of the first quarter. Mutual funds manage 47 percent of IRA assets. Americans held $4.4 trillion in all employer-based defined contribution retirement plans, of which $3.0 trillion was held in 401(k) plans. Those figures are up from $4.2 trillion and $2.8 trillion, respectively.

LONG TERM CARE COSTS: If you wonder what the costs of long term care are in your area (they vary wildly), check this website: https://www.ltcfeds.com/ltcWeb/do/assessing_your_needs/costofcare?action=costofcare. Some of the findings (still using 2006 figures):
United States: $194 per day
Greater Philadelphia: $227 per day
Stamford, Connecticut: $341 per day
Wilmington, Delaware: $208 per day
Bridgewater, New Jersey: $253 per day
Wyoming: $157 per day
CREDIT CARD DEBT ON THE RISE: The Federal Reserve reported this week that outstanding revolving consumer credit hit $937.5 billion in November, up 7.4 percent from a year earlier. The annual growth rate has now been above 7 percent for three months running, the first such stretch since 2001. The surge in credit card may reflect the fact that it has gotten harder for consumers to borrow against the value of their homes, both because home values have fallen in many markets and because mortgage lending standards have tightened.

NICE SEVERANCE DEAL: According to the LA Times, Countrywide CEO, Angelo Mozillo, is going to walk away with a severance package of $110 million after the sale of his company to Bank of America for $4 billion. At it’s peak in February 2007, Countrywide had a market value of nearly $26 billion.

Have a great week.

Doug

Douglas R. MacGray, J.D, C.F.P.®, C.E.A.®
Senior Vice President, Financial Planning
EGE Advisors, Ltd.

A BAD START: The year has started off on a bad note. (I am watching Chariots of Fire on ESPN Classic as I write this. The Scottish runner, Eric Liddel slipped and fell but finished his race in first—I hope the markets mirror this performance in 2008). After only three trading days, the S&P 500 is down 3.86% (2nd worst start ever), the Dow is down 3.5% (4th worst ever), and the Nasdaq is down 5.57% (worst ever).
JOBS: This past week’s bad news that was a bit of a surprise came in the form of the jobs report from the U. S. Commerce Department. Expectations weren’t particularly high. Analysts had estimated that we’d see about 70,000 new jobs in December. The gain was only 18,000. Also, the nation’s unemployment rate jumped to 5%.
HOME VALUES: The value of the average home in the USA has doubled in the last 10 years. Over the course of the past year, median sales prices have dropped from $217,300 to $210,200.
MOST AMERICANS PESSIMISTIC ABOUT RETIREMENT: Only 37% of Americans believe their standard of living during retirement will be equal to or greater than the lifestyle they maintained during their working years (source: Mercer Workplace Survey). 55% of working Americans are either somewhat or very concerned that they might deplete their entire life savings during their retirement years (source: Society of Actuaries).
CHANGE IN THE LAW, A TAX INCREASE OF SORTS: Children under the age of 18 with unearned income greater than $1,700 in 2007 are subject to the “kiddie tax.” The child’s unearned income (e.g., taxable income from investments) above the $1,700 threshold is taxed at the parent’s marginal tax rate instead of the child’s marginal rate. In 2008 the dollar threshold increases to $1,800 and the law is changed to affect all children under the age of 19 as well as all children under the age of 24 who are full-time students.
HEALTH CARE COSTS: The cost per employee for an employer to provide health care in 2007 was $7,983, an increase of +6.1% from a year earlier.
Have a great week.
Doug

Douglas R. MacGray, J.D, C.F.P.®, C.E.A.®
Senior Vice President, Financial Planning
EGE Advisors, Ltd.

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RECESSION?: The question I get asked quite often these days is whether we will have a rescession, and what impact that has on how we manage portfolios or give investment advice. I am not an economist, but I do sit with them, hear them on conference calls and read what they have to say often these days. The weight of opinon seems to be on extended sluggish growth, but probably not a recession. However, the opinions have changed enough recently to make me conerrned that many of these economists are easily swayed by the most recent of news.
BusinessWeek recently asked 54 forecasters for their views on everything from housing and the credit crunch to Fed policy and global growth. The economists project, on average, that the economy will grow 2.1% from the fourth quarter of 2007 to the end of 2008 (compared to 2.6% in 2007). Only two of the forecasters expect a recession. The vast majority think the risk of a downturn has risen substantially in recent months. The jobless rate will increase from 4.7% in November to 5.1%. The yearly growth in consumer prices will slide from 4.3% in November to 2.4%, while core inflation, which excludes energy and food, will hold steady at 2.2%. Home prices will fall about 7%. A big reason for the confidence in no recession is the overwhelming consensus of predictions for further rate cuts by the Fed (something with which I am less confident). The target rate is expected to drop from 4.25% to between 2.5% and 4%. Amost half of the analysts project it to fall below 4%.
The Conference Board (www.conference-board.org) publishes the Leading Economic Indicators (”LEI”) and the Consumer Confidence Index. Last week, the Conference Board published its report for November. The LEI fell 0.4% in November vs. -0.5% in October and +0.1% in September. From the report: “After having been essentially flat since early 2006, the leading index has weakened sharply in recent months, and it has declined to its lowest level since the middle of 2005. In addition, real GDP has continued to expand, growing at an average annual rate of 3.1 percent through the third quarter of the year (including a 4.9 percent annual rate growth in the third quarter). The recent behavior of the composite indexes suggest that while slow economic growth is likely in the near term, risks for further economic weakness have increased.”
Do you have a good fix on what your portfolio might do if we have a bad year or two in the markets. If we had a “one in twenty” negative year next year, is your portfolio strategy sound enough that you will hang in there? If not, or if you don’t know, I recommend a check up during the first quarter of 2008 as one of your new year’s resolutions.
MORTGAGE RATES: The average U.S. 30-year fixed-rate mortgage for the week of Dec. 20 moved up to 6.14%, with an average 0.4 point, from 6.11% in the prior week — one year ago the 30-year fixed rate averaged 6.13%. The average for the 15-year fixed-rate mortgage for this week increased to 5.79%, with an average 0.4 point, compared to 5.78% last week — this week’s rate compared to 5.89% a year ago.
RETIRING ON SOCIAL SECURITY: The US government projects that 37% of American workers reach the end of their working years with nothing saved for retirement.
FREE TRADE: It is estimated by the Peterson Institute that Americans save $1 trillion a year as a result of our nation’s free trade policy. The savings to US consumers from the less expensive foreign products are 19 times larger than the estimated 225,000 jobs — and $54 billion in lost lifetime wages — eliminated annually as a result of our free trade policy.
Well, I am off to do some last minute shopping. Have a wonderful week.

Doug

Douglas R. MacGray, J.D, C.F.P.®, C.E.A.®
Senior Vice President, Financial Planning
EGE Advisors, Ltd.

“Plans fail for lack of counsel, but with many advisers they succeed.” Proverbs 15:22
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