Business Year in Review: One step forward and one step back

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Year in reviewdesktopBy Doug Rainey

The economy remained top-of-mind in Delaware businesses circles during 2013. A recovery that felt more anemic than statistics suggested seemed to continue throughout the year.

Reasons for what many saw as a lackluster economic performance ranged from the lack of an auto-fueled recovery seen in the South and Midwest to taxes and high energy prices. The uncertainties at the federal level did not help as Congressional sequester budget cuts hit the Dover area, home of Dover Air Force base.

AstraZeneca, working to build its drug pipeline as blockbuster products lose patent protection and sales drop, announced it would cut jobs in Delaware, with about a quarter of those positions moving to the Washington, D.C. area.

There was also the issue of Fisker Automotive and the more than $20 million in grants from the state that might not ever be recovered.

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Others saw the tendency of the Delaware General Assembly to focus on social issues as contributing to the malaise. The General Assembly passed legislation authorizing same-sex marriage and outlawing trans gender discrimination.

The administration of Gov. Jack Markell was also taken to task for lacking an economic vision and sticking with moving toward having a quarter of its energy coming from renewable sources. Critics claimed the strategy makes energy prices too expensive and drives away business.

Another factor entering the mix was opposition from not in my backyard forces and environmental activists to the operation of the Delaware City Refinery and a proposed Data Center. That led to fears that the state might be in danger of losing its business-friendly reputation. Whatever the reasons for the lack of economic strength, the unemployment rate remained above 7 percent during much of the year, with the figure falling to 6.5% in November Even that news was tempered by the fact that the workforce is declining in size as discouraged workers dropped out of job seeking efforts and Baby Boomers retired early.

The state did see some signs of growth as outlined in other areas of this end of the year review. Check out the highlighted links for further detail.

 Financial services

 The key area of the Delaware economy remained vibrant, despite predictions a few years earlier that jobs would migrate from the state.

Giants like Capital One, JP Morgan Chase, Citi and Bank of America either held their own or added jobs.

Canadian bank TD added a small credit card operation in downtown Wilmington with government officials urging the company to expand the center. The growth was good news for the state as the industry pays well and hires skilled workers from a large pool of talent that has been developed over the years.

The loan problems that led to Wilmington Trust being purchased for a paltry $300 million by M&T made their way into criminal court. Former Loan officers in Pennsylvania and Delaware were convicted and rumors continued to swirl that more would follow.

One curious case involved James Ladio. The founder of the newest bank in Delaware, MidCoast Community, pleaded guilty in federal court to bank fraud and money laundering charges related to a web of loans that according to court documents were used by Ladio to deal with his deteriorating finances.

An unnamed bank, widely believed to be Wilmington Trust, granted loans to Ladio, a former Wilmington Trust employee, according to published reports.

 Fisker fades away

 The troubled hybrid automaker closed its doors in 2013 after not building a vehicle since 2012. Delaware appears to be on the hook for $20 million in loans and grants as the company ended up in bankruptcy court in Wilmington as operations were liquidated.

The company was hit by a host of problems, including reports of car battery fires and negative reviews, all the while burning through $1 billion in cash and government loans with relatively few sales to show for it. The buyer of the remains of the company appears to be a Hong Kong tycoon, although details remain sketchy.

Sen. Tom Carper, D-Del., told Bloomberg it was unlikely a Fisker would ever be built at the former GM Boxwood site west of Wilmington.

 Green business

Delaware continued its march toward the goal of obtaining 25 percent of its energy from alternative sources.

Solar energy became a bigger factor in the economy with major installations in all three of the state’s counties. Cost of solar panels are dropping and Delaware also benefitted from the presence of Motech Americas, a unit of the Taiwan-based company that produces solar panels.

More Bloom Energy servers went online under an alternative energy program that brought the company’s manufacturing site to Delaware.

Not everyone was happy with the Bloom and solar installations. At issue is the higher cost of alternative energy when compared to buying electricity from coal and gas-fired plants on the open market.

The energy from the Bloom servers added $4 to the monthly bill of an average Delmarva residential customer when compared to the market price, according to filings with the Delaware Public Service Commission. Critics say the higher costs are hampering the recovery of the state’s economy.

Delaware joined other northeast states in requesting that the Environmental protection agency impose the same emissions standards in other “downwind” states that send pollution throughout the region. Attorneys general in states that include Maryland and Delaware claimed the costs of cutting pollution in those states is often minimal, since even inexpensive pollution control equipment has not been installed. By contrast, cutting emissions in states with higher standards is much more expensive.

Health care

Christiana Care dedicated the first phase of its $200 million project at Wilmington Hospital while A.I. DuPont Hospital for Children continued work on a project of equal size. Christiana Care also opened an emergency center in Middletown. The health care provider will open a center just across the line in Chadds Ford in January.

The confusion surrounding the Affordable Care Act swirled around business throughout the year. The administration delayed some mandates for small business, moving the uncertainty into 2014.

Manufacturing

One of the reasons for the perceived sluggishness in the Delaware economy was the fact that the strong recovery in the auto sector bypassed the state, following the loss of its two auto plants in 2008 and 2009. To make matters worse, Russian steelmaker Evraz shut down its mini mill in Claymont late this year amid claims of steel dumping by foreign companies. Evraz also paid a premium price for the Claymont mill and invested heavily in pollution and other equipment.

The lack of growth led to employment in the sector remaining stable or slightly below the pace of a year ago.

Some good news did appear Spacesuit manufacturer ILC Dover acquired a Grayling Industries and moved its 100-plus employee manufacturing operation from Juarez Mexico to Seaford.

Allen Harim moved forward with its plans for a 700-employer chicken processing plant in Sussex County, despite opposition from neighbors worried about the water supply around the site, the former Vlasic pickle plant.

DuPont continued to restructure its operations to focus on faster-growing businesses. The company sold off its performance coatings (auto finish) business to a company formed by the Carlyle Group, an investment firm. That led to the loss of a few hundred jobs as the newly named Axalta moved its headquarters to Philadelphia and moved other operations to Delaware County, Pa. The company did keep research operations Delaware.

Later in the year, DuPont announced plans to spin off its performance chemicals business. The announcement came after activist investor Nelson Peltz bought a small stake in the company. Wall Street was divided on whether the move would provide a further boost to DuPont’s stock price, which soared to its highest level in a decade. Some analysts argued that spin-off of the slower growing business that includes the Edgemoor Delaware site, was already priced into the stock.

Bloom Energy opened its fuel cell manufacturing site at the University of Delaware STAR campus in Newark, the former Chrysler plant. Initial employment is less than 100, but Bloom is seeing interest from companies looking for reliable back-up energy sources that could allow stores and other businesses to operate during extended power outages. One had only to look at the outages at Christiana Mall over the Christmas season to see that a “Bloom box” could pay for itself after a few holiday blackouts. 

Competition continued to takes its toll on the casino business. Business is down as more venues opened in nearby Maryland, with the Free State offering table games.


Making matters worse is the association of casinos in Delaware with horse racing, which is also on the decline.

By contrast, many Maryland and Pennsylvania venues are what some in the business call “Wal Mart” style casinos with low cost structures.

A state panel took a look at financial statements of the state’s three casinos and was expected to issue recommendations on ways to aid the industry. While details were not released, it is known that the one publicly traded casino property in the state, Dover Downs Gaming and Entertainment has struggled to remain profitable.

Shortly before adjourning, the General Assembly agreed to provide $8 million in relief to the industry.

One good piece of news for the central Delaware economy came with the continuing growth of the Firefly Music Festival held on property at Dover International Raceway. The event coped with a traffic jam on its first day, but continued to gain a reputation as well attended, well-behaved and well managed event. Organizers signed a long-term contract for the event and added another day to the festivities.

Meanwhile, attendance remained depressed during the track’s two NASCAR weekends that at their peak filled up hotel rooms from Wilmington to the beach.

Finally, Delaware saw its first NBA Development League team when the Philadelphia 76ers located their new 87ers franchise in northern Delaware.

The team is playing its home games at the Bob Carpenter Center on the University of Delaware campus.

Retail and movies

Delaware’s sales-tax-free status continues to draw a variety of retailers to the state. The hot spot was the Christiana Mall area where outdoors outfitter Cabella’s announced plans to build a smaller-sized store on the edge of the mall property. Then came three theater one at the mall site near Cabella’s, another at the old Sears warehouse off Route 273 and a new multiplex next to the Walmart in Middletown. The Middletown theater opened this month.

While that might seem to be a formula for over-saturation of the market, the Penn Cinema, which opened in late 2012 on Wilmington’s Riverfront reported that attendance is ahead of projections.

The riverfront complex also hosted the first WilmFilm festival last spring. Further expansion is likely as a large tract, the Christiana Fashion Center, remains undeveloped adjacent to the mall. More retail development is also expected at the site of the new Regal Cinema off Route 273. Potential tenants are said to be monitoring the newly completed “flyover” exits on Interstate 95, adjacent to the mall. The exits, a part of a $100 million-plus project, seemed to function well over the holidays.

That could bring more development to the mall area. To the south Dick’s Sporting Goods opened as an anchor store in Dover Mall. In north Wilmington, Concord Mall saw the departure of Champps sports bar-restaurant, with the parent company filing for Chapter 11 bankruptcy protection in Delaware later this year.

One legendary Wilmington bakery returned late this year when the DiFonzo family opened a new bakery in Elsmere after an absence of nearly a decade.

The car side of retailing remained active in 2013 as sales remained strong. Used car giant CarMax opened a store near Newark late in the year and the Milford-based Hertrich family of dealerships broke ground on a Chrysler, Jeep, Ram dealership in Eklton, Md.

Environment and business

The past year saw the rise of environmental activists who clashed with organized labor and business on two issues. The first was the renewal of an environmental operating permit for the Delaware City Refinery owned by PBF Energy.

While PBF had cut emissions since spending upwards of a quarter of a billion dollars to reopen and refit the half-century-old refinery, the activists were skeptical about its progress and upset about the refiners strategy of building a rail unloading facility near the refinery for crude oil shipped in from North Dakota and Canada.

A contentious public hearing on the permit drew more than a thousand, including union refinery workers, with the strong support of PBF as well as the environmental activists. A strong police presence was in place. A lawsuit claiming the rail facility violated the state’s Coastal Zone Act was dismissed, but business groups and the administration of Gov. Jack Markell worried that the damage to the state’s business-friendly image had already been done. The act generally prohibits new industry from locating within the areas along the bay, river and coast, but remains a murky piece of legislation.

Those fears were further realized several months later. While plans were revealed in April for a $1.1 billion data center in the Business Bulletin, few seemed to be concerned about an accompanying power plant until the summer. The proposed project was planned at the University of Delaware STAR campus, the site of the old Chrysler plant.

Meanwhile, neighborhood opposition to a proposed Wawa market in Newark surfaced.

By some accounts, environmental activists, led by Amy Roe (also a prominent figure in the Delaware City permit dispute) tapped into lingering resentments over the University of Delaware, the Chrysler site and general distrust of the city of Newark in dealing with both the Wawa and Data Centers plans.

Mayor Vance Funk suddenly saw anti-Wawa signs in his neighborhood that was near the proposed gas station and convenience store, along with nasty E-mail messages. The mayor had enough, resigned his post, citing the Wawa dispute and moved to Main Street.

Opponents packed a public information session and subsequent council meetings, claiming the city hid  information from residents and rolling out scary scenarios of explosions and environmental disasters if a power plant was built. Neighbors also felt pressure from labor unions that used door hangers and calls to make their case in nearby areas.

At the center of the effort was Roe, a longtime critic of the city electric utility, who ran for mayor.

Roe went on lose by a narrow margin to longtime community volunteer Polly Sierer, who said she would keep an open mind about the project.

Pharmaceuticals

The 1,200-employee cut at AstraZeneca’s north Wilmington office site. cast a shadow on the Delaware county through the remainder of the year. The drug-maker, after a management shake-up, is working to rebuild a drug pipeline after seeing many of its big sellers moving to generic status. About 2,000 jobs will remain at the site, which will remain the company’s North American headquarters. As recently as 2005, Delaware employment at AstraZeneca totaled around 5,000.

The company is selling off a portion of its office campus, complete with solar panels. It also sold the high-rise, better known as the Rollins Building to the founder of Applied Bank, which operates a small commercial bank in Delaware.

AstraZeneca did announce some good news late in the year when it disclosed plans to spend $100 million to modernize its Newark-area manufacturing and distribution site.

While AstraZeneca was cutting jobs, Incyte, Inc. is expanding, relocating from the DuPont Experimental Station to the former Wanamaker store. The lease will keep more than 370 jobs in Delaware. Incyte, a drug discovery company is now earning revenue from a drug used to treat a form of blood cancer.

Port of Wilmington

The port had a bumpy year that ended on a positive note. An effort to lease the port to a private operator failed after Kinder Morgan walked away citing problems with a labor union leader at the port. There was also opposition among legislators, other port users and among Wilmington government officials who turned over management to the state-owned Diamond State Port Corp. more than a decade ago.

To some, it was a sign of an increasingly anti-business attitude emerging in the state. Others saw problems with dealing with Kinder Morgan, whose area of expertise is shipments of energy products.

With the end of the negotiations, there were fears that the port could lose its biggest customer, Dole. However, the company, despite an aggressive effort from nearby Paulsboro, N.J., signed a long-term lease. The port also received a federal grant and funds from the state for new cranes, further brightening its future.

Wilmington

Mayor Dennis Williams took office, vowing to reduce the city’s murder rate. However, the new mayor quickly ran into a budget battle with the City Council and the shootings continued. The mayor also kept a low profile. Unlike his predecessors, he often stayed away from business events not under city auspices, instead sending aides. A recent analysis of FBI crime statistics ranked Wilmington a 8th in the nation in violent crime among cities of 50,000 or more. While the violence is mainly confined to a few areas of the city, news about the crime rate is causing concern in a business community as the city battles to add banking and other jobs.

Media

The newspaper business continued to downsize, even in Delaware, a state where the largest newspaper in the state, The News Journal, over, the years, did not face direct competition from local television stations in the Philadelphia market. That’s because northern Delaware accounts for 10 percent of viewers.

But the shift to digital media and a deep slide in classified and help wanted advertising has taken its toll.

The News Journal laid off a reported 28 employees and shut down, Spark, a weekly entertainment tabloid.

The cuts seemed to have little impact on day-to-day operations, but the question that remained was how the local media giant would adapt to an increasingly digital world and somehow extract revenue from it.

A digital venture was launched in mid January as DelawareBusinessDaily.com and the weekly Delaware Business Bulletin went online. The Bulletin is a digital hybrid electronic newsletter laid out to resemble a newspaper. Using the popular Adobe PDF format, the Bulletin can be downloaded and read-off line.

Subscriptions to the Bulletin grew steadily throughout the year.

The DelawareBusinessDaily.com site provides comprehensive coverage of business in the state and does not have a subscription pay wall or paid archives. As of the end of 2013, the Bulletin had nearly 3,100 posts available for online access.

State Chamber of Commerce

The state’s largest business organization is again looking for a president, following the departure in the fall of Joan Verplanck, the former president of the New Jersey Chamber of Commerce after less than a year. Reasons for the move remain a topic of conversation in business circles, but appeared to center on moving forward on initiatives and personnel moves without keeping board members fully informed.

Verplanck, a veteran of the rough and tumble style of politics in the Garden State, also made it clear she was not impressed with Delaware’s more collegial relationship between business and government.

Defenders of the chamber president said those relationships have been overly cozy and have reduced he competitiveness of the state.

Frontier Airlines

The scrappy carrier, armed with several dozen jets in a world populated by airlines with hundreds of aircraft, began offering flights in July from New Castle Airport as part of a strategy to serve the Philadelphia and the edges of the New York City metro area from Delaware and Trenton, N.J.

At the end of the year, the strategy appeared to be working, with flights running 90% full to destinations such as Fort Meyers, Orlando, Tampa and Chicago. Frontier did quickly drop service to Houston, but plans to add Detroit and Atlanta in the spring.

Frontier was purchased by airline investor Indigo Partners, which is expected to look for ways to further cut costs as part of a strategy that uses low-cost airports such as New Castle.

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