Turning point

Delaware struggles to reboot its economy after loss of key industries, thousands of jobs

Delaware's 5-year-old jobs slump remains confounding and painful for many as the fitful recovery here continues to move in starts and stops.

On Thursday, for example, officials at the Sunoco refinery across the state line in Marcus Hook, Pa., announced the facility would close, costing 469 jobs and putting some Delawareans out of work. The following day, there was confirmation that Amazon.com would build a major warehouse, a so-called fulfillment center, in Middletown, offering 849 new jobs when that facility opens in 2013.
More than 33,000 Delawareans who want to work remain jobless. Others are underemployed, earning a fraction of what they did before the recession.
Even as unemployment rates edge down to two-year lows, Delaware's employment rolls remain mired at depths reached in late 2009, just after the recession unleashed a tsunami of layoffs. The picture nationally is even a little bit worse.
A healthy rebound is elusive -- and some economists say years away.
The jobless numbers remain stubbornly high despite several high-profile recruitments by Gov. Jack Markell and the congressional delegation, who used hefty incentives to convince PBF Energy to restore the Delaware refinery Valero had closed, Fisker Automotive to plan plug-in hybrid car production at the former GM plant near Newport, and Bloom Energy to choose Newark for a planned fuel-cell generator factory.
Those developments -- plus Amazon -- may mean as many as 4,000 jobs added to payrolls in the state in the next few years. But that number, while positive, won't won't restore anywhere near the 11,000 jobs that have vanished from the state since January 2009.
Delaware not only must recover from a deep and broad recession, it must rebuild to compensate for the loss of 6,700 manufacturing jobs and 7,600 construction jobs since early 2008, as well as more modest shrinkage at AstraZeneca and area credit card operations.
Markell remains optimistic. But in an interview, he acknowledged the situation has worsened since 2008, when he pledged to add 25,000 jobs as he campaigned for governor -- before the Wall Street crash, before a housing slump turned into a debacle and before the state's two automakers collapsed into bankruptcy.
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"A lot of that was, frankly, before the world fell apart," he said of a pledge he now considers "aggressive." "With that being said, my goal is to create jobs for anybody who wants to be working."
His approach has been consistent: Use incentives to motivate firms looking to expand to do so in Delaware; use grants and loans to help existing firms expand here; and use money and support to help companies develop new products or services.
Markell and his economic development director, Alan Levin, say they know they are building off a much lower employment base, and they have pressed to increase the money set aside for economic development. They have crisscrossed the state listening to business owners and weighing new opportunities.
"I shudder to think where we would be if we had not taken the action that we did," said Levin.
'A slow crawl'Putting Delaware back to work may require a sobering amount of time, economists and others who follow the state's economy say.
One prominent national economic firm, IHS Global Insights, predicts a full recovery for Delaware -- that is, a return to pre-recession employment peaks -- will take until the middle of 2016.
That's because Delaware's jobs recovery faces two major challenges: companies must rebound from the deep national downturn and Delaware's economy must find a way to replace jobs lost when companies folded Delaware operations. Companies like General Motors, Chrysler, Avon Products and General Chemical are gone and not coming back.
"It's going to be a slow crawl," said Mikael Teshome, an economist at PNC Financial Services Group, which forecasts a tough 2012 for Delaware. "It is going to improve. I'm not expecting it to get worse. But it's going to be slow."
The current situation for Delaware -- and perhaps the future -- may best be captured in this: the nonprofit health system Christiana Care -- not a bank, not DuPont -- is Delaware's largest private employer, with 10,477 workers. Health businesses, including hospitals and physicians' offices, have added 5,000 employees since early 2008.

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More growth in that sector was trumpeted Wednesday, when Christiana Care executives broke ground on a Middletown emergency department.
The unit will employ 90 and is envisioned as the first part of a complex that could employ scores more. Other hospitals -- Bayhealth's Kent General and Christiana's Wilmington Hospital -- are expanding; A.I. duPont Hospital for Children is embarking on a major project; and Bayhealth plans to replace its Milford Hospital.
"Demographically, job growth is inevitable" Gary Ferguson, Christiana Care's chief operating officer, said Wednesday.
Finding other pockets of growth may be more challenging for Delaware entrepreneurs and policymakers who long have been adept at creating big, sustainable centers of employment.
The Financial Center Development Act of 1981, which did away with interest rate caps and established tax breaks for banks, created a magnet for credit card bankers, including those who founded the MBNA juggernaut, drawing such major employers as JPMorgan Chase, Discover and the British bank Barclays.
DuPont's founding along the Brandywine in northern Delaware set off a two-century-long boom of chemical production, with spinoffs that included Hercules, acquired in 2008 by Kentucky-based chemical maker Ashland, and W.L. Gore.
DuPont's pharmaceutical business, sold in 2001 to Bristol-Myers Squibb, also sparked successful companies, including the Newark pharmaceutical research firm QPS and the drugmaker Incyte, which is ready for a big leap forward with its first big drug now cleared for sale. Chief executives of both firm helped lead DuPont's pharmaceutical business.
Delaware's century-old incorporation laws and generally business-friendly environment continue to foster growth in legal services centered around the Court of Chancery and the federal courts in Wilmington with lead positions on bankruptcies and patent law.
The state's approach has focused on pressing Delaware's advantages, such as its valuable workforce and its position midway along the Eastern Seaboard on I-95 and the Northeast Corridor rail line. Its assets also include the state government's responsiveness and willingness to court big business, Markell said.

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That's the approach Markell took in June when he was at his desk on the 12th floor of Wilmington's Carvel Building when news flashed online that Capital One, the Virginia-based bank, would acquire the Wilmington online bank ING Direct for $9 billion.
"Within 30 seconds, I had the phone number for the CEO of Capital One," Markell remembered. "Within 60 seconds, I had him [Richard D. Fairbank] on the phone." Two months later, Capital One said it would add 500 workers in Delaware in the course of the merger, using more than $7 million in state incentives.
Public-private venturesThe state is doubling down on its economic development efforts, deploying a $55 million Jobs Infrastructure Fund that will fund improvements for new, job-creating businesses. The fund's first projects -- up to $4 million to improve roads around the planned Amazon center and $2 million for sewer and road improvements for a Wilmington Riverfront hotel -- will be considered Dec. 12.
The Delaware Economic Development Office dug deep into the treasury to lure a number of companies to Delaware, while also sprinkling an assortment of smaller grants and loans to start-up ventures and young companies looking to grow.
Markell has pumped tens of millions in mid-range grants into other companies to retain local job centers and promote some job growth, including Discover Bank, Citigroup, the battery maker Johnson Controls and, in the health sector, Nanticoke Memorial Hospital in Seaford.
Two major Markell recruits seek to fill vacant auto industry land with "clean tech" companies that have a chance to capitalize on global demand for environmentally friendly products.
Fisker Automotive, the California hybrid carmaker, will use $21.5 million to reopen General Motors' old Boxwood Road plant near Newport, and fuel-cell maker Bloom Energy will use $16.5 million in aid to build a manufacturing facility on the site of the former Chrysler factory, now owned by the University of Delaware.
Together, the companies could employ 3,000, but there are skeptics, since each is a startup in the green energy field with mixed prospects.

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John Moore, chief executive of Acorn Energy, a Montchanin-based holding company that invests in burgeoning energy companies, said Delaware should be less focused on risky bets and more "focused on creating prosperity," he said. "Jobs will follow."
In early September, Moore served as a judge at Startup Weekend Delaware, where startups competed for free consulting services and a $200 credit for Amazon web applications. More support for budding entrepreneurs should replace big-dollar investments in what he considers unproven ventures like Fisker and Bloom, Moore believes.
"It just seems that they're using our government funds, our taxpayer dollars, to play the role of venture capitalists. I think that's a very dangerous situation," Moore said. "I wouldn't invest in either" Fisker or Bloom.
Delaware jobs data suggest economic development efforts haven't moved the overall jobs needle yet.
Since January 2009, when Markell took office, Delaware has lost more than 11,000 jobs. The state's non-farm employment in October stood at 413,900, down from 417,900 in October of 2001. That's way below the decade's peak of 442,300 in February of 2008 and the 425,100 on payrolls when Markell took office.
Markell notes that many of the state's job losses were outside his control. He pointed to AstraZeneca's 550 research layoffs that resulted from patent losses and a slump in new psychiatric medicines coming out of Fairfax, and the more than 700 casualties when Wilmington Trust was taken over by M&T Bank this year.
"That's a lot of jobs," Markell said. "I wish there had been something we could have done about that. Unfortunately, Wilmington Trust got themselves in trouble."
Many of his supporters, including those in corporate perches, agree with that assessment.
"I think he's doing all he can," said Ellen Kullman in an email exchange. Kullman is DuPont's chief executive, a member of President Barack Obama's Council on Jobs and Competitiveness and Markell's former neighbor.
"At times like these, we need to focus on what we can control. That is something we have discussed together," Kullman said.

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Ask Delaware's small business owners and chief executives what's holding up progress and they point to one amorphous, ubiquitous enemy: uncertainty.
An improving national economy would help, as would and end to damaging policymaking congestion in Washington.
Michael Kinnard, chief executive of TotalTrax, a Newark-based maker of warehouse technology, points to Congress' current fight over a payroll tax extension as an example of what leaves a cloud over future economic growth.
"From the perspective of a CEO, I can manage in a good market. I can manage in a bad market. It's tough to manage in an uncertain market," Kinnard said. "Our customers have a lot of capital. The question is are they going to pull the trigger. As we get more certainty, that will lead to job creation."
Lee Mikles, chairman of the Wilmington digital marketing firm the Archer Group, agrees that uncertainty over taxes, health care costs and the direction of the economy is a real challenge.
"Every question mark makes it harder to make a decision to move forward," said Mikles.
Despite the tall obstacles, Delaware’s economy is growing. And its unemployment rate, 7.9 percent, is still below the 8.6 percent rate nationally.
The Federal Reserve Bank of Philadelphia predicts that Delaware’s economy will grow into the second quarter at about the same rate as predicted for U.S. growth.
Still, in the longer term, economists predict a brisker jobs recovery nationally, and even a faster pace of growth for Pennsylvania and New Jersey.
The forecasting firm IHS Global Insight predicted recently that Pennsylvania will return to peak employment levels in late 2013, far before Delaware’s projected return in mid-2016.
IHS economist Tom Jackson explained that Delaware’s economy may not have been hit the hardest by the 2008-09 recession, but many wounds may be more permanent. Companies need to recover in many states; in Delaware, they need to be replaced.
“Delaware has been hit by some pretty big layoffs, and it’s been fairly reliant on a few big employers, maybe more so than other states,” Jackson said.

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Consider that Delaware’s housing bust caused a migration of construction firms away from once-booming beach towns. Across the state, construction employers have slashed 7,600 jobs since early 2008, idling more than every one in four workers previously employed by the industry.
Matthew Krajewski, of Ocean View, made $70,000 a year before the recession working as general superintendent for a construction firm in Ocean City, Md. Now he makes a quarter of that mailing marketing materials for a social media firm. “I keep hearing everything’s rebounding. I haven’t seen any improvement.”
Likewise, many hundreds of autoworkers left Delaware after the Chrysler and General Motors factories in Newark and near Newport closed within seven months of each other. Fisker and Bloom may yet fill some of the void, but many of those jobs are still years away.
In all, Delaware’s manufacturing sector has taken a brutal blow; factories here have laid off 6,700 Delaware workers since early 2008, or one in five.
That shows inside an 86,000-square-foot structure in the Pencader Corporate Center in Glasgow, where Polymer Technologies makes insulation used to absorb energy in military body armor and reduce noise in Boeing’s 787 Dreamliner aircraft.
Chief executive Robert Prybotuk laid off about 40 people during the recession, primarily blue-collar manufacturing workers, to cut costs after sales fell 35 percent. More than a 100 still work in the company’s offices and factory.
Prybotuk said utility costs as a percentage of revenue have doubled in the last decade, and he urges policymakers to consider dropping support for expensive renewable energy projects, and seek new energy generation to lower regional prices, which would ease pressure on manufacturers.
“We, like a lot of other industry, were forced to find low-hanging fruit [to cut] and become more efficient,” said Prybotuk, adding that labor, next to raw materials, is his biggest cost driver. “That’s what’s been driving some of the unemployment, in spite of the economic recovery.”

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