Web Exclusive: Full Interview One on One with Delaware State Tre - WBOC-TV 16, Delmarvas News Leader, FOX 21 -

Web Exclusive: Full Interview One on One with Delaware State Treasurer Ken Simpler

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(Photo: Kensimpler.com) (Photo: Kensimpler.com)

WBOC debuted a new segment called "One on One," in which we sit down with political leaders to get their take on the issues. WBOC's Mike Chesney recently sat down with Delaware State Treasurer Ken Simpler, who in November 2014 became the first non-incumbent Republican to win election to statewide office since 1994, when M. Jane Brady won the race for attorney general. Below is the full transcript of the interview with Simpler: 

State of Office When Simpler Took Over

Mike Chesney: Ken, the last year of your predecessors term was marked by scandal - Perhaps taking some of his focus away from the day to day job of running the treasurer's office. What kind of shape was the office and the states finances in when you took over?

Ken Simpler: Well, a couple of difference pieces there, right? The office itself, I think it was, I mean, you’re sitting in it right now. There’s not a lot of people here, but there’s two dozen people here. I don’t think they were really prepared for the level of scrutiny that was brought on the office as a whole, not necessarily on their performance. But let’s face it: when the leader of your organization is constantly under a microscope of the media, it creates a tense work environment. So I think there was definitely some work to be done just to reestablish a morale and a culture here, and a working environment that people didn’t feel like they were constantly under the microscope.

In terms of the actual performance of the portfolio, you have to remember that Chip [Flowers] certainly had some ideas about what he’d like to do managing the portfolio. But we have an architecture here in the state of Delaware that many moons ago, dating back to the Pete du Pont administration, where we didn’t allow one person to invest the state's money. That was a model we used 40 years ago, and we put all our money into the Farmers' Bank and that didn’t end well for us. So, not withstanding some of the friction, you guys reported along with Cash Financial Policy board and what Chip would have perhaps preferred to do vis-a-vis the investment policy. That is really controlled by a whole crew of people of which the treasurer is one very meaningful player, but there’s underlying portfolio managers. There’s the Cash Financial Policy Board as I referred to, and so I don’t think the state's funds were ever put at risk per say. But Chip’s legacy of performance is going to be something that might not be quite as rosy as he might have portrayed it in terms of politicking, and I’ll be fair to him that this was a difficult environment. It’s still a difficult environment. It’s a very difficult environment to earn money on money.

There were probably some administrative and key functions of the treasurer’s office cause we get a lot of attention paid to us for how we manage the state's money. That’s appropriate. But also control the state's banking services. We also run the state employees deferred compensation program. We also do a variety of things around reconciliation with the state's checkbook; that is part of our core function. We have a very professional staff. As I said it was a difficult working environment, but those people executed on what they were supposed to do. But some of the longer-range initiatives, some of the questions around where do we want to position this office to be in 10 years, in 20 years? And reflective of the limited resources the states have, I don’t think some of that work got done because of my predecessor having to deal with writing over other issues.

What Could Be Done to Improve State Finances

Mike Chesney: There is the potential that the process of crafting next year's state budget could start with having to address a massive shortfall. I think the number that I’ve heard being tossed around is about $200 million. What can be done in the way that the state manages its finances right now to maybe blunt that a little bit?

Ken Simpler: We’re going to get a final defect number for this fiscal year and next year’s fiscal estimate on Monday. So, I don’t have the same numbers yet that you have to refer to but we are in a position where, fundamentally, people want to frame this as a spending problem or revenue problem. When people ask me: ‘Do we have a spending problem or revenue problem?’ I usually say, "Yes." Because the answer is, that we have a value problem and I think that to get us all on the same page in Delaware working in the same direction, we got to worry about the return we get on the money we spent. If we spend a lot and get a lot, I don’t know if that is a problem. If we spend a little and get a little, that might not be a problem. And I’m talking about education, I’m talking about health care, I’m talking about roads and infrastructure, I’m talking about our security complex, courts, police, corrections. Right now when you look at what we get for what we spend, we are a relatively high spending state: 20 percent higher than the median state when you combine state and local spending. That should mean that we get a commensurably higher return in those categories that I mentioned, but we tend to be more of a mediocre performer in those areas.

So, if we’re going to get to consensus because you are the General Assembly, and you say spending or you say revenues, you immediately divide the world into two halves. If you get people to talk about value, and you get the General Assembly to focus on this exercise of oversight, which, again, you have the power of the purse, and then you also have oversight, we tend to spend a lot of time managing. I would even say micromanaging the budget, and not as much time exercising this oversight function, which really means diving into the performance of these services that we provide and asking: why are we spending more and not getting necessarily more return? And that’s an exercise that I think would be very remunerative for the people of Delaware, but I think the legislators themselves are probably worn out by this process of six years it’s $40 million, or $50 million from a fall, or $70 million from a fall. I think the numbers you’re already doing are combining two fiscal years, perhaps. But, it is important also to sort of remember: this is a huge problem. I’m not going to minimize a $100 million shortfall. But, we do spend close to $8 billion a year. So, even with that level of shortfall you have to realize that is a small, small fraction; less than 1 percent, perhaps, depending on what the number comes in at of what it is we actually spend. So, finding efficiencies, in $4 billion, which is our general fund, or $8 billion , which is our total spend, you don’t have to find a lot of efficiencies to find $100 million on that scale. So I think that is where we have to focus, we have to value the key driver and we have to find how we bring more efficiency out of what we do spend.

How Serious is the Problem/What Should the System Look Like in the Future

Mike Chesney: Your previous answers have been sort of touching on this a little bit. There are serious concerns about the structural setup of Delaware’s revenue sources – right now how much we get from where. How serious is the problem in your mind in continuing in the current system and what should the system look like moving forward?

Ken Simpler: I’ve tried to - it is tough – it is a question that has a lot of moving pieces so I’ve tried to, in some cases, simplify when people have asked me a similar question about our revenue portfolio, to say if you want to think about - I spend a number of years after I – between going to school and growing up in Delaware, I went out to Chicago for a while. I had the benefit of seeing all of those six Bulls championships and there were two separate three-peats and it amazed me when I pulled the numbers from those teams, that the two stars, Michael Jordan and Scottie Pippen every year contributed 50 percent of the team's production. Just year in and year out of those six championship years, 50 percent came from the top two stars. But what I think people ought to keep track of is just how much production, how consistent the production was from the other three starters, which were the same for each of the two or three championship runs: 30 percent. Then you had a bench that came up with the other 20 percent. I’ve tried to express to people my concern with Delaware’s revenue portfolio in those terms, because if you have two stars that show up every night and perform, and you have a strong supporting cast of other starters that also regularly show up and perform, you’ve solved 80 percent of the problem from using the same math from that period. And 20 percent is among many resources, among a large bench, is something you can deal with. The challenge that Delaware has, is that we have those two star performers: we have a personal income tax base that not withstanding the economy, not withstanding demographics is still performing fairly strongly for us, then that’s, you know, on the board of 19 of a third of our revenues. We also have a very strong corporate franchise. The fact that the Fortune 500 are here, the fact that Delaware has been the domicile choice by far, I mean there’s not a – we are on a pedestal in terms of the corporate franchise we have and that’s about 25 percent of our general fund revenue. So we have these two star performers that have, over decades, showed up. They perform, you can rely upon them. What we have gotten in trouble with is that we haven’t put a bench – or say – we haven’t put a supporting cast around them that has been consistent and reliable. We have relied to a great extent on found revenues like the bank franchise tax, which I think at its peak is down from, it’s down by a third of its percentage contribution. Down to one third of what its percentage contribution to the general fund was at one time. We relied on casinos, which is half of what its percentage contribution was in the general fund at one time, and most recently we rely on this escheat or abandoned property, which I think was as high as maybe 15 or 16 percent of general fund revenue just in the last two to three years in which two years forward is projected to be 10 percent or less.

So what we’ve had in Delaware over time is starting back in the early 1980s is these revenue sources that we create. They rise, they plateau, and they peak and trough. That was true of the bank franchise tax, it was true of the casinos, and now it looks like it’s going to be true of abandoned property and what we’ve argued for. Well, I was part of an advisory council that we argued for is we need to pay more attention to that supporting cast of these two star performers and we need to instead of just relying on found revenues that we may not be able to find the next time around, because there’s no clear successor to this chief of abandoned property tax. It would behoove us for the long term to actively construct a portfolio of revenue and when I say actively construct I mean make political choices, not just manage a group of historically inherited revenues, just that’s what accumulated over time, but to go out and say: what’s a way to build a supporting cast around these two star performers? What are the ingredients to long-term stability, to predictability, to revenue sources that are more conducive to economic growth than others? Those are key questions to ask and if you have the political will to, as an academic exercise, we can answer those questions for you. We took a good stab at that at the advisory council and revenue. But you then have to have the political will to go and do it.

So, I think there’s an opportunity for Delaware to lead here. To lead like we did 40 years ago in reconstructing the way we think about our financial system and everyone wants to talk about spending and efficiencies that we derive from spending and that is a key, key part of the conversation, but is not a material that we get the mix of revenues right first. So that was something that occupied a good bit of my personal time in this first five months in office. I hope it’s a set of proposals that the General Assembly considers not just this session, but uses as a framework going forward.

What Has Simpler Done so far to Deal With Issues?

Mike Chesney: I’m going to loop back to right after my first question, because that’s how I kind of needed to structure the interview. You talked about some of the issues that were here when you came into office leftover from your predecessor. What have you done since taking office to deal with some of those issues, to push those things forward in what you would see as a positive direction?

Ken Simpler: I think that the neat thing about being a statewide officer and managing agency, ‘cause let’s face it, most of the agencies are edited up by cabinet secretaries appointed by the governor. But we have independent agencies here where – I wouldn’t say it’s a federalism model but, if I can show, in this 24-person agency, which has all the same issues and same rules that we’ve had for personnel and the same budget constraints, you know, I operate just like any other agency, part of education, or much larger, or transportation. If you really want to get efficiencies out of state government, it is much more – it is the 95 percent perspiration, 5 percent inspiration role. I mean it really is a matter of what we do in the first five months of looking at every single contract we have that we bit out for services and we have a lot of banking services and we deal with some seven-figure contracts. That RfP process of looking at your vendors and asking whether you’re getting sufficient value from each contract and taking it out into the marketplace and finding out whether you’re getting good value is incomputable. I mean we have some contracts here in some places that haven’t been RfP'd in a very long time. They are good relationships, they provide us good service but, but do we know we’re getting value for them?

The second thing you fall into is an organization I think in state government that you get in the process – you get processes in a culture and a frame more of doing things that develops over time, and when you have leadership that changes, let’s face it, I’m the fourth treasurer in eight years, right? You don’t necessarily always get a level of continuity where you go back and ask questions, just basic questions. Is everyone in the right seat on the bus, doing the right task? Are we really taking advantage of the value that each person of this organization can contribute to the organization? Basic stuff, but in the public sector you have to realize that incentives aren’t always there to do that. You know, we operate under the rules of civil service. We got rid of the system a long time ago where I could walk in this office if I wanted and fire everyone here and bring 24 of my buddies in. That’s obviously not a good system. But when you operate under a civil service system you do end up with rules where changing job responsibilities, changing compensation levels, getting people the level of human capital development they need to be more productive, is not like it is where I come from in the private sector where decisions can be made much more quickly. So if we are really going to squeeze efficiencies out of government, I’d love to say there’s several bullets out there, but there aren’t. It is getting a manager in place in each area that wants to undertake a fundamental look, pull up the hood and look at every single look of the operation and so I brought in a consultant. I brought in a consultant because I realize that while I wanted to do that job, I sit on more than a half dozen communities and councils that meet with regularly during the course of this legislative session. I have political duties that call me away, sometimes I give interviews to media groups, and I really need someone inside in-house who’s really thinking day to day about how we do create those incentives within our organization with the constraints we have, to realize those efficiencies. So, I would like to prove in the course of my tenure here, that it is possible to actually extract meaningful efficiencies out of the way we do business as a state government and not just talk about it, but actually show how you do it. And as I said, it won’t necessarily be a cookie cutter that you can take to each agency. But I’m a central agency for government. I’m similarly constituted with all the same rules and challenges, and so I’d like to prove up that there is a methodology that we can really do a deep dive and find ways to not just make it more – less costly for our taxpayers, but make it more exciting for the people who work in this office. Challenge them, reward them, invest in them. We know it's exceedingly difficult to cut money in government. It's exceedingly difficult to lay people off. But if we can have this staff, because they are a higher productivity doing one and a half times the amount of work 10 years from now with the same number of people, well, that’s effectively, that’s the same thing as cutting cost.

Will Simpler Run for Governor?

Mike Chesney: Last question for you, it’s a, it’s maybe a bit macabre but it is a political reality that the landscape for 2015 governor's race changed dramatically recently. There were people immediately after your election back in November that said, "Great, Ken should now run for governor in 2016." You said no at the time. Have your thoughts changed at all recently?

Ken Simpler: I’ll say no again. No, my thoughts haven’t changed. And I know that you’re obviously referring to the passing of Beau Biden and you know, I guess when I thought that I was going to run for this office, I always assumed that Beau would be someone that I would work with. I mean, it is not someone - I came to politics late so I don’t know, I really never worked with him. But I really, when I thought about being involved in public service or politics in Delaware I presumed it would be part of the architecture and that I would have some interaction with them. So your statement as to whether it changes the analysis of other people, politically, I think absolutely it does. That’s a huge loss to have someone like that exit public service when he is my age or a year younger than me and presuming, based on his dad's career that he might have been contributor to Delaware state government for many many years to come, I don’t know. I know it doesn’t affect my plans, but I’m sure that there will be a significant number of people rethinking what it is – how we are going to fill that gap and who is going to step up and there has been speculation on the Democratic side for a while about whether he was going to be capable of running. I don’t think anyone entertained the idea that he would, that he would not be with us. But there were certainly people that were preparing the groundwork to potentially run for governor instead and, let’s face it, his last name was Biden, his dad is a legend here. I think that if you’re a Republican it is already tough to win a race, so I think the idea of running against Beau Biden probably would have been, would have produced very few combatants, let’s say. Without him running for governor, purely from a political perspective, there might be some people that reconsider, that reconsider whether it is the right year for them to run, but that is not going to be me.

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