Matthew Steenhoek UAP 5234: Urban Economy and Public Policy Assignment 1 - Revised

Wilmington, Delaware
Located at the confluence of the Brandywine Creek and Christina River, just off the Delaware River, is the City of Wilmington. At ten square miles and a population of 72,826, it is the largest in the State of Delaware. This accounted for just 8.5 percent of Delaware’s total population (U.S. Census Bureau, 2006). Still, despite its small size and proportion of the total population, Wilmington has proven to be the economic center of Delaware. Wilmington is located in New Castle County, the northernmost of Delaware’s three counties. It is part of the Philadelphia-Camden-Wilmington, PA-NJ-DE Metropolitan Statistical Area and the Wilmington, DE-MD-NJ Metropolitan Division. Located centrally between several of the largest metropolitan areas on the east coast, Wilmington is easily accessible to forty percent of the US population (Delaware Economic Development Office [DEDO], 2008). This provides a competitive advantage over many east coast cities. Highway I-95 provides convenient access from Wilmington to Philadelphia to the north and Baltimore/DC to the south. The greater New Jersey/New York/New England area is connected to Wilmington via I-295. Wilmington is also a stop on the CSX rail line, which provides a connection from Miami to New England as well as Pittsburg and Chicago (DEDO, 2008). In addition to the cargo rail service offered by CSX, Amtrak has


seven passenger rail lines that pass through Wilmington and facilitate passenger travel around the country. The Port of Wilmington provides a full-service deepwater port and marine terminal that acts as a major international import and export hub. Further increasing its accessibility, Wilmington is approximately twenty miles from Philadelphia International Airport and only a few miles from local New Castle Airport. Wilmington’s primary city government is composed of a Mayor and thirteenmember council, all of which are elected on four-year terms. Though the city was originally divided into twelve wards, this system has since been replaced by an eight district system (Hoffecker, 1974; City of Wilmington, DE, 2009). The Population growth trend in the City of Wilmington over the period from 1970-2000 was a 9.4 percent decline. At the same time, the suburbs of Wilmington1 grew by over 145,000 people, an increase of 43.5 percent (U.S. Department of Housing and Urban Development [HUD], 2007). In the years since 2000, the City of Wilmington has experienced a negligible increase in population and this trend is projected to continue for the foreseeable future, see Chart 1. The racial distribution of Wilmington’s population is shown below in Table 1. According to the 2007 American Community Survey (2007), the City of Wilmington has educational attainment levels that are near national averages. Wilmington residents in 2007 had a median household income (MHI) of just under sixty thousand dollars. This is eighteen percent higher than National MHI, and seven percent higher than the statewide MHI for 2007 (U.S. Census Bureau, 2007b).


defined as the Wilmington-Newark, DE-MD PMSA less the population of the City of Newark


Table 1

Chart 1

Economically, Wilmington has been shaped over the past 371 years by a number of factors: key geographical advantages, pioneering industrial and corporate entrepreneurs, and landmark pieces of legislation. The strategic location of the city, at the intersection of two rivers, was chosen by its settlers in the 1600’s, and ultimately provided the backbone for a strong industrial city ripe in manufacturing and import/export capacity. The DuPont family’s entrepreneurial ventures and commitment to the city helped first to grow the industrial city and later to develop Wilmington’s rich


agglomeration economy with a specialty in chemical and pharmaceutical research and development (R&D). Finally, the passing of Financial Center Development Act in 1981 and the business friendly terms of incorporation in Delaware have made Wilmington the “Corporate Capital of the World,” with more than 61 percent of all Fortune 500 companies incorporated in Delaware (Rhodes, 2007). EARLY SETTLEMENT & DEVELOPMENT OF WILMINGTON A look back at Wilmington’s history starts with the original inhabitants of the Delmarva Peninsula,2 the Lenni Lenape (Waslager, 1943).European settlement along the Delaware River began in 1638, when the Swedes landed in present day Wilmington and built Fort Christina. The Dutch claimed the area in 1655 in order to protect the rich trade of beaver pelts that the location facilitated. Power changed hands numerous times in the following years ending with rule by the English in 1674 (Hoffecker, 1974). The borough of Wilmington was founded by Thomas Willing in 1731; then known as Willingtown. Willing laid the city streets out on grid modeled after Philadelphia. The city began to gain the interest of outside investors, namely William Shipley of Pennsylvania, who invested heavily in Wilmington and helped to spur its position in the regional economy (Ferris, 1846). INDUSTRIAL GROWTH OF THE CITY With access to the Brandywine Creek and Christina River and adjacency to fertile farmland producing wheat, the surrounding area enabled an industry of merchant millers to evolve in Wilmington. The Brandywine Creek had significant waterpower and was navigable, providing the milling industry with an absolute advantage by providing both resource and locational advantages. These key advantages led to the development of a

Delaware, Maryland, Virginia Peninsula on which present day Wilmington sits


localization economy that clustered sixteen wheat mills along the Brandywine. Area farmers developed the roads in and out of Wilmington to facilitate the transportation of wheat. Related industries, including barrel making and ship building, clustered around the mills for convenience. The ideal conditions provided by the Brandywine sparked the development of six sawmills and a paper mill before the end of the 1700’s (Hoffecker, 1983). During the first half of the 19th century, the flower milling industry in the region saw significant decline due to exhaustion of the local soil, crop damages, and more productive farms further west. However, as this milling industry declined, another industry gained prominence. In 1802, the DuPont Company pioneered the construction of powder mills along the Brandywine. The DuPont mills continued to grow and prosper in this location; by the 1830’s the mills were the largest of their kind in the US (Hoffecker, 1983). The powder mills helped to carry Wilmington after the decline of the flower milling industry and flourished during the Civil War (City of Wilmington, DE [CWDE], 2009). Despite this economic success, the full impacts of the DuPont Company on Wilmington’s economy would not be felt until the early twentieth century. The 1837, introduction of the steam engine by the Philadelphia, Wilmington, & Baltimore Railroad fundamentally changed Wilmington’s economy. The local industries were no longer constrained to Wilmington’s streams, and new industrial growth was focused in the area between the railroad and the Christina River, creating a prime strip of industrial land where complimentary industries could prosper. Other factor’s that contributed to Wilmington’s industrial growth were the capital and industrially skilled labor supply available from the milling industry as well as the convenient access to the


coal and iron ore coming from Pennsylvania via daily river barges. The reinvestment in Wilmington’s industry by the area mill owners kept control and profits in the city (Hoffecker, 1974). Several other industries developed under these favorable economic conditions as well, including foundry work, tanning, and carriage making. The most dominant industries however, in terms of both employment and investment, were railroad-car and ship construction. The combination of location and transportation advantages, capital investments, access to raw materials, and a skilled labor pool created a comparative advantage for Wilmington and an economic environment that was cheaper to operate within than larger cities such as New York and Philadelphia (Hoffecker, 1974). The industries that developed in Wilmington also benefited from the urbanization economies of the surrounding industries which produced goods used in each others production. Between 1830 and 1910, this economic boom helped increase Wilmington’s population from four to seventy thousand residents (Hoffecker, 1983). Wilmington’s industrial economy prospered during both World Wars supporting vital industries of shipyards, steel foundries, and machinery (CWDE, 2009). The trade routes created by the farmers were developed into paved turnpikes in the early nineteenth century in an effort to increase the city’s market for wheat and other produce. These routes were eventually converted to horsecar lines, the first in 1864, and in the 1880’s they became streetcar lines. With this, Wilmington’s well-heeled began the exodus from the center city. The development of streetcar suburbs continued as further routes were developed (Hoffecker, 1983).


WILMINGTON’S MODERN ECONOMY The industrial clusters that define Delaware’s economy (financial services, chemistry & advanced materials, automotive manufacturing, biotechnology & life sciences, health sciences, and tourism industry) can largely 3 be defined by the growth of Wilmington in the twentieth century (DEDO, 2008). As of 2006, four of the top ten largest employers in Delaware (Bank of America, E.I. DuPont, J.P. Morgan Chase & Co., AstraZeneca) are in either the Financial Services or Pharmaceuticals and Chemical Research and Development and headquartered in Wilmington. A combination of growth in both the chemical/pharmaceutical and financial industries has given Wilmington parallel localization economies as its economic engine. The importance of these Wilmington-based industries on the state’s employment base is demonstrated by Table 2 below. Wilmington is truly the economic engine of Delaware. Table 2


the financial services cluster is tied to the Financial Center Development Act of 1981. The chemistry, manufacturing, and sciences clusters can all be related back to the growth of the DuPont Company as a leader in scientific research and development. The tourism industry cluster, which is fueled by the beaches in southern Delaware, is the exception to the rule


A review of the top fifteen 6-digit NAICS codes for 2008 in New Castle County, DE further reflects the dominance of the credit card, banking, & financial, chemical research and manufacturing, and holding companies industries in the local economy. See Table 3 below demonstrating the high location quotients of these industries. Table 3

The Finance and Insurance cluster is the most prominently represented in New Castle County, as highlighted by these seven industry sectors: credit card issuing, other credit intermediation activities, other depository credit intermediation, portfolio management, trusts, estates, and agency accounts, savings institutions, and financial transaction processing and clearing. The agglomeration economy present in New Castle County in this industry is tied to the favorable banking laws in Delaware and the resultant concentration of banking headquarters in Wilmington. A specialization in chemical research and manufacturing is also evident based upon the high location quotients shown in Table 3. Industrial gas manufacturing, nonpacking plastics film and sheet manufacturing, plastics material and resin


manufacturing, and physical, engineering and biological research exhibit this specialization in New Castle County. The strong presence of these industries is due primarily to the DuPont Company, its subsequent spin-off companies, and the reputation of the University of Delaware as a nationally ranked chemical engineering research institution. The function of the City of Wilmington as the location for corporate headquarters is demonstrated by the location quotient of 20.49 in New Castle County for offices of other holding companies. This industry sector is characterized by holding securities for the purpose of controlling company interests and influencing the corporate decisions of the firms. Delaware’s favorable laws on corporate structure spur this industry cluster. The three remaining highly specialized industry clusters from Table 3, not attributable to the three major industries discussed above, are marine cargo handling, other spectator sports, and news dealers and newsstands. With the highest amount of fresh fruit and juice concentrate in the nation, and an import/export capacity of over 100,000 vehicles each year, the Port of Wilmington is the reason for New Castle County’s high location quotient for marine cargo handling (Port of Wilmington, 2009). The high location quotient for other spectator sports is likely due to the presence of Delaware Park, a popular location for horse racing and slots, in nearby Stanton, DE. Finally, the high location quotient for news dealers and newsstands, is attributable to the News Journal, leading newspaper in Delaware, with a daily circulation of over 115,000 and is also a print site for USA Today (Delaware Online, 2009).


IMPACT OF THE FINANCIAL CENTER DEVELOPMENT ACT In 1981, the Delaware House of Representatives passed the Financial Center Development Act. This landmark legislation was designed to entice out-of -state banks to locate in the Wilmington area by eliminating the cap on interest rates that banks may legally charge customers. Within thirteen years of passing the legislation, an estimated 40,000 to 60,000 jobs were created, and thirty out-of-state financial institutions with $75 billion in assets had located in Delaware (Mastrul, 1994). A further measure of the success of this legislation and its impact on the State of Delaware’s balance sheet is the amount collected by the state in bank franchise taxes. Before the passing of this legislation approximately three million dollars would be collected annually in bank franchise taxes. As of fiscal year 2004, this number had increased to over $135 million (PGS, 2005). Delaware has since passed other business-friendly legislation including the Consumer Credit Bank Act (1983) and the Bank Insurance Powers Act (1995) to help maintain its position as the preeminent state for banking operations (Mastrul, 1994; Rhodes, 2007). The financial services cluster has a strong presence throughout Delaware and represents more than one thousand employers statewide (DEDO, 2008). Due to its centralized east coast location, ease of access, and presence as the State’s primary city, Wilmington has successfully attracted a number of major financial headquarters and relies heavily on these institutions as a source of employment and property tax revenue. The scale of the agglomeration economy centered on credit intermediation and related


activities in New Castle County4 can be demonstrated through the location quotients and employment data on Table 4, below. Table 4

THE DUPONT FACTOR In the century after the DuPont Company was founded on the banks of the Brandywine, it became a leading chemical company in America. DuPont was an early American pioneer of rationalized corporate organization. This legacy of corporate business continues to resonate through Wilmington’s economy today and has helped pave the way towards Wilmington’s business friendly reputation. DuPont has proven to be the city’s homegrown success story. In 2009, DuPont was ranked 75th on the Fortune 500 listing and posted revenues in excess of thirty billion dollars. The DuPont Company has been featured on the Fortune 500 since the inception of the listings in 1955 when the company ranked as the 10th largest corporation in America with revenues of $1.6 billion.. DuPont has also been ranked consistently as an industry leader; in 2007 the DuPont Company was the most respected company in the chemical industry (Fortune Magazine, 2009).


The significant clustering of Financial Headquarters in the City of Wilmington is driving the location quotient for New Castle County in this Industry.


As the DuPont Company grew, it remained in Wilmington, constructing a large office downtown in 1906 that is still a landmark today. This decision to stay local and to increase the research and development activities within the company has continued to bring new kinds of residents to the city and surrounding area – upper income managers, scientists, and technicians. The presence of the DuPont Company spawned other chemical companies and helped to develop a pharmaceutical R&D industry that thrives in the area today (Hoffecker, 1983; Atkinson & Correa, 2007). An early impetus for the development of this cluster was the Sherman Anti-Trust Act of 1912 that created two new companies out of the DuPont Company, Hercules and Atlas, to help dissipate the dominant trade monopoly on black powder and dynamite that DuPont had developed. These companies have continued to thrive and grow in and around Wilmington. In 2007, Hercules5 was the only other Wilmington based corporation on the Fortune 1000, ranked at number 858. Through a number of mergers and acquisitions, Atlas has since become London-based AstraZeneca. AstraZeneca is ranked number 268 of the Global 500 and ranks 7th globally in the pharmaceutical industry (Fortune Magazine, 2009). Wilmington is home to AstraZeneca’s US corporate headquarters and the global headquarters for AstraZeneca’s neuroscience commercial and research and development areas (Astra-Zeneca, 2009). Many other national and international chemical and pharmaceutical companies have a presence in Wilmington, highly technical industries that require a skilled and educated workforce. In 2007, Delaware had the 15th highest advanced degree attainment level in the United States and ranked 2nd only to Connecticut in the number of doctoral degrees per capita (U.S. Census Bureau, 2007b; Fortune Special Sections, 2002)

Hercules was acquired by Ashland, Nov. 13, 2008.


Wilmington’s chemical research and development agglomeration economy has spilled over into the academic realm and has spawned a growing chemical engineering program at the University of Delaware (UD), located in the nearby city of Newark. The University’s graduate chemical engineering program is ranked 9 th in the nation and has annual research expenditures in excess of eight million dollars (U.S. News and World Report, 2009; University of Delaware, 2009). The UD has a strong relationship with the DuPont Company, which offers a number of grants and fellowships. Recently, a joint research team between DuPont and UD was awarded $12.2 million dollars for the development of a more efficient solar cell (Green Energy News, 2007). Significant patent activity has developed around Wilmington’s chemical and pharmaceutical research and development cluster. The DuPont Company, AstraZeneca, and the University of Delaware are featured in the listing of Delaware’s top patent grantees, see Table 5 below. Based on volume of patents granted nationally between 2004 and 2008, the DuPont and AstraZeneca companies rank 5th and 177th, respectively. The University of Delaware is a nationally leading research university with more than two hundred utility patents being granted since 1969 (U.S. Patent and Trademark Office. 2009). This focus on scientific R&D can be further demonstrated through the location quotient of 3.44 for New Castle Country in NAICS 54171: Physical, engineering and biological research which employs more than four thousand people (U.S. Bureau of Labor and Statistics, 2008).


Table 5

“THE CORPORATE CAPITAL OF THE WORLD” In dealing with corporate disputes since the DuPont Companies introduction of the modern corporate business structure, the rulings of the Delaware Chancery Court have become the international standard for corporate law. The Delaware corporate legal climate has a reputation for being consistent, fair, and expeditious. This has served as an important factor that causes companies to choose to incorporate in Delaware (Fortune Special Sections, 2002). However, a favorable legal climate is not the only factor that attracts corporations to Delaware. Delaware also boasts a favorable tax climate with a corporate tax rate of only 8.7% on net income and no sales tax or equipment tax (Fortune Special Sections, 2002). To further the goal of attracting companies to incorporate in Delaware the state has developed a streamlined system that minimizes barriers to entry with low fees and annual costs, flexible options for corporate structure, and no minimal capital requirements. This combination of convenience, flexibility, affordability, and predictability has been extremely successful for Delaware. Over three-hundred thousand companies are incorporated in Delaware, including more than sixty-percent of all Fortune 14

500 companies. The combination of these unique economic factors has given Wilmington the nick-name, “Corporate Capital of the World”, and add up to the “Delaware Advantage” (Rhodes, 2007). The State of Delaware and City of Wilmington have instituted numerous tax incentives designed to keep existing businesses and entice new companies and industries to the area (DEDO, 2008). Delaware’s incentives include tax reductions and credits for target industries such as scientific R&D, credit reporting services, and telecommunication services, significant business expansion, the development of “green” industries, brownfield redevelopment, development in targeted areas, and public utility tax rebates (Select Greater Philadelphia, 2007). Wilmington offers a tax incentive package aimed at creating additional jobs and redeveloping targeted areas of the city. These programs include real property tax exemptions for business that create 1,500 or more new full time positions, “head” tax waivers for business that bring over 100 new employees to the city, tax exempt bond financing for businesses, brownfield redevelopment tax credits, and real property tax abatement for businesses in the Christina Gateway area (City of Wilmington, 2009). The growth of new companies in Delaware while retaining existing companies is vital to both Wilmington’s and Delaware’s economy. The State of Delaware relies on corporate taxes and fees for one third of its total revenue, which amounts to more than $1.6 billion and is the single highest revenue category for the State, see Chart 2 below. This income is the lifeline of Delaware and is vulnerable to the effects of corporate relocations due to mergers, aggressive legislative


measures by other states vying to be seen as business friendly, and the potential for federalized corporate law (Rhodes, 2007). Chart 2

Source: Delaware Comprehensive Annual Financial Report, FY 2008

As the major urban center of Delaware, Wilmington plays a critical roll in the state’s economy. Property and Income Tax represent sixty percent of the City’s annual revenue, see Chart 3. The headquarters of Bank of America, DuPont, and Hercules provided a significant portion of Wilmington’s property tax revenue in 2008 (Department of Finance, 2008). Wilmington has also enacted an Earned Income Tax of 1.25% on all wage earners that work or conduct business in the city, regardless of place of residence. This tax helps to close the gap created by workers that commute to work in the city but reside outside of it. The revenue from this tax goes towards city services that are aimed at strengthening neighborhoods, increasing safety, and stimulating economic activity, see Chart 2. Understandably, Wilmington’s tax incentive programs focus both on bringing headquarters buildings to Wilmington and on creating jobs within the city.


The strength of Wilmington and of Delaware as a state are closely linked. Favorable state tax and corporate structures are required to attract major corporations and a highly visible and connected city that facilitates urbanization economies is required to convince them to stay. Chart 3

Source: City of Wilmington, Delaware Comprehensive Annual Financial Report, FY 2008

FUTURE PROJECTIONS In May of 2004, the Wilmington Department of Planning issued the “Visions for Wilmington” which laid out the future of development focus areas in Wilmington. These visions represent the fulfillment of the city’s slogan “A Place to Be Somebody”. In order to achieve these grand visions the city must take significant strides. A number of groups have been formed by the City of Wilmington and local businesses to help Wilmington grow: Wilmington Downtown BID, Downtown Visions, the Riverfront Development Corporation, and Wilmington Renaissance Corporation. The mission of these groups is to bring more development to Wilmington and to create an environment that is clean, safe, and attractive. Efforts by these groups include the creation of multiple musical festivals across the city, a farmer’s market in Rodney Square, streetscape enhancements, and outdoor street entertainment. These measures


designed to increase the relative utility of the city will be critical to the recognition of the city’s many development goals. Delaware must continue to act aggressively to maintain its reputation as the preeminent state for business and work to protect itself from the vulnerabilities discussed above. Further, Wilmington must actively pursue companies that are considering relocation to Delaware, while taking measures aimed at retaining existing corporations. Additionally, the city should consider legislative incentives (creation of TDR receiving zones, TIF financing programs, property tax breaks, zoning revisions, etc.) and infrastructure investments to help spur residential, retail, and cultural real estate development in concert with its expansion of the office sector. Increased quality of life and high quality development, brought about by these changes, will enhance the city’s ability to counteract the stagnant growth patterns that have been projected. Lawmaker’s in Wilmington should to continue to make the city more attractive to the “live” and “play” components of the classic mixed-use “live-work-play” paradigm while simultaneously maintaining its reputation as the “Corporate Capital of the World”.


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FY 2008. Retrieved from: Ferris, B. (1846). A History of the Original Settlements on the Delaware… & A History of Wilmington. Baltimore, MD: Gateway Press for Delaware Genealogical Society. Fortune Magazine. (2009). Fortune 500. Retrieved from: Fortune Special Sections. (2002). Delaware: Business Central. Retrieved from Green Energy News. (2007) DuPont-University of Delaware Consortium Awarded $12.2 Million for Solar Cell Research. Retrieved from: Hoffecker, C. E. (1974) Wilmington, Delaware: Portrait of an Industrial City: 1830-1910 Charlottesville, VA: University of Virginia Press for Eleutherian Mills – Hagley Foundation Hoffecker C. E. (1983). Corporate Capital, Wilmington in the Twentieth Century. Philadelphia, PA: Temple University Press Mastrul, D. (1994). How Delaware state went after the financial industry. Philadelphia Business Journal. PGS Attorneys at Law. (2005). The Evolution of Banking in Delaware. Retrieved from: Port of Wilmington. (2009). Trade Profile. Retrieved at: Rhodes J. (2007). Corporate governance panel seeks way to keep state No. 1. University of Delaware Office of Public Relations, Retrieved from:

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Waslager, C. A. (1943). Delaware’s Forgotten Folk. Philadelphia, PA: University of Philadelphia Press Wilmington Department of Planning. (2004). Visions for Wilmington. Retrieved from:


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