Baron von Munchausen, famous spinner of tall tales

Was Bob McDonnell Convicted with Tainted Testimony?

Jonnie Williams' trial testimony about a critical meeting with the former governor was contradictory, implausible and sometimes incoherent. But the jury bought it anyway

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Building Connectivity in Suburbia

Building Connectivity in Suburbia

Sunnyvale, Calif., wants to reinvent a 60's-era industrial office park as an innovation district. It's making progress but suburban sprawl is not an easy habit to break.

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The Great U.S. 460 Swamp

The Great U.S. 460 Swamp

VDOT had loads of warning that wetlands could kill the U.S. 460 project but the state charged ahead with a design-build contract that everyone knew could explode.

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Coming up: Car-Lite Burbs

Coming up: Car-Lite Burbs

A California developer is teaming with Daimler AG to bring buses, shuttles and ride sharing to an Orange County community -- with no government subsidies.

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Putting the “Garden” in Rain Garden

Putting the Garden in Rain Garden

Soon Virginians will start spending billions to meet tough storm-water regs. Lewis Ginter Botanical Garden wants to show how we can save the bay – and look really good doing it.

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Virginia Metro Brain Gain

brain_gain

Joel Kotkin and Mark Schill at the New Geography blog have devised a different way of looking at which metro regions are winning and which ones are falling behind in the competition to build an educated workforce. By this set of metrics, most Virginia regions score in the top 50% of the nation’s 380 metropolitan regions, but none are standouts. Overall, our regions are doing OK, better than average, but no one is setting the world on fire.

What does this chart, extracted from ranking of all 380 regions, measure? I’ll let Kotkin and Schill explain:

To determine the metro areas that are gaining brainpower in the 21stCentury, we scored the nation’s 380 metropolitan statistical areas based on three criteria. We started with the growth rate in the number of residents with at least a bachelor’s degree from 2000 through 2013 (25% weighting in final score). But since the places that post the highest growth rates tend to be those starting with low levels of educational attainment, we gave greater weight to the percentage point increase in the share of the population that is college-educated over that span (50%), and we factored in the share of educated people in the population in 2013 (25%). We also separated out results for the 51 MSAs with over a million residents.

Not surprisingly, metro regions with a large college/university presence tended to do better over the 13-year period studied, but industry mix played an important role as well. Government and high-tech industries attracted educated workers. The Washington metro has the best educated population in the country.

After following the debate for more than a decade now, I have to say, it’s still not clear to me what, if anything, metro regions can do to recruit and retain educated workers. Employers are the driving force — they are the ones who recruit employees to a region. Regions with industries that are profitable, growing and pay well enjoy a big advantage over regions dominated by shrinking, low-paying industries. But there’s more to the story than that. Regions also have to hold on to their employees. If costs are too high, if life is boring, if the community isn’t welcoming to outsiders, talented young people will leave.

There are no quick fixes here. It can take literally generations of effort to build an employment base of dynamic employers with the clout to recruit talented workers and to create the kinds of amenities that keep those talented workers in town. Regions that view the challenge clearly and sustain their efforts over the years will prevail over those that don’t.

– JAB

Who Will Inform the Electorate? What Would T.J. Say?

TJby Gerald L. Cooper

It’s sad to see The Virginian-Pilot go slowly down, like the first ironclads Monitor and Merrimack, in this sea-bound community. The old gal’s final voyage has probably begun — at least the vessel that “serve(d) the public with such skill and character … and … exercise(d) First Amendment freedoms with vigor and responsibility,” as the late publisher, Frank Batten (died at 82 in 2009), is still quoted on the masthead of the opinion pages of the shriveling newspaper.

It was distressing to learn last week that readers would lose the words and insights of Bob Molinaro and Bill Sizemore, both mainstays at The Pilot. The newspaper won’t be the same without Bill’s high-level of investigative reporting and Bob’s column of down to earth sports comments — often questioning the commercial excesses of big-money athletics. Others are  rumored to be leaving, too, but we readers with long-term loyalties are being fed the departure facts piece-meal, like barnyard hens. So we peck through the grain as it’s scattered in front of us, hoping our favorites will survive another cut.

Even the most faithful University of Virginia alumni in Tidewater might wonder if Batten should have withheld the $100 million he gave to UVa in 2007, instead endowing The Virginian-Pilot. Wisely invested that  $100 million could yield $8 million annually at 8% and pay a good hunk of operating costs — at either the university or the newspaper.

In Charlottesville, the University got the $100 million and created the Frank Batten School of Leadership and Public Policy — “the largest single gift in the history of the University,” said a news release. It quoted Batten, “Talented public leaders are needed from a range of professional backgrounds. It is critical to get younger people excited about the responsibilities and opportunities of public service in all its manifestations.” Thus emerged a mission statement for a School of Leadership and Public Policy.

One may wonder which would do more to keep Virginia’s citizens informed and its public servants honest — a vigilant, independent newspaper or a highly selective college of public policy. To confuse the choice, we read how Thomas Jefferson, writing to his friend, Col. Edward Carrington in 1787, cited his preference for newspapers as a means to keep well-informed “the opinion of people.” At that time a state-supported university was but a gleam in his 44-year-old eye.  Fast-forward to 1810 – 1819: When Jefferson labored to create the University of Virginia, he searched for funds to build its grounds and compensate its faculty.

There is evidence to suggest that the Founder might have, in his typically enigmatic manner, urged a donor such as Frank Batten to endow a respected Virginian-Pilot newspaper instead of sending a small fortune to central Virginia to establish a new department in the government-supported prototype of the elite eastern universities. This same founder of the University of Virginia had written in 1787, “I should not hesitate a moment to prefer the latter” — newspapers — as the best vehicle by which to keep the people of the new democracy well informed.

Will newspapers continue to have major influence in the cause of nurturing and defending democracy in the United States, or is the influence of print journalism in irreversible decline? What would best insure that our government “of the people, by the people, for the people, shall not perish from the earth,” as we face 21st century challenges? Would a time-tested, independent newspaper, dedicated “to serve the public  with skill and character” be most useful to democracy, or would a college curriculum designed “to get younger people excited about the responsibilities and opportunities of public service” reap greater benefits for the public good?

Jefferson, the explorer of dichotomies, might have believed that our 21st century democracy, still searching for balance and integrity in governance, needs both public universities and independent newspapers. And he might still “not hesitate a moment to prefer the latter.”

Gerald L. Cooper (BA, MEd, UVa) spent his 43-year career in education as an administrator, counselor and teacher. His final assignment in 1994-2000 was as executive director of the college access program, founded by Frank Batten and Josh Darden, that served ten public high schools in Norfolk, Portsmouth, and Virginia Beach.

Mamas, Don’t Let Your Daughters Grow up To Be Co-Eds

Phi Kappa Psi fraternity house at UVa.

Phi Kappa Psi fraternity house at UVa.

When I visited Virginia Tech a few weeks ago, the lead story in the campus newspaper was a take-out on the supposed “campus rape culture.” The number is widely touted that 20% of women are the victims of sexual assault while at campus. My instinct is to dismiss that figure as a figment of the feminist fringe, in which transgressions of any kind, from unwanted touching to real rape, are conflated as “sexual violence.” Many incidents are fueled by the combustible combination of rampant drunkenness and the casual sex of the hook-up culture, in which all normal standards of behavior are obliterated.

That said, rape that everyone recognizes as rape does occur. One such incident, which allegedly occurred at the University of Virginia, is profiled in Rolling Stone. The story of a first year student gang raped in the Phi Kappa Psi fraternity house, if accurate, is absolutely horrifying. What allegedly followed (or didn’t follow) is a travesty. Writes author Sabrina Rubin Erdely:

At UVA, rapes are kept quiet, both by students – who brush off sexual assaults as regrettable but inevitable casualties of their cherished party culture – and by an administration that critics say is less concerned with protecting students than it is with protecting its own reputation from scandal. Some UVA women, so sickened by the university’s culture of hidden sexual violence, have taken to calling it “UVrApe.”

Maybe that’s a fair take on what’s happening at UVa and other colleges, maybe it’s not. There are a lot of conservatives like me whom, I suspect, get turned off by the blather associating campus sexual violence with “patriarchal attitudes” and other such nonsense, as if society ever condoned rape as a “boys will be boys” thing to be swept under the rug. It was social conservatives, after all, who warned that the mixing of genders in college dormitories, the relaxation of visitation rules and the collapse of traditional moral values would lead to precisely the phenomenon we’re discussing today. Such fears were dismissed at the time, of course, as the hilariously antiquated thinking of prissy, tea-sipping old bitties.

But here we are. Feminists have discovered a “culture of rape” in what are arguably the most thoroughly enlightened and liberal institutions in the entire country, our colleges and universities. While I don’t think the Rolling Stone article has captured the entire truth of what’s happening on college campuses, I think it has captured part of the truth. And even that partial truth is ugly enough to take very seriously.

I would ask Virginia newspapers, why did Rolling Stone break this story, not you? If there is a campus rape epidemic on college campuses, are you going to continue to ignore it, highlighting only the cable news spectacles, like that of missing UVa student Hannah Graham, that are unrepresentative of the college experience? Conversely, if there’s not a campus rape epidemic, are you going to ignore that story, too? If the whole problem is wildly exaggerated — analogous, say, to the satanism scare of a couple decades ago — worried parents of college co-eds would like to know.

My suspicion is that there is a widespread problem but that it’s not as white-and-black as portrayed. College kids are… how shall I put this politely…. incredibly horny. The old social mores that held horniness in check have been obliterated. Concentrate thousands of males and females of the same age in a college campus, tear down the moral inhibitions against promiscuous sexuality, and dissolve inhibitions and judgment in a haze of alcohol, and you’re going to have a lot of sexual encounters, some percentage of which, in retrospect, are worthy of criminal punishment and some percentage of which participants simply regret. There is a cultural problem here. It’s not one of oppressive “patriarchy.” But it’s very real.

(Hat tip: The Nutshell by Frank Muraca. Check out Frank’s newsletter — it’s a short but punchy round-up of Virginia news, well worth reading.)

Racial Disparities in SOL Pass Rates Getting Worse

Bacon’s Rebellionmath_data
More SOL data from Lynchburg numbers cruncher Jim Weigand… The chart above expresses the Standards of Learning (SOL) pass rate for blacks and Hispanics as a percentage of the pass rate for whites between 2005 and 2014. The good news is that blacks and Hispanics consistently improved their educational performance through 2010, with Hispanics passing at 90% of the rate as whites in that year.

Then something happened. Minority SOL pass rates tanked. White pass rates declined (a trend not reflected in these charts) but minority pass rates fell even steeper. What happened in that period? Weigand notes that downturn coincides with tighter standards for the math SOLs  in 2012 and for the English SOLs in 2013. The impact of more demanding math tests can be seen in this chart:

SOL_data

 

Virginia school systems have made tremendous efforts to help minority students reach educational parity with whites (and Asians, who out-perform whites). But these charts call into question the effectiveness of those efforts.

If the tests were harder, then why weren’t all groups effected equally? Why did black and Hispanic scores decline relative to white scores? One possible explanation is that minority students are enrolled disproportionately in classes that “teach to the test.” Teachers in these classes got better at instructing their students to answer the kinds of questions that appear in SOL tests. (An analogy: My son is taking an AP course that explicitly, no-bones-about-it, is geared to helping students answer the kinds of questions that appear in AP tests.) But teaching to the test has a big drawback. Make the test tougher, and it doesn’t work.

Just a theory. It doesn’t fit the data perfectly. Perhaps readers can help me refine the theory or present better ones of their own.

Update: At the suggestion of Don Rippert, Jim Wiegand portrayed the same data as the chart above in a different way. Here’s the raw data for each ethnic/racial group, not normalized to whites as above. This shows clearly that whites suffered a decline in SOL pass rates, too.

SOL_pass_rates

– JAB

Arlington Scraps Streetcar Projects

Rendering of a Columbia Pike streetcar.

Rendering of a Columbia Pike streetcar.

by James A. Bacon

Arlington County’s surprise decision yesterday to cancel proposed streetcar projects for Columbia Pike and Crystal City should not be seen as a rejection of the concept of streetcars but a rejection of the funding mechanism chosen by the board that asked taxpayers to bear the fiscal risks while property owners enjoyed the benefits.

Arlingtonians, who voted John Vihstadt to the County Board earlier this month in an election that had become a referendum on the streetcar projects, questioned whether the $550 million price tag justified the purported economic development benefits. Board Chair Jay Fisette cited the decisive election results in canceling the project for which he and other board members had spent 15 years shepherding through the planning and fund-raising process.

One big problem for streetcar backers was defending the Columbia Pike project in the face of escalating cost estimates. The $358 million price tag was up $48 million from a federal cost estimate last year and up $100 million from a previous county estimate. County officials, with years of planning invested in the project, maintained that the benefits still outweighed the costs. A substantial majority of citizens were skeptical, and they said the county’s transportation needs could be met more cost-effectively with improved bus service.

Streetcar advocates said that the investment in fixed streetcar assets would encourage property owners along Columbia Pike to invest in upgrades and infill along the route. In theory, rising property tax revenues would more than offset the county’s $170 million share of the capital costs as well as ongoing operating costs. Moreover, the county’s share of the funds would come from a special commercial real estate tax dedicated to transportation projects.

That is not an unreasonable argument to make, although the forecast of rising property values does require a leap of faith. In effect, county officials were willing to to invest local funds for both streetcar lines in the belief that the revenue from increased property values ultimately would exceed the costs. In effect, they were saying, “Trust us. Build it and the development will come.” It became harder to maintain that the project would be a net fiscal benefit when the estimated cost jumped $100 million.

County officials could have changed the political dynamic if they’d embraced the logic espoused here on Bacon’s Rebellion – moving to a system in which users and beneficiaries pay for the project. In previous columns, I advocated funding the project through a special tax district on property owners along Columbia and a separate district in Crystal City.

If the Columbia Pike streetcar will do as much to stimulate increased property values as claimed, the property owners along the route will be the main beneficiaries. Why should property owners enjoy a massive windfall without contributing anything directly toward the project? (The special commercial tax that would pay for the project comes from all over Arlington, not just the area affected.) If property owners believe that the value created would exceed the projected cost, they should be willing to bear that cost themselves. The county could add sweeteners in the form of increased density allowances, as needed. Using special tax districts to finance the streetcar projects would place the burden and the risk where it belongs: on the property owners who collectively stand to gain hundreds of millions, if not billions, of dollars in economic value, not the general taxpayers.

If the County Board had structured the deal this way, taxpayers would have had no cause to bellyache. The projects never would have been politicized in the way they were.

Of course, structuring the projects around special tax districts would create a political risk that property owners would not support them. But if the chief beneficiaries refused to support the project, what signal would that send? It would send the signal that the projects won’t have the wealth-creating effects claimed for it, that the projects cannot be economically justified, and that the projects shouldn’t be built.

Instead of giving up,  the Arlington Board should restructure the deal as a special tax district in which the local funding share is paid for by property owners affected by the project (rather than commercial property owners throughout the county). If the property owners bite, they’ll have a project. If the property owners balk, then it’s time to acknowledge that the putative benefits aren’t there.

Proposed CO2 Regs Will Harm Virginia’s Economic Competitiveness

Image credit: Department of Environmental Quality

Image credit: Department of Environmental Quality

by James A. Bacon

Proposed federal regulations to cut future carbon dioxide emissions from electric power plants would put Virginia at a significant competitive advantage by giving the state no credit for its progress in reducing CO2 over the past ten years, asserts the state Department of Environmental Quality (DEQ) in a letter response to the Environmental Protection Agency (EPA).

Even back in 2005, Virginia power plants emitted less CO2, a greenhouse gas, per unit of energy produced than those of other many states, thanks to the state’s reliance upon nuclear power. Since 2005, Virginia power companies have phased out older coal-fired plants and substituted natural gas. Although natural gas is a fossil fuel that emits CO2, it is much cleaner burning than coal and produces less CO2 per unit of energy.

In 2005, coal accounted for 46% of Virginia’s electric generation; by 2012, coal had fallen to 20%.  Virginia reduced carbon “pollution” by 39% between 2005 and 2012, the seventh best performance nationally. In 2012 Virginia ranked 15th among the 50 states for the rate of carbon “pollution” from all electric generating sources.

Rather than credit Virginia for recent progress or how much citizens spent to get there, argues the DEQ letter, the EPA Proposed Emission Guidelines bases its performance targets on a state’s electric generating system as it exists now. States the letter:

EPA’s approach fails to recognize the achievements made by many states, including Virginia, that have reduced CO2 emissions by making significant investments in zero and low carbon emitting generation, such as nuclear power, and rewards states that have not done so by giving them substantially higher CO2 emission reduction targets.

carbon_goals

Source: Division of Environmental Quality

All of Virginia’s neighboring states have electric generating systems that are more carbon-intensive than Virginia’s, but all have emission rate goals substantially higher than Virginia’s final goal of 810 [pounds per Megawatt house]. In fact, the Proposed Emission Guidelines would require greater reductions in megawatt hours or carbon intensity from affected units in Virginia than from similar units in either Kentucky of West Virginia, even though those states generated approximately twice the amount of electricity on a megawatt hour basis from fossil fuel than did Virginia in 2012.

“The disparity in state goals,” writes the DEQ, “leaves Virginia at a competitive disadvantage to its neighbors and numerous other states because they will be able to comply with the Proposed Emission Guidelines more cost effectively. … Such states could use their competitive advantage over Virginia to keep their state electric rates or taxes relatively lower in order to lure away existing Virginia businesses and render Virginia less competitive in the quest for new business.”

Governor Terry McAuliffe says he supports the EPA’s goal of reducing carbon emissions to combat global warming. But he says the proposed regulations could be “more equitable,” according to the Times-Dispatch.

Bacon’s bottom line:  Not only are onerous new environmental regulations being imposed by executive fiat, not based upon anything contemplated by Congress when it enacted the Clean Air Act… Not only are these regulations being enacted  on the basis of claims that runaway global warming (a) is occurring, (b) will prove to be an unmitigated catastrophe and (c) that re-engineering the U.S. economy by reducing CO2 emissions is the best way to deal with it… but the state-by-state implementation of the regulations will punish Virginia for its previous efforts to be environmentally virtuous.

Virginia, like the United States, faces many environmental challenges. As a society, I believe, we should steadily increase our investment in environmental protection. But we also need to prioritize that investment to accomplish the most good per dollar spent. I’m far from convinced that spending billions of dollars — the proposed EPA regs could cost Virginians an estimated $5 billion — will generate anything tangible for Virginia or its environment. If these regulations go through, they will be a tragedy of the first order.

Fracking Our Pristine Mountain Forests

GW forestBy Peter Galuszka

Is nothing sacred? Of all groups, the U.S. Forest Service should protect the lands it controls, but today it introduced a plan that would allow limited hydraulic fracturing for natural gas in the 1.1 million-acre George Washington National Forest which straddles Virginia and West Virginia.

Virginia Gov. Terry McAuliffe had opposed lifting the ban, although he supports other proposed gas projects in the state, such as the 550-mile Atlantic Coast Pipeline that would stretch from the fracked gaslands of Northern West Virginia over the mountains and southeastward to Southside and Hampton Roads and North Carolina.

Forest lands help supply drinking water to 4 million people including those in Richmond and Washington. Some of the forest land has so-called “Karst” topography made up of rock formation that can be dissolved. In those conditions, any leakage of methane, or the toxic, powerful chemicals used in fracking would be more, rather than less, likely to poison drinking water.

The only good news out of the new USFS plan is that before some 995,000 acres could be available for drilling and that amount will now be limited to 177,000 acres.

But what can’t they let it all be? If you head west where the heart of the Marcellus Shale formation has become one of the mega-meccas of fracked gas, you hear of impacts of all types from drilling. These have included fire, explosions, diesel generators roaring 24/7, drinking water effects, bright floodlights and so on. In fact, I am embarking on a drip in about an hour that will end up in frack-land and will report when I get back.

To be sure, natural gas drilling has been going on for decades in the Appalachian Plateau of the western slopes of the Appalachians. Few pipelines crossed eastward over mountains and it was rare to find many drilling rigs in those areas.

But the fracking craze continues unabated and is now a $10 billion industry in the Marcellus Shale formation. One potential new target could be a different formation that starts from Fredericksburg and slips under the Potomac northeast into Maryland. A Texas firm with a letter drop address has been talking about leasing rights for fracking. One assumes that if the leases are in place, they’ll be quickly flipped to an actual drilling company, but you won’t know who. Virginia is only in the very early stages of setting up state rules for fracking.

Environmentalists say natural gas can be an even worse carbon polluter than coal should methane be released. Some others believe that the biggest damage comes not from the actual fracking process with millions of gallons of water and chemicals but from faulty wells.

One can make an argument that gas is good because it has completely reorganized the global pecking order in terms of energy. It means the U.S. need not be beholden to machinations of the Middle East, Central Asia and the likes of Vladimir Putin.

What bothers me is the rush to frack. I remember back in the 1960s in West Virginia when mile after mile of mountain side had been ripped apart by surface miners. It was a cheap way to get at coal. Mystery companies were supposed to reclaim the mine site but rarely did because they’d bankrupt one alphabet soup firm merely to create a new one.

The fracking craze, if not properly regulated, could yield even worse environmental disasters.

More Money for Millionaires

by James A. Bacon

Here’s one way to look at it: If the commonwealth is going to shower millions of dollars in tax credits and grants to multimillionaires for making movies in Virginia, it might as well give it to Virginia multimillionaires. At least that keeps the money in the state!

According to the Times-Dispatch, the state gave a $200,000 grant and an $800,000 tax credit to the production company that filmed “Field of Lost Shoes” about the Civil War battle of New Market in which VMI cadets helped defeat a Union army. The company is owned by Thomas Farrell II, CEO of Dominion Resources, who co-wrote, invested in and raised money for the movie. Farrell’s son, Peter Farrell, a Henrico County delegate to the General Assembly, also was an investor, co-producer and actor in the movie.

If the state is going to shell out that kind of money to lure film production to Virginia — the independent film company spent nearly $4 million in “qualified expenses” on the project — why give it all away to the likes of multibillionaire Steven Spielberg, who filmed “Lincoln” in the Old Dominion? Share the wealth, baby!

Of course, I’m being totally facetious. The state has no business subsidizing film production for anyone — Virginian or non-Virginian; millionaire, billionaire or pauper — any more than it has subsidizing painters, fiction writers, graphic novelists, musicians, bloggers or any other artist.  Welfare (or incentives, whatever you want to call it) for millionaires is not justifiable in anybody’s moral framework.

The point of the film tax program is to encourage economic activity — film production — in Virginia that wouldn’t take place here otherwise. Did giving Farrell’s production company $1 million induce him to film in Virginia as opposed to somewhere else? Where else was Farrell, a University of Virginia grad, going to film a movie about VMI and a battle fought in the Shenandoah Valley? Kentucky? Southern California?

This is one more instance of Virginia’s political class picking the pockets of taxpayers and redistributing it to the wealthy and politically connected. Republicans, who increased this particular subsidy under the McDonnell administration, are blocking the expansion of Medicaid on the grounds that we can’t afford it (which we can’t). But they’re OK with subsidizing a millionaire’s personal artistic passion? Shame! Shame!

While I deplore the tax breaks, I have to say, the movie trailer looks pretty good. The Farrells lined up some serious B-List talent — Jason Isaacs, Tom Skerritt, David Arquette — and the acting and production values come across as very professional. I hope the movie is a financial success. If it is, maybe Tom Farrell will film more stories from Virginia history… without the benefit of tax breaks.

Optimism Bias and Risk in Public Private Partnerships

The tolling technology is better than ever -- but traffic forecasts are a disaster.

The tolling technology is better than ever — but traffic forecasts are a disaster.

by James A. Bacon

Randy Salzman, a free-lance Charlottesville writer, has spent the last couple of years trying to understand how Public Private Partnerships (P3s) work in Virginia. If the private sector is supposed to be so much more efficient than government, he asks, how  come so many big P3 transportation projects in Virginia and across the nation have gone bankrupt? Why do private sector companies continue investing in similar projects despite the obvious risk? And what exposure do taxpayers when deals go bad? He doesn’t have any definitive answers, but he lays out a lot of good questions in the latest issue of Style Weekly.

Salz, an occasional contributor to Bacon’s Rebellion, gets closest to the truth when he mentions the “optimism bias” in traffic forecasts. In project after project across the country, private P3 companies and  their government partners have over-estimated traffic volumes on the roads they build. Writes Salz:

One study found that the projections tended to be 109 percent more than actual traffic — or more than double — and that nowhere in completed American P3s have actual traffic and toll income come close to projections.

Here in Virginia, flawed traffic forecasts were at the root of the Pocahontas Parkway debacle in eastern Henrico County and, if I’m not mistaken, the Dulles Greenway bankruptcy in Loudoun County (although that was not a P3 project). And there’s a very good chance that the Capital Beltway Express’s Northern Virginia HOT lanes project will experience a similar fate.

I think there are two things going on here. First, the private sector’s flawed traffic project models paralleled flawed public sector models. Everybody in the transportation business extrapolated the growth trends of the ’60s, 70s, ’80s and ’90s indefinitely into the future. I warned a decade ago that that was folly, but not many people listened. Reality set in in the mid-2000s when growth rates started tapering off and during the 2007-2008 recession, when traffic volume actually declined. The reasons are many and complex, as I have enumerated ad nauseum on this blog, but they are fundamental and lasting, not just a blip. We will not in our lifetimes return to the traffic-volume growth rates experienced during the post-World War II era.

The forecasts of traffic volume and associated toll revenues for the P3 projects were predicated on the assumption, now revealed to have been astonishingly naive, that traffic volume would increase on the same trajectory pretty much forever. That’s why the bankruptcies ensued, and why there will be more to come.

If experience tells us anything, the private sector will figure that out before the public sector does. As Salz quotes Lane Construction as saying in regard to proposed Interstate 66 toll lanes near Washington: Traffic projections have an “optimism bias.” Which brings us to the second reason for the wave of bad deals. Once someone, whether a private investor or a government agency, invests hundreds or thousands of man hours in analyzing a project, they get personally invested. No one likes to pull the plug. They want to see the project move forward. They tend to adopt assumptions that will make the project look more viable in order to obtain the financing needed to move it from paper to reality. This bias is so endemic in all types of projects that we can almost call it a part of human nature.

The private sector has built-in bullshit detectors. They’re called investors and bond holders. Investors want to generate a positive risk-adjusted return on investment. Bond-holders want to get their money back, plus interest. They may rely upon flawed traffic projects that no one questions, but they don’t suffer from the optimism bias of the project sponsors. They are naturally skeptical and have an interest in asking tough questions. Now, these investors and bond holders aren’t infallible by any means. They make bad investments, too. But they demand a higher standard of certainty than, say, politicians who want the glory of building a road but won’t be around to take the blame if the project falls apart.

Every toll-backed P3 project sells bonds to investors. How, then, did so many go wrong? The key is to look at how the public partner biased the outcome through subsidies and loan guarantees. Every big P3 project applies for financing from the federal Transportation Infrastructure Finance and Innovation Act (TIFIA). These federally guaranteed loans create a tranche of subordinated debt that creates a layer of protection for private bond holders. In other words, if Project A experiences a revenue shortfall, what revenues it does produce will go to bond holders first. Here’s how the Federal Highway Administration describes it: “The TIFIA lien on project revenues may be subordinated to those of senior lenders except in the case of bankruptcy, insolvency, or liquidation of the obligor.”

This layer of protection significantly reduces the risk for senior bond holders, who then demand fewer assurances than they would otherwise before purchasing the bonds. In Virginia, the commonwealth has reduced project risk by making significant cash contributions as well. Most of the P3 projects set up in Virginia in recent years have used some combination of TIFIA funding and public subsidies to make the projects work. Without these contributions, the perceived risk would have been far higher, and the chances of getting pure private financing would have been much diminished. It’s fair to say that many, if not most, of the deals never would have happened.

Combine these three factors — highly flawed long-term traffic projections embraced by the public and private sectors both, the optimism bias for specific projects, and the diminution of risk through TIFIA financing and public subsidies — and we can explain a lot of went wrong. That’s not an exhaustive list of explanations but it accounts for a lot. Continue reading

Former Massey Coal Chief Indicted

DonBlankenshipBy Peter Galuszka

The indictment today in Charleston, W.Va. of coal baron Donald L. Blankenship, the former head of the notorious Massey Energy Company, for violating federal mine safety and securities laws, has been long awaited, especially by the families of the 29 miners who died on April 5, 2010 in a huge explosion at Massey’s Upper Big Branch mine in Montcoal, W.Va.

It was the worst coal mine disaster in this country in 40 years. It topped off a wild run by Blankenship, who thought he had political potential and spoke for the Appalachian coalfields while dodging safety violations and blowing away mountains in horrific surface mining practices.

He was a poster man for the view, popular among this country’s business elite, that cost cutting and productivity are sacrosanct, human lives are cheap and environmental concerns such as climate change are mere diversions from the country’s true goals. At one point he literally wrapped himself up in the American flag to push his ideas.

A federal grand jury today turned those arguments on their heads. The four charges accuse Blankenship of conspiracy in blunting the numerous federal safety violations that lead to the catastrophic disaster at the Upper Big Branch mine.

For several years leading up to that fateful day, Blankenship allegedly connived to ignore concerns that the mine had broken equipment and excessively high levels of highly inflammable coal dust. He also is accused of keeping federal mine inspectors from doing their jobs.

The grand jury also claims that Blankenship violated federal securities laws by giving investors misleading information about Massey stock.

Blankenship was a huge celebrity in the Appalachian coalfields. Tying himself to a reactionary ideal of doing what he thought was best for America, he spent a million dollars at what was an anti-Labor Day celebration in West Virginia in 2009. He wore a costume formed from an American flag and hired testosterone-infused country music stars Hank Williams Jr. and Ted Nugent to entertain his crowd.

The irony was that it was a holiday to celebrate labor unions while Blankenship and his firm were notorious for union-busting. He also had a habit of taking the chief justice of the West Virginia supreme court on vacation on the French Riviera.

Another irony is that Blankenship, like much of the U.S. coal industry, promotes the propaganda that there is a “War on Coal” and that coal is essential to “keeping our lights on.” Never mind that the free market and the flow of natural gas from hydraulic fracturing drilling from the very same area, not the U.S. Environmental Protection Agency, are what is really hurting the Appalachian steam coal market.

The coal mined at Upper Big Branch, however, had nothing to do with power generation. It was metallurgical coal that was exported to make steel in markets such as China. At the time of Upper Big Branch, China’s steel market was hot and met coal prices were going through the roof.

The indictment reads that the group of mines associated with Upper Big Branch “generated revenues of approximately $331 million, which represented 14 percent of Massey’s approximately $2.3 billion in in revenue.” Obviously, it was in Blankenship’s interest to keep the steel-making coal flowing.

In that process, according to the indictments, Blankenship oversaw efforts to cut corners, dodge safety issues and keep miners on edge. They are rich in detail about poor ventilation; flawed water sprays to keep explosive coal dust down and warning when federal coal inspectors were on the prowl.

After he was forced to resign from Massey Energy with an over-sized golden parachute, Blankenship kept quiet for a couple for of years. Recently he came back on the scene with a self-made documentary just on the eve of the fourth anniversary of the Upper Big Branch disaster. The movie was so tasteless that even Joe Manchin, a U.S. Senator from West Virginia who was quoted in the film, disassociated himself from it. Families of the dead mines were appalled.

The long-in-coming indictments illustrate the problems of coal as an energy and steel source and just how its issues have been ignored in the Appalachians for about 150 years. In the past, huge mine disasters, such as the 1968 blast at Farmington W.Va. that killed 78, sparked real safety reform.

Not so after Upper Big Branch. Pro-coal Republicans in Congress have blocked bills to toughen rules. This is a reason why the federal indictments are so important. They show that leading a culture of safety laxity will no longer be tolerated.

It may be curious that Blankenship’s indictments come just after President Barack Obama has just agreed to a turning point treaty with heavy polluter China to cut carbon emissions. But they should give some closure to long-festering problems in a part of the United States where industrial death and destruction are considered business as usual.