Does Dominion Win or Lose from the New Law?

Does Dominion Win or Lose from the New Law?

Virginia's biggest power company could benefit from the freeze in electric rates but it also could take a big hit to earnings from power-plant shutdowns.

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Was Bob McDonnell Convicted with Tainted Testimony?

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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Beware Stalling Growth in Northern Virginia

northern virginia mapBy Peter Galuszka

For at least a half a century, Fairfax County, Alexandria and Arlington County have been a growth engine that that has reshaped how things are in the Greater Washington area as well as the Old Dominion.

But now, apparently for the first time ever, these Northern Virginia localities have stopped growing, according to an intriguing article in The Washington Post.

In 2013, the county saw 4,673 arrivals but in 2014 saw 7,518 departures. For the same time period, Alexandria saw 493 arrivals and then 887 departures. Arlington County showed 2,004 arrivals in 2013 followed by 1,520 departures last year.

The chief reason appears to be sequestration and the reduction of federal spending. According to a George Mason University study, federal spending in the area was $11 billion less  last year than in 2010. From 2013 to 2014, the area lost 10,800 federal jobs and more private sectors ones that worked on government contracts. Many of the cuts are in defense which is being squeezed after the wars in Afghanistan and Iraq.

The most dramatic cuts appear to be in Fairfax which saw a huge burst of growth in 1970 when it had 450,000 people but has been slowing for the most part ever since. It still grew to 1.14 million people, but the negative growth last year is a vitally important trend.

Another reason for the drop offs is that residents are tired of the high cost and transit frustrations that living in Northern Virginia brings.

To be sure, Loudoun County still grew from 2013 to 2014, but the growth slowed last year from 8,904 newcomers in 2013 to 8,021 last year.

My takeaways are these:

  • The slowing growth in NOVA will likely put the brakes on Virginia’s move from being a “red” to a “blue” state. In 2010, Fairfax had become more diverse and older, with the county’s racial and ethnic minority population growing by 43 percent. This has been part of the reason why Virginia went for Barack Obama in the last two elections and has Democrats in the U.S. Senate and as governor. Will this trend change?
  • Economically, this is bad news for the rest of Virginia since NOVA is the economic engine for the state and pumps in plenty of tax revenues that end up being used in other regions. Usually, when people talk about Virginia out-migration, they mean people moving from the declining furniture and tobacco areas of Southside or the southwestern coalfields.
  • A shift in land use patterns and development is inevitable. The continued strong growth of an outer county like Loudoun suggests that suburban and exurban land use patterns, many of them wasteful, will continue there. The danger is that inner localities such as Fairfax, Arlington and Alexandria, will be stuck with more lower-income residents and deteriorating neighborhoods. The result will be that localities won’t have as much tax money to pay for better roads, schools and other services.
  • Virginia Republicans pay lip service to the evils of government spending and have championed sequestration. Well, look what a fine mess they have gotten us into.

The rest of the Washington area is seeing slowing growth, but appears to be better off. The District’s in-migration was cut in half from 2013 to 2014 but it is still on the plus side. Ditto Montgomery and Prince George’s Counties.

NOVA has benefited enormously from both federal spending and the rise of telecommunications and Web-based businesses. It is uncertain where federal spending might go and maybe increased private sector investment could mitigate the decline. Another bad sign came in 2012 when ExxonMobil announced it was moving its headquarters from Fairfax to Houston.

In any event, this is very bad news for NOVA.

Two Cheers — Venture Funding Rebounds in D.C. Metroplex

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Good news/bad news business story out of the Washington area… Venture capital funding is rebounding. Washington-area companies scarfed up $330 million in funding during the first quarter — 55 percent more than in the same quarter of 2014 and the best first quarter since 2001, reports the Washington Business Journal. That’s just what the regional tech economy needs to shake off the effects of federal sequestration and to start growing again.

The not so good news is that the D.C. metropolex, which includes Northern Virginia, is a loooooong way from establishing national leadership in the venture space. The total funding for metro Washington barely amounted to a rounding error for Silicon Valley.

Broken down by state, Virginia ranked 12th in the country for venture funding in the 4th quarter of 2014 (the most recent data available online today), according to data compiled by PricewaterhouseCoopers and the National Venture Capital Association. The $156 million raised by Virginia firms compares to $7.6 billion for California and $1.9 billion for Massachusetts.

Why so little? Northern Virginia has the best educated population of any region in the United States and one of the most tech-savvy workforces. Supposedly, corporations and capital like to locate in markets where there is  a deep labor pool of technical talent. The usual response is that, well, California has Stanford and Berkeley, and Massachusetts has Harvard and MIT, and all Northern Virginia has is George Mason University… and… and… Marymount College. (OK, that’ s not entirely fair. The George Washington University engineering campus is in Loudoun County.)

But what world-class R&D powerhouses can be found in New York or Florida, both of which raised way more money? And how do you explain that Maryland, home to the Johns Hopkins University, which ranks No. 1 in R&D spending, ranks even lower than Virginia?

Clearly, the presence of a strong research university is an advantage when it comes to raising venture capital, but it’s hardly a prerequisite. I’m happy to be proven wrong on this, but I keep coming back to the fact that the corporate culture of Washington-area tech firms is geared to operating in sync with the metabolism of the federal government, not Silicon Valley. Yes, there are exceptions — and, I’d wager, they’re the ones getting the venture funding. But there don’t seem to be enough to change to fundamentally alter the nature of the Northern Virginia economy.

If Northern Virginia is ever going to wean itself from its dependence upon the federal government, we’re going to have to see a lot more venture funding than $150 million a quarter. As for the rest of Virginia, it would be nice to see any venture funding at all!

– JAB

Solid Coverage of the U.S. 460 Fiasco. But the EPA Travesty? …. Chirp. Chirp.

crickettsThe Virginia Department of Transportation has canceled its contract with US 460 Mobility Partners to build the U.S. 460 Connector between Petersburg and Suffolk, Transportation Secretary Aubrey Layne announced Wednesday. The action paves the way for initiating legal action to recover $252 million paid to the public-private partnership concessionaire for preparation and asset mobilization to start building the highway.

Layne had pulled the plug on the project a year ago when it was evident that the U.S. Army Corps of Engineers might not issue required wetlands permits along the proposed 55-mile route. It’s not clear what recourse the McAuliffe administration has to recover payments provided for under a contract negotiated and signed by the McDonnell administration. There is no evidence that U.S. Mobility Partners has done anything wrong (other than negotiate a highly favorable contract). Still, it’s worth the effort. Even recovering half the sum would be a big benefit to taxpayers.

Now… If only the McAuliffe administration would try to recover money from the Environmental Protection Agency for mandating hundreds of millions of dollars in upgrades to coal-fired power plants to reduce toxic emissions like mercury and sulfur dioxide — only to turn around and issue another set of regulations a few years later, the Clean Power Plan, that will effectively force Dominion to shut down three of the four coal plants it just upgraded.

Governor Terry McAuliffe did protect ratepayers from that fiasco, which would have cost Virginia ratepayers some $1.6 billion or more, assuming the facilities were shut down within five years — by getting Dominion to eat the costs instead. In exchange, however, in a legislative deal carved out earlier this year, Dominion gets to freeze its base rates for five years. Some observers characterize that concession as a give-away to Dominion (although Dominion strenuously disagrees).

While the U.S. 460 fiasco rightfully generated a slew of in-depth newspaper reports, the EPA fiasco made one brief blip in the news cycle and then disappeared. The media has made no comparable effort to examine the issue, much less to hold the EPA accountable for the absurdity of enacting regulations that will likely force Dominion (and other electric companies with coal plants) to shut down investments that the agency had required just a few years previously. If Dominion had been ripping off ratepayers to the tune of $1.6 billion, I suspect we’d be hearing about it. But when the EPA is doing the gouging… all I hear is crickets chirping.

– JAB

Non-Coal Jobs Thriving in Energy Sector

Coal MinersBy Peter Galuszka

Is there a real “War on Coal” or is it part of a natural transition to more non-polluting and less destructive forms of energy? One way to find out is to track job creation.

A new study at Duke University shows that since 2008, more than 49,000 jobs in the coal industry have been lost. But, about 196,000 jobs – or four times as many – have been created in other energy sectors such as natural gas, solar and wind.

The study suggests that all the gnashing of teeth that President Obama and the U.S. Environmental Protection Agency are out to ruin the energy sector by killing off coal may be off base.

This has been the cry of Virginia’s utilities, and its few coal firms, along with some members of the business establishment that the EPA’s proposed Clean Power Plan to encourage cuts in carbon dioxide by 2030 are unworkable and too threatening to employment in the coal industry since some coal-fired power plants are likely to be shut down. (Of course, some of them have been in operation for 60 years, but never mind).

Overlooked is that as coal jobs die, more energy jobs have been created in natural gas thanks to hydraulic fracking and in renewables like solar and wind which are getting increasingly cheaper.

“Our study shows it has not been a one-for-one replacement,” says Lincoln Pratson, a Duke professor of earth and ocean sciences who is one of the report’s authors.

Hardest hit are the coalfields of southern West Virginia and eastern Kentucky. Small wonder. The coal is of excellent quality but easy-to-reach seams have been mined out and abundant shale gas has undercut its price power. Coal has also taken hits in Utah, the Powder River Basin of Wyoming and Montana, and Colorado. The biggest job increases are in the Northeast, Southwest, Midwest and West.

Where does Virginia fit in with renewables? Hardly anywhere just yet. Its neighboring states are much farther along. One reason is they have mandatory renewable portfolio standards to force shifts to wind and solar. Even coal-heavy West Virginia had mandatory standards although the legislature just dumped them.

Virginia is just gearing up with solar. As for wind, Dominion has plans for two turbines off Virginia Beach.

Remarkably, this vision of non-coal energy jobs growing four times the amount of coal jobs cut is left out of the debate as Dominion gets the General Assembly to freeze electricity rates and forego State Corporation Commission audits for several years on the theory that it doesn’t know what the EPA will do about carbon dioxide reduction.

And, to show you how bizarre the coal people are, and appeals court in the District of Columbia is ready to shoot down a coal-led attack on the EPA’s carbon rules. Among the plaintiffs is Robert Murray, the iconoclastic CEO of Murray Energy which has been picking up West Virginia coal properties from long-time operator Consol, which obviously is happy to unload them

During the 2012 presidential race, Murray ordered his workers to attend a rally for Mitt Romney under threat of firing. He insists that Obama is trying to put him out of business.

One problem the appeals judges have with his lawsuit is that the rules are only proposed rules. They are not official. EPA is asking for comment by this summer show it can make adjustments. So why is Murray suing?

It would be as if I were to sue Jim Bacon for an idea he might be envisioning. I know it’s a tempting idea, but it would be silly.

The Duke report was published in the peer-reviewed journal, Energy Policy.

The Next Wave of Energy Conservation: Collaborative Business Districts

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Click for more legible image. Graphic credit: Tridium

by James A. Bacon

As the Obama administration presses forward with its campaign to restructure the U.S. electric industry to reduce carbon dioxide emissions, the Environmental Protection Agency (EPA) and its friends in the environmental movement have touted the potential for energy conservation to ease the transition to a clean energy economy. One key premise of the EPA’s Clean Power Plan EPA plan is that it should be possible to cut energy demand by 1.5% annually over the next 15 years from what it otherwise would be. The EPA is short on specifics, however. It’s not clear exactly where those energy savings would come from.

As it happens, there is tremendous potential to conserve energy — way beyond weatherizing old houses and installing Energy Star appliances. An entire industry, the building automation industry, has arisen around the opportunity to squeeze energy savings out of office, retail and industrial buildings. Although there are many other applications for building automation, the most tangible Return on Investment comes from reducing electricity consumption from HVAC, lighting, computers and industrial processes.

The industry is charging full-steam ahead with no special incentives from government. Property owners find that installing building automation systems is a competitive use of capital that lowers operating costs. Even more encouraging, the industry could be just scratching the surface of potential savings. Energy conservation could move to a new, higher plateau if property owners began collaborating.

Wayne C. Tighe, vice president of sales for Tridium Inc., a company for which I have done some free-lance work, has written an important paper for ei, a magazine of the National Electrical Manufacturers Association. The next step, he says, is for the industry to move from creating open building systems. in which different devices within a building talk to one another, to open city systems, in which different buildings and municipal infrastructure systems talk to one another.

Tridium provides an open platform, Niagara, that connects dozens of different types of sensors and devices inside buildings. “But we see no logical reason,” writes Tighe, “why connectivity should end at the property line. Our goal is to integrate buildings with each other and with municipal systems.” He continues:

Building automation systems optimize energy consumption of HVAC, lighting, elevators, servers and computers, and other electricity-consuming devices inside buildings and building complexes. But commercial buildings plug into electric grids. Smart grid technologies enable power companies to become defter at managing electric loads. Utilities are experimenting with time-of-day pricing, load shedding, and other strategies to reduce peak electric loads.

The more data that power companies and commercial buildings can share, the more power companies can curtail capital expenditures that get passed on to ratepayers. Sharing energy consumption data also opens the potential for businesses to generate and share their own power in eco-districts — installing solar power, perhaps, or generating electric power and utilizing heat waste.

Tighe describes other benefits from what he calls the “open Internet of Things”: water conservation; conservation of outdoor lighting; improved tracking of employees, visitors and their cars; optimization of space dedicated to parking; and transportation demand management.

From a managerial perspective, implementing building automation in individual buildings is simple —  there’s only one property owner to deal with. Creating functional groups out of the businesses, government entities and non-profit groups across an entire business district, with all their conflicting priorities and financial capabilities, is more complicated. But that’s the future of energy conservation.

Tighe’s article highlights Envision Charlotte, the not-for-profit group that has pulled together 61 of the 64 largest buildings in downtown Charlotte, N.C., to promote sustainability as a competitive economic advantage. I don’t see any comparable activity here in the Old Dominion. We’d better get moving soon, or once again we Virginians will find ourselves eating Tarheel dust.

Medicaid Expansion an Inefficient Way to Prop up Rural Hospitals

medicaid_expansionby James A. Bacon

One commonly cited argument in support of expanding Virginia’s Medicaid program in concert with the Affordable Care Act is that enrolling more poor Virginians would help prop up financially shaky rural hospitals. Rural hospitals tend to serve disproportionately poor populations, which means they tend to provide disproportionate amounts of uncompensated care. Expanding Medicaid coverage to poor and near-poor populations, the logic goes, would provide these hospitals with much-needed cash infusions. If Virginia doesn’t expand Medicaid, many struggling rural hospitals may close, making health care even more inaccessible for the poor.

Marc D. Joffe and Jason J. Fichtner have taken a look at that argument in a new paper, “Hospitals and the Proposed Virginia Medicaid Expansion,” and found it wanting. The study was published by the Thomas Jefferson Institute.

Overall, Virginia’s hospital industry is in sound financial condition, generating net income of more than $1.5 billion in 2013, the authors note. Profits were not distributed evenly, however. The large, multi-hospital health systems such as Sentara, Carilion, Inova and Bon Secours were highly profitable, while many rural hospitals lost money.

Expanding the Medicaid program would pump millions of dollars into Virginia’s health care system without consideration to a hospital’s fiscal profitability, Joffee and Fichtner argue. Most of Virginia’s hospitals remain solidly profitable despite the burden of providing uncompensated care. They don’t need extra Medicaid revenue to remain profitable. Moreover, not-for-profit hospitals already receive important benefits — the ability to receive tax-deductible contributions, exemption from property taxes and corporate income taxes, and access to tax-exempt bond funding.

If  legislators want to prop up Virginia’s struggling rural hospitals, the authors write, they should target failing hospitals directly rather than subsidizing rich and poor institutions alike.

Rural hospitals have bigger problems than uncompensated care; between 1990 and 2000, 208 rural hospitals shut closed nationally, mostly the result of consolidations or low utilization. That trend continues. Lee Regional Medical Center in Lee County, for instance, had  a 34% staffed-bed occupancy rate in 2012 before it closed — way lower than the median occupancy of 63%.

“In free, competitive markets, suppliers that attract fewer customers are more likely to fail,” the authors write. “Small low-utilization hospitals struggle and are sometimes obliged to shut down.”

Bacon’s bottom line: Joffe and Fichtner make sense: If Virginia legislators want to keep struggling rural hospitals open, they should target aid to struggling rural hospitals, not to hospitals generally. But I would go a step further. I would argue that the idea of supporting general hospitals, which provide a broad range of medical services, may be an outdated idea. Perhaps rural health care systems should restructure around providing good primary care, supported by free-standing out-patient centers that inexpensively provide non-acute services, while referring patients with more acute conditions to larger, regional hospitals. Large-volume tertiary care centers can provide those services more cost-efficiently and with better outcomes than low-volume rural hospitals can. In exchange for the inconvenience of traveling further, rural patients likely would wind up with better care.

Amateur Hour at the General Assembly

virginia_state_capitol502By Peter Galuszka

If you are an ordinary Virginian with deep concerns about how the General Assembly passes laws that impact you greatly, you are pretty much out of luck.

That’s the conclusion of a study by Transparency Virginia, an informal coalition of non-profit public interest groups in a report released this week. Their findings  came after members studied how the 2015 General Assembly operated.

Among their points:

  • Notice of committee hearings was so short in some instances that public participation was nearly impossible.
  • Scores of bills were never given hearings.
  • In the House of Delegates, committees and subcommittees did not bother to record votes on 76 percent of the bills they killed.

“Despite a House rule that all bills shall be considered, not all are. Despite a Senate rule that recorded votes are required, not all are,” states the 21-page report, whose main author is Megan Rhyne, executive director of the Virginia Coalition for Open Government. Transparency Virginia is made up of 30 groups, including the American Civil Liberties Union, NARAL Pro-Choice Virginia, the the Virginia Education Association and the League of Women Voters in Virginia.

The scathing report underscores just how amateurish the General Assembly can be. It only meets for only 45 days in odd-numbered years and 60 days in even-numbered years. The pay is pin money. Delegates make only $17,640 a year and senators earn $18,000 annually.

It is not surprising then that a part-time group of 100 delegates and 40 senators can’t seem to handle their 101 committees and subcommittees that determine whether the consideration of thousands bills proceeds fairly and efficiently.

“A Senate committee chair did not take comment on any bills on the agenda except for the testimony from the guests of two senators who were presenting bills,” the report states. In other cases, legislators were criticized by colleagues for having too many witnesses. Some cut off ongoing debate by motioning to table bills. Bills were “left in committee” never to be considered.

The Virginia Freedom of Information Act requires that open public meetings be announced three working days in advance. A General Assembly session is considered one, long open session. But the FOIA is often subverted by sly legislators who manipulate the agendas of committees or subcommittees or general sessions.

Agendas of the General Assembly are not covered by the FOIA because there is too much work to cram in 45 or 60 days. In the case of local and state governments, similar meetings are, presumably because they meet more regularly. House and Senate rules do not stipulate how much notice needs to be given before a committee or subcommittee session. So, crucial meetings that could kill a bill are sometimes announced suddenly.

The setup favors professional lobbyists who stand guard in the Capitol ready to swoop in to give testimony and peddle influence, alerted by such tools as “Lobbyist-in-a-Box” that tracks the status of bills as they proceed through the legislature. When something important is up, their beepers go off while non-lobbyist citizens with serious interests in bills may be hours away by car.

The report states: “While most of Virginia’s lobbyists and advocates are never more than a few minutes from the statehouse halls, citizens and groups without an advocacy presence may need to travel long distances.” Some may need to reschedule work or family obligations, yet they may get only two hours’ notice of an important meeting. That’s not enough time if they live more than a two-hour drive from Richmond.

The report didn’t address ethics, but this system it portrays obviously favors lobbyists who benefit from Virginia’s historically light-touch approach when it comes to limited gifts. That issue will be addressed today when the General Assembly meets to consider Gov. Terry McAuliffe’s insistence that a new ethics bill address the problem of allowing consecutive gifts of less than $100 to delegates or senators.

The only long-term solution is for Virginia to consider creating a legislature that works for longer periods, is better paid, more professional and must adhere to tighter rules on bill passage. True, some 24 states have a system somewhat like Virginia and only New York, Pennsylvania and California have truly professional legislatures.

The current system was created back in Virginia was more rural and less sophisticated. But it has grown tremendously in population and importance. It’s a travesty that Virginia is stuck with amateur hour when it comes to considering legislation crucial to its citizens’ well-being.

How to Make UVa a Research Giant

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University of Virginia Research Park

by Wade Gilley

Recent news reports reveal that the governance problems at the University of Virginia continue to boil, as evidenced by accrediting issues, student protests, legislators considering the restructuring of the institution’s governing board and other news emerging both locally and nationally.

The problems recently surfacing at Virginia’s flagship university are due in part to changing global economics and a unique weakness in Virginia’s public and private higher education system. The commonwealth has an excellent public university/college system, but in the changing world of global economics one large and critical shortfall is economically challenging to Virginia in the 21st century. That shortfall is the lack of a major private research university.

North Carolina has Duke and Wake Forest, Georgia has Emory, Tennessee has Vanderbilt, and Maryland has Johns Hopkins University. These private universities win billions of dollars in competitive research grants and contracts each year in an age in which research is increasingly a key factor in economic development. Virginia does not have a major private research university, and that void may be responsible for the continuing debate about U.Va.’s future.

A recent report in the Chronicle of Higher Education on institutional success in competing for dollars from the federal government and other sources indicated that North Carolina’s institutions, both public and private, spend roughly $2.2 billion on research each year and Maryland’s universities spend $2.5 billion. In comparison, Virginia’s universities only spend about $950 million, or 40 percent of what institutions in neighboring/competing states spend.

Although $950 million is a lot of money, Virginia’s investment in research still lags dramatically behind our competitors. The difference is primarily due to the fact that North Carolina has both Wake Forest and Duke, while Maryland has Johns Hopkins.

Virginia’s research limitations have been evident for a long time, but no one has ever publicly recognized the problem, so now it is a 21st-century challenge. And one can see that challenge in the recent conflict regarding the mission of U.Va.

Virginia, perhaps subconsciously, has attempted to make up the difference by encouraging U.Va. to act like a private research university without providing the funds or the governing structure that would facilitate that transition.

There are a few simple solutions to this critical problem. First, create a partial privatization of U.Va. with a totally independent governing board, coupled with state assistance/scholarships for Virginians attending the university. This way, U.Va. would be state-supported, but not state-run, and would have both the freedom and additional resources to compete with major private universities across the country.

Second, the state needs to invest more money and resources to expand the research capabilities of all our research universities, especially U.Va. To achieve this, Virginia should offer significant and targeted incentive grants designed to dramatically increase the competitiveness of all our research universities, which is perhaps the most critical of the challenges facing the commonwealth in the new economy.

I am confident that, with freedom from excessive political oversight and encouragement to function more as a private research university, U.Va. could compete more effectively with Duke, Hopkins, Vanderbilt and — yes, over time — Harvard in the research arena. At the same time, our other major doctoral institutions could become increasingly competitive, resulting in a new and powerful economic force for Virginia in the 21st century.

Now is the time for Virginia to focus on building a larger and more competitive state higher education system, which in turn will make Virginia more competitive in the new global economy. With the coming slowdown in federal dollars gushing across the Potomac and down the bay, we need new and productive initiatives to expand Virginia’s economy.

Wade Gilley, a retired university president living in Reston, served as Virginia’s secretary of education from 1978 to 1982 and once served as chairman of the board of the Oak Ridge National Laboratory (ORNL). Contact him at jwgilley@yahoo.com. This column was published originally in the Roanoke Times.

Yearning for Something New from “Rich State, Poor State”

rspsVirginia ranks No. 12 in the American Legislative Exchange Council’s just-issued eighth annual “Rich State Poor State” ranking of the economic outlook for the 50 states based on 15 state policy variables. Generally speaking, states the report authored by supply-side economists Arthur D. Laffer, Stephen Moore and Jonathan Williams, U.S. states that spend less (especially on income-transfer programs) and tax less experience higher economic growth rates than states that tax and spend more.

There is no question in my mind that, all other things being equal, higher taxes discourage business investment, job growth and wealth creation. And the evidence seems incontrovertible that over the long run — ironing out short- and medium-term fluctuations — a lower-tax environment is conducive to economic growth.

However, all other things are never equal. Some public investments, especially in education and infrastructure, have a higher social return on investment than others — and, arguably, a higher return than private investment. Likewise, public investment that is efficiently administered yields greater benefits than public investment guided by politics and cronyism.

The ALEC-Laffer economic competitiveness index was a useful ranking when it first came out. It’s important to know how states compare in their tax burden and other measures of economic freedom, such as debt service, judicial impartiality, number of public employees, right-to-work status and minimum wage. But the discussion can’t stop there. Unfortunately, “Rich States, Poor States” hasn’t substantively advanced the discussion since it was first implemented.

  • Yes, job growth and GDP growth are important measures, but they aren’t the only important measures. How about per capita income growth? How about the distribution of income growth — are the rich getting rich while everyone else stagnates? This study should incorporate a wider range of metrics.
  • Which taxes have the most adverse economic consequences? Do certain taxes distort the economy or alter incentives in ways that are more destructive than other taxes?
  • How have the outlook predictions held up? It would be useful to go back to the very first “Rich States, Poor States” ranking and compare outlook to actual performance. What is the correlation between measures of economic freedom and different metrics of growth? What percentage of the variation between states can be explained by Laffer’s measures? 10 percent? 20 percent? More? Less? What other variables matter?
  • Rather than look at total government spending, the study should look at different segments of spending. Is there a correlation between how much a state spends on education and economic outcomes? How about what a state spends on infrastructure? And how about amenities that supposedly matter to members of the creative class?

It seems like Laffer, Moore and Williams are on auto-pilot. The discussion about economic development has left “Rich States, Poor States” in the dust. Simply reiterating old nostrums, no matter how true in a general sense, doesn’t advance the public policy debate. Whacking tax rates is no recipe for prosperity, as Kansas Governor Sam Brownback has learned from his tax-cutting adventure. If this report doesn’t start plowing new ground, intellectually speaking, it will soon outlive its usefulness.

– JAB

Not Just Any Old Resignation

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Edward D. Miller

Edward D. Miller, former CEO of research powerhouse Johns Hopkins Medicine, will resign from the University of Virginia Board of Visitors effective June 30 — a year early. In an interview with the Daily Progress, he cited his frustration with rising tuition and falling research grants.

“I just felt there were issues I’d been advocating for that I didn’t think were getting traction,” Miller said. “I’d worked at it for four years and I wasn’t having much of an impact.”

Miller, a former UVa faculty member, said he disagreed with recent tuition increases, suggesting that the university should focus on cutting costs instead of raising tuition. “It’s hard for me to understand how you can continue to increase the rate of tuition [faster than] the rate of inflation year after year,” he said in comments that applied to higher education as a whole, not just UVa. “What business can survive that except colleges?”

In particular, Miller was dissatisfied with the way the university implemented its most recent, 11% tuition hike for new students. The plan was introduced and passed on the same day, with no outlet for public comment. “I had a feeling that the board wasn’t given an adequate amount of time to digest this information. … I had no idea what the plan was going to be until the day of the meeting. I was surprised it was done so quickly, without more discussion.”

Tuition increases may be tied to falling research revenues, Miller said  — exactly the issue that Bacon’s Rebellion raised last month in “UVa’s Silent Crisis.” If the university maintains the same number of faculty members doing research, but they’re bringing in less research funding, he said, the money has to come from somewhere else.

Miller, who knows something about what it takes to to build a world-class research program — Johns Hopkins ranks No. 1 in the country for R&D spending — said the UVa board needs to hear from top researchers what it takes to bring in grants. The UVa administration, he told the Daily Progress, also needs to identify which faculty members are not attracting their share of research funding.

Bacon’s bottom line: Make no mistake, Miller’s resignation is a major loss for UVa governance. Miller was not some know-nothing political appointee. As a former faculty member, he knows the university well. As CEO of the world’s most successful research university, he understands what it takes to grow R&D funding. His loss of expertise will be missed — well, maybe it won’t be missed, because it appears that no one was listening to him. But his loss should be missed. Submitting his resignation a year early and his willingness to go public with some of his concerns should be especially disturbing to those who worry where UVa is heading.

The university’s new slogan is “Affordable Excellence.” If the current direction isn’t soon reversed, that will have to be revised to “Unaffordable Mediocrity.”

– JAB