A Fog Descends upon UVa

uva_fog

Did the University of Virginia’s Board of Visitors hold a closed session to avoid discussing in public what to do with a $2.3 billion pot of money?

by James A. Bacon

This past June 10, the University of Virginia Board of Visitors held its regular quarterly board meeting. With its preferred meeting place in the Rotunda undergoing renovations, the board assembled in the auditorium of the special collections library near Alderman Library.

The meeting started pleasantly enough. The board recognized the contributions of E. Darracott Vaughn, Jr., a graduate of UVa medical school and a prominent urologist who had recently passed away; Robert D. Sweeney, a vice president of development who had headed the effort to raise $3 billion, one of the Top 10 university fund-raising campaigns of all time; and Joe Garafalo, a prominent faculty member and retiring board member.

Then Rector William H. Goodwin Jr. rose to thank Helen Dragas, whose second term on the board expired that day. Her tenure had been a stormy one at times. A previous rector, she had led the controversial ouster of UVa President Teresa Sullivan, endured considerable scorn during the blacklash, and witnessed Sullivan’s re-induction. Although Dragas had mended fences with the president and was appointed to a second term, she continued to question the board’s priorities as it aggressively increased tuition to pay for prestige-enhancing initiatives. Giving a voice to a voiceless constituency — middle-class Virginia parents paying ever-bigger tuition checks — she often found herself voting alone.

Emphasizing the positive, however, the resolution commended Dragas for her service. “Mrs. Dragas is an ardent proponent of academic excellence in, and affordability of, higher education in Virginia. … The Board thanks [her] for her eight years of service and her leadership as Rector … and considers her a friend and colleague. … The Board wishes Ms. Dragas and her husband, Lewis Webb, continued success and happiness in all their endeavors.”

According to the June board minutes, Dragas followed with some comments in kind, saying that “she respected everyone at the table.”

The bonhomie would not last long.

Before the meeting concluded that day, there were a few final items of business to attend to. At 3:30 p.m. the board withdrew into a closed session to discuss personnel issues and legal matters, say the minutes. The board resolution cited Sections 2.2-3711 (A)(1) and (7) of the Code of Virginia.

At 4:50 p.m., the board left the executive session. According to the minutes, 13 board members certified that the meeting had been conducted in accordance with the exemptions permitted by the Virginia Freedom of Information Act (FOIA). Only one board member refused to vote in favor of the certification: Helen Dragas.

Eighteen days later at Dragas’ behest, Kevin E. Martingayle, a Virginia Beach attorney, wrote to Maria J.K. Everett, executive director of the Virginia Freedom of Information Advisory Council, asking for a ruling regarding that executive session. That letter described, from Dragas’s perspective, what had happened June 10. Eight days before the meeting, board members received documents outlining guiding principles for spending income generated by a $2.3 billion Strategic Investment Fund, and a list of grant requests submitted for funding.

The correspondence indicated that the fund and plans for spending it were intended to be topics discussed in an executive session of the BOV and, in fact, were a major part of the discussion during the closed meeting.

Although the motion to go into a closed session referenced personnel matters and legal advice, there was very little substantive discussion of either topic related to the funds during the closed meeting.

The only personnel referenced during that portion of the closed meeting were two former employees cited for having done a good job of accumulating and managing such a large sum of funds over time (though neither individual has been employed by this university for several years). … There was no discussion that related to pending, threatened or possible litigation regarding the fund.

Instead, the closed discussion focused on principles for spending the money that now comprise the fund. By way of example, members were asked to deny granting funds to proposals that would support university operations and to elevate those that would enhance its reputation. Concerns relating to premature revelation and publicity, given the fund’s substantial size, were conveyed, and it was requested that members refrain from discussing the fund with legislators and the media.

Regarding the certification that was read and approved after the conclusion of the closed meeting, “aye” votes were solicited and seemed to be voiced by a majority in attendance. No “nay” or negative votes were requested, nor was any role call taken or recorded. At least one BOV member subsequently notified the secretary of the BOV that the minutes should reflect that this particular Board member did not vote on the closed meeting certification due to questions and concerns regarding whether the discussion in the closed meeting exceeded and strayed outside of what was legally permitted.

If the closed session was illegal, Martingayle asked what remedial action, if any, BOV members might take individually or collectively.

On July 6, the Washington Post published a column by Dragas criticizing the university for its runaway tuition (a 74% increase since 2009), questionable spending priorities, and the recent revelation after the board voted on a double-digit tuition increase for incoming students that the university possessed a $2.3 billion “pot of reserves, surpluses and earnings” that had previously been classified as operating funds. Administrators, she charged, did not explain the purpose behind the “financial maneuvering” — liberating funds to be spent on initiatives that would enhance the university’s prestige.

A few days later, twelve state delegates including House Majority Caucus Leader Tim Hugo and 11 other delegates sent a letter addressed to Rector Goodwin and President Sullivan. Calling for “full transparency” in the university’s decision-making process, the letter focused mainly on the $2.3 billion fund. But toward the end, it said:

It appears that the university’s Strategic Investment Fund was the topic of an executive session held during your June Board of Visitor’s meeting. Why did the conversation about the use of these funds occur behind closed doors? What exemption to the public records law was pertinent and how was it appropriately applied?

On July 20, UVa’s Chief Operating Officer Patrick D. Hogan held a press conference in the Rotunda, in which he supplied records from a Board of Visitors subcommittee meeting. The records showed that members had discussed what would come to be named the Strategic Investment Fund. “We have absolutely nothing to hide,” he said. “We’re looking forward to answering questions from the legislators.We believe we’ve been transparent.”

The story published by the Daily Progress made no mention of any defense that Hogan might have offered for discussing the fund during closed session.

Bacon’s Rebellion submitted a draft of this article to the University of Virginia public affairs office on late Friday for comment. I have received no response, but I will post it if I do. Continue reading

Haywire in Haymarket

Town of Haymarket revenues and expenditures.

Town of Haymarket revenues and expenditures.The green bar shows net surplus/deficit.

Looks like Petersburg is not the only Virginia jurisdiction to close the 2016 fiscal year with a deficit. This chart comes to Bacon’s Rebellion by way of Haymarket citizen Robert Weir. Haymarket, a town of less than 2,000 people in Prince William County, overspent by $789,000 — equivalent to a quarter of its revenue.

Writes Weir: “It is not beyond the realm of possibility that in the coming years many of the smaller jurisdictions may prove to be an ever increasing drag on both the larger jurisdictions and the State as the financial woes rapidly expand.”

Virginia has dozens of towns, most of them tiny like Haymarket. Is there any sanction if they run deficits, a violation of the state constitution? Is anyone paying attention to what’s going on?

— JAB

Virginia Fracking Regs Coming Soon

pennsylvania_fracking

Gas well in Pennsylvania

What? Fracking in Virginia? Not yet. Gas prices are too low to spur gas drillers into expanding to new geographic areas. But the oil & gas industry sees potential in the Taylorsville Basin north and east of Richmond, most notably in King George County. Meanwhile, reports Jim Pierobon in Southeast Energy Newsa regulatory review, launched in 2013, is reaching its final stages.

There are two sets of issues: (1) updating fracking standards, said to be the least stringent of any state with shale production, and (2) settling whether local governments have the authority to ban fracking. Former Attorney General Ken Cuccinelli declared that localities do not have the authority, but his successor Mark Herring said last year that they do.

The State Review of Oil and Natural Gas Environmental Regulations (STRONGER), initiated at the behest of the Environmental Protection Agency, is funded by the American Petroleum Institute but comprised of a wide spectrum of stakeholders. The group is scheduled to meet in Abingdon next month to complete the review.

— JAB

Guarding the Grid

transmission_lineby James A. Bacon

It’s easy to spin nightmare scenarios leading to the collapse of the electric grid. North Korea detonates a nuclear weapon a mile overhead, sending out a super-charged electro-magnetic pulse that melts down transmission lines and blows out substations. The electricity overload races ahead of anyone’s ability to control it in a cascading effect that knocks out power for vast swaths of the country. Because key components of the grid take more than a year to manufacture and deliver, electric power takes interminably long to restore. The economy collapses. Millions die.

If you find that threat implausible, how about this one? A massive discharge of radiation from the sun overwhelms the earth’s magnetic field, melts down transmission lines, blows out sub-stations, and…. you know the rest. Or, this: In coordinated strikes, terrorists knock out vulnerable sub-stations, triggering the meltdown of electric lines…. Or cyber-terrorists infiltrate a utility network, overriding the power company’s controls, creating overloads and triggering a meltdown…

Such story-lines sound over-wrought, the stuff of grade B movies or pulp novels. They could never happen in real life, you say. Yet there have been enough deliberate physical and cyber attacks on a small scale, as if someone is probing the system, that many experts deem the threat to be very real. And most of us can still remember the great Northeast Blackout of 2003, caused by sagging electric lines coming into contact with overgrown trees, which demonstrated how a failure in one location can ripple across an entire grid. Fifty-five million people in the U.S. and Canada were effected.

The United States and the Commonwealth of Virginia have been moving in their slow, ponderous way to protect against those threats, and Garry Kranz has written an excellent article in Virginia Business magazine describing what Dominion Virginia Power and others are doing to safeguard against the disaster scenarios.

Writes Kranz:

Dominion plans to spend up to $500 million over the next five to seven years on a variety of security initiatives. The strategy is to harden its transmission substations and other critical infrastructure, add more mobile transmission equipment and boost stockpiles of backup gear. It plans to bolster perimeter security with ultramodern construction and use sophisticated technologies to pre-empt intruders. …

Dominion also is investing in increased grid reliability through the construction of a new systems operations center in Henrico County. Costing an estimated $100 million, the center will be able to perform real-time monitoring of the transmission grid to maintain electric reliability. Projected to open in 2017, the facility will replace Dominion’s current operations center at the Innsbrook Corporate Center in Henrico, which has been around since 1992.

Another tool in the security toolbox is penetration testing.  A standard security technique for utilities and related industries, it allows companies through what is known as a “pen test” to systematically try to defeat internal security controls and procedures to pinpoint any weaknesses.

“We give penetration testers an advantage by moving them inside our network to see how far they get. Sometimes we tell our people the tests will take place, but often we don’t tell them. We want to see if our processes help them detect abnormal activity and report it,” says Engels, who does not share any improvements Dominion has made as a result.

Micro-grid technology also promises enhanced grid reliability, according to Jason Nichols, director of Scitor Corp.’s iSpace lab. Scitor is part of McLean-based defense contractor SAIC. Some military bases in Virginia already deploy micro-grids. Dominion also is funding micro-grid demonstration projects using renewable fuels at several state universities.

“If a portion of Virginia’s public grid goes down, a micro-grid gives the military base the potential to provide local generation to keep hospitals and other critical services running in some sort of degraded state,” Nichols says.

As it happens, while attending freshman orientation earlier this week at a certain unnamed university my son will be attending this year, I encountered a cyber-security professor who had just arrived for his first day on the job. He and I struck up a conversation about this very topic: cyber-security on the grid. What he told me was alarming. Speaking from his personal experience consulting with a major electric utility in the Southeast U.S. (not in Virginia), he found that the control systems cobbled different generations of technology as far back as the 1950s. Vulnerabilities were rampant. I was left with the impression that the only thing preventing infiltration by cyber-enemies was the overwhelming complexity of the chewing-gum-and-bailing-wire system that only a handful of long-time company employees even understood. Whether senior management comprehends the magnitude of these vulnerabilities is an interesting question. Continue reading

What Do We Do about Petersburg?

by James A. Bacon

More bad news from Petersburg: The Southside city of 32,000 souls and 600 government employees has fallen more than 60 days behind on $2.3 million in pension payments. That development was reported by the Virginia Retirement System in a letter to state legislators, as required under a law that went into force this month.

The city has been forwarding the 5% payments deducted from employee paychecks but still owes employer contributions dating back to November 2015, with the exception of May, when it managed to make a payment, reports the Richmond Times-Dispatch. Petersburg closed the 2015 fiscal year with a $17 million budget deficit, roughly 20% of revenue, and, despite cutting the pay of city employees, has yet to devise a plan for closing the gap in the current fiscal year.

Petersburg is the only locality in Virginia that is delinquent on its pension payments, said VRS spokeswoman Jeanne Chenault. The city, she added, is “committed to paying those [outstanding] contributions and they are working on a plan to do so.”

Bacon’s bottom line: I don’t mean to beat up on Petersburg, which just may be the worst hard-luck case in Virginia. But the city’s travails are unprecedented in modern times. I don’t recall anything comparable in my 40-year journalism career. I wouldn’t be surprised if closing the fiscal year with a massive deficit in defiance of state constitutional requirements for a balanced budget has no parallel since the Great Depression.

The first big question in my mind: Is this an aberration due to one-time factors unlikely ever to be repeated? Or are Petersburg’s woes symptomatic of a deeper malaise throughout Virginia? Have other localities, particularly those with depressed economies, “balanced” their budgets by deferring maintenance, slow-paying creditors or engaging in other accounting tricks? I have written about the small city of Buena Vista, which defaulted on a $9.2 million bond issue to pay for a municipal golf course, as a fiscal canary in the coal mine. (Speaking of coal mines, I’d be amazed if the coal-producing counties of Southwest Virginia, having seen their primary industry go up in soot, weren’t experiencing serious fiscal stress.)

Here’s the next question: What we do about Petersburg? By “we” I mean the citizens and elected officials of Virginia who represent us. Should we let Petersburg figure things out by itself? What if it can’t? What if the politics are so dysfunctional, the underlying economy is so weak, or the choices are so hard that elected officials can’t manage the task of balancing the budget?

Do we just look the other way? Do we pretend that Virginia’s constitution doesn’t required balanced budgets? If so, do we create a moral hazard that encourages other localities to say, what the heck, Petersburg got away with it, maybe we can, too? Or, conversely, do we bail out Petersburg? And if we do, what concessions do we extract in return?

It is no exaggeration to refer to Petersburg as “Detroit on the Appomattox,” because, when there is a 20% gap between revenue and expenses, there is a significant possibility that the city can never climb out of the hole it has dug for itself. If that happens, Virginia will face the same kinds of unpalatable decisions that Michigan did with Detroit and Flint. I don’t know if Virginia even has a legal structure to deal with such a situation. Would we put Petersburg into receivership and, overriding normal democratic institutions, appoint someone to run the place?

So far, there has been no public response from Governor Terry McAuliffe. There hasn’t been much of a response from the General Assembly either, although the law requiring the VRS to report localities that fail to make their pension payments did originate from the legislature. At least someone is paying attention.

Solar Technology Advances, Solar Policy Backtracks

by James A. Bacon

Joshua Choi, a University of Virginia chemical engineer, is part of a research team that has discovered a new class of materials, metal halide perovskites, that can be sprayed onto a substrate where they crystallize into a thin film that captures energy in a solar cell. There are many hurdles to come before the discovery can be commercialized, but according to Science Daily, the materials offers the potential of dramatically lowering the cost of solar energy.

Of all forms of energy production, solar is on a productivity curve most closely resembling to a Moore’s Law, which described the process of in which microchips doubled their processing power every year or two. As scientists devise more efficient ways to convert sunlight into electricity — and Choi’s innovation is only one of many — the cost of solar power seems destined to head lower.

One would think that the prospects for solar power look better than ever. But the electricity source is experiencing a backlash in the very states and countries that moved most aggressively to adopt it, according to the New York Times.

Spain, Great Britain and Germany all are scaling back their regulatory support for solar energy. Meanwhile, in the U.S., utilities and regulators in California, Hawaii, Nevada and Arizona have backed off their generous backing of solar, and the Times says other states may follow their example.

While the cost of solar is getting cheaper, solar panels aren’t producing when the demand is greatest. Solar production peaks during mid-day, but the peak demand for electricity — from air-conditioning in the late afternoon, and home appliances when people get home from work — occurs a few hours later. The discrepancy does not create a problem when solar generates electricity on a small scale; it is a problem when solar and other intermittent power sources comprise a majority of power production.

“The challenge,” suggests the Times article, “is to design a new kind of rate system — one that accurately values electricity that can now flow in different directions and at different volumes at different times of day. It can also, depending on the location and level of demand, either increase or relieve strain on the grid.”

Bacon’s bottom line: Solar and wind are coming. PJM Interconnection, the regional transmission organization of which Virginia electric utilities are a part, estimates that it can accommodate up to 30% renewable electricity without risking service interruptions. (An advantage of a regional organization is that sharing electricity over a broad geographic area smooths out the local spikes in solar and wind generation.) Virginia is far from achieving that level of renewables penetration, so the challenges experienced by other states and countries are not likely to crop up here anytime soon.

One could argue that Virginia’s regulatory go-slow approach to renewables has saved the Old Dominion from the confusion and disruption that prompted the early adopters to backtrack. Some solar advocates seem to live in a la-la land disconnected from such realities. But one could likewise argue that we need to start thinking about a regulatory framework that accommodates more wind and solar, or others will figure it out long before we do, leaving Virginia at a competitive disadvantage. I don’t see that discussion occurring right now. We need to begin.

Debating the Wrong Stuff

Richmond mayoral candidates: debating the wrong stuff.

Richmond mayoral candidates yesterday

by James A. Bacon

A brief exchange in a debate between Richmond mayoral candidates yesterday revealed a striking blind spot among contenders that does not augur well for the city’s long-term fiscal integrity.

Former Del. Joseph D. Morrissey enlivened the discussion by criticizing Levar Stoney, former Secretary of the Commonwealth under Governor Terry McAuliffe, for the governor’s support of the controversial Stone Brewing Co. deal. In that deal the city enticed the West Coast brewing company to locate a brewery and restaurant in Richmond by means of $33 million in Economic Development Authority financing and $2 million in subsidies. The city should have put the money into its aging and decrepit schools, Morrissey said.

Stoney defended the deal, saying that it brought jobs and economic revitalization to the city’s impoverished Fulton Hill neighborhood. He in turn criticized Morrissey for not doing more as delegate for increasing school funding from the state.

City Council President Michelle Mosby noted that the bonds, backed by lease payments from the brewery, really didn’t take money from the schools at all.

In all the conversation, as described by the Richmond Times-Dispatch, no one questioned the idea that a lack of money is what ails the Richmond school system. The pitiful educational achievement of Richmond school children, low even when adjusted for the number of pupils from socioeconomically disadvantaged backgrounds, has many deep-rooted causes. I’ll focus on the issue that has gained the most attention to make my point.

Other than a few new school buildings, Richmond city schools are notorious for their poor condition. An 2014 article in Style Weekly started this way: “The ceilings at Thompson Middle School started oozing in the fall. Watery, foul-smelling drops of diluted tar fell into classrooms and hallways. The long, wet winter only made things worse. The ooze continues to creep. The staff does what it’s always done when the building starts showing its age: It copes. Custodians work late. Teachers rearrange desks. Buckets are put into place.”

The physical condition of the schools is a scandal. How can children be expected to learn in such an environment? Many have pointed to the age of the schools as the problem, suggesting that the answer is to spend tens of millions of dollars to tear down the worst ones and build new ones in their place.

The average age of Richmond school buildings dates back to 1955. That sounds old, but age is not the problem. My son just graduated from Douglas S. Freeman High School in Henrico County which opened in 1954. The architectural style is, to be charitable, institutional. Freeman just may be the dullest looking school building I have ever laid eyes on. But the interior appears to be in a state of good repair. The grounds are clean, the floors are waxed, and utilities function properly. Age isn’t the cause of Richmond’s decrepit schools. Maintenance, or lack of it, is the problem.

Some might respond that Henrico is an affluent school district that can afford to maintain its buildings while Richmond is poor and cannot. Well, according to Department of Education data, Richmond spent $13,087 per pupil while neighboring Henrico spent $9,250 for operations in the 2014-2015 school year.

OK, then, maybe Richmond has more poor kids with special needs who incur higher instructional costs at the expense of buildings and maintenance. Well, no, that’s not right either. Richmond expenditures for “operations and maintenance” were $1,185 that same year, considerably more than the $971 per pupil spent by Henrico.

Here’s the problem: Richmond spreads its operations & maintenance dollars over more schools (adjusted for enrollment) than does Henrico. The Richmond public schools website lists 42 elementary, middle and high schools and specialty facilities. Henrico, with twice the enrollment, lists only 69 schools. Despite having a lower operations & maintenance budget per pupil, Henrico spent more money per facility: $729,000 in 2014-2015 compared to $676,000 per facility in Richmond.

I presume that “operations & maintenance” includes the cost of heating, cooling, and lighting. Insofar as spending on utilities, which are necessary to maintain a learning environment, must come off the top of the budget, Richmond schools are left with even less for maintaining roofs, preventing leaks, repairing utility systems, and making routine repairs.

Thus, the root of the problem is that the Richmond School Board cannot muster the political will to consolidate its schools as rapidly as it should. (The board did vote last year to merge Thomas and Elkhardt middle schools.) Thus, the school district is not spending enough to properly maintain its facilities and, as a consequence, its oldest schools are falling apart.

Bacon’s bottom line: Instead of debating how to find more money for Richmond schools, perhaps mayoral candidates should be debating whether the school board could do a better job of spending the money it already has.

Update: Reader Larry Gross points out that major structural repairs to school buildings would be considered capital expenditures, not included in the “operations & maintenance” fund. Fair enough. Have Richmond schools allocated as much to this category as Henrico to keep up with depreciation? I don’t know. I doubt many of the mayoral candidates do either. But this is the kind of analysis we need before people talk about pumping more money into the school system.