Three City Council Seats, Only One Candidate

Vacant store fronts in downtown Manassas Park.

Vacant store fronts in downtown Manassas Park. (Photo credit: Washington Post)

The City of Manassas Park in Northern Virginia has three open City Council seats this fall — but only one candidate will be on the ballot.  The situation is a stark example, suggests the Washington Post, of the apathy that is growing more prevalent among America’s small cities and towns.

Who can blame Manassas Park citizens for not wanting to run? The city has huge challenges and serving on City Council is a big time commitment, but the job pays only $9,200 per year. The mayor makes $9,800.

The Washington Post describes the challenges this way:

In recent years, the city took on debt — about $120 million — building new schools and other government buildings in hopes of competing with nearby Prince William County and Manassas City for jobs and shopping attractions. So far, there hasn’t been much economic activity. A downtown business district sits mostly empty. …

Meanwhile, local schools are becoming more crowded with the children of families who have moved to Manassas Park in search of cheaper housing. Many are Latino immigrants working low-wage jobs.

With an annual debt payment of $9 million — about 12 percent of the total operating budget — local leaders are anxious about the possibility of cutting services or raising property taxes beyond the $3,947 per year on average that homeowners are already paying.

Few people, it seems, want to take on those headaches.

Heavy debt, eroding economic base, civic apathy and difficulty recruiting qualified candidates for public office is a recipe for decline. Council member Michael Carrera suggests reducing the number of council seats from seven to five, which makes sense for a city of 15,000 people.

Better yet, the city should consider reincorporating with Prince William County and devolving into a town…. assuming Prince William would go along. Unfortunately, there’s no guarantee that Prince William would be willing to take on the city’s headaches and liabilities.

BARC Launches Virginia’s First Community Solar Project

Solar farm maintained by the Delaware Electrical Cooperative.

Solar farm maintained by the Delaware Electrical Cooperative.

by James A. Bacon

Governor Terry McAuliffe traveled to Lexington yesterday to flip the switch on Virginia’s first community solar project, installed by the tiny BARC Electrical Cooperative.

“BARC’s community solar project is an excellent model for stabilizing and reducing energy costs, while delivering clean solar power to a large segment of households on the grid,” McAuliffe said at the commissioning ceremony. “”I do hope this is a model for the rest of our utilities.”

With a three-acre bank of solar panels generating up to 550 kilowatts, BARC will provide 25% of average monthly consumption to 212 residential and  business customers in a service area encompassing Alleghany, Augusta, Bath, Highland and Rockbridge counties, reports the Roanoke Times. Another 25 customers are on the waiting list for when the project expands.

The electricity generated by the solar farm will replace power that BARC would have purchased from the wholesale electricity market.

BARC, a rural electrical cooperative serving more than 12,500 metered customers, had seen considerable interest among members in rooftop solar but observed that little was happening. Either upfront costs were too high, or there were physical barriers such as shading. But building utility-scale solar changed the equation. BARC had the heft to line up financing, it could acquire a shade-free location to place its solar panels, and it enjoyed economies of scale in installation. The coop also acquired a $500,000 grant from the Appalachian Regional Commission (ARC) and another from the U.S. Department of Agriculture to offset upfront financing costs.

CEO Michael Keyser explained the business model to Southeast Energy News:

We settled on a fixed-rate model because we determined one of the key barriers to solar is the  upfront cost.  It was also vitally important that the project self-sustain its own growth. We need to get the levelized cost of energy low enough so that a portion of every subscription would be set aside in a revolving fund to pay for project expansion. As long as there is a waiting list, like right now, the project will continue to pay for its own growth. It’s tremendous.

[The size of the project] was essentially a balancing act between building a system large enough to serve a meaningful number of members, while keeping the total capital costs manageable so that it was not detrimental to our balance sheet.

The value proposition to customers? Subscribers will pay $5 more per month for that 25% block of electricity consumption. But the charge for that block will remain fixed for 20 years, not subject to rate increases.

Bacon’s bottom line: The project required significant subsidies in the form of federal grants — the ARC grant amounted to more than $2,300 per customer. Without the grants, it is unlikely that solar energy in this case would have been cost competitive with the wholesale electricity market. It’s not clear if the solar farm also benefited from federal tax credits. Nothing I have read so far indicated the existence of an intermediary legal entity that would have utilized the tax credits, however, and BARC is a non-profit coop, so it could not have employed them. If I’m right and BARC did in fact build the facility without the tax credits that most other solar projects require to obtain financing, that is a significant accomplishment.

Also, it is interesting to see that so many customers are willing to pay a $5-per-month premium either to be “green” or to lock in a fixed price for electricity for 20 years. The beauty of the project is that customers subscribe voluntarily. No one is being coerced into paying higher rates for a service they don’t want.

You Thought Hanging Chads Were Bad?

hanging_chadsLatest news from Yahoo News: “The FBI has uncovered evidence that foreign hackers penetrated two state election databases in recent weeks, prompting the bureau to warn election officials across the country to take new steps to enhance the security of their computer systems.”

To my surprise, Henrico County, which switched to electronic voting a couple of years ago, back-tracked in the last primary. Good move. I really don’t want Vladimir Putin, Hu Jintao or, god forbid, Kim Jung Un, deciding our next president.

— JAB

This Is What a Fiscal Meltdown Looks Like, III: Eating the Seed Corn

petersburg_visitor_center

Petersburg Visitor Center

Poor Petersburg. Financial consultants are advising City Council to save $300,000 this year and $400,000 next year by shutting down three museums and two tourism centers as part of a draconian plan to slash a projected $12 million budget deficit and work down a $19 million backlog in unpaid bills. (Read the details in the Richmond Times-Dispatch.)

City Council has not voted on the measure, but it has little choice in the matter. Its budget predicament is so catastrophic that it has no choice but to suspend all but the most essential services. That means the city is undermining its own economy. Fewer tourist destinations = fewer tourists = less business and tax revenue.

Sad, really sad. Let Petersburg be an object lesson to all. Never, never, never let your city or county to get into the same situation.

— JAB

Long-Term VRS Performance Not Looking So Good

by James A. Bacon

Governor Terry McAuliffe announced Thursday that Virginia faces a budget shortfall of roughly $1.5 billion in the current biennial budget. That’s a big short-term problem, one of the worst in recent Virginia history — and possibly the worst ever during a period of economic expansion.

However, the long-term picture doesn’t look any better. The prime culprit is unfunded liabilities in an era of chronic low interest rates.

The official actuarial estimate is that the Virginia Retirement System faces a liability of $22.6 billion. As I have noted on many an occasion recently, that assumes that the VRS manages to generate an average 7% return on its $68 billion investment portfolio for the indefinite future. A year ago that didn’t look like such an outrageous proposition. Here’s what VRS’s portfolio performance looked like compared to national benchmarks:

VRS_returns_2015

Here’s what the VRS’s most recent (June 2016) comparisons look like:

VRS_annualized_return

What a difference a year makes. The average 10-year return is significantly below the assumed 7% figure. The five- and three-year returns do look better, but are they a better representation of likely long-term performance than the 10-year average?

The answer largely depends on which base year we choose to make our comparisons. The three- and five-year comparisons cover periods that were pure bull markets for stocks and bonds. The base year for the 10-year comparison was 2006… just before the Great Recession… thus including a major bear market correction as well as the subsequent bull market. I would argue that the 10-year comparison is more useful because it measures performance from the peak of the early-2ooos business cycle to the peak (or near-peak) of the current business cycle.

If we accept that logic, VRS is not achieving the portfolio growth it needs to meet its own 7% return-on-investment standard. While we can applaud VRS for out-performing its peer pension funds, we should not delude ourselves that 7% growth is a reasonable assumption. In all likelihood, VRS will fall short, and Virginia taxpayers will be called upon to make up the difference.

Perhaps my view is excessively pessimistic, but it is not implausible. The very least we can do is to conduct a sensitivity analysis. If VRS returns are only 5.6% over the next 10 years, then unfunded liabilities will increase to what level? $40 billion? $50 billion? We need to know our potential exposure should things not work out as we hope. It’s better to know this now, when we can plan for it, than get bushwacked by reality a decade from now.

The Market-Driven Path to Renewables

texas_wind_turbines

Texas wind turbines. Photo credit: Wall Street Journal

by James A. Bacon

Texas, one of the most conservative states in the country, is not exactly what you’d call a hotbed of environmental activism. Yet the Lone Star state has added more wind-based generating capacity than any other; wind turbines and other renewables account for 16% of electrical generating capacity — and as much as half of electricity production at night. Now the state is anticipating a surge in solar power, reports the Wall Street Journal.

Moreover, Texas, long associated with the oil & gas industry, has become a pace-setter in renewable energy while moving from an average retail electricity rate higher than the national average to a rate below the national average — 8.6 cents per kilowatt hour compared to 10.4 cents nationally.

Oh, and it did so within the context of a free-market-based electricity system — no  state subsidies. (Federal subsidies still apply.)

“Texas officials didn’t invoke global warming to sell the program,” writes the Journal. “They touted renewable energy as a consumer-choice issue, jobs producer and a way to pump money into rural economies.”

Consumer choice: Residents of Houston can pick from 107 rate plans offering 5% to 100% renewable power. Reliant, a unit of NRG Energy Inc., charges 7.1 cents per kilowatt-hour for an all-renewable plan compared to 5.9 cents for one that’s 5% green.

Jobs: The Texas Workforce Commission estimates that the state now has more than 100,000 people working in renewable energy, which includes manufacturing, construction and ongoing operations. Construction of wind turbines and power lines  created jobs in rural counties and gave landowners new sources of income.

How did this transformation occur? The Journal doesn’t delve into details, but here are the highlights. In 1999 then-Governor George W. Bush signed legislation overhauling the Texas power market. Deregulation broke the grip of monopoly utilities that controlled generation, transmission and retail sales of electricity and introduced competitive auctions for wholesale power. Texas also mandated at least 2,000 megawatts of renewable generating capacity by 2009, not an idea inspired by free market principles, but the mandate wasn’t a major factor. Texas blew past that goal by 2005.

State government also charged electric-system users billions of dollars to build transmission lines to wheel power from windy west Texas where the wind turbines were to urban centers where the demand resided.

The Journal article doesn’t address the issue of service reliability, other than to note that Texas officials are “obsessive” about anticipating changes in the weather that might affect wind-powered production.

Bacon’s bottom line: It would be a mistake to portray the Texas approach as purely market driven. The state did enact mandates (although they apparently were not decisive) and it did dun ratepayers to upgrade transmission lines. But the deregulation of retail allowed Texas greenies to exercise their consumer power by purchasing renewables at a modest premium. And the development of wholesale electricity auctions ensured that new wind and solar producers had someone to sell to.

The big question for Virginians is whether the Texas model can be replicated here, and I’m just not sure of the answer. Some of the necessary elements are in place. For example, Virginia does participate in wholesale electricity markets; we’re part of PJM Interconnection, a cooperative zone of a dozen states in the Midwest and Mid-Atlantic. On the other hand, building transmission lines is exceedingly contentious. It’s one thing to install high-voltage towers in empty Texas ranchland; it’s quite another to build them in a Virginia countryside rich in historical, cultural and environmental resources where landowners value the land not only for its productive capacity but for its viewsheds.

Virginia also experimented with retail deregulation, which was deemed a failure. But it’s been a decade since re-regulation, and times have changed. Thanks to the success of retail deregulation in places like Texas, there are enterprises with proven business models that might make retail competition more meaningful here in Virginia.

Finally, there are important climatic differences between Texas and Virginia. With its vast, windy plains, Texas is superbly suited to on-shore wind. Except along isolated mountain ridges, Virginia is not. While the Old Dominion potentially could tap off-shore wind, the business infrastructure to support it does not exist. As for solar, Texas is an arid state where solar panels get more direct sunlight than in Virginia.

Still, while politically “blue” states from California to New York give extensive thought to what the electric grid of the future will look like, Virginia needs to do so as well. Texas’  market-oriented model might be one that Virginians are more comfortable with.

Is It Time to Blame the Victim?

New College Institute, Martinsville, Va.

New College Institute, Martinsville, Va.

by James A. Bacon

Martinsville is one of Virginia’s hard luck cases. Once a thriving center of home-grown furniture and apparel enterprises, its economy has been hollowed out by international trade, and its unemployment rate chronically runs around twice the state average. Earlier this year, when the statewide unemployment rate was hovering around 4.0%, joblessness in Martinsville had barely dipped below 8.0%.

Given the persistent slack in the labor force, one would think that workers would go to great lengths to get a job. Remarkably, many are not. At a recent Martinsville City Council meeting, city officials and economic developers estimated that about 1,400 jobs were unfilled in the area.

“We don’t have an employment problem. We have a participation problem” — people don’t want to be part of the workforce anymore, City Manager Leon Towarnicki told the council, reports the Martinsville Bulletin.

Said Mark Heath, CEO of the Martinsville-Henry County Economic Development Corp: the key to filling available jobs is “to motivate people that it’s better to have a job and go to work” than rely upon government aid to sustain themselves.

As an example, Heath cited the experience of the local New College Institute, which launched  the Center for Advanced Film Manufacturing in 2014 to train employees for jobs at Eastman Chemical Co. and other local high-tech manufacturers. Students take 28 credit hours of work over two semesters. Financial aid is available; no one is turned away due to an inability to pay. Moreover, graduates are virtually guaranteed a job. Heath had hoped that 40 to 45 people would enroll this semester. The actual number: 15.

Bacon’s bottom line:  The conventional wisdom in Virginia is that unemployment is high because there aren’t enough jobs and that, therefore, government needs to do something to stimulate job creation. A more sophisticated version of the CW is that there is a mismatch between job requirements and the skills of the workforce — Governor Terry McAuliffe has famously said that there are nearly 30,000 tech vacancies in Northern Virginia alone — implying that we could lick the problem if only the educational/training system did a better job of equipping workers with the skills that employers need.

Without question, solving the jobs-training mismatch is part of the solution. But how we explain the situation in Martinsville, where a mechanism exists to train workers and provide them jobs, and there disappointingly few takers?

Dare we “blame the victim” and suggest that not all Virginians are equally motivated to find work… that some are content to live on government support, as meager and inadequate as that may be?

Read the comment thread on the Martinsville Bulletin article. It’s fascinating. Some readers point out that it’s hard to go to school if you can’t afford to pay for rent, gas and day care. Others, many of whom put themselves through school to earn a credential needed for a job, have no sympathy whatsoever. As one man a said, “I just spent over two years going to school at night while working 45 hours a week. Where there is a will to succeed, a way is made. Work ethic is dying in this country, and it is starting to show.”