Grid Pro Quo

Grid Pro Quo

The EPA wants to restructure Virginia’s electric grid. Skeptics argue that slashing CO2 emissions will drive electric bills higher. Environmentalists disagree. Who’s right?

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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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New Film Documents Horrors of Coal Mining

blood on the moutain posterBy Peter Galuszka

Several years in the making, “Blood on the Mountain” has finally premiered in New York City. The documentary examines the cycle of exploitation of people and environment by West Virginia’s coal industry highlighting Massey Energy, a coal firm that was based in Richmond.

The final cut of the film was released publicly May 26 at Anthology Film Archives as part of the “Workers Unite! Film Festival” funded in part by the Fund for Creative Communities, the Manhattan Community Arts Fund and the New York State Council of the Arts.

Directed by Mari-Lynn Evans and Jordan Freeman, the film shows that how for more than a century, coal companies and politicians kept coal workers laboring in unsafe conditions that killed thousands while ravaging the state’s mountain environment.

As Bruce Stanley, a lawyer from Mingo County, W.Va. who is interviewed in the film and has fought Donald L. Blankenship, the notorious former head of Massey Energy, says, there isn’t a “War on Coal,” it is a “war waged by coal on West Virginia.”

When hundreds of striking workers protested onerous and deadly working conditions in the early 1920s, they were met with machine guns and combat aircraft in a war that West Virginia officials kept out of history books. They didn’t teach it when I was in grade school there in the 1960s. I learned about the war in the 1990s.

The cycle of coal mine deaths,environmental disaster and regional poverty continues to this day. In 2010, safety cutbacks at a Massey Energy mine led to the deaths of 29 miners in the worst such disaster in 40 years. Mountains in Central Appalachia, including southwest Virginia, continue to be ravaged by extreme strip mining.

As Jeff Biggers said in a review of the movie in the Huffington Post:

“Thanks to its historical perspective, Blood on the Mountains keeps hope alive in the coalfields — and in the more defining mountains, the mountain state vs. the “extraction state” — and reminds viewers of the inspiring continuum of the extraordinary Blair Mountain miners’ uprising in 1921, the victory of Miners for Democracy leader Arnold Miller as the UMWA president in the 1970s, and today’s fearless campaigns against mountaintop-removal mining.”

The movie (here is the trailer) is a personal mission for me. In 2013, after my book “Thunder on the Mountain, Death at Massey and the Dirty Secrets Behind Big Coal,” was published by St. Martin’s Press, Mari-Lynn Evans called me and said she liked the book and wanted me to work with her on the movie project. She is from a small town in West Virginia a little south of where I spent several years as a child and thought some of my observations in the book rang true.

I drove out to Beckley, W.Va. for several hours of on-camera interviews. Over the next two years, I watched early versions, gave my criticisms and ideas and acted as a kind of consultant. Mari-Lynn’s production company is in Akron and I visited other production facilities in New York near the Brooklyn Navy Yard.

Interesting work if you can get it. My only forays into film making before had been with my high school film club where he videographed a coffin being lowered into a grave (in West Virginia no less). I was greatly impressed when I saw the movie at its New York premiere.

Mari-Lynn and Jordan have been filming in the region for years. They collaborated on “The Appalachians,” an award-winning three-part documentary that was aired on PBS a few years ago and on “Coal Country” which dealt with mountaintop removal strip mining.

They and writer Phyllis Geller spent months detailing how coal companies bought up land on the cheap from unwitting residents, hired miners and other workers while intimidating them and abusing them, divided communities and plundered some very beautiful mountains.

Upper Big Branch is just a continuation of the mine disasters that have killed thousands. The worst was Monongah in 1907 with a death toll of at least 362; Eccles in 1914 with 183 dead; and Farmington in 1968 with 78 dead (just a county over from where I used to live).

By 2008 while Blankenship was CEO of Massey, some 52 miners were killed. Then came Upper Big Branch with 29 dead in 2010.

At least 700 were killed by silicosis in the 1930s after Union Carbine dug a tunnel at Hawks Nest. Many were buried in unmarked graves.

While state regulation has been lame, scores West Virginia politicians have been found guilty of taking bribes, including ex-Gov. Arch Moore.

The movie is strong stuff. I’ll let you know where it will be available. A new and expanded paperback version of my book is available from West Virginia University Press.

Blankenship is scheduled to go on trial on federal charges related to Upper Big Branch on July 13.

Layne’s Law

Map credit: VDOT

Proposed Interstate 66 improvements. Map credit: VDOT

by James A. Bacon

After spending a year and a half cleaning up the mess left by the previous administration — the Charlottesville Bypass, Norfolk’s Midtown-Downtown Tunnel, the U.S. 460 Connector in Tidewater — Transportation Secretary Aubrey Layne now has the opportunity to show whether or not he has the chops to handle a complex, politically charged transportation mega-project — the $2.1 billion in proposed improvements to Interstate 66 west of the Capital Beltway.

The Virginia Department of Transportation is focusing on two key dimensions to the mega-project, which is intended to address one of the most congested traffic corridors in Northern Virginia. The first is engineering. VDOT engineers have conceptualized a plan to build a corridor that will include three free lanes running both directions, two express lanes in each direction and high-frequency bus service  linking commuters with major activity centers. That plan will be subject to extensive environmental review and public input.

The second key question is how the state will finance and manage the project. Should VDOT use the controversial public-private partnership (P3) legal/financial structure to build and operate the project, much as it did with the Interstate 495 and Interstate 95 Express Lanes projects? Should VDOT undertake the project entirely on its own? Or should it create a hybrid approach? The question assumes tremendous urgency given the problems created by the P3 approach with the Norfolk-Portsmouth tunnels and the U.S.460 Connector.

Parenthetically, I would add that there is a critical third dimension to the project which appears to be getting less attention: What will be the impact of the project on Northern Virginia land use patterns? Will the project subsidize suburban sprawl (scattered, disconnected, low-density land use patterns) in the far western reaches of the Washington metropolitan area, which in turn will generate more demand — and more congestion — in the years ahead? In other words, will the state spend more than $2 billion to “fix” a problem that will re-emerge a decade or two after the project is completed?

In an interview yesterday, I sat down with Layne to discuss the financial dimension of the project. The transportation secretary has given enormous thought on how best to structure highway mega-projects, balancing the twin imperatives of controlling costs and limiting risk.

Layne sees transportation projects as forming a continuum between a model in which VDOT does everything, and a privatization model in which all functions are delegated to a private-sector concessionaire through an asset sale or a long-term lease. Any project is comprised of several parts:

Design
Construction
Financing
Operation
Maintenance

Any one of these pieces can be performed by the state or out-sourced to the private sector. In Layne’s view, because no two projects are identical, there is no standard configuration. He tends to think that the private sector does a better job of designing and managing construction than VDOT, but not by such a wide margin that jobs should automatically default to private players. In other areas, VDOT has a clear advantage. The fact that VDOT can tap tax-free bonds, which sell at lower interest rates, and requires no private equity financing often means that the state can finance a project at less expense than a private entity.

But there is more to managing a project than driving for the lowest cost or, as the previous administration tended to do, the lowest up-front public subsidy. Costs should be viewed over the lifetime of the project, which runs 50 years or longer, after adjusted for risk. One risk is the potential for cost overruns. In the past, VDOT used to eat construction cost overruns, which meant that the taxpayer paid. But that risk, says Layne, usually should be transferred to the private contractor. Another risk is that toll revenues might not materialize as forecast. Private entities pay especially close attention to that risk, and they try to negotiate all manner of protections into a P3 project to offset it.

Express lane projects get tricky because a private entity is motivated to maximize toll-paying traffic through its tolled lanes in order to maximize revenue, while the state’s goal is to maximize the throughput of riders, which means encouraging High Occupancy Vehicles and buses. In its negotiations over Interstate 95, the original plan called for Transurban to make a $250 million up-front investment to provide a robust mass-transit component. But as the negotiations proceeded, the mass-transit piece got whittled down drastically. If High Occupancy Vehicles exceed 24% of total traffic on I-495 (35% on I-95), the state is obligated to pay 70% of Transurban’s lost revenue. Meanwhile, the state pays for mass transit on I-95 out of its own funds — an expense that was not included in the announced project cost.

Layne’s Law is to start by first defining what the state wants in a project, and only ascertaining which mix of functions it should outsource to the private sector. “I’d love to have a private-sector partner,” Layne says, “but only if the risk transfer makes sense.” In the case of I-66, bargaining away a robust mass-transit capability to protect a private entity’s revenue stream probably would not make sense. Continue reading

Coping with Risk in Highway Megaprojects

Aubrey Layne explains the concept of fiduciary risk.

Aubrey Layne explains the concept of fiduciary risk.

by James A. Bacon

As Transportation Secretary Aubrey Layne has had more time to dig into his job, he has developed an ever more nuanced appreciation of how things went wrong with the U.S. 460 Connector. There was more to the fiasco, which could cost the Commonwealth up to $300 million, than a simple failure to acquire necessary wetlands permits before opening the spending spigots and then discovering that the permits were not forthcoming. The McDonnell administration, he says, negotiated a public-private partnership deal without sufficient appreciation of risks entailed with the project.

“I can’t tell you if they didn’t know they weren’t transferring the risk [to the private-sector partner] and got out-foxed, or whether they didn’t give a damn,” Layne told Bacon’s Rebellion in an interview today. Either way, the Commonwealth was left holding the bag when plans for the 55-mile Interstate-quality highway linking Petersburg and Suffolk had to be redrawn to do less environmental damage. He still hopes to recover some of the $250 million paid to U.S. 460 Mobility Partners (over and above $50 million in sunk design and engineering costs) for pre-construction work, but that outcome is uncertain.

Layne is optimistic that public-private partnership (P3) reforms enacted with bipartisan cooperation this year will prevent recurrences of the U.S. 460 debacle and help the state negotiate better terms in future deals than it got with the Interstate 495 and Interstate 95 express lanes projects in Northern Virginia, which effectively capped bus transit on the highways for the next half century. The McAuliffe administration’s big test will be to do a better job structuring the financing and risk of $2 billion in proposed improvements to Interstate 66 in Northern Virginia.

Before 1995, the Virginia Department of Transportation (VDOT) had one way of building roads. It designed them, put construction out for competitive bids, arranged its own financing, operated them, maintained them and absorbed the risk of anything going wrong. The system got the job done but it had drawbacks. It overlooked potentially creative solutions to engineering and design problems, and it was prone to cost overruns. Then the General Assembly passed legislation enabling public-private partnerships, which provided the Commonwealth a whole new range of options for financing big projects and shifting selected risks to the private sector.

Facing a severe transportation budget crunch, the McDonnell administration made the strategic decision early on to use P3s to leverage scarce public dollars with private capital. From a high-level perspective, this made sense because the Commonwealth had limited capacity to issue road-building bonds without jeopardizing its AAA bond rating and then-Governor Bob McDonnell had not yet pushed through tax increases to bolster transportation funding. Moreover, the administration wanted to take advantage of historically low interest rates on long-term bonds.

But politics and ideology were pushing P3s as well, says Layne. There was a bias that something is always better if the private sector does it. Sometimes the private sector can do things better than VDOT, he says, and sometimes the private sector is better suited to take on certain risks than the state. But not always. The McAuliffe administration’s goal is to find the best fit — the best balance of cost and allocation of risk — on a case by case basis.

The devil is in the details. Layne, a Republican and a McDonnell supporter at the time, backed the governor’s mega-project funding priorities and voted to approve them while serving on the Commonwealth Transportation Board. Indeed, he chaired an independent bonding authority that issued bonds for the U.S. 460 project.  But now that he’s transportation secretary, he realizes the issues were far more complex than presented to him and the CTB board.

The McDonnell administration first proposed a public-private partnership for the U.S. 460 project with the hope that outsiders could devise a more creative way of building and financing the highway than VDOT could come up with. Three consortia took a look and came up with similar conclusions — there would be insufficient toll revenue to finance more than a fraction of the construction cost with bonds. The McDonnell administration then switched gears, deciding to pay for most of the project with state funds but retaining the P3 structure in order to outsource the design and construction of the project to a private-sector partner, which turned out to be U.S. 460 Mobility Partners. The state should have gone back to square one and started over, says Layne, re-defining the project and putting it up for bids instead of using the P3 structure. Instead of getting multiple bidders to compete, the state wound up negotiating with a single player, U.S. 460 Mobility Partners. Even worse, Governor McDonnell had signaled that U.S. 460 was his highest priority, and there was no back-up plan — the administration had to reach a deal with U.S. 460 Mobility Partners or the project would never get built during McDonnell’s term. U.S. 460 Mobility Partners had all the bargaining leverge.

Negotiations took place within the P3 structure, which meant that the deliberations were secret and the contract not released to the public. VDOT briefed the CTB, the state’s transportation oversight board, but failed to disclose the information that critical wetlands permits had not been obtained and might not be obtainable.

The final contract for the U.S. 460 deal was more than 700 pages long. Layne says he can’t imagine than anyone in state government read the whole thing. “I’m confident that no one person understood it all. No one person could tell you what the deal was, what risk was transferred, and what risk the state was taking. And that’s a recipe for disaster” when negotiating with sophisticated business people on the other side of the table.

The dynamic would have played out very differently, says Layne, if the McDonnell administration had set up U.S. 460 as a design-build project.  First, VDOT would have opened up the proposal to competitive bids, very likely getting a lower price even while the private contractor took on the risk of delivering the project on budget and on time. Second, VDOT guidelines would have ensured that all necessary permits were granted before the project commenced and the state started shelling out money.

Layne doesn’t blame U.S. 460 Mobility Partners for negotiating the best deal for itself that it could. It’s not a charity. The company’s managers had a fiduciary responsibility to get the best deal for its shareholders that they could. But elected officials have a fiduciary responsibility to the public. The challenge for the Commonwealth is to bring to bear an equally acute understanding of risks and rewards and to cut the best deal possible for the taxpayers. That’s where the state failed utterly with U.S. 460. If he’d had negotiated such a disastrous real estate sector when he worked in the real estate business, he says, he would have been fired.

Now it’s Layne’s turn. He has to structure a mega-project deal for I-66. Tomorrow, I’ll describe how he is approaching that task.

A StrikeForce about as Effective as the Iraqi Army

conservative_strikeforceIn 2013 former Attorney General Ken Cuccinelli lost to Terry McAuliffe by 56,000 votes in a gubernatorial race in which he was outspent by two to one. Would $85,000 more in his campaign war chest have made a difference in the election?

Probably not — the number was a small fraction of the $21 million Cuccinelli spent — but it’s a point worth pondering, given news that the Conservative StrikeForce PAC has agreed to pay $85,000 and hand over fund-raising contact lists to Cuccinelli, according to the Washington Post.

In a lawsuit, Cuccinelli had accused the PAC of raising funds that were never delivered to his campaign. Estimating that the group raised about $435,000 from emails using his name, he alleged that he’d received only $10,000.

Between January 2013 and June 2014, according to Federal Election Commission records, Conservative StrikeForce raised more than $2.8 million overall, of which it paid only $82,000 toward candidates or campaign committees.

“It’s just a thunderous precedent . . . to make it harder and more expensive to be deceitful and misleading with people in the political arena as far as donations go,” Cuccinelli said. “In an already sour environment, people who think they’re supporting something they believe in are defrauded.”

The Washington Post article provides no response from Arlington-based Conservative StrikeForce, its chairman, Dennis Whitfield, or its independent treasurer and outside consultant, Scott MacKenzie. But an outside observer must wonder if this s a case of an opportunist mimicking the police and veteran fund-raising scams in a political context. In a similar case, the Post notes, a committee to recruit conservative physician Ben Carson to run in the 2016 presidential race spent $2.44 million to raise $2.4 million.

Bacon’s bottom line: Maybe this was a case in which Conservative StrikeForce just wasn’t very effective at its job, which it defined on its website as raising small contributions for conservative candidates through mail, direct mail and telephone solicitations. Or maybe it was a cynical ploy for the organizers to pay themselves handsome salaries and perks. We don’t know. But, sad to say, in the wild, wild world of political financing, we’ll probably be reading about a lot more cases like this one.

– JAB

Federal Bailouts and the Buildup of Risk

bailout_barometer

Graphic credit: Federal Reserve Bank of Richmond

by James A. Bacon

The federal government plays a much bigger role in shaping the United States economy than is evident in its taxing and spending policies. Uncle Sam funnels credit to favored constituencies through subsidized credit programs like TIFIA transportation loans and the Import-Export bank as well as by protecting lenders from losses due to a borrower’s default. Members of Congress are exercised, as well they ought to be, by the dispensing of subsidized credits to corporate interests. But loan guarantees have a far bigger impact — and expose the federal government, and the U.S. economy — to far greater risk.

Sixty percent of the U.S. financial system’s loans are explicitly or implicitly backed by the federal government, the Federal Reserve Board of Richmond has found in its updated Bailout Barometer. That’s up from roughly 45% as recently as 1999.

The capitalist financial system is inherently prone to booms and busts. Busts lead to corporate failures, and big corporate failures can trigger panics, in which even financially sound firms get caught in the undertow. The U.S. has sought to alleviate this pain by providing loan guarantees. Some guarantees are self-financing, such as federal insurance on bank deposits. Other guarantees are policed by regulators, and yet others are implied but ambiguous and not spelled out in advance. But the end result is that actors in the financial system adjust their behavior — taking on more risk than they would otherwise — in ways that could create new, bigger problems in the future. As the Richmond Fed explains:

Implicit guarantees effectively subsidize risk. Investors in implicitly protected markets feel little need to demand higher yields to compensate for the risk of loss. Implicitly protected funding sources are therefore cheaper, causing market participants to rely more heavily on them. At the same time, risk is more likely to accumulate in protected areas since market participants are less likely to prepare for the possibility of distress — for example, by holding adequate capital to cushion against losses, or by building safeguarding features into contracts — and creditors are less likely to monitor their activities. This is the so-called “moral hazard” problem of the financial safety net: The expectation of government support weakens the private sector’s ability and willingness to limit risk, resulting in excessive risk-taking. …

The Richmond Fed’s view is that the moral hazard from the [Too Big To Fail] problem is pervasive in our financial system. The U.S. government’s history of market interventions — from the bailout of Continental Illinois National Bank and Trust Company in 1984 to the public concerns raised during the Long-Term Capital Management crisis in 1998 — shaped market participants’ expectations of official support leading up to the events of 2007-08. According to Richmond Fed estimates, the proportion of total U.S. financial firms’ liabilities covered by the federal financial safety net has increased by one-third since our first estimate in 1999. The safety net covered 60 percent of financial sector liabilities as of 2013. More than 40 percent of that support is implicit and ambiguous.

Bacon’s bottom line: While the current financial regime did alleviate the pain of the 2007 market collapse, the system could be allowing even bigger risks to build up. Like generals fighting the last war, regulators are fighting the last panic. The new risks will not be the same as the old ones, and we won’t know what they are until they explode in the next financial debacle. But spurred by the Fed’s near-zero interest rate policies, investors are chasing higher returns by taking greater risks, and financial markets are concocting elaborate new financial instruments to circumvent the regulators.

The global derivatives market was calculated in 2013 to be roughly $1.2 quadrillion in notional value, or about 20 times the global economy. Admittedly, most of that is tied to interest rates, currency values and stock indexes, not the economic sectors guaranteed by the federal government. But it illustrates how arcane financial instruments can magnify or hedge risks in ways we mere mortals — and government bureaucrats earning low, six-figure salaries — can barely comprehend.

I don’t know what will trigger the next financial crisis. Most likely, it will come from a quarter that most people would never expect. I don’t know when it will come. But the history of capitalism since the South Sea Bubble of 1720 suggests that one will come along eventually. If a bunch of multibillionaire hedge fund managers lose multibillion dollar bets and wind up selling apples on the street, I will lose no sleep. But if those hedge fund multibillionaires’ losses are back-stopped by federal loan guarantees, effectively socializing their losses, I will have a deep and abiding rage.

Fixing Food Deserts Won’t Fix Food Insecurity

by James A. Bacon

Speaking of food…food_desert there’s new research out on the differences in diet and nutrition between different socioeconomic groups. The conventional wisdom is that a major factor explaining the gap in nutritional quality between affluent and poor Americans is the difficulty poor people have in accessing fresher, healthier food — the food desert phenomenon.

Using new data sets unavailable to previous researchers, Jessie Handbury, Molly Schnell and Ilya Rahkovsky were able to hone in food-buying practices of poor and affluent shoppers in the same grocery store. They found that the same patterns prevailed  — affluent people buy healthier, more nutritious food than poor people do.

“Our results indicate that improving access to healthy foods alone will do little to close the gap in the nutritional quality of grocery purchases across different socioeconomic groups,” they write in “What Drives Nutritional Disparities? Retail Access and Food Purchases across the Socioeconomic Spectrum,” published by the National Bureau of Economic Research. “Improving the concentration and nutritional quality of stores in the average low-income and low-education neighborhood to match those of the average high-income and high-education neighborhood would only close the gap in nutritional consumption across these groups by 1-3%.”

The authors suggest that two other variables are at play: the price of food and consumer preferences for certain kinds of food over others. Their research did not indicate the relative importance of those factors played in influencing food purchases.

Bacon’s bottom line: Once food preferences are established, it is very difficult to change them. That’s not to say it can’t be done — If I learned to like brocolli and brussel sprouts, for cryin’ out loud, anybody can change their food preferences — but it is a long, slow process. The problem is compounded by the fact that the food preferred by the poor — loaded with salt, fat and sugar — is engineered to taste better than healthy foods. And it’s compounded yet again by the fact is that many Americans across the income spectrum have lost the cultural knowledge of how to cook healthy foods. Educated Americans acquire that knowledge by watching cooking channels, buying cook books, and exposing themselves to new foods at finer restaurants. Those options are less available to the poor.

Spending money to induce grocery stores to locate in food deserts and stock their shelves with nutritious food is a fool’s errand. Grocers won’t stock shelf space with food that no one buys. Conversely, if poor people (a) showed a strong preference for nutritious food and (b) could afford to buy it, grocers would need no prodding — they would supply what the customer demanded.

The lousy nutrition of America’s poor is a demand-side problem, not a supply-side problem. To change how America eats, the first order of business is to change what Americans want to eat and can afford to eat.

The Agribusiness Opportunity

Source: New Geography

Source: New Geography

by James A. Bacon

If prostitution is the “oldest profession,” farming is likely the second oldest. Humans have been farming for thousands of years and, if they want to continue to eat, they’ll be farming for thousands of years more. Young people don’t see much future in farming (unless it’s locally grown organic food), and small towns and rural areas in the United States continue to bleed population. But there’s an argument to be made that farming has a great future.

Agriculture is already one of the United States’ biggest export sectors, and overseas markets are likely to continue to grow as developing the world population increases and rising incomes increase food consumption. Those mega-trends portend a favorable environment for large-scale agribusiness capable of moving large volumes of food commodities. Meanwhile, the rise of the locally grown food movement will create opportunities for community gardens and artisinal producers serving local markets.

That future of agriculture may not look like today’s massively mechanized, resource-intensive farming industry. It will be more knowledge-intensive, utilizing insights from biology and ecology to grow crops with fewer herbicides, pesticides and fertilizers. It will be less labor intensive, as leaf and berry pickers replace unskilled migrant workers. As the nature of the business changes, farming could well rebound as a career path for the young. As Joel Kotkin and Mark Schill write in New Geography, “The farms of the future are increasingly high-tech and run by highly skilled professionals and technicians.”

As we think about how to revitalize the economy of rural/small town Virginia, we don’t give much thought to stimulating agricultural production. Perhaps we should.

On the surface, the data compiled by Kotkin and Schill seems none too encouraging for Virginia. They honed in on metropolitan regions with at least 5,000 total jobs falling into one of 68 ag- and food production-related industries, including crop and animal production. Only four Virginia metros made it onto the list (as seen above), and they ranked in the bottom half of the 124 regions listed.  But that’s OK. I see farming and agribusiness as relatively untapped opportunity — fields of opportunities ripe for entrepreneurial innovation.

I’m Feeling Paranoid about Cyber-Terrorism at the Moment, and Keith Alexander Didn’t Help One Bit

cabin_in_the_woods

The only refuge?

by James A. Bacon

My sentiments regarding the Middle East periodically vacillate between “they’re crazy, leave ‘em alone and let ‘em all kill each other” to “the world’s too small, we can’t run away from the problem.” Last night I swung hard toward the latter perspective.

Keith B. Alexander, former director of the National Security Agency, and Robert S. Mueller III, former FBI director, spoke at the Richmond Forum last night on the topic of cyber security. And let’s just say, I’m not feeling very secure.

A major topic of the dialogue was the threat posed by ISIS. Right now, ISIS is on a roll. After suffering a setbacks in Kobani and Tikrit, the self-styled Caliphate has rebounded by capturing Ramadi and Palymyra. Tactical successes feed their propaganda and recruiting, many of those recruits are coming from Europe and North America, and some of those recruits have backgrounds in information technology.

At present, ISIS’ IT prowess has been limited mainly to sophisticated use of the Internet to recruit more jihadis. But a glimmer of their future intentions, said Alexander, can be seen in a recent cyber-attack that succeeded in shutting down a French television station. Admittedly, the station had left itself stupendously open to cyber-attack, so it didn’t require a great deal of savvy to break into its IT system. But it would be a mistake to think that ISIS capabilities won’t grow over time and that they won’t aim for more ambitious targets.

Think about it from ISIS’ point of view. If you wanted to do serious damage to America or Europe, you could invest your resources in bombing plots or shooting sprees — pinpricks — or you could do some serious, lasting damage by shutting down an electric grid. These people are not going to stop. They are at war with us not only because we have a (much diminished) presence in the Middle East but because they see Western Civilization as an enemy. It seems beyond ISIS’s capabilities to acquire a nuclear weapon, but all it takes is a few really smart guys with computers and an Internet connection to wage cyber war. And as long as they have a sanctuary like the Caliphate, they’re practically impossible to take out.

Americans are war-weary, and that certainly includes me, but it doesn’t take a whole lot of IQ points to imagine what would happen if ISIS expanded its zone of control, acquired some more oil fields, and could afford to hire some of the cyber-criminal geniuses operating out of Russia or Eastern Europe. I tell you, it’s almost enough to make me buy a cabin in the woods and stock up on canned food and ammo.

Oh, That Changes Everything

Joe Morrissey with bride-to-be Myrna Pride and baby. He is running as an independent in the black-majority 16th state senate district.

Joe Morrissey with bride-to-be Myrna Pride and baby.

Former Del. Joe Morrissey, D-Henrico, is back in the news after a brief absence from the front pages while simultaneously serving in the General Assembly and serving work-release jail time for contributing to the deliquency of a minor, his 17-year-old receptionist. He is now living with the young woman, now 19, and their baby boy. Morrissey, 57, invited reporters over to say a few words, including these, as reported by the Times-Dispatch:

[Morrissey] said he was hurt by rumors that he had fathered three children with three different African-American women and that he had abandoned those children.

“That’s patently false,” he said. “All of it.”

In reality, Morrissey said, he has four children by four different women. Two of them are biracial, the other two are white.

As the saying goes, “Res ipsa loquitur” — the thing speaks for itself.

– JAB

Richmond Childrens Hospital Deal Collapses

Did VCU's commitment to  its new $168 million childrens' pavilion kill plans for a consolidated Richmond regional childrens' hospital?

Did VCU’s commitment to its new $168 million childrens’ pavilion kill plans for a consolidated Richmond regional childrens’ hospital?

by James A. Bacon

To be sure, building a new, free-standing childrens’ hospital for the Richmond region would be an expensive proposition — on the order of $600 million. But when mega-philanthropists Alice and William H. Goodwin are willing to kick in $150 million, a fund-raising campaign has been organized to raise another $100 million to $150 million, and dozens of pediatric physicians in the region are backing the project, one would think that community leaders could find a way to make it happen.

But all bets are off now that two key participants, Virginia Commonwealth University and Bon Secours Richmond Health System announced yesterday that they had pulled out of the deal. Goodwin, who with his wife has worked on the idea for eight years, said he would be willing to resume talks if the hospitals were, but otherwise, “I don’t need another couple of years of discussions.”

The collapse of the Childrens’ Hospital in the Richmond region stands in stark contrast to the announcement in Febuary by Inova Health Systems in Fairfax County that it would purchase the old Exxon-Mobil headquarters facility, assessed at $193 million in value, in order to house a world-class facility dedicated to genomics and personalized medicine.  The big difference is that Inova did not have to balance competing interests in the same way that promoters of the Richmond childrens’ facility do.

The argument in favor of consolidating patient care for children in a single state-of-the-art facility is that a specialized facility can provide superior care and better medical outcomes for children than a system that is fragmented between three major health systems, VCU, Bons Secours and HCA. (For-profit HCA was not a party to the childrens’ hospital negotiations.) It is a truism of medical economics that the greater the number of medical procedures performed by a medical practice and its physicians, the more efficient the operations, the lower the cost and the better the outcomes. Another advantage of a dedicated childrens’ facility is that combining pediatric practices would create a larger volume that could support more specialties, saving many patients and their families from traveling outside the region for their medical care.

Against those advantages is the hard business reality that neither VCU nor Bon Secours is willing to give up their significant pediatric practices out of the goodness of their hearts. Both health systems would lose major revenue streams during a time of great uncertainty caused by the legal challenge to Obamacare subsidies, the refusal of the General Assembly to expand Virginia’s Medicaid program and federal funding issues regarding the training of new physicians.

“This particular model that was proposed was a free-standing hospital with no ownership by VCU or Bon Secours,” said Tony R. Ardabell, CEO of Bon Secours Richmond, as quoted in the Richmond Times-Dispatch. “That would have been a tremendous negative impact to the bottom line, and we were worried about the sustainability of our ministry at St. Mary’s Hospital for the whole population of Richmond.”

“As a safety-net hospital we are headed into a very, very serious set of storms that are not totally predictable but you can see them out into the future being difficult periods,” said VCU President Michael Rao.

Goodwin’s reaction: Those are short-term problems. He is looking at a 50-year time horizon.

While the financial environment for the health care industry undoubtedly is cloudy, Bon Secours and VCU are staggeringly profitable. At least they were in 2013, according to data reported to Virginia Health Information; it is possible that the Obamacare roll-out and other factors have impacted profits negatively since then. Here is the data:

Note: The Bon Secours data is a composite of the four Bon Secours hospitals in the Richmond region; it is not clear from the VHI profiles if Bon Secours Richmond regional administrative overhead is included. Also note: The definition of "operating income" is profit before interest and taxes.

Note: The Bon Secours data is a composite of the four Bon Secours hospitals in the Richmond region; it is not clear from the VHI profiles if Bon Secours Richmond regional administrative overhead is included. Also note: The definition of “operating income” is profit before interest and taxes.

For all the benefits it would offer the community, a new children’s hospital would create problems for VCU and Bon Secours, which would stand to lose tens of millions, perhaps hundreds of millions, of dollars of pediatric business, saddling them with tremendous stranded costs in existing facilities, staff and equipment. The problem would be all the more acute for VCU, which is building a $168 million Children’s Pavilion on Broad Street to consolidate pediatrics services across the downtown campus.

But questions arise about the responsibility that these two not-for-profit enterprises have toward the public good. One could argue that the primary responsibility of VCU and Bon Secours should be to the health of the community, not their highly profitable bottom lines. If a consolidated, state-of-the-art childrens’ facility would provide superior health care to the region’s young people, the VCU and Bon Secours boards of directors have some serious soul searching to do.