Category Archives: 2013

Six Reasons to Feel Good about 2014

2014 -- woo hoo!

2014 — woo hoo!

by James A. Bacon

Despite awakening this morning with a hangover resulting from a fabulous New Year’s celebration last night, I was curiously and uncharacteristically upbeat about the year ahead. I still have grave reservations about the fiscal future of this country and I still believe Boomergeddon is in our future. But for some odd reason, I have been dwelling today upon the positive.

Internet of Things. The next wave of technology innovation, the contours of which are just now coming into view, will be as breathtaking and transformative as the World Wide Web and the wireless revolution and, in fact, represents the extension of those technologies into new domains. It goes by many names but the one that seems to be catching on is the Internet of Things (IoT). Prices are plummeting for sensors, wireless connectivity, data storage and data processing power, with the result that virtually all man-made things will be capable of being connected over the Internet, will be capable of sensing their environment and communicating with other things, and will generate massive amounts of data that can be mined for tremendous gains in productivity and energy efficiency. In so doing, the IoT will spawn a new array of cool products and services. As a bonus, the new wave of innovation will not be as focused on Silicon Valley as previous technology revolutions. The innovation will be more dispersed geographically and the resulting wealth creation will be more broadly shared.

Energy revolution. Say good-bye to Peak Oil, at least for two or three more decades. The fracking revolution has unleashed a bounty of fossil fuel production in the United States that seemed unimaginable only five or 10 years ago. Energy production is booming and the long-sought dream of North American energy independence is fast becoming a reality. The energy sector is spawning millions of jobs, directly in energy production and indirectly in industries that supply the trucks, the pumps, the pipe and, increasingly, the IT that supports energy production.

Manufacturing revival. The Internet of Things, also known as the “industrial internet,” will inspire another wave of productivity-enhancing innovation in the manufacturing sector, while inexpensive natural gas and electricity will create a tremendous competitive advantage for energy-intensive, U.S.-based manufacturers. These tectonic shifts in competitive advantage are occurring at the very same time that rising labor costs overseas are undermining the logic for off-shoring manufacturing capacity. In fact, the “reshoring” movement is gaining momentum. The revival of energy production and manufacturing augurs well for the blue-collar workforce and creates the prospect of increasing jobs and rising wages for a segment of America that has been badly battered over the past 20 or 30 years.

Illegal immigration. The effects of the energy revolution and reshoring movement will be felt even more dramatically in Mexico, which is undergoing the most profound economic liberalization in its history. The combination of a falling birthrate, shrinking labor surplus and unprecedented opportunity for Mexican workers will dry up the largest source of illegal immigration into the United States. Declining illegal immigration is good news for multiple reasons. First, it defuses a contentious social issue and it clears the way for immigration reform that will allow the admission of more legal immigrants, especially those with education and skills that will benefit the economy. Second, plugging the gusher of poor, ill-educated immigrants into the U.S. will mean less competition for low-paying jobs. Wages for unskilled and semi-skilled labor are far more likely to rise, creating better opportunity for the economically dispossessed.

Global warming. How else can I say this? The Global Warming  hysterics have been proven wrong. While true believers still cling to their conviction that runaway human-caused global warming will propel temperatures ever higher and unleash wave upon wave of environmental calamity, it is becoming obvious to everybody else that the worst-case scenario is not happening and will not happen. While carbon dioxide emissions may push temperatures modestly higher than they otherwise would have been, global temperatures have been stable for a decade and a half, confounding computer-model predictions that positive feedbacks in the climate system would lead to out-of-control warming. The most heartening story of the past month has been that of the scientists studying Global Warming getting trapped by Antarctic ice that was supposed to be melting! To explain the non-warming, climatologists have speculated that aerosols from Chinese air pollution are reflecting sunlight and heat or that the heat is hidden undetected in the ocean depths. Either way, the theory must be revised, the science is not “settled” and it is becoming impossible to bamboozle the American people into panicking over impending environmental doom. If calamity is not lurking around the corner, there is no justification for re-engineering the U.S. economy according to the specifications of know-it-all progressives…. which is very good news for the U.S. economy.

Teen pregnancies. There are positive social developments as well. Teen pregnancies, perhaps the primary cause of poverty in the United States, continue their dramatic decline. Teen girls are delaying sexual activity, and they are more likely to use birth control when they do have sex. Delaying motherhood increases the odds that young women will graduate from high school and find jobs that will lift them out of poverty. And it reduces the number of children growing up in households headed by baby mamas who are ill equipped to raise them. If the reservoir of U.S. poverty is not continually replenished through teen births and illegal immigration, eventually, it will become far less intractable. 

I could go on. The genomic revolution portends great advances in health care. Medicine will be increasingly personalized, tailoring treatments to the patient’s genetic make-up. The urban revival is bringing vitality back to the urban core of American metropolitan regions. So many cool things are happening. Just speaking from my narrow personal experience here in the Richmond region, the City of Richmond has much more to offer than it did when I came here 25 years ago — it’s a great place to live. New technology, including online learning, offers the prospect of shaking up our moribund educational system. The coupling of digital technologies or “smart cities” with smart growth and the emerging discipline of fiscal analytics (see “Fiscal Analytics and the Next Municipal Revolution”) portends a golden age for local government.

True, the federal government remains unreformed. The national debt has surpassed $17 trillion and interest payments on that debt will, at some point, become unbearable. The sequester has bought us time, but no one is talking seriously about entitlement reform. Indeed, Obamacare represents a spectacular step backwards — locking Americans into greater dependence for health care upon a fiscally irresponsible federal government that has no chance of keeping all of its promises. Meanwhile, unchastened by their failures, liberals and progressives remain as intent as ever to impose their fevered visions upon a reluctant nation. So, yes, there are many reasons to be pessimistic. But the United States is a great nation. There is much vitality within us. Many things are going our way. We will persevere.

A Stupid Tax Break Gets Even Stupider

Peeling back the stinky onion of the tax code: Enough to make you cry.

Peeling back the stinky onion of the tax code: Enough to make you cry.

A portion of the federal commuter tax benefit will expire January 1, which upsets a number of people on the grounds that the change hoses transit riders and benefits drivers. As someone who qualifies for no benefit at all because I work at home, my reaction to the partial wind-down of this special-interest benefit is, “Stop your blubbering. Get over it.” But there are multiple layers of stupidity at work here, which goes a long way to explaining in microcosm why country is such a mess, so the story warrants some elaboration.

The first layer of stupidity is the existence of a commuter tax benefit of any kind. With the federal government still running an annual budget deficit of “only” half a trillion dollars, Congress needs to stop handing out tax incentives like trick-or-treat candy. The tax break allows employees to devote up to $245 per month of their pre-tax income to commuting costs, including transit passes, van pool expenses and parking, and up to $20 per month for bicycles. The tax expenditure, by my back-of-the-envelope calculation, could cost a couple billion dollars a year in tax revenue.

Peeling back the onion of stupidity, another issue arises. If Congress’ intent is to help the working stiff by reducing the tax burden, there is an obvious alternative — lower overall tax rates. Why the compunction to subsidize commuting? The measure does not benefit all Americans, just those who rack up big commuting expenses. Conversely, it discriminates against workers who engage in the socially beneficial alternatives of walking to work or working at home. 

Delving deeper into the stinky onion of tax policy, we encounter the matter that has inflamed the environmentalists.  A quirk in the latest iteration of the benefit, courtesy of that legislative train wreck known as the 2009 federal stimulus package, expires the tax benefit for transit riders at the end of every year. This year, it seems that Congress never got around to renewing the subsidy, so the benefit for transit rider drops to a mere $130 a month. Meanwhile, the tax break for parking inches up $5 to to $250 per month.

Why should drivers get a $250 parking subsidy while transit riders eke by with a break only half as large? The discrepancy encourages people to drive to work rather than ride the bus or train, hardly the way to advance the goals of reducing congestion, gasoline consumption, pollution and CO2 emissions. I don’t always agree with the environmentalists, but this time they’ve got a point.

The obvious solution is to eliminate the tax break entirely. Congress has no business privileging cars over buses, or vice versa. In one stroke, the nation could take a step toward both fiscal and environmental sustainability.

– JAB

Expand Free Clinics, Not Medicaid

Meadowview Health Clinic

Meadowview Health Clinic

by James A. Bacon

So, what’s the alternative to expanding Virginia’s Medicaid program? Let an estimated 400,000 Virginians continue without health insurance? That option was workable in the past because the federal government gave financial aid to hospitals to help offset some of the cost of providing health care to indigent patients. But the Affordable Care Act (Obamacare) is cutting that aid on the grounds that, between Medicaid expansion and the new health exchanges, most people will have health insurance now. Thus, a decision by the General Assembly to reject Medicaid expansion would force Virginia hospitals either to stop treating uninsured patients or to eat tens of millions of dollars in unpaid bills (some $100 million just for the University of Virginia and Virginia Commonwealth University health centers) every year. 

Del. Bob Marshall, R-Manassas, has proposed strengthening the non-governmental safety net instead. His idea is far from a complete solution — it can’t possibly make up the loss of hundreds of millions of dollars in federal Medicaid payments. But the proposal would put into place an important piece of a broader, market-based health system.

Marshall’s alternative to expanding Medicaid is to expand the network of free health clinics across Virginia by encouraging physicians and nurses to donate more of their time. His House Bill 39, co-patroned by Del. Patrick Hope, D-Arlington, would exempt voluntary health providers from civil damages for any injury or death resulting from volunteer treatment (excepting in cases of gross negligence or willful misconduct), and would have the Attorney General’s office represent volunteers if such immunity were challenged.

Marshall envisions churches, neighborhood groups and hospitals setting up neighborhood primary care centers staffed with volunteer labor. As it stands, Virginia already self-insures 3,400 physicians for care they provide in free clinics. No lawsuits are pending against free clinic care.

One could argue that free clinics staffed by volunteer labor cannot possibly provide the scope of coverage of an expanded Medicaid program. But, as Marshall observed in a recent Times-Dispatch op-ed, Medicaid has significant problems of its own. Medicaid pays less than Medicare or private insurance, and there are concerns that many Medicaid patients will have difficulty finding a doctor. Indeed, the reimbursement for Medicaid services is so low and the paperwork cost of complying with the program is so high that some doctors may conclude that it’s preferable to treat the indigent in free clinics.

Marshall’s idea would strengthen the primary care network for the indigent but it is not a comprehensive solution. There is no guarantee that doctors and nurses will volunteer in sufficient numbers to provide care to 400,000 patients — even assuming the free clinics had the capacity to handle such a number. And his bill would not cover the cost of providing tests, medication and procedures best performed in a surgical facility, much less a procedure requiring intensive care.

HB 39 is best seen as a small part of a larger package of state- and federal-level, market-based reforms that decouple health insurance from employment, create price and quality transparency, spur innovative treatment models and promote hospital competition and productivity.

The McDonnell Track Record: Incremental Improvement

So long, farewell, adios, au revoir, auf wiedersehen, shalom.

So long, farewell, adios, au revoir, auf wiedersehen, shalom.

by James A. Bacon

Governor Bob McDonnell’s four-year term in office is drawing to a close. Sadly, it appears that the governor will be remembered mainly for his atrocious judgment in accepting more than $150,000 in gifts and loans from a Richmond businessman. While the Giftgate scandal deservedly dominated the headlines in his last year or more in office, it obscured the many accomplishments, mostly positive, of his administration.

I’ll let others re-hash Giftgate, if they are so inclined. I’ll focus instead on McDonnell’s legislative and administrative track record. With one very big exception — restructuring taxes to raise more money for transportation and pushing mega-projects of dubious merit — he did well. Perhaps his most unsung achievement, despite his reputation as a cultural conservative, was governing as a pragmatist. While there was no ducking the culture wars entirely during his tenure, he downplayed them.

McDonnell focused on pocketbook issues. He kept a tight lid on General Fund spending. He reduced unfunded liabilities $9 billion by restructuring state pensions from a defined-defined benefit program to a hybrid, defined-contribution program. He enacted sweeping reforms of the K-12 educational system. He did more to restore the civil rights of felons than any governor in state history, and his policies drove down the recidivism rate to the second lowest in the country. He invested heavily in environmental clean-up. Finally, he demanded significant reforms to the state Medicaid program before approving expansion of that program under the Affordable Care Act.

For whatever reason, most of these accomplishments garnered little attention. Virginia’s truncated press corps and shrunken editorial hole simply doesn’t allow for the kind of journalistic coverage the issues warrant.

I won’t dwell on the abominable transportation-funding package, which shredded any vestige of the user-pays principle in order to transfer wealth to drivers from non-drivers. And I’ll omit any commentary about the Charlottesville Bypass and the Bi-County Parkway, ill-conceived projects by any measure, and the U.S. 460 connector, a speculative economic development project coupled with Hampton Roads port expansion. Regular readers know that I am no fan of McDonnell’s transportation policy.

Upon entering office in 2010, McDonnell inherited a horrendous budgetary dilemma from his predecessor Tim Kaine. Rather than increase taxes, as Kaine had proposed, McDonnell reined in spending and resorted to a series of budgetary gimmicks — short-changing VRS contributions, accelerating tax collections on retailers — that he has mostly wound down. Since then, he has done a reasonable job of allocating resources within tight General Fund budgetary constraints. He had critics on the left who charge that he has not spent enough on education, mental health, Medicaid expansion, whatever. But those voices will never be satisfied. For the most part, he stood on the side of the taxpayers.

McDonnell has done a commendable job on the environmental front, investing $430 million in water-treatment and combined-sewer-overflow projects and reducing pollution runoff from agricultural and urban areas. Water quality in the Chesapeake Bay, still lamentably bad, turned the corner; oyster and blue crab populations rebounded. The Old Dominion posted a record number of clean air days in 2013. Under McDonnell, Virginia was the first state in the country to convert its vehicle fleet from gasoline to natural gas. And here’s a story you probably never heard: Virginia re-established its native elk herd population in Buchanan County; the goal is to reach 400 animals.

The governor’s most unheralded reforms came in education. Virginia increased the percentage of educational money going into the classroom from 61% to 64% of budgeted resources. The state doubled the number of K-12 STEM academies, enacted scholarship tax credits to facilitate school choice for poor families, established a transparent A-F grading system for schools and set up a failing-school takeover program. McDonnell also effectively eliminated teacher tenure and streamlined the grievance procedure.

The administration did a competent, if not inspired, job on the economic front. Despite sequestration and a slowdown of the federal-spending growth engine, Virginia added 193,000 net new jobs and unemployment fell 1.8 percentage points to 5.6% over his four years in office. Although McDonnell made job-creation a clear priority, he was satisfied to work largely within the antiquated institutional framework — agriculture, tourism, corporate recruitment, overseas trade missions — that has been in place for decades. He did push long-term reforms in workforce preparation, steering funding to programs in the Science, Technology, Engineering and Math (STEM) disciplines. And, using innovative public-private partnerships, he allocated billions of dollars to relieving transportation bottlenecks for Virginia’s ports in Hampton Roads. Less successfully, he tried to open up transportation access to the air cargo sector at Washington Dulles International Airport. McDonnell did very little to support smart growth; indeed, the administration back-pedaled on reforms implemented by the Kaine administration.

All in all, McDonnell will be remembered for his tweaks to existing priorities and institutions. One big reform — setting up the Office of Transportation Public Private Partnerships — likely will lead to innovative financing arrangements for all manner of projects, from toll roads to air rights over rail lines and interstates, from privatizing operation of the state’s traffic management centers to leasing out public right-of-way to cell-phone towers. Otherwise, the record has been one of cautious, incremental reform. In the final analysis, McDonnell will leave the state somewhat better than he found it but he did little to increase its long-term competitiveness as a place to live and do business.

How the Scandal Started

schneiderThere is a fascinating tidbit in the Washington Post article today about Todd Schneider, former executive chef at the Governor’s Mansion, that has gone largely unremarked upon. It may have been reported before, but I had not taken note of it, and I don’t believe anyone else has either. Before I explain, let me ask a question: How did the Giftgate controversy get started? Do you recall reading that anywhere?

Here’s the story: Schneider ran a catering business on the side, but state rules prohibited payment to him for work he performed on big mansion events in his capacity as caterer. He was told to take food from the mansion as reimbursement. In February 2012, law enforcement agents showed up at his door. They were investigating a tip to a state fraud hotline that reported Schneider had been taking food from the mansion. Schneider has been told that the tip came from a former employee of his catering business.

Think what that employee set into motion. Schneider came under investigation and then was fired. At some point, he began dishing dirt on the relationship between the McDonnells and Jonnie Williams. And the scandal mushroomed from there.

Somewhere out there is an unknown catering employee who made that hot-line call, having absolutely no idea it would balloon into one of the biggest political scandals in Virginia history. I can’t help wonder who that person is and what he or she thinks his or her role in transforming the political culture of the Old Dominion.

– JAB

Fiscal Analytics and the Next Municipal Revolution

sharp_pencilby James A. Bacon

It is the best of times for local government, it is the worst of times. It is the worst in the sense that local governments across America are experiencing unrelieved fiscal stress from pension obligations, mounting infrastructure backlogs and lagging revenues. Yet it is the best in the sense that rarely have local governments enjoyed so many opportunities to bolster productivity, lower costs and improve the quality of services. Indeed, American regions potentially stand on the brink of a golden age.

Of all the new strategies available to municipalities, from applying online learning to deploying smart-city technologies, none hold as much potential as the emerging discipline of fiscal analytics. In an article published this month in The Western Planner journal, I endeavor to build upon the pioneering work of Joe Minicozzi, Peter Katz and Charles Marohn, all of whose work I have highlighted on this blog, to advance the cause. My major contribution to the discussion, I think, is to identify property tax valuations as the “bottom line” for fiscal analysis.

Government investment in infrastructure and amenities creates tangible economic value that can be measured in the form of rising real estate property assessments. That’s common sense. What’s not so intuitive is the idea that not all government investment is created equal. Politicians blather about “investing” in education, infrastructure or various pet projects. But elected officials do so without the discipline of their private-sector counterparts who measure profit, calculate Return on Investment (ROI) and steer capital to investments offering the highest ROI.

Building a highway interchange or mass-transit rail station, to pick but two incontestable examples, create economic value, as measured by the increase in property values around the public improvement. Conversely, some government investment destroys economic wealth. Charles Marohn with the Strong Towns group, makes the case that “stroads” – a multi-laned street-road hybrid designed to move large volumes of traffic – are expensive to build and maintain, drive away pedestrians and bicyclists and depress adjacent property values. It seems that people don’t like living or doing business on wide, unwalkable transportation arteries. Spending local money to undermine the tax base, he argues, amounts to fiscal hari kari.

Clearly, government investments vary greatly in the degree to which they create wealth or destroy it. As a guiding principle, local governing bodies should strive to invest in infrastructure projects that create the most wealth over time. At present, however, few municipalities possess the analytical tools to make informed and rational investment decisions. Developing such tools, I submit, is the great challenge of municipal finance.

I would start the conversation this way: Private enterprises have a very clear bottom line – profit, a concept that the accounting profession has honed over the centuries. Profit is meaningless to local governments, which are expected to do no more financially than balance their books. The closest thing to a municipal bottom line is the assessed value of real estate. Virtually everything that a local government does – building roads, designing streetscapes, running schools, grooming parks, patrolling streets, putting out fires, operating utilities – has a direct or indirect effect on the desirability of living and doing business in that community. The marketplace assigns higher property values to more desirable communities and lower property values to undesirable communities.

Just as it would be unthinkable for a corporate CEO not to know how profitable his company is, and whether profits are growing or shrinking, it should be unthinkable for government leaders not to know the total assessed value of property within their jurisdictional borders, and whether it is growing or shrinking. Just as it would be a dereliction of duty for a CEO not to know the profitability of various divisions and subsidiaries, it should be deemed equally negligent for government leaders not to know the total assessed value of the different districts and neighborhoods of their county, city or town. But those figures, if reported at all, are buried deep within lengthy documents.

A CEO does not control all the factors that affect his company’s profitability, which can vary depending upon economic conditions, the actions of competitors and the rise of new technologies. But there are many factors that he (or she) can control, and shareholders hold him accountable for those. Similarly, there are many factors that influence property values, some of which a governing body can influence and some of which it cannot. Elected officials should focus on those factors that they can control, and voters should hold them accountable.

Admittedly, the benefits of adopting rigorous fiscal analytics won’t be felt right away. Adopting a disciplined approach to allocating its investment capital won’t bail a locality out of a financial crisis. It won’t pull a Detroit or similar city back from the brink. But the erosion of competitiveness into Detroit-style insolvency is a decades-long process. Over the long run, local governments that discipline their spending, emphasize wealth creation and expand their tax base will prosper far more than those that don’t.

The Laughable Fiction of Travel-Demand Forecasts

U.S. VMT (in trillions) as tracked by FHWA’s Travel Volume Trends (“Actual”) and as projected by U.S. DOT’s C&P reports (by year reports are dated). Source: State Smart Transportation Initiative.

U.S. VMT (in trillions) as tracked by FHWA’s Travel Volume Trends (“Actual”) and as projected by U.S. DOT’s C&P reports (by year reports are dated). Source: State Smart Transportation Initiative.

by James A. Bacon

The Virginia Department of Transportation and regional transportation planning organizations periodically make traffic forecasts for planning purposes. The idea makes sense in the abstract — estimating future volumes of traffic is needed to determine how much, and where, we should invest in new transportation infrastructure. Unfortunately, the process is flawed. Estimates have consistently overshot the mark in recent years, feeding the sense of transportation “crisis,” justifying the construction of uneconomical projects and feeding the clamor for higher taxes.

The problem is hardly unique to Virginia. The U.S. Department of Transportation has been consistently overestimating traffic volumes for years, though rarely so egregiously as in the past  year. In its 2012 Conditions and Performance Report to Congress issued December 2012, USDOT projected that Vehicle Miles Traveled in the U.S. would reach 3.3 billion. Turns out the estimate was about 11% too high. Think about that: Eleven percent off in just one year!

The Frontier Group decided to compare past USDOT projections with real-world performance. The result was the graph shown above. Writes Eric Sunquist with the State Smart Transportation Initiative: “The rolled-up trend estimates show essentially the same slope year after year, indicating that agencies providing [Highway Performance Monitoring System] data generally have not updated their models and assumptions to account for current conditions, as if they expect the year to be 1980 forever.”

Projecting long-term traffic forecasts is bad enough. Acting upon those forecasts is foolhardy. There are just too many unknowns to take the forecasts seriously. Will the price of gasoline go up or down? Will Millennials continue to reside in urban centers, sticking to their buses and bicycles as they get older, or will they move to the ‘burbs and embrace the auto-centric lifestyle? What impact will smart-cities technology have on relieving traffic congestion? Which transportation mode will innovate faster and gain more transportation market share — cars, bicycles or mass transit? How will economic restructuring affect the distribution of jobs? Will new technologies enable more people to work at home? Will driverless cars make long-distance commuting less onerous and more popular? Will developers continue building green-field projects on the metropolitan periphery or will they shift to infill and re-development? We can guess the answers but we cannot know them. And we don’t have a clue how the trends might interact in unexpected ways.

There’s one other reason to regard predictions of infinite increases in traffic and congestion with suspicion. In personal correspondence, Barry Klein, president of the Houston Property Rights Association, invokes the work of transportation theorist Yacov Zahavi to suggest why the traffic modeling systems used in Houston are thoroughly inadequate: When congestion intensifies, people change their behavior. “Travel models,” Klein writes, “historically have not included a ‘feedback loop’ so the reactions by road users when confronted with congestion was not reflected.”

Congestion is a subjective experience and people have different levels of tolerance for it. … When individuals perceive themselves to have an intolerable congestion problem they usually find a way to resolve their problem. This phenomenon is unacknowledged by transportation planners. …

Here are three examples of how individuals in different social roles adapt their use of the road network and allow the commute time to stay under half an hour. Workers often-times relocate (not hard for renters), adjust their work hours and even change employers when traffic becomes irritating. Employers will relocate to parts of the region that are less congested or that put them close to the workforce that they desire. Retailers play a role, because of their habit of looking for under-served pockets of consumers and then set up stores in their proximity, which incidentally reduces congestion by giving consumers shorter shopping trips. 

All these factors combine to disperse traffic over the road network. They each play a role in the on-going, unplanned but never ceasing trends that mitigate congestion. 

People adapt in other ways. As traffic congestion increases, people are more likely to avail themselves of alternatives to the automobile: walking, biking, riding mass transit or working at home. Developers respond to the increased demand for convenience by building housing where more transportation options are available. Employers implement Transportation Demand Management strategies. The list goes on.

Bottom line: Long-term traffic forecasts are a fiction. Rather than spending billions of dollars expanding the transportation network in anticipation of travel demand that may or may not materialize, we should focus short-term on addressing demand that demonstrably exists right now and longer-term on achieving a better balance of land uses that generates fewer and shorter trips.

About those Henrico School Disparities, Part Deux

Average salary at Henrico County schools correlated with percentage of pupils on free or reduced lunch. (Click for more legible image.)

Average salary at Henrico County schools correlated with percentage of pupils on free or reduced lunch. (Click for more legible image.)

by James A. Bacon

In my never-ending quest to bring to you, the readers of Bacon’s Rebellion, a keener insight into the dynamics of Virginia’s educational system, I present the chart above, which shows the correlation between average teacher salaries at Henrico County schools and the percentage of children on free or reduced lunch.

Why would anyone possibly be interested in such a chart? Because there is a widespread concern about the “disparities” in resources made available to schools in Henrico’s poor East End and its affluent West End. That concern surfaced politically most recently during the debate over the meals tax but it had been bubbling for a year or more before then.

Last month I showed that staff-to-pupil ratios at Henrico County schools favored schools in poorer neighborhoods (as measured by the percentage of pupils enrolled in free/reduced lunch programs). Schools in poor neighborhoods had fewer students per teacher/staff/administrator than schools in affluent neighborhoods. That seemed strong evidence that claims of disparities were exaggerated — if anything, poor schools got more resources — but there was one significant data point missing. People argued that East End schools couldn’t hang on to more experienced teachers who used their seniority to snag jobs in schools with easier students to work with. In effect, by this line of logic, affluent schools got the better teachers — a qualitative factor that would not be captured by raw staff-to-pupil ratios. 

Accordingly, I went in search of data to address that point. Andrew Jenks, director of communications for Henrico County Public Schools, supplied me the 2013-2014 Fall Financial Verification Report, which contains average teacher salaries at each Henrico County school (on pages 18 to 21). From that data I charted teacher salaries against free lunches. (To see the data underlying the chart, click here.)

First the facts…. Average teacher salaries in Henrico vary within a fairly narrow band — $44,482 for Sandston Elementary being the lowest and $51,371 at Godwin High School being the highest.

While some “poor” schools have higher average salaries than some “rich” schools, overall, there is a correlation between average pay and poverty level. Roughly speaking, teachers at schools with the fewest poor kids have annual salaries about $2,000 higher than teacher at schools with the most poor kids — a pay differential between 4% and 5% higher.

However, those numbers do not include incentive pay. In 2010 Henrico County won a five-year, $16 million federal grant to pay bonuses to teachers and administrators at schools with among the poorest student bodies in the county. That program, open only to teachers in core subjects at eight schools, pays teachers up to $8,000 annually and administrators up to $10,000 when students show superior academic performance.

Now the interpretation… Yes, a pay gap exists, so the people who focus on “disparities” can feel partially vindicated. But how significant is that pay gap? Does a differential of 4% to 5% really make a difference in the quality of teachers? Who’s to say that teachers with more seniority do a better job? One could argue that they’re more seasoned at running a classroom. But one also could argue they’re more likely to be burned out and marking time until retirement. Who knows? I don’t think we can presume anything. We need to see the research on the impact of seniority on teaching outcomes.

Thus, the argument about disparities in Henrico County cannot yet be settled conclusively. However, my sense is that a pay differential of 4% to 5% is not such a yawning gap that it can account for starkly different educational outcomes. If you want to address disparities in educational outcomes (higher test scores, higher graduation rates), there probably are more important things to worry about.

Virginia Rates a B+ for Tax Administration

tax_appealThere is broad agreement that tax rates are an important factor influencing a state’s business climate. Less widely recognized is the importance of how taxes are administered. Apparently, there is as much variation in tax administration as there is in tax rates.

The transparency and even-handedness of tax administration is an attribute that Virginia can use to its advantage. Contrary to the Bolshevik wing of the Bacon’s Rebellion commentariat, which portrays Virginia as a bourbon-swilling, seersucker-wearing, pro-business oligarchy, the Old Dominion ranks 26th in the nation for its business tax climate, according to the Tax Foundation 2014 survey — hardly a capitalist paradise. (Such a dismal ranking may go a long way towards explaining Virginia’s equally mediocre economic performance.)

But Virginia gets a better grade for tax administration. According to the Council on State Taxation (COST), Maine and Ohio each garner an A rating for their tax appeals and procedural requirements, while five other states can claim an A-. Virginia is included among the eight states that score B+, putting it way ahead of the likes of California and Louisiana, which scraped bottom with D- scores. The rating puts the Old Dominion in the top third. Not great, but not shabby.

Among the key elements that COST looks for are an independent appeals forum, minimal bond-posting requirements during appeal, even-handed statutes of limitations, reasonable due dates for filing income tax returns, adequate time to file protests, clearly defined procedures and administrative transparency. Virginia scored well in all categories but one — the lack of an independent dispute forum. In Virginia the tax commissioner makes the final determination in administrative appeal.

It’s pretty turgid stuff — even accountants might nod off just thinking reading about it. But setting up an independent forum might bolster Virginia’s perception of even-handedness, which could offset its less-than-stellar reputation for business taxation. I wonder if anyone in the General Assembly has ever considered it.

– JAB

Virginia’s Pension Picture: Among Most Improved

most_improved

Here’s the good news: Virginia ranks among the seven “most improved” states in the union measured by the reduction of unfunded pension liabilities between 2009 and 2012, according to data published by the Institute for Truth in Accounting. Here’s the bad news: The commonwealth still has billions of dollars in unfunded pension liabilities.

Have fun compiling your own charts using the Institute’s State Data Lab. Submit the best ones to Bacon’s Rebellion. I’ll publish those that tickle my fancy.

–JAB