Category Archives: Economic development

Virginia’s Tax Code the 35th Most “Unfair”

Source: Insitute for

Source: Institute on Taxation and Economic Policy. (Click for larger image.)

On the subject of state and local taxes (see previous post), a 2015 report by the Institute on Taxation and Economic Policy says that Virginia has the 35th “most unfair” state and local tax system in the United States. By “unfair,” the Institute means regressive — poor households pay a larger share of their income in state and local taxes than do affluent households. As seen in the chart above, the lowest 20% the lowest-income families in Virginia pay 8.9% of their income, while the top 1% of richest families pay 5.1%.

Presumably, 35th most unfair is equivalent to the 16th most fair. In other words, despite the pro-business slant of Virginia’s tax code, it does not load as much of the burden on low-income citizens as the codes of other states.

I would expand the definition of what constitutes a “fair” tax code. The “fairest” tax code is that which does most to stimulate job creation. A weak labor market is the major explanation for the lack of wage growth in the United States. A tax regime that supports job creation, like that proposed by the Thomas Jefferson Institute for Public Policy, arguably would indirectly help wage growth, which would do far more to help the bottom 20% than tweaking the tax code to make it more progressive. A progressive tax code that inhibits job creation does no favors to the poor.

Update: I have re-written extensive portions of this post. In the original version, I had failed to comprehend that the 35th most “unfair” equated to 16th most “fair.” Thanks to reader “Slowlane” for pointing out the obvious. All I can say in defense of my carelessness is, “Duh!”


Job Stimulus through Tax Reform

free_lunchby James A. Bacon

It is an axiom of economics that there is no such thing as a free lunch. Like Isaac Newton’s laws of physics, the adage is universally true… most of the time. Just as Newtonian physics breaks down at the quantum level, however, the free-lunch maxim breaks down in the realm of taxes. Some taxes depress economic activity so much that replacing them with less harmful taxes stimulates economic growth and job creation while remaining revenue-neutral.

Finding the right combination of taxes is the animating force behind the four-year effort of the Thomas Jefferson Institute for Public Policy (TJI) to restructure Virginia’s tax code. Working with Chmura Economics & Analytics, President Michael Thompson introduced the idea in 2012 and has been refining the approach ever since. The Institute has just published an update.

In the past year, Thompson has been talking to groups representing business, municipal government and tax reform to identify a restructured tax system for Virginia that would be not only economically beneficial but politically palatable. The approach that emerged from the years-long process would eliminate three counterproductive business taxes — the Business Professional and Occupational License tax, the Machine & Tools tax, and the Merchants Capital tax — and replace lost revenue by expanding the sales tax to encompass currently exempt services. The health care sector would remain exempt.

Of the 23 scenarios examined, the one that produced the most positive economic benefits was “Scenario 5,” which included the reforms noted above plus eliminating the state’s bottom two personal income tax brackets (up to $5,000) and shaving the other two brackets by 9.25%. According to Chmura, the results would be:

  • 79,000 increase in private employment
  • $287 million increase in investment
  • $2.85 billion increase in real disposable income
  • $8.4 billion increase in state GDP

One important caveat: Thompson describes the economic model as a “dynamic tax/spending” model. If I correctly understand the meaning of that phrase, the model achieves revenue neutrality by including in its forecast revenues generated by the economic growth. While I prefer dynamic analysis to static analysis (basing tax policy on the assumption that changes in tax policy have no effect on real-world economic behavior), the approach does entail an extra layer of assumptions, which in turn introduces an added element of uncertainty to the analysis.

If Governor Terry McAuliffe wants to put Virginians back to work, tax policy may be the biggest lever he has at his disposal. He needs to give the idea serious consideration.

The Case for a Regional Approach to Economic Development

warehouseby James A. Bacon

The economies of 17 Virginia localities and one North Carolina locality in the Hampton Roads region are more inter-related than they were 10 years ago. Almost two-thirds (more than 65%) of all workers in the metropolitan statistical area commute to jobs outside the jurisdiction where they live — up from less than 60% in 2005, according to a new report, “Our Jobs Are Also Your Jobs,” published by the Hampton Roads Economic Development Alliance.

That fact has profound implications for economic development strategy, argue the report’s authors James V. Koch and Vinod Agarwal with Old Dominion University. Political leaders of Hampton Roads jurisdictions act as if “the only really good economic development project is the one that is located squarely inside their own city our county,” they write. What that assumption overlooks, however, is the extent to which the economic impact — and benefits — are diffused throughout the metropolitan economy.

Koch and Agarwal gave the hypothetical example of a new warehouse facility built in Suffolk to serve the growing cargo business flowing through the ports in Norfolk and Portsmouth. Suppose that warehouse employs 250 people averaging $50,000 annual pay (including managerial salaries but not including fringe benefits). Here is how they predict those jobs, income and sales tax revenues would be distributed geographically.


In this example, while Suffolk would enjoy the biggest impact, the benefits would be broadly distributed through the region. Suffolk residents would reap about one-third the jobs, income and sales tax revenues. Yet, to pick a different locality, the project also would create 20 jobs for Virginia Beach residents and generate $40,000 a year in additional sales tax revenues.

Moreover, the Suffolk warehouse would spend money on products and services from area businesses, which also would be distributed geographically.

“When more than 65 percent of individuals cross city and county lines to travel to their place of employment, it is inevitable that economic benefits will be widely diffused,” write Koch and Agarwal. “The moral to the story is that regional cooperation and regional economic development efforts make sense. … Parochial approaches to economic development are not likely to achieve great success — if success is interpreted to mean capturing the economic benefits that are generated by a new or expanded business. … The economic success of one city or county soon becomes another’s.”

Bacon’s bottom line: What applies to Hampton Roads applies to every other metropolitan region in Virginia. Nowhere in Virginia do political boundaries coincide with economic boundaries. From a regional perspective, economic development is best pursued as a regional enterprise.

Koch and Agarwal highlight an important insight, although they do overlook a critical facet of economic development that will not change without a dramatic re-write of Virginia’s tax code: The locality where a new warehouse, manufacturing plant or corporate facility locates captures 100% of the property tax revenue. Because property tax is the largest single source of local revenue in Virginia, local governments are highly motivated to see to it that a particular project lands within their boundaries. Unless subsidies are offered to attract the investment, such facilities are a big winner for the locality in question because business operations require little in the way of public services. Indeed, the fact that 2/3 of a company’s employees are located outside the jurisdiction means the locality in question is saddled with the cost of providing educational and other government services to only 1/3 of the workforce. Thus, ironically, the more economically interdependent the localities of a region are, the more local governments are incentivized to capture the tax benefits of bagging a corporate investment.

The only way to change that dynamic is to change the tax code to allow for (or require) the regional sharing of revenue from commercial and industrial property. And that will never happen because any change would create winners and losers, and the losers would fight like hell to thwart it.

But the Koch-Agarwal paper does make a sound argument for supporting regional economic development organizations like the Hampton Roads Economic Development Alliance. Fortunately, most Virginians get it, and a regional approach to economic development predominates in the Old Dominion.

An Intractable Dilemma


When Dominion shuts down the Yorktown Power Station, Virginia’s Peninsula will need another source of electric power. Dominion says a 500 kV transmission line over the historic James River is the best option. Conservationists disagree.

by James A. Bacon

Communities in the historic Virginia Peninsula face a devil’s alternative: Immediately accept a high-voltage transmission line that foes say could mar views of a historic stretch of the James River or face the prospect of rolling blackouts that Dominion Virginia Power says could disrupt the economy for 500,000 people.

The State Corporation Commission (SCC) and the PJM Interconnection regional transmission organization have given the go-ahead to build the 500 kV Surry-Skiffes Creek transmission line to balance electricity lost when Dominion Virginia Power shuts down two antiquated coal-fired units at the Yorktown Power Station. But many residents in and around the history-rich region are up in arms, and Dominion cannot begin construction on the line until it obtains necessary switching-station zoning approval from James City County and a nod from the U.S. Army Corps of Engineers.

If a decision isn’t made immediately, contends Dominion, the power company will be unable to complete construction of the transmission line before it shuts down the Yorktown power plants in April 2017 at the latest.

At that point, reliance upon four existing 230 kV transmission lines will put the electric grid only one or two “contingencies” — unplanned transmission-line outages — away from a meltdown that could send uncontrolled blackouts cascading to the Richmond region and beyond. Rather than risk such a catastrophe, federal regulations would require Dominion to take customers offline on a rotating basis. Depending upon weather conditions and other events, the Virginia Peninsula will be at risk of rolling blackouts 50 to 80 times a year.

“If there’s a one in million chance of a breakdown, PJM tells us to shed load,” says Kevin Curtis, Dominion’s director of transmission planning, referring to the regional transmission organization that would issue the command to pull the trigger. If Dominion failed to follow through, it could face fines of $1 million per day for violating North American Electric Reliability Corporation standards.

But foes of the transmission line are still fighting back. In early August, the James City County Planning Commission recommended denial of a rezoning request that would allow Dominion to construct a sub-station critical to the project. Meanwhile, the USACE says,  “Due to the many variables yet to be addressed, we are unable to provide a discrete timeline” for when it might decide whether or not the project requires a full-fledged Environmental Impact Statement, which could delay it yet another year.

Margaret Nelson Fowler, founding member of the Save the James Alliance, isn’t buying Dominion’s warning of rolling blackouts. Dominion is making a business decision to shut down the Yorktown power plant, she says. Dominion can continue operating the coal-fired units in a non-compliant status. It will have to pay fines, but fines are Dominion’s problem, not the community’s, she says. “We’ve been told by people who know that blackouts would never be permitted. … This is all scare tactics.”

Surry-Skiffes Creek is perhaps the most controversial of some three dozen transmission line projects that Virginia’s major power companies are planning or implementing as they undertake a sweeping re-engineering of Virginia’s electric grid. Under heavy regulatory pressure, power companies are shifting from coal-fired generating plants to gas, wind and solar energy sources; transmission lines must be built or upgraded to accommodate the re-routed flow of electricity. Dominion lists 27 Virginia projects at some stage of approval or construction; Appalachian Power lists seven approved and pending projects.

The problem is that no one likes looking at power lines, and proposals often encounter local resistance. The Surry-Skiffes Creek proposal arises from a set of circumstances that is particularly complex and intractable. The engineering logic that dictates building a 500 kV Economic transmission line across the James River is persuasive. But so are objections by conservationists and property owners, who say Dominion’s cost-benefit analysis fails to take important non-monetary values into account. The result is institutional gridlock as the proposal works its way through federal, state and local oversight. In this case, the economic consequences of a failure to reach a timely resolution could be highly debilitating to the Peninsula economy. Continue reading

Virginia Migration Patterns

Sources of emigration to the Washington metropolitan area.

Sources of emigration to the Washington metropolitan area.

by James A. Bacon

The U.S. Census Bureau has released inter-metropolitan migration data based on its 2009-2013 American Community Survey, and Luke Juday at the Stat Chat blog has created a tool allowing people to visualize the origins and destinations of people coming and leaving each metropolitan area. The results for Virginia’s metros, though hardly surprising, are nonetheless intriguing. Showing the linkages between metros, I would suggest, shows how inter-connected they are by ties of family, friends, education and business.

The Washington metropolitan linkages are, strongest by far with the major cities of the Northeastern megalopolis, particularly Baltimore, New York, Philadelphia and Boston, but the region does have fairly strong ties to Virginia, including Richmond, Hampton Roads, Blacksburg and Charlottesville as well. Washington’s ties to states south of Virginia are tenuous. Only Atlanta registers as an important node for back and forth movement.

The net immigration, not shown in the maps but displayed in the table below, also is revealing. New York, Boston and Phillie send far more people to Washington than they receive in return. But Washington exports people to Virginia — Richmond at the top of the list, followed by Blacksburg and Charlottesville. One suspects there is a strong university connection with Blacksburg and Charlottesville. The steady leakage of people from Washington to Richmond is an interesting phenomenon worth digging into.


The Richmond story is marked by strong linkages with the other metros in Virginia. While its total migration numbers are smaller than those of Washington, a metropolitan region five times its size, they are larger as a percentage of the population. The situation is reversed for movement between Richmond and New York, Chicago, Atlanta and Philadelphia; there is less movement than between Washington and those metros, even on a population-adjusted basis.

Sources of immigration to Richmond

Sources of immigration to Richmond

Richmond is a net exporter of population to Blacksburg and Harrisonburg, college towns, and a large importer from Washington, Norfolk and New York.

The one big surprise in this data: There was far less movement between Richmond and North Carolina metros than I expected. In my personal experience, Richmond is full of Tarheels (including my wife). I guess that anecdotal information doesn’t count for much.


I did not have time to develop comparable profiles for other Virginia metros, but if readers are inclined to do so, I would be happy to publish their analysis.

Virginia’s Maritime Future Is Now

The Northern Javelin, one of the new-generation container ships visiting the ports of Virginia. Photo credit: Virginia Business.

The Northern Javelin, one of the new-generation container ships visiting the ports of Virginia. Photo credit: Virginia Business.

by James A. Bacon

Virginia’s maritime industry has long anticipated the arrival of the new giant, post-Panamax ships, and now they’re here — a couple of years before they were anticipated, and well before the completion of the Panama Canal expansion that is expected to release the floodgates. As the East Coast port with the deepest channels, Hampton Roads is attracting more than its share. The leviathans pose special logistical problems but the maritime industry is working through them. Virginia Business has the story here.

As author Jessica Sabbath writes, the world’s largest ships can carry twice the number of containers that the big ships of 10 years ago could. These bad boys represent almost 60% of the shipping world’s total cargo capacity. Any port with growth ambitions will have to accommodate them.

The Ports of Virginia planned for the arrival of the big ships by digging 50-foot channels, the deepest on the East Coast, and erecting modern cranes that can reach across the wide-girthed vessels. But by virtue of their enormous size, the post-Panamax ships require more precision in their handling and scheduling. If Virginia’s ports can climb the learning curve faster than other ports, they can create an important competitive advantage even as rivals seek to deepen their own shipping channels.

The big ships must move more slowly to avoid damaging wake. They require especially high-powered tugboats to maneuver in tight quarters. Because the big ships take longer to unload, longshoremen work longer shifts. Even with longer shifts, the maritime industry has added more than 200 longshoremen to handle the increased cargo volume — which increased 8.8 percent to a record 2.5 million TEUs (equivalent to 5 million containers) in Fiscal Year 2015.

The movement of these giants through the ports and their containers through the supply chain creates issues of vessel bunching and equipment imbalance. Shippers often scramble to find available motor carriers. When bunching occurs — it can take more than 24 hours to transfer a container from the ship to a Norfolk Southern railroad train — shippers and motor carriers experience larger demurrage fees. These are the kinds of problems would expect anywhere in similar circumstances, and they take time to sort out. If the maritime community does so successfully, Hampton Roads could well enjoy years of growth and job creation.

Interestingly, one issue that Sabbath did not mention: roads. The McDonnell administration had feared that clogged roads would make it more difficult to ship containers out of Norfolk and Portsmouth. Adding capacity to the Midtown and Downtown tunnels should alleviate localized congestion. But plans for upgrading the U.S. 460 highway connection between Suffolk and Petersburg were sharply curtailed after a funding debacle. Norfolk Southern is accommodating some of the surge in freight traffic with its double-stacked trains destined for Midwest markets. Judging by the article’s silence on the subject, highway congestion has not yet emerged as a bottleneck for the maritime industry’s growth. But if freight traffic continues growing at last year’s pace, congestion could become an issue.

Student Debt and the Decline of New Business Formation

by James A. Bacon

Many are the ways in which burgeoning student debt — $1.2 trillion and rising — cripple the economy. On this blog we’ve discussed how debt delays family formation, housing purchases and consumer spending. Recent research from the Philadelphia Federal Reserve Board also suggests that student debt dampens new business formation, an insight that ties into another line of inquiry on this blog: understanding the slow rate of job creation in the current economic cycle.

The engine of job creation in the U.S. economy is new business formation. The spawning of new businesses has experienced a long-term decline since 1978, but that decline has been particularly pronounced since 2005. In recent years more firms have exited the marketplace than have entered it, as seen in this Brookings Institution graph below, taken from “Declining Business Dynamism in the United States: A Look at States and Metros,” published in 2014. The numbers may have improved in the past two  years, but probably not enough to change the long-term picture.


I have argued on this blog that the massive wave of regulation enacted in the past six years has dampened the economic recovery by imposing large new costs on businesses. As the regulatory burden has increased, economies of scale have shifted in favor of larger firms which have the resources to deal with the regulations. Numerous industry sectors are consolidating: banking, hospitals and health insurance most visibly. Industry consolidation may be a factor in explaining the decline in overall net business formation but it only goes so far.

The Brookings data shows that the problem isn’t an accelerating death rate of businesses — the exit rate of firms from the economy has remained fairly stable since 1978 — it’s the dearth of business births. I would suggest that regulation has dampened new business formation by creating barriers to entry in many industries.

While I still hew to that view, I think there’s more to the story. There also is strong evidence that the surge in student debt — $1.2 trillion and rising — has depressed new business creation among young people.

Image source: Federal Reserve Bank of Philadephia

Image source: Federal Reserve Bank of Philadephia. (Click for larger image.)

The authors of the recently published Federal Reserve Bank of Philadelphia paper, “The Impact of Student Loan Debt on Small Business Formation,” has found a “significant and economically meaningful” negative correlation between geographic variation in student loan debt and net business formation for small firms of one to four employees. “Based on our model, an increase of one standard deviation in student debt reduced the number of businesses with one to four employees by 14% on average between 2000 and 2010.” (Please don’t ask me to define “standard deviation.” Here’s an an explanation.)

Image source: Federal Reserve Bank of Philadelphia. (Click for larger image.)

Image source: Federal Reserve Bank of Philadelphia. (Click for larger image.)

To launch a business, especially a small business, individuals need access to capital, the authors argue. Small businesses receive approximately 75% of this capital from banks in the form of loans, credit cards and lines of credit, which are contingent upon the borrower’s credit-worthiness. “Given the importance of an entrepreneur’s personal debt capacity in financing a startup business, personal debt that is incurred early in life and that restricts a person’s ability to take on future debt can have profound implications for growth in small businesses,” the study says.

The growth in student debt over the past decade has damaged the credit-worthiness of an entire demographic cohort: 17% of student loans are delinquent, and another 44% are not being repaid due to borrowers either still being in school or having received a repayment deferral or forbearance. Even students who are paying their debt on schedule find their credit worthiness downgraded.

As the Wall Street Journal noted in an editorial today, the Kauffman Foundation has found that new entrepreneurs ages 20 to 34 fell to 23% of self-starters in 2013, down from 35% in 1996.

The U.S. system of higher education may be creating the best educated generation in American history, but it may be the least entrepreneurial in decades.

As Virginians seek ways to reignite a state economy hobbled by the decline in federal spending and an eroding business climate, we need to give more attention to what it takes to stimulate new business formation. And that should entail taking a closer look at the link between higher ed and student debt, and the link between student debt and new business formation. All the state and federal “programs” designed to promote new business formation, I suspect, don’t amount to a hill of beans compared to the rise in student indebtedness. Tackling student indebtedness gets us into a thicket of very complex issues that aren’t easily solved but that’s no excuse for failing to focus on what really matters.

A Tax Structure Finely Tuned for… a 20th Century Economy


Virginia business tax rates. Image credit: Tax Foundation, KPMG

A new study by the Tax Foundation and KPMG of state business taxes differs from previous studies, which look at average levels of taxation, by examining how state tax structures affect different types of business. The big conclusion from “Location Matters: The State Tax Costs of Doing Business“: Firms experience dramatically different tax rates because their exposure varies to different state and local taxes.

The study’s analysis of Virginia’s tax structure suggests that established companies experience much lower overall tax burdens than new companies. The Old Dominion ranks second best in the country for mature, labor-intensive manufacturing operations but only 35th for R&D facilities.

Bacon’s bottom line: I have frequently decried the lack of entrepreneurial dynamism in Virginia as a root cause for our sluggish economic performance. There may be many reasons for Virginia’s mediocre growth record in recent years but, based upon the data shown in the chart above, one of them is certainly the structure of business taxes.

In every category analyzed, new firms experience higher effective tax rates than mature firms. Just as important, look at the comparative ratings. Virginia ranks No. 2 in the country for mature, labor-intensive manufacturing companies — neither a growth sector, nor a particularly high-paying sector — but only 35th for R&D, the kind of economic activity every state covets. If we wanted to design an economy for the 20th century, not the 21st, we’ve done a pretty good job.

(Hat tip: Larry Gross)

More Sequestration Pain for Virginia


Pentagon burning

by James A. Bacon

The pain of federal budget sequestration cuts in Virginia is not yet over. Look what The Washington Post reports today:

According to the Defense Department research, things are likely to worsen over the next four years. From 2010 to 2012, Virginia experienced $9.8 billion in defense cuts, with the vast majority of losses in Northern Virginia. Direct defense spending in the state is projected to drop from $64 billion this year to under $62 billion in 2019.

That’s only $2 billion in cuts compared to $9.8 billion previously. That sounds bad but not that bad. Actually, it is, says Sen. Mark Warner, D-Virginia: “If we have the return of sequestration, it’s going to be even worse than it was a couple of years ago, because every agency, particularly the Defense Department, has cleared out most of their coffers.”

I’m not sure exactly what “cleared out their coffers” means, but I’m guessing it means that defense agencies have burned through their budget gimmicks and are planning real cuts.

Adding to the woes, the impact of federal budget cuts will percolate through the rest of the economy. As government contractors consolidate, they’ll need less office space. That puts pressure on lease rates region-wide, there will be less construction work, and the necessary process of restructuring from inefficient and expensive land-use patterns to more cost-effective patterns will drag out. Meanwhile, transportation planning assumptions, predicated on wildly out-of-date assumptions about growth and development, will veer farther and farther from reality.

The rule is so simple: Things that can’t go on forever… won’t. The defense spending boom of the post 9/11 era could not continue forever… and it didn’t. The downturn and all the ugly consequences stemming from it were utterly foreseeable — I’ve been ranting about them for years.

I don’t lose a lot of sleep over real estate developers losing a fortune. They’re big boys and they know how to hedge their bets. (If they don’t, they shouldn’t be in the business.) I’m a lot more worried about the state and local government sinking billions of dollars on infrastructure designed for the go-go 2000s. It is astonishing to me that serious consideration is still being given to the Bi-County Parkway near Manassas, and I have serious questions about the assumptions underpinning the billions of dollars of improvements planned for Interstate 66 and the second leg of the Rail-to-Dulles project. Any project whose revenues are predicated on assumptions of increased traffic, which are based on the 2000s-era economic growth rates extended in a straight-line projection forever, will create nothing but headaches for taxpayers.

A Plethora of Pipelines

pipeline_constructionFour companies are talking about building gas pipelines through Virginia. How many are needed — and who decides?

by James A. Bacon

How many natural gas pipelines does Virginia need? A lot of people are asking that question as two projects — the Atlantic Coast Pipeline and the Mountain Valley Pipeline — are actively developing routes between the Marcellus shale gas fields to the northwest and fast-growing markets to the south. Meanwhile, the Williams Companies, owner of the giant Transco pipeline, is talking up the Appalachian Connector, and Columbia Gas Transmission says it might upgrade an existing pipeline terminating in Northern Virginia.

All told, the four projects would add a capacity of 6.8 billion cubic feet per day, or roughly 200 billion cubic feet monthly. While much, if not most, of that gas would be destined for markets outside Virginia, that’s still a tremendous amount of capacity. By way of comparison, existing pipelines deliver to Virginia between 20 billion and 60 billion billion cubic feet monthly, depending on the time of year.

The question of how much is too much has become an urgent one as landowners in the path of the proposed pipelines resist survey crews from entering their property and vow to resist acquisition of their land by eminent domain. To acquire right of way using eminent domain, they say, companies must articulate a compelling public need to the Federal Energy Regulatory Commission (FERC). While there may be a need for some new pipeline capacity, they contend, it’s hard to justify all four projects.

“We’ve got a big infrastructure build-out proposed,” says Greg Buppert, staff attorney for the Southern Environmental Law Center (SELC), who is tracking the issue. “My suspicion is that some but not all of this capacity is needed. There is even a possibility that existing infrastructure can meet the need.”

But some say the market is self-limiting. Pipeline companies won’t spend billions of dollars adding new capacity unless they get enough long-term contracts to ensure they can pay for a project. If there is insufficient demand to support all four pipeline projects, all four pipelines will not get built.

For decades, Virginia has relied mainly upon two companies, the Williams Companies and Columbia Gas, to deliver gas to the state. Williams operates the high-capacity Transco pipeline — energy journalist Housley Carr refers to it as “the gas-transportation equivalent of an eight-lane highway”– connecting the Gulf of Mexico gas fields with New York by way of Virginia and other Atlantic Coast states. Columbia Gas runs a parallel pipeline highway west of the Appalachias, which serves a multi-state distribution system that feeds into Virginia via West Virginia.

Traditionally, most gas from both pipelines has come from the Gulf of Mexico. But fracking has turned North American energy economics topsy turvy. Gas fields tapping the Marcellus and Utica shale deposits in West Virginia, western Pennsylvania and Ohio are reputed to contain as much natural gas as Saudi Arabia. Marcellus gas is abundant and cheap, and gas pipeline companies have been scrambling to develop new markets, mostly in the U.S., but also for foreign markets by means of Liquefied Natural Gas.

The explosion in supply coincides with a surge in demand, especially from electric power companies. In two major waves of regulation in recent years the Environmental Protection Agency (EPA) has mandated power companies to reduce their toxic emissions from coal-fired power plants and then, with final rules issued early August, to reduce emissions of carbon dioxide by 32% nationally. In both cases, utilities are shifting en masse from coal to natural gas. While renewable sources such as solar and wind power are expected to gain electricity market share, industry officials say they must be backed up by gas generators to take up the slack when the sun doesn’t shine and the wind doesn’t blow, so demand growth for renewables actually supports demand growth for natural gas. Meanwhile, gas companies foresee a kick in long-term demand from a growing population and economy, especially among manufacturing operations seeking to tap some of the world’s lowest cost energy and chemical feedstock.

“Virginia is in need of new natural gas transmission that can get these new reserves to the parts of Virginia that need it the most,” says Christina Nuckols, deputy communications director for Governor Terry McAuliffe. “Hampton Roads is considered an energy cul-de-sac where natural gas capacity constraint has been an issue for years.  Particular counties in central and southern Virginia also have reported on numerous occasions that they lose out on manufacturing-related economic development opportunities almost immediately because they cannot provide access to natural gas.

“With any new market opportunity, there are going to be a number of companies looking to find success,” she says. “All of these proposed pipeline projects are recognition that Virginia is in need of additional natural gas capacity and the infrastructure to provide it.  It remains to be seen which projects will get approval from the appropriate entities.”

Here are the major projects proposed for Virginia: Continue reading