Category Archives: Economic development

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.

firm_dynamism

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_burden

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

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

Virginia’s Spaceport: a Century-Long Commitment

Antares rocket blasts off at the Mid-Atlantic Regional Spaceport.

Antares rocket blasts off at the Mid-Atlantic Regional Spaceport.

by James A. Bacon

The McAuliffe administration has settled a dispute with Orbital Science Corp. over insurance of the Mid-Atlantic Regional Spaceport (MARS) at Wallops Island. Orbital, which is in the business of launching payload into orbit, will reimburse the state for one-third of the $15 million in damages incurred by the spaceport when Orbital’s rocket exploded during lift-off in October, and it will cover the cost of insuring future launches, the Richmond Times-Dispatch reports.

Reaching a settlement is critical to the future of the spaceport, to Orbital and to Virginia’s long-term economic future. The Fairfax County-based company is Virginia’s local space champion in a business where high-flying entrepreneurs from California, Texas and Florida predominate. In 2012, when the commonwealth published a strategic plan for the spaceport, Orbital was one of the top ten  largest U.S. space system and launch vehicle manufacturers, with more than $1 billion in annual revenue.

This may sound excessively Buck Rogers, but I regard the spaceport as critical infrastructure for Virginia’s long-term future. One day, the launch facility could well be the nucleus of a massive space-based industrial complex and seen as vital to the state economy as Virginia’s rail or highway system. At least it will if we can nurture it through the embryonic phase of the space industry in the face of stiff competition — MARS was only one of eight FAA-licensed commercial space launch facilities in the country in 2012.

Building a world-class space industry in Virginia will take patience.  The forecast for commercial space launches, though steady, is not exactly booming in the near term:

commercial_launch_forecasts

2012 FAA forecast for all global commercial space transportation launches, 2012 to 2021.

Right now the market is dominated by NASA and the mission of providing logistical support to the International Space Station. But space-based activity is growing. The strategic report notes the need for:

  • Fixed satellite services: high definition television, Internet connectivity and very small aperture terminal satellites (which serve homes and businesses).
  • Direct broadcasting services
  • Broadband services
  • Hosted payloads: experimental payloads, technology demonstrations, scientific missions, remote sensing, weather and climate monitoring and national security.

An important emerging market is space tourism. Longer run, we can expect to see more defense-related applications, not just satellites but weapons systems. Futurist George Friedman envisions “battle stars” in geosynchronous orbit armed with hyper-missiles to rain down  upon our enemies. The potential exists for specialized manufacturing processes using the unique properties of space such as microgravity and perfect vacuum, as well as vast solar arrays that microbeam energy to earth. A step beyond would involve mining the Moon for He-3 isotope in the lunar regolith, a likely fuel for fusion power. All of these activities will require a supporting space-based (or Moon-based) infrastructure for support. Looking even further out, it is not far-fetched to imagine commercial and religious colonies establishing themselves on the Moon to emancipate themselves from oppressive earth-bound political systems, much as 17th-century colonists sought refuge in the New World.

Earth-based spaceports will emerge as critical entrepots for all of this activity. Those that establish themselves early will enjoy a major competitive advantage by attracting corporate investment, evolving business ecosystems and building economies of scale for supporting infrastructure.

It may take another century for the full potential to emerge. But our children’s children will thank us for staying the course.

Hail to the Pickpockets!

The Artful Dodger

The Artful Dodger

by James A. Bacon

Hey, if the Washington Redskins ever yield to the forces of political correctness and change their team name, I’ve got a new suggestion — the Washington Pickpockets. The symbolism is perfect. Not only does the Redskin franchise play for a city where Congress has perfected the skill of fleecing the taxpayer, the Skins rival Charles Dickens’ Artful Dodger in their ability to relieve fans and taxpayers alike of their money.

Three years ago, the McDonnell administration and Loudoun County forked over $6 million in state and local funds to keep the headquarters of the Redskins organization in Virginia. Then the City of Richmond agreed to build a $10 million training facility and pay $500,000 a year over eight years if only the team would move its training practice to Richmond. Even at the time, the training-camp deal generated more razzing than Robert Griffin III on a bad day. Three seasons later, it turns out that the jeers for the deal (the jury’s still out regarding RGIII) were roundly deserved.

The first year of training camp was a modest success, creating a $10.5 million economic impact to the Richmond region. A daily average of 10,800 people attended the practices that year. The number over the same span last year fell to 7,500, and then to 4,500 this year.  As the Richmond Times-Dispatch wryly observed, the Richmond Squirrels AA-league baseball club has been drawing larger crowds.

Declining attendance means declining spending. Vendors have abandoned a city-sponsored food truck court. City revenue from the event is falling short, which means  the city has to dig deeper to meet its $500,000-a-year payment.

Bacon’s bottom line: Sports & entertainment promotion is not a core competency of state and local government. The City of Richmond has no business cutting deals with the likes of the Redskins. By contrast, education is a core competency (or core incompetency, depending on your perspective). Rather than spending funds on entertainment venues, Richmond should be using the money to address a maintenance/renovation backlog that, by one estimate, amounts to $620 million.

As for the Redskins, this is one quasi-fan who’s had enough. Let ’em go back to Loudoun, or Washington, D.C. for that matter. I won’t miss them one bit.

Easy Come, Easy Leave

virginia_migration

Image credit: Atlas Van Lines

Virginia has not been one of the nation’s fastest growing states but it has consistently enjoyed a healthy net in-migration from other states. In other words, for years more people have moved into Virginia than moved out.

That likely changed in 2014. According to Atlas Van Lines moving records based on nearly 77,000 interstate and cross-border household relocations, more households moved out of Virginia — 66 to be precise — than moved in last year. Now, that’s just Atlas Van Line customers, not everyone. Atlas’ sample size is so small compared to total migration and the margin of out-migration is so tiny, that it’s conceivable that Virginia actually gained population through in-migration. Of course, it’s also possible the Atlas sample was biased the other way and that the Old Dominion lost more than indicated by the numbers.

What really matters is the trend. I’ve reformatted the numbers from the table above: inmigration_trend

Declining movement between states is a national trend, usually attributed to people being locked in by the prices of their houses. Still, there are two obvious inflection points in the Virginia numbers: between 2009 and 2010, outbound migration took a jump up, and between 2011 and 2012, in-migration took a nose dive. The latter can be attributed to sequestration and federal cuts. I have no ready explanation for the former. Any ideas?

— JAB

Hospital Rankings and Economic Development

VCU Medical Center complex in downtown Richmond, a driver of the regional economy.

VCU Medical Center complex in downtown Richmond.

by James A. Bacon

U.S. News & World-Report has issued its 2015-2016 ranking of the nation’s “best hospitals,” and Virginia has four hospitals with at least one adult specialty receiving a “national” ranking. The online publishing company bills the ranking as a tool to help patients select hospitals that can best treat complex illnesses. But it also prompts questions about the role of hospitals as agents of economic development.

Hospitals are major employers and generators of economic activity in every community they serve. While some hospitals cater to local markets exclusively, some have such a reputation for excellence in certain specialty practices, from cancer to heart disease, that they draw patients from around the state, the nation or even the world. To the extent that a hospital draws patients from elsewhere, it can be said to be “exporting” services and making a contribution to local jobs and economic activity.

Thus, Massachusetts General, rated the best hospital this year, excels in everyone of the 16 specialties covered by U.S. News & World-Report and three pediatric specialties. The hospital employs 2,889 doctors, many of whom are highly compensated specialists, not to mention a host of nurses, technicians, administrators and others. Its reputation as one of the best research hospitals in the world brings in “thousands” of international patients — so many that the hospital maintains a dedicated “international patient center.” No wonder that Mass General is an anchor of the Boston regional economy.

Accepting the proposition that hospitals can be big contributors to regional economies over and above their contribution to public health, how do Virginia’s hospitals shake up? Here’s the score:

Virginia Commonwealth University Medical Center
National ranking in 3 adult specialties, one pediatric specialty
Doctors: 454

Sentara Norfolk General
National ranking in 2 adult specialties
Doctors: 694

Inova Fairfax
National ranking in 1 adult specialty, two pediatric specialties
Doctors: 1,689

University of Virginia Medical Center
National ranking in 1 adult specialty, 4 pediatric specialties
Doctors: 609

Sentara_Norfolk_General

Sentara Norfolk General Hospital

How significant are those rankings? That’s hard to say. There are nearly 5,000 hospitals across the United States. U.S. News & World-Report uses a methodology that combines metrics such as hospital volume and risk-adjusted survival rates for complex cases and supplements them with a physician survey of hospital reputations. To be awarded a “national” ranking, a hospital must score within the top 50. In other words, that puts VCU in the top 1% for three adult specialties and one pediatric specialty. The publication does not publish the numbers behind the scores, so there is no way to tell if VCU’s specialties rank No. 1 in the country or No. 50.

U.S. News and World-Report focuses on 16 adult specialties. With 50 hospitals recognized for each specialty, a total of 800 total hospital specialties are recognized. Only seven of those are located in Virginia. To put that in perspective, Virginia has 2.6% of the nation’s population, 3.3% of its GDP but only 0.9% of its nationally ranked hospital specialties.

These are very rough numbers that are undoubtedly subject to criticism. But they suggest to me that Virginia’s hospitals are an under-performing economic sector. If hospitals achieved a level of excellence commensurate with Virginia’s population and GDP, there would be far more centers of excellence in the state, along with more highly compensated doctors, nurses and technicians employed.

That’s not meant to be a put-down of Virginia’s hospitals. The ability to expertly handle highly complex medical cases does not tell us much about the ability to handle routine cases. It doesn’t tell us how much the hospitals charge for their services or whether they’re providing value for the dollar. It doesn’t mean that Virginia hospitals aren’t serving their community. What the numbers mean is that Virginia is missing out on an economic development opportunity to provide services outside the community.

What U.S. News & World-Report does not tell us, and I don’t know, is what it takes to become a national-class hospital. I suspect that it takes a long time to build a top oncology or heart program, so longevity is probably a requirement. It also helps to live in a community that can afford to pay the high salaries of top medical talent. And it probably helps to have wealthy philanthropists willing to endow new buildings, medical school professorships and R&D. Undoubtedly, there are other factors of which I am unaware. I think it would be interesting to know what the key drivers are, and whether building institutions known for their medical excellence is something that communities can influence through government policy and/or philanthropic endeavors.

Virginians still think of economic development either as big game hunting for corporate investments or venture capital-driven business creation. But economic development comes in many forms, and hospitals are one. It strikes me that this is an area that warrants more attention here in the Old Dominion.

Alpha Natural Resources: Running Wrong

Alpha miners in Southwest Virginia (Photo by Scott Elmquist)

Alpha miners in Southwest Virginia
(Photo by Scott Elmquist)

 By Peter Galuszka

Four years ago, coal titan Alpha Natural Resources, one of Virginia’s biggest political donors, was riding high.

It was spending $7.1 billion to buy Massey Energy, a renegade coal firm based in Richmond that had compiled an extraordinary record for safety and environmental violations and fines. Its management practices culminated in a huge mine blast on April 5, 2010 that killed 29 miners in West Virginia, according to three investigations.

Bristol-based Alpha, founded in 2002, had coveted Massey’s rich troves of metallurgical and steam coal as the industry was undergoing a boom phase. It would get about 1,400 Massey workers to add to its workforce of 6,600 but would have to retrain them in safety procedures through Alpha’s “Running Right” program.

Now, four years later, Alpha is in a fight for its life. Its stock – trading at a paltry 55 cents per share — has been delisted by the New York Stock Exchange. After months of layoffs, the firm is preparing for a bankruptcy filing. It is negotiating with its loan holders and senior bondholders to help restructure its debt.

Alpha is the victim of a severe downturn in the coal industry as cheap natural gas from hydraulic fracturing drilling has flooded the market and become a favorite of electric utilities. Alpha had banked on Masset’s huge reserves of met coal to sustain it, but global economic strife, especially in China, has dramatically cut demand for steel. Some claim there is a “War on Coal” in the form of tough new regulations, although others claim the real reason is that coal can’t face competition from other fuel sources.

Alpha’s big fall has big implications for Virginia in several arenas:

(1) Alpha is one of the largest political donors in the state, favoring Republicans. In recent years, it has spent $2,256,617 on GOP politicians and PACS, notably on such influential politicians and Jerry Kilgore and Tommy Norment, according to the Virginia Public Access Project. It also has spent $626,558 on Democrats.

In 2014-2015, it was the ninth largest donor in the state. Dominion was ahead among corporations, but Alpha beat out such top drawer bankrollers as Altria, Comcast and Verizon. The question now is whether a bankruptcy trustee will allow Alpha to continue its funding efforts.

(2) How will Alpha handle its pension and other benefits for its workers? If it goes bankrupt, it will be in the same company as Patriot Coal which is in bankruptcy for the second time in the past several years. Patriot was spun off by Peabody, the nation’s largest coal producer, which wanted to get out of the troubled Central Appalachian market to concentrate on more profitable coalfields in Wyoming’s Powder River Basin and the Midwest.

Critics say that Patriot was a shell firm set up by Peabody so it could skip out of paying health, pension and other benefits to the retired workers it used to employ. The United Mine Workers of America has criticized a Patriot plan to pay its top five executives $6.4 million as it reorganizes its finances.

(3) Coal firms that have large surface mines, as Alpha does, may not be able to meet the financial requirements to clean up the pits as required by law. Alpha has used mountaintop removal practices in the Appalachians in which hundreds of feet of mountains are ripped apart by explosives and huge drag lines to get at coal. They also have mines in Wyoming that also involve removing millions of tons of overburden.

Like many coal firms, Alpha has used “self-bonding” practices to guarantee mine reclamation. In this, the companies use their finances as insurance that they will clean up. If not, they must post cash. Wyoming has given Alpha until Aug. 24 to prove it has $411 million for reclamation.

(4) The health problems of coalfield residents continue unabated. According to a Newsweek report, Kentucky has more cancer rates than any other state. Tobacco smoking as a lot to do with it, but so does exposure to carcinogenic compounds that are released into the environment by mountaintop removal. This also affects people living in Virginia and West Virginia. In 2014, Alpha was fined $27.5 million by federal regulators for illegal discharges of toxic materials into hundreds of streams. It also must pay $200 million to clean up the streams.

The trials of coal companies mean bad news for Virginia and its sister states whose residents living near shut-down mines will still be at risk from them. As more go bust or bankrupt, the bill for their destructive practices will have to borne by someone else.

After digging out the Appalachians for about 150 years, the coal firms have never left coalfield residents well off. Despite its coal riches, Kentucky ranks 45th in the country for wealth. King Coal could have helped alleviate that earlier, but is in a much more difficult position to do much now. Everyday folks with be the ones paying for their legacy.

Pipelines and Property Lines

Charlotte Rea. Photo credit: All Pain, No Gain

Charlotte Rea. Photo credit: All Pain, No Gain

The Atlantic Coast Pipeline wants to inspect land along a proposed 550-mile route. Legal challenges from landowners could re-write a 2004 law governing property rights in utility surveys.

by James A. Bacon

Charlotte Rea decided when she retired that she wanted to live near where she grew up near Charlottesville. She found “a little piece of heaven” in Nelson County: a 29-acre spread on the north fork of the Rockfish River. With her retirement savings, she purchased the land with the idea of keeping it undeveloped if things worked out but selling two lots if she needed the cash. “All of my money is in the land,” Rea says. “It’s my long-term care insurance.”

She never imagined that someone would want her land for industrial purposes. But her homestead, as it turns out, came to be situated on the proposed route of the Atlantic Coast Pipeline (ACP) linking the natural gas fields of West Virginia with markets in Virginia and North Carolina. The 125-foot pipeline right-of-way would cut a swath across the river and through forested wetlands on her property that host a species of rare orchid. An ag-forestal district designation restricts development and prohibits industrial uses, she says. “Except it appears Dominion can industrialize it by running a pipeline through it. My property  will become an underground natural gas storage site.”

Since announcing its original plans, ACP has redrawn its proposed route, leaving her property untouched. But Rea doesn’t consider the new route to be definitive, and she is little reassured. “My future is totally blown up, not knowing what’s happening to my property. No one wants to buy land with a natural gas pipeline going through the middle of the view shed. I stand to lose $50,000 in property value. I couldn’t sleep at night worrying about the darn thing coming through.” 

The 63-year-old career Air Force veteran decided to fight back, signing up as co-chair of the “All Pain No Gain” group opposing the pipeline. Not only does Rea not want to see the pipeline built, she objects to ACP or its contractors even coming onto private property to survey the land. And she is just one of dozens of landowners who view the pipeline the same way.

Dominion Transmission, ACP’s managing partner, filed suit this spring in local courts against more than 100 property in order to gain access to their land. Many, like Rea, were clustered near the Blue Ridge mountains in Augusta and Nelson Counties. A local judge ruled that the notice letters had been improperly issued by Dominion Transmission, so the pipeline company withdrew the pending cases and started re-filing lawsuits as ACP. As of early July, says Rea, she knew of 27 re-filed lawsuits. Meanwhile, pipeline foes have filed two of their own lawsuits in federal court challenging the constitutionality of the state law.

The lawsuits are shaping up as the Old Dominon’s biggest battle over property rights in years. The courts will be called upon to define the balance between landowners like Rea who wish to be left alone and utilities like the four corporate partners of the $5 billion Atlantic Coast Pipeline — including Virginia energy giant Dominion, Duke Energy, AGL Resources and Piedmont Natural Gas — who argue that there is a compelling public need to build more gas pipelines as electric utilities replace coal with gas in their fuel mix. The legal outcome could influence other pipeline projects as well. Three groups besides ACP have expressed possible interest in building pipelines from the West Virginia shale fields to markets in Virginia and points south.

Pipeline foes make two overarching arguments. First, the Federal Energy Regulatory Commission (FERC) has not yet issued a certificate declaring the ACP project to be in the public interest, says Joe Lovett, an attorney with Appalachian Mountain Advocates. Because ACP cannot yet argue that the pipeline is for “public use,” it has no right to survey land without the consent of property owners.

Second, pipeline foes say, landowners deserve compensation for survey crews tramping over their property. The right to exclude others from entering your property “is one of the most important rights in the bundle of property rights,” says Josh Baker, an attorney with Waldo & Lyle, one of the preeminent landowner rights firms in Virginia. When multiple survey teams — ACP lists five different categories of crews — enter the property, they can cause considerable inconvenience. While the Virginia code allows for “actual damages” resulting from a survey, it allows nothing for inconvenience.

Dominion asserts that it is fully within its rights to conduct the surveys as long as it complies with requirements to request permission in writing to inspect the land and then provide a notice of intent to enter. Obtaining a certificate of public convenience and necessity from FERC is necessary to acquire land through eminent domain authority but not to survey land, says Jim Norvelle, director media relations for Dominion Energy. Surveys are governed by state law.

As for land surveys constituting a “taking,” there is plenty of legal precedent to support ACP’s position, Norvelle says. “We do not expect to damage anyone’s property when surveying. In the unlikely event there is some damage, we will reimburse the landowner.”

A half century ago, pipelines in Virginia were either intrastate pipelines under State Corporation Commission jurisdiction or they were segments of interstate pipelines built and “stitched together over time,” says Jim Kibler, who was active in eminent domain litigation in Virginia before joining Atlanta-based AGL Resources as senior vice president-external affairs. Local public utility commissions, including Virginia’s SCC, provided most regulatory oversight. Continue reading