Category Archives: Economy

The Parental Backlash Against SOL Tests

SOL LogoBy Peter Galuszka

Although their numbers are small, more Virginia parents are refusing to have their children take the state’s Standards of Learning tests, saying that test preparation takes away from true education.

In the 2013 -14 school year, 681 SOL tests were coded as parent refusals out of the nearly three million given, with Northern Virginia, Prince William County in particular, having the highest number.

Some parents are annoyed that teachers in public schools spend so much time teaching how to take the SOLs, which are used to measure a child’s educational standing and also rate how well school districts are performing.

“Students can spend up to one-third of their time of the school year preparing for the tests and that is wrong,” says Gabriel Reich, an associate professor of teaching and learning at Virginia Commonwealth University. Last year, he refused to allow his fifth-grade daughter to take the tests.

It isn’t really clear if parents and their children have the legal right to take the tests or not. If parents refuse, the child gets a “zero.” That might go against the school’s overall rating.

How it affects the student isn’t clear. Continual refusals could keep children out of special programs, such as ones for gifted students. But students from private schools, where SOLs are not usually taken, regularly transfer to public schools with little problem.

In different parts of the state, parents have formed grass roots groups to educate and support parents who have concerns that the mania for standardized testing is hurting true education.

Throughout the state, ad hoc groups are forming where parents can meet and plan refusals. In Richmond, RVA Opt Out meets every third Monday evening of the month and has tripled its attendance in the past several years.

Confronting standardized testing is in part a reaction of politicians who insist that standardized testing is a primary – if not the only – way to make sure that students are being educated properly. Such tests have been around for years but got a strong boost in former President George W. Bush’s “No Child Left Behind” program of 2002.

Standardized testing has also been used as a weapon against teachers’ unions. Some politicians have suggested that data from SOLs and other tests be collated and configured to give individual teachers ratings that could be made public – something teachers associations bitterly oppose.

What’s more, SOL and other similar data have been used for purposes that have little to do with education. Realtors often collect schools’ performance data to push home sales in certain neighborhoods to give for sale prospects snob appeal.

Critics say that multiple-choice testing doesn’t always reflect a student’s ability to think or show what he or she really understands. It also doesn’t reflect creativity to draw, paint or perform or write music.

The anti-testing movement is growing nationally. In one case in New York state, about 1.1 million children in grades three through eight typically take reading and math tests. Last year, about 67,000 children skipped the tests.

The push-back is growing.

Finally, Tobacco Commission Gets Reforms

Feinman

Feinman

By Peter Galuszka

Virginia’s infamous tobacco commission appears to be finally getting needed reforms 15 years after it went into existence.

Gov. Terry McAuliffe announced today that he was appointing a new executive director, Lynchburg native Evan Feinman, ordering a slimmed down board of directors and requiring a dollar-for-dollar match on grants the commission doles out to support community development in Virginia’s old tobacco belt.

In another break with the past, McAuliffe is renaming the old Virginia Tobacco Indemnification and Community Revitalization Commission as the Virginia Tobacco Region Revitalization Commission.

That might sound cosmetic, but any change is welcome given the commission’s history.

Since its formation after the 1998 Master Settlement Agreement between 46 states and four large cigarette makers, the commission has been spending millions of dollars won from the tobacco firms supposedly to help tobacco growers in a region roughly following the North Carolina border wean themselves off of the golden leaf toward economic projects that are far healthier.

Instead, the commission has been racked by scandal after scandal, including the conviction of a former director, John W. Forbes II, for embezzling $4 million in public money. He is now serving a 10-year jail sentence.

The commission also figured in the corruption trial of former Gov. Robert F. McDonnell since it was suggested my McDonnell as a possible source of funding for businessman Jonnie R. Williams Sr. during McDonnell’s trial for corruption. Williams, who was the star prosecution witness against McDonnell, got help from McDonnell in promoting one of his vitamin supplement products. McDonnell was convicted of 11 felonies and is now appealing.

The old commission also has been criticized by a major state audit for funding dubious projects and not keeping track of whether the money it has doled out has done much good. It had been criticized for acting as a slush fund for projects favored by Southside and southwestern Virginia politicians.

McAuliffe’s reforms include reducing the commission’s board from 31 to 28 members and requiring that 13 of them have experience in business, finance or education.

Feinman has been deputy secretary of natural resources and worked with McAuliffe’s post-election team.

It’s too soon, of course, to know if these changes will bring results, but anything that moves the commission away from its past and the grasp of mossback Tobacco Road politicians is welcome.

Think Competition Isn’t Important?

The recently shuttered Westbury Pharmacy was a compounding pharmacy. These institutions make up drugs per the instructions of a doctor when a special medicine is needed for an unique problem. A member of my family was a patient and the charge was $200 per refill. Now that Westbury is out of business, South River Compounding Pharmacy charges $550 for exactly the same  prescription. Competition is important.

– Les Schreiber

Measuring Diversity

Source: WalletHub

by James A. Bacon

A popular body of thought today hails “diversity” as one of the United States’ great strengths. That may be difficult to imagine at the moment, with race relations more strained than at any time since the school busing controversies of the 1970s, but the idea has much to recommend it. Innovation, argued Frans Johansson in his book “The Medici Effect,” comes at the intersection — the intersection of cultures, the intersection of academic disciplines, the intersection of industries. Insofar as the world is evolving into an innovation-driven economy, metropolitan regions that entertain a wide diversity of perspectives arguably have greater potential for artistic, cultural and entrepreneurial innovation.

WalletHub, a compiler of imaginative geographical rankings, has devised an intriguing set of metrics to compare the diversity of 230 sample U.S. cities based upon their rankings in a larger group of 350 cities. (Interestingly, Washington, D.C.-based WalletHub counts Arlington, a county, as a city.) The twelve metrics used in 2015’s Most Diverse Cities in America index fall into four broad categories: economic class diversity; ethno-racial & linguistic diversity; economic diversity; and household diversity.

By way of explanation, the compilers of the diversity rankings write:

Rapid diversification is one of the main drivers of our economic success. In recent decades, waves of immigration as well as financial and social mobility have not only changed the face of America but also ushered in a wealth of fresh perspectives, skills and technologies.

And thanks to its ever-expanding diversity, the U.S. remains forward-looking and extremely adaptable to change. According to the United Nations Industrial Development Organization, economies generally fare better when they openly embrace and capitalize on new ideas. Conversely, those relying on old ways and specialized industries tend to be more susceptible to the negative effects of market volatility.

There is no question that cultural diversity breeds innovation. A classic example is the interaction of many musical styles rooted in local American cultures — from African-American blues, white Appalachian bluegrass, Cajun zydeco — that gave rise to jazz, country, rock n roll, soul, rap, punk and many more musical styles. Musically, the U.S. is the most innovative country in the planet, with no peer. On the other hand, some might take issue with the notion that socio-economic and educational diversity — another way of describing inequality — is a boon to innovation. Likewise, one could argue that industry diversity is a hamper to innovation; innovation is most likely to occur in regions with powerful industry clusters like those seen in the Silicon Valley (digital), New York (financial) or Los Angeles (film).

It would be interesting to run correlations between WalletHub’s diversity metrics and metrics of economic performance to find which factors show the strongest relationships. Complicating any such analysis is the fact that, while WalletHub is measures the diversity of “cities,” cities are embedded in larger metropolitan areas, which may or may not share the same diversity characteristics.

With that important caveat, it is interesting to view the diversity of Virginia cities:

diversity_rankings(For a detailed breakdown of all 12 metrics, click here.)

If there is a strong correlation between diversity and innovation, Hampton Roads cities should be the economic dynamo of Virginia. Let’s just say that that’s a stretch. Likewise, Arlington is the least diverse “city” in the state — just too darn many affluent and well-educated residents. Yet somehow it manages to have one of the highest incomes of any jurisdiction in the U.S.

Frankly, I don’t find the data terribly useful in their current incarnation. But I give WalletHub credit for its creativity in dreaming up new metrics. I hope the company recycles this feature in 2016 in a format that compares metropolitan regions rather than core cities. For wonks like me, the data could prove endlessly fascinating.

Blankenship’s Incriminating Tapes

don-blankenship By Peter Galuszka

It may sound like something out of the Nixon White House, but embattled coal baron Donald L. Blankenship regularly taped conversations in his office, giving federal prosecutors powerful new ammunition as he approaches criminal trial in July.

According to Bloomberg News, the former head of Massey Energy taped up to 1,900 conversations that often go to the heart of the case against him. Blankenship was indicted last Nov. 13 on several felony charges that he violated safety standards and securities laws in the run up to the April 5, 2010 blast at the Upper Big Branch mine in West Virginia that killed 29 miners.

The revelation of the tapes came about in a circuitous way. The tapes were given to federal prosecutors in 2011 by officials of Alpha Natural Resources, which bought Richmond-based Massey Energy in 2011 for $7.1 billion.

After reaching a non-prosecution deal with federal prosecutors, Alpha hired a powerful New York law firm to investigate Massey for any possible violations.

Alpha, based in Bristol, was required as part of a non-prosecution order it signed to surrender all evidence, including the tapes.

Earlier this year, Alpha declined to continue paying Blankenship’s legal bills since he was under criminal indictment. Blankenship, claiming Alpha was required to indemnify, him, sued Alpha in a Delaware court. The existence of the tapes was revealed in that venue.

According to court documents filed in Delaware, Blankenship seemed to know that his disregard and hardball management practices could hurt him.

The tapes show Blankenship’s disdain for the U.S. Mine Safety and Health Administration (MSHA), which regulates mines but also reveal Blankenship knew Massey’s practices were risky.

According to testimony, a tape has Blankenship stating, “Sometimes, I’m torn up with what I see about the craziness we do. Maybe if it weren’t for MSHA, we’d blow ourselves up. I don’t know.”

“I know MSHA is bad, but I tell you what, we do some dumb things. I don’t know what we’d do if we didn’t have them,” Blankenship said on tape in the Delaware case.

So far, little has been revealed about what evidence the U.S. Attorney’s Office in Charleston, W.Va. has against Blankenship. Irene Berger, a U.S. District Judge in Beckley, W.Va., issued a massive gag order forbidding lawyers and even family members of the 29 mine victims from discussing the case, now scheduled for July 13 in Beckely.

The gag rules were order modified after the Charleston Gazette and the Wall Street Journal among other news outlets challenged them before the U.S. Fourth Circuit Court of Appeals in Richmond.

In some cases, apparently, the tapes cut both ways. In Delaware, Blankenship’s lawyers played a tape from 2009 which has Blankenship urging executives to tighten up on safety. “I don’t want to go to 100 funerals,” he is quoted as saying. He allegedly told Baxter Phillips Jr., then Massey’s president, that if there were a fatal disaster, “You may be the one who goes to jail.”

According to Bloomberg, Alpha initiated the internal probe after reaching a non-prosecution deal with federal prosecutors. It hired Cleary Gottleib Steen & Hamilton of New York to handle it.

Since Alpha refused to continue paying Blankenship’s legal bills, Blankenship reportedly has paid his lawyers $1 million himself.

The writer is the author of “Thunder on the Mountain, Death at Massey and the Dirty Secrets Behind Big Coal,” 2012, St. Martin’s Press. Paperback , West Virginia University Press, 2014.

If Automation is Destroying So Many Jobs, How Come Labor Productivity Sucks?

productivity

by James A. Bacon

What accounts for persistently sluggish United States employment growth in the sixth year of an economic expansion? Some blame it on the Obama administration’s economic policies, others on broad economic trends such as robotics, artificial intelligence and the automation of jobs. The latter explanation has broad intuitive appeal because we can all see what ATM machines have done to bank teller jobs, and it doesn’t take much imagination to foresee the impact of, say, self-driving vehicles on the truck-driving professions a decade from now. Technology is obliterating entire occupations. While new jobs such as the manufacture of ATM machines or the writing of driverless vehicle software may arise from the new technology, according to this line of thinking, fewer jobs will be gained than lost.

People have made the same argument since Ned Ludd went around England smashing textile machines that were putting spinners and weavers out of work. Yet somehow, the most dire of forecasts never panned out. That’s true, acknowledge advocates of the automation hypothesis, but things are different this time. Technological change is accelerating and the economy is displacing workers faster than the economy can create new jobs.

That hypothesis is certainly one that I take seriously. But I’m not yet persuaded. Here’s why. If accelerating automation is behind the decimation of jobs, we would expect to see two things: (1) an increase in the number of jobs destroyed (as opposed to a failure to create new jobs), and (2) an increase in productivity, reflecting the fact that it takes fewer people (and more robots/AI) to produce a given unit of economic output.

The first matter is difficult to answer given the spread of part-time and contingent employment. We may be creating more jobs, but if they are part-time jobs or contract gigs, that’s not the same as full-time jobs. It’s all very hard to measure, so we can’t draw firm conclusions. But we can address the second issue. Productivity, rather than shooting through the roof, as one might expect if technology were automating millions of jobs, is lagging severely. From today’s Wall Street Journal:

U.S. worker productivity fell in the opening months of 2015, extending a poor track record since the recession and underscoring longer-term risks to American workers’ wages.

The productivity of nonfarm workers, measured as the output of goods and services per hour worked, decreased at a 1.9% seasonally adjusted annual rate in the first quarter from the previous period, the Labor Department said Wednesday.

That marked the second consecutive quarter productivity has declined, something that has happened only three times in the past quarter century.

Look at the chart above. Productivity performance in this economic recovery lags that of the three previous business cycles. If automation is destroying millions of jobs and increasing economic output per unit of labor, it’s not being reflected in the productivity numbers. It’s all but impossible to make the case that automation is accelerating.

Here’s another way to look at the issue. If robot/AI automation is decimating more jobs than in the past, one would expect to see the effects in other countries such as Japan and the Euro zone where job growth has been even more listless than in the United States. Surely productivity must be soaring in those regions of the world. But it’s not. Also from today’s Wall Street Journal:

productivity2
Productivity growth in the United States, as anemic as it is, exceeds that of Japan, the United Kingdom and the Eurozone. At least productivity has risen measurably here in the U.S. since the Great Recession; it has flat-lined in the other advanced economies. Unless you want to argue that U.S. businesses are slower to embrace new technology than the businesses of other countries are — and maybe there’s a case for that, but I haven’t seen it — then it would appear that factors other than accelerating automation would best explain the great productivity stagnation both here, in Japan and in Europe.

What might those other factors be? My hypothesis: The rise of the rent-seeking state in which the political class allocates an increasing share of society’s resources to entitlements, the protection of special interests and the commandeering of resources for environmental goals. That rent-seeking process has increased in the United States — I warned about it in “Boomergeddon” — but is even more advanced in Japan, the U.K. and the Eurozone. If we have an employment problems, our policies, not technology, is primarily to blame.

McDonnells May Have Shot at Appeal

mcd convictedBy Peter Galuszka

Robert F. McDonnell, the only Virginia governor ever to be found guilty of corruption, may actually have a good shot at having his convictions reversed on appeal, according to some legal experts.

I have the story in this week’s Style Weekly.

The issue, which has been tossed around many times, involves how broadly or narrowly “honest services fraud” can be interpreted. The key points are whether or not McDonnell and his co-convict and wife Maureen did deny the public the “intangible right” of honest services by taking something of value in exchange for an action.

A further complication is that if they did, in fact, take an action in exchange for something, was it an “official” action? It tends to worry lawyers from such law schools as Harvard, the University of Virginia and the College of William & Mary.

Among some of their worries are that if McDonnell took money from star prosecution witness Jonnie R. Williams but took no specific action for the vitamin salesman, how is that different from a president granting a donor an ambassadorship.

Another concern that “honest services” statutes can be so “vaguely worded” that they could allow prosecutors to carve out a new crime that the defendants might not know they are committing.

I covered most of the six-week-long trial for Bloomberg News last summer and there is no question in my mind that the McDonnells’ behavior was shameful. U.S. District Judge James Spencer tended to go with a broad interpretation of the law.

We’ll see when arguments for McDonnell’s appeal start May 12 at the U.S. Fourth Circuit Court of Appeals in Richmond. I’ll keep my own legal opinions to myself for the moment.

Beware the Bonds

junk_bondsSweet Briar College had many problems, most notably a high tuition and shrinking enrollment, but the kiss of death was a high debt load. The small women’s college, which announced its intention to close earlier this year, had issued millions of dollars in bonds to pay for such projects as a Village Green that provided eco-friendly residential facilities. The announced closure of the college may have been accelerated by a potential default on $25 million in two outstanding bond issues, reports the News & Advance.

The warning bells had been sounding for more than ten years. But in 20o8 the board of directors approved an $11 million bond issue to build the $3 million Village Green as  well as a new fitness and athletics center.

Last November, S&P  revised its outlook on the BBB rating of the college’s 2006 bond issue from stable to negative. “The negative outlook was a result of numerous factors, including Sweet Briar’s enrollment challenges and high tuition discount rate,” wrote reporter Sherese Gore. “S&P warned of a potential lowering of its rating on the 2006 bonds during the two-year outlook period if there were further declines in enrollment and increased operating deficits.”

Bacon’s bottom line: The big question that bond rating agencies are asking about college finances these days is how well are student enrollments holding up? For most colleges and universities, tuition and fees paid by students is the dominant source of revenue. The cost has gotten so high that many families are balking, and enrollments are eroding at many institutions. The loss of revenue is all the more acute for colleges that have loaded up on debt. The obligation to hold debt obligations sacrosanct accentuates budget cuts to programs. If the quality of education or the residential experience is compromised, colleges run the risk of further enrollment declines, setting off a vicious cycle.

The United States hasn’t appeared to have learned anything from the 2007 real estate crash, which was driven by excessive indebtedness. Federal government borrowing has reached record levels, both in absolute numbers and as a percentage of the GDP. Exploiting near-zero interest rates, businesses are leveraging their balance sheets, taking on debt to increase their return-on-equity numbers while using cash flow to purchase shares. Even households, chastened by the recession and real estate crash, are beginning to take on more debt, although they haven’t matched the excesses of the 2000s. Scarily, China, Japan, France, Spain, Italy and other major economies have been every bit as undisciplined as the U.S. There will be a global debt reckoning.

There is no way of knowing when that day will come. But when it does, the fear-of-debt contagion will spread with frightening rapidity as confidence unravels, transmitted through the international economy in ways that no one today can predict. Survivors of the shake-out will be those who maintain tight financial discipline. For those of us concerned about public policy, that means paying close attention to the finances of state and local governments, industrial development authorities and colleges and universities.

– JAB

Private Immigrant Jail May Face Woes

Farmville jail protest

Farmville jail protest

By Peter Galuszka

Privatization in Virginia has been a buzzword for years among both parties. In this tax-averse state, contracting off public functions is seen as a wise and worthy approach.

But then you get debacles such as the U.S. 460 highway project. And now, you might have one brewing down in Farmville.

The small college town is in Prince Edward County, which gained international notoriety from 1959 to 1964 when it decided to shut down its entire school system rather than integrate. Many white kids ended up in all-white private schools and many African-American children were cheated out of an education entirely.

About six years ago, another creepy project started there – a private, for-profit prison designed exclusively to imprison undocumented aliens. It’s a cozy little deal, as I outline in a piece in Sunday’s Washington Post.

Farmville gets a $1 per head, per day (sounds like slavery) from the U.S. Immigration and Customs Enforcement agency. Immigration Centers of America, the private firm run by Richmond executives Ken Newsome and Russell Harper, gets profits. Then, in turn, also pay taxes to Farmville and the county.

The ICA facility, whose logo includes an American flag, pays taxes as well and provides about 250 jobs locally. The project even got a $400,000 grant from the scandal-ridden Virginia Tobacco Indemnification and Community Revitalization Commission for water and sewer works.

What might sound like a no-lose operation, except for the mostly Hispanic inmates who might have entered the country illegally, overstayed their visas, or had other bureaucratic problems, may face problems.

The census now at the jail is about 75 percent of what it could be. President Obama has issued an executive order that could free some five million undocumented aliens. It is being challenged by 26 states but Virginia Atty. Gen Mark Herring has filed an amicus brief in favor of Obama.

So what happens to Farmville if Obama wins? It could affect 96,000 aliens in Virginia. Could there someday be no prisoners? Wouldn’t that be too bad for Farmville?

Recent history is instructive. Back in the 1990s, Gov. George Allen, a conservative darling, was pushing private prisons in Virginia as he successfully got rid of parole in part of his crime crackdown. Slave labor was part of the deal.

Executive Intelligence Weekly wrote in 1994:

“Slave labor in American prisons is increasingly being carried out in what are called “private prisons.” In his campaign to “reform” Virginia’s penal laws, Gov. George Allen pointed to prison privatization as the wave of the future, a moneymaking enterprise for the investor, and a source of good, cheap labor for Virginia’s municipalities. Indeed, after taxes, pay-back to the prison, and victim restitution are removed, the inmate earns an average of $1 per hour in these facilities.”

Well guess what happened. Allen pushed for more public and private prisons. They were overbuilt. Demographics changed. Crime rates dropped. Prisons had to be shut down.

So, if immigration reform ever comes about what happens in Farmville? Don’t forget, the private jail came at a time when a construction boom, especially in Northern Virginia had drawn in many immigrants especially from Latin America. Their papers may not have been in order.

Neo-racists like Corey Stewart, chairman of the board of supervisors of Prince William County, ordered a crackdown on brown-skinned people who spoke Spanish. But when the real estate market crashed, fewer Latinos arrived. And, if they did, they avoided Stewart’s home county.

Wither Farmville?

Big Data: the New Wave of Wealth Creation

apt

by James A. Bacon

We’ve all been hearing more and more about “Big Data,” which arises from the ability of computers to collect and process unimaginably huge gobs of data and sophisticated mathematical equations to detect patterns and anomalies that can be used to drive business decision-making. Capital One used Big Data before it had a name to revolutionize the credit card business, and it’s one of the biggest, most profitable companies in Virginia. Now comes Arlington-based Applied Predictive Technologies, which just sold out to MasterCard for $600 million.

That’s a remarkable valuation for a 16-year-old company of 300 employees and revenues approaching $100 million. Humongous pay-offs like that are routine for Silicon Valley but they’re rare in Virginia.

“We will stay Ballston-based, but we will be growing faster,” APT chief executive Anthony Bruce told the Washington Post in an email. “Our opportunity to grow and expand will be accelerated by this partnership, in Arlington and elsewhere.”

Here’s how the company describes its product: “APT’s Test & Learn software is revolutionizing the way leading companies harness their Big Data to accurately measure the profit impact of pricing, marketing, merchandising, operations, and capital initiatives, tailoring investments in these areas to maximize ROI.”

An illustration can be seen in the graphic above. Drawing from data on retail and restaurant sales at more than 100,000 locations nationwide, APT charted the impact of the 2015 NCAA Final Four basketball tournament on restaurant sales in Indianapolis. The APT Index also integrates weather and demographic data to allow retail executives to ask an even broader range of questions. It doesn’t take much imagination to see how MasterCard could use its relationship with retailers globally to sell this as a value-added product.

Read “Data Crush” by Chris Surdak to get a feel for how Big Data will transform industry after industry in ways we mortals can barely comprehend. Big Data will blaze a path of creative destruction easily equal to that of the Internet.

Bacon’s bottom line: Momma, don’t let your babies grow up to be lawyers. Engineers and computer programmers will make a decent living in the economy of the early-mid 21st century, but if you want your kid to have a shot at becoming the next Steve Jobs or Bill Gates, tell them to major in any branch of mathematics that lends itself to Big Data analytics.

If you want an argument in favor of STEM education (the “m” stands for mathematics), this is it. The Big Data revolution may have started in the United States, but the industry will move to wherever there are pools of mathematically gifted employees. We neglect mathematical instruction at our peril. (So says the guy who couldn’t tell you the difference between sines, cosines and tangents, much less between integral and differential calculus, much less actually compute anything requiring a retention of anything beyond 8th-grade algebra. I’m a dinosaur but at least I know it.)