Category Archives: Economy

Another Russian Reformer Murdered

nemtsov killedBy Peter Galuszka

It was a personal shocker to read of the murder in Moscow of Russian reformer Boris Nemtsov, the latest in a long string of killings related to the tragic fight for change in that country.

Nemtsov was gunned down Friday in a drive-by shooting as he walked across Moskvoretsky Bridge a short distance from the Kremlin and Red Square.

The outspoken 55-year-old former nuclear physicist turned government official was a key figure in the far more hopeful years of the early 1990s when bright young people tried (in vain) to move Russia beyond the kleptocracy of the Communist era.

Nemtsov pushed capitalist reforms by trying to root out corruption. He simplified establishing businesses by taking the registration process out of the hands of crooked bureaucrats. He advocated transparency in bidding contracts. More recently, he revealed billions of dollars in payoffs at the Russian Winter Olympics last year at Sochi.

Naturally, Nemtsov ran afoul of Vladimir Putin, the former KGB officer who beat out Nemtsov as Boris Yeltsin’s successor. Putin is the spearhead of the old power elite that has seized control over the past 15 years, rolled back democratic reforms, unleashed a torrent of inside business deals, and pushed the worst military conflict in the region (Crimea and Ukraine) since the Cold War.

Nemtsov was due to lead a Moscow protest rally against Putin’s bloody Ukrainian adventurism that has killed 5,800 people. He was to stand in for Alexei Navalny another reformer who has been imprisoned for handing out leaflets at a subway station.

As he was taking a walk on an unusually warm winter evening, a car drove up. Six shots were fired. Nemtsov was killed by four bullets.

He is the fifth person – either Russian or foreign – that I have dealt with personally who has been murdered. I reported from Moscow for BusinessWeek in the 1980s and 1990s.

Here are a few examples: American businessman Paul Tatum involved in a dispute with a Chechen partner was slain by 11 bullets to the head and neck at a subway station that I used to frequent. Paul Klebnikov, an American editor of Russian-language Forbes magazine, was shot near his apartment. Russian investigative journalist Yuri Shchekochikin, a friend who got me an assignment to write for Literaturnaya Gazetta, died in an apparent poisoning.

I had interviewed Nemtsov back when he was pushing far-reaching and radical change in the the city of Nizhniy Novgorod, formerly known as Gorky, east of Moscow.

He is the highest-profile reformer to be killed during the regime of Putin who says it was a contract killing and that he will oversee the investigation “personally.”

The Center-City Job Resurgence

job_shift

by James A. Bacon

After decades of losing jobs to the metropolitan periphery, the nation’s downtown employment centers have been recording faster job growth since the recession than areas located further from the city center, according to a new report, “Surging Center Job Growth,” by Joe Cortright, president and principal economist of Impresa, a consulting firm specializing in regional economic analysis.

Cortright compared job growth between city centers (defined as within three miles of the center of a metropolitan region’s central business district) and outlying areas. During the go-go years of the 2000s-era real estate boom (2002-2007), the periphery enjoyed rapid job growth while city centers stagnated. Since the recession (2007-2011), city centers have gained jobs while the periphery has lost them.

Those  numbers represent a composite of 41 of the nation’s largest metropolitan regions for which Cortright could find comparable data. The national trend does not apply to all metropolitan regions. Indeed in two of Virginia’s largest metro areas — Hampton Roads and Richmond — the periphery continued to out-perform the city centers.

richmond_hr

What’s going on? The big-picture story is that the industry mix of the national economy is changing, and that shift increasingly favors central business districts.

In general, knowledge-oriented industries that require considerable face-to-face interaction are clustered in city centers, while goods producing and moving industries are more decentralized. Knowledge-oriented industries tend to use land much more intensively than goods producing and distribution centers.

The biggest construction declines occurred in the construction and manufacturing sectors, which tend to be located on the periphery. Those sectors have been slow to rebound during the recession, but if and when they do, Cortright said, the compositional disadvantage of the periphery might diminish. (By “compositional,” he means the advantage of disadvantage conferred by industry mix.) However, he argues that center cities will continue to enjoy generalized “competitive” advantage.

These factors — the growing preference of well-educated  young adults for urban living, the shift of companies to city centers to tap this labor pool, the growing pull of the “consumer city,” the growth of “eds and meds,” the continuing relative decline of manufacturing and distribution, and the waning of major investments in new highway infrastructure — all give us reason to believe that the shift toward city center growth is not a temporary anomaly.

A closer look at Virginia metros. How do we explain the departure of Hampton Roads and Richmond from the larger, national trend? Remember that the “national” trend is derived from composite numbers that include a lot of variability. The trend does not apply equally everywhere.

Hampton Roads is a special case because its economy is so dominated by military spending, and military employment is concentrated in military bases. The military makes its decisions where to grow and contract based on different factors than the civilian economy.

As for Richmond, my sense is that downtown living and employment has surged since 2011, the most recent years cited by Cortright. The competitive advantages of central business districts apply to the Richmond region as well, and we’ll see the proof in more recent numbers. Another possibility is that the three-mile definition of “center city” does not fit Richmond, one of the smaller metros surveyed. The economic vitality of central districts like Shockoe Bottom and Manchester may be offset by declining employment in the 2- to 3-mile band, which are really aging suburbs.

Closely Watched Trains?

wva oil trainBy Peter Galuszka

The small town of Pembroke in southwest Virginia is used to seeing endlessly long unit trains of coal cars rumbling past. But last week, it got an unexpected surprise – trains of similar length hauling crude oil from North Dakota’s Bakken fields started going by.

According to Reuters, Pembroke is one of many Virginia towns that are being affected by CSX’s derailment and explosion of oil tank cars filled with Bakken oil a few miles east of Montgomery, W.Va.  on Feb. 16. The massive blast sent fireballs hundreds of feet in the air and forced the evacuation of nearby residents including a college. It also stopped all rail traffic on a major, east-west CSX line for days.

A similar derailment involving a CSX oil train happened last April in Lynchburg on the same rail mainline. Several tank cars caught fire down causing a fire and a spill into the James River.

So, after the West Virginia incident, CSX got in touch with rival Norfolk Southern to see if it could reroute oil trains on some of its lines.

This brings up another issue – who should be informed when new railroad trains hauling potentially explosive or otherwise hazardous cargoes suddenly show up in your backyard? Do they have to tell you so you can get the flashlight, thermos and sleeping bag ready for your immediate evacuation if necessary?

CSX says it has informed appropriate public safety officials of such route changes, but is loath to let the general public in where it is sending unusual trains. Security and proprietary information, you understand.

CSX needs to keep its tank cars rolling to big oil terminal in Yorktown near the Chesapeake Bay. That site had been an Amoco refinery for years but the refinery shut down and was switched to an oil water terminal now owned by Houston-based Plains All-American.

The facility receives Bakken shale oil cars and loads the crude on barges that are then pushed or towed to East Coast refineries, notably in the Philadelphia area. Presumably, if petroleum exports from the U.S. start again, the Yorktown site would be excellent embarkation point.

So, instead of having tank cars with Bakken crude trundling from Charleston, W.Va. through the New River Gorge and on to Lynchburg, they will go on more southerly NS lines through places like Pembroke and Roanoke. Then they will be switched at Petersburg to CSX lines and go north to Richmond and east to Yorktown.

It looks like Richmond could potentially get it either way. On the usual route, oil trains pass by downtown on an elevated bridge which would be quite a mess if a derailment happened there. According to the Forest Ethics Website, all of downtown Richmond to about one half of a mile on either side would have to be evacuated if a major derailment with fires and explosions came.

With the temporary rerouting, Richmond would still be in serious jeopardy in case of a derailment. If I’m reading the map correctly, trains would still pass through the city.

So, you have to ask yourself – why does CSX get away with keeping all this secret? They claim they let “appropriate” public safety officials know, but the Richmond Times Dispatch last year quoted a Richmond fire officer in charge of hazardous situations as saying he had a hard time learning from CSX what a “worse case” scenario would be in the event of a Richmond derailment.

Part of the problem is PR. Bakken shale oil comes from controversial hydraulic fracturing. The uptick in production has turned America’s energy picture on its head. It has also made for big jumps in oil rail traffic. Another problem is that Bakken oil tends to be more explosive than other types.

According to the Association of American Railroads, oil shipments by rail jumped by 9,500 carloads in 2008 to 500,000 shipments last year. Accidents are way up. In 2013, tank cars carrying Bakken crude somehow got loose in Lac-Megantic, Quebec. They rolled through the small town, derailed and exploded. The blast killed 47 and wiped out half of downtown.

According to a recent probe by the Associated Press, a federal study predicts that oil shipments will rise to 900,000 shipments this year. The study predicts that trains hauling petroleum will derail 10 times a year over the next two decades. They could possibly cause $4 billion in damages and kill hundreds of people, the AP reports.

What to do? Build pipelines, I guess, but that’s been highly controversial as well as the experience with Dominion Transportation’s efforts with a $5 billion gas pipeline through the state and the controversy over the Keystone XL show.

Better, newer, safer tank cars? Maybe, but the West Virginia and Lynchburg derailments both involved new “1232” models. The same type also caught fire recently in Timmins, Ontario.

Federal rules require railroads to tell local officials where they are carrying Bakken crude, which is more explosive than other types. Railroads like CSX claim the information is proprietary, according to Reuters. That’s rather pointless. If the goal is to keep “proprietary” information from competitors, Norfolk Southern, CSX’s biggest competitor, already knows about it because it has agreed to let CSX use its rail lines.

And don’t ask some public officials. West Virginia officials have gone along with keeping much of the information secret. Mountain State officials responded to an Freedom of Information Act request by redacting much of the data they finally gave out.

Not only do the railroads need to clean up their act, they should be forced to be more forthcoming about where the next evacuation might be.

Propping Up Coal at the Taxpayers’ Expense

W._Va._coal_mine_1908By Peter Galuszka

It’s always curious when big business and their bankrolled politicians complain about how the government and its regulations stymie the “magic of the free market.”

Then they turn around and keep protectionist policies that give certain industries big favors such as tax credits.

That’s what the General Assembly has done with a bill that would have reduced tax credits doled out to utilities that burn coal mined in Virginia. The original proposal backed by Gov. Terry McAuliffe was intended to help fill a $2.4 billion gap in the state’s biennial budget.

The idea quickly ran afoul of Dominion Virginia Power and the Virginia Coal & Energy Alliance. The original idea was to scale back tax credits but cap coal tax deductions at $500,000 in any given year. But after the utility and the coal industry lobbyists got involved, a bill to retain the tax credits was quickly approved setting caps at a more generous $7.5 million in a given year.

The credits stem from a law passed in 1999. Its purpose is to make it easier for big utilities like Dominion to choose thermal coal mined in Virginia over product mined elsewhere.

Coal production peaked in the state at 46 million tons. It’s now about 22 million tons or less. Coal employment has likewise dropped sharply over the years.

Much of the coal mined in Southwest Virginia is of high quality and some can be used either to generate electricity or make steel. The problem is its cost. Many of the seams in the state have played out and coal is increasingly thinner and is in  harder to reach areas. The cost of mining it has gone up.

For years coal maintained a price advantage over alternatives such as natural gas but thanks to hydraulic fracturing, that is no longer the case. Utilities like Dominion have been converted facilities to gas or are building new plants that use gas. Its last coal-related plant is a hybrid near St. Paul.

What’s causing this shift away from coal? High production costs and cheaper alternatives. Out West, in the Powder River Basin of Wyoming and Montana, coal is cheap and easy to mine. It does well. In other words, the free market is affecting  the declining Virginia coal industry  yet the General Assembly wants to prop it up at the expense of taxpayers and the budget.

By the way, Dominion and coal giant Alpha Natural Resources in Bristol are among the biggest political donors in the state.

Go South, Young Black Man, Go South

black_business

The South is by far the best region in the United States for blacks to own businesses, and the Golden Crescent is one of the best places in the South — at least if you put any credence in the methodology created by NerdWallet.

The credit card blog has ranked the 111 metropolitan regions with populations exceeding 100,000 according to two equally weighted sets of measures — economic environment and black-owned business success — to determine where black-owned businesses succeed.

Georgia clearly ranks as the best state in the country by these metrics, with Columbus ranking No. 1 on the list, Atlanta No. 3 and Savannah No. 9. But Virginia’s major metros also appear to be hospitable territory, with Washington ranking No. 5, Richmond No. 11 and Hampton Roads No. 13. Remarkably, with the exception of Salt Lake City (No. 19), every one of the top twenty metros are located south of the Mason-Dixon Line.

Metros in the West Coast, the industrial Midwest and the Northeast consistently scored dismally.

There are two possibilities here: that (a) the South is more fertile field for black businesses, or (b) the ranking methodology is skewed toward metros with high percentages of African-American residents. The second interpretation is entirely possible, given that 30% of the entire score is based upon “the percentage of black-owned businesses” in a metro area. All other things being equal, a metro area where 30% of the population is black will tend to have ten times the percentage of black-owned businesses as a metro area where 3% is black. A better indicator would be to compare the percentage of blacks who own a business versus the percentage of the population as a whole that owns a business. I tried contacting NerdWallet this morning for clarification but had no luck.

Another finding: The vast majority of black-owned businesses are sole proprietorships — fewer than one in ten actually hire employees. In other words, most are self-employed. Do self-employed people — many of whom are free-lancers — really count as businesses? How do those numbers compare to the rate for the population as a whole? Sadly, NerdWallet doesn’t say. Yet another question: How does the average revenue of black-owned business compare to that of other racial groups? Again, NerdWallet doesn’t say.

As much as I would like to crow that Virginia is great location for black entrepreneurship, I hesitate to do so on the data provided here. This data needs polishing before we can draw any meaningful conclusions from it. If someone is inclined to do the grunt work and submit results to Bacon’s Rebellion for publication, I would be most grateful.

– JAB

Coal Giant Won’t Pay Blankenship Legal Bill

don-blankenshipBy Peter Galuszka

The the man described by Rolling Stone as the “The Dark Lord of the Coal Fields” is suing coal giant Alpha Natural Resources of Bristol for refusing to pay his legal bills as he approaches his criminal trial April 20 related to the worst coal-mine disaster in 40 years.

Donald L. Blankenship, the former head of Richmond-based Massey Energy, filed suit in Delaware against Alpha which said: “Going forward, we do not intend to pay any legal fees with regard to Don Blankenship’s defense.” Those fees are likely to run in the millions.

Blankenship was indicted in November on four felony counts related to safety violations at the Upper Big Branch mine where an explosion killed 29 miners on April 5, 2010. He is also accused of securities fraud.

Blankenship resigned from Massey in December 2010 with a parachute estimated at $86 million. Alpha bought Massey in 2011 for $7 billion.

Since then, Alpha has been retraining the hundreds of Massey workers it absorbed but has gone through severe layoffs as demand for coal has stumbled.

Alpha’s stock has slipped from about $5 a share a year ago to $1.19 a share now. The firm lost $875 million last year. Demand for thermal coal has been drying up as cheaper natural gas from fracking has flooded the market. Also, the rich steel-making coal reserves Alpha got with its buy of Massey have gone wanting as Asian nations, especially China, go through an economic slump.

Blankenship will go on trial in U.S. District Court in Beckley, W.Va.

Dominion Resources Is on a Tear

acl pipeline map By Peter Galuszka

Dominion Resources has been on a tear recently.

It’s been muscling through a dubious law in the General Assembly that would allow it to avoid State Corporation Commission rate audits for six years.

And, it has been throwing its weight around in less populated sections of the state. It is suing to force its way on the land of private property owners to survey its $5 billion Atlantic Coast Pipeline project that would take fracked natural gas from the Marcellus Shale formation in West Virginia and Pennsylvania on new routes to the southeast.

Property owners, particularly those in Nelson and Augusta Counties, are fighting in federal court in Harrisonburg.

What’s most interesting about this case is how the Commonwealth of Virginia, which swaddles itself in the ideals of the American Revolution of individual rights , somehow ignores the rights of small property owners when a big utility with deep pockets for political donations is involved. One wonders where all the conservatives are who were huffing and puffing over the Kelo case a few years back

And (bonus question) what do the two situations have in common? Republican State Sen. Frank Wagner of Virginia Beach, that’s who. He introduced the bill for Dominion to sidestep SCC oversight with the excuse that Dominion has deal with the impacts of a yet-to-be-finalized set of new federal carbon emission rules.

In 2004, Wagner also carried water for Dominion and other power companies by getting a law passed that would allow a “public service company” to survey private property without getting permission.

This is the basis of several hundred lawsuits Dominion has filed against small landowners. In the pipeline case, it will be interesting to see whether the natural gas is used for the common good of American customers or will end up being exported to foreign countries. Dominion insists it won’t,  but time will tell.

Another oddity is that Dominion is demanding access to survey a pipeline route when it hasn’t formally applied for  the project with the Federal Energy Energy Commission. Imagine if some private landowners showed up at the front door of Dominion’s downtown Richmond headquarters and demanded access to the building because they were thinking about building a natural gas pipeline? (Somebody call security!)

Here’s an opinion piece I wrote for this morning’s Washington Post.

Virginia’s Disruptive Demographic Shifts

va_pop_growth

Graphic credit: StatChat

 by James A. Bacon

Population growth in Virginia in the 2010s so is slower than at any time since the 1920s, when African-Americans were fleeing Jim Crow conditions for economic opportunity in northern states, according to this chart published by Hamilton Lombard on the StatChat blog. Will the slowdown continue, or is it temporary — an artifact of a slow economic recovery that can be expected to resume in future  years?

The issue is of more than academic importance. Multibillions of dollars in infrastructure investments are predicated upon the proposition that Virginia’s population and economy will continue growing at historical rates. If the population doesn’t grow, projected demand for highways, mass transit, water & sewer, electricity and other utilities go up in smoke.

Another confounding question: Insofar as growth does occur, where will it occur — on the metropolitan periphery, as in the past, or in the urban core? Another chart by Lombard shows how dramatically the trend lines have shifted. Has state and local government begun correcting for these shifts, or is everyone flying on auto-pilot, assuming that past trends will continue forever? Just asking.

Graphic credit: StatChat

Graphic credit: StatChat

Back to Big Lick

The old Norfolk & Western Railway headquarters complex, with Hotel Roanoke in the background.

The old Norfolk & Western Railway headquarters complex, with Hotel Roanoke in the background.

by James A. Bacon

In the early 1880s, Gilded Era industrialists created a railroad junction at the town of Big Lick in the Roanoke Valley, opening up the western Virginia coalfields to development. The community renamed itself Roanoke after the river running through it, and the newly formed Norfolk & Western Railway set up its headquarters there. In the late 19th century, Roanoke was a boom town: a hub of railroad traffic and manufacturing and a gateway to the burgeoning Central Appalachia coal industry.

Eventually, the boom subsided, but Roanoke continued to fare well. Besides hosting a number of corporate headquarters, the Star City of the South, so named for the giant star on Mill Mountain, served as the retail and administrative center for much of western Virginia. When I lived there in the early 1980s — covering the coal and railroad beat for the Roanoke Times — Roanoke was a delightful community surrounded by natural beauty. I enjoyed living there and was sad to leave.

But my personal journey mirrored the intractable economics that Roanoke, and other cities its size, is struggling against. As a young reporter, I didn’t see much of a career path upward. To get ahead, I had to move. Ambitious young professionals in other fields faced the same dilemma. No matter how much they liked living there, many had to relocate to rise in the world. As the United States evolved into a Knowledge Economy, large metropolitan regions enjoyed tremendous advantages over Roanoke-sized cities by virtue of larger labor markets.

Roanoke has stagnated since I lived there. The writing on the wall appeared as early as 1982 when the Norfolk & Western Railway merged with the Southern Railway and located the new corporate headquarters in Norfolk. The top jobs left the city but, as part of the deal, the combined Norfolk Southern Railway did keep a major administrative presence in Roanoke. Now, three decades later, comes news that 500 employees working in marketing, accounting, information technology and other departments — desirable white-collar jobs — will be moved to Norfolk and Atlanta.

The company said it is closing the Roanoke office building to achieve departmental synergies, to make better use of its real estate assets and to support its goal of streamlining its management workforce. According to the Roanoke Times, Norfolk Southern President James A. Squires described the action as a consolidation having nothing to do with work force or business issues peculiar to Roanoke. The Roanoke office was less utilized than the offices in Norfolk and Atlanta, he said.

But that’s disingenuous. Of course the move had everything to do with Roanoke — or, more precisely, the size of its labor market. If Norfolk Southern had excess space in Norfolk, Atlanta and Roanoke, in theory, it could have shut down a Norfolk or Atlanta office and consolidated employees to the other two. Office space in Roanoke, I’m willing to wager, has the added advantage of costing less. But, the fact is, Norfolk and Atlanta are much larger labor markets, making it significantly easier for the railroad to recruit employees with white-collar skills.

The migration of corporate operations and white collar employees in the United States goes one way — from smaller cities and towns to bigger ones. The process does not work in reverse.

Looking back, Roanoke had one shot at bucking the trend — hitching up with the scientific and engineering brainpower at Virginia Tech. In theory, Blacksburg and Roanoke could have supported one another, with Virginia Tech spinning off high-tech start-ups and Roanoke providing financial, legal and other professional services. Despite the efforts of the Roanoke-Blacksburg Technology Council to bridge the 42-mile gap, the hoped-for synergies never really materialized. The Roanoke and New River valleys are divided by rugged mountains and connected by a single thread, Interstate 81. The 45-minute travel time created a psychological divide that has been hard to overcome.

It’s tremendously sad. The people of Roanoke are good people. In my personal experience, they are friendly, community-minded and egalitarian in spirit. It doesn’t seem fair that their economic prospects are leaking away because of forces beyond their control. But the world isn’t fair.

Update: I have to modify my categorical statement that the migration of corporate operations from small cities to big cities is a one-way flow. The very day I published this post, Edelman Technology, a German manufacturer of industrial equipment, announced its intention to locate its North American headquarters in Rocky Mount, roughly 30 miles south of Roanoke. The company will hire five to 10 employees including  software specialists, electricians and industrial equipment maintenance staff. So, there are exceptions to the rule. They are few and they are minor, but there are exceptions.

Dominion’s Strange Ploy to Avoid Audits

dominion By Peter Galuszka

Dominion Virginia Power appears to be getting its way with strange legislation to freeze its rates and avoid regulatory audits for the next six years.

The state senate will hold hearings today on a bill that would cancel biennial rate reviews by the State Corporation Commission to 2020. Dominion’s rates will be frozen and couldn’t go up or down.

The utility’s reasoning is that it may have to spend a lot to comply with unfinished regulations by the U.S. Environmental Protection Agency that would cut carbon emissions from coal plants by 30 percent by 2030 compared with 2005 levels. Always looking out for its customers, Dominion doesn’t want to stick them with astronomical rate hikes resulting from the EPA rules.

The bill was drafted by Dominion, the state’s largest donor to political campaigns, by Sen. Frank Wagner (R-Virginia Beach) who is the go-to guy for laws favoring energy firms.

In 2004, Wagner sponsored legislation that allowed companies the right to survey land for proposed natural gas pipelines without having to obtain the owner’s permission first. The nettlesome law figures heavily in the current battle by property owners over proposed gas pipelines in the state, notably the $5 billion Atlantic Coast Pipeline in which Dominion is a partner. The pipeline would take gas 550-miles from West Virginia, through Virginia and on into North Carolina. Dominion has sued more than 240 landowners who have refused to grant access. They are challenging the constitutionality of the pipeline law in federal court.

There’s a lot odd about Wagner’s current bill. The first problem is that it would supposedly protect Dominion customers from federal rules that aren’t even final. It is weird that Dominion would use the excuse that it might be socked with huge costs by having to shutter coal-fired plants. Surprise, surprise! Dominion announced several years ago that it would shut down aging coal units in Yorktown and Chesapeake. So, what’s the connection between the new EPA rules and coal-plant closures?

Atty. Gen Mark Herring says that the Wagner bill is a ploy to keep Dominion from having its profits overseen by the SCC because the utility might have a $280 million surplus that ordinarily might have to go back to ratepayers. After  a 2011 SCC rate review, Dominion had to pay back $78 million to customers.

The other oddity is why Dominion and Wagner are suddenly so scared about exploding costs brought on by the EPA. After all, prices for natural gas, which fuel some of Dominion’s units and is  less polluting than coal, are very low – so low that the fracking boom that released a flood of cheap gas is slowing down considerably.

Environmental groups say that the Wagner bill is a gift for Dominion. The senator has received more than $43,000 in donations from the utility over the years.