Category Archives: Federal

The Perils of Gas Fracking

By Peter Galuszka

More media accounts are showing up now that 84,000 acres of lands south and east of Fredericksburg have been leased for possible hydraulic fracturing drilling for natural gas.

This Sunday’s Richmond Times-Dispatch published a map showing the leased area covering big swaths of land from the Fort A.P. Hill military area east across the Rappahanock River on  into the historic Northern Neck. These are some of the loveliest parts of the Old Dominion, featuring  sloping valleys, rich bottom lands and meandering creeks and rivers that are filled with wildlife, not to mention farms and homes.

The newspaper quoted Mike Ward, executive director of the Virginia Petroleum Council proclaiming fracking as being safe and that the construction activity to place wells only takes a few months. “It’s like a construction site,” Ward said. “As it’s being done, there is going to be truck traffic. There’s going to be noise. There’s going to be some dust in the air. There’s going to be mud around the area. But that’s short-lived.”

Really? To be a better idea, I started surfing YouTube to see what the local impact of constructing fracking wells is really like. I happened upon several films from rural Harrison County, W.Va., an area where I lived as a child from 1962 to 1969.

The videos show an area in western Harrison County near the college town of Salem in landscape surrounded by rolling hills and dairy farms. There has been coal mining in the area and natural gas has been around for decades, but fracking wells are something new.

The videos depict an ongoing nightmare for neighbors who have found their quiet, bucolic existence interrupted 24/7 by the roaring of diesel generators, huge floodlights, and many, many trucks. One woman says that the well site across her road starts up around 4 a.m. and she can’t get back to sleep so she’s constantly tired when she goes to work.

Water and construction trucks, many 18-wheelers, are a big problem. They sideswipe cars on rural, two-lane roads or block traffic for a half an hour after they get stuck trying to turn around. The heavy trucks crumble pavement on country roads. Some local ones have had to be repaved four times since drill site preparation began a couple of years ago when the fracking craze began.

It seems likely that areas near Fredericksburg and on the Northern Neck and Middle Peninsula will taste some of the same problems if fracking begins. The Taylorsville Basin in the area may hold 1 trillion cubic feet of gas.

Further questions abound about the company that’s putting together leases for the area. It is an obscure company called Shore Exploration & Production Co. with offices in Dallas and Bowling Green. The plan, company officials have said, is to put buy up gas leases and then flip them to a drilling company.

The company insists it won’t use a “watery” method of fracking but can’t seem to explain its supposed substitute which is to use some form of nitrogen. In West Virginia, wells can need up to five million gallons of water that must be trucked in. Does this mean that trucks carrying nitrogen will come in instead?

Answers seem to be as fleeting as the Shore company which has two full-time employees and has no annual report or website. It has never drilled a well itself, just exploratory ones. One official told a newspaper that having an annual report and website “would provide information to competitors.”

That statement alone should give tremendous pause. What happens if you live in the country of the Northern Neck and a gas well emerges next door? What happens if your life is disrupted by 24-hour diesel generators, lights and dozens of heavy trucks? What happens if the “flow-back” ponds that contain waste, including radioactive material and methane from the drilling area below, breach?

Eastern Virginia is not used to such challenges. As a former resident of West Virginia where such challenges are common, I know well what this kind of set-up can mean, especially in Virginia that has some gas wells in its southwestern tip but has little experience with fracking.

The World’s Easiest-to-Predict Slowdown Is Now, In Fact, Occurring

dc_slowdownHere it is from the Washington Post, so I guess that makes it official: “The Washington region is in the midst of a striking slowdown in its growth rate as it draws far fewer residents from elsewhere in the country than in previous years.”

Although the metropolitan region of 6.7-million continued to grow between July 2012 and July 2013 due to an excess of births over deaths, only 4,500 people moved there from elsewhere in the United States — a marked slowdown. Job growth has slowed as well, and the jobs that have been created have tended to be in low- to moderate-wage sectors. Lucrative federal jobs actually have shrunk in number.

Gee, who could have foreseen the wind-down of the war on terror and the effects of budget sequestration? Actually, everybody foresaw the inevitable but the process of adjusting growth expectations, as measured by population and economic growth forecasts, took a remarkably long time.

Now crank in the general slowdown with a shift in the center of gravity of where the development is occurring — more than forecast in the urban core, less on the metropolitan periphery. Here in Virginia, bond financing for a lot of infrastructure construction hinges on of lot of business and housing development that may not get built.

Keep your seat belts fastened. It could be a bumpy ride.

– JAB

Is Blackwater Successor in Ukraine?

blackwaterBy Peter Galuszka

A private security company with ties to Virginia and northeastern North Carolina has been linked to rising tensions between Ukraine and Russia that some fear could turn into war.

The Russian Foreign Ministry issued a statement April 8 saying that a security firm named “Greystone” that is tied historically to the defunct and controversial Blackwater special security operations company has sent “about 150” mercenaries to Ukraine disguised as a military unit called “Falcon.”

A spokeswoman for Greystone denied to ABC news that the firm was involved with Ukraine while other news outlets were told the firm had no comment.

Greystone is registered in Bermuda, according to ABC. It was at one time linked to Blackwater although its ties to Xe Services and Academi which succeeded Blackwater after its demise are unclear.

Blackwater was founded by Erik Prince, a former Navy SEAL, in Moyock, N.C., near the Virginia border.  It hired former special forces military and used a swampy tract for training. The Moyock operations is close to a Navy facility at Dam Neck in Virginia Beach which is the base for the SEALs’ Team Six that tracked down and killed terrorist Osama bin Laden.

Blackwater was hired by the Bush Administration to handle security for officials and other duties in Iraq. Employees of the Blackwater firm were involved in the shooting of 17 people in Baghdad in 2007 and the firm was later banned from U.S. government work after a slew of problems in Iraq, Sudan and other countries.. During the controversy, it changed its name to Xe Services and then again to Academi, which has its headquarters in McLean. Prince has left the company.

Greystone, ABC reports, was formed as a sister company of Blackwater to handle security matters for foreign clients while Blackwater concentrated on U.S. government contracts.

The Russian government started accusing both Blackwater and Greystone of being involved in Ukraine last month although U.S. officials have denied it. Tensions have risen after Ukraine’s pro-Russian president was ousted and Russia seized Crimea. Russia has thousands of troops massed on the Ukrainian border.

Another footnote in this strange tale: a director of Academi is retired Navy admiral Bobby Ray Inman, who is a former head of the National Security Agency, a deputy director of the CIA and a former head of naval intelligence. Inman also had been a director of as the last board chairman of then-Richmond-based Massey Energy, which was forced to be sold to Alpha Natural Resources after a deadly explosion at a West Virginia coal mine.

I’m not making this up.

An Inconvenient Obamacare Truth

SNL spoofBy Peter Galuszka

It is highly amusing to watch Obamacare detractors mock news that the Affordable Care Act has more than reached it goal by signing up 7.1 million Americans.

This inconvenient truth turns the Fox News echo chambers on its head. You also read a bit of that on this blog – there’s an unassailable assumption that Obamacare is a certain failure, the Website is a mess and that it will be rejected hands down by consumers. Therefore, it’s a given that it must be repealed or undergo massive surgery.

Obamacare deniers also link expanding Medicaid to the fray. That is why the General Assembly has not passed a budget. Hard right Republicans in the House of Delegates, led by House Speaker Bill Howell, have set up expansion along the lines of their Obamacare fight. Medicaid is DOA, they claim, and they are quite right risking shutting down state government July 1 to make their point.

Of course, they are plowing ground for November elections in which they assume (underlined) that Obamacare will be a killer topic for their allies.

Problem is, if Americans keep signing up (early problems with the Website notwithstanding), they kinda lose some of their thunder. They may have to come up with a new mule to beat.

Anyway, I caught this skit on Saturday Night Live last night and immediately thought of Bacon’s Rebellion. Enjoy!

An Ex-Coal Baron’s Strange Movie

Blankenship

Blankenship

By Peter Galuszka

Almost four years after 29 miners employed by then Richmond-based Massey Energy were killed in a West Virginia mine explosion, its former chief executive under federal investigation for widespread safety violations has come forward with an apparently self-funded “documentary” proclaiming his innocence.

Donald Blankenship released the film “Upper Big Branch, Never Again” this week which reiterates his claims that he and the firm were innocent of wrongdoing and that an unexpected flood of natural gas and meddling by federal regulators caused the blast.

Three investigations have cited Blankenship and Massey for a culture of cost-cutting  and ignoring safety problems. So far, four former Massey employees have been imprisoned for related convictions.

The strange, 51-minute film brought immediate demands for its retraction by U.S. Sen. Joe Manchin of West Virginia who claims he did not know of Blankenship’s involvement when was interviewed for the film  being played on YouTube. Manchin is shown making what seem to be supportive statements of coal in general and, presumably, Blankenship.

The film also features interviews with E. Morgan Massey, a retired Massey executive who lives in Richmond. Another is University of Utah mining professor named Tom Hethmon who has told National Public Radio that he was also misled about the film and wants nothing to do with it.

The movie was made by a Chesapeake –based firm called Adroit Films whose officials have refused to tell reporters who funded the production.

In the film, Blankenship, Massey and Stanley Suboleski, a former Massey director who lives in Chesterfield County, repeat earlier claims that the explosion at the Upper Big Branch mine in Montcoal, W.Va. on April 5, 2010 was caused by an unexpected flood of natural gas. The explosion was affected by what Blankenship claims were wrong-headed demands by the federal Mine Safety and Health Administration to change the ventilation system which stretches for more than seven miles underground.

An MSHA probe along with one ordered by Manchin when he was state governor claim that the blast was caused when badly-maintained mining equipment hit a pocket of gas that touched off a huge coal dust explosion. The company was required but failed to keep highly combustible coal dust at bay by spraying mine shafts with powdered limestone, investigators say.

After he was forced out as Massey’s CEO in 2010 and the company was sold in 2011 for $7 billion to Alpha Natural Resources of Bristol, Blankenship kept a low profile.  He stirred to life about a year ago when he launched a website offering his views that coal is overregulated and that global warming is a hoax.He is also well-known for his staunchly anti-labor views and his support for mountaintop removal mining methods that are highly destructive of watersheds, wildlife and landscapes.

The film also shows footage of President Barack Obama as if to suggest a connection between him and the mine blast. At the time, Obama had been in office for a little more than a year. In other words, if he mangled the coal industry, he did so in a remarkably short period of time. The film also revives “War on Coal” footage shot during the 2012 presidential campaign. It tends to suggest that the coal mined at Upper Big Branch was used to generate electricity for America’s benefit when, in fact, all of it was of a metallurgical variety bound for export to foreign steel mills.

Another odd aspect of the film is why Manchin would agree to an interview with filmmakers he did not know. When I was researching my 2012 book “Thunder on the Mountain: Death at Massey and the Dirty Secrets Behind Big Coal” (St. Martin’s Press), I could only talk to Manchin and other elected officials at public events, although Massey, Suboleski and other former company officials spoke with me at length. Blankenship declined to be interviewed.

Federal prosecutors in West Virginia say that their ongoing probe may extend to top officers and directors of the defunct firm. It is unclear why Blankenship made the movie now.

Full Disclosure: I have been interviewed and have acted as an unpaid consultant for an upcoming documentary  titled “Blood on the Mountain” produced by Evening Star Productions.

Trickle-Down Economics Revealed

Who's laughing now?

Who’s laughing now?

by James A. Bacon

A generation ago, liberals mocked the so-called “trickle-down economics” of the Reagan administration, the idea that creating wealth for the rich would trickle down to the less affluent by way of expanded economic activity. While Reagan himself never used that term, his economic philosophy of tax cuts, tax-code reform and restrained federal spending did work as advertised. The 1980s were a period of great prosperity in which all income groups and ethnicities shared. The irony is that the trickle-down economics is a label more aptly applied to the policies of President Barack Obama. During O’s five years in office, the rich have gotten richer while the poor have fed on scraps. But you’ll never hear the term “trickle down” applied to Obama’s monetary policies.

There are many winners from the low interest rate policy implemented by the Federal Reserve Board with the full support of the Obama administration — most of them wealthy. One group is the “millionaires and billionaires” who benefit from rising stock and bond prices. Another is the owners of mortgages who have refinanced their debt at lower interest rates, in many cases saving hundreds of dollars a month. Needless to say, those with the highest incomes who can afford the most expensive houses benefit the most. The biggest beneficiary, of course, is the federal government, the world’s largest debtor, which saves on the order of $200 billion to $300 billion a year in interest payments on its $17 trillion debt. Finally, there is a modest trickle-down effect in the form of job creation in interest rate-sensitive industries like construction.

Of course, there are many losers, too — a mega-narrative that has gone largely unreported by the mainstream media. One group of losers is small business, which finds it more difficult to gain access to capital (it’s easier for banks to lend to the government). Another group consists of state and local governments whose retirement funds no longer generate the returns they were several years ago and now face chronic fiscal stress as they struggle to make up the difference. Fifteen years ago, for example, the Virginia pension system was fully funded. Today, even after major structural reforms, Virginia and its local governments still owe billions.

Then there are the little guys, especially the Baby Boomers who accumulated modest nest eggs to help support them in retirement. I have fulminated on this topic on and off since writing “Boomergeddon,” frustrated that the issue has drawn so little attention. But a Bloomberg News article published today in the Times-Dispatch (sorry, can’t find the link) shows the full dimension of the problem. Some key points:

A 65-year-old who wanted to pay for retirement with annuities tied to bonds needed 24% more wealth in 2013 than in 2005. National Bureau of economic Research President James Potera calculated in a research paper released in February. …

U.S. Treasury yields are at least 2 percentage points less than what they would be otherwise because of the Fed’s low-rate policies and stimulus programs, said William Ford, former Atlanta Fed president who wrote a 2011 paper estimating the impact on savers of monetary easing. That reduces their income by at least $280 billion annually, his analysis shows.

“The cost of low interest rates are being ignored,” Ford said. “It is killing savers, elderly savers who are living on life savings that have been conservatively invested.”

The Fed is engineering one of the greatest wealth transfers in American history — from the working-class and middle-class to the rich. The stock market has never been higher. Wall Street is doing better than ever. Bankers are still getting their big bonuses. And the little guys with meager savings are watching their pathetic little nest eggs lose value as inflation exceeds the income they can generate.

The extraordinary thing is that Obama then turns around and castigates the economic system for inequalities in wealth — the very same inequalities that he and former Fed Chairman Ben Bernanke (it’s too early to pin any blame on Janet Yellen yet) did to aggravate. Rather than undo the harm he has inflicted, Obama ask Americans to entrust him with even more power to “help” the poor and downtrodden. What I find mind-boggling is that this is not the delusion of a single man — it’s that liberals and leftists have so uniformly and gullibly bought into the delusion. They have become apologists for the very evil, income inequality, that they decry.

I suppose that’s inevitable. The political class always gravitates to “solutions” that entail the accumulation of more power for the political class. In Virginia, liberals’ idea is to expand the Medicaid entitlement, paid for the federal government with borrowed money. Why not? It’s “free” money. But it’s really not. Every billion dollars borrowed by the federal government requires more financial repression and more wealth transfer from savers to favored classes of borrowers, the foremost of which is the U.S. government. The favored classes do not include the poor and middle-class who rack up credit card debt, typically charges around 13% to 15%.

Liberals prattle about “social justice” and lobby for distractions like a higher minimum wage (which raises pay for some and destroys jobs for others) while aiding and abetting the trickle-down economics that leaves America’s less well-off with crumbs. The hypocrisy is almost too much to bear.

Ukraine Secret Ops: A Virginia Spy Story

The CIA's Rositzke

The CIA’s Rositzke

By Peter Galuszka

About 32 years ago, I was driving my dark green Audi Fox through Virginia’s lush horse country near Middleburg in search of a 350-acre farm owned by Harry Rositzke, author, educator and linguist. He also was one of the highest ranking spies in the Central Intelligence Agency which ran secret operations against Ukraine and other Soviet republics from 1949 to 1954.

Rositzke, who died in 2002, seemed an odd prospect for gentleman farmer. He had been born in Brooklyn and sounded like it. He had an extreme sense of street smarts, as I found when I was working on a newspaper story on spying in Virginia.

From what I remember of my interview — I lost my notes years ago — I had no real idea just how active the CIA had been in actually recruiting local language speakers, often displaced persons or recent emigres, giving them a smattering of training and then kicking them out the side door of a dark-colored C-47 at night onto the potato fields of Ukraine, the Baltic States and also Russia.

Mind you, these black drops were just a few years after the Soviet Union and the U.S. were suspicious allies who had helped defeat Germany, Japan and Italy. Things turned nasty very quickly and, as history moves forward, we seem back where we were 60 plus years ago.

Today, Vladimir Putin is massing Russian troops on the Ukraine border after annexing Crimea. He claims that America has a history of meddling in Ukraine, an independent nation since the 1991 split up of the U.S.S.R. The ironies are delicious. Putin, a former KGB spy in East Germany, is right.

The spy acronym for the early Cold War infiltration efforts was REDSOX, according to espionage historian Matthew Aim. The specific ones against Ukraine were labelled AERODYNAMIC with others being AEROOT (Estonia), AEQUOR (Byelorussia), AECOB (Latvia), AEGEAN (Lithuania) and AESAURUS (inside Russia itself).

The operations were run out of a CIA base in Munich and were headed in 1951 to 1954 by Rositzke.  “We were sending people into the Ukraine, people forget that there was an active resistance movement there… We’d fly them in and parachute them from C-47s. We never lost a plane. We were pleased to see how inefficient the anti-aircraft sources were,” he told The Washington Post.

Aim believes that up to 85 agents were air dropped in denied areas of Eastern and Central Europe from 1949 to 1954. The British MI6 intelligence group likewise sent agents there.

It isn’t clear what their missions were, but reconnaissance, establishing covert networks and sabotage are possibilities. The strange part is that anywhere from 75 to 100 percent of the air drop covert missions were failures, according to Aim and others.

One problem is that the American spymasters probably didn’t know what they were getting into. It wasn’t the same as setting up French underground groups during World War II; émigré groups fought each other and many if not all of the missions had been thoroughly compromised by Soviet counter-intelligence before they ever got off the ground.

According to Aim, one British agent named Myron Matviyenko had been in command of three teams of MI6 infiltrators who had jumped into Western Ukraine and Poland but turned them all in to the Soviets. Another theory is that Soviet super spy H.A. R. “Kim” Philby had learned of many of the missions while a British Embassy official in Washington and quickly passed the information along. Many of the agents simply vanished.

Rositzke at one point is quoted as saying that the missions were so rushed that the CIA hadn’t had time to vet the agents. In any event, he bought his farm near Middleburg in 1955 as a place to retire and eventually did. Little did I know as I was driving away from Rositzke’s estate with the big oak trees that I would be working in the Soviet Union myself as a news correspondent four years later. I ended up doing two tours of three years there.

In 1996, as I was preparing to leave Moscow for the last time, I went to a new museum opened by the KGB at their famous Lybyanka Headquarters. The guide was an elderly, grey haired man with ice cold blue eyes, sort of Putin-like. He was a retired KGB officer and I was mesmerized that their exhibit had photos and relics from compromised American and British covert ops in Ukraine and the Baltics.

One dead giveaway was that the CIA was dumb enough to use stainless steel staples in the fake passports it made, the guide said. Everyone knows that true Soviet passport staples are old-style iron and they always smudge the paper with rust. This could be easily spotted by checking a passport. No smudge? Instant spy!

I asked if the CIA still made the same mistake after all these years. He stared at me coldly for more than a minute before responding: “No, they make others.”

Sarles Makes Pitch for Metro Subsidies

richard_sarles

Richard Sarles. Photo credit:flickr/erin_m.

by James A. Bacon

Last Wednesday Richard Sarles, chief executive officer of the Washington Metropolitan Area Transit Authority (WMATA), appeared in Richmond to brief the Commonwealth Transportation Board (CTB) on the transit authority’s plans to meet the transportation needs of the fast-growing Washington region, including Northern Virginia, through 2025.

Sarles did not provide a specific figure that WMATA will be asking of Virginia and the localities served by the Metro and bus lines but he indicated that system-wide, the Momentum plan calls for boosting capital spending by $400 million to $500 million yearly above the $900 million a year it already spends. That sum would be divvied up between Maryland, Washington, D.C., and the federal government.

The pitch was pure economic development. “We’ve looked at what we need to do to provide for growth over the next 15 to 20 years — it’s the equivalent of the City of Houston moving to the region,” Sarles said. “If we did nothing, the area would become so congested that economic development would stagnate.”

In his presentation, Sarles focused mainly on plans to upgrade the length of Metro trains to eight, the longest possible, by acquiring additional cars, power capacity and rail car storage. That one initiative would allow the system to carry 35,000 more passengers per hour during rush hour — the equivalent, he said, of building 18 new lanes of highways into the district.

The presentation was purely informational, to acquaint the CTB with WMATA’s plans and the need for state support. In separate remarks to the CTB, Jennifer Mitchell, director of Virginia’s Department of Rail and Public Transit, said the state already contributes $50 million a year to WMATA’s program to bring the aging and problem-plagued system to a condition of good repair. Additionally, Governor Terry McAuliffe has promised a $25 million down payment to the Momentum expansion program, matched by equal sums from Maryland and D.C. “The goal will be working on a long-term funding agreement defining the state’s long-term funding commitment.”

WMATA trains and buses take 1.2 million trips off the road each weekday, said Sarles, relieving local jurisdictions of the need to construct at least 1,000 lane-miles of road and tens of thousands of parking spaces. Without Metro, Virginia would have to spend $1.3 billion on roads and $358 million on parking, he said. (Editorial comment: The sum for roads seems way low — could that be $1.3 billion per year on roads?)

A WMATA handout summarized the key components of WMATA’s expansion plan:

  • Eight-car trains. Expand the length of trains to eight cars, which will carry 35,000 more passengers per hour during rush hour.
  • Upgraded rail stations. Expand high-volume rail transfer stations in the Metro system core to ease congestion and accommodate new riders. This will include building underground pedestrian connections between select stations such as Farragut and Metro Center/Gallery Place in D.C. so riders can walk between stations rather than transfer on trains.
  • Priority corridor network (PCN). Completing the PCN will allow buses to bypass traffic congestion, moving 50% faster, saving passengers 3 to 4 minutes per trip and eliminating an additional 100,000 trips from roadways.
  • Blue line service. Restore peak-period Blue Line service between the Pentagon and Rosslyn stations through the construction of underground tracks. Adding five more trains per hour during the peak period will provide capacity for at least 4,000 passenger per direction.
  • Better information. Create one-stop information shopping so riders can plan, pay for and take transit trips seamlessly across the region. Also, stations will provide real-time travel information.
  • Bus fleet. Expand the bus fleet and maintenance facilities, enabling an extra 40,000 bus trips per day. (Yes, the document says bus trips, not bus passengers. Presumably, each trip would carry multiple passengers.)
  • New rail infrastructure. Build pocket tracks and crossovers to provide more flexibility to the system and respond to service disruptions. This investment could reduce operating costs to local jurisdictions. Continue reading

Someone Has to Worry about Tomorrow

Mercedies Harris

Mercedies Harris

Mercedies Harris, speaking to the Times-Dispatch, came as close as anyone to summing up what Virginia’s Medicaid debate is all about: “The system is crazy. They have got to stop worrying about what is going to happen tomorrow and deal with the people who need help today.”

The 53-year-old veteran and Waynesboro resident suffers from glaucoma, which, if it goes untreated, likely will lead to blindness. Harris has spent his meager savings, and he’s about to lose the house where he lives with his wife and a step-son who suffers from seizures. He applied for Medicaid but was turned down because he works and his income — $8.88 an hour — is too high. But he would qualify if Virginia expanded the program, as allowed by the Affordable Care Act and as proposed by Governor Terry McAuliffe and General Assembly Democrats.

With the federal government promising to pay 90% of the cost of Medicaid expansion, it is hard to tell someone like Harris — who served his country in the military and, to all appearances, remains a contributing member of society — that, no, we can’t help you. And the idea of letting him go blind, so that he, too, becomes a total ward of the state, seems the height of folly.

Republicans insist that Medicaid must be modernized before expanding the program. To buttress their argument, they have nothing comparable to the stories of real-live people like Harris, just bloodless numbers. That’s why they could well lose the debate and McAuliffe could well get his way. But that doesn’t mean the Republicans are wrong. Someone has to worry about tomorrow.

The nation and the Commonwealth of Virginia cannot continue expanding the social safety net forever. Even after an increase in the federal income tax and even after the budget cuts imposed by sequestration, the federal budget is on a trajectory to hell. Here is the Congressional Budget Office‘s take on the next 10 years:

After [2015] deficits are projected to start rising—both in dollar terms and relative to the size of the economy—because revenues are expected to grow at roughly the same pace as GDP whereas spending is expected to grow more rapidly than GDP. In CBO’s baseline, spending is boosted by the aging of the population, the expansion of federal subsidies for health insurance, rising health care costs per beneficiary, and mounting interest costs on federal debt. By contrast, all federal spending apart from outlays for Social Security, major health care programs, and net interest payments is projected to drop to its lowest percentage of GDP since 1940.

And that’s an optimistic scenario. It assumes that the economy continues to grow in a slow-but-steady fashion without recession for what would amount to the longest business cycle in U.S. history. The longest recorded business cycle lasted less than 11 years. The current business cycle is almost five years old — another 10 years would make it the Methuselah of economic expansions. History suggests that the U.S. will suffer another recession and revenues, prone to wild gyrations due to its highly progressive structure, will plunge. The question then will be, can a president and Congress facing a fiscal crisis in 2024 be entrusted to keep the promises made by the president and Congress in 2014?

Without major policy changes, according to the CBO, the situation in 2024 will be dire: The deficit will exceed $1 trillion in a non-recessionary scenario. (One can only speculate what the deficit would be in a recession; it could exceed the $1.6 trillion-a-year level seen in the dark days of the last recession.) Ten years from now the national debt will blow past $21.6 trillion, interest payments on the debt will run $880 billion yearly, and the Social Security trust fund will be roughly seven years away from exhaustion. While entitlements and interest payments on the debt now amount to 66% of the budget, they will consume 77% in ten years (again, assuming no recession).

If a recession occurs in the early 2020s, the fiscal landscape will be far worse than it was in 2008 when the economy cratered. The United States will be forced either to cut discretionary spending (which includes the vast regulatory apparatus of the federal government plus the military), cut entitlements or cut both. The only way to avoid that fate in 2024 will be to start cutting entitlements sooner, not later. Continue reading

How the Buy-America Mandate Hurts U.S. Transit

Seoul bus... energy efficient...

Seoul bus… energy efficient…

by James A. Bacon

Why do bus lines so consistently lose money? One reason is that transit companies, out of concern for the poor, keep fares too low. Another is that politics dictate that money-losing bus routes stay open. A third reason is that federal regulations effectively require transit companies to purchase American-manufactured buses that cost more while providing lower gas mileage.

The stock response of the state and local political systems across the United States — and no exception here in Virginia — is to increase subsidies for a failed business model. There is little constituency, it appears, for reforming mass transit to operate more efficiently.

A new paper, “Public Transit Bus Procurement: the Role of Energy Prices, Regulation and Federal Subsidies,” highlights a little-appreciated problem afflicting the municipal bus industry — how a federal “Buy America” mandate drives up the cost of purchasing new buses and how insensitive transit companies are to rising gas prices when managing their bus fleets.

“U.S. public transit agencies pay more for buses than they would have if there had been free international trade in buses,” the authors write. “The domestic bus makers supply a small number of differentiated bus models. The lack of competition could retard incentives to develop more fuel-efficient buses.”

With $55 billion in annual revenue in 2011, public transit agencies spent about $2.5 billion on new buses and $3.5 billion to maintain the existing stock. Nationally, more than 60,000 transit buses were in operation across the country.

Private vehicle owners factor in gas prices in their decisions when to keep an existing vehicle or upgrade to a new one, and they enjoy a wider range of choices when they do upgrade. Likewise, overseas transit companies enjoy the benefit of a highly competitive bus-manufacturing industry across Europe and Asia. But the U.S. public bus fleet is produced mainly by small domestic sellers that don’t enjoy the economies of scale that some international bus makers do.

Thanks to the Buy America mandate, U.S. bus manufacturing industry faces no meaningful foreign competition. Foreign makes account for 1.5% of all U.S. public-transport buses.

For a variety of complex reasons, the authors write, U.S. transit operations also are “non-responsive” to fuel prices and fuel efficiency. The result: the U.S. bus fleet averages lower gas mileage — 3.54 miles per gallon in the U.S. compared to 4.74 mpg in Tokyo and 5.05 mpg for diesel buses in Seoul. As a result, capital and operating costs are higher.

Conclude the authors: “The subsidy on domestic buses and the lack of international competition imply that U.S. taxpayers face a higher price for urban bus services and U.S. owners of the domestic firms that produce the buses gain some monopoly rents.”