Category Archives: Federal

More Information, Please, about Oceana’s New Solar Facility

solar_cloudsby James A. Bacon

The Department of the Navy  is collaborating with Dominion Virginia Power and the Commonwealth of Virginia to build a 21-megawatt solar energy facility at the Oceana Naval Air Station in Virginia Beach. The 100-acre facility, housing 179,0000 solar panels and scheduled for completion in late 2017, will supply enough electricity at peak production to power about 4,400 homes. Find the details here.

The project is good P.R. all around. Dominion, the Navy and the McAuliffe administration all get to bask in the glow of solar goodness. But the press release touches only glancingly on the economics of the project. Which makes me wonder…

The Navy was the driver, with Dominion and possibly the state (it’s not clear what the state’s role was) presumably stepping in to meet the Navy’s renewable energy mandates. Here’s what Secretary of the Navy Ray Mabus had to say about the benefits of the project:

We’ve achieved $90 million in nominal energy cost savings, $62 million in energy security hardware upgrades to bases, 170 megawatts of access to power during outages, and 22 million tons of CO2 abated. And we’re just getting started.

Just a few questions:

What are “nominal” energy savings? Are they different from actual energy savings?

Why would it be considered an “achievement” to negotiate access to 170 megawatts of power during energy outages — presumably from Dominion — when Oceana already has access to Dominion’s distribution network?

How much does the project cost? How much are taxpayers paying in order to achieve 22 million tons of CO2 cuts? Are there more cost-effective ways of reducing CO2 emissions?

What are the $62 million in “energy security hardware upgrades,” and how do they factor into the calculation of benefits?

I’m on beach vacation this week, so I’m not in a position to answer those questions right now. But the fact that the press release does not mention the project cost much less the cost-per-kilowatt — information routinely released for any electrical generation project — I cannot avoid the suspicion that the Navy considered those numbers to be an embarrassment. I would think that taxpayers — including anyone whose priority is lower CO2 emissions — would want full transparency to ensure that the federal government is spending its money cost effectively.

Update: More information from Todd Flowers with Dominion…. Secretary Mabus’s remarks were referring to the Navy’s “global efforts and accomplishments. and were not meant to represent solely the Oceana project. The Navy’s benefit from Oceana will be in the form of electrical infrastructure upgrades (a new electrical feed) in exchange for our use of their land.

Virginia Economic Growth Still a Struggle

New home of Phone2Action -- celebrating small victories.

New home of Phone2Action — celebrating small victories.

Straws in the wind regarding Northern Virginia’s business climate:

Budget sequestration may be a thing of the past, but the federal budget squeeze is not. In her latest Richmond Times-Dispatch column, economist Chris Chmura notes that in the fiscal year ending Sept. 30, 2015, federal spending on contracts fell 4.4% — some $2.4 billion — in Virginia. About two-thirds of that was defense spending. With slow economic growth and Baby Boomer retirements driving Medicare spending ever higher, there is likely no relief in sight. Short of another big war, it seems to me, it is difficult to imagine a strong rebound in federal contracting.

Meanwhile, Washington, D.C., continues to gain competitive advantage over outlying jurisdictions in the metropolitan region. Even Arlington County, which is highly urbanized, close to the urban core, and blessed by mass transit and walkable neighborhoods, is feeling the challenge. “The county is … facing heavy competition from Alexandria and D.C., both of which are aggressively recruiting the same pool of talent,” writes Daniel J. Sernovitz with the Washington Business Journal.

The competition has gotten so fierce that Governor Terry McAuliffe made a trip to Arlington last week to celebrate the leasing of 3,586 square feet on Wilson Blvd. by Phone2Action, a 25-employee startup that had recently landed $4.7 million in venture funding. The governor provided $127,800 in state assistance. According to Sernowitz, Opower, an energy conservation company, has wangled money out of the state and Arlington County, to stay in Arlington rather than move to the district. Meanwhile, Arlington and Alexandria, he reported in February, felt compelled to set aside more funds for business recruitment.

To mangle an old phrase, if Northern Virginia sneezes, Virginia catches a cold. The commonwealth finished the 2016 fiscal year $266 million in the red, as revenues increased only 1.7%, short of the projected 3.2%.

— JAB

The Hidden Risk in Money Market Funds, and What It Means for Virginia

Cranky old man... or seer of the future?

Cranky old man… or seer of the future?

by James A. Bacon

I’m sure many readers are tired of hearing my jeremiads about excess debt, fiscal unsustainability, and the necessity of re-engineering Virginia institutions to survive the inevitable reckoning. Well, too bad. The global economy is severely out of balance, Virginia is part of that economy, and we will suffer the consequences when the world’s 21st century experiment with fiscal and monetary perpetual motion machines collapses. State and local polities that prepare for the inevitable storm will be in a better position to ride it out.

Bacon’s Rebellion has explored the unintended consequences of the Federal Reserve Bank’s policy of monetary easing, which has been magnified by comparable policies of monetary easing and reckless credit creation in the European Union, China and Japan. While near-zero interest rates benefit the world’s largest debtor, the United States federal government, it punishes savers and the institutions that serve them. Thus, the Social Security and Medicare trust funds are generating lower income from their surpluses, leading to premature depletion. Insurance companies are earning less on their capital, causing them to increase premiums. The rate of return for pension funds are earning less money, compelling corporations and governments to bolster their contributions.

Even money market fund are affected. A new study published by the National Bureau of Economic Research, “The Unintended Consequences of the Zero Lower Bound Policy,” has found that zero-interest rate policies create problems for savers who park their cash in seemingly safe money market funds. In an effort to deliver non-negative net returns to their investors, portfolio managers have not only reduced expenses charged to investors but chased higher yields by taking bigger risks.

That money market fund you think is a safe and stable repository for your cash? It may not be as safe and stable as you think. Not only is the yield approaching zero, but you may be shouldering risks you didn’t know existed. What’s worse:

Although our empirical results speak mostly to one part of financial markets, we want to emphasize that the effects we document are not necessarily limited to [the] money fund industry only. The reaching-for-yield phenomenon has been observed in other markets: for example, an average insurance company has shifted its assets toward riskier equity holdings, reaching the level of equity exposure of almost 20% in 2014. Similarly, pension funds expanded their holdings into more than 60% equity, away from typically held bonds. More work is needed to better understand the transmission mechanisms underlying the effects of the zero lower bound monetary policy on the stability of financial markets.

Just as generals are said to fight the last war, economic policy makers fight the last recession. Just as the masters of the universe in Washington, D.C. pursue policies to prevent a repeat of what they failed to foresee in 2007, they are blind to the extraordinary leverage built into the global economy, the linkages between sectors, and the mechanisms by which defaults in one corner of the globe will spread panic and chaos to other parts of the globe.

The best way for state and local lawmakers to insulate Virginia and its communities is (a) to curtail borrowing and (b) stop creating new long-term obligations that cannot be readily pared back. That’s not to say that we should cease borrowing altogether or refuse to launch any new programs, but it is to say that we live in times of great volatility and unpredictability and we should set higher standards for incurring any new liability.

Republicans and Leftists Are Outraged, Outraged, I Tell You

Nishizaki Sakurako and Bando Kotji in "Yoshino Mountain"by James A. Bacon

Here’s what I missed in yesterday’s quickie post about Governor Terry McAuliffe’s plan to convene a clean energy task force: Both Republicans and leftist environmental groups are attacking the move, though for opposite reasons.

Republican legislators see the initiative as an end run around the state budget, which specifically prohibits any spending on the federal Clean Power Plan for reducing CO2 emissions from electric power plants while it is being challenged in the U.S. Supreme Court. Normally, such accusations strike me as political blather, but Brian Coy, a spokesman for the governor’s office, confirmed that that was precisely the motive. Here’s how the Washington Post summed up his statement: “The governor did not create the work group to assuage environmental groups but rather as a way to dodge the Republican-controlled General Assembly.”

House Speaker William J. Howell, R-Stafford, was not pleased: As quoted by the Richmond Times-Dispatch, he said: “This order is another deliberate attempt to circumvent the legislature and the will of Virginia voters.  The governor is developing a troubling tendency to prefer Washington-style executive action instead of the dialogue and collaboration that Virginians expect and deserve.”

Meanwhile, McAuliffe’s initiative was belittled from the left, who cited his support for the Atlantic Coast Pipeline and Mountain Valley Pipeline, which would supply natural gas to Virginia and other Southeastern markets, as evidence that he is not serious about combating climate change. A joint statement by the Virginia Student Environmental Coalition, the Chesapeake Climate Action Network, and Virginia Organizing called McAuliffe’s initiative “a minor environmental policy” dwarfed by the harm of natural gas transportation and combustion.

The kinds words came from mainstream environmental groups who have been working through the administration to implement the strictest of the Clean Power Plan alternatives available to the state.

The governor is trying to reconcile his desire to combat climate change with his priority of creating jobs. Thus, he defends construction of two natural gas pipelines through the state on the grounds that they will create economic opportunity for the Tidewater region of the state, which is effectively precluded from competing for important categories of industrial expansion due to an insufficient supply of natural gas. At the same time, he has supported the federal Clean Power Plan (CPP), which seeks to curtail CO2 emissions from Virginia power plants. If the CPP passes legal muster, the Department of Environmental Quality (DEQ) will be charged from choosing from one of four broad approaches for the state to implement the plan. Environmentalists favor the option that would curtail CO2 emissions the most, although industry consumer groups worry the approach would drive up electric rates. McAuliffe has not yet endorsed an option.

Bacon’s bottom line: I’m still not sure what the fuss is all about. McAuliffe has already enacted a series of measures driving state government to pursue energy efficiency goals and to purchase solar energy. There is not much else that he can legally do. This new working group can recommend anything it wants, but it won’t have power to spend a dime. Meanwhile, the big action revolves around the Clean Power Plan. If the Supreme Court upholds its constitutionality, the focus turns to the already-instated DEQ working group to recommend how to implement it. If the Supremes nix the CPP, regulatory decision-making effectively reverts to the State Corporation Commission, which responds to legislative guidance enacted into law, not to gubernatorial directives.

I regard this whole hoo-ha as political theater — a kabuki production in which the actors rigidly play out their assigned roles.

Boomergeddon Update: Medicare HI

Image credit: 2016 Medicare Trust Fund Board of Trustees annual report

Image credit: 2016 Medicare Trust Fund Board of Trustees annual report

by James A. Bacon

The Hospital Insurance Trust Fund, one of the four major components of the Medicare program, will run out of money in 2028 — two years earlier than previously projected. That appraisal comes from the Medicare Board of Trustees, which, the last time I checked, is not funded by the Koch Brothers.

The news of the accelerating structural crisis in the nation’s health care safety net stirred only the slightest of ripples in the news media, which buried the story deeper than an Iranian nuclear research facility. One would think the news to be of more than passing interest to the program’s 55.3 million recipients and thus to major media, but the nation’s elite journalists are so obsessed with the latest Tourettes-like tweets by Donald Trump that they cannot bestir themselves to ask the presidential candidates how they intend to preserve the social safety net.

This news comes soon after Congress and the Obama administration avoided the impending depletion of Social Security’s Disability Insurance (DI) trust fund only through the expediency of folding it into the Old Age Survivors Insurance trust fund, thus accelerating by a year the impending breakdown of both by 2034.

Medicare and Social Security will not collapse when the trust funds run out, but the gap between spending and revenues will have to be covered either by a hike in taxes, a cut in benefits or an increase in government borrowing, each of which would be grievous in its own way. The magnitude of this gap, caused by the retirement of the Baby Boomer generation, will precipitate the nation’s greatest economic crisis since the Great Depression — what I call Boomergeddon.

And to what do we owe the accelerating crack-up of Medicare’s hospital insurance program (often referred to as Medicare Part A). Not to accelerating health care costs, ironically enough. “Since 2008, U.S. national health expenditure (NHE) growth has been below historical averages, despite having accelerated in 2014 mainly due to insurance expansions,” state the Medicare trustees.

But having said what the problem is not, the Medicare trustees fail to explain what it was. That is understandable, given the politically sensitive nature of what appears to be going wrong — weak job growth, the low labor participation rates, and less-than-expected payroll revenues. After real-world economic performance has under-performed forecast economic forecast every year for seven years running, the Obama administration appears to be adjusting its long-range forecasts for purposes of long-term budgetary planning.

Nobody wants to admit, least of all in an election year, that economic growth and job creation stink. But that is precisely what underlies the rush to ruin of Medicare, Social Security and the federal budget deficit generally. A weak economy means weak revenue.

Bacon’s bottom line. Boomergeddon is running right on track. The Congressional Budget Office projects a $534 billion deficit this year. (We don’t hear about that number from our journalistic elite either.) Were it not for monetary easing, ultra-low interest rates and multi-billion remittances from the Federal Reserve Bank, the deficit would be far bigger. In any case, CBO projects a cumulative $9.4 trillion in deficits, to be added to the existing $19 trillion national debt. The U.S. is on track to carry World War II levels of borrowing by the mid-2030s, the big difference being that in 1945 the war was over and the nation could demobilize its massive military, while in 2035 the nation will not be in a position to demobilize its social safety net.

Meanwhile, the structural budget deficit of the United States must be viewed in the context of chronic deficits of the European countries and Japan, and the massive over-leveraging of the Chinese economy. As McKinsey & Co. pointed out in a 2015 report, the global economy has added $57 trillion since the Great Recession; rather than de-leveraging, virtually every major nation has doubled down with increased borrowing. Systemic risk has never been greater. All it takes is a black swan event, and financial chaos will rip through the global economy, transmitted by financial linkages that public policy makers don’t even know exist. The Bear Stearns/Lehman Brothers financial panic will be a picnic by comparison.

The question, as always, for Virginians is this: How do we as citizens and taxpayers protect ourselves from the inevitable financial reckoning? Borrowing more is not an answer. (Somebody please tell Richmond Mayor Dwight Jones, who proposes raising the city’s debt limit in order to borrow $580 million more in bonds over the next 10 years.) Building new transportation mega-projects that require subsidies indefinitely into the future is not an answer. Expanding social welfare programs like Medicaid is not an answer. The storm is coming, and we must prepare.

Fed Theft Update: $749 Billion from Bank Depositors

silent_theftFederal Reserve Bank suppression of interest rates has cost bank depositors $749 billion in interest income on savings accounts, CDs, and money market accounts over the past six years, according to Richard Barrington with MoneyRates.com.

Quantitative Easing has made possible one of the greatest redistributions of wealth in United States history. Unlike with taxes, which tend to be highly visible, most people don’t understand how interest rate suppression affects them. Low interest rates have devastated not only bank account savings but public and private pension funds and savings vehicles such as insurance policies. Beneficiaries are borrowers, including house buyers, car owners, college students, credit card owners, corporations leveraging their balance sheets, and, of course, the U.S. government. Every percentage point in interest rate suppression across the yield curve benefits Uncle Sam to the tune of $180 billion a year.

So, how did Barrington calculate the cost to bank depositors?

MoneyRates.com starts with the total amount on deposit at U.S. banks as of March 31, per the FDIC. That total is then increased by average money market rates over the subsequent year … and then adjusted for the inflation rate over the same period. The difference between the resulting figure and the original amount on deposit at U.S. banks represents the hidden cost of the Federal Reserve’s low-rate policy.

The little guy knows the system is stacked against him. He just doesn’t know how. Pass this blog post around.

— JAB

Your Federal Tax Dollars at Work

The fog of government

The fog of government

And I thought the City of Richmond was incompetent for its inability to close out its financial books in a timely manner!

Heed this opinion from the federal Government Accountability Organization (GAO) on Uncle Sam’s financial statements for 2014 and 2015: “Certain material weaknesses in internal control over financial reporting and other limitations on the scope of … work resulted in conditions that prevented GAO from expressing an opinion on the accrual-based consolidated financial statements.”

Three major departments — Defense, Agriculture and Housing & Urban Development, controlling 34% of assets and 19% of spending — accounted for the most questionable financials, according to Government Executive MagazineBut accounting issues pertaining to Medicare cost control also prevented GAO from expressing an opinion on sustainability financial statements on HHS’ Statement of Social Insurance on accounts worth about $27.9 trillion.

Bacon’s bottom line: The federal government will run a $544 billion budget deficit this year…. we think. It could be more, it could be less. What’s a few billion dollars?

(Hat tip: Tim Wise.)