Category Archives: Federal

One One More Time Now… Devolve Transportation Funding to the States

Graphic credit: Wall Street Journal

Graphic credit: Wall Street Journal

by James A. Bacon

Congress is floundering over what to do about the Highway Trust Fund, which collects the federal gasoline tax and plows it back to the states to finance a smorgasbord of transportation projects. The original justification for the gas tax was to build the Interstate Highway System, but the program has morphed over the years into a  piggy bank for all manner of Interstate, highway, transit and miscellaneous projects that must be supplemented with General Fund appropriations. Congress persons are loathe to relinquish the perk of doling out money to constituents, but fiscal pressures make it impractical to continue the General Fund subsidies, while raising the gas tax is a political killer. What’s a Congress person to do? What he or she does best — dither.

Meanwhile, in the wake of Amtrak’s deadly derailment last week, we hear the usual wailing and gnashing of teeth that America isn’t investing enough in infrastructure.

The idea that the United States is significantly under-investing in infrastructure is nonsense — the kind of special pleading you hear from big construction and engineering firms who grow fat on infrastructure spending. Among the G-7 countries (Japan, Germany, France, the United Kingdom, Italy, Canada and the U.S.), the total capital stock of the U.S. (transportation and other infrastructure) is the third highest, equivalent to 52% of the Gross Domestic Product, as seen in the graphic above, published today in the Wall Street Journal. While Japan is off-the-charts higher, that country arguably has way over-invested in transportation, creating a system that it cannot afford to maintain over the long run.

infastructure_quality

Graphic credit: Wall Street Journal

Likewise, the quality of infrastructure (the general state of repair) is also in the middle of the pack, as seen at left.

The problem isn’t the level of spending, it’s the mis-allocation of spending. As WSJ columnist Greg IP writes (sounding a long-time theme here at Bacon’s Rebellion), the economic Return on Investment of federally funded projects varies widely; indeed  the feds have no mechanism for ascertaining ROI. “It’s nobody’s job in Washington to figure out which roads or bridges we should invest in,” Ip quotes Aaron Klein with the Bipartisan Policy Center as saying.

pavement_life_cycle2It’s time for Congress to get out of the business of building new transportation infrastructure. Having constructed the Interstate Highway System, Uncle Sam should commit to maintaining it and devolve responsibility for other projects to the states. That means adjusting the gas tax to whatever level it takes to maintain that system at an optimal level, and no higher. By optimum, I mean at a reasonably high state of quality and repair and with sufficient spending to undertake deep repairs at the most economically advantageous point on the life-cycle curve. Presumably, that level would require a much lower federal gas tax than the one in place now. A reduction in the federal gas tax would free the states to increase their own gas taxes by a like amount, more, or less, depending upon their circumstances.

A bedrock principle for maintaining an optimum level of infrastructure investment is to put each component — roads, highways, mass transit, ports, airports, railroads — on a user-pays basis. When users pay for the transportation amenities they want, they are more careful about what they ask for. Any other system results in a political free-for-all in which every interest group seeks to get its favored projects funded at the expense of everyone else, in which case ideology and politics prevail over economic rationality.

Is This Guy For Real??

Please go to Salon. a liberal website, and read the story about an interview given by Dave Bratt on immigration. This is so over the top for 2015 .

– Les Schreiber

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.

Carly Fiorina… Native Virginian?

fiorina

Photo credit: Washington Times

Last time I paid attention to Carly Fiorina, she was running for the U.S. Senate in California. She didn’t win that race, although, as a Republican candidate, she acquitted herself well in a deep blue state. So, it was with some surprise that I read in an article about her run for the presidency that she now hails from Mason Neck, Va.

Mason what?

According to Wikipedia, Mason Neck is a peninsula jutting into the Potomac River just east of Woodbridge. Located in Fairfax County, it is a census-designated place of about 2,000 residents. According to local real estate listings, there are currently eight houses on the market valued at more than $1 million. So, it seems to be the kind of place where a former CEO of HP might settle down should she move to the East Coast.

So, it looks like Virginia has a favorite son, er, make that a favorite daughter, running for president. None of us knew that Fiorina lived in Virginia, but what the heck. None of our home-grown politicians seem up to the challenge. We might as well root for the newcomer.

– 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?

Dave Brat’s Bizarre Statements

 By Peter Galuszka

Almost a year ago, Dave Brat, an obscure economics professor at Randolph- Macon College, made national headlines when he defeated Eric Cantor, the powerful House Majority Leader, in the 7th District Brat Republican primary.

Brat’s victory was regarded as a sensation since it showed how the GOP was splintered between Main Street traditionalists such as Cantor and radically conservative, Tea Party favorites such as Brat. His ascendance has fueled the polarization that has seized national politics and prevented much from being accomplished in Congress.

So, nearly a year later, what has Brat actually done? From reading headlines, not much, except for making a number of bizarre and often false statements.
A few examples:

  • When the House Education and Workforce Committee was working on reauthorizing a law that spends about $14 billion to teach low-income students, Brat said such funding may not be necessary because: “Socrates trained Plato in on a rock and the Plato trained Aristotle roughly speaking on a rock. So, huge funding is not necessary to achieve the greatest minds and the greatest intellects in history.”
  • Brat says that the Affordable Care Act (Obamacare) is a step towards making the country be more like North Korea. He compares North and South Korea this way:  “. . . it’s the same culture, it’s the same people, look at a map at night, half the, one of the countries is not lit, there’s no lights, and the bottom free-market country, all Koreans is lit up. See you make your bet on which country you want to be, right? You want to go to the free market.” One problem with his argument:  Free market South Korea has had a single payer, government-subsidized health care system for 40 years. The conservative blog, BearingDrift, called him out on that one.
  • Politifact, the journalism group that tests the veracity of politicians’ statements, has been very busy with Brat. They have rated as “false” or “mostly false” such statements that repealing Obamacare would save the nation more than $3 trillion and that President Obama has issued 468,500 pages of regulations in the Federal Register. In the former case, Brat’s team used an old government report that estimated mandatory federal spending provisions for the ACA. In the latter case, Politifact found that there were actually more pages issued than Brat said, but they were not all regulations. They included notices about agency meetings and public comment periods. What’s more, during a comparable period under former President George W. Bush, the Federal Register had 465,948 pages, Politifact found. There were some cases, however, where Politifact verified what Brat said.
  • Last fall, after Obama issued an executive order that would protect up to five million undocumented aliens from arrest and deportation, Brat vowed that “not one thin dime” of public money should go to support Obama’s plan. He vowed to defund U.S. Citizen and Immigration Services but then was told he couldn’t do so because the agency was self-funded by fees from immigration applications. He then said he would examine how it spent its money.

The odd thing about Brat is that he has a doctorate in economics and has been a professor. Why is he making such bizarre, misleading and downright false statements?

Pulitzer-Winning Series Exposed Richmond Firm

HDL LogoBy Peter Galuszka

There’s been plenty of discussion about the evils of rising health care costs, but unfortunately, one only hears of government wrong-doing.

Private industry actually spearheads a lot of the price gouging — sometimes with government complicity.

And it just so turned out that a high-flying Richmond firm — Health Diagnostic Laboratory  — was at the heart of a scandal that involved ripping off the Medicare program.

The Wall Street Journal on Monday was awarded a Pulitzer Prize for investigative reporting for exposing Medicare fraud. As a result of a front-page story published last Sept. 8, Tonya Mallory, the chief executive and co-founder of HDL, resigned. A few weeks ago, HDL was fined $47 million (while admitting no wrongdoing) after  their Sept. 8 story last year, for paying doctors kickbacks to use their blood tests.

The Journal broke the story after a court battle. It fought to lift a 33-year-old injunction that kept private data regarding Medicare patients. Once the data floodgates were opened, reporters pieced together all kinds of juicy information about health care firms, including HDL.

I have the story here on my “The Deal” blog in Style Weekly.

The upshot? Unlike what you often read on this blog, the problems of rising health care costs may not exactly be government sloth and inefficiency. It can be the private sector gaming the system to their benefit.

Obama, I Hardly Knew Ye

Persident Obama and Japan Prime Minister Abe

Persident Obama and Japan Prime Minister Abe

Just saw President Obama on the Chris Matthews show making the case for the Trans-Pacific free-trade agreement… It was not an Obama I was accustomed to seeing. It was eerie — he kept talking, and I kept agreeing with what he said. I’ve never experienced that before. I wondered if I was hallucinating.

I suspect that most Republicans will agree with him, too. Indeed, when it comes to getting fast-track negotiating authority through Congress, Obama probably can count on far more Republican support than Democratic.

Good for Obama. Those aren’t words you often hear from me on this blog. When the president supports win-win economic policies, I am happy to back him.

So, if there’s a vote in Congress, and if the Trans-Pacific trade agreement wins support mainly from Republicans, what does that do to the narrative that Republicans hate Obama so much that they’ll shoot down anything he proposes? Perhaps a new narrative will emerge. Perhaps the country will come to understand that Republicans are not opposed to Obama — just (most of) his policies. If Obama were willing to triangulate like President Clinton did, perhaps he could carve out bipartisan support for his initiatives and we could get something accomplished in this country. That would be something to celebrate.

– JAB

Beware Stalling Growth in Northern Virginia

northern virginia mapBy Peter Galuszka

For at least a half a century, Fairfax County, Alexandria and Arlington County have been a growth engine that that has reshaped how things are in the Greater Washington area as well as the Old Dominion.

But now, apparently for the first time ever, these Northern Virginia localities have stopped growing, according to an intriguing article in The Washington Post.

In 2013, the county saw 4,673 arrivals but in 2014 saw 7,518 departures. For the same time period, Alexandria saw 493 arrivals and then 887 departures. Arlington County showed 2,004 arrivals in 2013 followed by 1,520 departures last year.

The chief reason appears to be sequestration and the reduction of federal spending. According to a George Mason University study, federal spending in the area was $11 billion less  last year than in 2010. From 2013 to 2014, the area lost 10,800 federal jobs and more private sectors ones that worked on government contracts. Many of the cuts are in defense which is being squeezed after the wars in Afghanistan and Iraq.

The most dramatic cuts appear to be in Fairfax which saw a huge burst of growth in 1970 when it had 450,000 people but has been slowing for the most part ever since. It still grew to 1.14 million people, but the negative growth last year is a vitally important trend.

Another reason for the drop offs is that residents are tired of the high cost and transit frustrations that living in Northern Virginia brings.

To be sure, Loudoun County still grew from 2013 to 2014, but the growth slowed last year from 8,904 newcomers in 2013 to 8,021 last year.

My takeaways are these:

  • The slowing growth in NOVA will likely put the brakes on Virginia’s move from being a “red” to a “blue” state. In 2010, Fairfax had become more diverse and older, with the county’s racial and ethnic minority population growing by 43 percent. This has been part of the reason why Virginia went for Barack Obama in the last two elections and has Democrats in the U.S. Senate and as governor. Will this trend change?
  • Economically, this is bad news for the rest of Virginia since NOVA is the economic engine for the state and pumps in plenty of tax revenues that end up being used in other regions. Usually, when people talk about Virginia out-migration, they mean people moving from the declining furniture and tobacco areas of Southside or the southwestern coalfields.
  • A shift in land use patterns and development is inevitable. The continued strong growth of an outer county like Loudoun suggests that suburban and exurban land use patterns, many of them wasteful, will continue there. The danger is that inner localities such as Fairfax, Arlington and Alexandria, will be stuck with more lower-income residents and deteriorating neighborhoods. The result will be that localities won’t have as much tax money to pay for better roads, schools and other services.
  • Virginia Republicans pay lip service to the evils of government spending and have championed sequestration. Well, look what a fine mess they have gotten us into.

The rest of the Washington area is seeing slowing growth, but appears to be better off. The District’s in-migration was cut in half from 2013 to 2014 but it is still on the plus side. Ditto Montgomery and Prince George’s Counties.

NOVA has benefited enormously from both federal spending and the rise of telecommunications and Web-based businesses. It is uncertain where federal spending might go and maybe increased private sector investment could mitigate the decline. Another bad sign came in 2012 when ExxonMobil announced it was moving its headquarters from Fairfax to Houston.

In any event, this is very bad news for NOVA.

Jonnie R. Williams’ Mansion on Market for $4.9m

Williams

Williams

 By Peter Galuszka

It might be right out of the “Lifestyles of Richmond’s Rich and Famous.”

A trust controlled by Jonnie R. Williams Sr., the glad-handing vitamin salesman who was the chief witness against former Gov. Robert F. McDonnell and his wife Maureen, has put his 14,700 square foot mansion along with 61 acres of land up for sale for $4.9 million.

I have the story here in Style Weekly.
“1 Starwood Lane” has six bedroom suits, a paneled “executive” study, a pool, a gazebo, a billiards and media room and (what the truly wealthy really need) a state-of-the-art security vault. There must be trouble in paradise however, because the realtor says it was originally listed as a $5.5 million purchase with just the mansion and 28 acres of property. Later, they threw in 35 acres more and dropped the price.

Williams, who got immunity from prosecution for his testimony for the McDonnell trial and another, unrelated one involving securities fraud, has apparently left the Richmond area where his former company Star Scientific moved from Henrico County after renaming itself Rock Creek Pharmaceuticals. He gave the McDonnells $177,000 in cash, loans, gifts and stock in exchange for influence in peddling his products, according to testimony at the six-week trial last year.

The McDonnells were convicted of conspiracy to commit fraud and other felonies. McDonnell got two years and his wife was sentenced to a year and a day. They are appealing.

The McDonnell’s who have separated sold their home in a Short Pump subdivision. It was listed at $944,000 and sold in a week. Williams’ mansion is in the middle of the high cotton Hermitage Golf Course in Goochland County.

For more details, click on Style.