Category Archives: Finance

“Jac” Cales’ PPTA Monkey-Wrench

Posted on June 18, 2013 by Peter Galuszka| 13 Comments
calesBy Peter Galuszka

For four decades, James A. “Jac” Cales Jr. was a fixture on the judicial halls of Hampton Roads, albeit not one to take himself too seriously.

As Portsmouth commonwealth’s attorney for a decade in the 1970s, he would lean back in his chair, his hands folded over his stomach and nod vigorously when a defendant in a drug case admitted something incriminating. He later served for three decades as a General District and Circuit Court judge, retiring officially in December.

So, it may be fitting that on May 1, while filling in temporarily, Cales issued what could be the most important decision of his long legal career. It is a decision that is turning Virginia’s transportation funding on its head.

Cales decided that a plan to have a private developer toll users for $2.1 billion in tunnel upgrades in crowded Hampton Roads is unconstitutional. Only the state has the power to tax and that’s what tolls really are, Cales ruled.

If his ruling holds, a number of critically important highways that involve privately operated facilities, such as parts of Interstate 495 in Northern Virginia, Route 895 near Richmond and a proposed $1.3 billion toll road from Petersburg to Suffolk, could be affected. State contracts for all of them could be voided.

If so, it would be a huge defeat for Gov. Robert F. McDonnell and earlier governors who have made good use of the Public-Private Transportation Act of 1995 to push ahead with highways that the tax-averse state otherwise was too short of money to build.

Cales’s case involved legal challenges to using the private toll road concept to pay for upgrades at the Downtown and Midtown Tunnels underneath the Elizabeth River connecting Norfolk and Portsmouth.

The key issues are electronic tolls that are supposed to kick in next February. Off-hour tolls for cars are $1.59 and go up to $1.84 during rush hour. Trucks would have to pay $7.36 during peak times. Business officials and commuters, many working in blue-collar jobs, are angry about the new expense. The tunnels used to be toll affairs years ago and the fees were much lower.

The pressure is on to void Cales’s ruling, lest it result in massive scrambling of road plans. Transportation Secretary Sean Connaughton, a big fan of the PPTA, warned of serious possible repercussions when he met with lawmakers Monday. “This is not consistent with almost 240 years of building toll facilities in the commonwealth of Virginia, Connaughton told the House Appropriations Committee, according to the Richmond Times Dispatch.

Cales’s ruling is due to be appealed to the State Supreme Court, but in the interim, he has refused to stay his decision. One possible outcome is that the state would be stuck with a lot of expenses that have already been paid, such as $706 million for the Elizabeth River tunnels. In all, the state could be on the hook for $3.5 billion.

The General Assembly would also be forced to perform a heavy-duty rethink of how it funds roads.

But that may be a good thing. The PPTA, heralded as a rare pioneering effort for Virginia, has been used far beyond its intended purpose. It was supposed to be a way to supplement traditional road funding. Instead, skin-flint legislators who hate “taxes” have used the PPTA as a way to fund roads through tolls instead with private companies assuming much of the risk. Democrats and Republicans alike liked this scheme of having your cake and eating it too.

The outcomes have not always been good. A relatively short toll road southeast of Richmond, the Route 895 Pocahontas Parkway, has been so underused and underfunded that it was sold off to Australia’s Transurban firm, which recently announced it was selling it to a consortium of European banks because it wasn’t making money.

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Posted in Courts and law, Demographics, Economic development, Economy, Finance, Infrastructure, Land use & development, Planning, Property rights, Regulation, Taxes

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The Good and Bad of Exporting LNG

Posted on June 17, 2013 by Peter Galuszka| 10 Comments

cove point 046By Peter Galuszka

Riding a chunky, balloon-tire bicycle may seem awkward enough, but imagine pedaling in a six-feet-wide concrete tunnel for one mile on the bottom of the Chesapeake Bay in Maryland.

It’s amazing what we Bacon’s Rebellion bloggers do to keep you readers informed, but it’s all in a day’s work — just like sucking in your gut when we read your nasty comments.

I’m here in a plastic white hardhat  and safety gases trying to get used to the sense of confinement as we cycle to the terminal one mile off Dominion Transmission’s Cove Point facility to handle Liquefied Natural Gas (LNG).  Richmond-based Dominion bought the facility in 2002 to import LNG from various global points such as Trinidad and Norway.

The last time a commercial LNG tanker actually showed up to unload, it was October 2011. The fracking revolution and the resulting flood of gas negated the logic of importing. Now Dominion wants to export LNG and has invited me along to see the facility. I wrote about it this Sunday in the Washington Post.

I found this one a hard call. The environmental lobby is against exporting gas, saying it will increase domestic prices and better time should be spent on developing renewables.

I say no to the first and yes to the second. Gas is now about $4 per million BTUs, far down from the $12 or so level of a few years ago. When the fracked flood hit, prices went way down to $2 mmBTU, but my logic is that they’d have to export a lot of gas to make a real difference in pricing.

On the second point, the greens are right. Maryland has a renewable portfolio standard of having 20 percent of electricity generation come from renewables like wind or solar by 2020. It is now about 7 percent. Granted, the gas that Dominion wants to export will go to Japan and India which are outside of the standards (Virginia’s, true to form, are voluntary, of course!), but their $3.8 billion or plan to allow Cove Point to export does absorb resources that could go to developing renewables.

If the project gets approval from the Federal Energy Regulatory Commission and the Department of Energy as Dominion expects by 2014, it is in a position to tap two pipelines carrying Gulf Coast gas in Northern Virginia, which is also the terminus from another pipeline running from the north and Pennsylvania’s Marcellus Shale formation where fracking really has taken off in the past few years.

To be sure, the verdict’s still out on fracking, which involves tough chemicals and lots of high pressure water to shatter geologic formation and get gas and oil unavailable before. It still hasn’t been proven that the chemicals won’t end up in the groundwater somewhere and wells can give off methane which can be flammable and a global warming ingredient. New York State still has a moratorium on fracking. Out West, energy firms are slurping up precious water for fracking while leaving farmers and herders dry.

On the plus side, gas released half of  the CO2 as coal does, doesn’t kill miners and doesn’t result in highly destructive mountaintop removal. Only one person has been killed in a gas-related accident in more than 30 years of operation.

Cove Point has had a checkered history. It was built in the late 1970s during the energy crisis years and the suddenly went dormant when a pricing dispute with Algeria ended imports for a while. It’s been up and down since, with other owners. Dominion has agreements to lock in export shipping prices for 20 years and won’t own the gas which should make it immune from global gas price fluctuations. But before one thinks that exporting from Cove Point is some kind of Brave New World, consider that Dominion has all the contracts with two Asian utilities it needs. It isn’t looking for more customers.

There are 15 other export proposals in the U.S. and old field Senators are urging expediting permit processing. Dominion says that only six or so of the LNG export facilities will actually go through. That has more to do with economics than regulations.

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Posted in Blogs and blog administration, Economic development, Economy, Energy, Environment, Federal, Finance, Infrastructure, Land use & development, Media, Regulation, Science & Technology

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Yet Another Owner for Richmond’s Unwanted Road

Posted on June 14, 2013 by Peter Galuszka| 14 Comments

pocahontasBy Peter Galuszka

Richmond’s “Road to Nowhere” is about to get yet another owner, showing again how the public-private partnership craze can result in unneeded transportation projects while denying resources elsewhere.

Australia’s Transurban which owns Route 895, otherwise known as “Pocahontas Parkway” is dumping the tollroad it picked up in an emergency financial deal in 2006. At that time, the highway that connects Interstates 95 and 295 southeast of Richmond was so underused that it was about to take down the state’s stellar credit rating.

But Transurban hasn’t been able to make a go of it despite tolls of up to $3.25 per car for a short drive through the fields of eastern Henrico County. The firm plans on selling it to a consortium of European banks that have $300 million in debt. The project also owes the feds $150 million for a loan.

The Pocahontas Parkway was the pioneer project for the Public-Private Partnership Transportation Act of 1995, which has been heralded as a nation-beater and a way to have your cake and eat it too as far as road financing. The allure was that you could build roads and have the private sector manage them and help pay for them through tolls.

Problem was, nobody seems to need the highway. It was billed as a way to expedite I-95 traffic to I-64 and I-95 around Richmond and perhaps open up relatively untapped areas east of the city for suburban sprawl development which hasn’t really happened.

The Richmond Establishment is loath to admit this, but the Richmond airport which has undergone a big expansion is not getting the flights and traffic it had hoped for. The Parkway was supposed to have helped promote the airport by providing easier access to it.

PPPT funding has been replicated in other areas in Northern Virginia and Hampton Roads, but a Portsmouth judge seems to have finally put a legal dagger through  the heart of the program by ruling that in the case of a local tunnel project, the state had unconstitutionally given its authority to tax to a private entity.

It isn’t clear what the ruling means for the PPT program, but the gist is clear. Democrats and Republicans alike want to live a fiction that you can transfer the state’s traditional responsibility to raise taxes and build roads and hand it over to private interests. It seems such a sweet arrangement – you get to keep Virginia from having to raise taxes, avoid violating the no-tax dogma  and not piss off voters while getting highways and construction jobs. It sounds too good to be true and it is.

Oh well. I wonder who will inherit the White Elephant when the European banks can’t make it work either.

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Posted in Budget, Demographics, Economic development, Economy, Energy, Environment, Finance, Infrastructure, Land use & development, Planning, Taxes, Transportation

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Everything’s Big in Texas, Including Spending and Borrowing

Posted on June 10, 2013 by James A. Bacon| 23 Comments
Big spender

Big spender

Texas has been stomping every other state, including Virginia, when it comes to job creation. Some of that’s due to the oil-and-gas boom, some to a favorable tax and regulatory structure. And some, no doubt, can be attributed to the splurge in state and local borrowing and spending. Writes Steven Malanga for City Journal:

While Texas’s state government debt is relatively modest—just $40 billion, or $1,577 per resident—local government debt is more than four times higher: $192 billion. That’s $7,505 per capita, according to Combs’s report—the second-highest sum in the nation, behind only New York’s municipalities and far ahead of third-place California’s. Over the last decade, moreover, local debt has increased 144 percent, much faster than the rate of population increase plus inflation.

One of the larger categories of spending is for… high-school sports stadiums. More than 100 high school stadiums have opened in the past five to six years; a single project in Allen, Tex., is costing $60 million.

That spending creates a lot of construction-related jobs, but it saddles local governments with liabilities that eventually must be repaid. Meanwhile public employee pension liabilities are soaring.

In Austin, the cost of fringe benefits—consisting mostly of pension contributions and health-care spending—has exploded over the last decade, from 15 percent of the city’s budget to 30 percent. Those cost increases, according to a report in the Austin American-Statesman, are partly to blame for a sharp increase in property taxes—38 percent over the decade.

Virginia has a lot of misplaced investment priorities, but at least we’re not borrowing millions to fund a wave of high-school stadium construction, and we have made real, if incomplete, progress in tackling our own pension liabilities. While our track record in job creation may be more modest than Texas’, hopefully it is more sustainable.

– JAB

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Posted in 2013, Budget, Finance, Infrastructure, Taxes

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My Moment of VPAP Clarity

Posted on June 1, 2013 by Peter Galuszka| 15 Comments

star scientific By Peter Galuszka

Last week, the Virginia Public Access Project held its annual luncheon and invited gubernatorial candidates Kenneth Cuccinelli and Terry McAuliffe to speak. No debate. No questions. Just a few minutes of remarks.

The ballroom of the downtown Richmond Marriott was filled with the usual suspects, including lobbyists, lawyers, corporate officials and politicians. Some reporters were there, but they had been informed that their lunch was not included.

I attended and managed to sneak in a glass of iced tea when I came upon a moment of clarity. VPAP performs a useful service by detailing with sophisticated software and data bases who gives what to whom. I use the services of the non-partisan system all the time and over time, it has become the go-to source in Virginia. There are other services such as the Center for Responsive Politics, but this is the one that drills down in Old Dominion affairs.

Therein lies the problem. VPAP is part of an institution that backs inadvertently benefits from the lax and permissive Virginia-style rules of gift giving to politicians. Gov. Robert McDonnell and Cuccinelli are both caught for not readily disclosing the apparently legal gifts they got from the executive of a suspect company, Star Scientific that is under investigating by the FBI and a local prosecutor.

At the luncheon table sipping my purloined iced tea, I noticed the VPAP program. Its biggest contributors ($10,000 each) are Alpha Natural Resources and Dominion. The former is a Bristol-based coal firm that bought out Massey Energy whose officials are the target of a federal probe that they spent a decade conspiring against mine safety officials and the result was the death of 29 in a blast at Upper Big Branch mine in Montcoal, W.Va., on April 5, 2010, the worst in 40 years.

Alpha says it is trying to correct the defects in the Massey organization in bought but it, too, is a huge player on the political front and has its own agenda, such as keeping alive a destructive type of mining called mountaintop removal. Dominion has a highly sophisticated advocacy operation since its survival depends on regulation. Other big-time VPAP contributors are car dealers, tobacco giant Altria, Comcast, lobbying law firm McGuireWoods, health groups, a few other utilities, and so on. Even NOVA real estate John “Til” Hazel is on the list, but much farther down.

I really didn’t see any citizen groups or anyone that wasn’t bound to benefit by giving legal gifts of jumbo shrimp, lakeside vacations or money to someone in a position of power in the state.

The problem, therefore, isn’t the fact that anything is illegal, but just about everything is and it is peculiar to Virginia. I was amused to read New York Times columnist Gail Collins write this morning about Virginia’s anything-goes gift policies:

“Under Virginia’s ethics laws the governor can accept anything – house, car private jet, former Soviet republic – as long as he puts it in the proper form.”

Ms. Collins details the familiar Giftgate issues, stating:

“Looks like an investigation for Attorney General Kenneth Cuccinelli. Except — whoops – it turned out that Cuccinelli had also taken gifts from the same business man, some of which he, too, had failed to report.”

She adds: “ Perhaps unreported freebies will be a big campaign issue. Although in a more perfect world, voters might focus on the attorney general’s two-year investigation of a University of Virginia scientist for the crime of believing in global warming.”

All good points from someone far enough from Virginia and its entrenched gift-giving structure that is designed precisely to enhance the influence of the rich and elite while pretending to let all Virginians now what is going on.

It is time for a basic rethink and restructure.

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Posted in Electoral process, Energy, Environment, Finance, Governance reform, Money in politics, Politics, Regulation

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Baby Bull

Posted on May 31, 2013 by James A. Bacon| 2 Comments
It's not the iconic raging bull on Wall Street. But it does have growth potential.

It’s not the iconic raging bull on Wall Street. But Richmond’s financial sector does have growth potential.

by James A. Bacon

New York City, home to the “masters of the universe” and Wall Street, is typically thought of as the center of the financial world. And by most measures it is. But the city ranking No. 1 in New Geography‘s ranking of 2013 best cities for financial-activities jobs was… (drum roll)… Richmond, Va.

Indeed Virginia’s largest metro regions pwned the financial-services rankings. “Northern Virginia,” normally thought of as a tech hub and antechamber of the federal government, ranked 7th among the nation’s 66 largest metro regions, and Hampton Roads, dominated by the military, manufacturing and tourism, scored a respectable 19th place.

Charlotte, N.C., ranked 46th in the list, which is based upon a composite of short-, mid- and long-term growth trends. New York City trailed in 52nd place. Write authors Joel Kotkin and Michael Shires:

Tops on our list among the 66 largest metro areas is Richmond, Va., where financial sector employment has grown an impressive 12% since 2009. This reflects the presence of large banks such as Capital One Financial, the area’s largest private employer with 10,900 jobs, and SunTrust Banks , which employs 4,400. The insurer Genworth Financial is based in Richmond, and Wells Fargo and Bank of America also have sizable operations there. Along with the Northern Virginia metropolitan statistical area … which is No. 7 on our list, the Old Dominion is quietly becoming a major financial power.

The Greater Richmond Partnership (GRP) has long recognized the Richmond region’s strength in financial services.  I tracked the industry in a newsletter I published for the GRP in the mid-2000s.

Richmond was once a regional banking powerhouse but lost its shine during the 1990s-era consolidation of the banking industry because North Carolina’s legislature was a bit faster than Virginia’s to deregulate the banking sector, which gave North Carolina’s banks a head start in gobbling up their neighbors. But there was always more to Richmond finance than banking. Capital One was launched in Richmond as a credit-card business that pioneered the use of data mining in the financial services sector. Although Cap One moved its headquarters to Northern Virginia, it kept a major operations center here. There is a significant insurance industry presence in town as well, most notably specialty P&C insurer Markel Corp. Richmond also hosts a vibrant investment banking sector serving small- to mid-tier companies in the private-equity market, as well as a number of specialty firms. My sister, Mary Bacon, carved out a practice putting together deals in an obscure niche called “alternate energy,” which in the past 10 years has become not so obscure.

The big money is still made in New York. Richmond will never replace it. The Big Apple enjoys what economists refer to as “agglomeration” effects: The top guns in the industry are willing to pay a premium to enjoy easy face-to-face access to the other top guns in the industry. But back-office and marketing jobs are moving to less expensive locales. Moreover, Richmond is hospitable to entrepreneurs, so there has been a lot of home-grown growth here as well.

Richmond’s strength in financial services is one more example of why I am suspicious of economic development strategies that chase the hot-industry-sector-of-the-year — usually some flavor of “high tech.” Economic developers should nurture the oft-unappreciated strengths that already reside in the community.

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Posted in 2013, Economic development, Economy, Finance

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How Good Is Chmura’s Economics Data?

Posted on May 29, 2013 by Peter Galuszka| 8 Comments

chmuraBy Peter Galuszka

In the 40 months since Robert F. McDonnell has been in office, the launch of many of the governor’s policy initiatives seems to be accompanied by a press release touting the supportive findings of a small, Richmond-based research firm named Chmura Economics & Analytics.

When McDonnell was pushing his transportation plan to come up with $3.4 billion road funding by eliminating the gasoline tax and increasing the sales tax, the Chmura firm was hired to research the impacts. The results were glowing: McDonnell’s signature plan would eventual result in 13,058 new jobs and $9.5 billion investment.

When McDonnell and his Transportation Secretary Sean Connaughton wanted a $1.4 billion toll road linking Petersburg with Suffolk near U.S. 460 that not many other officials seemed too keen about, Chmura served up a report saying it would create 14,000 jobs, including more than 8,000 jobs from advanced manufacturing or automotive firms that would locate by the end of the decade at two “megasites” in Isle of Wight and Sussex counties. A little problem: the Isle of Wight site is just gearing up and the one in Sussex hasn’t been built yet.

There are other examples of questionable data in Chmura reports involving the Redskins moving its summer training center from Ashburn to Richmond and in the capital pitching a 2015 international bicycle race. The former involved considerable monetary incentives to the rather wealthy Redskins NFL club.

The economics firm is headed by Christine Chmura, an economics Ph.D. with impeccable credentials at a Richmond bank and the Federal Reserve. Fourteen years ago, she founded her firm and built it up in this state and in her native Ohio. She is a popular speaker on the economics and policy circuit. (Full disclosure, when I edited a business magazine about 10 years ago, I hired Chris several times for economic analysis and was pleased with the results).

There does seem to be something wrong and when I wrote a cover this week for Style Weekly, I detail some of the issues. Style filed Freedom of Information Act requests and we reviewed some of the Chmura contracts. The Virginia Department of Transportation some her firm’s payments, including one for the new toll road, under “advertising/public relations.”

Read more here.

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Posted in Budget, Demographics, Economic development, Economy, Energy, Environment, Finance, Infrastructure, Land use & development, Money in politics, Politics, Taxes, The Economy

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McAuliffe’s Offshore Drilling Flip-Flop

Posted on May 28, 2013 by Peter Galuszka| 16 Comments

offshore-oil-rigBy Peter Galuszka

Terry McAuliffe’s flip-flop on opposing offshore oil drilling in Virginia is unsettling given that the last time the Democrat ran for governor in 2009, he seemed skeptical of drilling for oil although he thought searching for natural gas might be beneficial.

He apparently changed his position because he’s been with fresh legislation proposed by Mark Warner and Tim Kaine, his fellow Democrats in the U.S. Senate. Their bill would mandate that roughly half of any revenues from offshore petroleum either go to Virginia or to federal conservation programs in the state with the remainder going to Washington.

The Warner-Kaine bill would make Virginia’s cut from any potential revenues more in line with what Gulf Coast states get, but it puts pressure on the Obama Administration to speed up leasing for oil and gas drilling rights which had been delayed until 2017.

It would be hard for McAuliffe, now embroiled in a tough fight against Republican Atty. Gen Kenneth Cuccinelli , to go against two popular Democrats who pretty much paved the way for his candidacy.

That, however, doesn’t mean that any of the Democrats is making a wise move.

There was a collective sigh of relief in 2010 when Obama put East Coast leasing plans on ice following the blow-out and huge spill at the Deepwater Horizon platform in the Gulf of Mexico, which killed 11 workers and fouled local seafood and tourist beaches. Gov. Robert F. McDonnell was forced to shelve part of his plans, notably offshore drilling, to make Virginia the “Energy Capital of the East Coast.”

It turns out that Democrats want to do the very same thing and it’s a bad idea.

For starters, there’s no serious evidence that there is much oil offshore, although there are indications that natural gas deposits might be available. So, oil and gas drilling don’t currently contribute anything to the state’s economy and may never.

What do contribute are sectors such as tourism ($200 billion in 2011), seafood ($191 million in 2011) and the Navy ($15 billion in 2009). These industries and the jobs they bring the state are cold, hard facts. A Deepwater-sized spill could do enormous damage to beach resorts and fishing. The Navy is worried that most of the areas that could be leased would impede combat training which involves explosives and aircraft carrier operations.

Some experts believe that not enough has been done to bring offshore drilling safety operations and technology much beyond the level when the Deepwater blast occurred.

Environmentalists point out that extending offshore drilling to Virginia and the East Coast only prolongs America’s dependence on nonrenewable fossil fuel. But there’s a more immediate problem. Thanks to new onshore drilling technologies, the U.S. is suddenly brimming with natural gas and shale oil. The new additions are turning global energy markets on their heads.

Why go for more off the same off  of Virginia considering the risks to existing and robust industries?

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Posted in Budget, Disaster planning, Economy, Energy, Environment, Federal, Finance, Infrastructure, Money in politics, Planning, Public safety & health

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The Cooch’s Freak Show Dream Team

Posted on May 21, 2013 by Peter Galuszka| 6 Comments

cooch dream teamBy Peter Galuszka

Ken Cuccinelli just can’t keep away from the bizarre, but perhaps that’s what makes him what he is.

He stages a convention instead of a primary to neuter Bill Bolling. And since a convention is smaller, it draws more GOP hard-righters than  June bugs on a humid night and they succeed in getting Bishop E.W. Jackson and Mark Obenshain selected. They underline the social conservatism that turns millions off and makes Virginia the butt of jokes on late night talk shows.

The Bishop is an even bigger gay basher than Cuccinelli and says that Planned Parenthood is responsible for more fatalities among African-Americans than the Ku Klux Klan. This may be new to a Harvard Law graduate, but women of any color have a legal right to an abortion within limits. The U.S. Supreme Court said so. Look under Roe vs. Wade.

Then there is the attorney general candidate Mark Obenshain of the legacy Republican family. He proposed and withdrew legislation to require any woman in Virginia who miscarries a pregnancy to report it to the police. The idea is so repulsive it is beyond words. A woman may have miscarried to her great sorrow due to medical reasons and then would have to go through the added horror of having to report to the police? Yes, this comes from a cabal that otherwise wants to keep the government out of your lives. Even Josef Stalin wouldn’t think of this.

What does the dream team have to say on the many policy issues facing a troubled state? We have a bunch of lame and poorly thought out tax cuts and Cooch playing hardware store populist. Cuccinelli was against McDonnnell’s mammoth road building tax plan and has since backed away from his opposition.

Is this good news for Terry McAuliffe, who has plenty of issues of his own? Yes, I would think. Cuccinelli doesn’t need the fringe hard right voters. He’s already got them in his pocket. He needs the center and Mark and the Bishop aren’t going to be much help there.

It boggles the mind how Virginia is so schizo. It is attracting hundreds of thousands of newcomers who are running the state’s economy and are dragging it into the 21st century world. Yet the Republicans put up people like this who aren’t dragging us to Virginia’s recent dark past but to medieval times.

Global investors might think twice or three times before investing in this freak show.

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Were taxes paid on Kaine, Cuccinelli and McDonnell’s “gifts”?

Posted on May 9, 2013 by Groveton| 19 Comments

irsDo look a gift horse in the mouth.  As I read more and more about the tendency of Virginia’s elected officials to line their pockets with other people’s money I began wondering about the tax implications of such “perks of political office.” Even to a layman like me the IRS rules on gifts seem pretty straightforward.  The only slight debate on gift taxes relates to who should pay the tax. Per the IRS website: “The donor is generally responsible for paying the gift tax. Under special arrangements the donee may agree to pay the tax instead.”

For the love of loopholes.  One big loophole in gift taxes is the exclusion amount.  The IRS code allows a tax-free giving of gifts up to a certain amount each year.  In its benevolence to the wealthy Congress has been rapidly escalating this exclusion level in recent years.  The annual exclusion applies to each donee and is $11,000 in 2002-2005, $12,000 in 2006-2008, $13,000 in 2009-2012 and $14,000 on or after January 1, 2013.

Virginia’s hall of shame.  Virginia politicians love their “gifts.”  They can take pretty much anything in any quantity from anybody.  The only requirement is that they disclose the gifts (a requirement apparently too onerous for Ken Cuccinelli).  So, let’s take a trip down memory lane and look at some of the “gifts” received by the former governor, the current governor and the would be governor.

Tim Kaine.  Kaine wasted no time in reaping the benefits of elected office.  In 2005 Kaine accepted a five star Caribbean vacation from Albermarle County investor James B. Murray, Jr.  Kaine reported the value of the gift at $18,000.  In 2005 the exclusion limit was $11,000.  So, we have a $7,000 overage.  Assuming this overage was taxable – did anybody pay the taxes on that $7,000?

Bob McDonnell.  The McDonnell clan loves gifts.  In fact, they love gifts so much it can be hard to sort it all out.  Fortunately, Progressiveva has sorted it out for us.  Just from Star Scientific to Bob McDonnell we see $2,268 in lodging and entertainment in 2011 and $7,382 in free air fare in 2012.  Of course there is also that pesky $15,000 gift to McDonnell’s daughter in 2011 as well.  McDonnell falls below the exclusion allowance in 2011 and 2012 but his daughter does not.  The $15,000 gift should have generated a taxable $2,000 in 2011.  Did anybody  pay the taxes on that?

Ken Cuccinelli.  It is said that elephants never forget.  However, members of the elephant clan are not so lucky.  Ken “what day is it?” Cuccinelli seems hard pressed to remember all the gifts he has received from Star Scientific over the years.  So far, Cuccinelli has managed to recollect $12,965 in gifts from Star Scientific in 2011 and $3,000 in 2012.  Lucky Kenny comes in $35 below the $13,000 exclusionary limit in 2011.  Let’s hope our Attorney General doesn’t have any more flashes of lucidity in remembering any additional gifts from Star Scientific in 2011.

To be clear.  The donors or recipients may have very well paid the required taxes on the value of the gifts exceeding the exclusion level.  But given the sensitivity of these gifts and the fact that all three gentlemen are presently elected officials, shouldn’t Kaine and McDonnell publicly verify that all the required taxes were paid?  A simple public statement saying that all required federal and state taxes were paid would be enough for me.

- D.J. Rippert

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Posted in 2013, Finance, Governance reform, Taxes

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