Category Archives: Finance

The Strange Story of Health Diagnostic Laboratory

HDL's Mallory before her fall.

HDL’s Mallory before her fall.

By Peter Galuszka

The biggest problem facing the health care industry in Virginia and the rest of the country isn’t Obamacare or the lack of new medical discoveries. It the lack of transparency that hides what is really going on with pricing tests, drugs and hospital and doctors’ fees. Big Insurance and Big and Small Pharma cut secret deals. We are all affected.

I’ve been wanting to blog about this – especially after Jim Bacon’s recent post on the supposed tech trend in health care – but I wanted to wait until a story I’ve been working on for a few weeks was posted at Style Weekly, where I am a contributing editor.

In it, I explore the strange story of Health Diagnostic Laboratory, a famed Richmond start-up that went from zero to $383 million in revenues and 800 employees in a few short years. The firm said it was developing advanced bio-marker tests that could predict heart disease and diabetes long before they took root. HDL’s officials thought it would transform the $1.6 trillion health care industry.

Richmond’s business elite applauded HDL founder Tonya Mallory, a woman who grew up just north of the city and had the strong personality and drive to create the HDL behemoth. Badly wanting a high tech champion in a not-so high tech town, the city’s boosters did much to publicize HDL and Mallory, believing they could draw in more startups.

The story was too good to be true. It start to deflate last summer when the federal government noted that HDL was one of several testing labs being probed for paying doctors $17 for using HDL tests for Medicare patients when Medicare authorized $3 per test. Mallory resigned Dept. 23. Several lawsuits by Mallory’s former employer, Cigna health insurance and another have accused HDL of fraud. HDL has responded in court.

One legal picture suggests that HDL wasn’t a true tech startup but a new firm that stole intellectual property and sales staff. HDL says no, but its new leader Joe McConnell has taken steps to reform sales and marketing and is said to be working with the U.S. Department of Justice to settle a federal investigation.

The HDL affair raises issues about the inside marketing and apparent payoffs that are the biggest problem the health care industry faces. It doesn’t matter what kind of “market magic” combined with new technology comes up if something like this keeps happening.

This is all the more reason for a universal payer system. That may be “socialized” medicine but in my opinion it is the only logical way to go.

Interview: McAuliffe’s Economic Goals

 maurice jonesBy Peter Galuszka

For a glimpse of where the administration of Gov. Terry McAuliffe is heading, here’s an interview I did with Maurice Jones, the secretary of commerce and trade that was published in Richmond’s Style Weekly.

Jones, a graduate of Hampden-Sydney College and University of Virginia law, is a former Rhodes Scholar who had been a deputy secretary of the U.S. Department of Housing and Urban Development under President Barack Obama. Before that, he was publisher of The Virginian-Pilot, which owns Style.

According to Jones, McAuliffe is big on jobs creation, corporate recruitment and upgrading education, especially at the community college and jobs-training levels. Virginia is doing poorly in economic growth, coming in recently at No. 48, ahead of only Maryland and the District of Columbia which, like Virginia have been hit hard by federal spending cuts.

Jones says he’s been traveling overseas a lot in his first year in office. Doing so helped land the $2 billion paper with Shandong Tranlin in Chesterfield County. The project, which will create 2,000 jobs, is the largest single investment by the Chinese in the U.S. McAuliffe also backs the highly controversial $5 billion Atlantic Coast Pipeline planned by Dominion because its natural gas should spawn badly-needed industrial growth in poor counties near the North Carolina border.

Read more, read here.

(Note: I have a new business blog going at Style Weekly called “The Deal.” Find it on Style’s webpage —   www.styleweekly.com)

Yes, Boomergeddon Still on Track

obamaby James A. Bacon

President Barack Obama seemed pretty darned impressed with his economic and fiscal stewardship of the United States during his State of the Union speech last night. “We’ve seen the fastest economic growth in over a decade, our deficits cut by two-thirds, a stock market that has doubled, and health care inflation at its lowest rate in 50 years,” he crowed.

Let’s unpack that statement. Yes, we have seen the fastest economic growth in ten  years — which is a real indictment of the economic growth before the last two quarters. The last time we had economic growth this strong was… yikes!… during the George W. Bush presidency!

Yes, our deficits have been cut by two-thirds. The FY 2014 deficit was “only” $483 billion — one-third the $1.4 trillion deficit in in FY 2009. Unfortunately, the deficit is still massive by historical standards, and the Congressional Budget Office (CBO) expects the deficit to start climbing in FY 2016 to nearly $1 trillion by 2024.

Yes, the stock market has doubled. That’s one thing we truly can credit Obama’s economic policies for. The Federal Reserve Board’s zero-interest rate policy, pursued with the full backing of the administration, has pushed the stock market to record highs. As a small-time stock investor, I’m grateful. I’m sure America’s millionaires and billionaires are grateful, too. The poor and middle class, not so much.

Yes, health care inflation is at its lowest rate in 50 years. Of course, that has absolutely nothing to do with Obamacare, as many assume. The cost curve in health care started bending before Obamacare was implemented, and the slowdown in increasing costs mainly reflects private-sector strategies: (a) efficiencies gained by the consolidation of the hospital industry into health systems, and (b) the shifting of private-sector plans of costs to employees, in effect forcing them to exercise more diligence as health care consumers. To quote PWC:

Doctors and hospitals are adopting standardized processes that offer the prospect of better value for our health dollar. At the same time, consumers are starting to price-shop for health services and put new demands on the delivery of care. Over one-quarter of employers have a high-deductible health plan as their highest enrolled medical plan in 2014—the highest percentage ever. With more individuals making healthcare purchasing decisions, value and price are the new mantra.

Ironically, the federal government, which pays for Medicare and Medicaid, is the biggest beneficiary of these changes. Because health care is the biggest single driver of expected deficits, “bending the curve” of health care inflation could make a big difference over the long term. Let’s just be clear where those cost savings are coming from.

So, is the U.S. still headed to Boomergeddon? The spending discipline imposed by sequestration has made a difference. My prediction, made in 2010, of fiscal calamity by 2025 to 2027 now looks excessively pessimistic. Calamity may be forestalled until 2030 or so.

Only a fool would think the U.S. is out of the fiscal woods. The CBO says that, without major policy changes, built-in structural deficits will grow relentlessly from hereon out. The projection goes out only ten years, but by year eleven, the deficit likely will be running at 1 trillion annually. Meanwhile, we have unresolved problems looming like the Social Security Disability Insurance trust fund running out of money next year, triggering a 20% cut in benefits to the disabled. Congress likely will shore up the program by reallocating funds from the Social Security Old Age & Survivors Insurance fund, but that will accelerate the day when both funds run out of money — in 2030.

In effect, that means we have 15 years to fix the largest and most critical component of the U.S. social safety net. It is theoretically possible to restore the Social Security system to health if we make a series of tweaks that make a difference over a long period of time. But the longer we wait — and it doesn’t look like anyone is in a hurry to act — the bigger and more politically painful those tweaks will have to be.

The U.S. is deep into one of the longest (though weakest) economic recoveries in its history. Another 10 years of steady economic growth would be unprecedented. There will be another recession. Hopefully, it won’t be nearly as calamitous as the last one, but it will drive deficits higher. The reversal of Federal Reserve Bank’s quantitative easing will have an impact, too. The Fed has been handing over nearly $100 billion a year in profits, resulting from its purchase of long-term bonds and its manipulation of interest rates, to the U.S. Treasury. As interest rates resume their climb, that source of pain-free deficit reduction will evaporate. Meanwhile, it’s becoming increasingly evident that our precipitous withdrawal from the Middle East is not sustainable from a geopolitical perspective. We would like to walk away from the Middle East but al Qaeda and ISIS don’t seem to want to walk away from us. There will be considerable pressure for defense spending to increase.

Without dramatic corrective action, we’re still heading to Boomergeddon. I would expect a major fiscal-financial crisis around 2030 when the combined Social Security trust fund runs out. With a divided government in Washington, D.C., there’s no chance of getting that corrective action over the next two years. After that? Who knows.

Potomac Yard Metro: a Financing Model for Mass Transit

Image credit: North Potomac Yard Small Area Plan

Image credit: North Potomac Yard Small Area Plan. (Click for larger image)

by James A. Bacon

The state will help finance a new Metro station in Alexandria through a $50 million loan from the Virginia Transportation Infrastructure Bank approved by the Commonwealth Transportation Board earlier this week. The loan is a key piece of financing for the station, which is expected to cost between $209 million and $268  million to build. In turn, the Metro station is a key piece of infrastructure to advance development of between 9.2 million and 13.1 million square feet of residential, office, retail and hotel space in the Potomac Yard.

While the Metro project doesn’t pass the Bacon litmus test for 100% user-pays financing, it does better than most  mass transit projects Virginia has underwritten, and it would open up 300 acres for high-density, high-value development only five miles from the core of Washington, D.C.

The Potomac Yard, to be built on an old CSX railroad marshaling yard south of Ronald Reagan National Airport, could be Northern Virginia’s most important urban infill project of the early 21st century. Plans call for the creation of between 4,300 and 7,100 residential units, 3.2 million and 4.2 million square feet of office space, nearly 800,000 square feet of retail and 740 hotel rooms. We’re not talking about development that might happen… some day. There is a strong, demonstrated demand for the kind of walkable urbanism planned at Potomac Yard.

From what I can tell from perusing public documents, the City of Alexandria is approaching this project the right way. The land use plan calls for creating a balanced mix of uses in a walkable environment with the goal of maximizing transportation infrastructure by distributing peak traffic over longer periods, maximizing internal trips and maximizing transit use. The plan also would put most parking underground, reducing the need for parking spaces by creating opportunities for shared parking, such as office buildings using parking during the day and residences during the night. Highest density development will be located around the Metro station.

I will say this: $200 million+ strikes me as an extraordinary amount of money to build a single Metro station. There are complicated trade-offs to be made with the station siting. A final decision and cost have yet to be determined. The problem is that the station must work within narrow confines around the existing rail line. Depending upon the design alternative selected, that entails building pedestrian bridges, retaining walls and/or new Metrorail bridges. The complexity of the construction staging is rated moderate to high, and considerable construction would take place along live tracks.

Complexity comes with the territory in in-fill projects. The key question is whether the project creates sufficient value to justify the higher cost. And there’s really only one way to tell: Are developers willing to absorb the cost of constructing the Metro station, or would doing so price their office, residential and retail space out of the market?

We’ll never know the answer because Alexandria isn’t loading the full cost of the Metro station construction upon the developers who stand to benefit through higher rents and leases on their properties. According to the Potomac Yard Metrorail Station Environmental Impact Statement, the project cost including interest will total $496.6 million. In 2010, the original idea was for developers to contribute $74 million directly, another $194 million through revenues generated through a special tax district, and the rest through regular taxes paid, which Alexandria would use to support municipal debt. But financing plans have evolved since then. Now the City of Alexandria is seeking $67 million from the Northern Virginia Transportation Authority. And the loan from the Virginia Transportation Infrastructure Bank (VTIB) lock in an interest rate of 2.17 percent over 30 years, reducing much of the interest expense.

In a presentation to the CTB, Assistant Transportation Secretary Nick Donohue described the VTIB loan’s complex debt structure. Repayment is secured by a combination of revenue from the special tax district and moral obligation of the City of Alexandria. Not all details have been finalized. “Upon CTB approval,” states the presentation, “additional specific loan terms will be determined as project, schedule and related documents are finalized.”

Bacon’s bottom line: There are still big unknowns to this project. We don’t know how much the Metro Station will cost. A final design hasn’t been selected, and almost every mass transit project known to man seems to undergo mission creep and cost escalation. Further, we don’t know the final terms of the VTIB loan. With those important caveats, it appears that this project comes closer to to paying its own way than any Virginia mass transit project I can recall.

There are no federal dollars. There likely will be state dollars, but they will come from the Northern Virginia Transportation Authority, which means that down-state taxpayers will not be subsidizing the project. The commitment of VTIB funds represents a small interest rate subsidy and there is a small risk that the money may not be paid, so in theory state taxpayers could be on the hook for some portion if things turn sour.

But this project differs from every other Virginia mass transit project in that developers will contribute a $74 million (2010 estimate) through direct contributions, $194 million (2010 estimate) through special tax district contributions, and millions of dollars more through payment of regular taxes used to service City of Alexandria municipal bonds. That’s a far greater contribution than will come, say, from developers/property owners of the Silver line or property owners along the Norfolk light rail line.

This is a preliminary analysis based upon a cursory examination of public documents. I invite closer scrutiny by others. But my impression is that, when it comes to paying for mass transit, this is probably the best deal that Virginia taxpayers have ever seen. The Alexandria Metro station should serve as a mass transit-financing model for the rest of the state.

A Positive Alternative to Payday Lenders

mccarthy

Thanks to the Methodist Church, Nina McCarthy found an alternative to expensive payday lenders to pay off her debt. Photo credit: Washington Post.

by James A. Bacon

It’s understandable that people get upset with payday loan companies. The short-term lenders, who use borrowers’ paychecks as collateral, charge interest rates that seem extortionate on an annualized basis. Many borrowers get caught on a treadmill of indebtedness, taking out new loans to pay off the old ones.

The problem with most consumer activists is that they focus primarily on shutting down payday lenders. But driving small-loan providers out of the market doesn’t do anything to help working-class people desperate for cash — it simply eliminates one of the few options available to them.

That’s why it’s encouraging to see churches stepping in with their own lending programs. In an article today, the Washington Post describes how the United Methodist Church in Richmond has created the Jubilee Assistance Fund, which uses church funds as collateral for parishioners to take out low-interest loans through the Virginia United Methodist Credit Union. Over 7 1/2 years, the program has helped parishioners secure 14 loans, from $500 to $8,800. Writes the Post:

Similar initiatives run by faith-based organizations across the country are shifting the way churches approach charity. These programs offer parishioners an alternative to commercial lending agencies, which often charge triple-digit annualized interest rates.

Unlike commercial lenders or even other nonprofit alternatives, these church-backed programs offer near-zero interest rates – a model, proponents say, that helps struggling borrowers get back on their feet.

This is a positive response, not a negative one, to the demand for small, short-term debt. Church programs provide poor people with more options — and better ones — than they had before, rather than taking options away.

Creating “jubilee” programs is consistent with Old Testament theology of loan forgiveness, and it plays to the natural strength of churches, which are communities of parishioners who support one another in times of need. As members of the community, borrowers arguably are more highly motivated to repay their debt. Accordingly, I would expect church lenders to enjoy lower default rates. Also, churches probably have a lot less paperwork and administrative overhead than payday lenders do. It will be interesting to see, though, if churches can achieve a scale that can help thousands, rather than dozens, of people in need.

(As an aside, please contrast the Methodist Church’s approach to economic insecurity to that of the village radicals disrupting Richmond City Council, described in the previous post. One actually helps people; the other just raises hell.)

Takeaways From Bob McDonnell’s Sentencing

Mcd sentencedBy Peter Galuszka

The outpouring of support for convicted former Gov. Robert F. McDonnell was overwhelming at his sentencing hearing yesterday at which he was told that he will serve two years in a federal penitentiary.

And this very support stands in marked contrast to McDonnell’s performance on the witness stand during his marathon trial last summer. There he alternated between saying that he “holds himself accountable” and then blaming his aides, vitamin salesman Jonnie R. Williams and, of course, his estranged wife Maureen who was set up to take the fall.

So which Bob is really Bob?

In U.S. District Judge James R. Spencer’s courtroom, the hours’ long reading of letters of support and 11 witness testimonials from the stand became tedious and repetitive. Bob kneels down to comfort a sick woman. Bob helps out Katrina hurricane victims on his week-long vacation, builds a basketball court and breaks his jaw. Bob restores voting rights to 8,128 convicted felons who had served their time. Bob’s only flaws are his gullibility and naïvite. Bob writes thank you notes.

The most impressive supporter by far was L. Douglas Wilder, the former Richmond mayor who became the first-ever African-American governor. Always unpredictable, the Democratic politician came down hard on Bob’s side, saying he’s known him for years and found him to “to be of his word.” Wilder touched off applause in the courtroom he blamed Williams as “the man who started this bribe” as “the one who got away clean.”

All of these people were trying to convince Judge Spencer that Bob should not get jail time but 6,000 hours of community service. One option would be to stick him in a service coordination job on the island nation of Haiti. The job normally would pay $100,000 including benefits but Bob wouldn’t get the money and would work and have to sleep in a hot and buggy room. Other possibilities including holding an unpaid $60,000 job coordinating a food bank in southwest Virginia.

To his credit, Judge Spencer didn’t bite. Prosecutor Michael Dry said that McDonnell is free to do all the community service he wants after he serves his time behind bars. McDonnell could have gotten more than 12 years in prison. Spencer gave him two.

The sentence is on the light side but is probably fair. McDonnell has been tremendously humiliated. He completely dishonored his public trust and will go down in history as the Virginia governor who was corrupt. At least he is getting some jail time.

And he might win on appeal. It’s not a slam dunk but there is respected legal opinion out there that “honest services fraud” can be viewed in a tight or loose focus. Spencer chose a tight focus but we will have to see if the appeal McDonnell has filed gets to the U.S. Fourth Circuit and then Supreme Court.

Next up is wife Maureen, who is a tragic figure and also was convicted of corruption. Her own daughters characterized her as a sick woman who badly needs help. Some columnists have pumped her up, saying she’s the unsung heroine stuck raising the kids while the ambitious politician is selfishly away building his career.

Something about that argument doesn’t ring true to me. Maureen McDonnell may well have despised the time Bob spent away from her but she also was right beside him, pushing her own agenda such as selling nutraceuticals and backing pet programs such as marketing Virginia wines and helped injured military veterans. As First Lady, she was no shrinking violet when it came to letting her wishes known to state employees.

She comes up for sentencing Feb. 20 and now that her husband’s fate is known, it seems likely she won’t get any jail time. If so, maybe she can get the help she seems to badly need and the McDonnell family can start to heal their terrible wounds.

One of the character witnesses Tuesday was William Howell, the Republican Speaker of the House of Delegates who provided the enormously valuable insight that “people would describe Bob as a Boy Scout.” Not only is Howell’s remark insipid, it hides how much he’s responsible for maintaining the total mess that policing ethics among Virginia public officials has become.

No matter how many Wednesday morning Bible studies Howell says he attended with McDonnell, he still did nothing to improve regulation of political donations and gifts. If anything, he’s the problem not the solution since he minimizes every decent initiative to rationalize Virginia’s loosey-goosey system. If there were clear rules, McDonnell may never have gotten caught in his quagmire. He might have known when to avoid crossing the line.

Howell told the court that the General Assembly is busy setting its house right and that McDonnell’s predicament “Most certainly . . . has had a deterrent effect.” That was likely the most ridiculous statement during the five hours of court testimony on a horrid sentencing day.

Virginia’s Top Stories in 2014

mcd convictedBy Peter Galuszka

The Year 2014 was quite eventful if unsettling. It represented some major turning points for the Old Dominion.

Here are my picks for the top stories:

  • Robert F. McDonnell becomes the highest-ranking former or serving state official to be convicted of corruption. The six-week-long trial from July to September of the Republican former governor and his wife, Maureen, was international news. In terms of trash, it offered everything – greed, tackiness, a dysfunctional marriage, a relationship “triangle,” and an inner glimpse of how things work at the state capital.  More importantly, it ends forever the conceit that there is a “Virginia Way” in which politicians are gentlemen above reproach, the status quo prevails and ordinary voters should be kept as far away from the political process as possible. It also shows the unfinished job of reforming ethics. The hidden heroes are honest state bureaucrats who resisted top-down pushes to vet dubious vitamin pills plus the State Police who did their investigative duty.
  • Eric Cantor loses. Cantor, another Republican, had been riding high as the 7th District Congressman and House Majority Leader. A wunderkind of the Richmond business elite, Cantor was positioned to be House Speaker and was considered invulnerable, at least until David Brat, an unknown college economics professor and populist libertarian, exploited fractures in the state GOP to win a stunning primary upset. Cantor immediately landed in a high-paying lobbying job for a financial house.
  • Terry McAuliffe takes over. The Democrat Washington insider and Clinton crony beat hard-right fanatic Kenneth Cuccinelli in a tight 2013 race. He bet almost everything on getting the GOP-run General Assembly to expand Medicaid benefits to 400,000 low income Virginians. He lost and will try again. He’s done a pretty good job at snaring new business, notably the $2 billion Shandong-Tralin paper mill from China for Chesterfield County. It will employ 2,000.
  • Roads projects blow up. Leftover highway messes such as the bypass of U.S. 29 in Charlottesville finally got spiked for now. Big questions remain about what happened to the $400 million or so that the McDonnell Administration spent on the unwanted U.S. 460 road to nowhere in southeastern Virginia.
  • Gay marriage becomes legal. A U.S. District Judge in Norfolk found Virginia’s ban on gay marriage unconstitutional and the U.S. Supreme Court pushed opening gay marriage farther. The rulings helped turn the page on the state’s prejudicial past, such as the ban on interracial marriage that lasted until the late 1960s.
  • Fracking changes state energy picture. A flood of natural gas from West Virginia and Pennsylvania has utilities like Dominion Resources pushing gas projects. It’s been nixing coal plants and delaying new nukes and renewables. Dominion is also shaking things up by pitching a $5 billion, 550-mile-long pipeline through some of the state’s most picturesque areas – just one of several pipelines being pitched. The EPA has stirred things up with complex new rules in cutting carbon emissions and the state’s business community and their buddies at the State Corporation Commission have organized a massive opposition campaign. McAuliffe, meanwhile, has issued his “everything” energy plan that looks remarkably like former governor McDonnell’s.
  • State struggles with budget gaps. Sequestration of federal spending and defense cuts have sent officials scrambling to plug a $2.4 billion gap in the biennial budget. It is back to the same old smoke and mirrors to raise taxes while not seeming to. Obvious solutions – such as raising taxes on gasoline and tobacco – remain off limits.
  • College rape became a hot issue after Rolling Stone printed a flawed story about an alleged gang rape of a female student at the prestigious University of Virginia in 2012. Progressives pushed for raising awareness while conservatives took full advantage of the reporter’s reporting gaps to pretend that sex abuse is not really an issue.
  • Poverty is on the radar screen, especially in Richmond which has poverty rate of 27 percent (70 percent in some neighborhoods) and other spots such as Newport News. Richmond Mayor Dwight Jones got a lot of national press attention for his campaign to eradicate poverty but it is really hard to understand what he’s actually doing or whether it is successful. The real attention in Richmond is on such essentials as replacing the Diamond baseball stadium, justifying a training camp for the Washington Redskins and giving big subsidies for a rich San Diego brewer of craft beer.
  • Day care regulation. Virginia has a horrible reputation for allowing small, home day care centers to operate without regulation. Dozens have children have died over the past few years at them. This year there were deaths at centers in Midlothian and Lynchburg.
  • The continued madness of the Virginia Tobacco Indemnification and Community Revitalization Commission. This out-of-control slush fund in the tobacco belt continued its waywardness by talking with Democratic State Sen. Phil Pucket about a six-figure job just as Puckett was to resign and deny a swing vote in the senate in favor of expanding Medicaid. The commission also drew attention for inside plays by the politically powerful Kilgore family and giving $30 million in an unsolicited grant to utility Dominion.

Learning from Buena Vista’s Golf Course Default

vista_linksby James A. Bacon

In 2005 the City of Buena Vista in the Shenandoah Valley issued $9.2 million in bonds to pay for construction of the Vista Links golf course.  To obtain financing, the city purchased insurance for $400,000 and pledged the golf course, police station and municipal building as collateral.

The city made its debt payments for several years but encountered difficulties in 2010 when the annual payment was scheduled to increase to $660,00 and the golf course was still operating in the red. The city went into default and entered into an agreement with its insurer, ACA Financial Guaranty Corp., to make half payments for five years. ACA remitted the other half but added it to the principal. The agreement calls for the city to return to the full $660,000 annual payment in 2016 and continue for 27 years.

On the logic that the city will be unable to make the full payment in 2016 if it continues make the half payments today, City Council voted earlier this week to default on its bond payment due in January 2015. Needless to say, ACA is unhappy with that decision. “The unilateral act by the current city council demonstrates an unwillingness to act in good faith to negotiate a solution,” said ACA in a press release. According to the Roanoke Times, ACA could foreclose on the golf course, police station and the portion of city hall that does not include the courts.

What possessed the City Council of Buena Vista, a city of less than 7,000, to go deep into hock to fund construction of a golf course? The Roanoke Times provides some background:

Vista Links was viewed as an economic development project that would move the city away from its industrial base and spur commercial and residential development while attracting visitors and their money.

“In the 1990s we were struggling to find an economic driver to enhance our aging housing base and diversify our economy,” [Mayor Frankie] Hogan said. “So we hired some consultants who showed city council projected numbers for a golf course that exceeded reality. Little did we know. But we should have.”

Bacon’s bottom line: Three lessons here. First, beware economic-development Hail Mary passes based on municipal debt. The city is far worse off now, saddled with debt and a ruined credit standing, than it would have been had it stuck to more prudent policies. Second, beware consultants. Maybe they know what they’re talking about, maybe they don’t. Third, beware fads. Other municipalities turned to golf courses as a development elixir. Many of those have fallen short of rosy projections. Indeed, the entire golf industry, public or private, is hurting.

The only people who should build golf courses are those who really understand the business and are prepared to handle the risk of failure — which excludes just about every municipality in the country. The lesson applies not just to golf courses but convention centers, baseball stadiums and other speculative “economic development” ventures. Local governments should stick to core competencies like education, public works and public safety at which they can excel.

Big Energy’s Conspiracy with Attorneys General

Former Va. Atty. Gen. Miller --toady for Big Energy

Former Va. Atty. Gen. Miller –toady for Big Energy

By Peter Galuszka

What seems to be strong opposition to a host of initiatives by President Barack Obama and the U.S. Environmental Protection Agency to curtail carbon and other forms of pollution is no mere coincidence.

According to a deeply reported story in Sunday’s New York Times, some state attorneys general, most of them Republicans, are part of what seems to be a covert conspiracy to oppose carbon containment rules in letters ghost-written by energy firms.

And, there’s a big Virginia connection in former Democratic Atty. Gen. Andrew P. Miller and George Mason University which have been bankrolled by conservative and Big Energy money for years.

The cabal has drawn its modus operandi from the American Legislative Exchange Council, funded by the ultra-right, oil-rich Koch Brothers of Kansas. In that case, ALEC prepares “templates” of nearly identical legislation that fits the laissez-faire market and anti-government and regulation principles held dear by the energy and other big industries. Many marquee-name corporations such as Pepsi, McDonald’s and Procter & Gamble have dropped their ALEC membership  after public outcries.

In the case of the attorneys general, big petroleum firms like Devon Energy Corporation of Oklahoma draft letters opposing proposals that might hurt their profits such as ones to regulate methane, which can be a dangerous and polluting result of hydraulic fracking for natural gas. The Times notes that Oklahoma Atty. Gen. E. Scott Pruitt then took Devon’s letter and, almost-word-for-word, submitted it in his “comments” opposing EPA’s proposed rules on regulating fracking and methane.

The secretive group involves a great deal of interplay involving the Republican Governor’s Association which, of course, helps channel big bucks campaign contribution to acceptable, pro-business attorneys general. In 2006 and 2010, Greg Abbott of Texas got more than $2.4 million from the group. Former Virginia Atty. Gen. Kenneth Cuccinelli got $174,5638 during his 2009 campaign.

One not-so-strange bedfellow is former Virginia Atty. Gen. Andrew P. Miller who was in office from 1970 to 1977 and is now 82 years-old. He’s been very business promoting energy firms. As the Times writes:

Andrew P. Miller, a former attorney general of Virginia, has in the years since he left office built a practice representing major energy companies before state attorneys general, including Southern Company and TransCanada, the entity behind the proposed Keystone XL pipeline. The New York Times collected emails Mr. Miller sent to attorneys general in several states.

“Mr. Miller approached Attorney General Scott Pruitt of Oklahoma in April 2012, with the goal of helping to encourage Mr. Pruitt, who then had been in office about 18 months, to take an even greater role in serving as a national leader of the effort to block Obama administration environmental regulations.

“Mr. Miller worked closely with Mr. Pruitt, and representatives from an industry-funded program at George Mason, to organize a summit meeting in Oklahoma City that would assemble energy industry lobbyists, lawyers and executives to have closed-door discussions with attorneys general. The companies that were invited, such as Devon Energy, were in most cases also major campaign donors to the Republican Attorneys General Association.

“Mr. Miller asked [West Virginia Attorney General Patrick Morrisey] to help push legislation opposing an Obama administration plan to regulate carbon emissions from existing coal-burning power plants. Legislation nearly identical to what Mr. Miller proposed was introduced in the West Virginia Legislature and then passed. Mr. Morrisey disputed any suggestion that he played a role.”

Not only that, but George Mason has an energy study center that is bankrolled by Big Energy and tends to produce policy studies of what the energy firms want. It also has the Mercatus Center, a right-wing think tank bankrolled by the Koch Brothers.

So, when you see what seems to be a tremendous outcry against badly needed regulations to curb carbon emissions and make sure that fracking is safe, it may not be an accident. And, it comes from attorneys general who should be protecting the interests of average residents in their states instead of being toadies for Big Energy.

Suddenly, It’s Raining Gas Projects and Tax Breaks

Anti-Pipeline By Peter Galuszka

Suddenly it seems to be raining natural gas pipelines and snowing millions of dollars in tax breaks and incentives for rich electric utilities.

Dominion Resources, the powerful and politically well-connected Richmond-based utility, apparently is getting $30 million in public money from the Virginia Tobacco Indemnification and Revitalization Commission without apparently asking for it to help build a new natural gas-fired generating plant in Brunswick County. The information was broken by the Associated Press.

Largesse for Dominion stretches to the other side of the Potomac River as well. The Washington Post reported Sunday that Calvert County Md., where Dominion has approval to convert a liquefied natural gas facility to handle natural gas exports, is going to give the utility about $560 million in tax credits.

And, back in Virginia, controversial is growing over the $5 billion natural pipeline that Virginia and three other southern utilities are planning to take natural gas drilled by hydraulic fracking methods from West Virginia to Virginia and North Carolina.

The Atlantic Coast Pipeline has drawn criticism from environmentalists who fear that gas is not the cleaner panacea to coal that many think. Landowners complain that Dominion and its powerful Richmond law firm, McGuireWoods, are using strong arm methods to force their way on their land to survey possible routes.

mountain valley pipelineYet another pipeline – this one doesn’t involve Dominion – is drawing concern in southwestern Virginia. The $3.5 billion Mountain Valley Pipeline that would likewise begin in the fracked gaslands of northern West Virginia and head south west of Roanoke and then cut to the small town of Chatham.

The complaints are the same as the Atlantic Coast Pipeline – green concerns about leaking methane and the threat of bulldozing bucolic private land by companies using eminent domain.

The Mountain Valley project is being spearheaded by EQT Corp. of Pittsburgh and NextEra Energy of Florida.

So what gives? Utilities like Dominion are using more gas, namely at its new Brunswick County natural gas plant and at an older coal-fired station that’s been converted at Bremo Bluffs on the James River. But how much gas does it actually need?

In the case of Cove Point, Dominion notes that the plant has been importing LNG from places like Northern Africa and Scandinavia for decades although imports have come to a spot given the glut of cheap, domestic gas.

Dominion, which bought the facility about a decade ago, can get gas from an older pipeline that for years has linked the Chesapeake Bay area with gasfields in Pennsylvania where some of the fracking for new product is occurring. Dominion can also tap gas from the venerable Transco Pipeline that for decades has transported gas the traditional way – from the Gulf State processing stations to the northeast.

Dominion says it already has contracts to export gas – from where it comes domestically – to utilities in Japan and India. But when one looks at the spaghetti-like twirl of all of the proposed new pipelines, one wonders what the game really is.

The Atlantic Coast Pipeline has a leg that bounds over to Hampton Roads from near the North Carolina border. Dominion says that this one will help supply one of its pipeline partners with gas because it serves South Hampton Roads. Ok, fine, but it might also serve another new LNG export facility in that area that has perfect deep water conditions for such a facility.

And, as some environmentalists and property owners wonder, why couldn’t the energy companies tap rights of way near existing pipelines? Why can’t existing pipelines be expanded? Go back to the utilities and they say they don’t know exactly where the pipelines will go.

That is very curious. While they don’t know where mega-billion project projects are going to go, they seem to be getting tens, if not hundreds, of billions of dollars in public funds and tax breaks to help them proceed with the Brave New World of natural gas.