Category Archives: Regulation

RAM, Coal and Massive Hypocrisy

The Pikesville RAM clinic in 2011. Photo by Scott Elmquist

The Pikesville RAM clinic in 2011. Photo by Scott Elmquist

By Peter Galuszka

Sure it’s a photo op but more power to him.

Gov. Terry McAuliffe is freshly arrived from the cocktail and canape circuit in Europe on a trade mission and is quickly heading out to the rugged and impoverished coal country of Wise County.

There, he, Attorney General Mark Herring and Health and Human Resources Secretary William A. Hazel will participate in a free clinic to help the mountain poor get free health care. The political opportunity is simple: Many of the 1,000 or more who will be attending the Remote Area Medical clinic are exactly the kind of people getting screwed over by the General Assembly’s failure to expand Medicaid to 400,000 low income Virginians.

RAM makes its Wise run every summer and people line up often in the wee morning hours to get a free medical and dental checkup. For many, it’s the only health care they get all year unless it’s an emergency. Another problem: Distances are great in the remote mountains and hospitals can be an hour away.

Mind you, this is Coal Country, the supposedly rich area upon which Barack Obama is waging war and harming local people by not going along with coal executives’ demands on environmental disasters such as mountaintop removal, keeping deep mine safety standards light and avoiding carbon dioxide rules.

The big question, of course,  is why if the land is so rich in fossil fuel, are the people so poor and in need of free medical care? It’s been this way for 150 years. And now, coal’s demise got underway in Southwest Virginia in 1991 when employment peaked at about 11,000. It is now at 4,000 or less. It’s getting worse, not better.

In June 2011, by coincidence, I happened along a RAM free clinic in Pikesville, Ky., not that far from Wise when I was researching my book, “Thunder on the Mountain: Death at Massey and the Dirty Secrets Behind Big Coal.” My photographer Scott Elmquist and I spotted the clinic at a high school. There must have been hundreds of people there –  some of whom told me they had been waiting since 1:30 a.m. It was about 8:30 a.m.

Attending them were 120 medical and dental personnel from the U.S. Public Health Service. They were dressed in U.S. Navy black, grey and blue colored fatigues. The University of Louisville had sent in about 80 dental chairs.

Poverty in Pike County had been running about 27 percent, despite the much-touted riches of coal. Pike is Kentucky’s biggest coal producer.

One man I spoke with said he had a job as a security guard, but he doesn’t qualify for regular Medicaid and can’t afford a commercial plan. In other words, had I interviewed him more recently and had he been a Virginian, he would have been lost through the cracks of Medicaid expansion. Alas, he’s in luck. In 2013, Kentucky opted for a “marketplace” expansion system where federal funds would be used to help lower income buy health plans through private carriers.

Lucky the man isn’t from here. The marketplace plan is exactly the kind that McAuliffe has proposed and exactly the one that stubborn Republicans such as Bill Howell in the General Assembly are throttling. The feds would pick up the bill for expanding Medicaid to 400,000 needy Virginians, at least initially.

Yet another irony. Expanded medical benefits are available just across an invisible border in two states whose coalfield residents somehow never got the great benefits of King Coal.

Does Virginia Want to Be a Wireless Friendly State?

cell_towerStates and regions that want to stay in the vanguard of economic growth need to expand their broadband infrastructure. Mobile data traffic will increase 13-fold between 2012 and 2017 by some estimates. To accommodate that growth, the wireless industry will have to build new cell towers, distributed antenna systems (DAS) and other infrastructure. However, permitting and regulation is a big problem in many states, according to George state Sen. Judson Hill.

Writes Hill in The Hill:

New tower construction and collocations of antennas on existing sites helps local economies. New towers typically cost between $250,000 and $300,000, and collocations run upward from $25,000. Moreover, new 4G wireless broadband networks support local job growth and improve economic vitality. Economists Robert Shapiro and Kevin Hassett found in their recent study that “every 10 percent increase in the adoption of 3G and 4G wireless technologies could add more than 231,000 new jobs to the U.S. economy in less than a year.”

Unfortunately, differing, cumbersome and unnecessarily complex local government permit processes have impeded investment and construction of new wireless facilities infrastructure in many states. Denials or long delays in approving permits for new cell towers or antenna collocations have been the experience for countless wireless infrastructure providers. Public safety communications challenges and lost economic opportunities, including foregone job creation, are regrettable byproducts of these denials and delays.

Georgia law requires local governments to issue timely permits — within 150 days — and ends the practice of imposing excessive processing fees. He concludes: “States should proactively pursue regulatory and tax reforms to remove roadblocks to wireless infrastructure facility construction. Greater economic and public safety benefits will come to states that best position themselves to enhance their 4G wireless broadband network build-out.

Bacon’s bottom line: How does Virginia stand when it comes to cell tower permitting? Hill suggests that Georgia, Missouri and Washington are the only states that have addressed these issues legislatively so far — but maybe Virginia doesn’t have a problem that needs fixing. Or maybe it does. Does anyone know?

– JAB

Waiting for Uber

Jonathan Trainum. Photo credit: Style Weekly.

Jonathan Trainum. Photo credit: Style Weekly.

by James A. Bacon

The Richmond metropolitan area has a modest but growing taxi fleet. The Henrico County Police Division, which manages the bulk of taxi regulation in the region, issued 834 tax permits last year. Unlike some cities, which restrict the issuance of taxi permits — in New York City, taxi medallions can cost upwards of $1 million — all it takes to operate a taxi in the Richmond region is a background check, an easily obtainable certificate of need and a vehicle that meets code — a process that costs about $40.

Richmond’s taxi business is about as laissez-faire as you can find anywhere in the country. So, it’s not a surprise that the industry has seen the rise of a company like Napoleon Taxi. Starting six years ago as a one-man taxi company, Jonathan Trainum has expanded his enterprise to a 32-car fleet and 90 drivers. As Style Weekly tells the story, he’s investing in technology and he’s bracing to do battle with Silicon Valley ride-sharing company Uber, which has begun sniffing around the Richmond market.

Trainum started his taxicab career working for a Southside taxi company but chafed at the dispatchers’ blatant favoritism toward certain drivers and the reprimands he received for making sure customers made it into their homes after a ride. He also disapproved of the way dispatchers routinely ignored calls from public housing projects. Trainum thought he could do better. Fortunately, local taxi regulations posed few barriers to entry.

The business generates about $2 million a year today. Profit margins are tight but Trainum is investing in technology. Style describes his dispatch center this way:

Seven screens display a map of the city, showing where calls are coming in, and where 32 cabs are at any given moment. The origin and destination of every trip from every caller has been stored to help speed things up.

On Friday, [taxicab driver Tom] Berck never needs to scan the sidewalks hoping to find a fare. Instead, a tablet hooked to his dash has him moving constantly between 7 p.m. and 3 a.m., crossing the city again and again while he accepted fares as far out as Midlothian and as close as the two-minute drive between Mosaic off River Road and the University of Richmond.

Trainum also has been building an Uber-like app that hopes to roll out this fall. He knows Uber is coming, and he’s determined to beat the company at its own game. He hopes the combination of real-time tracking and a willingness to take cash, which Uber doesn’t, will deflect the threat.

“You’re telling people the only way you can get a cab is through a smartphone app with a credit card,” Trainum says. “[Uber's] customers fit that niche. We want to take the technology they’re using [and] open it up where we can provide service for everybody.” Trainum says he’ll make his technology available to any Richmond can company willing to use it.

“The next five years for Napoleon is us trying to counteract complacency in our industry,” Trainum says, “which has been exposed by Uber and Lyft.”

Bacon’s bottom line: This is the way the taxicab industry should work. Low barriers to entry make it easier for hard-chargers like Jonathan Trainum to break into the industry with a better business model. Minimalist regulations also make it difficult for local taxicab companies to block Uber from of the market. The only way to survive is to innovate, and that’s exactly what Trainum is doing. At the end of the day, Richmonders will have a superior taxi (or taxi-like) service than they had before.

McAuliffe Hits Private IT Outsourcing

mcauliffeBy Peter Galuszka

Just a decade ago, privatizing and out-sourcing traditionally government work was all the rage.

Virginia’s Democrats and Republicans alike saw a philosophical advantage in fending off Information Technology, road maintenance and other work to for-profit, private companies who supposedly – if you believed the hype then  –could always do things better, faster and more efficiently than state workers.

The concept of “government” workers always seemed to be negative. Not only would taxpayers have to pay their health and retirement benefits, they might try to join unions and make labor negotiations even more difficult. It didn’t wash with Virginia’s conceit of being an anti-labor, “right-to-work” state that promised to keep workers docile as the state tried to recruit outside firms.

Now, Gov. Terry McAuliffe is turning this concept on its head. He is ordering a review of state contracts, especially on out-sourced IT service work that he says may be inefficient and expensive. “I am concerned that state government is inappropriately dependent on expensive contract labor when traditionally appointed state employees can perform at a higher level at a lower cost.”

Now that’s a major turn-around, even for a Democrat. After all, it was fellow Democrat and former Gov. and now U.S. Senator Mark Warner, currently running for re-election, that worked the get the state to accept a $2.3 billion contract for defense contractor Northrop Grumman to take over and upgrade the state’s antiquated IT system in 2005.

That deal proved disastrous as the contractor’s performance issues brought on bouts of oversight and renegotiation. The state ended up extending its contract with Northrop Grumman by three years.

An underlying problem is that while the contract lasts until 2019, the state must make some decisions if it wants to continue with the outsourcing route or start relying on its own state workers.

Another problem is whether the state identifies independent contractors as such or employees of state organizations. About 1 percent of the state’s workers were misidentified as independents. Apparently, state workers have their Social Security and taxes withheld from paychecks. But are they really independents? Or is it just window dressing to play homage to some fad thought up by fiscal conservatives?

McAuliffe is right to start thinking in these terms. What he’s going to have to face, however, is the conventional wisdom in Virginia that “public” is always bad and “private, for-profit” is always good. For evidence of this hidebound view, just read this blog regularly.

The Great U.S. 460 Swamp

swamp

VDOT had loads of warning that wetlands could kill the U.S. 460 project but the state charged ahead with a design-build contract that everyone knew could explode. The state has spent $300 million it may never recoup.

by James A. Bacon

Weeks after the release of the “Special Review of the U.S. Route 460 Corridor Improvements Project,” submitted last month to Transportation Secretary Aubrey Layne, important questions remain about how the Commonwealth could have paid $250 million to US Mobility Partners, the design-build contractor on the $1.4 billion project, and run up another $50 million in expenses without turning a single spade of dirt. The Special Review is a dense and tangled document but one important theme comes through loud and clear: The wetlands controversy that caused the McAuliffe administration to suspend the project this March was bubbling on the front burner when the McDonnell administration put the project into overdrive two years ago. VDOT and the McDonnell transportation team had ample warning of the project’s problems and took no effective action to defuse them.

The Army Corps of Engineers (USACE) had been expressing reservations for years about the route preferred by the Virginia Department of Transportation (VDOT) for the 55-mile highway project, and it reiterated those warnings repeatedly as McDonnell’s transportation team lined up funding for the project and signed a contract with US Mobility Partners to design and build the highway. The inability of VDOT to obtain a USACE wetlands permit on a timely basis prompted the McAuliffe administration to put the project on ice in March until the differences could be resolved.

The question before the public is how did VDOT find itself paying tens of millions of dollars monthly to US Mobility Partners to mobilize for a massive construction project while knowing that the USACE was unlikely to issue the necessary wetlands permits — indeed, without even having submitted the documentation to begin a formal USACE review! Unless we know what went wrong and take appropriate corrective measures, citizens and taxpayers have no assurance that comparable fiascos will not occur again in future mega-projects.

The Special Review, prepared by VDOT and the State Inspector General’s Office, is extremely cautious in drawing conclusions. But the report does provide a wealth of documentation, primarily in the form of emails involving senior VDOT employees and members of the Office of Transportation Public Private Partnership (OTP3) staff who structured the public-private partnership and negotiated the contract. As I noted in a past post, deciphering what transpired is like peeling back the layers of an onion. For now, I am focusing upon the onion peel documenting the wetlands controversy between VDOT and the Army Corps of Engineers.

A long running disagreement. The origins of the wetlands controversy predate the McDonnell administration. VDOT had been noodling the proposed Interstate-grade highway for years, and it had identified a preferred route, one that would swing north of the existing U.S. 460 highway, a four-lane highway with top speeds of 55 miles per hour interrupted by numerous stoplights and plagued with local traffic. VDOT argued that only a limited access highway could provide the mobility that was needed for trucks serving the Virginia ports and in the event of a hurricane evacuation, and that the existing route would be impractical to upgrade. But that was not a decision it could render on its own. VDOT’s appraisal had to pass muster with the USACE, which is tasked with ensuring that any route chosen is the “Least Environmentally Damaging Practical Alternative.” The USACE preferred a route with a lower environmental impact, preferably one grafted onto the existing U.S. 460 with bypasses around the hamlets along the highway.

The Special Review correspondence between VDOT and USACE details the disagreement as far back as 2003. As the authors conclude from their review of the documentation:

The correspondence … indicates an ongoing, decade long, discussion between VDOT and the Corps over whether CBA-1 (VDOT’s preferred alternative) or CBA-2 (the Corps’ preference) was the best location for the 460 project. Although VDOT employees have indicated nothing unusual about this discussion, the length of the ongoing discussion seems unusual to us, particularly since no resolution as to an accepted route was reached.

The discussions were ongoing in 2012 when the McDonnell administration was moving heaven and earth to move the project forward. As various emails cited in the review make clear, Governor McDonnell regarded the Route 460 corridor as his “number 1 transportation priority,” and Transportation Secretary Sean Connaughton rode herd on the VDOT bureaucracy to meet the goal of closing the deal by the end of the year.

By mid-2012, Connaughton and VDOT were closing in on a deal structure for the public-private partnership but had not resolved the environmental issues. In a letter dated May 30, 2013, Kimberly Prisco-Baggett, chief of USACE’s Eastern Virginia regulatory section, wrote the following to VDOT’s environmental project manager:

We are concerned that the project has moved ahead with CBA 1 (VDOT’s preferred route alignment) as the alternative, and that although seven years have passed since we indicated that CBA 2 appears to be the [Least Environmentally Damaging Practical Alternative], neither FHWA (the Federal Highway Administration) nor VDOT has requested to meet with us to discuss this apparent conflict. It is not helpful to the public, or any potential private-public partners, not to address this critical matter before incurring additional expense and delays associated with pursuing a project that may not be permittable.

In an email chain between June 7 and July 13, 2o12, Morteza Farajian, program manager with OTP3 (the public-private partnership office) warned senior VDOT officials that the three construction consortia bidding for the project were getting nervous about the unresolved permitting issue:

I have received serious concerns from our Offerors in regard to the Comments from the Corps of Engineers on the Route 460 reevaluation. They would like to know where we stand today and how we will resolve the issue with the Corps of Engineers and FHWA. They emphasized that this is a huge risk to the procurement and they might stop working on this procurement if the issue between VDOT and COE is not resolved.

Continue reading

Some Answers, More Questions about the 460 Fiasco

July2014_coverby James A. Bacon

If you’re new to the U.S. 460 Connector controversy and need a primer to bring you up to speed, I’d recommend you read the new Virginia Business cover story written by Paula Squires. She provides an digestible overview of a complex story and advances public understanding with some fresh reporting. In particular, she homes in on a central question for which I have yet to see a clear, concise explanation: How did the Virginia Department of Transportation come to pay $250 million to its public-private partner in the $1.4 billion project, US Mobility Partners, before critical wetlands permits were issued by the Army Corps of Engineers?

Squires does not provide the answer but she gets us closer to the answer. She interviewed Charlie Kilpatrick, the current highway commissioner who was deputy commissioner under the McDonnell administration.

Asked why the state signed off on such a high-risk project, Kilpatrick says, “It was a high risk if a permit was not obtained. When we went to closing [in December 2012], we believed that we had a permittable project.” However, he adds, “It was recognized from the beginning that this was going to be a complex and challenging permitting process.”

As a VDOT veteran, Kilpatrick observes “I don’t know that it has ever happened in Virginia, where a project was not ultimately permitted, after it went through the regulatory steps … I do think we will get a permit.”

According to him, pressure from the McDonnell administration played a role in how the project was handled. “This project was a clear priority of Governor McDonnell,” Kilpatrick says.  “Move it as quickly as possible … Deliver the project. Get it under construction.”

Those were VDOT’s marching orders, he recalls. “VDOT’s job here was to deliver. The project — it complied with the law.”

The state agency began to balk, though, after the original route became questionable last September because of its wetlands impact. The administration wanted to begin right-of-way proceedings and public hearings.

“We said no,” says Kilpatrick. “We’re not going to go out and acquire right of way, because we don’t have a permit … I had the potential of VDOT purchasing land that would not fit with an ultimate road alignment … To have a public hearing on a roadway that may need to shift the alignment, that’s not a prudent thing to do.”

Boiling it down: In December 2012 VDOT believed that it had a “permittable project.” In other words, there were issues but VDOT believed they could be worked out, as they always had been before. What’s still not clear to me is what happened after December 2012 to disabuse VDOT of the notion that the permitting issues could be resolved within an acceptable time frame. Did some new knowledge come to light? Did the Army Corps of Engineers become more assertive in expressing its concerns? I’m sure the answer is out there, possibly buried in the McAuliffe administration’s internal review. It just hasn’t been brought forth clearly in the media.

Public-Private Partnerships and the Allocation of Risk

risks

Oops.

by James A. Bacon

It’s easy to whack Virginia’s public-private partnership law for failing to meet expectations for transparency and public involvement. (I have done so repeatedly.) There are important issues that the legislature needs to deal with, as the controversy over the U.S. 460 Connector has made abundantly clear. But there are virtues to public-private partnerships that have gone unsung. Perhaps the most important of these is the identification and mitigation of project risks.

Virginia’s transportation public-private partnerships (P3s) have an elaborate process for identifying risks, tracking them and allocating them between the public and private partners, according to the “Special Review: US 460 Corridor Improvements Project” ordered by Transportation Secretary Aubrey Layne. The review was tasked to dig into how the state could have paid US Mobility Partners nearly $300 million under terms of the U.S. 460 partnership deal even though U.S. Army Corps of Engineers (USACE) permits had yet to be issued and construction had yet to begin.

As the Special Review explains, there are a wide variety of risks in a transportation mega-project:

  • Development risks: design conflicts, environmental permits, changes in regulation, lack of financing, right-of-way acquisition, politics.
  • Construction risks: cost overruns, design defects, unknown utilities, acts of god.
  • Operation & Maintenance risks: shortfalls in traffic demand, construction of competing facilities, design defects, political and regulatory changes.

“Under traditional public procurement of highway projects, the public agency retains most of the risks, yet these risks are not usually quantified, nor are their costs always included in the project cost estimates,” states the review. “A key component of P3 procurement involves the transfer of certain risks from the public agency procuring the project to the private sector partner. The concept of ‘transferring risks’ requires that the private partner will be responsibile for cost overruns or expenses associated with the occurrence of that risk.”

An example of a risk that might be transferred to the private sector is construction risk — the risk the the project may not be completed on budget or on time. Another is transportation demand risk — the risk that traffic and toll revenues may not materialize as forecast.

In embarking upon a P3 project, Virginia’s Office of Transportation Public Private Partnerships (OTP3) compiles a “risk register,” which systematically identifies all major risks and decides whether the state should retain the risks, mitigate them, insure against them or transfer them to the private sector partner. Risk registers are updated as new risks are spotted and old ones closed out.

In the case of the 460 project, OTP3 maintained a risk register over five years, from 2008 until 2012. The office held four risk workshops in which the project team included OTP3 and VDOT representatives, consultants and key stakeholders. The group discussed different risk items, the probability of occurrence, cost and schedule impacts and appropriate actions to manage each item.

An independent audit found that VDOT had accounted for and/or mitigated the major project risks. The audit team estimated that the present value cost of these risks ranged from $177 million to $295 million (depending upon the methodology used) above the official $1.4 billion project cost.

In the case of environmental approvals, VDOT purchased wetlands credits in the summer of 2012 in anticipation of wetland mitigation discussions with the Corps of Engineers and conducted a study to collect additional data to facilitate those discussions. Based on correspondence with the Corps, the independent auditors concluded that the risk profile for the permitting element of the project had been reduced substantially.

While all material risks were adequately identified, concluded the report to Layne, the authors concluded, “We do not believe key stakeholders, including the public, were aware of the nature and extent of risks associated with the 460 project.” The problem was not the identification of risks but the failure to share that information with the Commonwealth Transportation Board.

Bacon’s bottom line: It’s good to know that the people negotiating P3s understand risk, which is more than we can say about politicians flogging forward traditional VDOT projects. But what does all this have to do with the U.S. 460 fiasco? It narrows the scope of the problem. Whatever went wrong, it wasn’t a failure of the OTP3 office to identify the wetlands risk. I’m still not clear, however, where the project ran off the rails — how the state managed to shell out $300 million before the wetlands issue was resolved. Hopefully, I’ll get more answers as I continue wading through the report.

Finally, Some Sense on Climate Change

mowbray archBy Peter Galuszka

Pulling the state’s head out of the sand, Gov. Terry McAuliffe has reversed his predecessor’s policy on addressing climate change.

He has reestablished a 35-member panel to see what the state can do to deal with what many scientists believe is an impending crisis. McAuliffe revived the panel first created by Democratic Gov. Tim Kaine and then left to wither away by former Republican Gov. Robert McDonnell.

Ironically, the new panel includes Michael Mann, a former University of Virginia climatologist who was the target of bitter and petty attacks by former arch-conservative Atty. Gen. Kenneth Cuccinelli over his view that mankind was responsible for carbon dioxide-driven greenhouse gases that are helping warm up the earth, melt polar ice caps and potentially flood huge sections of coastal cities such as Norfolk.

It’s about time that Virginia rejoined the 21st Century. McDonnell took the state backwards on environmental issues by gutting commissions such as this one and creating others that were devoid of ecological viewpoints and stacked with members of the fossil fuel industry and utility executives.

McAuliffe’s new commission has utility people like Dominion Virginia Power President Robert M. Blue and Bernice McIntyre of Washington Gas Light Company. But it is also well stocked with green types such as the Sierra Club, the Chesapeake Bay Foundation and the Southern Environmental Law Center whose views were pretty much in the wilderness during the McDonnell term.

It is finally time for the state to realize that climate change is real. Study after study shows that the state is vulnerable – from agricultural impacts brought on by different weather patterns to rising water in coastal areas. One area worth study is doing more to speed the switch to renewable energy sources like solar and wind.

McDonnell had pushed a policy that would make Virginia “the Energy Capital of the East Coast,” but the effort excluded renewables in favor of offshore oil and gas companies, nuclear power and coal.

Curiously, McAuliffe also favors such endeavors as offshore petroleum development. That raises questions in the face of massive fracking onshore for natural gas and the revolution it has sparked. Perhaps the new commission can provide some guidance.

It is refreshing that Virginia is finally emerging from the intellectual horse blinders that kept the debate stuck in Benghazi-style debates over emails at a British university or trying, unsuccessfully, as Cuccinelli did, to harass scientists globally over a ridiculous claim that Michael Mann had defrauded Virginia taxpayers by asserting what most climatologists do – that climate change is real and mankind is a reason for it.

Finally. . .

Virginia Is Right to Stand up to Uber and Lyft

taxicabBy Robbie Werth

The proliferation of so-called “ridesharing” companies has spread to over 130 cities across the world. In each city, the story is the same. Uber and Lyft force themselves on cities by doing two things: ignoring existing transportation laws and instilling fear among government and elected officials.

The fear that these companies attempt to instill is that a city or state is “anti-innovation.” They bully governments into thinking that if they don’t swing open their cities’ doors then they will become some stagnant, jobless backwater. Their petulant tantrums are part of their tactic.

The real question is: Why should innovation come at the expense of public safety? Hundreds of licensed, regulated taxicab companies use apps to connect passengers every day with drivers who have been fingerprinted and given a police or FBI background check, and who show up in a vehicle that is 100 percent insured at all times, 24/7.

Uber and Lyft don’t. Their passengers sign a waiver (knowingly or not) that indemnifies these companies of any wrongdoing in case of an accident. Their insurance is murky, their responsibility to public safety is paper-thin, and they have been proven to have allowed felons into their pool of drivers.

On June 6th, Virginia’s Department of Motor Vehicles, after many communications warnings, issued cease-and-desist orders to Uber and Lyft for operating in violation of state law. Their offense: Operating a for-hire transportation fleet on Virginia’s streets without proper registration, licensing and insurance. These actions by Uber and Lyft violate the basic responsibilities of a common carrier to hold a higher degree of responsibility towards the public they serve.

Why should such enforcement cause an uproar? Isn’t it standard operating procedure for businesses to be shut down when they operate outside the law? Doesn’t it benefit the community to have regulators make certain taxi companies are operating in a safe manner before potentially putting citizens at risk? Virginia didn’t require that Uber or Lyft cease operations forever; the state simply asked these companies to apply for easily obtainable operating authority or to wait until legislative changes could enable them to operate safely.

Uber would like states to believe their technology is so radically new that all applicable laws should magically melt away—at least for them. To prove their point, these companies forcefully gain entry into their markets with a “better to ask for forgiveness rather than permission” stance. They won’t take “no” for an answer—and thus attack all who stand in their way as anti-innovation (i.e. anti-jobs).

Well, Virginia believes otherwise. Driving a vehicle commercially—whether it is a taxi, limo, bus, charter or so-called “rideshare”—requires meeting certain standards so the state can ensure its passengers, pedestrians and other drivers are safe. Though so-called “ridesharing” companies claim to be something other than taxicabs, the fact remains that people are being transported for money, therefore making it a commercial transaction. Period.

By issuing these cease and desists, the state is announcing that its number one priority is the safety of its citizens and enforcement of the rule of law. Until Virginia figures out precisely how Uber and Lyft should be regulated, the state can’t risk having its drivers, passengers and pedestrians placed in harm’s way.

Virginia is not the only state raising concerns. One third of all U.S. states, and nearly half of those in which these companies operate, have issued warnings to their consumers that the insurance provided by ‘ridesharing’ companies is unsafe. Lawsuits against Uber and Lyft are popping up all across the country and mainly involve uncompensated insurance claims and operating outside the law. Continue reading

The First to Join the Luddite Parade

DMV headquarters -- just doing its job... of snuffing out innovation.

DMV headquarters — just doing its job… of snuffing out innovation.

by James A. Bacon

Upstart transportation companies Uber and Lyft, which link drivers and passengers by means of a smart phone, have run into resistance from taxicab companies and municipal regulators around the country. But Virginia is the first state to crack down on the two companies, contends Ken Cuccinelli, former attorney general, in a Sunday op-ed in the Richmond Times-Dispatch. That fact should give pause, he suggests, to anyone who fantasizes about Virginia staying in the vanguard of technological progress.

“For all the talk in my home state about being an innovative and inviting place to do business, when the rubber meets the road — literally in this case — it doesn’t always play out that way,” Cuccinelli writes. “Virginia holds the dubious distinction of being the first entire state to join the Luddite parade.”

Remarkably, while the Virginia code permits automobile ride-sharing it does so only for “those which do not involve transporting passengers for profit.” Earlier this month the Department of Motor Vehicles issued cease-and-desist letters against Uber and Lyft to halt their “illegal” operations until state law is modified and urged them to participate in a study group that will issue a report before the 2015 General Assembly session. The two companies assert that they are operating legally and have refused to shut down their Virginia operations.

Anyone who wonders why Virginia has tumbled from a No. 1 rating in CNBC’s Best State to do Business rankings to No. 8 need look no further for an example why. The state code literally discriminates against for-profit enterprises. While DMV deserves a modicum of credit for opening up the issue for study, any recommendations contained in the report are likely to be influenced by participating “stakeholders”… such as the taxicab lobby, the limousine lobby and other transportation providers who feel threatened by the superior technology of the Silicon Valley upstarts.

But there are larger issues at stake than Uber and Lyft. Cuccinelli makes some valuable points:

Starting with Virginia, governments need to change how they react to new and innovative (even disruptive) businesses that don’t fit neatly within traditional regulatory structures. Their first reaction must be to question the relevancy of their regulatory structure rather than immediately attempt to crush the new entrant. …

We need our governments and regulatory systems to accommodate innovation and new providers, not crush them — which is the current knee-jerk reaction of many governments and regulators. …

If Virginians want to be able to use Uber or Lyft to get a ride within 10 minutes instead of calling a taxi and hoping one arrives in an hour, then we need a government that doesn’t put the taxi owners in charge of regulating Uber.

Governments need to rethink their regulatory models, Cuccinelli writes.

Otherwise the rest of us aren’t just going to be denied more convenient and cost-effective transportation, we will be denied an infinite number of other goods and services in the future as well, because other companies that would make our lives better for less money will never come into being.

On this point, Cuccinelli is absolutely right. I have written repeatedly about the coming transportation revolution, of which Uber and Lyft are only a small part, that could bring extraordinary benefits to Virginia (See “Virginia Transportation in the Slow Lane.”) We can lead this revolution by creating the conditions for it to take place here first, or we can cling to old ways and fight the inevitable. The banking banking deregulation of the 1980s is a useful point of comparison. North Carolina was faster out of the gate to deregulate its banks, with the consequence that its banking industry consolidated more rapidly than Virginia’s. North Carolina became a national banking center surpassed only by New York, and Virginia’s major banks were all swallowed up. The Old Dominion suffered a dramatic loss to its business leadership.

Virginia missed a once-a-generation opportunity then. Let’s not miss the next one.