Category Archives: Taxes

Virginia’s Business Tax Climate: Down to 27th Best

tax_climate
Governor Terry McAuliffe is traveling overseas at the moment in search of foreign investment in Virginia. His job of selling the Old Dominion is made none the easier by a new report issued by the Tax Foundation. In a ranking of which states have the most competitive business tax regime, Virginia tumbled to the lowest level in living memory, 27th place.

As Tim Wise observes in his Growls blog, Virginia’s business tax climate has eroded each year from 2012 when the state ranked 23rd.

I’m old enough to remember when Virginians could debate whether or not it was fair to describe the commonwealth as a “low tax” state. I think that argument is over. A better question now, given the trajectory of our political economy, is how many years will it take to join the ranks of Maryland, New Jersey and New York as a high tax state.

For what it’s worth, Virginia scored best for its corporate tax rate (6th best) and sales tax (6th best); worst for its personal income tax rate (39th best) and unemployment insurance rate (37th best); and in the middle of the pack for property taxes (26th).

To respond to the obvious retort to this news, yes, there’s a lot more to a state’s business climate than its tax rate. If high taxes are invested productively and provide a high level of amenities and services, the net result can be beneficial to economic growth — a very big “if.” Another caveat is that the primary determinant of a state’s economic performance in the short run isn’t its business climate but its business mix. Every state with a major oil-and-gas industry right now, for instance, is doing well regardless of other considerations. But the evidence shows that over the long run lower tax states out-perform higher tax states on average.

At present, it’s easy to blame Virginia’s economic woes on sequestration and the squeeze on federal employment and contracting in Northern Virginia and Hampton Roads. But the loss of economic dynamism preceded sequestration by a decade or more. Virginia has lost its mojo. And the decline in performance, coincidentally or not, has overlapped with a decline in tax competitiveness.

– JAB

The Emerging Exurban Dead Zone

Hope Plantation, Bertie County, N.C., circa 1800. The McMansion of its day.

Hope Plantation, Bertie County, N.C., circa 1800. The McMansion of its day.

by James A. Bacon

The Northern Virginia exurbs, like exurbs across the country, are cruising for a bruising. EM Risse would never express himself so inelegantly or imprecisely but that’s the thrust, in colloquial terms, of a new essay, “The Great Submergence,” he has posted on his website.

The United States economy, argues Risse, a former Bacon’s Rebellion contributor, is in the midst of a profound shift — what he calls the U Turn — away from the scattered, low-density pattern of growth widely referred to as “suburban sprawl” (a label he avoids as a “core confusing word”) toward infill and re-development of the nation’s urban cores. This trend, which is taking place for reasons amply documented on this blog, has profound implications for homeowners and political jurisdictions on the metropolitan edge where landowners, developers and speculators valued land with the expectation that it would be developed some day into shopping centers, office parks and residential subdivisions.

Given the cost of providing transportation, utilities and municipal services, the logical limit for development in the Washington metropolitan region is about 20 to 35 miles from the metropolitan center in Washington, D.C., Risse writes. Land beyond that limit, he contends, is experiencing collapsing demand as people seek to live closer to the metropolitan core, closer to jobs and amenities in walkable communities with more transportation options. That collapse he calls “the Great Submergence.”

Some clusters of development may adapt and survive but others will be economically unsustainable and wilt away. Another phrase for “wilt away” would be “dry up and blow away,” just like western mining towns when the claims ran dry, just like Great Plains farming towns during the Dust Bowl and Depression. Risse’s home town of Warrenton, he warns, is the “bulls eye of the danger zone.”

As demand evaporates for single-family dwellings on large lots in remote locations, land and housing prices will fall. Every new single-family dwelling built in Greater Warrenton-Fauquier (and other communities situated more 25 to 30 miles from the metropolitan center) will serve to drive down the value of existing properties. Writes Risse:

The downward trend will be exacerbated by the fact that there are dwellings selling BELOW their replacement cost. Further, there will be many scattered Units that have not been maintained, which will further deflate the market via assessment / appraisal “comparables.”

Declining land and improvement values, he says, will have a devastating impact on municipal tax bases in this exurban dead zone as well as household net worth, much of which is composed of housing equity.

Bacon’s bottom line: I’m in 95% agreement with Risse. The reason I hesitate to say 100% is that there are powerful forces at work to sustain “sprawl,” the most important of which is the slow pace, due to zoning restrictions, at which urbanized jurisdictions close to the Washington metropolitan core can free more land for more compact, higher-density development. If demand for housing exceeds supply in Washington’s urban core, growth will default to exurban communities (beyond the 25-mile radius) planned and approved in the 2000s simply because there is nowhere else to build.

With that caveat aside, I share Risse’s larger concern. A dozen or more exurban counties on the metropolitan fringe of Washington, Richmond and Hampton Roads are likely to experience deflating land values, shrinking real estate property revenues and chronic fiscal stress. Their scattered, low-density settlement patterns have high embedded costs and local governments will be hard-pressed to maintain the supporting services and infrastructure. Once the newness wears off and depreciation sets in, these places will become worn, shabby and dilapidated.

Driving back from vacation on the North Carolina coast a couple of weeks ago, I passed through a dozen hamlets and crossroads in farming communities. I was shocked to see so many boarded up and tumble-down buildings that property owners had simply abandoned. The knowledge economy has passed these inland communities by. Sure, the real estate is cheap but no one wants to live there anymore. The houses don’t even have for-sale signs on them. The price of better houses is so low that it’s not even worth patching up the decaying ones. Virginia’s exurbs have not reached that stage yet. But give them time. Let the shiny newness wear off. In 20 years, we could see the same thing.

Those who miss Risse’s writing on Bacon’s Rebellion should check out the “Current Perspectives” on his website.

Update: Ed Risse has responded to Larry Gross’ comments on this post in the form of an essay, “Blogging, Geographical Illiteracy and the Great Submergence.”

It’s Oh, So Richmond!

By Peter Galuszka

cantorWhen I looked at my Richmond Times Dispatch, I was stunned. I couldn’t find a story that their wunderkind Congressman, Eric Cantor, the kind of Republican they love, had gotten a big deal job with Moelis & Co., a New York boutique investment bank.

There was the story in the Wall Street Journal and the Washington Post. Finally, the RTD straggled  on with brief piece at 6:22 a.m. on its Website.

Maybe it’s embarrassment. Cantor, the former House Majority Leader, could do no wrong with his Main Street Republican friends or the editors of the local newspaper. His wife, Diana, was on the board when the newspaper was owned by Media General. Then came his stunning defeat in a June primary to unknown David Brat, who ran a mash-up of a Tea Party and Libertarian insurgency.

Moelis says it is hiring Cantor “for his judgment and experience” and ability to open doors, says the Journal. He’ll live in Virginia and have offices in Washington and New York.

Well, that was quick! Or maybe not. Cantor has raised $1.4 million from the financial services sector, as well as lots from managed care. His sense of entitlement is astounding. First, he thought he didn’t have to bother with the home folks in the Seventh District any more, costing him the election. They he arranged (with Gov. Terry McAuliffe’s help) a special election.

Doing so would get his replacement in office faster and thus Virginia can keep its seats on some important committees. But it also frees Cantor to take his plum job.

You didn’t read it in the RTD first! Somethings will never change.

The Chuck and Joe Traveling Municipal Salvation Show

The Joe and Chuck Traveling Municipal Salvation Show

Joe Minicozzi (left) and Chuck Marohn

Chuck Marohn and Joe Minicozzi, principals with Strong Towns and Urban3 respectively, travel the country telling cities, towns and counties how to build better communities while remaining fiscally solvent. I have borrowed heavily from both Chuck and Joe in my writing about land use, transportation and community building, and it’s reassuring to see that as their own thinking evolves, it has moved in concert with mine.

Most recently, Chuck has blogged about the paucity of useful information cities have to guide them in make zoning and capital spending decisions. He makes many of the same points I did in my recent post, “How Planners Can Rescue Virginia from the Fiscal Abyss.Writes Chuck:

Despite running corporations (most cities are “incorporated” municipalities) that have billions of dollars in assets and liabilities and annual cash flows in the tens, and sometimes hundreds, of millions of dollars, few ever ponder some shockingly simple questions.

  • What are our total assets, the value of the tax base that constitutes our community’s wealth?
  • What are the long term obligations for infrastructure maintenance associated with sustaining those assets?
  • In terms of geography, what parts of our community have a positive Net Present Value (cash from long term assets minus the cost of long term liabilities) and which have a negative Net Present Value?

The answers to these questions constitute a community’s balance sheet, the most basic of accounting requirements for any family or business but one which cities largely ignore. …

Since we don’t know the answer to these basic questions, we can’t even begin to ponder some more sophisticated, but obvious, things that all cities face.

  • How does that tax base change in response to certain policy decisions?
  • What types of land use patterns create the most wealth for the community?
  • What types of land use patterns experience the greatest degree of volatility?
  • How does a park impact Net Present Value? How far from the park does that effect extend?
  • How does a stroad impact Net Present Value? How far from the stroad does that effect extend?
  • Where can we deploy limited resources to have the greatest overall impact?

Keep up the good work, Chuck and Joe!

– JAB

How to Convince Your Mom that Congestion Pricing Is Good

by Michael Brown

Odds are if you show up at a family reunion and try to convince your parents and siblings that congestion pricing is good, you’ll be lonely pretty quickly. People want the freeways to work but they hate paying tolls! If you are reading this, then you’re probably part of the choir. My goal isn’t to convert the converted as much as to provide new arguments and sound bites when talking to others.

So, how do we reach others? Millions must be convinced to put down their pitchforks long enough to test the theory and decide for themselves if congestion pricing is worthwhile. Elected officials are afraid to take a position contrary to polls, and polls are overwhelmingly dominated by uninformed opinions.

Too many citizens “learn” the issues of the day in 30-second television spots. Even those who make an effort to stay well informed are not the best ones to ask.  There are many fine teachers, dentists, and doctors with intelligent opinions but if you ask them about Congestion Pricing, most would focus on a single point – “double taxation.” Because no one listens long enough for a good explanation, politicians conform to polls of the uninformed rather than risk trying to change public opinion.

congestion_pricing1

=================
This is the fourth part of a four-part series.

Part 1        ◊       Part 2
Part 3   
     ◊       Part 4
=================

Geeks and used car salesmen

Congestion Pricing’s true believers are insiders who spend years exploring how market mechanisms can solve our transportation headaches. Typically, they are “nerdy engineer” types and Ph.D.’s at universities. They come up with great ideas but their main focus is convincing other geeks. Peer-reviewed articles loaded with incomprehensible equations and data may be good stuff and true, but the world will never move out of the congestion morass until the world “gets it” at the lowest-common- denominator level of things that matter to them.

Many geeks know Congestion Pricing is worth billions but they’re poor at delivering the message personally. So they set aside “public awareness budgets” that are embarrassingly tiny relative to the potential payoff. That’s like hiring a used car salesman to deliver the message. That approach may persuade a few but it won’t convince your mom – it won’t even reach your mom. Great ideas need great enlightenment efforts.

congestion_pricing2Evangelists and professional marketers

When the Wright Brothers invented the airplane, they actually had a hard time selling it. Everyone was intrigued, of course, but few understood how it could help them in a way that was worth the price. The airplane seemed like an exciting new toy that could kill you! So the Wrights became evangelists. They met with government officials and anyone else with the means and potential motive to buy, and sold them hard on dozens of potential uses. Now we could scarcely imagine the world without planes.

Think of the Bible. Many find it very difficult to read and hard to get excited about. But some people are very passionate about the bible, and very gifted at translating its meaning to large crowds. Congestion Pricing and Freeway Optimization have been peddled mainly by geeks and insufficient public awareness efforts. Are we really surprised that people are skeptical?

Gifted evangelists are essential but so is “Hollywood.” By that, I mean it takes people who have figured out how to sell stuff to people. We need marketing artists who can place an object in the hands of a big star, then watch that object fly off the shelf in the following month. For ideas worth billions, we should spend millions to attract the top-notch marketers, and give them a budget to craft emotionally persuasive visuals and sound bites. Continue reading

How Planners Can Rescue Virginia from the Fiscal Abyss

This is a copy of a speech that I presented to the Virginia Chapter of the American Planners Association Monday, with extemporaneous amendments and digressions deleted. — JAB

Thank you very much, it’s a pleasure to be here. Urban planning is a fascinating discipline. As my old friend Ed Risse likes to say, urban planning isn’t rocket science – it’s much more complex. Planners synthesize a wide variety of variables that interact in unpredictable, even chaotic, ways. In my estimation, you don’t get nearly enough respect and appreciation for what you do

OK, enough with the flattery. Let’s get down to business.

toastThis is you. You’re toast. Unless you change the way you do things, you and the local governments across Virginia you represent are totally cooked. … Here’s what I’m going to do today. I’m going to tell you why you’re toast. And then I’m going to tell you how to dig your government out of the fiscal abyss, earning you the love and admiration of your fellow citizens.

Why You’re Toast

old_people2Here’s the first reason you’re in trouble — old people. Or, more precisely, retired government old people. Virginia can’t seem to catch up to its pension obligations. The state says the Virginia Retirement System is on schedule to be fully funded by 2018-2020. But the state’s defines 80% funded as “fully funded,” which leaves a lot of wiggle room. The VRS also assumes that it can generate 7%-per-year annual returns on its $66 billion portfolio. For each 1% it falls short of that assumption, state and local government must make up the difference with $660 million. As long as the Federal Reserve Board pursues a near-zero interest rate policy, depressing investment returns everywhere, that will be exceedingly difficult. A lot of very smart people think 5% or 6% returns are more realistic. In all probability, pension obligations will continue to be a long-term burden on localities.

potholesSecond, the infrastructure Ponzi scheme — that’s Chuck Marohn’s coinage, not mine — is catching up with us. For decades, state and local government built roads and infrastructure, typically with federal assistance, proffers or impact fees with no thought to full life-cycle costs. State and local governments have assumed responsibility for maintaining and replacing this infrastructure. Well, the life cycle done cycled, and the bill is coming due. We’re finding that we built more infrastructure than we can afford to maintain at current tax rates, leaving very little for new construction.

accotinkThird, after years of delay, serious storm water regulations are kicking in. Local governments bear responsibility for fixing broken rivers and streams like Accotink Creek, showed here. (Yeah, that’s a creek. It’s having a bad day.) Best guess: These regs will cost Virginia another $15 billion. But no one really knows. And it may just be the tip of the iceberg. I recently talked to Ellen Dunham-Jones, author of “Retrofitting Suburbia,” and she noted that a lot of the storm water infrastructure that developers built in the ‘50s and ‘60s is crumbling. The developers are long gone. Someone’s going to have to fix that, too. Guess who?

property_taxMeanwhile, the largest source of discretionary local tax dollars – real estate property tax revenues – is stagnating. According to the Demand Institute, residential real estate prices in Virginia will increase only 7% through 2018 – the third worst performance of any state in the nation. Don’t count on magically rising property tax revenues to bail you out.

In fact, the tax situation is worse than it looks. Demand for commercial real estate is dismal, too. Consider what’s happening to the retail sector. We’re going from this…

shopping_centerTo this..

amazon_warehouse

Every Amazon.com distribution center represents dozens if not hundreds of chain stores closing. It means more vacant store fronts, more deserted malls, less new retail development. Continue reading

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.

Is the End of America’s Culture Wars in Sight?

Lind

Michael Lind

by James A. Bacon

Have the Culture Wars peaked? Is the national debate over God, Gays and Guns on the downward slide? Michael Lind, a conservative thinker and cofounder of The New America Foundation, thinks the end is foreseeable. Just as the Civil War didn’t end after Gettysburg — the Confederate states still had a lot of fight left in them — the controversy over abortion, gay rights and gun rights will generate headlines for years to come. But there isn’t much doubt who will win the war.

Look at the views of the Millennial Generation and you can see which way popular sentiment is heading. Millennials are far less likely than their elders to say religion plays an important role in their lives, and they are more likely to define themselves as social liberals. They are less likely to own guns and more likely to support gun control. They are the only demographic cohort in which a majority — 70% — support gay marriage.

As liberal Millennials replace conservatives from the G.I. Generation and the Silent Generation, will political power swing decisively to the Democratic Party? Not necessarily, writes Lind in “The Coming Realignment,” an essay in The Breakthrough. But there will be a massive shift in the fissures dividing the nation. How that will play out in terms of partisan politics is difficult to predict but rest assured that the Republican Party, a coalition of disparate and often fractious groups, will reinvent itself.

Lind analyzes contemporary U.S. politics along two great dividing lines: economics (free markets, regulation, inequality of wealth) and culture (guns, God and gays). Democrats represent the economic and cultural liberals; Republicans represent the economic and cultural conservatives. But there are many economic liberals/social conservatives (often called populists) and economic conservatives/social liberals (often labeled Libertarians) who don’t fall easily in either camp. As the social conservatives are slowly eased out of the picture, Lind argues, political coalitions will reorganize around two new poles: Liberaltarians and Populiberals.

Liberaltarian, a term already in use, describes “a broad camp including neoliberal Democrats skeptical of government in the economic sphere along with libertarian Republicans and independents who recognize the need for more government than libertarian ideologues believe to be legitimate.”

Populiberal, Lind’s coinage, describes “social liberals who share the liberal social values of liberaltarians, but who tend to be more egalitarian and to favor a greater role for the government in matters like social insurance, business-labor relations, and redistribution of income.”

Lind then boldly suggests that these two new coalitions will align themselves geographically between “Densitarian” and “Posturbia.” By Densitaria, he refers to the higher-density urban precincts, both downtowns and suburban villages, where higher-income Americans increasingly prefer to reside along with the service class that caters to their needs. Posturbia is comprised of lower-density suburbs and rural areas where the working and middle classes live. Residents of Densitaria and Posturbia will tend to disagree about the nature of the social safety net (should it be tailored to the needs of the most vulnerable, or should it structured more like universal social insurance?), the tax structure (soak the rich?) and the nanny state (using government power to combat obesity).

Though fascinating, Lind’s argument is not entirely convincing. He is entirely correct that the national sentiment is becoming more liberal on some Culture War issues, most notably gay rights. But I don’t believe the needle has moved much on abortion. And, as medical science advances, I think we will see entirely new ethical dilemmas arise. It won’t be long before genetic engineering allows people to create “designer kids” or before the use of manufactured limbs, hearts and organs on the one hand and the rise of robots imbued with Artificial Intelligence raises questions of what it means to be human. It is not hard to predict a growing revulsion against what some deem to be progress. Some of that revulsion may be religion-based, but much of it could be secular.

One additional point: Millennials are culturally liberal now. But will they stay liberal when they get married, settle down and have kids? Look what happened to the Baby Boomers. Who would have thought in 1968 that a majority of the generation would wind up voting Republican in 2012?

Still, I think Lind is right about some things. The shift toward equal rights for gays is likely to be permanent and, within a decade, no longer will be controversial. I also think Lind is right that the last remnants of racial prejudice are dying out with the passing of the older generations. As young “people of color” see race as less and less of a factor affecting their lives, they will be less attached to the Democratic Party and more open to appeals by Republicans.

In my spare time, I am working on a novel set in 2075. I’ve spent a lot of time thinking what the United States will look like in 60 years. I’ve concluded that the world is so complex and the interactions of technology, economics, politics and culture so impossible to predict that the future is unknowable. With that caveat, I postulate the break-up of the Republican Party into two entities — the Enterprise Party (which is economically conservative and culturally liberal) and the Faith Nation (which is first and foremost culturally conservative). In my scenario, the Enterprise Party hives off some people who call themselves Democrats today, and the Democratic Party shifts so far to the populist-redistributionist left that it rebrands itself as the Social Democratic Party. (In my novel, the Social Democrats predominate. I guess you could call it a dystopia!)

Such idle speculation aside, America has seen dramatic political realignments before, and it will see them again. Lind makes a provocative case and he identifies key dynamics that will influence the outcome. Popular dissatisfaction with Americans political institutions is so intense today that it’s hard to believe that the current two-party duopoly can long continue in its current form. Lind’s essay is as good a place as any to start thinking about what comes next.

More Defense Cuts Plague Virginia

Special deliveryBy Peter Galuszka

Virginia continues to see painful military spending cuts in the aftermath of the years’- long U.S. intervention in Iraq and Afghanistan.

Among the latest news is that the Army may cut 3,600 jobs at Ft. Lee, ironically the site of a recent and large expansion, by 2020. That could result in a decline of 9,000 residents near Petersburg which is close to  the base.

Plus, the Air Force plans on cutting 742 positions at its Air Combat Command headquarters at Langley Air Force Base in Hampton although some of the positions are already vacant and won’t be filled.

These are just some of the changes that are affecting Virginia, which is the No. 2 defense industry state after California. Many of the cuts involve active duty personnel whose vacancies are not being filled or are being asked to take early retirement.

Defense industry jobs are likewise taking cuts. A report by the National Association of Manufacturers states that in 2014, California will lose the most military-related jobs (148,400) followed by Virginia (114,900) and then Texas (109,000). Maryland will lose 40,200 jobs, the report says.

Many of the jobs are in heavy manufacturing, such as aerospace and ship building, and search and navigational services, but general business and other services will also be affected.

The news is especially hard on Petersburg and nearby Ft. Lee which just a few years ago enjoyed a major boost after a Base and Realignment and Closure round consolidated many multi-service logistics and supply functions. The influx of thousands of soldiers, contractors and their families boosted the city and surrounding areas.

Hampton, the location of Langley Air Force Base, doesn’t seem to be in store for such heavy impacts since the cuts involve some jobs already being lost to attrition. Other bases and areas hurt by the Air Force cuts include Washington, D.C.; San Antonio; Texas; Dayton, Ohio; and Belleville, Illinois.

Newport News Shipbuilding, now owned by Huntington Ingalls Industries, could lose a deal to build one submarine and might delay another to build as Ford class nuclear attack carrier, if automatic defense budget cuts return in 2016. Another potential hit: refueling the nuclear-powered carrier George Washington but may mothball the ship if the budget cuts kick in. About 24,000 people work at Newport News Shipbuilding, making it the largest private employer in the state.

Besides the Washington area, Hampton Roads is greatly dependent upon defense spending. Some 47 percent of the regional economy depends on it. Anticipating more defense cuts, former Gov. Robert F. McDonnell formed a commission to come up with ideas before he left office this year. One of them is to be pro-active and recommend cuts of its liking before the federal government acts.

One of its recommendations cuts both ways on environmental issues. It recommends against offshore oil and gas drilling in watery areas where the military trains, thus making them available over the long term. It likewise recommends against wind turbines in the same areas.

These are interesting, but very difficult choices.

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.