The System Is Rigged… and Trump Ought to Know

The system is rigged!

Building a big, beautiful tax break

Back in the day, Virginia was one of the most reliable Republican states in presidential elections.  That changed in 2008, with the election of President Obama.  Current polling indicates that the deeply flawed Democratic candidate, Hillary Clinton has a double-digit lead over Donald Trump.  The core of this support seems to be amongst college-educated whites in the Washington, D.C., suburbs.

Now there is more trouble ahead for “The Donald”!! The lead story in today’s New York Times details how, after filing for bankruptcy, Trump’s New Jersey casinos owed the state of New Jersey $30 million in back taxes.  The article discusses how, after Chris Christie ascended to the governorship, the state settled for 17 cents on the dollar, or slightly less than $5 million.

And Governor Bob was indicted for, amongst other matters, riding around in a Ferrari?

— Les Schreiber

The Land of the Semi-Free and Home of the Brave

Image credit: Cato Institute

Image credit: Cato Institute

The Cato Institute, a libertarian think tank, has compiled a basket of some 200 metrics of fiscal, regulatory and personal freedom policies to produce an index of “Freedom in the Fifty States.”

If you lean libertarian, as I do, then a Virginia score of 21 is not terribly impressive. Could be worse, but not nothing to brag about. The state fares best by fiscal measures, 12th in the country, and worst on personal measures, 34th. Our regulatory score, 23rd, is in the middle of the pack.

If there’s any consolation, the overall score has improved three notches since 2012. Fascinating: In the four years between Republican Governor Bob McDonnell and Democratic Governor Terry McAuliffe, Virginia has become more libertarian…. at least by Cato’s reckoning.

If you don’t like Cato’s scoring methodology, a customization feature allows you to personalize your own.

Hat tip: Tim Wise

— JAB

Move to the City, Young Man, Move to the City

Image credit: StatChat

Image credit: StatChat

Virginians are most likely to move to another jurisdiction when they reach age 18 and head to college and again as they establish themselves in the job market. As they grow older and sink personal and professional roots in a community, their proclivity for moving steadily declines. Only when Virginians hit retirement age does the trend line level off. The pattern is shown clearly in the chart above, taken from Hamilton Lombard’s latest blog post on the StatChat blog.

Equally interesting is Lombard’s map showing where young people (15 to 24 years old) are moving from, and where they’re moving to. No surprise here: They’re moving from rural and suburban counties to college towns and urban-core jurisdictions.

migration_map

Image credit: StatChat. Click for larger image.

What does that mean for public policy in Virginia? Writes Lombard:

The rise in college attendance rates and the common need to move to large urban centers for graduates to find jobs are both likely helping drive the increasing flow of young adults into Virginia’s urban areas and communities with universities. The inflow of young adults into Virginia’s cities has boosted their workforce noticeably and helped support the revival in growth that many cities in Virginia are experiencing. But as an increasing share of young adults have remained in cities after starting families, it has also forced many urban localities, such as Arlington and Falls Church, to reevaluate their long-term planning as demand for housing and school spaces have surged.

Conversely, he writes, “A smaller working age population has typically also meant fewer families with children in rural counties, often slowing population growth and in many cases causing population decline.”

If there is a consolation for rural counties, the outflow of young people is offset to some degree by an influx of retirement-age Virginians. As Lombard speculates: “Many the older people that rural counties are attracting are likely the same ones that moved away for college or work decades ago.”

— JAB

SOL Scores Inch Higher

reading_SOLThe percentage of Virginia students passing the Standards of Learning assessment tests gained a percentage point in the 2015-2016 school year, the Virginia Department of Education reported today.

“A one-point improvement in mathematics means that approximately 11,500 more students met or exceeded the benchmark for proficiency for their grade or course,” Superintendent of Public Instruction Steven R. Staples said in a press release. “In reading, a one-point increase equals approximately 8,000 students, and in science, more than 6,000.

To see the scores for all school jurisdictions, courtesy of Jim Weigand, click here.

— JAB

Debt to TVOP: A Fiscal Warning Flag for Virginia Localities

debt_to_value

by James A. Bacon

The financial travails of the City of Petersburg has prompted some readers to wonder if other Virginia localities are fiscal time bombs waiting to go off. There are many causes of fiscal dysfunction but one sure sign of trouble is a heavy burden of long-term debt.

One way to measure that burden is to express debt as a percentage of the tax base, in particular as a percentage of the true value of property. Local governments have many revenue sources, but the property tax is the one major source which city councils and boards of supervisors can control. Therefore, the value of taxable property is a good proxy for a locality’s tax base, and the ratio of debt to the tax base is a good indicator of fiscal health.

To get a sense of which localities might be over-extended, Jim Weigand, a regular reader and concerned citizen of Lynchburg, calculated net debt as a percentage of true value of property (TVOP) for fiscal 2015. The ten most leveraged localities appear in the table above, with Accomack County heading the list at a fear-inducing 22.8%. The state average is 3.4%, and the least leveraged locality in Virginia, Mecklenburg County, is three-tenths of one percent.

Petersburg ranks fairly high on this list, 19th in the state, with a ratio of 6.8%. Buena Vista, another fiscal basket case we have written about on Bacon’s Rebellion, cracks the Top 10 with a ratio of 10.1%. The City of Richmond, whose inept fiscal management we have highlighted, does not appear on the list… because it could not comply with the data reporting requirements!

If I were a citizen of Norfolk, Portsmouth or any of the other localities atop the list, I would regard this ratio as a warning flag. This one metric along is not sufficient to declare a locality to be in poor fiscal shape. Many factors go into calculating a locality’s health. But a high debt-to-tax base ratio is undeniably a worrisome sign. Conversely, an exceedingly low ratio raises questions as well. Is Mecklenburg County spending enough money on utilities, school buildings, public safety buildings and the like?

To view a list of all Virginia cities and counties, click here.

Strategic Investment Funds: Not Just for UVa Anymore

uva_fog_smallby James A. Bacon

The University of Virginia’s controversial $2.2 billion Strategic Investment Fund is such a great idea that UVa officials are recommending it as a model for other state universities.

By adopting UVa’s approach and consolidating university reserve funds statewide, a sum that could approach $9 billion, the Commonwealth could establish an investment fund that would generate $450 million annually in extra income, UVa Rector William H. Goodwin said Monday at a Board of Visitors meeting, reports the Richmond Times-Dispatch.

Vice Rector Frank Conner also recommended the investment strategy for other Virginia public universities. “A lot of people will be calling us,” he said. “This is very creative.”

Members of the UVa board are upset by questions swirling around the creation and purpose of the fund, the existence of which was revealed publicly in a Washington Post op-ed last month by former Rector Helen Dragas before the university could manage the roll-out. Questions have arisen regarding where the money came from and why it won’t be used to dampen tuition increases rather than fund programs to enhance the university’s prestige.

Board members pushed back yesterday against outside criticism. It is “a shame we’re getting arrows in the back for being first,” said James B. Murray Jr.

Barbara J. Fried said the university needed to do more to “overcome lying sound bites.”

But the university has been slow in explaining exactly how UVa’s Strategic Investment Fund was accumulated. A month ago, the official explanation was that the money was cobbled together from $385 million in operating reserves, $620 million in “unrestricted funds and related earnings that had accumulated in [the university’s] history,” and $700 million in earnings on those funds. The university provided no detail on the $620 million in “unrestricted funds and related earnings,” and legislators have called for an accounting.

Goodwin added a bit of new detail Monday. He credited Executive Vice President Patrick D. Hogan with, as the T-D put it, “finding efficiencies in operations during the past few years that, along with investment earnings, were used to create the fund.”

Bacon’s bottom line: Let’s make one thing clear: It is great news to discover that UVa has compiled a $2.2- to $2.3-billion pot of money. That money can do a lot of good.

Apparently, UVa, like other universities, kept a lot of cash sitting around in reserves yielding very low interest rates, and Hogan deserves credit for figuring out how to tap those funds to generate a higher return in other kinds of investments. Among other things, this involved negotiating a line of credit to maintain the university’s liquidity. The payoff from this financial restructuring could be huge. If Goodwin is right and the idea could be applied to other Virginia universities, the innovation could very well revolutionize higher education finance. (The idea must be viewed with caution, however. Not all institutions have a AAA credit rating like UVa; some may not be able to leverage their balance sheets in the same way.)

But no one is criticizing the board for being creative financial stewards and investing the money well.

People have legitimate questions about where the money came from. According to UVa’s own explanation, only $385 million of the seed funding came from operating reserves. Another $620 million came from what is described as “unrestricted funds and related earnings that had accumulated in its history.”

What the hell does that mean?

Well, we learn from Goodwin that a good portion if not all of that $620 million come from operating efficiencies — cost cutting. Again, Hogan deserves kudos for the achievement. But no one is criticizing him for running a tight ship.

These are the questions that people are asking: Should UVa have used the savings from cutting costs to blunt increases in tuition and fees rather than setting them aside and accumulating $620 million? Who set up this operational fund anyway? Did the Board of Visitors ever approve the strategy of setting aside and accumulating funds from cost-cutting initiatives, a strategic decision that should be made by the board and not the administration? Did the board approve handing those monies to the University of Virginia Investment Management Co. (UVIMCO) to invest? When the board recently voted to increase tuition for incoming students by 10%, were members aware that the university had accumulated hundreds of millions of dollars, plus investment returns, from cost cutting? Did board members give consideration to the possibility that the accumulation of those funds represented a form of overcharging students and their families?

Legislators want answers, and I don’t blame them.

Goodwin Says Closed Meeting Was Legal

William H. Goodwin, rector of the University of Virginia, has disputed the account by former rector Helen Dragas that a June Board of Visitors meeting held in closed session violated the Freedom of Information Act.

The Freedom of Information Advisory Council issued an advisory opinion Friday saying that the board appeared to violate the law, assuming events unfolded as alleged in a letter written by Virginia Beach attorney Kevin E. Martingayle at Dragas’s behest. (See details of the opinion here.)

During a break in the orientation program for new board members Sunday, Goodwin told the Daily Progress that the narrative was inaccurate, but declined to get into specifics. “I think it was disappointing they would write such a lengthy article based on what one person said,” he said, referring to the 5,000-word opinion.

The board voted to hold a closed session to discuss personnel and legal matters. Dragas, whose term on the board has since expired, said that the board discussed substantive details of a $2.3 billion Strategic Investment Fund, a topic that should have been aired in open session — a charge seemingly backed by the distribution of guidelines for spending revenue from the fund that were tagged for discussion in “executive session.” University officials retorted that board members “asked questions about the Fund that deviated from the designated personnel topic” and that when university counsel brought it to his attention, Goodwin “ended the discussion.”

— JAB