The Great U.S. 460 Swamp

The Great U.S. 460 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.

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Coming up: Car-Lite Burbs

Coming up: Car-Lite Burbs

A California developer is teaming with Daimler AG to bring buses, shuttles and ride sharing to an Orange County community -- with no government subsidies.

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Putting the “Garden” in Rain Garden

Putting the Garden in Rain Garden

Soon Virginians will start spending billions to meet tough storm-water regs. Lewis Ginter Botanical Garden wants to show how we can save the bay – and look really good doing it.

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Tech Insurrection

Tech Insurrection

Smart cities, says Anthony Townsend, will be forged by geeks, activists and civic hackers through bottom-up technological innovation.

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Sprawl’s Hidden Subsidies

Sprawl's Hidden Subsidies

The answer to sprawl isn't more regulation, says Pamela Blais, it's fixing the endemic biases embedded in taxes, utility fees, municipal services and mortgages.

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Virginia’s Jobs-Skills Mismatch

skills_mismatchEvidence is mounting that a reason for slow economic growth and high unemployment — not the main reason but a significant one — is the mismatch between the skills required for the jobs that American companies have to fill and the skills that American workers actually possess.

A recent survey of 87 small and midsize business CEOs conducted by the Robins School of Business at the University of Richmond and the Richmond Council of CEOs found the following: 70% staffing was a significant issue, particularly the finding, recruiting and training of operational and sales talent.

When asked how much their annual revenues might increase if their talent concerns were resolved, more than half of all CEOs (51.7%) indicated they would experience growth of 11% or more, with 17.2% of firms indicating potential revenue growth of more than 20% if they could solve their staffing issues.

The problem is concentrated in two main areas: sales and IT. “The CEOs I work with are very concerned with attracting talent in two areas,” says Scot McRoberts, executive director of the Virginia Council of CEOs. “Many small business CEOs are raising the bar for their sales teams. … In our local IT community, programmers and coders are just not there in sufficient skill and quantity.”

Let’s see…. Businesses want employees with different skill sets. Employees want skills that will get them hired. Virginia has a massive educational/job training establishment — colleges, universities, community colleges, job training programs — that spends billions of dollars a year. Yet, somehow, the system is not functioning properly. Old skills are obsolescing faster than ever as businesses strive to incorporate new technologies, and the education/training system can’t keep up.

Bacon’s bottom line: If those 87 CEOs are representative, thousands of jobs in Central Virginia alone are going begging. Instead of trying to create jobs by building baseball stadiums and sports arenas, perhaps our political and civic leaders should focus on the jobs-skills mismatch. On the other hand, maybe they shouldn’t. Given their track record, maybe they should just stay out of the way.

Regardless, we need a new system to equip Virginians with the skills they need to be employable and that businesses need to be competitive — a system that can keep up with fast-evolving technology. Will we get that system? Don’t count on it. The existing system is ossified in place by funding streams determined more by politics and institutional privilege than by market demand.

– JAB

Should Virginia Beach Subsidize a New Arena?

Image credit: ESG Companies

by James A. Bacon

United States Management (USM), a Virginia Beach development company, wants to build a $200 million, 18,000-seat arena and sports complex adjacent to the city’s convention center, which, it claims, will create jobs, boost the local tourism industry, bolster city property values and bring events to Hampton Roads that enhance the regional quality of life. Backed by $150 million in financing from Chinese interests, the company would spend $200 million of its own money.

All it will take from the City of Virginia Beach is a $52.7 million contribution to infrastructure costs for road improvements, utilities and parking. … Plus $26 million in optional streetscape improvements and additional road improvements…. Plus $7 million yearly in tax revenue generated by the project to pay down USM’s debt.

This project has consumed the attention of Hampton Roads much in the way that the Shockoe Bottom baseball stadium has absorbed Richmond residents. The arena is back in the local news thanks to the release of a consultant report detailing the commitment the city would have to make under the terms of the deal proposed by USM. That commitment, though large, is significantly smaller than called for in a proposal made and rejected earlier in the year, which makes it look good by comparison. Virginia Beach Mayor Will Sessoms is supportive of the project, although some City Council members have expressed concern about the public cost.

If Hampton Roads residents wonder why their region has been such an economic laggard in the current business cycle, the fact that Virginia Beach is debating how much to subsidize a sports arena should tell you all you need to know. Sessoms had shown a penchant for grandiose public projects — extending light rail from Norfolk to the Virginia Beach resort area is another — that require the expenditure of massive public funds for highly speculative benefits. Rather than focusing resources on making Virginia’s largest city more competitive in a technology-intensive knowledge economy, the mayor is doubling down on the city’s past as a tourism destination – a second-tier tourism destination, at that.

It is undoubtedly true that the proposed arena, which could host everything from a pro basketball team to monster truck rallies, would stimulate economic activity. In a 2012 study, economist and former Old Dominion University James V. Koch estimated that an arena would generate $98 million in revenue throughout Hampton Roads, two thirds of it in Virginia Beach itself. (Two critical caveats: Koch’s study assumed that the arena would attract an NBA team that would play regular games there, and it included a multiplier effect as initial spending rippled through the economy.)

As Koch made clear in his study, he drew no conclusions regarding whether the arena should be built or how it should be financed. Nor did he, nor anyone else that I have been able to find, analyze the city’s Return on Investment of public dollars. Nor did he or anyone else conduct a risk analysis of what could go wrong, and what exposure the city would have, if, say, a recession came along and the wonderful assumptions behind the economic forecasts fell short. Risk analysis, as citizens of Southeastern Virginia should have learned from the U.S. 460 fiasco, is critical. Finally, I have seen no analysis of what alternative uses Virginia Beach might have for $53 million to $79 million.

Personally, I can think of many other ways for Virginia Beach to invest sums of that magnitude, although none would be as flashy as a new arena. The city could invest in creating islands of mixed-use, higher-density urbanism that bring in far more taxes, with fewer offsetting spending liabilities, than traditional suburban-style development. The city could invest in “smart cities” technologies that could cut energy expenditures, reduce water consumption and do a better job of managing traffic. The city could invest in integrating online learning into the curriculum of Virginia Beach schools. If city officials were feeling especially adventurous, they could foster the creation of innovation districts that would stimulate sustainable, entrepreneurial-based economic growth. Most of those priorities, however, require a decidedly un-sexy, stick-to-the-basics approach in which government focuses on those things that government can do well while leaving risky development schemes to the private sector. Alas, stick-to-the-basics doesn’t garner headlines or add to the aura of activist mayors.

Local governments in Virginia face chronic fiscal challenges. Virginia Beach doesn’t have a lot of money to waste. City officials need to show discipline in allocating tens of millions in discretionary spending. Once they commit to spending that money, they foreclose alternatives that could offer bigger payoffs at less risk.

Why High Schools Should Prioritize Proficiency in Writing and Algebra II

enrollment_persistence

Image credit: VLDS

Virginia high school students who earned the more academically demanding Advanced Studies diploma were six times more likely to have earned an Associate’s or Bachelor’s Degree within four years of graduating. That’s one of the most recent findings to emerge from the Virginia Longitudinal Data System (VLDS), a system that matches de-identified data from multiple state data sources, allowing researchers to track the progression of Virginians from school to college and into the workforce.

A study of “postsecondary persistence,” the likelihood of a student persisting through college long enough to earn a degree, also found that students who scored “advanced proficient” on their Algebra II Standards of Learning and end-of-course writing SOLs were far more likely than their peers to enroll and graduate from college within four years.

Why does this matter? Because experts estimate that by 2018 65% of all jobs will require some level of post-secondary education or training. “It is critical that Virginia’s high schools ensure that students graduate with the knowledge and skills needed for success in post secondary programs,” write the authors Deborah L. Jonas and Marshall W. Garland in “Virginia’s 2008 On-Time Graduation Rate Cohort Four year college enrollment, persistence and completion.

“This research provides important insights into the value of the Advanced Studies diploma — and the courses within the diploma – in preparing students for success in life.” In particular, it documents the importance of ensuring students reach high achievement in mathematics and English courses.

That may not sound like the most dramatic finding in the world, but it does lead to important public policy conclusions. (The authors did not draw these conclusions — I am drawing them.). Not only should high schools encourage students to strive for Advanced Studies diplomas, they should focus resources (e.g. the best teachers) on English and algebra courses. Students need writing and math skills to make it through college. All other courses — history, foreign languages, physical education, various elective studies — are worthwhile but less essential.

In the future, we should be seeing more research like this based upon VLDS data. Hopefully, Virginia’s government and political leaders will use the research to guide public policy. I don’t under-estimate the power of ideology and bureaucratic inertia to trump research when it comes to reforming the system, but hope springs eternal.

– JAB

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.

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Author Tom Robbins Remembers Richmond

 Tibetan PeachBy Peter Galuszka

Cult author Tom Robbins has always been a fun read, be it his novels “Even Cowgirls Get the Blues” or “Still Life With Woodpecker” or his remarks in interviews.

Now in his 80s, the acid-dropping and whimsical iconoclast who is an icon of the 1950s through ’70s has written a memoir of sorts called “Tibetan Peach Pie,” and it is also entertaining. But what is of special interest is how he pays attention to Richmond.

Many think, correctly, that Richmond is the stuffy capital of the “Clown Show,” the self-important legislature, and snobby, WASPy types overly impressed by their pedigrees and their privileged positions. Robbins, however, turns these views on their heads, noting that Richmond has always had an artistic rebel streak.

In the late 1950s and 1960s, he was part of it in a big way. Born in the mountains of North Carolina, Robbins moved to the Virginia Tidewater as a child and ended up in Richmond. He went to button-down Washington & Lee, then a school for nice Southern boys, where he wrote sports stories for newspaper editor Tom Wolfe (THE Tom Wolfe although then he had numerals after his name). A stint in the Air Force later, he went on to the Richmond Professional Institute, now VCU.

As I write in a recent Style story: Robbins greatly admires RPI, which he says “isn’t widely known, though it was Harvard, Stanford, Oxford, and the Sorbonne rolled into one for aspiring artists in the southeastern U.S.; and in many ways was the ideal school for incipient bohemians looking for a friendly academic environment in which to pack those tender roots.”

He’s mesmerized with the alleys of the Fan District, writing that they “become all the more interesting after nightfall, when they softly resonate with stray disembodied fragments of music (live or recorded), intellectual discourse, dog-bark, couple-squabble, and woo-pitch, not to mention the even less tangible secrets that seem to sweep from the shadowed crannies. …”

Striking a deeper chord, he worked senior year at night on the copy desk of the Richmond Times-Dispatch. Despite the TD’s innate conservatism, he says that it actually had high journalistic standards. I felt the same way when I was a reporter there for a couple of years in the 1980s although I had similar feelings about its stuffiness. Back in his time, Robbins writes that the big dictionary used by editors was so out of date that it described “uranium” as a “worthless mineral.”

Like many Southern papers of that era, including one I worked on in the early 1970s in North Carolina, there was an unwritten rule not to run pictures of blacks that might make them look good. They were slotted for crime news. Photos in sections for the “colored” were acceptable.

Robbins sympathized with the civil rights movement that was in full swing circa 1960. He spent some time at a Unitarian Church working for integration. Fellow TD copy editors called him a “nigger lover.”

He also got in repeated trouble when he chose to place photographs of black artists such as Louis Armstrong and Pearl Bailey in a gossip column by Earl Wilson that he edited. Summoned by his editor, Robbins was warned that readers had complained that they “couldn’t finish their breakfast” after seeing the photo of Bailey. Readers had lit up the telephones to complain.

It was time to move and he did, to Seattle where he spent most of his literary career. One final strike, though. On one of his last nights at the desk, he ran a photo of Sammy Davis Junior, an African-American entertainer married to a blonde woman. Still, he regards Richmond and the TD fondly.

It’s a fun book for a beach trip.

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.

How Charlotte Stays Economically Competitive

Buildings participating in the Envision Charlotte energy-conservation initiative.

Envision Charlotte, a public-private partnership in Charlotte, N.C., has set the goal of reducing energy consumption in the city center by 20%. The initiative has achieved 8.4% savings so far, saving businesses in the central business district an estimated $10 million or more, Envision Charlotte and Duke Energy announced last week.

“We have cracked the code in understanding and measuring how energy is used and wasted within these buildings, and we are implementing programs today that are making a real difference in helping these businesses save money,” said Amy Aussikier, executive director of Envision Charlotte. The program encompasses more than 60 downtown buildings.

Not only does the program save businesses money, local officials see it as a competitive economic advantage for Charlotte. “Envision Charlotte is an economic development differentiator for Uptown Charlotte, where about 40% of the region’s office space is located,” said Charlotte Mayor Dan Clodfelter. “Lowering energy costs and showing a true commitment to sustainability makes us attractive to millennials, knowledge workers and companies that value cost savings.”

Bacon’s bottom line: This is a classic example of how “economic development” has evolved way past the traditional reliance upon industrial and corporate recruitment. Charlotte’s leaders are thinking about how to help make their existing businesses leaner and greener while driving down costs. They are thinking about what it takes to attract forward-thinking enterprises and knowledge workers. Charlotte isn’t the only city doing this — San Diego is pursuing a similar initiative. Why isn’t this happening anywhere in Virginia?

Actually, the opportunity exists to leapfrog Charlotte and do even better. Energy conservation for individual buildings is great, but it only scratches the surface of what’s possible. Cities should be exploring ideas like eco-districts that not only bolster the energy-efficiency of individual buildings but entire neighborhoods through shared energy generation, recycling of heat, installation of green roofs and the fostering of more compact development.

– JAB

In Praise of an Unsung Hero

John D. Bassett III

John D. Bassett III

by James A. Bacon

Nearly 40 years ago I moved from the big city to a place had I barely heard of, Martinsville, Va., to embark upon my journalism career as a cub reporter for the Martinsville Bulletin. Compared to Washington, D.C., where I had spent most of my time growing up, it seemed a hard-scrabble place. Little did I know, those were the glory days.

Martinsville was reputed to have more millionaires per capita than anywhere else in Virginia. (Those were the days before the rise of Northern Virginia’s high-tech industry sector.) There was poverty, to be sure, but the region had pride. As the headquarters town for three major textile and apparel companies, Martinsville claimed to be the Sweatshirt Capital of the World. In the days before off-shoring, the town dominated the global knitted fabrics sector. Martinsville and nearby communities of Bassett and Stanleytown also comprised one of the largest concentrations of furniture manufacturing in the country. There was a large DuPont plant there as well, and even a high-tech company started by immigrant Julius Hermes, Martin Processing, that manufactured advanced film coatings.

Other than DuPont, all the businesses were locally owned and operated. Martinsville was no branch-plant economy. The town had a strong middle class of middle managers and professionals. And even the poor weren’t destitute. Many workers lived on plots of land in the country, supplementing their factory wages with garden crops and, often, small plots of tobacco. To my recollection, the population was affluent enough to support four country clubs. The local delegate to the General Assembly, A.L. Philpott, was speaker of the House. Martinsville was small but it punched above its weight.

In just a few short decades, however, it all came tumbling down. America embraced globalization and open trade. It was something the nation had to do, and there has been a huge payoff to companies and their employees who could provide the higher value-added services where American was globally competitive. But free trade came at a cost — and the people of Martinsville were among those who paid it. First the DuPont nylon plant closed, for reasons that may or may not have been connected to free trade (I can’t remember). The textile-apparel sector was the next to go. Within a couple of decades after I had left, the entire sector had shut down, shuttering the huge knitting mills, as production moved to Asia. Then the furniture industry met its demise. That process was more protracted, and some of the companies survived. Although most production moved overseas, local companies like Bassett, Stanleytown and Hooker survived as furniture designers, marketers and distributors of Chinese-manufactured goods.

That’s all prelude to the purpose of this post, which is to highlight a new book, “Factory Man,” by Roanoke Times reporter Beth Macy, which received a rave book review in the New York Times. Macy tells the story of John Bassett III, president of Vaughn-Bassett Furniture, who fought the fight to preserve furniture manufacturing in Virginia and North Carolina longer and harder than anyone. As the NY Times recapitulates the story:

[Macy] went looking for mountain families who had spent generations working for the region’s furniture giants, until the whole industry was walloped by cheaper furniture imported from China. She found all that and more in the battling Bassetts, a feudal family of factory owners who controlled a string of these companies and the bank, hospital, school, clinic and housing their workers used.

Questions of how the business can survive weigh heavily on manufacturers’ minds.

The ’80s answer brings JBIII’s attitude into stark contrast with those of his fellow owners. Companies merge; Wall Street takes over; laying off workers and closing plants is seen as smart rather than damaging. And nobody much cares what happens to those workers except for JBIII, who can’t bear thinking of them “in unemployment lines instead of assembly lines.”

After leaving the Martinsville Bulletin, I worked for the Roanoke Times from 1979 to 1984. That was before Macy joined the newspaper. I did not know her, but my hat’s off to her for finding the color and the drama in Bassett’s largely Quixotic quest and for telling a story that truly deserves to be told. John Bassett will never be remembered as one of America’s great innovators, like Steve Jobs, or one of its captains of industry, like Jack Welch. Unlike them, he failed. He could not revitalize American furniture manufacturing; China’s economic advantage of cheap labor was overwhelmingly decisive. But he deserves America’s admiration as a businessman who cared about the people who depended upon him, who chose to follow the hard path rather than the easy one, and who gave it his all.

(Hat tip: Patrick Zilliacus)

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.