Tag Archives: James A. Bacon

Apex Encounters Headwinds in Botetourt Wind Project

by James A. Bacon

An interesting player is emerging in the Virginia renewable energy scene — Apex Clean Energy. The Charlottesville-based company has announced that it has erected two test towers for a proposed wind farm in Botetourt County to gather data about wind strength and frequency. The company has proposed constructing up to 25 wind turbines on a ridgeline about five miles east of Eagle Rock, according to news reports.

But the Rocky Forge project is encountering legal headwinds. A lawsuit filed a month ago sought to block the project on the grounds that “industrial turbines are known to catch fire, to collapse, emit audible and low frequency noise, cause shadow flicker and to throw ice from spinning blades in the wintertime,” reported the Roanoke Times. The lawsuit also noted that turbines kill birds and bats and destroy their habitat.

Dominion Virginia Power is running into similar obstacles in Tazewell County, where the energy giant faces stiff local opposition. The Tazewell County has proposed a zoning plan that would classify solar panels and wind turbines with other undesirable developments such as medical waste facilities that require a special permit.

For Apex Clean Energy, Rocky Forge is one of two wind power projects in Virginia. The facility would have a capacity of 80 megawatts, enough to power 20,000 houses. The expected completion date is 2017-2018, according to the company website. Another project, Pinewood Wind in Pulaski County, would have a capacity of 180 megawatts, enough to power 50,000 houses. All told, the company lists 53 projects in its portfolio, with the greatest concentration in the plains states of Texas and Oklahoma.

The company was founded in 2009 with the mission of building “a new kind of energy company.” The founders, who had sold their previous company, Greenlight Energy, to BP Alternative Energy, assembled a team of wind and solar energy professionals with skill sets that could originate projects, finance them, build them and manage them.

It’s not clear from the company website or news reports what the business model is for the Virginia wind farms. Among the possibilities: Purchase Power Agreements, in which a customer signs a contract to purchase a specified amount of energy from a project; project ownership in which Apex delivers a turn-key facility along with asset-management services over to a buyer; and a Structured Purchase Agreement, a long-term price agreement that allow companies to hedge against volatile fuel prices. Or Apex simply may sell electricity into the PJM electric bid, which supports a market for green energy.

Virginia ACT College-Readiness Scores on the Rise

Source: Virginia Department of Education

Source: Virginia Department of Education

by James A. Bacon Jr.

Some seemingly good news from the Virginia Department of Education (VDOE): Virginia’s college-bound students have shown steady improvement in their ACT college-readiness scores and significantly out-perform their peers nationally as ranked by the percentage of test takers who meet college-readiness benchmarks.

I say “seemingly” because the VDOE has shown a willingness to shamelessly spin data in the past. I don’t see any obvious signs of manipulation in the latest press release, but I don’t know enough to ascertain whether the data is being tortured or not.

Source: Virginia Department of Education

Source: Virginia Department of Education

“The upward trend in the performance of Virginia students on the ACT since 2012 corresponds with the implementation of college- and career-ready state standards and assessments in mathematics, language arts and science,” Board of Education President Billy K. Cannaday Jr. said in the press release. “The progress of students toward meeting these higher state expectations is reflected in the ACT.”

What seems especially encouraging is that Virginia scores have improved even as the percentage of high school graduates taking the test has increased. An estimated 30% of 2015 Virginia graduates took the ACT, up from 22% in 2010. (The pool of test takers includes public and private high school students as well as home schooled students.)

However, it is worth probing these results. The SAT remains the dominant college-admissions test. Not all college-bound students take the ACTs. I don’t know how the student profile of the ACT test taker may differ from the SAT test taker. If those most likely to take the ACTs are the best prepared academically, then it logically follows that enlarging the pool of test takers brings in students who are less prepared. If scores are improving despite this trend, the results appear to be all the more robust. Alternatively, if ACT test takers are participating because they are disappointed with their SAT results and they want an alternative test to present to college admissions offices, they may not represent the cream of the crop, with very different implications.

As the VDOE press release indicates, the College Board is expected to release its annual report on student achievement on SATs this September. If the SAT results match the ACT results, then something really good is going on. If not… you can draw your own conclusions.

A Tax Structure Finely Tuned for… a 20th Century Economy

virginia_business_tax_burden

Virginia business tax rates. Image credit: Tax Foundation, KPMG

A new study by the Tax Foundation and KPMG of state business taxes differs from previous studies, which look at average levels of taxation, by examining how state tax structures affect different types of business. The big conclusion from “Location Matters: The State Tax Costs of Doing Business“: Firms experience dramatically different tax rates because their exposure varies to different state and local taxes.

The study’s analysis of Virginia’s tax structure suggests that established companies experience much lower overall tax burdens than new companies. The Old Dominion ranks second best in the country for mature, labor-intensive manufacturing operations but only 35th for R&D facilities.

Bacon’s bottom line: I have frequently decried the lack of entrepreneurial dynamism in Virginia as a root cause for our sluggish economic performance. There may be many reasons for Virginia’s mediocre growth record in recent years but, based upon the data shown in the chart above, one of them is certainly the structure of business taxes.

In every category analyzed, new firms experience higher effective tax rates than mature firms. Just as important, look at the comparative ratings. Virginia ranks No. 2 in the country for mature, labor-intensive manufacturing companies — neither a growth sector, nor a particularly high-paying sector — but only 35th for R&D, the kind of economic activity every state covets. If we wanted to design an economy for the 20th century, not the 21st, we’ve done a pretty good job.

(Hat tip: Larry Gross)

Bureaucratizing the War on Men

campus_rapeby James A. Bacon

The bureaucratic machinery for prosecuting the Obama administration’s war on a supposed “epidemic of rape” — is building with frightening rapidity in Virginia. The University of Virginia spent about $1.5 million over the past year to comply with the U.S. Department of Education’s Title IX requirements, while Virginia Commonwealth University spent about $1 million, according to the Richmond Times-Dispatch.

Now state universities are discussing creation of a network of shared resources and investigators to address campus assaults. At a meeting of university presidents at the State Council for Higher Education in Virginia (SCHEV), UVa President Teresa Sullivan said a regional collaboration would help schools with fewer resource meet requirements of federal Title IX investigations.

This summer, UVa hired a new Title IX coordinator, two investigators and a coordinator for the federal Clery Act, which requires the disclosure of crime statistics. “Would I have rather hired four faculty members with that money? Yes, I would,” she said. “But we needed to do this to be in compliance.”

The “epidemic of rape” movement has overshot the mark, going way beyond the commendable objectives of combating campus rape and supporting the victims of rape. The new regime criminalizes sexual encounters — typically involving excess consumption of alcohol — that women regret in retrospect. Under the new logic, women are absolved of any responsibility for their own actions, while men who fail to obtain a woman’s “consent” during their drunken couplings are declared guilty of rape or sexual assault. The  apparatus being foisted into place is not merely solicitous to women but sometimes encourages them to file complaints when they were not initially disposed to do so, while administrative proceedings are stacked against men. As a consequence, an increasing number of men are heading to the courts to seek redress against university sanctions.

Meanwhile, a new puritanism is descending upon college campuses, as witnessed by the reaction to a sophomoric stunt by some Old Dominion University frat boys last week. Their offense: hanging a banner from their house saying, “Rowdy and fun—hope your baby girl is ready for a good time.” Suggestive jokes now are deemed worthy of administrative review and possible punishment.

To be totally clear, I find repugnant the kind of casual drunken sex on college campuses that leads to all too many regrettable and/or violent sexual encounters. I’m all in favor of throwing the book at rapists. I believe in chastising young men who treat young women boorishly. But I don’t favor criminalizing non-criminal acts, dismantling basic legal protections for men and squatting on free speech in order to accomplish that aim. There has to be a better way.

FY 2016 Budget Outlook: Surprisingly Fragile

VRS_portfolio

Distribution of Virginia Retirement System portfolio, March 2015. Image credit: VRS.

The stock market correction has frightened the bejeebers out of investors large and small — and it ought to frighten the bejeebers out of state and local governments, too. As John Rubino, publisher of DollarCollapse.com, noted yesterday, falling stock prices will reduce the capital gains that have been fueling rising income tax revenues for state and federal governments. Writes Rubino:

A bear market-related sell-off in capital gains would cause a double crisis, cutting pension fund investment returns (and thus raising the level of underfunding) and cutting tax revenues, diminishing states’ ability to even keep up with their current pension funding schedule.

Progressive income tax rates are fun when asset prices are rising, as the Federal Reserve Board has engineered them to do with its near-zero rate interest policies: States reap an income tax bonanza in capital gains taxes. But they are a disaster when assets prices tumble and capital gains take a dive.

Virginia isn’t as vulnerable as some states, which rely more heavily upon income tax receipts. But the individual income tax is the largest single source of revenue for the General Fund. The commonwealth closed fiscal year 2015 in June with a $553 million surplus, which Governor Terry McAuliffe attributed mainly to a surge in individual income tax revenue, which increased 8.1%, ahead of the 4.7% forecast. Most of that increase came from people cashing in capital gains from the stock and bond markets, not from rising wages and salaries. With the stock selloff, a repeat of that performance is highly unlikely. Fortunately, the budget assumes only a modest increase in individual income taxes this year, so the exposure is modest.

Less visible is the Virginia Retirement System’s exposure to falling equity prices. As of March 31, 2015, 21.4% of the VRS investment portfolio consisted of domestic equities. Another 16.5% consisted of non-U.S. equities — it would be interesting to know how much of that was invested in China, whose stock market meltdown has been cataclysmic. Another 3.6% was in emerging market debt, which is looking shakier and shakier as developing-nation economies take a beating from falling commodity prices, while another 4.8% was held in unspecified “emerging markets” assets.

In 2014, the VRS generated a 15.7% return on its investment portfolio, driven mainly by strong performance in its equity investments — and far above the 7% annualized return the VRS is aiming for. Given the state of U.S. and global financing markets today, it will take a minor miracle to meet that 7% goal this year. Of course, that’s only one year. Stock prices go up, stock prices go down, then they go back up again.

But Virginia faces another round of sequestration-driven cuts to the federal government, and the state economy will struggle to grow. Given the fact that we’re in the sixth straight year of a national economic expansion, our economic and budgetary outlook is surprisingly fragile.

— JAB

Free Speech on Campus: ODU Update

odu_fraternityby James A. Bacon

When students showed up for the start of school at Old Dominion University last weekend, they were greeted by banners hanging from a balcony at the off-campus Sigma Nu fraternity house:

“Rowdy and fun—hope your baby girl is ready for a good time.”
“Freshman daughter drop off.”
“Go ahead and drop mom off too…”

Suggestive? Certainly. Crude? Yeah. Offensive? To some. So abominable as to warrant a suspension of the fraternity? Sorry, I’m not buying it. The fact is, the banners were a pretty accurate reflection of the college experience — let’s drink, party and get naked. But in the new Puritanism of the Title IX war on “campus rape,” it’s not possible to actually express that sentiment publicly. Don’t get me wrong: I’m repelled by drunken college parties that lead to unfortunate sexual encounters, occasionally even to rape. Student culture is atrocious and needs to change. But I’m no fan of suppressing free speech either.

On Sunday, ODU President John Broderick disseminated a letter to the community, telling how offended he was by the message: “While we constantly educate students, faculty and staff about sexual assault and sexual harassment, this incident confirms our collective efforts are still failing to register with some.”

Broderick said he’d talked to “a young lady” who “courageously” described the “hurt” the signs had caused. “She thought seriously about going back home.”

Oh, poor, delicate flower! Back in the day, people would have responded to tasteless jokes by ignoring them, ostracizing the fraternity or perhaps organizing a demonstration. No longer. Now women swoon at the horror of a crude joke, and university administrations threaten punitive action. Said Broderick: “This incident will be reviewed immediately by those on campus empowered to do so. Any student found to have violated the code of conduct will be subject to disciplinary action.”

Well, we’ll see how the “review” goes, but I’m not expecting from the tone of Broderick’s letter that it will be an objective inquiry. Meanwhile, the national chapter of Sigma Nu has suspended the ODU fraternity — no doubt a pre-emptive move to contain the predictable outrage.

I’m wondering, will the suppression of Sigma Nu do anything to change the campus culture of drunken, indiscriminate sex that underlies the epidemic of regret sex and rape charges? Maybe there were be fewer incidents at ODU’s Sigma Nu while it’s closed, but nothing else will change.

Circuit Court Judge Upholds Pipelines’ Right to Survey

pipelineA circuit court judge in Montgomery County dealt a setback to foes of the Mountain Valley Pipeline yesterday by finding constitutional a controversial state law allowing natural gas companies to survey private property without an owner’s permission. Turk said that the Virginia law allows a natural gas company to enter private property for surveying even if its owner has denied permission, reports the Roanoke Times.

Temporary access to a landowner’s property for purposes of conducting a survey does not represent an unconstitutional “taking” of property without compensation, Turk ruled. “There’s no transfer of property,”  he said. The law in question “takes away the criminal aspect of trespass, something the Virginia legislature has the right to do.”

Turk’s ruling in the Giles County case could have implications for lawsuits filed by landowners in the path of both the proposed Mountain Valley Pipeline (MVP) and the Atlantic Coast Pipeline (ACP), who say that the activity of survey teams on private property can impose costs for which they are not compensated.

Attorneys representing landowners said that they intend to file lawsuits in other counties where clients could be impacted by the proposed pipelines. They will challenge state law on the grounds that MVP does not meet the criteria of a public service corporation. Pipeline foes have advanced the argument that there is no “public necessity” for either the MVP or the ACP, despite the fact that both pipeline companies have signed contracts for most of the pipelines’ capacity. Foes argue that existing pipelines could handle much, if not all, of the volume of natural gas required by the shift from coal- to gas-fired utilities and growth in the economy, and that there is no justification for acquiring rights of way through their land through eminent domain.

— JAB

Walkability No Guarantee of Healthy Housing Market

This graph shows how the midsized cities (excluding Arlington) with Top 10 walkability rankings score in WalletHub’s latest ranking of cities with the healthiest real estate markets. Sad to say: High walkability seems to be correlated with moribund real estate economies. The cities are (from left to right): Jersey City, Newark, Hialeah, Buffalo, Rochester, St. Paul, Cincinnati, Richmond and Madison. (Click for more legible image.)

This graph shows how the midsized cities (excluding Arlington) with Top 10 walkability rankings score in WalletHub’s latest ranking of cities with the healthiest real estate markets. Sad to say: High walkability seems to be correlated with moribund real estate economies. The cities are (from left to right): Jersey City, Newark, Hialeah, Buffalo, Rochester, St. Paul, Cincinnati, Richmond and Madison. (Click for more legible image.)

There is an interesting juxtaposition of news items today. Redfin, the real estate brokerage website, has published a list of the Top 10 most walkable midsized cities in the country. Arlington County (a highly urbanized county) scored third and Richmond scored ninth, based on their Walk Score rankings.

Arlington won kudos for its Ballston-Virginia square neighborhood, where residents can walk to an average of 13 restaurant, bars or coffee shops within five minutes. While the Washington metropolitan area is notorious for its traffic, many Arlington residents live car-free, opting to get around on foot, bike and public transportation.

Richmond earned recognition for the revitalization of neighborhoods surrounding downtown, including Jackson Ward, Shockoe Bottom, Monroe Ward, the riverfront and Manchester. The Fan and Carytown neighborhoods to the west of downtown also stood out for their walkability.

To many urban theorists, walkability is a critical determinant of a community’s livability, ranking close behind the cost of real estate, the quality of schools and the level of taxes in what people take into account when deciding where to live. But it’s no guarantee of prosperity or rising real estate values…. which brings us to the other news item.

The top two midsized cities ranked by walkability are Jersey City (No. 1) and Newark (No. 2). But guess where Jersey City and Newark rank in WalletHub’s ranking of 2015’s Healthiest Housing Markets. Out of 94 midsized cities ranked, Newark scored 94th — dead last — while Jersey City ranked 76th. (Richmond ranked a ho-hum 45th among midsized cities.)

Bacon’s bottom line: I’ll concede that this is a quick-and-dirty analysis based on a comparison of midsized cities only, not a comprehensive comparison of all types and sizes of municipal governments, so it may not reflect the larger reality. But I would advance this as a reasonable hypothesis: Walkability is a wonderful thing, and many people desire it, but it is a relatively minor factor influencing the health of urban real estate markets.

— JAB

More Sequestration Pain for Virginia

pentagon_burning

Pentagon burning

by James A. Bacon

The pain of federal budget sequestration cuts in Virginia is not yet over. Look what The Washington Post reports today:

According to the Defense Department research, things are likely to worsen over the next four years. From 2010 to 2012, Virginia experienced $9.8 billion in defense cuts, with the vast majority of losses in Northern Virginia. Direct defense spending in the state is projected to drop from $64 billion this year to under $62 billion in 2019.

That’s only $2 billion in cuts compared to $9.8 billion previously. That sounds bad but not that bad. Actually, it is, says Sen. Mark Warner, D-Virginia: “If we have the return of sequestration, it’s going to be even worse than it was a couple of years ago, because every agency, particularly the Defense Department, has cleared out most of their coffers.”

I’m not sure exactly what “cleared out their coffers” means, but I’m guessing it means that defense agencies have burned through their budget gimmicks and are planning real cuts.

Adding to the woes, the impact of federal budget cuts will percolate through the rest of the economy. As government contractors consolidate, they’ll need less office space. That puts pressure on lease rates region-wide, there will be less construction work, and the necessary process of restructuring from inefficient and expensive land-use patterns to more cost-effective patterns will drag out. Meanwhile, transportation planning assumptions, predicated on wildly out-of-date assumptions about growth and development, will veer farther and farther from reality.

The rule is so simple: Things that can’t go on forever… won’t. The defense spending boom of the post 9/11 era could not continue forever… and it didn’t. The downturn and all the ugly consequences stemming from it were utterly foreseeable — I’ve been ranting about them for years.

I don’t lose a lot of sleep over real estate developers losing a fortune. They’re big boys and they know how to hedge their bets. (If they don’t, they shouldn’t be in the business.) I’m a lot more worried about the state and local government sinking billions of dollars on infrastructure designed for the go-go 2000s. It is astonishing to me that serious consideration is still being given to the Bi-County Parkway near Manassas, and I have serious questions about the assumptions underpinning the billions of dollars of improvements planned for Interstate 66 and the second leg of the Rail-to-Dulles project. Any project whose revenues are predicated on assumptions of increased traffic, which are based on the 2000s-era economic growth rates extended in a straight-line projection forever, will create nothing but headaches for taxpayers.

Charging Rate Payers for What?

appalachian_school_of_pharmacy

The Appalachian School of Pharmacy… located in Appalachian Power Co. service territory.

by James A. Bacon

In 2012 Dominion Virginia Power donated $10,000 to the Appalachian College of Pharmacy in Buchanan County, far outside the company’s service territory. It so happens that Del. Terry Kilgore, R-Gate City, head of the House Commerce and Labor Committee, has been a salaried fundraiser for the school, according to the Associated Press. It also so happens that Kilgore played an important role ushering legislation through the General Assembly this year that suspends until 2022 biennial reviews of Dominion’s base rates. Of the $10,000 Dominion donated, $4,000 was recouped from Dominion ratepayers, the AP says.

It’s one thing for Dominion shareholders to donate to charitable causes, even if the donation is politically motivated. Dominion should be entitled to the same right to participate in the political process as any business. But it’s quite another thing for the giant utility (and sponsor of Bacon’s Rebellion) to charge such donations to rate payers.

“Why should captive ratepayers, who have no option to get electricity from another company, be compelled to fund the charitable choices of a company?” AP quotes former Attorney General Ken Cuccinelli as asking. “Leave the ratepayers their money, and let them make their own charitable choices.”

We’re not talking about a tremendous amount of money here. According to the AP, Dominion included $1.37 million of donations in the cost of service it charged to customers in 2o11 and 2012. State Corporation Commission staff recently filed testimony saying that Dominion should not be able to pass along $3.3 million in donations from 2013 and 2014. Dominion spokesman David Botkins says the company will file a detailed rebuttal later this month.

Many of those donations may be entirely legitimate, tied at least tangentially to the business of generating, distributing and conserving electric power. I can’t get exercised about the $7,500 donation  to the Peninsular Council for Workforce Development, cited in the AP article, even if CEO Matthew James also serves as a Portsmouth delegate to the General Assembly. As a major employer, Dominion has as much a stake in workforce development as any company in Virginia. (Although I would be interested to know if Dominion donated to other workforce councils in its service territory.) And, frankly, from the rate payer perspective, we’re talking chump change here. There are much bigger issues to worry about, like how rapidly to phase in renewable energy sources, where to build electric transmission lines, whether or not to build a nuclear power plant, and so on.

But the controversy isn’t about the impact on ratepayers. It’s about the political clout of the most influential corporation in Virginia politics. Dominion shouldn’t charge ratepayers for actions designed to influence legislation effecting ratepayers.

Katherine Bond, director of public policy for Dominion, told the AP that the company feels it “is important to support the communities in which we do business.” But the Appalachian School of Pharmacy, located in Oakwood, Va., is not a community served by Dominion. The company’s motive in donating the money might have been pure as the driven snow — but no one is going to believe it.

Dominion would do itself a big favor by tightening its guidelines for billing ratepayers. Limiting donations to communities within the company’s service area would be one place to start. If the company doesn’t police itself, legislators might be tempted to draft a law limiting such donations — and those limits could well be stricter than any limits the company would want.

Update: Dominion has issued a response to the AP story. Here’s the  meat of it: “Some perspective about the source of funding for those investments is important. In 2014, our company donated $18.5 million to charitable causes; the vast majority of these funds were provided directly by shareholders. In fact, in our latest filing with the Virginia State Corporation Commission (SCC), we stated that only about $740,000 of these donations were supported by rates collected from our Dominion Virginia Power electric customers in the Commonwealth. That’s just 4 percent of the total.”

I have posted the full response in the comments and highlighted it in yellow.