Monthly Archives: June 2012

McDonnell Bolsters UVa Board, Keeps Dragas

Governor Bob McDonnell has put his stamp on the University of Virginia Board of Visitors, reappointing its lightning-rod Rector Helen Dragas, replacing five old board members and appointing two “senior advisors.”

“Cognizant of the need for varied and wide-ranging voices, I have appointed competent professionals to the board who come from the fields of academia, business, law and technology, and who can, while bringing different backgrounds and philosophies to the table, work well together in finding common ground and forging a shared path for Mr. Jefferson’s University,” McDonnell said in a prepared statement.

Newcomers include Linwood Rose, former president of James Madison University; Edward Miller, dean of the School of Medicine at Johns Hopkins University; and Victoria Harper, CFO of Gannett Company. Senior advisors whose role will be “to provide the board with wise counsel on an array of matters and to assist the university in solving strategic and communications challenges,” include William H. Goodwin, a Darden School graduate and the most successful entrepreneur in Richmond, as well as Leonard W. Sandridge, the university’s highly respected CFO before retiring last  year.

By any objective measure, the newcomers represent an impressive addition to the board. There are no light weights.  And they aren’t all big Republican donors.

Regarding the controversial Dragas, McDonnell said, “Ms. Dragas’s serious critique of the challenges facing the university is a voice that must be heard, and can help, in ensuring UVa remains one of the world’s foremost institutions of higher learning.”

Just as I was disappointed to see the lack of transparency and communication surrounding the request for the resignation of the first female president of UVa, I am also concerned that the first female rector seemed to become the sole target of recent criticism. While there is no doubt that the board made several mistakes in its actions, which it has publicly admitted, this is not a time for recrimination. It’s a time for reconciliation. I have been heartened by recent statements made by president [Teresa] Sullivan, the Board of Visitors and by the faculty senate chair about their ability to work with the rector.

Yesterday I opined that, given the animosity she had engendered, Dragas probably would have to go. I questioned whether McDonnell had the guts to reappoint her. But I do agree with the governor’s s decision to keep her. As I wrote when the controversy first began, “Dragas gets it.” Higher education in America is facing an existential crisis. The university needs strong leaders and a bold vision. McDonnell has assembled a powerful team to lead the university forward.

— JAB

The Coming Medicaid Battle

The Supremes speak... and America scrambles.

The Supreme Court ruling on Obamacare now presents Virginia with a huge decision. While most attention has focused on the legality of the Obamacare “mandate,” the Supremes also determined that Congress cannot compel the states to participate in the expansion of Medicaid. Thus, the General Assembly will have to decide whether or not Virginia will participate.

The Affordable Care Act expanded Medicaid to cover all adults below 138 percent of the federal poverty level beginning in 2014. Uncle Sam will pay the tab for this expansion through 2016, but then the states will pick up an increasing share of newly added costs, culminating with a 10% share in 2020.

In a 2010 study, the Heritage Foundation contended that the measure would expand Medicaid enrollments by $18.4 million people nationally, and by 389,000 in Virginia. The cumulative cost to state government nationally would be $33 billion between 2014 and 2020. Virginia’s share would be $754 million.

The Washington Post sums up the states’ dilemmas this way:

“States are going to weigh leaving huge amounts of federal dollars on the table, versus accepting potential exposure from expanding an entitlement program. … You used to just have to hold your nose because you had to do it. Now, every state is going to have to make some aggressive calculations.”

Those calculations pretty much boil down to two incentives, pulling in opposite directions. On the one hand, there’s a deep pot of federal money for states to expand their Medicaid programs. On the other, there’s the fear of getting even more saddled with bills from an increasingly expensive entitlement program.

Interestingly, Virginia was one of the states that did not argue against Medicaid expansion in the Supreme Court suit. However, Virginia Republicans seeking to roll back any piece of Obamacare that they can surely will contest it. Medicaid will become the budgetary battle royal of the 2013 legislative session.

— JAB

O’Bummer

Paul Ryan is the only Republican with a serious plan to reform health care -- and even that addresses only part of the problem.

by James A. Bacon

Yeah, I’m bummed out by the Supreme Court ruling on Obamacare, although it does contain a silver lining in declaring that there is a limit to Congress’ ability to invoke the Interstate Commerce Clause to regulate anything and everything. That’s no small consolation.

And, yeah, I do feel lied to. The health care mandate is legal because it’s actually a tax? Really? How, then, do we account for President Obama’s response when George Stephanopoulos interviewed him in September 2009?

Stephanopoulos: But you reject that it’s a tax increase?
Obama: I absolutely reject that notion.

Obama seems to embrace the tax descriptor now. So, Obama lied. But what else is new? Americans are so inured to politicians’ lying that the only people who care that Obama lied in 2009 are those who oppose Obamacare anyway.

Here’s what really makes me upset. Congress never would have passed Obamacare if Republicans had articulated a credible alternative to making health care more affordable and accessible. The elephant clan floated some ideas but they never cohered in the public discourse. Obamacare prevailed because there was a vacuum of ideas. Here’s the approach that I advocated in “Boomergeddon”:

  • Get employers out of health care, Eliminate the tax preference for health care insurance purchased through employers. When people see their health coverage paid for by a third party, they don’t care what it costs. Health insurers need to design health plans adapted to the needs of the patients, not their employers. (Rep. Paul Ryan, R-WI, proposes to eliminate the health care tax exemption and to reform Medicare but does not go beyond that.)
  • Promote the right kind of insurance competition. State and federal mandates of insurance benefits must stop, and people must be allowed to acquire insurance that fits their needs and their budgets. Meanwhile, insurers need to reinvent their relationship with the patient. Instead of acting as HMO-like gatekeepers that say, “No,” they need to empower patients to seek the best value (cost and quality) for treatment of their medical conditions.
  • Create market transparency. One of the biggest obstacles to market-driven health care is the fact that, er, there is no market.  We must make price and outcomes data more transparent.
  • Eliminate barriers to business innovation. The future belongs to multidisciplinary teams that specialize in treating chronic diseases and complex medical conditions with superior efficiency and superior outcomes. But over-regulation of the health care industry impedes the ability of health care providers to reorganize themselves into “focused factories” that excel in treating specific maladies. Those barriers must be pulled down.

In the wake of the Supreme Court ruling, Republicans have renewed their rallying cry to repeal Obamacare. But they can’t replace something, no matter how flawed, with nothing. If Obamacare were repealed, health care would remain unaffordable to tens of millions of Americans. How do Republicans propose to make it more affordable? Sprinkling “free market” fairy dust on the health care system won’t do anything. Free markets will not spontaneously arise from the regulatory wreckage that this nation has created over the past 60 years. Republicans need to put in the hard work of figuring out how to make markets work. If they fail to do so, Democrats win the debate by default.

Health Care’s Big Victory

Posted on behalf of Peter Galuszka, who is out of town today. — JAB

The U.S. Supreme Court’s surprising and wise decision backing the vast majority of the Affordable Care Act is a major victory for ordinary Virginians, tens of thousands of whom up to now don’t have or can’t afford health insurance.

The victory could be as big as Social Security or Medicare in terms of overall impact. It restores faith in at least one branch of government and helps the country move beyond the horrible partisanship that marked last summer’s debate over raising debt ceilings. It could set Barack Obama’s legacy after a fairly stumbling presidency and is a major boost for him in the upcoming election.

Virginia Republicans, led by Gov. Robert F. McDonnell, were predictably negative and sullen. McDonnell said he was “very disappointed.” The Richmond Times-Dispatch curiously trotted out the irrelevant Lt. Gov. Bill Bolling, its choice for the next governor, as the spokesman for the state’s Establishment against the decision. That might be expected, but what wasn’t was wild card Kenneth Cuccinelli’s rethinking of the ruling saying that maybe it isn’t so bad. This seems especially odd given that he made Obamacare on of the flashpoints in his politically charged legal activities as Attorney General

Now the ruling GOP elite has to, ahem, actually get on with the task of starting those health care exchanges to sell policies to people who have trouble getting them due to pre-existing conditions or lack of funds. They can stop whining about the “commerce clause” which SCOTUS neatly sidestepped by saying that ObamaCare is a tax and guess what, Congress CAN tax. Too bad, Libertarians and Tea Party types!

The big winners, besides the average man and woman, are hospitals and some doctors’ practices. Losers are Big Insurance and managed care, in other words, the very people who put lots of campaign bucks into the coffer of Rep. Eric Cantor so he can protect their rackets that hurt millions.

Unfortunately, the law doesn’t do much to bring transparency to health care pricing, which is based on two things (1) what Medicare says it is and (2) whatever deal hospitals and doctors negotiate with Managed Care.

You will probably hear a lot of whining from other bloggers about how this will bring Boomergeddon and disaster. It will be more expensive. But without clear pricing and choices, all this talk of the free market is a lot of hot air. So is the idea of “boutiques” in which the rich pay doctors to take care of them individually. But these 1 percenters already have insurance. The Average American is left out. Or was, at least, until Thursday.

Money for the Bi-County Parkway? I’ve Got a Nice Fireplace. Perhaps You’d Like to Burn Your Money There Instead.

Possible routes for By-County Parkway. Map credit: VDOT

by James A. Bacon

I don’t know whether to laugh or cry. Buried within the massive Six Year Improvement Program approved by the Commonwealth Transportation Board (CTB) last week was a line item that provides $5 million for preliminary engineering and design of the Bi-County Parkway (BCP). The parkway, the dream of a vocal element of the Northern Virginia business community, is widely seen as a preliminary step in creating an outer beltway for the Washington metropolitan area.

The Northern Virginia Transportation Alliance lauds the progress on the parkway, which would extend Rt. 234 in Prince William County all the way to Rt. 50 in Loudoun County. “In addition to connecting employment centers and residential communities in Northern Virginia’s second and third largest jurisdictions the Parkway provides a critical (and currently missing) link for travelers and freight to and from Washington Dulles International Airport, one of Virginia’s most important economic engines,” said the alliance in an email distributed last week.

I am tempted to laugh because the sum is so piteously small, no more than a sop to Northern Virginia’s development and construction interests. Yet I am moved to cry because that $5 million is utterly wasted. While one could have made a semi-plausible case during the 2000s real estate boom that the region would one day need a north-south corridor on the western fringe of the Washington metropolitan area, no such case can be made today. The dynamics of metropolitan growth and development have totally changed. Growth in Northern Virginia is (a) slowing and (b) moving back to the urban core. Infrastructure spending should be steered to supporting that growth, which is actually happening, not squandered on anticipating development that may or may not ever happen.

A few reminders from previous posts…

Northern Virginia population growth is slowing, and the prospect of restrained federal government spending — if not an outright collapse in federal spending — will reduce the demand for workers and all the housing, office and retail infrastructure that supports them. The experts have trimmed their growth forecasts in recent years, as can be seen in this chart published in a previous post. (See “Fairfax County’s Incredible Shrinking Growth Forecast.”)

The exurbs have lost their allure. In metropolitan areas across the country, property values are gaining value in the dense urban core and losing value in the low-density periphery. (See “Exurbs in Agony.”) Declining property values have boosted the rate of foreclosures. Bottom line: There is surplus housing supply  on the urban edge. There is no need to build much more.

Population growth has shifted to core jurisdictions. Consumer preferences are changing. People increasingly want to live in walkable, mixed use communities, ideally with access to mass transit. Empty nesters seek access to the cultural amenities that reside in the urban core. Saddled with college debt and more likely to be unemployed or underemployed, Gen Y is not buying into the American Dream of a house in the burbs with a two-car garage. (See “Population Growth Shifting to Cities.”)

The market is glutted with land available for development. There is no need to open up more land on the metropolitan fringe because so much property is available for development and re-development closer to the urban core. Fairfax County has embraced an Arlington-style strategy of increasing density around its METRO stops. Building is booming around the existing Dunn Loring-Merrifield METRO station, and developers are preparing for the opening of the Silver Line to Tysons Corner and beyond. Mixed-use re-development at higher densities is all the rage.

The only semi-plausible argument advanced by the Northern Virginia Transportation Alliance is an economic development one — the bi-county road would help serve growing air freight traffic at Dulles. If Bi-County Parkway backers can make a persuasive case that the road could pay its own way through tolls, I’d be open to their argument. But if the road would require massive state subsidies like the proposed U.S. 460 Connector in southeastern Virginia, that’s a pretty good signal that the economics don’t work.

Population Growth Shifting to Cities

Graphic credit: Wall Street Journal

And the evidence just keeps pouring in… Growth and development in metropolitan regions is shifting from the periphery to the core. I’ve made that point previously by pointing out that property values tend to be rising in metro cores and falling in the periphery. Now comes Census Bureau data that population growth in “cities” (presumably meaning traditional urban jurisdictions at the core of metro areas) are growing faster than the “suburbs” (presumably referring to political jurisdictions outside the core).

Reports the Wall Street Journal (I would provide a link to the original Census data but I can’t find it):

Many U.S. cities are growing faster than their suburbs for the first time in  decades, reflecting shifting attitudes about urban living as well as the effect  of a housing bust that has put a damper on moving.

According to Census data released Thursday, in 27 of the nation’s 51 largest  metropolitan areas, city centers grew faster than suburbs between July 2010 and  July 2011. By contrast, from 2000 to 2010 only five metro areas saw their cores  grow faster than the surrounding suburbs.

Viewed as a whole, U.S. suburbs have grown faster than city centers in every  decade since the 1920s, when rising automobile ownership inspired Americans to  begin fleeing cramped city quarters for leafy suburbs, said William Frey, a  demographer at the Brookings Institution. Urban population growth accelerated  markedly at the end of the last decade, he added.

The article cites falling crime rates, the departure of loud and smelly heavy industry and growing preference for walkable communities, although it points out that the shift may be tied to temporary factors like the recession and housing bust. Regardless of whether the data represent a blip or an inflection point, major home building companies are getting the message, the WSJ reports, and they are responding to the change in demand by pursuing more projects closer to the urban core.

— JAB

UVa Needs Someone Who Thinks like Helen Dragas but Isn’t Helen Dragas

Governor Bob McDonnell speaks about the Sullivan controversy. Photo credit: Washington Post.

Governor Bob McDonnell soon will reveal his appointments to replace three members of the University of Virginia Board of Visitors, including Rector Helen Dragas. The sad truth is that, despite the BoV’s recent vote of support for her, Dragas is damaged goods. She rushed through the forced resignation of President Teresa Sullivan without respect for proper procedure, and her credibility with the university community has plunged to zero. McDonnell really has no choice but to replace her.

While Dragas must go, McDonnell needs to replace her with someone who shares her views about the urgent need for reform at UVa. Despite the protestations of many that there is nothing wrong with Mr. Jefferson’s university that incremental change won’t solve, higher education nationally has reached a tipping point caused by soaring costs, unaffordable tuition & fees, and the evolution of online education to the point where it has the potential to disrupt the centuries-old higher ed model. We could very well see a collapse as steep and rapid as the one experienced by the newspaper industry.

McDonnell’s selections will send a message not only to the University of Virginia community but universities across the commonwealth. The fact is, with its elite, public-ivy brand, UVa is better positioned to survive the online onslaught better than most others. Respectable but middle-tier institutions like Virginia Commonwealth University, George Mason University and Old Dominion University are far more vulnerable.

Not only does the governor need to think carefully about his UVa appointments, he should insist that appointments to the board of every state college and university share the belief that higher ed can no longer afford to do Business As Usual. The Dragas fracas has crystallized the issues at stake. Now McDonnell must act.

— JAB

Remake Boards of Visitors Now

 By Peter Galuszka

An early summer calm has settled on the “The Lawn” at the University of Virginia following 16 days of pointless controversy that damaged the school’s reputation and raised serious questions about how Mr. Jefferson’s school should be run.

The most important issues wafting up from the now-quiet battleground are not really whether there is an “existential threat” to the school or if the “incremental” approach to dealing with its problems is the best way.

Issues surrounding online education that have been around for years do not really raise the specter of the great school being swept away in a tsunami of technological changes. Budget problems remain, but the real issue is why the General Assembly spends so little and gets so much rather than the opposite at least when you look at how other public school systems in North Carolina and Maryland do it. Despite what you read on this blog, cheap-o Virginia does get a lot for its little money.

The critical point is who these boards of visitors are, where they come from, what is their experience and how the get chosen. Being Virginia, there is a natural and tendency to assume that only people with business backgrounds and who have money have the right and the brains to be on boards. Women and men of science, the arts, education and public service need not apply. It could be that they don’t pump as much money into political campaigns.

Here are a few guidelines:

Buying Your Way on the Board

 As at any university, Virginia’s public schools have independent oversight in the form of boards of visitors appointed by governors. The system results on boards typically being made up of successful business people who are major contributors to political campaigns or to the schools. U.Va. Rector Helen  Dragas, an appointee of former Democratic Gov. Tim Kaine, has given more than $70,000 for mostly Democratic campaigns since the 1990s, according to Virginia Public Access Project records.

Of the current U.Va. board of 15 members (following Kington’s resignation), eight were appointed by Kaine. After July 1, three new members will be selected by Gov. Robert F. McDonnell who also has the power to reappoint two, including Dragas.

Of the current board, 12 have business backgrounds, two are with law firms and one is former state delegate. None has a professional education or science background. Only two are female. Shoot over to the West Coast and look at the board that oversees the University of California at Berkeley, the public school Hoos like to compare themselves with. There only four board members who have strictly business background. Two are in the health field, four are in law, one is in the arts, two in the media and one in public service. How about Harvard? Four are in business, five are in education, and one is in public service. These two schools have a far more varied board, compared to Virginia’s business-heavy one.

The political nature of Virginia’s public university boards can make them more sensitive to political rather than educational or managerial problems. In 2005, for instance, Gene Nichols, a noted law professor, became president of the College of William & Mary. Yet he was soon removed because he was deemed too politically and culturally liberal by the school’s board. He allowed a “sex workers” exhibition to be displayed and drew wrath when he had ordered a crucifix removed from the altar at Wren Building Chapel when non-Christian events were scheduled. His ouster was secured when Jim McGlothlin, a wealth, conservative alumnus and coal baron, withdrew a $12 million donation to the school.

The Corporate Approach May Not Work

 Another problem occurs when a business-heavy board tries to apply corporate-based decision making to schools. That may have been part of problem with Dragas who seemed comfortable with making difficult decisions unilaterally at her construction firm, such as one to replace shoddy, imported drywall free of charge to customers. That skill may not have been transferrable to U.Va. where she drew criticism for embracing what she thought was dramatic new strategy in online education without informing or involving much of the university community. Sullivan said: “Corporate-style, to-down leadership does not work at a great university. Sustained change with buy in does work.”

Built In Conflicts of Interest

A classic board problem is that if they must face problems with a college president, it could blowback on them because they often were the ones who hired that top administrator.  Such was the case in 2009 when the VCU board hired Michael Rao, the president of Central Michigan State University, to head VCU.

Rao ran into trouble in late 2010 when it was revealed that he had required his staff to sign confidentiality agreements that they would not reveal anything about Rao or his family. He also was criticized for letting his wife, Monica, who had a minor job at VCU, act as his emissary in personnel matters.

VCU’s board hired an outside consultant who also had been involved in Rao’s hiring and after closed-door meetings with the president, decided to keep him and later extend his contract with a pay hike.

Handling Damage Control

The Rao controversy never generated the heat that firing Sullivan has. The U.Va. board has been chided for keeping its anti-Sullivan proceedings secret and possibly holding an illegal meeting to affect her departure. The full board never met to dismiss Sullivan and only three met with her and told her to resign because they had the board votes to get rid of her. The facts outraged the U.Va. community which is proud of its unique honor code.  Dragas drew further fire for her not explaining why she made her move, sparking more rumors.

Dragas hired the major public relations firm of Hill & Knowlton to handle the fallout from Sullivan’s departure, according to her emails. The Richmond Times-Dispatch later reported that Thomas Ferrell, head of the powerful utility Dominion Resources and a former U.Va. rector, was dispatching two top public relations experts to help the U.Va. board handle damage control. Ferrell, a close ally of Gov. McDonnell, is on McDonnell’s board to explore higher education. Why they were needed was never explained. A U.Va. spokeswoman says any public relations spending will come from non-public funds.

The question remains unexplained what Sullivan allegedly did to merit dismissal. At other state universities, boards seemed to have cause to make changes. At the University of Mary Washington, for example, the board forced out president William J. Frawley after he was charged with two DUIs within two days of each other in 2010. Even in the Rao matter, there seemed to be cause to investigate.

. Regardless of whether Sullivan is reinstated or not, the fallout from Dragas’ bungled coup will have far-reaching impacts. It has damaged the reputation of a prominent school and could affect its accreditation. The affair is certain to affect upcoming political races, such as Tim Kaine’s attempt to win a U.S. Senate seat.

Meanwhile, the larger issues confronting the state’s public universities remain unaddressed. Issue One should be reassessing how boards are selected, not worrying about the “existential” mumbo-jumbo of getting some slick new online course program.

Pssst, I Heard this Rumor that There’s an Oil and Gas Boom in the U.S.

News alert! There's an oil boom in North Dakota! Who would have known?

by James A. Bacon

I never cease to be amazed by the cluelessness of alternative energy advocates. They endlessly repeat the mantra about United States dependence upon foreign source of oil as justification for investing billions in clean energy sources that supposedly will give our economy a huge lift. It’s as if the most important development in the energy economy of the past 40 years — the fracking revolution — had not happened at all.

A recent case in point was an op-ed written by Edward L. Flippin, a McGuire Woods attorney and a lecturer in energy regulation and policy at Duke and the University of Virginia, and published in the Times-Dispatch. He commenced with a recitation of the usual facts: With only 2% of the world’s proven oil reserves, the U.S. imports 45% of its oil. Those imports drain billions of dollars and millions of jobs from the economy. Ergo, he argued, the answer is investing billions of dollars to seize the mantle of global alternative-energy leadership.

Now consider this from today’s Wall Street Journal:

America will halve its reliance on Middle Eastern oil by the end of this decade and could end it completely by 2035 due to declining demand and the rapid growth of new petroleum sources in the Western Hemisphere, energy analysts now anticipate. …

By 2020, nearly half of the crude oil America consumes will be produced at home, while 82% will come from this side of the Atlantic. … By 2035, oil shipments from the Middle East to North America “could almost be nonexistent,” the Organization of Petroleum Exporting Countries predicted.

While the U.S. still will be importing much of its oil, those imports will come from countries like Canada, Mexico and Brazil, whose economies are far more closely intertwined with ours than Middle Eastern countries. As those countries prosper, they are more likely to import goods and services from the U.S.

And that doesn’t even touch upon the boom in natural gas production! An energy revolution is roiling the planet today. But it was totally unanticipated by the politicians, advocacy groups and other big thinkers who championed wind, solar and other alternatives.

Flippin notes how global investment in clean-energy technologies has boomed in recent years, as if that were a sign of emerging competitiveness, yet he then frets what will happen when federal subsidies phase out by 75% over the next few years. Moreover, there is nary a word in his op-ed about the parade of solar energy debacles such as Solyndra, Willard & Kelsey Solar Group, Beacon Power and others, the retreat in Western Europe from high-priced alternative fuels, nor the enormous potential for clean natural gas to displace dirty coal in electric power generation. He’s not just cherry picking facts — he’s cherry picking world-changing mega-trends!

I myself was a believer in “peak oil,” or at least a modified form of it. Although I had enough faith in market dynamics to know that higher oil prices would stimulate more oil production and that we weren’t going to “run out” of oil any time soon, I did think that demand from China, India and other developing countries would swamp any marginal increases in oil production that the energy sector could manage. I expected oil prices to hit a new, higher plateau — and I certainly didn’t expect a massive rebound in North American production. Well, I was wrong, and I’m honest enough to admit it.

Not only are cheaper oil and gas propping up the pathetic growth rate of the U.S. economy — I dare say we’d be experiencing negative growth were it not for the fracking revolution — cheap gas is giving the U.S. a competitive advantage in energy-intensive industries such as chemicals, thus hastening a manufacturing renaissance.

It amazes me that serious people are still trying to engineer a shift to uncompetitive alternative fuels through such mechanisms as Renewable Portfolio Standards, such as the one we have in Virginia. Given enough time and technology breakthroughs, clean, alternative fuels will become competitive with fossil fuels. It makes sense for the federal government to sponsor research to accelerate the development of those alternatives, for we will surely need them eventually. But it is foolish in a time of budget austerity and a sputtering economy to be steering tens of billions of dollars nationally into commercializing technologies that are not yet ready for prime time.

Sullivan Back In

The Board of Visitors has reinstated Teresa A. Sullivan as president of the University of Virginia while also expressing support for Rector Helen E. Dragas, the university news service has reported. Dragas had taken a leading role in forcing her resignation, effective August, earlier this month.

Given the overwhelming support Sullivan enjoyed among faculty, staff and students as well as the negative national publicity the controversy had generated, the decision was undoubtedly the right thing. The question now is how Sullivan will tackle the list of pressing issues raised by Dragas in a statement last week.

The fact that the board expressed support for Dragas indicates that its concerns about the challenges facing the university have not evaporated. Dragas will continue to work with Sullivan in forging a strategic plan that deals with such issues as online learning, affordability, declining state financial support, faculty recruitment and retention, and the reallocation of internal resources.

My guess is that Sullivan, who had championed “incremental change,” has gotten the message and will be a little less incremental and a little more aggressive in the future. This may be the best of all outcomes.

— JAB

“Helen Dragas Gets It”

This just in from Charlottesville:

Teresa Sullivan, president of the University of Virginia, was reinstated after a unanimous vote of the Board of Visitors, including that of Rector Helen Dragas.

The Daily Progress reported that the board also voted unanimously  to support Dragas.

This is a happy ending to an unusual and unnecessary chapter in the leading school’s history. Now, the two women and their board will face any number of far-reaching issues brought up by the two-week-long conflict.

“I want to partner with you,” said Sullivan, whose surprise forced resignation brought one of the largest protests in the school’s history.

Jim Bacon owes me $5 (we did have a bet didn’t we, I forget).

— PAG

Want to Grow Jobs? Forget about “Job Creation” and Focus on Fundamentals

Shobe

How can Virginia state government best help the economy adapt to the inevitable downturn in federal spending (see previous post) and the resulting squeeze on the economy? William M. Shobe, author of “Beyond the Great Recession: Preparing Virginia for Expected Cuts in Federal Spending” makes some useful observations.

In the long run, argues the Weldon Cooper professor, a population can earn no more in wages and salaries than it can support through its labor and capital productivity. Efforts to increase prosperity that don’t address productivity — say, the lavishing of subsidies and tax breaks upon selected industries — are a waste of time. The proper focus of state government is to improve the productivity of labor and capital deployed in the state. Shobe suggests three broad strategies:

  • Build human capital through education.
  • Spur entrepreneurship.
  • Efficiently provide public goods such as infrastructure, public safety, enforcement of property rights, environmental quality and scientific knowledge.

“It is the effective focus on these three core wealth-creating activities, education, entrepreneurship, and public goods that gives a government
value,” writes Shobe — not the preoccupation with “creating jobs.” Insofar as efforts to create jobs distract from, or detract from, the proper focus of government, they are self defeating.

“Encouraging entrepreneurship is not about giving tax subsidies to small business,” writes Shobe. And creating wealth is not accomplished by giving tax breaks to businesses that locate to the state. “When resources are being used at a level close to capacity, what evidence we have suggests that state spending to lure producers to locate in a state is dismally ineffective. States bidding against other states for a business location decision allows the firms to capture for themselves a substantial share of the social benefits of their location decisions.”

Which brings to mind the latest feeble attempts by the General Assembly to stimulate job creation in Virginia by providing a slew of subsidies and tax incentives. A small business investment grant fund, signed by Governor Bob McDonnell this month, provides a grant equal to 10 percent of a qualified investment in a small business for an eligible investor. Supposedly, this will “incentivize critical investment in small business to spur additional economic development and job creation.”

Other bills the governor signed would create sales and use tax exemptions for purchases of computer equipment used in data centers and would extend Virginia’s capital gains exemption for investors in technology startups. And those are just this year’s initiatives. The list of tax breaks and exemptions for favored industries is embarrassingly long.

Shobe’s analysis may explain why the McDonnell administration’s record for job creation is so mediocre, especially for a state widely reputed to have the best business climate in the country. It also shows why we can expect the same results from Democrats, who offer no alternative except the blind faith that somehow, because they are Democrats, they will do a better job of executing hoary economic development nostrums dating to the 1960s. Virginia’s political class has no real understanding of what it takes to prosper in a globally competitive knowledge economy… or, for that matter, how to prepare for the coming collapse in federal spending.

How Badly Will Federal Spending Cuts Hurt? Not as Much as You Might Think.

by James A. Bacon

Virginia’s economic growth in recent years has been fueled by a surge in federal government spending, and that surge soon will come to an end, warns William M. Shobe in the May issue of the Virginia Newsletter, “Beyond the Great Recession: Preparing Virginia for Expected Cuts in Federal Spending.” Writes Shobe: “It is now likely that both the military and non-military components of federal spending will not just decelerate but will fall in absolute terms.”

Just what I’ve been saying for a long time as I sounded the alarm about Boomergeddon. Federal direct expenditures now account for 32% of Virginia’s economy, compared to 22% for the country as a whole. Virginia is far more vulnerable to federal cutbacks that most other states.

Shobe, who is director of the Center for Economic and Policy Studies at U.Va.’s Weldon Cooper Center for Public Service, does not speculate how big the inevitable cuts will be. Instead, he focuses on the “new equilibrium” that will be achieved when those cuts take place.

Cuts in federal spending will hurt Virginia’s economy, he says, but not as much as people might think, and not in the ways commonly talked about. The biggest losers will be (a) state/local government, whose tax revenues will fall faster than expenditures, and (b) residential and commercial property owners, the price of whose assets will fall as demand shrinks. Wages, which are based on worker skills and productivity, should not suffer in the long run.

Shobe ran a scenario through an econometric model that assumed a 100,000 reduction of federal workers, equally divided between military and non-military employees — a 30% drop in federal employment and a 2% drop in total employment. His findings:

As theory would suggest, the immediate effect is a fall in employment, GDP, taxes, state and local government spending, and population, among other things. Private non-farm payrolls fall, in this case by about 127,000 workers, so a 30 percent reduction in federal workers causes an immediate drop of 3 percent in private non-farm payrolls. Since some people will choose to migrate out of the state, the optimal size of the housing stock falls and housing prices follow. Because of the suddenness of the drop, state revenues fall by more than state expenditures, which for Virginia would mean either a reduction in services or an increase in revenues (taxes, fees and charges), or some combination of both.

This is what you would expect. What you might not expect is that within ten years, the loss in non-farm payroll falls to under 100,000, and while wages fall some, this reduction is less than the fall in housing costs, so by the end of the decade, those living and working in Virginia have lower unemployment and higher real per capita disposable purchasing power (or income adjusted for cost of living) than they did before, plus they have shorter, less congested commutes. The higher purchasing power grows over time. Finally, taxes and state and local government expenditures adjust to the new lower demand for government services at a lower absolute level but similar in comparison to the size of the state’s economy.

These results are counter-intuitive, to say the least. I never forget the admonition, “garbage in, garbage out.” I have no way of appraising the value of his econometric model or his findings. But Shobe’s perspective is interesting and worth considering.

BOV Day Reality Check

By Peter Galuszka

In today’s run up to the decision on the future of University of Virginia President Teresa Sullivan, two printed items are of merit. Reading them sets the stage for the moment when we know if Rector Helen Dragas “gets it” or not, in the words of another blogger.

One is an Associated Press story  that notes the troubles that students at for-profit “career” colleges have in paying off their debts. So many have trouble, the U.S. Department of Education might cut off federal support for their loans to such schools.

The second story by the editorial director of the Chronicle of High Education writes of the “lost decade” of from 1999 to 2009 when colleges when on a spending binge for everything from fancy dorms to questionable new courses. In 2003, the story in the New York Times states, only two colleges charge more than $40,000 a year for tuition, room and board but by 2009 some 224 were above that mark. The tuitions were hiked to meet debt while ignoring that other sources of revenue were drying up.

The problem with the former item is that so-called “reformers” such a blogger on this site, advocate for-profit schools as a solution to Virginia’s college cost bloat. The problem seems to be that at 193 programs at “career” colleges at 93 schools, students couldn’t be gainfully employed enough despite their training and fell into massive debt. Such programs include Everett College’s paralegal training, more than 40 programs at Corinthian Colleges, a chef’s school in Austin and a medical assistant program at Sanford-Brown College up in  McLean.

Ideally, such schools are a lot better than poring over Goethe or Plato in a useless German or Classics class. But their weak performance raises other serious questions. Many of these “for-profit” schools so favored by the conservatives depend on federal student aid dollars to make them work. At 25 percent oft he schools, some 80 percent get most of their revenue from federally-back loans.

Reality check! Watch another free market genie flash out the window! This is reminiscent of those wonderful new MIT and Harvard online class programs that give you no useful credit for any degree, just a handsome certificate suitable for framing. And this is the future and solution of higher education?

The opinion piece by Jeff Selingo says that this “lost decade” of mindless spending has indeed created a funding crisis on colleges and something has to be done about it. This also is a familiar these on this blog.

One little problem for the folks in Charlottesville. If the “lost decade” ended in 2009 and Teresa Sullivan wasn’t appointed president until 2010, why she be given the bum’s rush out the door for spending and planning that was done by the previous Board of Visitors and the previous president, the highly-regarded John Casteen? For example, I’m not a Hoo but wasn’t the billion dollar plus South Lawn project a Casteen deal?

The situation reminds me of a Tea Party rally I went to in the fall of 2010 in the rural piney woods near Williamsburg. A crowd of paunchy retirees in shorts and comfortable shoes shouted down Barack Obama for his role in the TARP bank bailout program. Only problem was it was George W. Bush’s program. Obama wasn’t president. Oh well. Never mind.

Anyway, today will be historic and I hope the board comes to the right decision and reinstates Sullivan.

Finally, Good News on Immigration

By Peter Galuszka

Long-simmering immigration issues are starting to bubble over now that the U.S. Supreme Court has given a partial victory in opposing Arizona’s racist law. The ruling follows a bold action by President Barack Obama to allow law-abiding young people who happen to be undocumented aliens to stay in this country.

The court ruling rejected most of Arizona’s law except for allowing police to check the citizenship of anyone they arrest and suspect may be in the U.S. illegally. Obama’s action to allow some illegal aliens 30 years old and younger to remain in the U.S. is a humane and clever end run around the reactionary GOP-controlled House of Representatives.

Republican candidate Mitt Romney said he backs strict immigration enforcement and thinks states should be able to take matters into their own hands if the federal government fails to do so. Yet Romney has soft-pedaled immigration generally and is courting U.S. Sen. Marco Rubio, a Floridian born to Cuban immigrant parents as his possible running mate. If that happens, Romney is shorting Gov. Robert F. McDonnell to try to get the Latino vote.

The news shows just how far immigration has morphed as an issue. Virginia has been a battleground, notably with hard-right politician Corey Stewart’s anti- immigrant law in Prince William County which foreshadowed similar racist rules in Arizona and Alabama. Stewart, thankfully, is sputtering into history as the virulent anti-immigrant attitudes that colored the conservative movement two years ago are fading.

Also in Virginia, consider the story, front-paged in The Washington Post a few weeks ago that showcased the plight of young immigrants who arrived in this country at a very young age and have prospered since.

One is Heydi Mejia, an 18-year-old living in Chesterfield County who was brought to this country illegally when she was four years old. Mejia graduated with awards from Meadowbrook High School this month as a member of the National Honor Society. Her home had been raided a few months before by immigration officials who had arranged to have her deported to Guatemala a few days after she got her diploma. She got a year’s reprieve after the Post’s story. A few days later, Obama decreed that law-abiding illegals 30 years and younger who came to this country through no fault of their own may stay.

This is the kind of compassionate justice this country needs to heal the hatreds stoked by the anti-immigration types. The issue spans both parties. George W. Bush, for example, came up with a decent, long range immigration proposal that ended up being shot down. Later, his party started pandering to white reactionaries by provoking actions against undocumented workers that were in many ways imaginary. Company bosses in places like Arizona soon found they no longer could get workers, especially for the hard and dirty jobs.

In Virginia, one unfortunate view comes from George W. Grayson, a former delegate and William & Mary professor. Addressing Obama’s move he wrote in a Richmond newspaper that granting clemency to young illegals somehow hurts the “real” Americans who have trouble finding work. Conveniently, he forgets that young foreigners often do the jobs that “America’s” youth don’t want. For evidence, go to the Outer Banks this summer and listen to how many grocery cashiers and waitresses have accents from Russia, Poland or Ukraine.

One of Grayson’s more idiotic points is that we shouldn’t help Mexicans because they come from a resource-rich and corrupt nation. By that logic, the vast majority of America’s people should not be here.

The good news is that the mood on immigration is changing. Eventually we should get the kind of comprehensive reform that helps our economy and cements our position as a humane and just country.