I don’t watch many movies on the big screen but I won’t miss this: “Lawless.” The movie is based upon a true story about moonshiners in Prohibition-era Franklin County, Va. Best line from the trailer: “I’m a Bondurant. We don’t lay down for nobody.”
Local boys fighting the revenuers. What’s not to like?
— JAB
Gov. Bob McDonnell joined six other governors earlier this week in asking President Obama to waive the ethanol quotes mandated by the federal Renewable Fuels Standard (RFS). His letter to the Environmental Protection Agency earlier in the month follows a similar plea from Virginia senators Mark Warner and Jim Webb earlier this month.
The RFS dictates that all U.S. transportation fuel must contain ethanol, effectively diverting more than 40 percent of U.S.-grown corn to fuel. Drought has devastated U.S corn production and, aggravated by the ethanol mandate, has driven up corn prices. As a basic feedstock for animals, higher corn prices will translate into higher prices for livestock and poultry. The Virginia Poultry Federation lost no time in praising the governor for his letter.
The Renewable Fuels Standard is one of the worst pieces of legislation ever enacted. Talk about a technology that could not survive without government life support! This boondoggle makes the Solyndra fiasco look penny-ante by comparison.
McDonnell, Webb and Warner should follow up their calls for a waiver by working to eliminate the mandate permanently.
Ethanol is a blight and a bane to our economy. First, the diversion of corn from food feedstock to gasoline drives up the cost of food. Second, now that Congress has eliminated a 45 cent-per-gallon production subsidy, the mandate has pushed up the cost of gasoline as well. Third, the putative environmental benefits (reduced greenhouse gases) disappear when the full life-cycle costs of ethanol production are taken into account. And fourth, ethanol displaces only five to six percent of imported petroleum at a time when, thanks to the fracking revolution, production of domestic oil and gas are booming.
There’s another, less commonly cited reason to hate ethanol. Ethanol damages small internal combustion engines and, if you don’t run an engine regularly, ethanol prevents it from starting. I found that out the hard way when I had to take my lawn mower into the repair shop last year. (See what small-engine mechanic Kenneth Francis of Spotsylvania says about it on YouTube. Yuck!) Anyone who owns a lawn mower, generator or a motor boat has ample reason to hate the wretched, stinking fuel that serves no good but to enrich corporate rent seekers.
In addition to seeking the waiver, McDonnell ought to yank Virginia out of Governor’s Ethanol Coalition and work to scrap any and all state programs that favor the fuel by means of subsidies or tax breaks, such as the Biofuels Production Grant.
A rational energy policy would let all energy sources compete on a level playing field. We should eliminate all federal and state subsidies, tax breaks, loan guarantees and mandates for everything from fossil fuels to biofuels, from nuclear to solar and wind. Impose a carbon tax on fossil fuels to offset the costs arising from pollution. Then let the best energy source win!
— JAB
Posted in Agriculture & forestry, Energy, Environment, Government Finance
Tagged James A. Bacon
By Peter Galuszka
It seems so underwhelming. There was the hurricane that went elsewhere. A retrograde platform. A vice presidential candidate in search of a fact checker. A lame speech by POTUS-to-be. Even Clint Eastwood couldn’t make our day.
Flash back four years. John McCain stunned the nation with Sarah Palin, the tough hockey mom from Alaska who seemed so downright fresh and sexy even if she didn’t know even the basics about foreign or domestic policy.
This week, by contrast, we got a lot of milquetoast nice-guy platitudes about Mitt Romney, Mr. Excitement if there was one. If you got past the female speakers such Nikki Haley or Susana Martinez, you’d realize that the Republican platform would take things back to pre-1970s days, skewer women’s Constitutional rights and put homosexuals back in the closet. Speaking of the 1970s, they even want to take us back to the gold standard and undo Richard Nixon. How weird is that?
A smooth speaker, Haley served up non issues such as the big, bad labor unions that need to be kept in place and the crying need for new voter identification. I don’t know how things are in South Carolina, other than the Boeing flipple, but unions are much weaker than ever and Americans have a right to organize. Voter ID is a non issue. There is no evidence of widespread fraud but there is meat behind the complaint that the new campaign is designed to keep minorities and the poor from having their votes cast. Don’t believe me? Ask the U.S. District Court judges in Washington who shut down Texas’s voter ID law yesterday.
We had Paul Ryan blaming Barack Obama for shutting down a Wisconsin factory before he even took office. No big deal. I went to a New Kent County Tea Party rally two years ago and was intrigued to learn that Obama was to blame for the big bank bailout. The hard right — and our “Young Gun” — really need to check their facts. As for Romney himself, let’s just say I didn’t need to take an ambien Thursday night.
What about our Virginia boys? Zippo. Not only was Gov. Bob McDonnell left off the vice presidential list, he was nowhere to be found even though he gave a pretty good (at least substantive) speech that was not picked up by network TV. He was barely mentioned otherwise in the national media. Instead, we got Chris Christie whose ego is even larger than his abdominal girth. Did he mention Romney? I just can’t remember.
Four years ago, the Republicans gave us a lot of verve and excitement with McCain and Palin. She might have been a disaster but she sure was a fun disaster. Now we have The Book of Mormon.
Posted in Energy, Environment, Federal issues, Immigration, Media, Money in politics, Politics, Poverty & income gap
Tagged University of Virginia
"While you're stopping to use your phone, mate, help yourself to a cup of steaming hot coffee from the vending machine."
Looks like the Virginia Department of Transportation will finally start generating some serious sponsorship revenue to help support its 43 Interstate rest stops. CRH Catering Co., Inc., of Connellsville, Pa., will pay the commonwealth $2 million annually to help offset the rest stops’ $21 million in annual operating costs.
As part of the deal GEICO will become an official sponsor of “Virginia’s Safety Rest Areas and Welcome Centers” by encouraging motorists to pull over to rest stops to use their phones for calling, texting, surfing and accessing mobile apps. In a three-year contract, CRH Catering, which specializes in designing vending areas, will pay VDOT with funds generated by its vending operations and the GEICO sponsorship.
Stated Gov. Bob McDonnell in a press release yesterday: “My administration has moved aggressively to find innovative solutions for maintaining and operating Virginia’s rest areas and welcome centers, which provide a safe place for travelers to rest and gather information about the many attractions and services Virginia has to offer. By partnering with the private sector, we are not only keeping our rest areas open, but we are making our roads safer by discouraging distracted driving.”
No official reaction reported yet from the eastern box turtle, Virginia's official state reptile, but he doesn't look happy.
Bacon’s bottom line: Kudos to the McDonnell administration for some imaginative thinking. This deal, the first of its kind in the country, could serve as the template for extracting more economic value from the rest stops and putting them on an independent financial footing. Rest stops are a major convenience to the traveling public, and it would be wonderful if, by making them financially self supporting, VDOT could immunize them from budget cuts during hard times.
The press release did not allude to future deals in the making, but the arrangement with CRH Catering does not appear to be statewide in nature. According to its website, the company serves only 16 locations in Virginia. I surmise (but have not confirmed) that different vending machine operators have contracts for the other locations. If I am correct, it may be possible to broker separate sponsorship deals to extend to other restaurants. If we add in the possibility of bringing in additional sponsors, is it wild and crazy to think that the rest stops could cover their entire costs?
If so, that would signal a remarkable achievement in a state where the rest stops narrowly escaped being shut down for lack of funds in the last recession.
— JAB
Pressure is intensifying to redevelop Richmond’s retail enclaves at greater densities. But locals love the Libbie & Grove shopping district just the way it is. Is there a way to accommodate both?
by James A. Bacon
The Libbie & Grove shopping district is little known outside the west end of Richmond but it is much beloved by the people who live nearby. There is nothing especially distinctive about the architecture of the shops and restaurants – indeed the styles are very much mix and match. Some of the buildings, like a 7 Eleven and BP gas station, are major eyesores. But the retail district has an indefinable aura that makes it a great place.
The Westhampton Theater, the only movie theater in Richmond that plays independent and foreign flicks, is a major draw for the city’s wine and brie crowd. Phil’s Continental Lounge, a neighborhood restaurant and bar from another era, draws more of a beer and bubba clientele. Peter-Blair displays what just be might the world’s gaudiest assortment of bright, preppy neckties. There are numerous eateries in the area, and they all provide sidewalk dining. It’s fun to walk around, windowshop and bump into people you know.
For a fleeting moment, one might say, the Libbie and Grove area has achieved a state of urban grace. Everybody loves it, and no one wants it to change. But, as former Beatle George Harrison once crooned, all things must pass.
Artist's rendering of the Highline Developments project at the corner of Libbie & Grove
The mixed-use building would replace a BP gas station.
Highline Developments BP LLC has asked the city for a special use permit to build a four-story apartment and retail center where a BP gas station now stands. The project would offer several amenities, not the least of which is replacing the ugly gas station. Plans call for 24 parking spaces behind the building with another 53 underground, expanding the supply of desperately needed parking in the area. The ground floor would be devoted to shops and restaurants, while 22 apartments would reside in the upper floors. Perhaps most notably, the building would be architecturally striking. A cupola would provide a visual focal point the district now lacks.
There would be another big bonus for the city. The mixed-use building would generate roughly $150,000 in property tax revenue in place of a gas station that contributes only $11,000 in property taxes now. If the City of Richmond to wants to rebuild its tax base, it will have to encourage the higher-intensity development along its commercial corridors.
But the project has a major drawback – it’s big. The four-story structure will dwarf nearby buildings. The roof height would be 53 feet; the cupola would soar to 68 feet. That compares to 35 feet for the Westhampton Theater, the tallest existing building. By setting a precedent for developers to propose more tall, mixed-use buildings, it will forever change the character of the retail district.
The Richmond region is at a crossroads. The tide of development is shifting from the metropolitan periphery back toward the urban core. The new dynamic is most visible downtown, in Shockoe Bottom, the Canal district and the old Manchester neighborhood across the river. While a handful of downtown projects generated controversy because they would block the river views of established homeowners, redevelopment has been relatively free of conflict with adjacent neighborhoods. But not everyone who wants to move back into the city wants to live downtown. Developers are betting that there is pent-up demand for luxury condomium living in an affluent neighborhood like Libbie & Grove.
Pressure to re-develop traditional Richmond neighborhoods at greater density will only intensify. The question is, can the city accommodate the redevelopment, which is far more efficient from an infrastructure-utilization point of view than building in a green field on the metropolitan edge, or will resistance from neighbors limit the city’s evolution? Given the city’s status-quo vision for the city’s west end and outspoken community opposition, the answer is not at all clear.
You won’t find any grand mansions near Libbie & Grove, unless you cross River Road to the estates near the James River or travel a ways down Three Chopt Road. The houses are understated in the old Virginia manner but well-to-do. St. Catherine’s School, with its manicured grounds and stone school buildings, is within a short walking distance of the shops, while the Country Club of Virginia lies just beyond. St. Stephen’s, one of Virginia’s largest and wealthiest Episcopal churches, is only a block or two away, and the University of Richmond, St. Christopher’s School and Saint Mary’s Hospital are just down the road.
The red patch shows the location of the proposed mixed-use building. (Click for a more legible image.)
Though known as “Libbie & Grove,” the retail district technically follows Libbie all the way down to Patterson Ave. and encompasses several blocks of commercial activity there as well. The city’s Master Plan supports the status quo for the area, noting, “Opportunities for redevelopment or change in use … are extremely limited.” The plan’s guiding principles state that, in general, residential areas should be protected from commercial encroachment and that, in the specific case of Libbie/Grove, “the vitality of the commercial service centers … should be maintained by placing limitations on the extent and character of expansion to those areas.”
In 2010 the city embarked upon a review of the Master Plan for Libbie & Grove at the request of the area’s City Council representative Bruce Tyler. After a series of public hearings, stakeholders reaffirmed the Master Plan’s land use recommendations for the district. However, Scott Boyers, a CB Richard Ellis broker and investor in the Highline Developments project, says the review was a two-step process. The first phase, which is complete, created a “framework” for the area. A follow-up phase, which has not yet occurred, would address specific zoning densities, heights, sizes and setbacks. “My project was thoughtfully conceived in good faith with respect to the Master Plan and the process to complete the plan,” he told Bacon’s Rebellion. Read more.
Makani Power flying wind turbine
by James A. Bacon
I have inveighed repeatedly against the folly of pumping billions of public dollars into solar- and wind-powered projects, whether by means of direct subsidies, loan guarantees or the electric-utility mandates known as Renewable Portfolio Standards. Building and maintaining a vast, expensive energy infrastructure based on uneconomic technology saddles government and consumers with unnecessarily high costs for a generation to come — and locks out emerging technologies that are far more efficient.
The problems with conventional wind power are now well known. Windmills are expensive to build. The power is intermittent. The turbine blades kill birds and bats.
Recently, however, a new generation of wind technology is coming to market. It sounds like an idea invented by someone who ate too many funny mushrooms: wind turbines on kites. It is, as yet, unproven but its backers claim that it addresses the major drawbacks of the giant windmills. The Wall Street Journal describes the concept: “Engineers are working on using kites to send aloft power generators that create energy when mounted rotors are spun by the wind; they transmit electricity through the cables that tie them to the earth as a string tethers a child’s kite.”
One model built by Google-backed Makani Power in Almeda, Calif., is capable of generating 30 kilowatts of electricity, enough for 20 average U.S. homes. The kites are cheaper than windmills because they don’t require construction of a large supporting structure. The electric power they generate is more consistent because wind is more constant at higher attitudes. One version designed by Kitefarm, of Kilauea, Hawaii, even has a controller that helps the kite avoid birds.
The idea is taking off, with a half dozen companies in the U.S. and Europe pushing prototypes. While no electric utility has publicly committed to use a kite generator, the WSJ says power companies are keeping a close watch on the developing technology.
Makani says it believes it can generate wind power for $30 per megawatt hour, compared with $58 for new land-based turbines, partly because of the lower capital costs. “We’re offsetting a large amount of steel and concrete with computational sophistication,” said Corwin Hardham, chief executive of Makani Power. He says Makani Power will use one-tenth of the materials needed for a traditional wind turbine and deliver more consistent power.
What makes flying wind turbines a viable idea all of a sudden? Falling costs of carbon-fiber, the structural material used in the kite, as well as improvements in unmanned flight technology and navigational software. Ka-boom, baby! Another revolution the policy gurus and economic dirigistes in Washington failed to foresee.
Bacon’s bottom line: Who knows if the promises of these start-up companies will pan out? Perhaps practical problems will surface that no one has anticipated yet. Perhaps someone will leapfrog them with an even better idea. Perhaps lobbyists for Big Wind (like GE with its massive commitment to windmills) will regulate them out of existence. Or maybe they will deliver on their promises.
What we can say is this: Insofar as Virginia’s power companies have dragged their feet in committing to conventional renewable technologies, they may have done us all a big favor. Instead of rows and rows of windmills standing off the shore of Virginia Beach, we may one day see clouds of electricity-generating kites on the horizon — put there at half the cost.
The proper role of government is to underwrite energy-related research for which the payoff is too distant or speculative for the private sector to engage in — not to pick the technologies that should enter the marketplace. That strategy has led to Solyndra and an endless parade of other government-backed failures engineered by rent seekers. Let us cross our fingers and hope that these flying turbines will provide the renewable energy breakthrough we all yearn for. If it doesn’t, rest assured that as we make advances in material science, microchips and software, an even better idea will leap out of the clear blue sky.
Uh, oh, here we go again!
The McDonnell administration wants to build a highway through the Manassas National Battlefield Park and foes are mobilizing to black the initiative. Call the coming clash the Third Battle of Manassas.
Actually, no, don’t. The third battle occurred when mega-developer John. T. “Til” Hazel tried to build a giant mall next to the battlefield back in 1988. A fourth took place in 1994 when the Walt Disney Company tried to develop a major theme park near the battlefield, suffering a defeat as ignominious as General John Pope’s. So, it looks like the latest controversy is shaping up as the figurative Fifth Battle.
Last year, at the bidding of the McDonnell administration, the Commonwealth Transportation Board (CTB) ordered the Virginia Department of Transportation to begin developing a master plan for a north-south “corridor of statewide significance” on the western periphery of metropolitan Washington. That corridor would align with a long-proposed Tri-County Parkway that would link Interstate 95 with Washington Dulles International Airport.
Recently, VDOT has sought an agreement with the National Park Service to build the highway on 20 to 35 acres of land within and adjacent to the battlefield. Last week a coalition of conservation and smart-growth groups — the Southern Environmental Law Center (SELC), the Piedmont Environmental Council (PEC), the National Parks Conservation Association, the National Trust for Historic Preservation and the Coalition for Smarter Growth — submitted formal comments detailing the project’s shortcomings.
“The proposed ‘Tri-County Parkway,’ with its 200-foot-wide right-of-way, up to six traffic lanes, and increased traffic and noise, would damage Manassas Battlefield’s historic character, trigger new development and traffic, and would set a bad precedent for building new highways through national battlefields and national parks across the nation,” stated the five organizations in a joint press release.
“Not since the threat of the Disney theme park in 1994 has Manassas National Battlefield been at such risk,” said Chris Miller, president of the PEC. “We urge Governor McDonnell and other decision makers to reject VDOT’s proposed highway in favor of a lower impact alternative.”
“Given the national significance of the battlefield park, VDOT should analyze all feasible and prudent alternatives to the new highway, but it has failed to do so,” said Morgan Butler, senior attorney for the SELC. “Moreover, the impacts of both the Tri County Parkway and the Manassas Battlefield Parkway should be analyzed together.”
The coalition is pressing for a “low-build alternative” that would focus on improvements to east-west commuter routes like I-66 and Highway 50, and upgrades to local roads that would avoid unnecessary noise and traffic impacts on the battlefield.
The McDonnell administration and its Northern Virginia business backers say that a north-south corridor is needed to provide congestion relief and expedite air cargo shipping in and out of Dulles. Such a corridor also might lead, in the indefinite future, to an additional crossing of the Potomac River.
— JAB
Posted in Land use & Development, Transportation
Tagged James A. Bacon, Outer Beltway
Geek shortage? "Computer occupations" are the occupations in greatest demand in Washington, Richmond and Hampton Roads.
by James A. Bacon
Much of the unemployment in the United States is tied to cyclical economic factors like swings in housing starts and industrial production but some of it stems from a mismatch between the jobs available and the skills of unemployed workers, contends Brookings Institution scholar Jonathan Rothwell in a new article, “Education, Job Openings and Unemployment in Metropolitan America.”
On average, the jobs being created require more education than American workers possess. In an analysis of the nation’s 100 largest metropolitan statistical areas (MSAs), Rothwell also found that the mismatch was more acute in some MSAs than others. Indeed, the Richmond region ranked 72nd out of 100 in his “education gap” index (in which 1st represents the smallest mismatch). Virginia Beach (ranked 40th) and the Washington MSA (4th) fared considerably better.
The mismatch is of more than academic significance. “Metro areas with higher education gaps,” Rothwell writes, “have experienced lower rates of job creation and job openings over the past few years.”
Here is a closer look at the numbers. (Click on links to see regional profiles.)
Richmond MSA: 43.1% of all job openings in January/February 2012 required a bachelor’s degree or higher, compared to 21.8% of unemployed workers and 31.7% of all adults with B.A.s.
Hampton Roads MSA: 39.3% of all job openings required a bachelor’s degree or higher, compared to 15% of unemployed workers and 28.5% of all adults with B.A.s.
Washington MSA: 49.6% of all job openings required a bachelor’s degree or higher, compared to 30.3% of unemployed workers and 46.8% of all adults with B.A.s.
Bacon’s bottom line: To the extent that MSAs with high education gaps, like Richmond, tend to experience lower rates of job creation, Rothwell highlights a problem that needs to be solved. But I also see the gap as an opportunity.
The Richmond region has one of the highest education gaps in the country. But that’s not entirely a bad thing. It means that Richmond-area employers are creating jobs that require a high level of skills and, presumably, would command higher-than-average salaries. Turn the picture around. Would you rather live in a region where the jobs being created required less education? That would be an economy of proverbial hamburger flippers.
An education gap gives people a concrete reason to pursue higher education, even in the face of runaway tuition and fees. The message: The jobs are out there if you make the effort to acquire the skills.
From a public policy perspective, an education gap points the way to a different way of thinking about economic development. Economic development in Virginia is geared primarily to recruiting new businesses to the region, and secondarily to stimulating new business start-ups. Both of those approaches overlook the fact that existing businesses are creating lots of jobs that they can’t fill locally….
Which brings me back to a familiar theme: If the Richmond region (or Hampton Roads, Roanoke, Charlottesville or any other region) wants to stimulate economic development, it needs to create the kind of place where educated people want to move to and, once they get here, want to stay.
What attributes and amenities do educated people look for… other than a great paycheck? That depends significantly upon an individual’s (or family’s) stage of life. Young singles yearn for places where they can meet other young singles. Married couples with children look for good places to raise their kids. That’s basic. But what else?
Rothwell observes a tendency of college graduates to stay in the same state as their university. “Indeed, 70 percent of college graduates live in the same state at their college five years after graduation and 61 percent 10 years after. The share is only slightly less for tech entrepreneurs; 45 percent of the founders of large companies created their business in the same state where they attended school. This is one of the reasons why many of the metro areas with the highest college attainment rates also have large research universities, like Austin, Boulder, San Francisco, Boston, and Madison.”
Richard Florida, of creative class fame, says that educated Americans gravitate toward communities that are open to outsiders and have what he calls “authenticity” in its local culture. That’s all very good, but those concepts are hard to build public policy around. I have seen very little other research done on the subject, and what I have seen is several years old and probably outdated. The fact is, we really don’t know what people look for when they move to a new region. If we want our regions to become magnets for educated and talented workers, we need to find out.
Update: When I went back and re-read Rothwell’s piece, I saw that I missed a key point. America’s problem isn’t an inability to fill the jobs with higher educational requirements, as I suggested by focusing on the need to recruit communities that could recruit and retain educated members of the creative class. The problem is the lack of jobs for people with lower educational attainment. That calls for a different set of remedies than what I called for in my “bottom line” analysis.
Posted in Business and Economy, Labor and Workforce
Tagged Creative class, James A. Bacon
Image credit: Jason Orender.
Aggregated debt for the 50 states exceeds $4.19 trillion, according to a new report issued by State Budget Solutions. That may pale in comparison to the federal government’s nearly $16 trillion in debt but, then, states have more limited fiscal resources than Uncle Sam. Among other things, they can’t print their own money.
“These budget numbers should serve as a wake up call for every state legislature around the country. Our states are in trouble and no amount of budget gimmicks, political posturing or hiding bills will fix the massive debt that they face,” said Bob Williams, president of State Budget Solutions. “There is no option for status quo or incremental adjustments. Drastic reforms, innovations and political courage are needed to put our states back on the road to fiscal survival.”
The $4.19 trillion figure does represent an incremental improvement from $4.24 trillion the previous year, but the progress in debt reduction is discouraging given the fact that the nation is in its third year of economic expansion and state finances should be improving. SBB’s definition of debt includes bonds, leases, unfunded pension liabilities, post-employment benefits and unemployment trust fund loans.
California is famously the most indebted state measured by absolute dollars, $617 billion. But it also has the largest economy, so the debt burden isn’t as heavy as it is for many other states. Likewise, Virginia, with $64 billion in debt, ranks fairly high in absolute dollars of debt. Yet the Old Dominion’s debt burden, measured as a percentage of the state economy, is one of the lowest in the nation.
In the chart below, I have taken SBB’s debt numbers, aligned them with 2011 state GDP numbers, and shown the debt as a percentage of GDP. States at the top of the list have the lowest debt burden. Nebraska, home of tightwad billionaire Warren Buffett, has the lowest debt/GDP ratio in the country. As for the states at the bottom of the list, Hawaii may be paradise but I wouldn’t want to be a taxpayer there.
Watching its debt and long-term budget obligations is one of the things that Virginia does really well. But that’s no excuse to get complacent. Our economy remains extremely vulnerable to a downturn in federal spending, especially defense spending, and our budget picture could deteriorate in a big hurry. Moreover, we remain mired in institutional dysfunction. There is no serious movement to reform K-12, high ed, health care, transportation or human settlement patterns. The fuse is still burning.
by James A. Bacon
Blog contributor Don Rippert and I have been engaging in an invigorating tit-for-tat in the comments section of the blog. I thought the subject matter of sufficient interest to elevate it to the level of a full-fledged blog post. The topic: Should Northern Virginia be compensated for the failure of downstate Virginia localities to tax cigarettes like they do in Northern Virginia?
Don’s underlying charge is that Virginia’s countenance of the nation’s second lowest cigarette tax, $.30 per pack, represents an indirect subsidy to the Richmond region, a payoff to Altria, owner of Philip Morris USA and the nation’s largest manufacturer of cigarettes, which is located here. His logic runs something like this: High taxes discourage smoking. Smokers have higher medical bills. Insofar as smokers tend to be poorer than the general population, they are more likely to be on Medicaid. Virginia pays for half of Medicaid (the federal government pays the other half), which means state taxpayers bear the burden of smokers’ poor health choices. Fairfax County has imposed an additional $.30 tax on top of the state levy, thus doubling the sanction against cigarette smoking, whereas my county of residence, Henrico, has not.
Wrote Don: “Given that you understand that taxing cigarettes does reduce smoking, I assume you also understand that failing to tax cigarettes increases smoking. How much should the residents of Northern Virginia be asked to pay for Henrico County’s unwillingness to curb cigarette smoking through the imposition of local taxes on the sale of those cigarettes?”
Then he goes in for the kill: “You claim to like ‘user pays.’ The Richmond area benefits from having Phillip Morris headquartered in Richmond. In turn, Richmond jurisdictions such as Henrico County avoid offending their friends at Phillip Morris by imposing local taxes on cigarettes. This, in turn, increases the smoking rate and costs everybody in the state money for treating the unfortunate victims of cigarette smoking.”
“So, I ask once again – how much should the Richmond area pay back to the Commonwealth of Virginia for its sad refusal to use the common practice of taxation to reduce the provably deadly practice of smoking?”
OK, you really got me there, Don. Ha! Ha! Except you didn’t get me!
First, let’s ask ourselves, how significant is that $.30 Fairfax County cigarette tax? The combined state+county tax of $.60 equals that of the state of Kentucky, whose tax ranks only 40th in the country. You want a serious tax? Look north. New York’s $4.50 per pack is as serious as lung cancer.
Well, one might respond, Fairfax’s $.30 tax is better than nothing. How much effect does that have in discouraging smoking? Let’s look at the correlation between the tax per pack and smoking rates. Using Gallup Poll data for state smoking rates, we get:
How about that? Virginia’s tax is half of Kentucky’s but Virginia has a much lower smoking rate. Virginia’s tax is one-fifteenth that of New York’s but the Old Dominion has the same smoking rate. Fairfax County (according to this source, using an unknown methodology) does have a lower smoking rate than Virginia as a whole but it’s unclear if any of that is due to the tax. Smoking is highly correlated with education, and Fairfax County has a much higher level of education. Admittedly, the smoking research is almost unanimous that there is a connection between taxes and smoking, but it is only one of many factors and the impact is easily overstated.
The next flaw in Don’s logic is his implicit assumption that downstate Virginia’s healthcare spending is necessarily higher as a result of the higher smoking rate. Perhaps the smoking does add to costs. But that’s not the whole story. Let’s look at the numbers provided by the Dartmouth Atlas on the average spending per Medicare enrollee in the Richmond and the Arlington hospital referral regions. (Medicare enrollees do not have the exact same medical profile as Medicaid enrollees, but this article concludes that “there is a strong relationship between Medicare and Medicaid spending in comparing Hospital Referral Regions (HRR) within each state.”)
$7,244 — Arlington HRR spending per year
$7,239 — Richmond HRR spending per year
Oh, my. There goes Don’s argument up in smoke. The average annual cost per Medicare enrollee is actually $5 cheaper in Richmond than in Arlington despite the lack of local cigarette taxes to repress smoking. Assuming the same pattern applies to Medicaid spending, it turns out there is no inter-regional subsidy at all. Indeed, add the cost of reimbursements for professional and lab services, and Arlington enrollees cost taxpayers $335 more per year. Maybe Richmonders should demand compensation from Northern Virginia!
For the record: I think smoking is a really bad idea and ought to be discouraged. Also, I do subscribe to a “user pays” philosophy. People should be held responsible for slovenly health habits like smoking just as they should be held responsible for slovenly driving habits like driving under the influence. Ideally, health care insurers (including the Medicare program) would impose direct financial penalties on smokers in the form of higher insurance rates. That’s impossible in the case of Medicaid recipients, who don’t pay for their coverage. Perhaps there are other options for them, such as rewarding them for quitting. But turning the issue into one of “mom likes your region best” doesn’t accomplish anything.
Image credit: The Commonwealth Institute
In recent years Virginia legislators have relied increasingly upon “an array of budget gimmicks, accounting sleights of hand, and one-time deals” to balance the budget, contends the Commonwealth Institute in a new paper, “Shell Game: Virginia Balances its Budget with Cuts and Accounting Sleights of Hand.”
Authors Sara Okos and Michael Cassidy have made the same point before, although they buried it in reports on broader topics. In this policy brief, they throw the spotlight on the subterfuges that politicians adopt to “balance” the budget at the expense of the commonwealth’s long-term fiscal health. Most of these tricks will be familiar to regular readers of Bacon’s Rebellion because we have castigated them as well. Still, it’s helpful to line them up all in a row just to see how many scams the politicians have been pulling on citizens and taxpayers.
The 13-month year trick. In 2010, the General Assembly required large retailers to estimate their receipts for the first month in the following fiscal year and send in the sales tax payments early. Presto change-o, 13 months of revenue in only 12 months for a pick-up of $27.7 million. But those revenues came at the expense of revenue in later years. The legislature is still unwinding this gimmick.
I’d gladly pay you Tuesday for a hamburger today. In 2011 the General Assembly allowed the McDonnell administration to accelerate previously authorized bond sales so the state could borrow at low interest rates and build roads while bids were low. But much of the money, proceeds from the s0-called GARVEE bonds, was borrowed against future federal transportation grants. Thus, much of the spending today comes at the expense of spending in the future.
Borrowing from state employees. In 2010, the General Assembly deliberately underfunded the Virginia Retirement System below levels recommended by the system’s actuaries. Writes CI: “This included delaying or suspending a whole fiscal quarter of contributions for state employees and teachers.” The state is in the process of paying that money back. But meeting those obligations comes at the expense of pending in other areas.
One-trick pony. Last year the federal government reached a $25 billion mortgage settlement with five of the nation’s largest loan services, resulting in a $65.9 million payment to Virginia. Only $7 million went into the state’s Housing Trust Fund. The rest of the one-time settlement will be used to meet education costs related to inflation, retirement and the Virginia Preschool Initiative.
A bit unfairly, the report recounts other gimmicks that the General Assembly rejected, such as abusive fees for reckless driving and similar offenses, which it passed and then repealed, and Gov. McDonnell’s unsuccessful effort to sell the state’s liquor stores to raise money for transportation projects. We shouldn’t blame lawmakers for tricks they pondered and then rejected. The hocus pocus they actually did engage in is grounds enough for outrage.
CI’s conclusion:
The gap between the resources we need to support our modern and growing state with a booming population and growing demands for roads, sewers and other infrastructure has created annual budget shortfalls for more than a decade. Yet the state has ignored the problem, imagining we can cut, borrow and contrive our way to prosperity. Lawmakers have played games with existing resources in a desperate move to avoid talking about real solutions to our revenue problem. That kind of shell game is unsustainable.
My big problem with this conclusion is that CI implies, without coming out and saying so, that the “real solutions to our revenue problem” entail higher taxes. No, the solution is fundamentally re-thinking the way we deliver core services such as K-12 education, higher ed, transportation and health care. But one thing we do agree upon: Our current path is reckless and unsustainable. Something has to give.
— JAB
No lack of bicycles in the Bacon household -- 1.7 bikes per person. But there's nowhere in Henrico County to ride them. Provide connectivity between subdivisions and there would be.
by James A. Bacon
Last week Richmond Times-Dispatch Publisher Tom Silvestri asked in a commentary what plans local governments had to make their communities more bicycle friendly. The City of Richmond and County of Henrico responded. Here’s the bottom line: By the year 2015 Richmond plans to have 140 miles of dedicated bike lanes and “sharrows” (bike lanes sharing streets with cars). Henrico County will have only 16 miles of “multi-use trails paralleling major roadways,” of which 15 miles will consist of Henrico’s portion of the Virginia Capital Trail linking Richmond and Williamsburg, a statewide initiative. Otherwise, the county will have one mile on North Gayton Road.
I am embarrassed for my home county, which otherwise tends to be a desirable place to live. When Chesterfield County is more progressive on the subject of bike lanes than we are, that’s quite an indictment.
It would oversimplify grotesquely to attribute Henrico’s inhospitality toward self-propelled transportation simply to retrograde thinking. Peruse the comments in response to Henrico’s 2025 Comprehensive Plan and you’ll find many Henrico residents demanding more attention be paid to the bicycling alternative. “The County is too far behind in the development of bicycle paths and bike lanes,” said one George Talley in a fairly typical response. “Bicycling needs to be considered as a mode of transportation as an alternative to motor vehicles.”
However, there is no organized constituency in Henrico County for bicycles because very few Henricans (or whatever we call ourselves) use bicycles for utility travel, which includes commuting and running errands. The reason seldom use bicycles for utility travel is that Henrico’s development pattern of segregated and low-density land uses pushes destinations far apart. Thus, it would be impractical than in Richmond to choose bicycle travel as a means of conveyance even if bike paths ran along every major road.
Functionally, bikes and bicycle trails are regarded in Henrico as a form of “recreation,” hence a lower priority in the competition for county investment than “transportation.” If Henrico plowed significant dollars into building traditional bicycle trails, there are legitimate reasons to question whether people would use them for utility trips. The return on dollar invested would be terrible.
The county already has dozens (perhaps hundreds) of miles of mostly empty sidewalks. Judging by their attire, the only people who use them are recreational walkers. Why would bicycle trails be any different? In dire fiscal times, we cannot afford the luxury of building bike trails that no one uses.
Contrast the situation in Henrico with the City of Richmond. Virginia Commonwealth University, situated just on the edge of downtown, estimates that there are 14,000 bikers on campus, according to Richmond BizSense. In recognition of the widespread bicycle use, VCU is spending $100,000 on a bike-maintenance and education building, which it will call the RamBikes stand. The service will include a program in which students can check out a bike for a day just like they would a library book.
Richmond land use patterns are compact. Travelers can reach for more destinations within the same amount of biking time than they could in Henrico. Urban streets have much lower speed limits, making it less intimidating to ride in the city. Moreover, bikable streets in the city create a functional network. Building a few miles of scattered, unconnected bike trails in Henrico county would not create a viable transportation alternative. Perhaps most important, those 14,000 VCU students represent a large and coherent constituency for pro-bicycle policies in the city, for which there is no counterpart in the county.
Bacon’s brilliant solution. Henrico County does have one advantage over the city: untold miles of lightly traveled subdivision roads and streets. Subdivision streets are broad and mostly empty — ideal for bicycle travel. The problem is, they go nowhere. Due to Henrico’s penchant for developing sub divisions in disconnected pods, a cyclist could not travel far without hitting a heavily traveled and bicycle-hostile arterial road. (Try riding on Patterson Ave. with cars whooshing by at 45 to 50 m.p.h. I have tried it once. I won’t again!)
A possible solution is to connect pod subdivisions with bicycle rights of way. Expenditures would be minimal — acquisition of perhaps 10-foot-wide right-of-way across a single piece of property (most likely between two pieces of property), and construction of a short path linking subdivision streets. Suburbanites like their cul de sacs because they prevent cars from cutting through, creating a danger for children. It’s hard to imagine that bicycles would inspire the same objection.
For a very modest price, Henrico could connect ten or twelve subdivisions per year in most compactly settled areas of the county (bordering the city, for the most part) and start creating a bicycle network for a fraction of the cost of building parallel bike paths or re-engineering existing roads as sharrows. As a practical matter, destinations would remain distant and scattered. But at least they would be connected, and some destinations would be within cycling distance. The price tag would be so low that there would be little to lose. It’s worth a try.
by James A. Bacon
The fiercest rivalry in American politics today may not be between Barack Obama and Mitt Romney, suggests Stephen Moore in today’s Wall Street Journal. It may be between the governors of Maryland and Virginia: Martin O’Malley and Bob McDonnell.
Not only do the two governors and their states vie for bragging rights over job creation and economic growth, as any two neighboring states might do, they champion competing governance models. Maryland represents the blue-state governance model of activist government that raises taxes to “invest” resources in public works, schools, transit and other assets offering a social return on investment. Virginia represents the red-state model of more limited government, lower taxes and restrained spending.
That tussle takes on more meaning than, say, the rivalry between Virginia and North Carolina, because Maryland and Virginia both comprise part of the Washington metropolitan area and compete for a greater share of the region’s jobs, corporate investment and economic growth. Writes Moore: “The two [governors] regularly spar on the Sunday talk shows, on the pages of the Washington-area newspapers and over the radio.”
A prominent advocate of small government, Moore makes no secret of which governor and governance model he favors. Citing O’Malley’s triumphalism earlier this year when he bragged on CNN, “We’re creating jobs at two-and-a-half times the rate Virginia is,” Moore notes that Maryland proceeded to lose jobs the next six months, even while the nation as a whole was gaining them. Since O’Malley’s inauguration, he writes, Maryland has lost 30,000 jobs, or three times as many as Virginia. Maryland’s unemployment rate is 7%, while Virginia’s is 5.9%.
On O’Malley’s watch, Maryland has seen 20 fee and tax hikes. Moore cites a study by Change Maryland that found the Terrapin state lost 30,000 taxpayers from the state, costing $1.7 billion in lost tax revenues over the past five years. Maryland’s wealthiest counties saw the highest rate of out-migration, suggesting that high-income residents were voting with their feet. Virginia experienced a net in-migration of taxpayers over the same period.
Moore also cites Virginia’s successes in corporate recruitment. The Old Dominion beat out Maryland for the Northrop Grumman corporate headquarters, and has enticed Bechtel and Accentia to move major operations from Maryland across the Potomac.
Bacon’s bottom line: Moore acknowledges that many factors influence economic growth, and I must agree. While I share with him a faith that the “red state” economic model is superior to the “blue state” model — that, all other things being equal, smaller government and lower taxes are better than bigger government and higher taxes — I concur that the the size and reach of government is only one factor of many influencing growth. The impact of growing/shrinking the size and scope of government is best measured over decades, not years.
The dynamics of economic development have changed considerably in the past half century, when the low cost of land, labor and taxes was a valid recipe for growth in Virginia. To maintain a high and improving standard of living, the Old Dominion now must compete upon its ability to innovate, not on the basis of low costs. To attract corporate, venture and equity capital, Virginia must have human capital. To recruit and retain human capital, Virginia must build the kind of communities where educated members of the creative class want to live. Critical assets include better schools and universities, more transportation options, a cleaner environment, and a greater array of parks and recreational facilities, among other things. (Creatives also value openness and authenticity, attributes that governments cannot readily create.)
Schools, transportation, environment and public amenities are things that taxes can buy. In theory, if Maryland’s higher taxes buy more of these things and create communities more attractive to creatives, the Terrapins may generate more economic development in the long run, even if higher taxes drive off some high-income households…. but only if O’Malley and his liberal brethren “invest” wisely. Personally, I don’t have a lot of confidence in politicians of any ideological stripe to invest money wisely.
The trick to achieving prosperity in the 21st century is to create communities attractive to the creative class while also keeping taxes lower and letting wealth creators keep more of their wealth. How is that done? There is no simple formula, but it starts with the recognition that some of our basic institutions — K-12 education, higher ed, health care, transportation and land use — are broken. The blue state model of propping up broken institutions with more money and/or more government regulation is not a winning strategy. But the red state model is incomplete. Simply keeping taxes low — starving the beast — will not bring about reform of core functions of state and local government.
For the red state model to succeed over the long run, free marketeers and fiscal conservatives need to articulate a vision of how to restructure and reform our broken institutions. They have done the best job thinking about K-12 education: arming parents with vouchers to give them more school choice and encouraging schools to compete for students. But there has no been no serious discussion about applying the voucher concept to higher ed, where costs are out of control. Economic conservatives have batted around ideas for injecting market principles into health care, but they have not pushed them very aggressively. And when it comes to transportation and land use, conservatives tend to support the dysfunctional status quo.
The red state governance model may prove to be less destructive than the blue state model. You won’t see many red states swirling down the whirlpool of higher taxes, capital flight, eroding tax base and even higher taxes like California and Illinois. But avoiding fiscal disaster is not setting the bar very high. Virginia can, and must, do better.
Posted in Business and Economy, Infrastructure, Land use & Development, Taxes, Transportation
Tagged James A. Bacon
A confluence of trends will reduce economic growth in the United States to half — or less — of the rate that has prevailed for the past 150 years, argues Robert J. Gordon, an economics professor at Northwestern University in a new paper published by the National Bureau of Economic Research, “Is U.S. Economic Growth Over? Faltering Innovation Confronts the Six Headwinds.”
Successive waves of technological innovation — steam/railroads, electricity/internal combustion engine, and microchips — unleashed tremendous productivity gains that led to higher living standards. There is nothing remotely comparable on the horizon, Gordon contends. Indeed, the U.S. economy faces strong headwinds that will drag long-term growth to half or less of the 1.9% average annual rate that prevailed between 1860 and 2007.
The picture looks even worse for average Americans. While the Top 1% of income earners may continue to benefit from globalization, future growth in consumption per capita for the bottom 99 percent of the income distribution could fall below 0.5 percent per year for “an extended period of decades.”
If Gordon is correct, the implications are profoundly unsettling. Not only will living standards for most Americans stagnate for decades, there will be zero chance of whittling down the burden of the national debt by reviving economic growth. While Gordon does not explicitly say so, if his arguments are correct, America’s entitlement state is unsupportable. Dramatic revisions to the social contract between government and the governed are all but inevitable.
Gordon’s paper largely buttresses my Boomergeddon scenario for U.S. government finances. Indeed, in my book, I made the argument, for very similar reasons, that economic growth will be slower than the 10-year forecasts that underpin Obama administration and Congressional Budget Office forecasts of spending, revenues and deficits. If slow economic growth constricts tax revenues, the nation faces $1 trillion-a-year deficits as far as the eye can see…. until the system finally breaks down.
As gloomy as I am about the short- to- mid-term future, however, I am less pessimistic than Gordon for the long run. As it happens, I am currently reading “The Physics of the Future” by Michio Kaku, who provides a fairly nuanced view of the technological changes we can expect within the near future (by 2030), midcentury (2030 to 2070) and the far future (2070 to 2010). Continued advances in computing power, artificial intelligence, robotics, genetic engineering and nanotechnology will continue to drive material progress. By giving short shrift to the impact of coming waves of technological innovation, Gordon is unduly dour over the long run.
Nevertheless, the six mega-trends that Gordon highlights are reason enough for alarm. In a nutshell they are:
The demographic dividend is now in reverse motion. In the late 20th century, the mass migration of women into the workforce propelled U.S. economic growth. That trend has spent itself. Now baby boomers are retiring en mass. Hours of work per capita are declining. Less work means less output.
The plateau in U.S. educational attainment shows no sign of ending. The U.S. is slipping in international rankings in the percentage of population that has earned a college degree. A key barrier — much discussed in this blog, though not in “Boomergeddon” — is the surge in the price of tuition, which deters people from attending college. Particularly worrisome is the persistent achievement gap between Asians/whites and Hispanics/blacks.
Continued growth in income inequality will hold down gains for the 99%. Between 1993 and 2008, the 1% captured more than half the income gains during that period; the 99% shared the other half. Gordon sees no reason to think that trend will change.
Globalization will continue to outsource middle-class jobs. Inexpensive foreign labor competes with American labor not just through outsourcing but through imports. Emerging nations enjoy the advantage not only of lower wages but growing technological capabilities.
Energy and the environmental constraints will dampen growth. In 1901 the environment was not a priority. The population’s willingess to accept pollution allowed the economy to grow faster than it otherwise would have. We no longer have that luxury. Meanwhile, economic growth in India and China means greater competition for petroleum and other raw materials, which will drive up prices. (Gordon does not address the fracking revolution and what it means for long-term energy prices. I missed the significant of this trend when writing “Boomergeddon.” But that was more than two years ago — there is no excuse now.)
Rising government debt will slow growth. Accumulating consumer debt propelled economic growth for many years. The gradual pay-down of consumer debt has knocked out one of the props from the economy. Government has made up for the lost buying power by increasing its debt, but that increase is unsustainable. “As a matter of arithmetic the ratio of government debt to GDP can be reduced by a mix of higher taxes, lower expenditures, and lower entitlement benefits (including higher retirement ages). But the same arithmetic implies that higher taxes and/or lower transfers reduces the growth rate of real household disposable income relative to that of real GDP.”
For the most part, I agree with Gordon’s appraisal. One mega-trend that I identified and Gordon neglected was the impact of growing government control over the economy through direct spending, regulation and manipulation of credit markets. The morphing of the economy from innovation-driven capitalism to crony capitalism squanders resources on a massive scale. This is easily as important as any of the problems he mentions.
Bacon’s bottom line: We had a good run for 150 years. Absent fundamental reforms to our economic and political systems — reforms for which Americans have no stomach — the U.S. will enter a slower growth trajectory. We cannot support our the entitlement state with its massive unfunded liabilities. Adjusting to reality will be very, very painful.
— JAB
Station site plan for Silver Line METRO station on Route 772 in Loudoun County. (Click for larger image.)
The decision of the Loudoun County Board of Supervisors to fund its $270 million share of the Rail-to-Dulles project by taxing landowners around its two METRO stations could create a prototype for financing transportation projects in the future, argues Jay Corbalis, regional coordinator of LOCUS at Smart Growth America.
“The importance of the vote — and particularly the use of a funding concept called value-capture — goes far beyond Northern Virginia, and could have implications for how transit projects nationwide are funded in coming decades,” writes Corbalis in the D.C. Streets Blog. LOCUS is a national network of real estate developers and investors who advocate sustainable, walkable urban development.
Corbalis touts the potential for the Silver Line to re-shape the auto-oriented pattern of development in Loudoun County into mixed-use, walkable transit districts but acknowledges the difficulty in raising money for Phase 2, which is estimated to cost $2.7 billion. He writes:
The cost of Loudoun County’s contribution to the extension… as well as ongoing contributions to the line’s operations of around $17 million a year starting in 2019, made the vote especially contentious to fiscally conservative county officials. Ultimately, what broke the deadlock amongst commissioners, who were evenly split on the decision until the vote, was the structure of the financing the county would use to fund the project. Rather than increase taxes on all county residents and businesses, the county adopted an innovative funding structure that seeks to capture the value created along the rail line.
To achieve this, the Loudoun Board of Supervisors established special tax districts of commercial and undeveloped properties surrounding the future stations. Properties within a half-mile of the stations would pay a tax of 20 cents per $100 of assessed value. Properties further out would pay less. As noted by the Washington Post, most current residential properties would be excluded from the district. Future residential development would be subject to the tax though.
As Corbalis points out, value-capture financing aligns the costs and benefits of transit funding better than general tax funding. Landowners near transit stations enjoy a big spike in valuations of their property, reaping an economic windfall. Why not tap some of that increased value to help cover the capital costs of building the transportation asset? “Politically, value capture impacts fewer people than broad-based taxes like sales and gas taxes, and those who are affected stand to benefit directly from the investment, making it an easier sell.”
That is precisely the case I have been making on Bacon’s Rebellion for years. I just didn’t call it “value capture.” I’ll have to start doing so from now on.
I do have some quibbles with Corbalis’ piece. He neglects to mention that roughly half the cost of building Phase 2 of the Silver Line will be borne by riders on the Dulles Toll Road — many of whom may never use the METRO at all. The funding structure for the project is still inequitable, creating a massive transfer of wealth from middle-class commuters to well-positioned property owners, construction contractors and METRO riders. Also, he doesn’t acknowledge the risk that the hoped-for development may never occur, with the result that the hoped-for property tax revenue may not materialize.
But his larger point is well taken. Virginia should employ “value capture” financing more aggressively as a tool to finance needed transportation projects — not just transit but roads and highways — in the commonwealth.
— JAB
Posted in Government Finance, Land use & Development, Taxes, Transportation
Tagged James A. Bacon, Rail to Dulles
