Bacon's Rebellion

Finally, someone has written about the not so hidden but not well known gotcha buried in the estate tax repeal that President Bush wants to make permanent in 2010. Writing in the Washington Post today, Allen Sloan, the Post’s Business Columnist and Newsweek’s Wall Street editor, points out the negative impact of the change from stepped up basis to carry over basis for what he calls the estates of the “small rich.”

Most folks don’t understand that the much ballyhooed estate tax repeal carries a nasty surprise. Under current law, when someone dies, the estate pays a tax if it’s over a certain size, but the tax basis of inherited property for the heirs is the market value at the date of death (stepped-up basis). Under the law after full estate tax repeal, the estate won’t pay a tax if it’s small enough but the tax basis of inherited property for the heirs will be the same as the tax basis for the person from whom they inherited (carry-over basis).

Here’s Sloan’s example that illustrates the adverse impact of this change coupled with current and future exemptions:

Under current law, when you die your heirs get stepped-up tax basis. That means the assets you bequeath are valued for income-tax purposes at what they were worth the day you died — not what you originally paid for them. Say you paid $50,000 for stock that’s worth $500,000 when you die. Your heirs can sell it for $500,000 and owe no tax on the $450,000 gain. As long as your total estate doesn’t exceed the exemption limits, there’s no estate tax, either.

Now watch. Under the 2009 rules, estates of up to $3.5 million ($7 million for a married couple) would be exempt from federal estate tax. The tax rate on assets above that level would be 45 percent. Inheritors would be able to step up the basis of $3.5 million (or $7 million) of inherited assets to their value the day they inherit them. Fast-forward to 2010, when the estate tax is repealed. Yes, the estate tax would be gone. But heirs would be able to step up only $1.3 million in assets to their value on the day of death. (Don’t ask why; that’s just how it is.)

Assets beyond $1.3 million would be valued for tax purposes at carry-over basis — their cost (for income-tax purposes) for the person who died. So any estate with $1.3 million to $3.5 million in assets ($2.6 million to $7 million for a married couple) is worse off under full repeal in 2010 than it would be in 2009. Inheritors in the $1.3 million-to-$3.5 million range would face higher taxes if they sold inherited assets than they would under the 2009 rules. At the very least, they would have complicated paperwork to deal with. They’d be much better off inheriting in 2009 than in 2010. But if you’re dealing with an estate of $3.5 billion rather than $3.5 million, you’d be far better off inheriting in 2010.

How many folks will get the fuzzy end of this lollipop delivered to you by lobbyists paid largely by the mega-estate folks? Sloan says that a Joint Tax Committee study estimates that only 7500 people will have estates over $3.5 million in 2009, but 63,900 will have estates between $1.3 and $3.5 million.

Now, if we do nothing and we revert to the law before temporary estate tax repeal, the estate tax exemption will go back to $1 million in 2011 which will hurt a lot of small businesses and family farms. None of us should want that to happen.

But, as Sloan says, that doesn’t mean that we should make permanent the 2010 rules that will subject 63,900 estates to higher taxes while helping out only the 7500 people with mega-estates.

His recommendation?

It seems to me that adopting the 2009 rules, indexing the exemption for inflation and allowing stepped-up basis would get us back to the original intent of the estate tax. Taxing 7,500 estates a year doesn’t seem unfair. And it would generate significant revenue.

Makes sense to me.

In my most recent column, “Parking Madness,” I skewer the practice so prevalant in Virginia of surrounding every mall, shopping center, office park, church, government facility and even recreational amenity with vast, expansive parking lots. Suburbia has paved way too much of its surface area with impermeable, run off-creating asphalt, and it has destroyed any memorable sense of “place” by treating its buildings as islands in seas of gray pavement. Gone are the urban streetscapes, which utilize parking spaces to help define pedestrian-friendly places where people enjoy spending time.

There was one issue in that column, however, that I dealt with only in passing. In an auto-centric society, there aren’t enough curbside parking spaces to accommodate everyone with a car. Where do you put the extra parking spaces? How do you avoid ruining pedestrian-friendly streetscapes?

If you’re in a neighborhood defined by city blocks, put the parking behind the buildings. That’s the solution adopted by Richmond’s “Libbie and Grove” shopping area mentioned in the column, but a solution only imperfectly adopted. The parking lot behind the shops and Westhampton movie theater preserves the streetscape along Grove Ave., but abuts Libbie Ave. for a lengthy stretch, creating an eyesore for the shops on the other side of the street there.

The best execution of this idea that I’ve seen can be found in downtown Staunton, where the parking lot is consigned to the center of the block and intrudes only minimally on the streetscape. The photos at the top and bottom of this post, which I took last fall during a weekend visit to the Blackfriar’s theater, show the interior of a block in the heart of downtown. Placing parking in the middle of the block preserves the integrity of the streetscapes, creating the charming pedestrian ambience for which Staunton is reknowned. The interior parking lot serves a bed-and-breakfast hotel, the Dining Room (one of the greatest restaurants I’ve ever dined in… anywhere), stores, boutiques and professional offices. A similar parking-in-the-center-of-the-block configuration can be found at the Woodrow Wilson birthplace museum.

This configuration is possible, of course, only in urban areas organized in grid-street patterns. If anyone has seen it adapted successfully to the surburban pod pattern of development, I would love to hear about it.

Ever since the Department of Defense began privatizing its housing stock in 1996, members of the military dont all find themselves living in uniform, Army base-styled housing any more. The New York Times recently profiled a new military housing development, The Villages at Fort Belvoir, in Fairfax County. The first of the villages, Herriford Village with 171 houses and townhouses designed in a local Georgian Colonial style, was occupied last year:

It has a Main Street with shops and a clock tower, playgrounds, and village greens with open-air pavilions and centralized mailboxes where residents can socialize informally. There is not a tin hut or cinderblock house in sight.

A priority was designing a place that would foster a sense of community among the residents, deemed crucial for family morale when soldiers deploy overseas during wartime.

New Urbanists, who insist that the details of traditional design — porches and alleys and sidewalks — can help spin the supportive web of society, see a perfect client. “Military neighborhoods become ghost towns with heavy deployment,” said Joseph Scanga, a principal at Calthorpe Associates, which is working with the Army and the Navy. “They struggle more than average to build and maintain community.”

According to author William L. Hamilton, it is not clear yet whether The Villages at Fort Belvoir succeed in that mission. But it’s a social experiment worth watching.

(Hat tip to Larry Gross for forwarding this article.)

The Washington Times (‘Firm sues county over order to copy gay films’ Sat. June 10, 2006) reports an Arlington businessman is suing country officials who ‘ordered’ him to reproduce homosexual-themed videos.

Mr. Tim Bono has a core values web page for his business that states – “No content should embarass our empolyeses or tarnish our reputation. No pornography. No sexually explicit material. No content promoting violence or hate that runs counter to our Christian and ethical values. We will not debate the merits of your material if it crosses our line.” (www.bonofilm.com)

On April 13, 2006 the Arlington Human Rights Commission upheld a complaint and ordered Mr. Bono to duplicate the films at the Miss Vincent’s (the accuser) expense or pay for another company to provide the service. Miss Vincent said Mr. Bono’s father had previously copied the same videos without objection.

The Liberty Counsel pro-bono attorney said the county doesn’t have the authority to investigate claims about sexual orientation based on the Dillon Rule. The Commonwealth doesn’t recognize discrimination based on sexual orientation, so the County can’t either.

This will be interesting. Mr. Bono didn’t discriminate against Miss Vincent because he didn’t know her sexual orientation. How could he know? He didn’t discriminate even if he knew and cared about her sexual behavior preferences, because homosexuals are not a ‘protected class of persons’ in the Virginia code. Or maybe the Virginia legal language just addresses individual rights not being discriminated against on the basis of race, color, creed, national origin or gender. I don’t know the specifics.

I look forward to the Thought Police losing in court. Mr. Bono’s professional standards for his private business are straightforward. He shouldn’t be required to violate his ethical principles. Miss Vincent can have her films reproduced elsewhere in this free Country and Commonwealth. Mr. Bono should have a chat with his father about their standards.

What is the legal authority of Commissions in the Commonwealth to decide due process, find guilt and make punishments? Any word from our loyal lawyers?

The June 12, 2006, edition of Bacon’s Rebellion has been published. You can read the issue here. Here are today’s columns:

Parking Madness
Virginians spend multi-millions paving parking spaces. Most of the investment in asphalt sits idle. Worse, sprawling parking lots destroy any sense of community or place.
by James A. Bacon

Hunting Dogs and Disclosure Documents
The knowledge economy could give Jeff Foxworthy a lot of new material.
by Doug Koelemay

The Politics of Seeming to Care
American politicians pander to the populace, telling them what they want to hear, not what they need to hear. In this year’s transportation debt, Virginia’s lawmakers are no exception.
by Patrick McSweeney

Let’s Have a Televised Debate
We can’t trust the media to fairly characterize the transportation debate. The best alternative may be a three-way debate between the major contenders.
by Patrick McSweeney

Creativity Behind the Scenes
Despite budget disagreements that grab the headlines, Virginia lawmakers are coming to quiet agreement on several ways to make government work more productively.
by Michael W. Thompson

“June Will Come Soon”
June is a time to celebrate life, youth and rites of passage — and a time to count our blessings as free men.
by James Atticus Bowden

Nice & Curious Questions
Grave Matters: Cemeteries in Virginia
by Edwin S. Clay III and Patricia Bangs

Blogology
Teen Spirit: Kenton Ngo
by Conaway Haskins

The Bad News:

On Friday we received word from Susan Kane that the highly regarded and independent thinking urban planner Patrick Kane suffered a fall resulting in significant injuries a few days ago.

Patrick has been fighting back from a serious stroke for several years. He has been working to bring his considerable insight on human settlement pattern issues into play, especially with respect to his beloved Lake Anne Village Core / Plaza in Reston.

We wish Patrick speedy and full recovery.

The Good News:

Patrick will be amused to see today’s The Washington Post front page of METRO story “With an Eye Toward Development: As Land Use Professionals Offer Guidance, Expertise and Admiration, Designing High Schoolers Compose Plans for Fictional Blighted Area. The professional planners that worked with Robinson Highschool were from the METRO West team. (See METRO WEST, 22 YEARS TOO LATE” post on 28 March 2006 on this Blog.) The story talks about upsetting neighbors and meeting “the cities demands for affordable housing.”

Patrick pioneered working with elementary, middle school and high school students on settlement pattern issues for decades in addition to teaching graduate planning courses. One of his popular programs was “Boom Town” about planing and replanning a Planned New Community like Reston.

Patrick worked with students from pre school through high school. As I recall he believed that fourth graders are best to understand settlement pattern issue. This is before they are swamped by adult advertising and preconceived notions / conventional wisdom.

My father’s favorite cartoon (along with “The Katsanjamer Kids”) was “Born 20 Years Too Soon / Born 20 Years Too Late.” With the rate of useful change slowing over the last few decades, perhaps it should now be “Born 40 Years Too Soon.”

EMR

It looks like General Assembly budget negotiators made some progress yesterday on the budget. Hugh Lessig with the Daily Press reports that the Senate and House of Delegates conferees agreed upon a capital spending list of roughly $1 billion, mostly for new buildings and renovations. Lawmakers expressed optimisim that they would complete their budget work in several days.

Negotiators are still maneuvering, however, in anticipation of a follow-up session of the General Assembly to address transportation financing. As Lessig explains:

The Senate has set aside $339 million in a contingency fund to be spent on transportation – but only if the General Assembly were to adopt a separate statewide transportation plan that has an adequate and reliable source of cash.

House members have said that $339 million isn’t nearly enough. The Senate has refused to budge, saying the real debate on transportation will take place after lawmakers pass a budget. The tentative plan is to continue to stay in session and debate long-term financing solutions for highways and other transit needs.

I deduce from Lessig’s account, and the parallel articles in the Virginian-Pilot and Free Lance-Star, that this issue — how much General Fund money to funnel into transportation projects –is still on the table, although I find the accounts murky. If I understand the reports correctly, significant differences between the Senate and House still remain.

The outcome of the budget compromise will shape the battlefield, so to speak, for the special transportation session. If the final General Fund budget leans towards the Senate’s plan, the House will enter the transportation session hundreds of millions of dollars short of what it had wanted to put into transportation projects. That stark fact will pressure delegates into raising additional taxes to make up the difference…. which, of course, is the Senate’s intention.

It would be helpful if the Capitol Press Corps reporters would clear up this point. In any case, the logic of the situation will become immediately apparent as soon as the 2007-2008 budget is passed and discussion resumes on transportation.

The city of Charlottesville is wrestling with a basic question that will shape the city’s future for decades to come: How tall is too tall?

Developer Keith Woodard has submitted a proposal to build a nine-story building at First and Main, on the Downtown Mall. According to Dave McNair wtih The Hook, the tower would provide room for two or three stores on the ground level, office space, 70 to 80 living spaces in the upper floors and a parking deck that would move cars to street level by means of an automobile elevator rather than space-consuming ramps.

The proposal has many virtues: It would bring people downtown, creating 24/7 patronage for local establishments. It would accomodate 70 to 80 households that would have to find housing elsewhere, presumably in growth-shy Albemarle County. The building would utilize existing roads and utilities. And, presumably, residents living in proximity to downtown’s shops and offices would generate fewer, shorter automobile trips than they would if they lived in conventional subdivisions.

On the other hand, there is the problem of scale. The complex would dwarf the buildings around it. Charlottesville’s Downtown Mall works effectively as an organic whole. The intrusion of a massive building could ruin the chemistry that makes it so special.

There are strong pros and strong cons to the project. Any decision by local planners is bound to be controversial. But Charlottesville’s transition from big town to small city is continuing apace. The First & Main project is not an aberration. Comparably sized buildings are in the development pipeline.

(Image credit: A2RCI Architect Greg Brezinski, as reproduced in The Hook.)

Adopting a new aesthetic for public places, the city of Charlottesville has created “no mow” zones near creeks and streams in five city parks. In April, the city also organized volunteers to plant 250 trees in the no-mow zones. The new policy, city officials acknowledge, will result in a shaggier, more unkempt look along the streams. But it also will help keep the waters clean.

As reported by “The Hook“:

“It’s a relatively cost-effective way to deal with storm water run-off,” notes the city’s environmental administrator Crystal Riddervold, who explains that vegetation filters pollutants that otherwise might run into streams.

The practice may spread. City code requires residents to keep residential grass shorter than 18 inches. But there’s an exemption. You can petition the city to declare your yard a riparian zone. No one has pursued that option… yet. The way I figure it, all it will take is one lazy husband tired of mowing the lawn to petition the city successfully, and the idea will spread like wildfire.

State government won’t shut down even if lawmakers fail to pass a budget, senior lawmakers assured the public yesterday. As the Richmond Times-Dispatch quoted Senate Finance Chair John H. Chichester: “If necessary, we would have a continuing resolution of less than 30 days” to continue all government services.

That’s comforting. But it would be even more comforting for the Senate and House of Delegates to approve a budget before any extra-constitutional hijinks were necessary.

One of the quirky aspects of the Richmond New Urban Region is how little development has occurred east of the city’s downtown area in contrast to the massive, leapfrogging growth that has radiated in every other direction. The result is striking. If you drive out Route 5, which takes you to the James River plantations, you hit countryside right outside the city limits.

Eastern Henrico offers incredible proximity to downtown Richmond and the regional airport, yet it has remained utterly uninteresting to developers — until the past couple of years. The first major project in this area, Rockett’s Landing, is redeveloping a rusted-out industrial district east of Shockoe Bottom. Rockett’s is planned as a mixed use, pedestrian-friendly, densely developed project along the James River — extending the urban fabric of downtown/Shockoe Bottom into Henrico County.

Now comes the news that developers, backed by former state Sen. Elmon T. Gray, wants to develop the 500-acre Tree Hill Farm off Route 5. I can’t tell from the Richmond Times-Dispatch article if the project would border Rockett’s Landing, but, even if not, it will be very, very close. Tree Hill Farm, which offers a spectacular vista of the city skyline, would represent a near-uninterrupted extension of Richmond’s urban fabric. This is efficient growth.

Even more encouraging is the involvement of Daniel K. Slone, a local McGuire Woods attorney with a national practice in New Urbanism-style development. Dan is a friend of mine, and I know him to be a passionate and articulate advocate of the right kind of development. Meanwhile, the developers are negotiating for the services of the Duany-Plater Zyberk architectural firm, one of the leading practitioners of New Urbanism in the country. It goes without saying that plans call for mixed-use development emphasizing pedestrian-friendly, traditional neighborhood design.

The Tree Hill project shows every sign of being the right kind of development at the right place. I couldn’t be more delighted by this news. It’s this kind of project — mixed use, pedestrian friendly development along the beautiful James River — that will make my home town an exciting, vibrant place to live in the years ahead.

Private industry is showing interest in financing and building a new U.S. 460, Peter Bacque with the Richmond Times-Dispatch is reporting. Tidewater Skanska, a subsidiary of Swedish construction giant Skanska AB, has committed to making a proposal to improve the 55-mile highway between U.S. 58 in Suffolk and Interstate 295 near Petersburg. The Virginia Department of Transportation, which is orchestrating the project, is hoping for at least two competing proposals.

With no public money available, improvements would have to be financed through tolls. The problem is that the market seems unlikely to support the $9.70 per vehicle it would cost to travel the full length of the road. Needless to say, residents of hamlets like Zuni and Wakefield who use 460 as a local thoroughfare will be none too happy with paying tolls every time they pull onto the road.

To offset sky-high tolls, Bacque says, VDOT is encouraging innovative financing schemes such as supporting “economic development opportunities.”

Bacque did not enumerate those opportunities in his article, but they could well be tied to major port expansions slated for Hampton Roads. Moffat & Nichol, an engineering consulting firm, prepared a study for the Virginia Port Authority last year advocating development of a major intermodal park off U.S. 460 as a way to handle an anticipated 900,000 additional containers annually expected to move through the ports. Those containers would require between 20 million and 60 million square feet of additional distribution space, employ 9,000 people directly and generate $788 million in wages from direct and indirect jobs.

I’m normally a big fan of toll-driven projects on the principle that users should pay for transportation improvements. And I’m all in favor of a project that would enable the expansion of Virginia’s ports and improve employment prospects for the rural Southside counties along U.S. 460. But I’m also wary of the potential for an upgraded U.S. 460 to act as a wick for the expansion of more hop-scotch, disconnected, low-density development out of Hampton Roads — a pattern of development that would negate many of the benefits of the economic development.

If the Kaine administration wants to align transportation and land use planning, a good place to start would be with projects, like this one, that emanate from the administration itself. Any evaluation of the competing proposals needs to consider the impact not just on traffic counts and toll financing but local human settlement patterns.

Virginia’s primo, AAA bond rating is not imperiled by the budget impasse, Gov. Timothy M. Kaine and senior Virginia legislators said yesterday after spending a day in New York getting grilled by the major bond-rating agencies. “We told them we were all very optimistic that we’re going to have a budget,” Kaine declared upon his return to Richmond. “But they told us they’d be watching.”

Robert A. Kurtter, senior vice president for state ratings at Moody’s Investors Service, said his firm will “evaluate the circumstances as they evolve.” He was not overly concerned that Virginia is nearly three months late completing a budget, report Michael Hardy and Jeff Schapiro with the Richmond Times-Dispatch, because there is still time to resolve the issues. Said the T-D:

Should Virginia be forced to operate without a budget, Moody’s would closely monitor the state’s contingency plan and determine whether it ultimately fashions a fiscally responsible solution, said Kurtter.

Twenty-two days left in the fiscal year… and counting…

(I am posting this on the behalf of Mark Rush, head of the department of politics at Washington & Lee University. — Jim Bacon)

Phillip Rodokanakis’s column, “Political Landscaping” (May 30, 2006), raises some important issues about the political parties’ rights of association. More important, it raises an esoteric issue: Who, exactly, is the Republican (or Democratic) Party—the voters, the elected officials or the party organization?

While the GOP has gone to court to challenge § 24.2-509 (which gives incumbents the right to choose their method of renomination) of the state code, I wonder whether we really want the courts to step in to this mess. Essentially, this is not a legal conflict. It is a family feud between the elected officials (who would be nuts to give up the right to choose their method of renomination) and the party officials (who are the principal victims of the code). By rights, the courts might just tell the political parties to get their houses in order.

Rodokanakis cites the U.S. Supreme Court decision (California Democratic Party v. Jones) as proof that the Supremes still support the associational rights of political parties. Problem is, the political parties went to court to prevent an initiative from compromising their associational rights. In Virginia, the law in question is part of the state code—put into effect by Democratic and Republican legislators.

I generally prefer the notion of strong party organizations. But, do we really want the courts to declare that elected legislators have no say in running the parties? Americans have never really promoted the notion of a strong party organization. Voters split tickets. They seldom become dues-paying, card-carrying, placard-waving party members. They like the idea of the primary election. I don’t see this lawsuit capturing the imagination of the public

Also, for what it’s worth, we can’t rely on the US Supreme Court for much in the way of support for the strong party notion. If we look at the court’s campaign finance decisions, we’ll see very little respect for the parties.

Does any one know the genesis of this part of the state law? When did incumbents gain the right to choose the manner of renomination? The law is clearly an attack on parties, party bosses, smoke-filled rooms, etc. But, it essentially turns candidates (and those seeking nominations) into independent contractors.

You can argue state constitutional theory all day long regarding the right of Gov. Timothy M. Kaine to run the government July 1 in the absence of a budget approved by the General Assembly. But 99.9 percent of the electorate is less interested in legalisms than in whether maximum security prisons are staffed with guards, whether the state police are patrolling the highways, whether DMV offices stay open, whether mental institutions remain staffed and the like. In the court of popular opinion, Tim Kaine is not likely to encounter much resistance if he usurps power to keep basic services functioning.

As the Washington Post quotes the Governor this morning:

“I am not going to let Virginians suffer because of inaction,” Kaine said at a news conference. “The Constitution doesn’t contemplate legislative inaction draining all the blood out of the executive and judicial branches.”

We’re already hearing the meme repeated that Republicans have proven they can’t govern. That’s a simplistic statement: The problem isn’t “Republicans” per se, but a deep philosophical division between Republicans in the Senate and Republicans the House of Delegates — a division as profound as that between Republicans and Democrats. But no matter. If essential government services get shut down, few members of the public will make that distinction.

If General Assembly Republicans want to ensure an electoral shellacking next year, they need do no more than refuse to agree to a budget, plunge the state into crisis — a crisis that will, assuredly, generate national attention — and let Democratic Governor Tim Kaine become the savior of sanity.

Twenty-three days left in the fiscal year… and counting…