Bacon's Rebellion

  • Conservative vs. Progressive: Global Climate Change

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    James A. Bacon

    climate_changeKiller Bs. In an unprecedented move, two prominent Virginia blogs, Bacon’s Rebellion and BlueVirginia, have agreed to cooperate in a structured debate over a series of possible programs designed to combat global climate change. The programs were selected based on two major criteria – they had to be applicable to Virginia and they had to encompass actions that could conceivably start in 2014.  The blogmasters from both blogs have agreed to post the articles verbatim on their blogs. This introductory article is designed to explain the “rules of the road”.

    Picking sides.  A few regular contributors from both blogs have been divided up into “conservative” and “progressive” teams.  The division into teams was based on political outlook not “home blog”.  Here are the teams:

    Conservative – Jim Bacon (BaconsRebellion) and Don Rippert (Bacon’s Rebellion)

    Progressive – Lowell Feld (Blue Virginia), kindler (Blue Virginia) and Peter Galuszka (Bacon’s Rebellion)

    No hitting below the belt. In order to foster a constructive debate all participants have stipulated certain things.  They are:

    • The Earth is warming.  All participants accept the consensus of leading scientists that the Earth is warming.
    • Humans cause a substantial amount of the warming. While there may be disagreement on the relative role of humanity in causing global warming there is agreement that humans are a cause of global warming.
    • The speed with which the Earth will warm is not known with precision.
    • The impact of the warming Earth on human civilization is not known with precision.

    Marquess of Queensberry.  The rules are simple.  A series of policies that may, or may not, be effective in combating global climate change have been selected.  Each potential policy is applicable to Virginia. Each policy could conceivably be part of a law enacted by the General Assembly of Virginia in the upcoming 2014 session.  A blog article will be written for each possible policy.  The blog article will have the following three sections:

    • Factual description.  A neutral party has written a description of the potential policy with relevant facts.  Both the conservative team and the progressive team have reviewed and accepted the factual description of the possible policy.
    • Conservative viewpoint(s).  A conservative perspective on the policy written by one or more authors from the conservative team.
    • Progressive viewpoint(s).  A progressive perspective on the policy written by one or more of the authors from the progressive team.

    Just some facts, ma’am.  All authors have been encouraged to document their assumed costs and benefits of the potential policy in as quantitative terms as possible.  However, it must be recognized that a strict quantitative cost or benefit may not be possible in all circumstances.

    Let the games begin.  The first potential policy initiative is … Virginia should adopt a strong (mandatory) Renewal Portfolio Standards as opposed to the weak (voluntary) Renewal Portfolio Standards currently in place.

    See you at the next blog posting for the first policy debate!

    -D.J. Rippert
    Bacon’s Rebellion      

  • New Names for the Redskins

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    James A. Bacon

    Hey, how bogus, this dude's skin isn't even red!
    How bogus, this dude’s skin isn’t even red!

    OK, this Washington Redskins controversy is getting out of hand. If people don’t like the name, let’s change it!

    My two nominations:

    The Rednecks
    Major advantage: With a little white-out, you wouldn’t even have to change the team stationery.

    The Palefaces
    Major advantage: The Palefaces didn’t win all the battles but they won all the wars. Isn’t that what you want for your football team?

    — JAB

  • No Brainer Ethics Reform

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    James A. Bacon

    And goodness and light shall shine throughout the land.
    And goodness and light shall shine throughout the land.

    It’s nice to see that Republicans and Democrats in the General Assembly can agree on something. House Republican Majority Leader Kirk Cox, R-Colonial Heights, and House Democratic Minority Leader David Toscano, D-Charlottesville, unveiled the outlines of their ethics reform plan in an op-ed published in the Times-Dispatch this morning. They will unveil details in a press conference later today. Key elements include:

    • A $250 cap on the value of gifts to elected officials.
    • Establishment of a State Ethics Advisory Commission.
    • Twice-annual financial disclosure.
    • Clarification of terms and greater specificity in disclosure.
    • Mandatory ethics training for elected officials.

    These measures amount to “no brainer” ethics reform that no one could disagree with. With the support of senior leaders of both parties, these measures assuredly will sail through the House. I find it unimaginable that the Senate will find anything to object to.

    The interesting question is what changes will be enacted in addition to these. For example, Sen. Chap Petersen, D-Fairfax, has submitted bills calling for the elimination of the General Assembly’s exemptions from the Freedom of Information Act, capping “super-sized” campaign contributions to $20,000 per donor per candidate, and removing incentives for private law firms to over-bill the state when representing the state in a public matter. Those will prove more controversial — fodder for the punditocracy.

    — JAB

  • Where the Poor Are

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    Peter Galuszka

    ram wise countyBy Peter Galuszka

    With expanding Medicaid about to become a major issue with the incoming Terry McAuliffe administration, it is curious to see exactly where the poor people in Virginia live. An intriguing New York Times interactive graph provides clues and allows one to draw some rather disturbing conclusions.

    The single worst pocket of poverty of 76.7% appears to be in an inner city part of Hampton. Trailing not far behind are inner city parts of Norfolk (67.8%) and Portsmouth (64.9%).

    Much-touted RVA is a hotbed for low-income people as defined by individuals making less than $11,945 a year or a family of four making $23,283 a year. Despite all the hoopla you read about Richmond becoming an artsy draw for white, educated millennials, the capital, at least its downtown and east end, is as poor as church mice.

    An east end section near Fairfield Avenue is 67.% poor. Manchester south of downtown has rates of 35% and farther south it is 50.7%.

    Zip over the mostly white Short Pump area where the fancy stores are in Henrico and poverty is about 2 percent. I tried to look up where Jim Bacon lives but the chart said it was a “low population area” and rates weren’t available. My area in southwestern Chesterfield is about 3 percent.

    A cursory scan around the state did not show any poverty rates anywhere close to those of the inner cities of Tidewater or Richmond –certainly not in Northern Virginia although Winchester seemed a little sketchy.

    In more rural areas, Halifax County in the dying tobacco and textile belt was high but the surrounding area was low. An area near Lynchburg showed 50 percent levels.

    Another curiosity was that once you get to the Southwest, you can see the black hand of coal. The Virginia coalfields are generally just west of U.S. 19. Giles County to the east of it has poverty rates of about 13 %. But cross to the western counties and watch it double (Buchanan 23%; Dickenson, 21.3% and Wise, 25.6%).

    What do these counties have in common? A dying coal industry and even dying is a misnomer. One would think that these areas would be swimming in money thanks to black diamonds. Anything but. They’ve been stripped and raped with the wealth flowing elsewhere. This is something to keep in mind when you hear about “The War on Coal.” Turns out the “War on People Living Near Coal Mines” has been going on since the late 19th century.

    The Times chart is a wonderful reality check. It should have huge applications as expanding Medicaid is considered. The lesson seems to be that extreme poverty is concentrated in neglected inner city neighborhoods and abused rural areas.

    If (God forbid!) poor people start flocking to emergency rooms once they get Medicaid, those emergency rooms are likely to be in large, downtown teaching hospitals like the Virginia Commonwealth University Health Systems and Sentara Norfolk General Hospital. They won’t be in rich, white suburban areas for the simple reason that public transit is lacking. In rural areas, the poor may well have to find rides to take them dozens of miles to find care.

    (Hat tip to Scott Elmquist) 

  • Medicaid Expansion and the Trust Issue

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    James A. Bacon

    Ye olde bait and switch.
    Ye olde bait and switch

    by James A. Bacon

    Do you trust the federal government to make good on its promises to uphold entitlement spending? Or do you fear that, as the federal funding crisis intensifies, the feds will renege? That is the question at the heart of the debate over Medicaid expansion in Virginia.

    Bart Hinkle, a columnist for the Times-Dispatch, invites readers to consider the fate of the American Indians who put their faith in federal promises. Years ago the Bureau of Indian Affairs and the Indian Health Service contracted to provide medical services to reservations across the country, only to break their commitment. Health care services have been disrupted as a result. The tribes sued for breach of contract, the U.S. Supreme Court backed them up a year ago and, yet, the Obama administration has yet to redress the breach. It appears there is not enough money to go around. Hinkle extrapolates to the Medicaid debate:

    Current estimates say the federal government’s share of the tab for Medicaid expansion from 2014 through 2022 will come to $931 billion. If the cost is lowballed to even a small degree, then the feds will see more than $1 trillion in new expenses over the next decade.

    By contrast, the federal government owes Indian tribes a comparatively paltry $2 billion or so. And that obligation is not merely statutory, but contractual. Yet even after Supreme Court intervention, Washington refuses to cough up the dough. …

    If the federal government can ignore its contractual obligations, its own statutes and its own Supreme Court, then it certainly can ignore its own funding formulas, too. This doesn’t necessarily clinch the case against Medicaid expansion; it’s just one point among many. But it does suggest those hawking the promise of free federal money epitomize Samuel Johnson’s definition of second marriages: “the triumph of hope over experience.”

    One day, historians will look back upon this time and be amazed and appalled that Americans decided to expand Medicaid entitlements while ignoring the eroding foundations of Medicare and Social Security.

    The Disability Insurance (DI) trust fund within the Social Security program will run out of money in 2016 — two years from now! — meaning either that benefits for millions of disabled Americans will be cut by 20% or that money will have to be taken from some other source, most likely from the Old Age Survivors Insurance (OASI) fund.

    OASI is scheduled to run out in 2035. If Congress resorts to the craven and cowardly expedient of kicking the can down the road by tapping OASI to prop up disability payments, then both programs will run out of money by 2033.

    Meanwhile, Medicare’s Hospital Insurance (HI) reserve is scheduled to run dry by 2026. That represents an improvement from last year when the Social Security and Medicare trustees projected that it would run out in 2024 based on the conviction that cost-control measures embedded in the Affordable Care Act would stretch the Medicare trust fund a bit further. You can choose to believe that logic if you wish, even though Medicare’s own chief actuary took the extraordinary step of publicly disagreeing. But even under the more optimistic premise, a Medicare financing crisis is only twelve years away.

    So, imagine it’s a decade from now: 2024. The Medicare trust fund is either evaporating or two years from doing so, portending a massive financing crisis for America’s second-largest entitlement program. Panic! The impending Social Security funding crisis is now only nine years away, too close to ignore. Blind panic! Another $6.3 trillion in budget deficits (CBO forecast) has brought the national debt to more than $23 trillion. Interest payments on the debt now amount to $900 billion a year, meaning that a huge chunk of the federal government’s cost structure is not subject to budget cutting. Outright hysteria!

    Against that backdrop, federal Medicaid expenditures will have soared from $298 billion in FY 2014 to about $580 billion in FY 2024. Can anyone assert with a straight face that a future Congress might not try to spread the pain by insisting that the states pay a greater share for the expanded Medicaid program? It would take a blind faith in the goodness of the federal government to deny such a possibility. I have no such faith. Expanding Virginia’s Medicaid program will make the Commonwealth vulnerable to a bait-and-switch a decade from now. Restructuring Virginia’s health care system around a bigger Medicaid program invites the same fate as the Indian reservations. No thanks.

  • No Medicaid Expansion without Reform

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    James A. Bacon

    medicaid
    Virginia’s Medicaid program, though one of the most frugal in the country, still has waste and inefficiency.

    John M. O’Bannon III, R-Henrico, is a neurologist, and his medical practice provides care to indigent patients with little hope of paying their bills, but he is also a Republican delegate to the General Assembly. When he contemplates an expansion of Medicaid, a top priority of incoming Governor Terry McAuliffe, he is very concerned about the fiscal impact on Virginia.

    “Medicaid is the fastest growing part of the state budget,” O’Bannon told Bacon’s Rebellion. The program, which is roughly half funded by the federal government and half by the state, gobbles up 40% of all new dollars in the General Fund budget submitted by outgoing Governor Bob McDonnell. “It’s crowding out education and public safety. We have a trajectory that’s unsustainable.”

    O’Bannon is not dogmatically opposed to expanding Medicaid, as allowed for under the Affordable Care Act (Obamacare). But he belongs to the camp that says Medicaid must be reformed to bring down its cost structure before the state takes on the commitment in four years of covering 10% of the expense of extending the program to another 250,000 to 400,000 poor and near-poor Virginians.

    If there’s a major point that has been lost in the debate over Virginia Medicaid expansion, it’s the linkage of Medicaid expansion to reform. The question is not, “Do we expand Medicaid, yes or no?” The question is, “Does Virginia use this once-in-a-generation opportunity to extract major concessions from the federal government in how Medicaid is administered before agreeing to expand the program?”

    The Centers for Medicare & Medicaid Services (CMS) are negotiating with the states over how to implement the expansion, in some cases granting waivers for major reforms, says O’Bannon. Oregon is moving to a public health model, installing a totally new primary care system to take patients out of expensive emergency-room settings. Michigan is adopting a system that encourages Medicaid patients to take on more personal responsibility by making co-payments and getting more screenings. Arkansas is restructuring Medicaid to put more chronically ill patients on the program while subsidizing a shift of healthy poor patients to the health care exchanges. It’s classic laboratory-of-Democracy stuff, said O’Bannon, and Virginia can learn from the successes and failures in other states.

    Meanwhile, Virginia has its own reforms that it wants to implement. One would be to change incentives to enroll so-called dual patients (who qualify for both Medicare and Medicaid) in managed care programs. Another would incentivize the use of nurse practitioners to head off infections that send nursing-home patients to the hospital. Others have criticized the Medicaid reimbursement of patient transportation costs on the grounds that the money could be spent more effectively in other ways.

    There may be a lot of sound and fury in the General Assembly session as McAuliffe and like-minded legislators push for expansion, but O’Bannon doesn’t expect anything to come of it. Virginia is locked into a path that will be very difficult to dislodge it from. The decision whether or not to expand Medicaid currently rests with the Medicaid Innovation and Reform Commission (MIRC). Only if three out of five House and three out of five Senate members agree that Virginia’s demands for reform have been met can MIRC authorize the reforms and expansion. As currently constituted, three of the five Senate members and four of the five House members (including O’Bannon) are Republican.

    Discussions with various interested parties are ongoing, and he’s open to talking to the other side, O’Bannon said. But he added: “Unless you can show us that this really will be a more efficient system and there won’t be a large outlying [fiscal] risk, you aren’t likely to see anything any time soon.”

    In theory, the General Assembly can enact legislation to overturn the provisions of MIRC, but O’Bannon doesn’t see the Republican-dominated legislature doing that. There also has been discussion of winning over Republicans by packaging Medicaid expansion with elimination of the business-license tax, but he believes that any “grand bargain” would have too many moving parts to work out.

    Medicaid expansion is the one opportunity that Virginia foes of Obamacare get to weigh in. “It’s a proxy for how people feel about Obamacare,” O’Bannon says, and he doesn’t see many Republicans capitulating. But he’s a pragmatist. Medicaid expansion would pump a lot of federal money into Virginia’s health care system and provide coverage for people who don’t now have it. If the state and the feds can come to terms over serious reform, he’ll vote for expansion. Absent reform, he’s opposed. “I’m not interested in just grabbing the money and running.”

  • New Concerns about Medicaid Expansion

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    James A. Bacon

    You thought emergency rooms were crowded? Just wait.
    You thought emergency rooms were crowded? Just wait.

    The debate over Medicaid expansion in Virginia just got more complicated… again. A new study found that 10,000 new low-income Medicaid recipients in Oregon visited emergency rooms 40% more often than those without insurance, reports the Wall Street Journal. The finding undercuts claims that expanding the program would save money as low-income patients utilized primary care doctors instead of expensive ER services.

    The new Medicaid recipients used ERs more often for all kinds of health issues, including problems that could have been treated in doctors’ offices during business hours, the WSJ writes. Using $435 as the average cost of an ER visit, researchers calculated that Medicaid increased annual ER spending by $120 per covered person.

    Oregon extended the Medicaid program to 10,000 residents selected by lottery in 2008, providing, in effect, a controlled experiment showing the effects of Medicaid coverage. A separate study found that while new Medicaid patients spent less money out-of-pocket for care and reported improved health, they showed no improvement in such measures as blood pressure, blood sugar or cholesterol levels.

    “It may be that some people did substitute the physician’s office for the ER, but there wasn’t enough of that to offset the increase in ER use,” said Katherine Baicker, an economist at the Harvard School of Public Health, a … principal investigator of the project. She said the data from all their research to date suggest that extending Medicaid to the uninsured increases health-care costs between 25% and 35% per person.

    One still can argue that expanding Medicaid in Virginia  is fiscally prudent, even if total health care spending goes up, because the federal government will pay 100% of the added expense for four years and 90% after that. But it will be impossible to maintain, as some did, that overall costs will go down.

    It was unclear from the WSJ reporting of the study what impact a statewide expansion of Medicaid in Virginia might have on the state’s health care system. However, based on the Oregon experience, it seems reasonable to conclude that adding an estimated 200,000 patients to Medicaid in Virginia would create a surge in demand for hospital ER services. On the positive side, hospitals would get reimbursed for those services; typically, they write off much of the cost of care for the near-poor targeted by Medicaid expansion. On the downside, ERs could become overloaded and the quality of service could deteriorate for all ER patients.

    — JAB

  • Are the Millennials Really Different?

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    James A. Bacon

    Millennials: the smart phone generation
    Millennials: the smart phone generation

    by James A. Bacon

    One of the key questions in forecasting future trends in urban development is a demographic one: How different are the Millennials from previous generations? Sure, young people are flocking to urban centers, they’re driving less and they’re riding their bicycles more than Boomers and Generation Xers did at the same age. Here’s the million-dollar question: What will happen when they settle down, get married and have kids? Will they pack up and move to the burbs like previous generations?

    In the “smart growth” view, Millennials are a different breed. While Boomers equated the automobile with freedom and mobility, Millennials are defined by the smart phone. The Millennial migration to urban centers, the preference for mixed-use development and mass transit, and the decline in Vehicle Miles Traveled (VMT) are structural shifts embedded in the generational zeitgeist that must be recognized in our long-term planning for zoning and transportation. Skeptics view the downturn in VMT as a short-term blip caused by the large size of the Millennial generation and economic hardship associated with the Great Recession and slow economic recovery. As Millennials age and the economy recovers, the skeptics say, America will return to the pattern of low-density, auto-centric growth and development that prevailed in the post-World War II era.

    Against the backdrop of that debate, it is informative to read an op-ed written by my old boss, John W. Martin, president of the Southeastern Institute of Research, home of the Boomer Project. John comes to conclusions similar to those in the Smart Growth camp, but he reaches them by very different means — from marketing surveys used to tease out differences between the generations. 

    Martin predicts continued urban revival. He writes:

    The real story is what’s happening with the rebirth of the urban core and other high-density activity centers. Millennials and boomers are moving in, but with different motivations. Millennials, wired with a collective sense of self and a drive to change the world, crave the social connectedness and sustainable lifestyles that come with the high density of urban areas. … A greater number of people in more condensed spaces will help build a greater sense of community.

    Defined by the smart phone revolution, Millennials are wired differently from Boomers and Gen-Xers, Martin says.

    A more recent sign pointing to a greater sense of community is the emergence of the sharing economy. Ushered in by social media, millennials’ hyper-connected shared sense of self, and economic necessity, the sharing economy is about sharing, not owning. Some examples: bike sharing, car sharing and house sharing. There’s even sugar sharing (www.sharesomesugar.com), which helps you find someone in your neighborhood who is willing to share something you need. Sharing is the DNA of community and more sharing is in everyone’s future.

    Rather than retreating to the privacy of their cul-de-sac homes and turning their backs on public life, Millennials are doing the opposite:

    Community-building (diversity, inclusiveness, tolerance and purposefulness) and place-making activities (public spaces, festivals, public art, transportation options, a unified brand, etc.) are fueling community pride. We see this in our research studies among young millennials in cities like Austin, Denver, Atlanta and Richmond. Most report that their cities are uniquely authentic. Moreover, they don’t want to live any place else … they want to be part of their community.

    Assuredly, as the Millennials age and settle down, some will move back to the burbs. But the generational migration will be far less pronounced than in the past. The shift in preferences for urban life, with its richer array of transportation options, a deeper sharing economy and emphasis on community and place-making will drive American communities, including those in Virginia, to a more smart-growth future.

  • Maureen, Bob, Ken, Jonnie and the FDA

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    Peter Galuszka

    anatabloc By Peter Galuszka

    Here it is, the New Year, and we’re still facing news about Robert and Maureen McDonnell and Star Scientific  — last year’s biggest political story.

    The news is puzzling. It turns out that the dietary supplements Maureen McDonnell was pushing more than two years ago for Jonnie R. Williams Sr., former head of Star, need federal approval as a drug.

    The Food and Drug Administration decided a couple of weeks ago that Star was marketing Anatabloc, Star’s prime product, and another anti-smoking substance called CigRx, under questionable circumstances. “Your product Anatabloc is not generally recognized as safe and effective for the above referenced uses,” the FDA wrote. It is also a drug needs approval without which Anatabloc cannot be introduced into interstate commerce without prior FDA approval.

    In its Securities & Exchange Commission filings, Star says that its financial survival depends upon Anatabloc sales. It has been selling the product on the Web and through a chain of vitamin stores for more than two years. Star has 15 days in which to respond to the FDA.

    This is getting weird and weirder. One wonders why the FDA took so long since Anatabloc was launched for national sales in the summer of 2011 with Maureen McDonnell’s help. She held an Executive Mansion lunch for Williams, who resigned as head of Star just after Christmas. She also traveled to Florida and other locations to pump up Anatabloc.

    Another odd question is why Maureen, and by extension her governor husband, were so anxious to push a product that the FDA says is not recognized as safe. It may be a key part of ongoing federal and state corruption probes that may come to a conclusion in the next few weeks with indictments against the First Couple.

    Williams had given the McDonnell family more than $165,000  in gifts and loans. McDonnell has given most back and paid back the loans. Outgoing Atty. Gen. Kenneth Cuccinelli, already cleared of corruption, nonetheless got several free bottles of Anatabloc from Williams. One wonders why the scourge of Medicaid cheats somehow doesn’t know what FDA drug approval means.

    Williams, of course, has skirted the law in business many times. He’s paid fines for trading and was caught making misleading claims that the Johns Hopkins School of Medicine had given its imprimatur to Anatabloc. What had happened was that a medical researcher with ties to the school was on Star’s payroll and said it was OK.  That’s a bit of a difference.

    Anyway, we’ll have to see what the feds do. One also wonders what will happen to calls for tougher state ethics laws. U.S. Sen Tim Kaine, a Democrat, just issued another call for better laws, but it seems that many state legislators from either party aren’t too keen on doing much. They might require that gifts to public officials’ family members me reported by a badly-needed State Ethics Commission isn’t likely.

    So there you have it this bright New Year’s Day: more strange doings with Maureen, Bob and Jonnie and a political establishment that wants to forget about it all and keep the status quo.

  • Six Reasons to Feel Good about 2014

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    James A. Bacon

    2014 -- woo hoo!
    2014 — woo hoo!

    by James A. Bacon

    Despite awakening this morning with a hangover resulting from a fabulous New Year’s celebration last night, I was curiously and uncharacteristically upbeat about the year ahead. I still have grave reservations about the fiscal future of this country and I still believe Boomergeddon is in our future. But for some odd reason, I have been dwelling today upon the positive.

    Internet of Things. The next wave of technology innovation, the contours of which are just now coming into view, will be as breathtaking and transformative as the World Wide Web and the wireless revolution and, in fact, represents the extension of those technologies into new domains. It goes by many names but the one that seems to be catching on is the Internet of Things (IoT). Prices are plummeting for sensors, wireless connectivity, data storage and data processing power, with the result that virtually all man-made things will be capable of being connected over the Internet, will be capable of sensing their environment and communicating with other things, and will generate massive amounts of data that can be mined for tremendous gains in productivity and energy efficiency. In so doing, the IoT will spawn a new array of cool products and services. As a bonus, the new wave of innovation will not be as focused on Silicon Valley as previous technology revolutions. The innovation will be more dispersed geographically and the resulting wealth creation will be more broadly shared.

    Energy revolution. Say good-bye to Peak Oil, at least for two or three more decades. The fracking revolution has unleashed a bounty of fossil fuel production in the United States that seemed unimaginable only five or 10 years ago. Energy production is booming and the long-sought dream of North American energy independence is fast becoming a reality. The energy sector is spawning millions of jobs, directly in energy production and indirectly in industries that supply the trucks, the pumps, the pipe and, increasingly, the IT that supports energy production.

    Manufacturing revival. The Internet of Things, also known as the “industrial internet,” will inspire another wave of productivity-enhancing innovation in the manufacturing sector, while inexpensive natural gas and electricity will create a tremendous competitive advantage for energy-intensive, U.S.-based manufacturers. These tectonic shifts in competitive advantage are occurring at the very same time that rising labor costs overseas are undermining the logic for off-shoring manufacturing capacity. In fact, the “reshoring” movement is gaining momentum. The revival of energy production and manufacturing augurs well for the blue-collar workforce and creates the prospect of increasing jobs and rising wages for a segment of America that has been badly battered over the past 20 or 30 years.

    Illegal immigration. The effects of the energy revolution and reshoring movement will be felt even more dramatically in Mexico, which is undergoing the most profound economic liberalization in its history. The combination of a falling birthrate, shrinking labor surplus and unprecedented opportunity for Mexican workers will dry up the largest source of illegal immigration into the United States. Declining illegal immigration is good news for multiple reasons. First, it defuses a contentious social issue and it clears the way for immigration reform that will allow the admission of more legal immigrants, especially those with education and skills that will benefit the economy. Second, plugging the gusher of poor, ill-educated immigrants into the U.S. will mean less competition for low-paying jobs. Wages for unskilled and semi-skilled labor are far more likely to rise, creating better opportunity for the economically dispossessed.

    Global warming. How else can I say this? The Global Warming  hysterics have been proven wrong. While true believers still cling to their conviction that runaway human-caused global warming will propel temperatures ever higher and unleash wave upon wave of environmental calamity, it is becoming obvious to everybody else that the worst-case scenario is not happening and will not happen. While carbon dioxide emissions may push temperatures modestly higher than they otherwise would have been, global temperatures have been stable for a decade and a half, confounding computer-model predictions that positive feedbacks in the climate system would lead to out-of-control warming. The most heartening story of the past month has been that of the scientists studying Global Warming getting trapped by Antarctic ice that was supposed to be melting! To explain the non-warming, climatologists have speculated that aerosols from Chinese air pollution are reflecting sunlight and heat or that the heat is hidden undetected in the ocean depths. Either way, the theory must be revised, the science is not “settled” and it is becoming impossible to bamboozle the American people into panicking over impending environmental doom. If calamity is not lurking around the corner, there is no justification for re-engineering the U.S. economy according to the specifications of know-it-all progressives…. which is very good news for the U.S. economy.

    Teen pregnancies. There are positive social developments as well. Teen pregnancies, perhaps the primary cause of poverty in the United States, continue their dramatic decline. Teen girls are delaying sexual activity, and they are more likely to use birth control when they do have sex. Delaying motherhood increases the odds that young women will graduate from high school and find jobs that will lift them out of poverty. And it reduces the number of children growing up in households headed by baby mamas who are ill equipped to raise them. If the reservoir of U.S. poverty is not continually replenished through teen births and illegal immigration, eventually, it will become far less intractable. 

    I could go on. The genomic revolution portends great advances in health care. Medicine will be increasingly personalized, tailoring treatments to the patient’s genetic make-up. The urban revival is bringing vitality back to the urban core of American metropolitan regions. So many cool things are happening. Just speaking from my narrow personal experience here in the Richmond region, the City of Richmond has much more to offer than it did when I came here 25 years ago — it’s a great place to live. New technology, including online learning, offers the prospect of shaking up our moribund educational system. The coupling of digital technologies or “smart cities” with smart growth and the emerging discipline of fiscal analytics (see “Fiscal Analytics and the Next Municipal Revolution”) portends a golden age for local government.

    True, the federal government remains unreformed. The national debt has surpassed $17 trillion and interest payments on that debt will, at some point, become unbearable. The sequester has bought us time, but no one is talking seriously about entitlement reform. Indeed, Obamacare represents a spectacular step backwards — locking Americans into greater dependence for health care upon a fiscally irresponsible federal government that has no chance of keeping all of its promises. Meanwhile, unchastened by their failures, liberals and progressives remain as intent as ever to impose their fevered visions upon a reluctant nation. So, yes, there are many reasons to be pessimistic. But the United States is a great nation. There is much vitality within us. Many things are going our way. We will persevere.

  • A Stupid Tax Break Gets Even Stupider

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    James A. Bacon

    Peeling back the stinky onion of the tax code: Enough to make you cry.
    Peeling back the stinky onion of the tax code: Enough to make you cry.

    A portion of the federal commuter tax benefit will expire January 1, which upsets a number of people on the grounds that the change hoses transit riders and benefits drivers. As someone who qualifies for no benefit at all because I work at home, my reaction to the partial wind-down of this special-interest benefit is, “Stop your blubbering. Get over it.” But there are multiple layers of stupidity at work here, which goes a long way to explaining in microcosm why country is such a mess, so the story warrants some elaboration.

    The first layer of stupidity is the existence of a commuter tax benefit of any kind. With the federal government still running an annual budget deficit of “only” half a trillion dollars, Congress needs to stop handing out tax incentives like trick-or-treat candy. The tax break allows employees to devote up to $245 per month of their pre-tax income to commuting costs, including transit passes, van pool expenses and parking, and up to $20 per month for bicycles. The tax expenditure, by my back-of-the-envelope calculation, could cost a couple billion dollars a year in tax revenue.

    Peeling back the onion of stupidity, another issue arises. If Congress’ intent is to help the working stiff by reducing the tax burden, there is an obvious alternative — lower overall tax rates. Why the compunction to subsidize commuting? The measure does not benefit all Americans, just those who rack up big commuting expenses. Conversely, it discriminates against workers who engage in the socially beneficial alternatives of walking to work or working at home. 

    Delving deeper into the stinky onion of tax policy, we encounter the matter that has inflamed the environmentalists.  A quirk in the latest iteration of the benefit, courtesy of that legislative train wreck known as the 2009 federal stimulus package, expires the tax benefit for transit riders at the end of every year. This year, it seems that Congress never got around to renewing the subsidy, so the benefit for transit rider drops to a mere $130 a month. Meanwhile, the tax break for parking inches up $5 to to $250 per month.

    Why should drivers get a $250 parking subsidy while transit riders eke by with a break only half as large? The discrepancy encourages people to drive to work rather than ride the bus or train, hardly the way to advance the goals of reducing congestion, gasoline consumption, pollution and CO2 emissions. I don’t always agree with the environmentalists, but this time they’ve got a point.

    The obvious solution is to eliminate the tax break entirely. Congress has no business privileging cars over buses, or vice versa. In one stroke, the nation could take a step toward both fiscal and environmental sustainability.

    — JAB

  • Expand Free Clinics, Not Medicaid

    Posted on

    by

    James A. Bacon

    Meadowview Health Clinic
    Meadowview Health Clinic

    by James A. Bacon

    So, what’s the alternative to expanding Virginia’s Medicaid program? Let an estimated 400,000 Virginians continue without health insurance? That option was workable in the past because the federal government gave financial aid to hospitals to help offset some of the cost of providing health care to indigent patients. But the Affordable Care Act (Obamacare) is cutting that aid on the grounds that, between Medicaid expansion and the new health exchanges, most people will have health insurance now. Thus, a decision by the General Assembly to reject Medicaid expansion would force Virginia hospitals either to stop treating uninsured patients or to eat tens of millions of dollars in unpaid bills (some $100 million just for the University of Virginia and Virginia Commonwealth University health centers) every year. 

    Del. Bob Marshall, R-Manassas, has proposed strengthening the non-governmental safety net instead. His idea is far from a complete solution — it can’t possibly make up the loss of hundreds of millions of dollars in federal Medicaid payments. But the proposal would put into place an important piece of a broader, market-based health system.

    Marshall’s alternative to expanding Medicaid is to expand the network of free health clinics across Virginia by encouraging physicians and nurses to donate more of their time. His House Bill 39, co-patroned by Del. Patrick Hope, D-Arlington, would exempt voluntary health providers from civil damages for any injury or death resulting from volunteer treatment (excepting in cases of gross negligence or willful misconduct), and would have the Attorney General’s office represent volunteers if such immunity were challenged.

    Marshall envisions churches, neighborhood groups and hospitals setting up neighborhood primary care centers staffed with volunteer labor. As it stands, Virginia already self-insures 3,400 physicians for care they provide in free clinics. No lawsuits are pending against free clinic care.

    One could argue that free clinics staffed by volunteer labor cannot possibly provide the scope of coverage of an expanded Medicaid program. But, as Marshall observed in a recent Times-Dispatch op-ed, Medicaid has significant problems of its own. Medicaid pays less than Medicare or private insurance, and there are concerns that many Medicaid patients will have difficulty finding a doctor. Indeed, the reimbursement for Medicaid services is so low and the paperwork cost of complying with the program is so high that some doctors may conclude that it’s preferable to treat the indigent in free clinics.

    Marshall’s idea would strengthen the primary care network for the indigent but it is not a comprehensive solution. There is no guarantee that doctors and nurses will volunteer in sufficient numbers to provide care to 400,000 patients — even assuming the free clinics had the capacity to handle such a number. And his bill would not cover the cost of providing tests, medication and procedures best performed in a surgical facility, much less a procedure requiring intensive care.

    HB 39 is best seen as a small part of a larger package of state- and federal-level, market-based reforms that decouple health insurance from employment, create price and quality transparency, spur innovative treatment models and promote hospital competition and productivity.

  • The McDonnell Track Record: Incremental Improvement

    Posted on

    by

    James A. Bacon

    So long, farewell, adios, au revoir, auf wiedersehen, shalom.
    So long, farewell, adios, au revoir, auf wiedersehen, shalom.

    by James A. Bacon

    Governor Bob McDonnell’s four-year term in office is drawing to a close. Sadly, it appears that the governor will be remembered mainly for his atrocious judgment in accepting more than $150,000 in gifts and loans from a Richmond businessman. While the Giftgate scandal deservedly dominated the headlines in his last year or more in office, it obscured the many accomplishments, mostly positive, of his administration.

    I’ll let others re-hash Giftgate, if they are so inclined. I’ll focus instead on McDonnell’s legislative and administrative track record. With one very big exception — restructuring taxes to raise more money for transportation and pushing mega-projects of dubious merit — he did well. Perhaps his most unsung achievement, despite his reputation as a cultural conservative, was governing as a pragmatist. While there was no ducking the culture wars entirely during his tenure, he downplayed them.

    McDonnell focused on pocketbook issues. He kept a tight lid on General Fund spending. He reduced unfunded liabilities $9 billion by restructuring state pensions from a defined-defined benefit program to a hybrid, defined-contribution program. He enacted sweeping reforms of the K-12 educational system. He did more to restore the civil rights of felons than any governor in state history, and his policies drove down the recidivism rate to the second lowest in the country. He invested heavily in environmental clean-up. Finally, he demanded significant reforms to the state Medicaid program before approving expansion of that program under the Affordable Care Act.

    For whatever reason, most of these accomplishments garnered little attention. Virginia’s truncated press corps and shrunken editorial hole simply doesn’t allow for the kind of journalistic coverage the issues warrant.

    I won’t dwell on the abominable transportation-funding package, which shredded any vestige of the user-pays principle in order to transfer wealth to drivers from non-drivers. And I’ll omit any commentary about the Charlottesville Bypass and the Bi-County Parkway, ill-conceived projects by any measure, and the U.S. 460 connector, a speculative economic development project coupled with Hampton Roads port expansion. Regular readers know that I am no fan of McDonnell’s transportation policy.

    Upon entering office in 2010, McDonnell inherited a horrendous budgetary dilemma from his predecessor Tim Kaine. Rather than increase taxes, as Kaine had proposed, McDonnell reined in spending and resorted to a series of budgetary gimmicks — short-changing VRS contributions, accelerating tax collections on retailers — that he has mostly wound down. Since then, he has done a reasonable job of allocating resources within tight General Fund budgetary constraints. He had critics on the left who charge that he has not spent enough on education, mental health, Medicaid expansion, whatever. But those voices will never be satisfied. For the most part, he stood on the side of the taxpayers.

    McDonnell has done a commendable job on the environmental front, investing $430 million in water-treatment and combined-sewer-overflow projects and reducing pollution runoff from agricultural and urban areas. Water quality in the Chesapeake Bay, still lamentably bad, turned the corner; oyster and blue crab populations rebounded. The Old Dominion posted a record number of clean air days in 2013. Under McDonnell, Virginia was the first state in the country to convert its vehicle fleet from gasoline to natural gas. And here’s a story you probably never heard: Virginia re-established its native elk herd population in Buchanan County; the goal is to reach 400 animals.

    The governor’s most unheralded reforms came in education. Virginia increased the percentage of educational money going into the classroom from 61% to 64% of budgeted resources. The state doubled the number of K-12 STEM academies, enacted scholarship tax credits to facilitate school choice for poor families, established a transparent A-F grading system for schools and set up a failing-school takeover program. McDonnell also effectively eliminated teacher tenure and streamlined the grievance procedure.

    The administration did a competent, if not inspired, job on the economic front. Despite sequestration and a slowdown of the federal-spending growth engine, Virginia added 193,000 net new jobs and unemployment fell 1.8 percentage points to 5.6% over his four years in office. Although McDonnell made job-creation a clear priority, he was satisfied to work largely within the antiquated institutional framework — agriculture, tourism, corporate recruitment, overseas trade missions — that has been in place for decades. He did push long-term reforms in workforce preparation, steering funding to programs in the Science, Technology, Engineering and Math (STEM) disciplines. And, using innovative public-private partnerships, he allocated billions of dollars to relieving transportation bottlenecks for Virginia’s ports in Hampton Roads. Less successfully, he tried to open up transportation access to the air cargo sector at Washington Dulles International Airport. McDonnell did very little to support smart growth; indeed, the administration back-pedaled on reforms implemented by the Kaine administration.

    All in all, McDonnell will be remembered for his tweaks to existing priorities and institutions. One big reform — setting up the Office of Transportation Public Private Partnerships — likely will lead to innovative financing arrangements for all manner of projects, from toll roads to air rights over rail lines and interstates, from privatizing operation of the state’s traffic management centers to leasing out public right-of-way to cell-phone towers. Otherwise, the record has been one of cautious, incremental reform. In the final analysis, McDonnell will leave the state somewhat better than he found it but he did little to increase its long-term competitiveness as a place to live and do business.

  • How the Scandal Started

    Posted on

    by

    James A. Bacon

    schneiderThere is a fascinating tidbit in the Washington Post article today about Todd Schneider, former executive chef at the Governor’s Mansion, that has gone largely unremarked upon. It may have been reported before, but I had not taken note of it, and I don’t believe anyone else has either. Before I explain, let me ask a question: How did the Giftgate controversy get started? Do you recall reading that anywhere?

    Here’s the story: Schneider ran a catering business on the side, but state rules prohibited payment to him for work he performed on big mansion events in his capacity as caterer. He was told to take food from the mansion as reimbursement. In February 2012, law enforcement agents showed up at his door. They were investigating a tip to a state fraud hotline that reported Schneider had been taking food from the mansion. Schneider has been told that the tip came from a former employee of his catering business.

    Think what that employee set into motion. Schneider came under investigation and then was fired. At some point, he began dishing dirt on the relationship between the McDonnells and Jonnie Williams. And the scandal mushroomed from there.

    Somewhere out there is an unknown catering employee who made that hot-line call, having absolutely no idea it would balloon into one of the biggest political scandals in Virginia history. I can’t help wonder who that person is and what he or she thinks his or her role in transforming the political culture of the Old Dominion.

    — JAB

  • Fiscal Analytics and the Next Municipal Revolution

    Posted on

    by

    James A. Bacon

    sharp_pencilby James A. Bacon

    It is the best of times for local government, it is the worst of times. It is the worst in the sense that local governments across America are experiencing unrelieved fiscal stress from pension obligations, mounting infrastructure backlogs and lagging revenues. Yet it is the best in the sense that rarely have local governments enjoyed so many opportunities to bolster productivity, lower costs and improve the quality of services. Indeed, American regions potentially stand on the brink of a golden age.

    Of all the new strategies available to municipalities, from applying online learning to deploying smart-city technologies, none hold as much potential as the emerging discipline of fiscal analytics. In an article published this month in The Western Planner journal, I endeavor to build upon the pioneering work of Joe Minicozzi, Peter Katz and Charles Marohn, all of whose work I have highlighted on this blog, to advance the cause. My major contribution to the discussion, I think, is to identify property tax valuations as the “bottom line” for fiscal analysis.

    Government investment in infrastructure and amenities creates tangible economic value that can be measured in the form of rising real estate property assessments. That’s common sense. What’s not so intuitive is the idea that not all government investment is created equal. Politicians blather about “investing” in education, infrastructure or various pet projects. But elected officials do so without the discipline of their private-sector counterparts who measure profit, calculate Return on Investment (ROI) and steer capital to investments offering the highest ROI.

    Building a highway interchange or mass-transit rail station, to pick but two incontestable examples, create economic value, as measured by the increase in property values around the public improvement. Conversely, some government investment destroys economic wealth. Charles Marohn with the Strong Towns group, makes the case that “stroads” – a multi-laned street-road hybrid designed to move large volumes of traffic – are expensive to build and maintain, drive away pedestrians and bicyclists and depress adjacent property values. It seems that people don’t like living or doing business on wide, unwalkable transportation arteries. Spending local money to undermine the tax base, he argues, amounts to fiscal hari kari.

    Clearly, government investments vary greatly in the degree to which they create wealth or destroy it. As a guiding principle, local governing bodies should strive to invest in infrastructure projects that create the most wealth over time. At present, however, few municipalities possess the analytical tools to make informed and rational investment decisions. Developing such tools, I submit, is the great challenge of municipal finance.

    I would start the conversation this way: Private enterprises have a very clear bottom line – profit, a concept that the accounting profession has honed over the centuries. Profit is meaningless to local governments, which are expected to do no more financially than balance their books. The closest thing to a municipal bottom line is the assessed value of real estate. Virtually everything that a local government does – building roads, designing streetscapes, running schools, grooming parks, patrolling streets, putting out fires, operating utilities – has a direct or indirect effect on the desirability of living and doing business in that community. The marketplace assigns higher property values to more desirable communities and lower property values to undesirable communities.

    Just as it would be unthinkable for a corporate CEO not to know how profitable his company is, and whether profits are growing or shrinking, it should be unthinkable for government leaders not to know the total assessed value of property within their jurisdictional borders, and whether it is growing or shrinking. Just as it would be a dereliction of duty for a CEO not to know the profitability of various divisions and subsidiaries, it should be deemed equally negligent for government leaders not to know the total assessed value of the different districts and neighborhoods of their county, city or town. But those figures, if reported at all, are buried deep within lengthy documents.

    A CEO does not control all the factors that affect his company’s profitability, which can vary depending upon economic conditions, the actions of competitors and the rise of new technologies. But there are many factors that he (or she) can control, and shareholders hold him accountable for those. Similarly, there are many factors that influence property values, some of which a governing body can influence and some of which it cannot. Elected officials should focus on those factors that they can control, and voters should hold them accountable.

    Admittedly, the benefits of adopting rigorous fiscal analytics won’t be felt right away. Adopting a disciplined approach to allocating its investment capital won’t bail a locality out of a financial crisis. It won’t pull a Detroit or similar city back from the brink. But the erosion of competitiveness into Detroit-style insolvency is a decades-long process. Over the long run, local governments that discipline their spending, emphasize wealth creation and expand their tax base will prosper far more than those that don’t.

Now Available

Book cover of 'Dust Mites: A Second American Revolution' by James A. Bacon, featuring astronauts planting a flag with a blue and white emblem on a lunar landscape, with Earth visible in the background.
For sale on Amazon.com

The year: 2075. The American colonies on the Moon are getting restless under Washington’s tyrannical rule….

This second edition of “Dust Mites” has a snazzy new cover, includes helpful lunar maps, and is 5,000 words tighter than the original. The sequel, “Trogs,” is scheduled for publication this summer.

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Bacon’s Rebellion is Virginia’s leading politically non-aligned portal for news, opinions and analysis about state, regional and local public policy. Read more about us here.

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