Bacon's Rebellion

  • Malodorous Portsmouth

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    Peter Galuszka

    By Peter Galuszka

    Is there something stinky going on in Portsmouth?

    It’s a question that has suddenly wafted up when residents of the port city learned that the Virginia Ports Authority has been in secret talks with Canadian-owned PCS Phosphate to put in a plant to melt sulfur pellets for fertilizer production.

    The same project had been pitched for Morehead City, N.C. but was shouted down by a lively environmentalist coalition, which sparked a controversy that reached the office of Tarheel Gov. Beverly Perdue. PCS Phosphate operates one of the world’s largest phosphate mines in coastal Beaufort County, which is an easy barge trip away from either Portsmouth or Morehead City.

    It’s a story near and dear to me since it was one of the first I covered as a cub reporter at the Washington (N.C.) Daily News back in my college-day summers of 1971 and 1972. The big mine, then owned by TexasGulfSulphur, had been in operation since the mid-1960s and had created all sorts of ecological challenges for the beautiful coastal plains and swamps of Beaufort County about 120 miles south of Tidewater. Water kept filling up the huge surface mine pit, so TexasGulf drilled wells to force water from an aquifer away from the pit. That dried up homeowners’ wells for miles and prompted years of lawsuits.

    Later, when French oil giant Elf Aquitaine ended up owning the mine, which makes fertilizer products, the mine got the largest-ever fine at the time from North Carolina air pollution control officials. Canada-based Potash Corp. of Saskatchewan eventually ended up buying the operation and owns PCS Phosphate.

    With a history like this, it’s small wonder Portsmouthians are up in arms about a sulfur melting plant which will only employ about 10 people. Company officials insist it won’t stink up anything.

    But then, Portsmouth, an industrial town that hosts the Norfolk Naval Shipyard, has always been a touchstone for unwanted industrial projects. In the 1970s, an oil refinery was proposed by some independent oilmen but was never built. In 2007, Portsmouth pushed Chesapeake into ending an ethanol plant planned across the city line. That may have been a good thing since the U.S. has too many ethanol plants.

    The VPA has come under criticism for keeping the sulfur project under wraps for as long as it could. After all, isn’t the VPA a public agency (“quasi” public agency)? The plant would be built close to nice old neighborhoods that Portsmouth has labored for years to revive. It would be only one mile from Norfolk’s waterfront that also has plants for a new revival after a renaissance in the 1980s.

    Funny how these plans seem to come out faster in a more open state like North Carolina.

  • CBO Opines on Pros and Cons of P3s

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    James A. Bacon

    by James A. Bacon

    Public-private partnerships have advantages and disadvantages as a strategy for building and maintaining the nation’s roads and highways, concludes a recently published Congressional Budget Office (CBO) report, “Using Public-Private Partnerships to Carry Out Highway Projects.”

    The CBO found tentatively that partnerships have built highways “slightly less expensively and slightly more quickly” compared to the traditional public-sector approach. The speed-up in construction time is most evident in larger projects valued at $100 million or more. But the number of studies supporting that conclusion is relatively small and results regarding one project are difficult to apply to others.

    Another finding is that private-sector management also can bring about a reduction in operational costs, although firm conclusions are clouded in the two studies cited by the impact of the recession and associated reduction in traffic. Private-sector managers might choose more effective procedures and schedules for maintenance, the study suggested. “In many cases, smaller, more regular repairs are a more cost-effective approach to road maintenance than are larger, irregular repairs, but they may be less common when a road is under public control because of states’ and localities’ budgeting practices.”

    Public-private partnerships (P3s) offer pros and cons in financing. Public entities can tap tax-free municipal bonds; private-sector investors can use depreciation to lower their tax exposure. But private financing come with the expectation of a future return, the ultimate source of which is either taxes or tolls. The primary advantage of private financing is that it makes funds available in states or localities that “have chosen to restrict their spending by imposing legal constraints or budgetary limits on themselves.”

    One other important attribute of P3s, notes the study, is the opportunity to contractually define and allocate risk. Under the traditional approach to road building, government assumes most of the risk associated with cost overruns, construction delays and, in the case of toll projects, shortfalls in toll revenues. In P3s, the private-sector partner generally assumes the risk for cost overruns and construction delays. But, after toll revenues in early projects fall short of projections, private partners have been seeking revenue guarantees from the public partner.

    A drawback of P3s, says the study, is the loss of public control. Contracts typically turn toll-setting authority over to the private partner. Higher tolls are the likely result, “an outcome that may conflict with other public-sector goals.”

    The study provides a useful discussion of P3 pros and cons, but it overlooks a number of important considerations.

    An advantage of P3s is that projects tend to be more transparent. More information about a road project’s costs, revenues and risks are made public. The public partner can monitor performance and financial metrics and hold the private partner  more accountable than it could hold its own bureaucracy.

    On the other hand, P3s reduce the opportunity for meaningful public input. Much of the negotiation between government and the private sector necessarily takes place behind closed doors. Once terms and conditions are reached, it is exceedingly difficult to renegotiate them if the public doesn’t like them. The result is typically a fait accompli.

  • Good and Bad Capitalism

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    Peter Galuszka

    By Peter Galuszka

    The Republican presidential primary season has taken on a peculiar wackiness, particularly when free market advocate Next Gingrich takes on front-runner Mitt Romney for his days as a private equity capitalist at Bain Capital.

    The conservatives amongst us shudder at the very idea that something as precious as finance can be spotlighted (as they conveniently forget just how cravenly the finance industry nearly crashed our economy in 2008).

    What raises my interest, however, is not that capitalism is inherently evil, but that there are different ways to go about it.

    Harvard-trained Romney lead Bain Capital in the 1980s and 1990s and profited mightily. Bain was part of the leveraged buyout revolution of the 1980s in which financiers would target companies, amass takeover war chests, buy them and either sell them off or not. Proponents argue that this approach leads to greater efficiency and they cite the old Schumpeter saw that “creative destruction” is a necessary part of  boosting free market capitalism by chipping off dead wood and letting new sprouts grow.

    Sounds good, but the fact is that the LBO raiders of the 1980s were not out for the betterment of mankind. They were out to make zillions of bucks, regardless of whomever paid the real price in layoffs, shattered lives and the like. This is apparently what Romney was up to, despite his unprovable claims that he “created” 100,000 jobs. NPR has knocked that one down, noting that Bain never kept track of such things, so how would Romney know?

    Another point comes up in a Sunday Washington Post article by William D. Cohan a former finance executive with Merrill Lynch and Lazard Freres who wrote “Money and Power: How Goldman Sachs Came to Rule the World.” He says that Bain and Romney not only played the LBO game, they did so ruthlessly, even by private equity rules. “In my experience,” he writes,”Bain Capital did all it could to game the system by consistently offering the highest prices during the early rounds of bidding — only to try to low ball the price after it had weeded out the competitors.” This practice led to an industry-wide mistrust of Bain — that it couldn’t be held to its word.

    If so, that suggests some bad things about Romney, who is devoutly religious. But this is not to put down entrepreneurship among aspiring politicians.

    For another style look at U.S. Sen. Mark Warner. Back 30 or so years, he parlayed his experience as a young Capitol Hill aide and knowledge of federal communications law to rationalize the rising cellular telephone business. One thing he did was organize auctions of bandwidth needed for the telephones. That way, a company with rights to bandwidth in Phoenix could add to its local area by swapping its bandwidth in a place such as Buffalo to a firm that wanted to expend there.

    Besides sorting out bandwidth, Warner also helped create telecom giant Nextel which is now part of Sprint. He also formed Columbia Capital, which financed the high tech boom in Northern Virginia in the late 1990s. He ended up with at least $200 million in personal wealth. He’s also a Democrat.

    So, who do you think has created more jobs? Mark Warner? Or Mitt Romney?

  • Self Esteem Loses Steam

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    James A. Bacon

    Another rare piece of good news: The “self esteem” movement is losing favor in the nation’s schools. The Washington Post has the story here.

    A growing body of research over three decades shows that easy, unearned praise does not help students but instead interferes with significant learning opportunities. As schools ratchet up academic standards for all students, new buzzwords are “persistence,” “risk-taking” and “resilience” — each implying more sweat and strain than fuzzy, warm feelings.

    “We used to think we could hand children self-esteem on a platter,” Stanford University psychologist Carol Dweck said. “That has backfired.”

    The self-esteem movement has been one of the most destructive trends ever seen in American education and culture generally. Only by earning praise, not having it bestowed freely, can children mature into productive, achieving adults. I cheer the demise of this pernicious fad.

    — JAB

  • Thumbsucking, Richmond-style

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    Peter Galuszka

    By Peter Galuszka

    The incredible, shrinking Richmond Times-Dispatch offers a lot less to read these days. Under  the leadership of Publisher Thomas A. Silvestri, many staffers have been fired to boost parent firm Media General’s top line. The effort hasn’t been entirely successful since its stock, once around $65 a share, is now a little better than $4 a share, admittedly better than the near buck a share low of a couple of years back that brought MEG close to delisting on the Big Board.

    So, the TD tries to get around its dearth of real reporting by getting Richmond’s pooh-bahs to write tomes in the “Commentary” section about what a great job they are doing. These, coupled with Silvestri’s unfailingly sunny and typically mindless columns boosting the Confederate Capital, make for a more amusing section on Sunday mornings than the funny pages.

    This Sunday’s section was kicked off by Eugene Trani, the fireball, former president of Virginia Commonwealth University. Trani is famous for growing VCU from a Tier Two commuter college to something aspiring to greatness. He bulldozed block after block of Richmond’s downtown to expand the university and make it more of an economic driver.

    Now retired, Trani heads Richmond’s Future, which the TD describes as a “forward looking regional think tank.” That, in itself is an interesting choice of words. If it were “backward looking,” we’d be in more of a heap of trouble than we already are.

    After a couple of years of heading Richmond’s Future, Trani has used the group’s mostly corporate funding to finance studies by a Federal Reserve economist and a VCU assistant professor. Together, these reports try to rate the Richmond SMSA, which Trani meticulously explains to the dullards among us, against 10 other SMSA around the country to see where it stands. Good and bad, it turns out. Second in per capita income and sixth in annual employment growth  compared to places such as Jacksonville, Fla. and Salt Lake City.

    Writing in the TD, Trani claims  that it is important to know where Richmond  stands against other similarly-sized city. I looked thoroughly through his article to find more of a “so what” but couldn’t find it.

    And that is the problem. Richmond’s business elite has been staring at its navel for a long time. There has been study after study trying to “benchmark” the city. Consultant James A. Crupi, who does a lot of thumbsuckers for the Fortune 100, did a study in 1993 that found that Richmond is a “glass half-empty.” He returned in 2007, funded by Greater Richmond Chamber of Commerce money, to find that Richmond had somehow transformed itself into a “glass half full.”  What that means, I have no idea.

    There are other groups trying to get a real bullseye on Richmond. There’s something called the Capital Region Collaborative that promotes navel-gazing on a regional basis. Its ranks are fed from something called “Leadership Metro Richmond” which trains “leaders” to be big shots among the corporate salons and, of course, participate in and cheerlead Crupi and Trani style reports.

    OK, fine. But so what? Trani says Richmond should boost its base in logistics. No brainer, there. Greatly expanded Ft. Lee is a dominant defense supply area and Richmond has a great central-location on the Mid-Atlantic coat. Too bad its tiny seaport was so badly managed that it has all but shut down. Richmond also should boost science and math studies, like every other burg in the U.S.

    And, there’s something called the Commonwealth Center for Advanced Manufacturing, which is a multi-university and community college effort to take advantage of a new Rolls Royce plant east of Petersburg.

    Small problem, there. The Rolls Royce plant was originally intended to build  parts for engines for corporate jets. The 2008 global financial meltdown, and  the bad judgment of big U.S. corporate titans to fly corporate jets to Washington to beg for Congressional bailouts, chilled that market.

    Now, the big facility underway is looking for other markets. One hope had been making engines for the new F-35 joint strike fighter for the Air Force, Navy and Marines. That’s something anti-spending hawk U.S. Rep. Eric Cantor, a key player in the Richmond elite, pushed mightily although the Pentagon said it had another supplier and didn’t need more engines from Rolls. In any event, it won’t matter. Reacting to Republican anti-spending fanatics, President Obama is likely to cut back on the F-35 program.

    These are small details, however. The reality is that no matter how much the Tranis and Crupis look into their crystal balls, Richmond’s economy is still pretty much dominated by electric utility Dominion, packaging maker MeadWestvaco and cigarette giant Altria, whose primary products are lethal and which moved its headquarters to Richmond after being pretty much thrown out of New York City. The region was badly hurt when mass retailer Circuit City self-destructed from bad management and chip maker Qimonda went under, with thousands of jobs, because of bad local markets.

    Yet another firm went under, too, during the 2008-09 recession, mortgage lender LandAmerica. Interestingly, Trani was a director of the firm and, in that capacity, is a defendant in a lawsuit that alleges that he and others failed in their fiduciary duties because they took decisions that resulted in the collapse of the firm and major losses for investors.

    The Richmond newspaper, naturally, doesn’t hit that one too hard. Instead, Trani, rather than a professional journalist on staff, will be writing a series of reports about his new think tank and where he thinks Greater Richmond rates and should be going in the Greater World.

  • Do Panic!!

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    James A. Bacon

    Sell! … No, buy! … No, sell!

    Some readers may have taken note of Standard & Poor’s Friday downgrade of the long-term debt ratings of France, Italy and Spain as well as assorted minor European countries such as Austria, Cyprus, Malta, Slovenia and the Slovak Republic. To some, that development may seem distant and irrelevant to Virginia as legislators struggle to assemble their own two-year budget. Yes, it is distant, but it is hardly irrelevant. It means that Boomergeddon is closer than even I had imagined.

    In my book (buy it here!!) I published what I called the “Milestones to Mayhem,” which listed sign posts on the United States journey to fiscal perdition. I felt quite certain we would pass them all, although the dates I attached to them were conjectural.

    2011: Slower-than-expected economic growth. Check.

    2013: Failure to cut discretionary spending. Two years out, and we haven’t cut anything. Check.

    And so it goes:  a U.S. currency crisis by 2017; the Social Security Disability Insurance crisis in 2018, which Washington has utterly failed to address; the next recession in 2018; and spreading fears of sovereign default in 2019.

    In the short run, I noted, Europe’s sovereign debt crisis helps the United States because scaredy cat investors park their money in U.S. Treasuries, which seem safe by comparison. But that’s hardly a vote of confidence, I stressed. “It means that investors regard them as less unsafe than Greek, Spanish and Italian government bonds. In the long run, a default by Greece would cast a shadow across all sovereign debt, including our own.”

    Then I explained the practical consequences of debt downgrades:

    Declining confidence in sovereign debt will feed upon itself. As nations’ credit ratings are downgraded, investors will command higher risk premiums. According to one 1996 analysis, the loss of an AAA rating jacks up interest rates by 60 basis points (or 0.6%). Further declines to a Baa1 rating are worth another 60 basis points. Further deterioration  leads to commensurately higher risk premiums: 2.5% for a Ba1 rating, 4.5% for a B1 rating, and 7.5% for a Caa rating. In a vicious cycle, higher interest rates force governments to spend more money on interest payments, which inflates deficits and scares investors even more. It is a very quick slide down the B-level ratings to the very bottom.

    Once the dominoes start toppling, the contagion of fear will spread rapidly. Investors, I suggested, next would start shying away from the debt of U.S. states and even start demanding risk premiums from the federal government itself. With a national debt now exceeding $15 trillion, every one percentage point increase in average interest rates paid will jack up the U.S. deficit by $150 billion.

    Here’s the takeaway: In my Milestones to Mayhem, I speculated that Europe would muddle through another business cycle before fears of sovereign default became rampant. I was too optimistic. Those fears are spreading already. Boomergeddon is running ahead of schedule.

  • Don’t Panic!!!!!!!

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    James A. Bacon

    It may be too soon to freak out over FY 2012 budget revenues. But it’s not too early to get severe case of the heebie-jeebies.

    The Commonwealth’s December revenues declined 4.7% compared to the same month last year — significantly below the 4.6% average average annual growth rate required to meet budget. Year to date (halfway through the year), revenues have increased at only a 4.2% rate.

    That would be grounds for a major anxiety attack were it not for the fact that this December had only four Wednesdays compared to five Wednesdays last year. Wednesdays are a significant day for individual income tax withholding. January should make up much of the lost ground. However, a dip in corporate income tax and insurance tax revenues are grounds for concern.

    “Virginia’s economy continues to demonstrate modest growth and lower than average unemployment,” said Gov. Bob McDonnell is a press release yesterday, “but the fragile national economy, persistent uncertainty in federal funding, and world and national events that impact our economy require us to exercise caution during this upcoming budget and to continue to take a conservative, responsible approach to state spending.”

    Amen.

    — JAB

  • In Defense of McDonnell’s VRS Reforms

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    James A. Bacon

    State employees: stuck between a rock and a hard place.

    by James A. Bacon

    Yesterday I referred to Gov. Bob McDonnell as an “incrementalist reformer.” That’s not entirely fair. Some of his reforms come in pretty big increments, like his proposal to put the Virginia Retirement System back on a sound actuarial basis. If he can get his plan enacted over the inevitable objections of state employees and their allies, he will have made a major contribution to the long-term fiscal health of the commonwealth.

    McDonnell balanced the budget two years ago by shorting the state contribution to the VRS to the tune of $620 million. Now that the state’s financial condition has improved, he plans to make up for that under-funding by injecting $2.2 billion in state and local funds into the VRS during the next two-year budget. Yesterday, he also announced a package of structural reforms to the retirement plan that would close the $19 billion unfunded liability by another $5.1 billion. Public employees would pay an additional 1% of their salary and receive a little less in benefits. (See this press release for the details.)

    Says McDonnell:

    As governor, I must be able to look state employees in the eye and promise them that their retirement benefits will be available when they choose to retire. Today I can’t do that. By enacting these reforms, we will be able to move closer to guaranteeing that security for VRS contributors. I will not leave this issue to be solved by a future governor. We are all in this together, and this is a basic matter of math. The simple truth is our state retirement system just will not work without both sides of the equation, the employer and the employee, contributing more in the years ahead.

    McDonnell would sweeten the deal for state employees by funding a one-time performance bonus of up to 3% in FY 2013. A spoonful of sugar may help the medicine go down, but the medicine still tastes bitter. The bonus is a one-time deal. The extra 1% contribution lasts an entire career. Moreover, it comes atop several years of zero pay raises for state employees. The only consolation for state employees is the knowledge that the reforms will avert a major pension-funding crisis that could jeopardize retirement benefits at some unpredictable time in the future.

    I expect critics will pursue two lines of attack on McDonnell’s plan. First, they will say the reforms will reduce the state’s competitiveness in hiring and retaining talent. However, with Virginia unemployment stuck at well above 6% and expected to linger there for a long time, it’s not as if there will be a rush out the doors. If the economy improves and state workers begin seeking employment elsewhere, tax revenues will be rising as well and the state will be able to afford increasing pay or juicing benefits as needed. I’m not worried.

    Second, the class warriors will decry the benefit cuts as another attack on the middle class. They won’t advocate cutting other spending programs, so that leaves only the alternative of raising taxes… presumably on the rich. I don’t have the time or space here to re-hash the old rich-are-getting-richer-while-the-poor-are-getting-poorer debate here. Suffice it to say much (not all, but much) of the increasing wealth gap is an illusion. The income of the “top 1%” has crashed since the recession, wiping out much of the gap. Longer-term, changes in the tax code coaxed the rich to declare more income rather than hide it in tax shelters. (See this Alan Reynolds piece for the best discussion I’ve seen on the subject.)

    The fact that Virginians, like all Americans, are feeling miserable right now can be attributed to the failure of government policy at two levels. First, the Era of Mass OverConsumption, built upon the accumulation of debt, is unwinding. For what it’s worth, both political parties encouraged MassOverconsumption — no one escapes the blame for it. More to the point, there is no way to avoid a painful readjustment. Second, President Obama’s economic policies are killing jobs. Obama inherited a bad situation… and made it worse.

    The way to restore Virginia’s middle class is not by raising taxes to pay more generous benefits to state employees. The way to improve the lot of state employees is to create the basis for a sound, growing economy that generates more tax revenues that the next governor can share with the state workforce. That’s the approach McDonnell is taking, and I applaud him for it.

  • McDonnell the Incrementalist Reformer

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    James A. Bacon

    McDonnell: The man with the purposeful stride and incremental reforms.

    by James A. Bacon

    Gov. Bob McDonnell delivered a competent if uninspired State of the Commonwealth address yesterday, sounding the broad themes of restoring fiscal integrity to the state budget and harnessing the power of state government to create jobs. For the most part, his agenda reflects the conventional thinking that comes out of Virginia’s Republican Party these days. McDonnell’s proposals will bring incremental progress. The problem is, the times demand radical change.

    Fiscal conservatism. The most encouraging aspect of McDonnell’s legislative agenda is its tight-fisted approach to the budget. In the most significant of his proposals, the governor proposes upping the two-year contribution to state pensions to $2.21 billion, including $876 million from the General Fund, more than doubling the employer contribution from the last budget. He’s putting the squeeze on local governments to make good on their obligations. And he will propose structural reforms to the pension plan that will call upon employees themselves to make some changes, as yet unspecified.

    The governor also makes progress in backing the state out of the accelerated sales tax collections imposed on the retail industry by another $50 million a year, with the goal of ridding the despicable accounting gimmick entirely by the time he leaves office. He proposes doubling the Rainy Day Fund to more than $600 million by FY 2014, and he is asking lawmakers to set up a $50 million Federal Action Contingency Trust (FACT) Fund to handle impacts from future federal spending cuts. Apparently, this will be an economic development slush fund to be used to “help diversify our economy.”

    McDonnell made conservative revenue assumptions, announced no new taxes, recommended no new long-term debt (even though the state has nearly $500 million in unused debt capacity,) and proposed only modest new spending initiatives.

    The only fiscal negative — and it is a big one — is his insistence upon institutionalizing the use of General Fund revenues to cover transportation spending on the grounds that transportation is a “core function of government.” In doing so, he moves away from a user-pays system to a general subsidy system, which is the antithesis of fiscal conservatism. While previous governors had raided General Fund episodically, McDonnell’s proposal would enshrine the use of General Fund revenue for transportation as a permanent budgetary feature.

    Higher ed. On the positive side, McDonnell proposes to “cement the direct nexus between higher education and job creation” by rewarding state colleges and universities for increasing the number of degrees, especially in science/technology/mathematics fields so vital for sustainable economic growth. Recognizing the growing problem of college drop-outs, he also insists colleges improve their graduation rates. On the negative side, he wants to increase the number of new degrees granted by 100,000 over the next 15 years — a totally arbitrary number that bears no connection to the number of young Virginians who are academically equipped from their high-school experience to do college-level work.

    K-12. As McDonnell noted in his address, Virginia has increased total funding for public education by 41% over the past decade while enrollment increased only 6 percent. “We will seek more accountability, choice, rigor and innovation.” Repealing the King’s Dominion law is a no-brainer. Championing virtual schools is a good idea and shouldn’t generate too much controversy. But the governor grabbed the tiger by the tail when he proposed reforming the system for evaluating teachers and principals. No sooner had he announced his idea last week than reactionary “progressives” across the state attacked him for “blaming the teachers” for the woes of K-2 education. This, I predict, is where Democrats and liberals will draw the line in the sand. Teacher/principal evaluations unoubtedly will be the most contentious issue of the 2012 General Assembly session and a true test of McDonnell’s grit.

    Odds and ends. The governor proposes a number of efficiency-in-government reforms which, though meritorious, are fiscally inconsequential. He has packaged some small-bore initiatives under the rubric of making Virginia “the energy capital of the east coast,” a silly and unattainable goal. He proposes modest funding increases for mental health, which probably needs it.

    Road not taken. McDonnell continues to define Virginia’s transportation woes as an issue of insufficient funding. His solution: Find more money without raising taxes. He has missed the opportunity to enact fundamental reform: (1) aligning transportation planning with land use planning, (2) creating a user-pays system for financing transportation, and (3) developing a methodology for prioritizing projects on a Return on Investment basis (congestion mitigated, safety improved, economic value created). Virginia will spend more money on transportation. Whether the money will be well spent is another issue entirely.

    Bed rest for health care. Health care is another missed opportunity. Last year McDonnell enacted a package of reforms “to improve the quality, cost effectiveness and program integrity of the Medicaid program” — which went largely unheralded in the press. This year, the state will focus on implementing those reforms. Fair enough. But the health care system is much bigger than Medicaid. The potential exists to transform the privately insured health care system, thanks to one of the few worthwhile changes enacted by Obamacare, by compiling more information about the cost and quality of medical procedures and make it available to practitioners and patients — precisely the kind of data required to create a functioning market in health care. Conservatives supposedly believe in market-based health care. Well, a prerequisite to a market-based health care is to create functioning markets, which requires putting basic information into the hands of consumers. If conservatives don’t act to fix runaway health care costs, liberals will.

    Economic development opportunities lost. McDonnell recognizes the connection between education, human capital and job creation. He sees how a vibrant energy sector can create jobs. He believes that transportation infrastructure can facilitate commerce and trade. Give him points for that. But he misses the connection between quality of life and the recruitment/retention of highly talented individuals (the creative class) who contribute disproportionately to growth in a knowledge economy driven by productivity and innovation. While McDonnell pursues a deal-oriented approach to recruiting corporate investment, usually requiring state subsidies, he overlooks the potential to create the kinds of more livable, more sustainable communities that the “creatives” look for. Why wouldn’t conservatives champion a subsidy-free model of economic development?

    Admittedly, McDonnell is hardly alone in his neglect of creative-class issues. Virginia is way behind the curve in making itself a magnet for the nation’s innovators. Just consider it another opportunity lost.

  • America’s Growing Cultural Class Divide

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    James A. Bacon

    The Fishtown neighborhood of Philadelphia

    Charles Murray, the most brilliant sociologist at work in the United States today, has written a fascinating essay in New Criterion about the class polarization taking root in the United States. Once upon a time, he argues, Americans of different social and economic classes mixed easily with one another. Today, they no longer do. Increasingly, the lower class and upper class live in increasing isolation from middle-class society, a phenomenon that will harden class divisions over time.

    In “Belmont and Fishtown,” Murray quotes that preeminent observer of early 19th-century America, Alexis de Tocqueville: “In the United States, the more opulent citizens take great care not to stand aloof from the people. On the contrary, they constantly keep on easy terms with the lower classes: they listen to them, they speak to them every day.” No longer, says Murray.

    Focusing on white Americans to sidestep the muddying issue of race, Murray says that upper and lower class Americans are experiencing a divergence in fundamental cultural values. Most upper class white Americans are married; a minority of lower-class white Americans are. Upper class whites are far more likely to work for a living; lower-class whites are more likely to drop out of the labor force. Only an infinitesimal percentage of upper-class whites engage in crime; the crime rate among lower-class whites has sextupled since 1960. And despite the stereotype of working-class whites “clinging to their guns and religion,” upper-class whites are far more likely to actively practice religion and engage in community-building activities than lower-class whites.

    For all their education and cosmopolitan ideals, however, upper-class whites are isolated from mainstream society. Writes Murray: “a growing proportion of the people who run the institutions of our country have never known any other culture. They are the children of upper-middle-class parents, have always lived in upper-middle-class neighborhoods and gone to upper-middle-class schools. Many have never worked at a job that caused a body part to hurt at the end of the day, never had a conversation with an evangelical Christian, never seen a factory floor, never had a friend who didn’t have a college degree, never hunted or fished. ”

    Is this, perhaps, the sociological root of ideological polarization in the United States today? Murray does not explicitly state so in this essay. But he leaves the reader with that very distinct impression. The new upper class, he says, shows no inclination to reach out across the widening divide.

    “And so the unraveling of the civic culture in [lower-class] Fishtown occurs without the knowledge or the concern of [upper-class] Belmont, let alone with any attempt by Belmont to assist the people of Fishtown who are still trying to do the right thing. Fishtown is flyover country, or those ugly suburbs that the people of the new upper class view from afar as they drive from their enclave in Greenwich to their office in midtown Manhattan.

    — JAB

  • Yippee, Virginia Can Borrow another Half Billion!

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    James A. Bacon

    The Commonwealth of Virginia can issue another $467 million in debt in FY 2012 and a like amount in FY 2013 without undermining its AAA bond rating, reports Debt Capacity Advisory Committee in its latest guidance to the Governor and General Assembly.

    Under the committee’s guidelines, debt-service payments cannot exceed 5% of annual “blended” revenues (which include General Fund revenues, Transportation Trust Fund revenues, ABC profits and other, smaller revenue sources).

    State debt has more than doubled in the past six years, increasing from $5.8 billion in fiscal 2005 to $11.9 billion in fiscal 2011, reported the Loudoun Times in November. Annual interest payments have increased even more rapidly, from $236 million in 2005 to a projected $593 million in 2012.

    Before someone in the McDonnell administration or the General Assembly comes up with a bright idea for how to exploit that unused debt capacity, let’s make sure we get off-the-books debt paid off first. Like unfunded obligations to the Virginia Retirement System and borrowing from the federal government to maintain the Unemployment Trust Fund.

    Speaking of the Unemployment Trust Fund, which hasn’t garnered much attention, here’s the latest report filed by the Virginia Commission on Unemployment Compensation. The state  borrowed $668 million from the feds since the recession in order to continue paying unemployment benefits and is expected to borrow another $196 million by April 2013. Virginia is expected to repay the outstanding balance by May 2012. “However,” states the report, “Virginia is expected to resume borrowing for the first four months of 2013. In May 2013, these funds will be repaid by a final $70 million payment. ”

    Let’s not push our luck, I say. Let’s make certain we can meet our existing obligations before we take on any more.

    – JAB

  • Transportation and Race. Really, Are We Going through This Again?

    Posted on

    by

    James A. Bacon

    by James A. Bacon

    Transportation has been on the back burner in the Richmond metro area for a long time, but it could resurface in a debate over the future of the Richmond Metropolitan Authority (RMA), which operates the region’s two toll roads — and things could get ugly if the debate rips the scab off the region’s slowly healing racial politics.

    Transportation and race? How did the two get mixed up?

    You need to know the history of the RMA. The regional authority was created in 1966 for the purpose of creating the toll-financed Downtown Expressway. The city guaranteed $20 million to cover the cost of planning, designing and acquiring right-of-way for the highway, which won it six seats on the 11-person board as compared to only two seats for Henrico and Chesterfield counties and one for the Richmond regional representative to the Commonwealth Transportation Board. As typically was the case during that time, planners tried to minimize the right-of-way acquisition costs by running the route through poorer neighborhoods with less valuable land. Roughly 900 residents and businesses were displaced by the project… most of whom (though not all) were black.

    In 1973, the authority opened the Powhite Parkway, which fed commuters from the fast-growing Chesterfield County to the Expressway and the then-dominant job center in downtown Richmond. Later, the authority raised toll rates to pay for introducing electronic tolls, adding lanes to keep up with surging demand, and utilizing surface materials that would prolong the life of the underlying assets. (The RMA also handled a number of other projects of a regional scope, from the ball park to the flood wall and downtown train station.)

    Fast forward to 2010. Richmond Mayor Dwight Jones cut a deal for the RMA to repay the City of Richmond its loan, which had an accumulated value of $62 million, by means of refinancing the toll roads. If Richmond got its money back, county residents argued, then Henrico and Chesterfield should be entitled to greater representation on the board. Del. G. Manoli Loupassi, R-Richmond, who also represents part of Chesterfield, introduced a bill at the end of December that would give Richmond, Henrico and Chesterfield three seats a piece on the RMA board. The issue is particularly important to Chesterfield residents who account for 60% of the toll revenues and think they ought to have a greater say in how the organization is run.

    Loupassi’s bill didn’t play well, however, with former Richmond Mayor Roy A. West, who had served on the RMA board. According to Michael Martz with the Times-Dispatch, the veteran African-American politician called the proposal part of a “perpetual agenda to dispossess the city of Richmond of its rightful control of this asset, which was paid for with ‘blood, sweat and tears.’ ” West blasted Mayor Jones for striking the deal, but he saved the harshest words for Loupassi. Reported Martz:

    West, in an email message, accused Loupassi of a “racist agenda” because the proposal would “take from a black-majority city for the benefit of a white-majority county.”

    Hopefully, there are enough statesmen in the Richmond region to resolve the issue without it turning into another national, race relations-suck-in-Richmond story like the Arthur Ashe statue or the Lee mural on the flood wall. That would be an entirely preventable tragedy.

  • McDonnell’s Campaign Against Public Schools

    Posted on

    by

    Peter Galuszka

    By Peter Galuszka

    As much as I hold James A. Bacon Jr., my esteemed fellow blogger, in the deepest of respect, whenever he says that he regards a package of legislation as the best, it’s time to start to switch on the Google.

    In this case, Jim is patting Gov. Robert F. McDonnell on the back for such things as tightening the screws on public teacher evaluations and moving ahead with “virtual” teaching methods (that’s like, sooo Digital Dominion).

    Nevertheless, here’s a counterpoint from Elaine in Roanoke who writes for the Democratic blog “Blue Virginia.” Elaine takes McDonnell apart for beating up on teachers under the guise of holding them to high standards while he simultaneously has been draining public education budgets for three years to boost highway spending and make himself look like he has a balanced budget and thus improve his chances for a vice presidential candidate slot with Mitt Romney or other Republican.

    As Elaine notes, McDonnell is really proposing doing away with teacher tenure that is designed to protect professional educators from interference from zealots who worry that the teacher isn’t presenting the right dogma or from the rampant office politics that eduction is famous for.

    Like many conservatives, McDonnell and Bacon are pushing an agenda that has yet to be proven. They go from the standpoint that our education system is in crisis and the cause is bad teachers and unions that protect some of them. True, the U.S. system could be improved, but where is the overwhelming evidence that teachers, in particular, are one special class of public service professionals who are somehow incredibly incompetent? Why do teachers need to defend their jobs every year? Why not doctors, lawyers, accountants, whatever? Could it be that many teachers are middle-class women and that somehow makes them suspect?

    A second part of McDonnell’s education offensive that Jim Bacon finds so wonderful has to do with contracting teaching to “virtual” outside, for-profit companies. As part of this, teachers and programs would be cut and privatized.

    And where, exactly, did this gem of an idea come from. Jim won’t tell you, but Elaine will. It’s a cut and paste job from the American Legislative Exchange Council (ALEC), a right-wing outfit that draws up omnibus legislation with their conservative twist and peddles them to sympathizers in state legislatures and lobbying groups. This is exactly where the virtual idea is from, writes Elaine.

    So, McDonnell’s campaign against public schools continues, with his sycophants cheering him on.

  • Governor Bob Tackles Education Reform

    Posted on

    by

    James A. Bacon

    by James A. Bacon

    Well, well, Gov. Bob McDonnell has finally found his inner radical. His legislative proposals for economic development and energy are pretty tame stuff, but the educational agenda he announced yesterday would push Virginia schools way out of their comfort zone. Indeed, I might be so bold as to suggest that this package could become one of the pieces of landmark legislation that comes to define his term in office.

    Among many other things, the reform package would overthrow the so-called “King’s Dominion law,” promote virtual schools and overhaul the teacher evaluation system. Let’s take a closer look at the reform package, a summary of which you can see here.

    Calendar reform. This measure would repeal the requirement that school divisions must begin their school term after Labor Day (unless they have a waiver to increase the length of the school year). Say good-bye to the school calendar set when children were needed to labor in their families’ farm fields and defended so that King’s Dominion and other seasonal businesses, primarily in the tourism industry, could find ready summer employment. (My pet theory is that King’s Dominion and the others now employ so many temporary workers from other countries — it’s amazing how many young people from Eastern Europe and Latin America work in Virginia resorts — that they don’t need American student workers anymore.)

    In a knowledge-intensive economy, education becomes the highest priority. The school calendar must be configured to meet the needs of the students, not the needs of the tourism industry.

    Virtual schools. At least three measures would advance the development of the virtual-school option in Virginia. One would establish regulations for accrediting virtual schools that enroll students full time. A second would establish “alternative licensure” for virtual school teachers. And a third would set up an Innovative Options Technical Advisory Committee to guide applicants for charter schools, college-partnership laboratory schools and virtual school programs through the planning process. The administration’s press release was sparse on details, but these all sound like necessary steps for legitimizing virtual schools and making them a viable educational option.

    Teacher and administrator contracts. Here’s what the McDonnell press release says:

    Establish an annual contract and evaluation process versus the current continuing contract practice for teachers and principals. It will allow for a new evaluation system to work by attracting and retaining the top-tier educators in our K-12 public schools. Seventeen other states have already made changes to their contract and tenure laws.

    The only context that the McDonnell press release provides is the following:

    Speaking about the teacher accountability and contract requirement changes, Brenda Alspaugh, who retired from Chesterfield County schools after a 33-year teaching career said, “This proposed reform provides a model that holds teachers, principals and superintendents continually accountable. It helps to ensure that schools are staffed with competent professionals that continue to meet the diverse needs of all students.”

    The press release notes that the proposed evaluation process would help “attract” and “retain” better teachers and administrators. Implicit is the idea that it also will make it easier to “fire” bad educators. Just a guess. If so, we can expect strong push back from the educational lobby. This could be one of the most contentious issues of the 2012 General Assembly.

    The quotes from various educators in the press release all emphasize the critical role of education in preparing Virginia students to compete in a globally competitive economy. Good. We no longer have the luxury of lethargy in the way we teach our children. McDonnell seems to understand the imperative to adapt or die.

  • Lots on the Virginia Defense Chopping Block

    Posted on

    by

    Peter Galuszka

    By Peter Galuszka

    Barack Obama’s nearly $500 billion in budget cuts are certain to impact Virginia.

    It’s only fair, of course, that if Obama is going to join the chorus of (largely Republican and often hysterical) budget cutters, then the military should be included. After all, we haven’t even begun paying yet for the wars in Iraq and Afghanistan even if the former was unnecessary and disastrous. Everything else, aid to the poor, education, medical care, is on  the block.

    Most of the cuts appear to be aimed at the Army and Marine Corps, which did most of the fighting in South Asia. Perhaps that makes sense since there’s no similar war on terrorism on the horizon, not that one might be easily foreseen.

    But there are some major, big ticket items whose value might be questionable. None is used directly by the Marines or Army and
    some have a major footprint in Virginia.

    Topping the list is large, nuclear-powered warships. These, of course, are made at Newport News shipbuilding, which is the only yard in the country capable of making nuclear-powered surface warships. It makes its fair share of submarines, too.

    The U.S.S. Gerald R. Ford, now under construction at Newport News, costs about $13.5 billion. The nuclear-powered aircraft carrier can carry about 100 aircraft and is due in service in 2015. It has created thousands of jobs in the Tidewater area, but it has some question marks.

    For projecting power, there’s nothing better. The aircraft carrier came into its own in World War II, replacing the battleship as the fleet’s most important surface vessel. For a half a century aircraft carriers have  been the most visible part of the Navy, although nuclear-powered submarines have much more stealth firepower.

    During the most recent wars, the limits of aircraft carriers became evident. Its short-range aircraft were hard-pressed to sustain strikes within land-locked Afghanistan unless the Navy could organize complicated aerial refueling.

    The most likely enemy of the future is China, and maybe Iran. The Chinese have been experimenting with a new ballistic missile whose major task is to explode on the crowded, munitions filled decks of American aircraft carriers. The missiles could hit targets 2,000 miles away. That would keep Navy strike aircraft about at the limits of their range.

    Another big ticket item is the Air Force’s F-22 Raptor, a sleek-looking stealth jet fighter. Langley Air Force Base, has a number of F-22s which are designed as interceptors. Unfortunately, they were planned to counter advanced Soviet jet fighters and are somehow jobless since the Soviet Union doesn’t exist anymore. They proved useless in fighting Saddam’s forces in Iraq or the cave-dwelling Taliban in Afghanistan. They cost
    $150 million a plane.

    That’s also the approximate price tag for the F-35, a new jet fighter that is capable of hovering and taking off vertically. It had been planned for the Air Force, Navy and Marines, but faces cuts as planners wonder if updated but older model  F-15s, F-16s or F-18s can continue doing the job just as effectively.  The F-35 already has been a pork barrel item since Virginia politicians lead by House Majority Leader Eric Cantor wanted Rolls Royce to be the second maker of its engines. Rolls’ American operations are based in Virginia, which explains Cantor’s pork. The Pentagon was perfectly happy with a sole engine supplier (not Rolls). Now, a lot fewer F-35s may be built which will impact both Langley and Oceana Naval Air Station. Meanwhile, unmanned drones are coming into their own as powerful and much cheaper alternatives to traditional military aircraft.

    It isn’t clear whether the many high tech, military software firms in Northern Virginia will be cut back. Apparently, Navy SEALs based at Little Creek and Dam Neck will be boosted given Obama’s plan to keep a
    keen counter-terrorism force. SEAL teams, however, are few in number and don’t use many resources. Their impact on the Virginia economy is probably limited to bar tabs during Happy Hour on Shore Drive.

    In any event, defense will be cut and Virginia is going to feel the pain.

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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