Through some legal quirk — typical for the Old Dominion — only Mitt Romney and Ron Paul will be on the ballot for the March 6 Republican primary. Newt Gingrich and Rick Perry did not meet the state’s onerous requirement for 10,000 petition signatures including 400 from each of the state’s 11 congressional districts to get on the ballot.
Readers know that I am not generally sympathetic to Republican causes, but what’s happened to Gingrich and Perry is downright idiotic. Virginia is the only state that has such tough primary qualification rules. Indiana is the next strictest, which requires only 4,500 signatures.
Consider some of Virginia’s other strange laws and requirements. We are the only state in the nation that limits its governor to one term, meaning that Virginia only gets maybe three years max work out of a governor’s four-year term. By Year Three, the politician’s mind is already focused on what’s next.
During the Jim Crow era, Virginia was a legislative leader in racism. That wasn’t unusual for the South but the racism seemed to linger very long. Until it was struck down in the late 1960s, a state law made it a felony for a white person to marry an African-American so as to preserve racial purity.
Other bad ideas abound. Luckily, some don’t get to law. One absurd proposal a few years ago would have regulated how low someone could wear his or her pants and how much underwear could be displayed. Legislator Terry Kilgore is the master of strange-O laws. He’s proposed, for instance, tax breaks for people who have their cremated remains blasted into outer space from a commercial spaceport on Wallops Island.
The political nonsense continues with another oddity. Voters participating in the Republican primary are supposed to sign a “loyalty oath” that they will vote for whomever ends up running as the Republican presidential candidate. Wasn’t Virginia supposed to have been the Mother of the Bill of Rights? Besides being unconstitutional, the idea is also downright dumb. How can they enforce it?
Atty. Gen Kenneth Cuccinelli, who is running for governor in 2013 against the plans of the ruling state Republican Politburo, at first said he would try emergency legislative proposals to untie the mess. Then, however, he went along with the GOP Establishment and said that changing laws midstream would somehow be unfair to Romney and Paul. Go figure.
Legislative idiocy has been part of the state’s make-up for far too long. They make Virginians seem like Cooter of the Dukes of Hazzard. With all the state has going for it, one wonders why this nonsense just doesn’t go away.
Experian's map of 10 Best (blue) and 10 Worst (yellow) average credit scores for major U.S. metros.
James A. Bacon
It’s basic economics: Consumer spending drives the American economy, accounting for 70% of GDP. One reason the United States economy is in the doldrums is that consumers can no longer sustain the borrowing binge that propelled the economy during the 1980s, 1990s and 2000s.
In “Boomergeddon” I predicted that the savings rate would return to historical levels from the near-zero rate that prevailed before the recession as Americans worked to mend personal balance sheets and Boomers got serious about saving for retirement. Alas, I was wrong. I under-estimated the extent to which Americans were addicted to Mass OverConsumption. After rising to around 5% for a couple of years — better than before the recession but about half of what is needed — the savings rate dipped back to the 3.5% range in the months before Christmas. That gave a temporary boost to the economy, but it means Americans have a long way to go before restoring their personal fiscal health.
I also underestimated the polarization, myopia, self delusion and craven cowardice of our rulers in Washington, D.C. — and that’s saying something because I cut them little slack in the book. Given the pathetic performance of Congress and the Obama administration in closing the budget gap, the country now is hurtling toward Boomergeddon on an accelerated timetable. When I was writing a year and a half ago, I risked branding myself as a scare-monger by suggesting that the federal government would go into default within 15 to 20 years. Today, that’s the optimistic scenario! A year ago, it seemed ludicrous to compare the U.S. to Greece. Today, it’s apparent that Greece is a dress rehearsal for the collapse of Euro-styled social democracy and, soon thereafter, of the U.S. welfare state.
As individuals, we are helpless to change Washington. The main question worth pondering is where best to locate ourselves to ride out the coming calamities. I would say New Zealand — but that tiny country won’t be able to accommodate more than a couple million of the world’s economic refugees, which rules out most of us. That means picking a place in the U.S. If you’d like to live in a locale with still-functioning state and local governments, then you might consider one of the states with AAA bond ratings. Of course, as argued on this blog with some frequency, Virginia’s premium bond rating is built upon a rickety foundation of out-of-control federal spending that cannot long continue.
Which brings us back to consumer spending. Another indicator worth examining is the credit-worthiness of the population. Are there meaningful geographical differences in how responsibly Americans have prepared for the future by spending less, saving more and repairing damaged personal finances? All other things being equal, populations with higher average credit scores will be better situated to ride out the depression that will ensue from federal default.
Experian, the credit report company, has compiled the average credit scores for 143 metropolitan areas across the U.S. The worst credit scores (the yellow dots in the map above) are concentrated in the Gulf Coast from Texas to Mississippi, with Myrtle Beach, S.C., and Las Vegas thrown in for good measure. Gambling and credit don’t mix? Who knew? Conversely, the best credit scores (the blue dots) appear not in the nation’s wealthiest metro areas but in a tight cluster within the Midwest, primarily Wisconsin, reflecting no doubt the frugal propensities of the Germanic-Scandinavian populations that predominate. Wausau, WI, with an average score of 789 on a 330 to 830 scale, has proven more immune to the siren call of Mass OverConsumption than any of the other 143 largest metro areas.
And how about Virginia? The national average score is 749. Metropolitan Washington scores 766 (29th best nationally), Roanoke scores 752 (64th) and Richmond scores 750 (71st). Norfolk scores 740 (89th), dragged down no doubt by all those drunken sailors. Virginians are not the worst spendthrifts in the country, but we’re definitely upholding the tradition of Thomas Jefferson who, like most other members of the planter class, died with massive debts.
Bottom line: Virginian consumers are as over-leveraged and addicted to debt as other Americans. When governments around the world go into default, banks take massive hits on their government bond holdings, credit tightens and interest rates rise, Virginia’s consumer economy will offer no safe haven from Boomergeddon. Spending will decline, sales and property tax revenues will plunge and state/local governments will have no choice but to slash spending in turn. There will be no succor for the weak.
Have a Happy New Year. Boomers, enjoy the last few years of prosperity you are likely to see in your lifetime.
The 2011 U.S. Census numbers are in, and the Brookings Institution is on top of them. The big story: Population growth continued decelerating across the United States and in Virginia, although the Old Dominion is still growing more rapidly than the national average.
Brookings attributes the decline to several factors: weak immigration, a downturn in fertility and the passage of Bay Boomers out of their child-bearing years. The aging of the Boomers is irreversible. However, the dip in immigration and fertility could be temporary, related to the economic downturn. Fewer immigrants are coming to the U.S. because they see less economic opportunity, while women are deferring child-bearing until economic prospects improve. Giving credence to this interpretation, the chart below shows that the decline began around 2006-2007, more or less when the recession began.
Annual Growth Rates by Census Region, 2001-2011. Credit: Brookings Institution.
However, the fit is less than perfect. For starters, the recession didn’t begin until 2007. The downturn in population growth preceded it. Moreover, the Northeast saw a significant uptick in population growth through 2009, defying the economic downturn. Recession is at best a partial explanation. Another reason may be stronger economic growth and an increasing in economic opportunity in countries, most notably Mexico, that accounted for most immigrants. As I have suggested in an earlier blog post, the 1990s-2000s immigrant surge may have peaked and may be undergoing a long-term hiatus.
As for Virginia, the Old Dominion has never been a top-tier growth state. Although we are lumped in with the “South” and population growth has exceeded that of the Northeast and Midwest, we never kept pace with Texas, Florida or North Carolina. While Virginia ranked as the 15th fastest-growing state in 2010-11, according to Brookings numbers, compared to 2005-2006, our growth rate has fallen faster than the national average. Admittedly, the picture is complicated: Population growth in Virginia actually increased through 2009-10 before plunging last year.
I would hypothesize that the population growth was concentrated in Northern Virginia, which benefited from an unprecedented level of federal deficit spending, hiring and outsourcing to contractors. As the stimulus package petered out in the last year, so did some of the economic impetus for economic growth. Federal spending cannot possibly continue growing at the same rate as the past few years, so that economic prop for Northern Virginia population growth is likely to disappear.
Brookings frets about the slowdown in population growth from a national economic perspective. Fewer people in the workforce means slower economic growth and fewer taxpayers to support an aging population. Both are valid concerns. The picture is more mixed from a state-local perspective, however.
Fewer people equals reduced growth pressure — fewer houses to build, fewer schools, fewer roads, less infrastructure — in Virginia’s fast-growth counties. As the state and counties plan for future growth, there is a temptation to rely upon population projections extrapolated from past trends. But if immigration is slowing, women are having fewer babies and the population is growing older, those projections may not pan out.
It’s certainly too early on the basis of a single year’s spectacular fall-off in Virginia population growth to draw firm conclusions. But the trend bears watching. The last thing we need to do in an era of constrained public finances is over-invest in transportation and other infrastructure based on projections that never materialize.
Kudos to the University of Mary Washington, one of the lesser known lights in Virginia’s pantheon of colleges and universities, for setting the standard for integrating blogs into academic teaching methods. The university warrants mention in a new book, “Abelard to Apple,” by Richard deMillo, on the future of higher education.
The traditional university structure “will not survive the coming changes,” writes deMillo, as quoted by George Leef in the John William Pope Center for Higher Education Policy blog. DeMillo, who has held high-level posts at both Georgia Tech and Hewlett-Packard, believes that information-technology tools will turn teaching methods topsy-turvy.
Surviving institutions will be those that:
Focus on value, delivering what students want based on their skills and aspirations.
Drive down costs
Earn a reputation for quality education through continual validation in the marketplace
DeMillo cites Mary Washington as an institution experiencing great ferment. “At the University of Mary Washington, learning takes place in the digital spaces engineered by Jim Groom and his band of Edupunks. At UMW, learning takes place in blogs.” Leef elaborates:
There are more than 2,500 public blogs at the school. Professors don’t have to make their course material available to outsiders, but for each class there is a blog. Students see the blogs as a “space to do work” that enables them to easily connect with their professors and other students. The result is vibrant communities of learners, sometimes including strangers. DeMillo writes that it’s “not uncommon for an outsider to stumble into a UMW blog, find that there are interesting people to talk to, and jump uninvited into the middle of a conversation.”
Here is an example of a blog that accompanies a class on Western Civilization taught by Nabil Al-Tikriti. Not only does the professor post the syllabus and course outline online, he provides several weekly blog posts to complement the course material. He also uses blogging technology to accommodate student-generated “group study guides” that include ” links to websites offering more information on these topics, primary source samples, photos, paintings, music samples, sample essay questions, and any other resource relevant to the topics covered in their respective chapter. ” Students are graded for the quality of their study guides.
UMW allows any member of the UMW community to publish a blog using WordPress software. Judging by this list of courses, the English and History departments have really gotten on board with the technology. As Al-Tikriti’s course description makes clear, however, the blog supplements traditional teaching measures such as lectures, reading, discussion and tests, it does not replace them.
From what I can see, UMW blogs have yet to constitute a disruptive technology that will transform higher ed single-handedly. On the other hand, the idea is still new. The process of experimentation is only beginning. Bad ideas will be jettisoned, successes will be replicated. If students feel like they learn more, practices perfected at Mary Washington could well boost the institution’s academic reputation. Moreover, practices may well spread beyond traditional academic centers. Leef cites the example of Abelard, a 12th-century French monk, who attracted a personal following of students, much as Socrates, Plato and Aristotle did in the ancient world. The technology will be truly revolutionary when free-lance professors can use IT tools to disseminate knowledge outside the institutional setting. Mark my words, the great disruption is only a matter of time.
Virginia residents have long enjoyed a special advantage with higher education. Tuition at some of the country’s best-rated public universities — the University of Virginia, the College of William and Mary and Virginia Tech — is relatively modest. The schools offer a great deal for parents and students compared with nationally ranked private colleges.
But this advantage is unraveling. The process began seven years ago, when the General Assembly agreed to a deal whereby it would pay not as much for top public universities. In exchange, the schools would get more autonomy, including more freedom to set their own tuitions, capital spending programs and curricula.
The result? A creeping privatization that threatens to undermine the very
advantages that make Virginia’s top public schools what they are.
To be sure, state education bureaucrats and legislators call it not “privatizing” but “restructuring.” This euphemism means the schools will
gradually demand tuition closer to what is charged at the top national, private institutions but won’t have to go through the hassle that true privatization would entail — such as the selling of public property and making good on repaying decades of public investment.
There is some logic to this approach: If Virginia’s elite public colleges
start approaching market rates for tuition, the thinking goes, state money could be freed up to spend on lesser institutions. More financial-aid money would become available. The state could use those resources to reach for its goal of 100,000 more students earning degrees. Since 2005, when the concept was formalized in General Assembly legislation, Virginia Commonwealth University added itself to the list of schools willing to trade funding for autonomy.
The same year that “restructuring” was approved, John T. Casteen II, then the president of U-Va., announced an ambitious campaign to raise $3 billion through fundraising. Most of that has been collected, although the effort to raise so much private money at a public school raised eyebrows. More recently, Taylor Reveley, president of William and Mary, proposed
bringing his school’s tuition levels to market rates, which, for a nationally rated private institution, would be about $45,000 a year for tuition, room and board. Out-of-state W&M students now pay $44,854 a year, while in-state students pay $22,024.
Reveley notes that Richmond provides only 13 percent of W&M’s funding,
which is way down from the 43 percent of 30 years ago. This trend has been even more pronounced at other elite Virginia public colleges. At the University of Virginia, the state pays less than 8 percent of what the school needs. At Tech, the process has been slower. In 2000, the state provided 58 percent of the school’s needs; today it’s 28 percent.
Reveley argues that if more in-state parents or students paid full freight,
then his school could offer more generous financial-aid packages to middle- and lower-income students. He also believes that as top schools become more self-sustaining, a second tier of Virginia schools could be given more state funding and raise their own academic standings. These would include Old Dominion, George Mason, James Madison, Radford, Longwood and the state’s community college system.
But there is cause to worry about this argument. At present, many complain that lower-income Virginians have been forced to compete with an increasing number of deep-pocketed out-of-staters, whose higher tuition helps to balance the schools’ books. As those schools look to capture more revenue via in-state tuition, they will face strong incentives to accept a greater portion of in-state students with the means to pay all or most of their own way. And even with increased aid, worthy but less affluent students will confront barriers. Some will simply opt for less expensive, less competitive schools; others will emerge from school more deeply in debt.
Such an uneven playing field is contrary to the spirit of a state-funded
higher education: Why should a kid from affluent Fairfax have a better chance at attending U-Va. or W&M than someone with the same grades and test scores from Big Stone Gap?
I’ve noticed this kind of elitism beginning to appear in “Virginia” magazine,
published by the school’s alumni association. Its pages are filled with four-color advertisements hawking multimillion estates mostly in blue-blood
horse country. The message that’s suggested? “If you can’t afford these kinds of properties, then maybe you don’t belong at Mr. Jefferson’s University.”
Privatization is thought of by Virginia conservatives and even some moderates as a panacea for addressing the state’s budget woes while adhering to the state’s dominant anti-tax ideology. Tax hawks, for instance, constantly dodge the need for higher taxes to pay for highways by tossing the problem over to public-private partnerships. But applying the same thinking to public higher education risks undermining the very purpose of such institutions — building the highly educated middle class needed to keep Virginia competitive nationally and globally.
A straight sell-off of state schools isn’t likely. What is possible, says
James Alessio, chief of higher education restructuring at the State Council for Higher Education, is a steady series of tuition hikes in the 5 to 7 percent range. “Within maybe 40 years, you’ll see tuition at the public schools go to $40,000 or $50,000,” he told me.
Once that happens, the stealthy, half-privatization of Virginia’s academic
jewels will be complete, and probably irreversible. One possible solution comes from the University of California at Berkeley, which announced this month that it will cap tuition at 15 percent of what “middle class” families make, defined as $80,000 to $140,000 a year.
Virginia could try something similar. Otherwise, on its current trajectory, the state is fast moving toward a two-tier public college system heavily based on income — the exact opposite of what public higher education is supposed to be.
Christmas, regretfully, is forced, propagandized consumerism under the guide of market capitalism, albeit in new forms. One is digital sales, of which Amazon is dominant.
Amazon also is about to become a big player in Virginia since it will open distribution centers in Chesterfield and Dinwiddie that will cost $135 million and employ 1,350. Gov. Robert F. McDonnell announced the projects with great flourish. Typically, the Richmond Times-Dispatch played its role as McDonnell’s personal “Pravda” and bannered the news to make us all understand just what a great jobs magnet our photogenic governor is.
To its credit, however, the RTD did break some news. It turns out that Amazon, which is getting $3.5 million from the Governor’s Opportunity Fund and $850,000 from the tobacco fund, will not be required to pay any states sales taxes on the goods its ships to Virginia customers from the two centers.
If you are a traditional, non-digital retailer, you will have to continue charging and paying the usual 5 percent sales tax. You may be competing for the same market with Amazon (2010 sales of $34 billion) but Amazon automatically gets a 5 percent advantage. That, dear shoppers and taxpayers, is Bob McDonnell’s idea of free and unfettered market capitalism.
To be sure, very few states charge a sales tax on goods traded over the Internet. The rationale was, back in the 1990s, was that the Net was waaay too cool to tax. The guys who developed it are waay cool types with a 60s hippie bent, like Bill Gates of Jeff Bezos, and if you make them play by the usual rules, well that’s like, soooo Old Economy. Everyone bought into this nonsense, especially George Allen who lobbied not to tax anything on the Net.
Of course, a lot of these Net heros are really conservatives or libertarians who don’t wear neckties. They are not out for the betterment of mankind, rather the betterment of their bottom lines. Meanwhile, routine mortals, such as journalists like me, have seen our free lance pay plummet because we are forced to accept far less or nothing at all for our content posted on the Web rather than in print. Anyway, that’s my private hell.
This kind of “The Net is Sacred” thinking is McDonnell’s excuse to land needed jobs. No argument about the need. Dinwiddie is mostly rural and can use jobs. Chesterfield has an imbalance of too many subdivisions and not enough industry.
The hypocrisy of the McDonnells is that while they play free market and tight budget and stick it to the schools and retirees and Medicaid recipients, they have no trouble handing out goodies to big firms like Amazon, that have no trouble taking care of themselves. Other states seem to be driving tougher bargains than Virginia. Tennessee got a similarly-sized distribution center from Amazon but also starts getting its sales tax from Amazon in 2014.
Also, it’s not as if big distribution centers are unheard of in Virginia. Back in the early part of the past decade, China was exploding with exports of consumer goods. Hampton Roads was booming. Mid-Atlantic distribution centers were going up from Suffolk and others spots for Wal-Mart, QVC, Target and other big box, mass retailers. I believe they did have to pay the 5 percent sales tax. Of course, the recession cooled that trend and Hampton Roads is stuck with the big box centers while competitors like Baltimore and Savannah eat Virginia’s lunch with other cargo. That’s another story, however.
Among the groups rightly angry with the big Mickey D are members of Richmond’s Retail Merchants Association, who still have to pay that pesky 5 percent sales tax. “The bottom line is that we just want a level playing field,” says Nancy C. Thomas, the group’s CEO and president.
Once again, Times-Dispatch columnist Bart Hinkle proves himself to be an acute observer of the human condition. Today he writes:
The Hinkle household is a blended one, which is to say that half the management is male and the other is female. This usually works out fine until around Christmas, when certain politically incorrect gender stereotypes exert themselves.
At the time of the merger several years ago, the male half’s holiday décor consisted of whatever Christmas cards came in the mail. Pick out a festive one, tape it to the front door, and voila! — you’re done. The female half of the enterprise came with several large storage tubs filled with tree trimmings, lights, stockings, garlands, advent calendars, ribbons, bows, wreaths and so on. This admittedly amps up the holiday atmosphere by several notches, but somebody has to haul it all out and put it all up. So the male half of the household hauls it out and then waits for instructions.
That is exactly the way it works in the Bacon household. Bart left out only one thing. When Christmas is over, the work isn’t. Holiday detritus must be taken down, put back in boxes and hauled back to the attic.
As a consequence, I’ll be out of action for a few days. Aside from the unpacking and repacking of Christmas decorations, the Bacons will be traveling hither and yon,visiting with relatives, eating a lot of food, drinking a lot of eggnog, cleaning a whole mess of dishes and taking long snoozes. I will return to Bacon’s Rebellion as soon as humanly possible.
Virginia faces long-term budget stress due to a slow economy and an outdated tax structure, contends Sara C. Okos, policy director of the Commonwealth Institute, in the latest edition of the Virginia News Letter. “What Virginia needs,” she says, “is a 21st century revenue system for a 21st century economy.”
Okos makes a number of valuable points in this analysis, which renders it worth reading despite its chosen focus on the revenue side of the equation. Needless to say, any budgetary analysis is incomplete if it ignores the dramatic spending increases that preceded the 2007-2008 recession. But one can say only so much in a 14-page publication, so I’ll set that objection aside for the purpose of exploring her revenue-enhancing ideas.
Individual income tax. The state income tax has lost whatever progressive attributes it once had when last updated in 1987. The top tax rate — 5.75 percent — kicks in for taxable income over $17,000. Median income is much higher than it was a quarter-century ago, with the result that more than 60% of Virginia taxpayers pay the top marginal rate. If the top tax bracket had been indexed for inflation, it would be roughly $33,400 today.
Her analysis is indisputable. Her conclusion misses the mark. “Virginia,” she says, “would benefit from altering its individual income tax brackets and rates to reflect the realities of today’s modern economy, demand for public services, and income distribution in the state.” Translation: Make the tax code more progressive. If your goal is making the rich pay their “fair share” (however you define “fair”) then maybe so. If your goal is a stable source of tax revenue, then not. One thing we’ve learned about progressive tax rates in the federal government and state governments like California is that they bring in loads of money when they economy is booming but revenues collapse when the economy slows. Why? Because the income of upper-income Americans is much more volatile.
Sales tax. Two broad economic trends are limiting the take from Virginia’s sales tax, says Okos. First, the sales tax applies only to goods, yet consumer spending is growing more rapidly for services. The majority of states with a sales tax apply the tax, on average, to 40 of 168 potentially-taxable services. Virginia taxes a mere 18, including such blockbuster categories as diaper service, gift-wrapping and tuxedo rental. Secondly, federal law forbids the taxing of Internet sales, which now exceeds more than 4.0% of total retail sales.
Taxing a broader array of services could net the state as much as $900 million annually. Among the advantages, Okos notes: “Bringing services into the sales tax base could reduce the year-to-year volatility of sales tax collections.” Good point! She should think about applying the same principle to her analysis of the income tax. She makes one other interesting point. Taxing services is more “equitable” because the rich spend a larger percentage of their income on services than goods, while the poor spend a higher proportion on goods than services. If your goal is to increase the progressivity of the tax code, this is a better way to do it than increasing the income tax rate. Better it is to tax consumption (the sales tax) than hard work and success (the income tax).
One more note: If we expanded the sales tax to services, I would recommend using the resulting income to reduce some other tax — not to increase spending.
Corporate income tax. Virginia’s corporate income tax stands at 6%. The share of total tax revenue paid by corporations has declined by half since the 1970s. Part of the problem, says Okos, is that a big majority of corporate income tax collections (87 percent in fiscal 2006) are paid by multistate corporations with subsidiaries in different states. These corporations shift income between states to take advantage of jurisdictions in which taxes are lower or where corporations aren’t taxed at all. One possible remedy might be to make Virginia’s corporate tax rate more competitive by lowering it but she doesn’t consider that option. Instead, she says Virginia should mandate the filing of a “combined return,” in which corporations add the income from all their subsidiaries and apportion it to the states where the money was made.
To be perfectly honest, I don’t know enough about the corporate tax law to critique Okos’ recommendation, so I shall keep my mouth zippered on this one.
Tax expenditures. Spending through the tax code in the form of credits, deductions, exemptions and the like costs Virginia roughly $2 billion a year. These loopholes are accumulating and growing. The General Assembly has passed or changed 60 tax expenditures since 1990. Okos suggests, as a first step to plugging these loopholes, that Virginia publish an annual tax expenditure report that is more comprehensive than the partial report issued currently. Writes Okos:
In order to be useful, a tax expenditure report must include several key features. It should contain the intended purpose of each tax break, who benefits and how much they get, and an estimate of total cost. A solid tax expenditure report can shed light on under-performing programs or those that cost far more than was anticipated when the tax break was established. Such a report can also highlight programs that are meeting or exceeding expectations and that yield a high return on investment.
Sound thinking! She also suggests attaching a sunset provision to any new tax-expenditure legislation. I am in 100% agreement with both of her suggestions.
All things considered, there seems ample room to reform Virginia’s tax structure. There are broad areas — broadening the sales tax and limiting tax loopholes — where liberals like Okos and conservatives like me actually agree. The ultimate goals should be a broader, more stable tax base that makes Virginia more economically competitive. Let’s get started!
You don't like subsidizing welfare queens or bank bail-outs. Why subsidize the automobile culture?
by James A. Bacon
Once again, circumstances compel me to deliver a lecture on the difference between taxes and user fees. Gov. Bob McDonnell has forced the issue by proposing to boost spending for Virginia roads by diverting more money from the General Fund. In so doing, the governor would tilt the financing mechanism further from a user-pays system and toward an automobile-subsidy system.
Philosophically, this is fundamental. One principle of governance says, “People who use roads should pay the full cost of building and maintaining them.” The other principle says, “People like driving on roads but don’t like paying for them, so I’ll subsidize their transportation preference with taxes imposed upon the general public.”
Republicans claim to loathe social engineering. They rightly distrust those Greens and environmentalists who want to corral the population into high-density housing and force them to ride mass transit. But Republicans are social engineers of a different sort. They support tax and transportation policies that underpin the auto-centric society. Then, when the cost of those policies becomes prohibitively expensive, they turn to public subsidies to maintain an unsustainable status quo.
Once upon a time, Virginia funded most of its road building through the state motor fuels tax, supplemented by federal grants paid for by a federal motor fuels tax. It wasn’t perfect, but it worked reasonably well. Generally speaking, the more miles you drove, the greater the burden you put on the road system, and the more tax you paid. People who walked to work, biked to work or worked at home didn’t pay as much. The salesman who drove 1,000 miles a week paid a lot more than the little old lady who drove 10 miles a week. There was a rough justice in the tax.
But the Old Dominion has largely abandoned that approach. Through inaction, legislators have capped Virginia’s gasoline tax at 17.5 cents per gallon since 1986. Due to inflation, the purchasing power of that tax has declined by more than half — way more than half, actually, if you consider the inflation in construction costs. But the demand for more roads, bridges and highways has not diminished at all. To maintain road funding, lawmakers have boosted other taxes. But they have done so in a sly, underhanded way: by breaking up the taxes into little pieces that are harder for taxpayers to notice, and relying upon revenue sources that automatically increase over time.
Today, barely one third of the dollars spent by the Virginia Department of Transportation comes from the motor fuels tax. Here’s where the money is coming from this year, according to an October VDOT estimate for Fiscal Year 2012:McDonnell would further sever the connection between those who use Virginia’s roads and those who pay for them by doing three things: (1) Phasing in the transfer of an extra 0.25% of the state’s 4.5% sales tax to transportation over eight years, (2) dedicating 75% of any end-of-year General Fund surplus to transportation, and (3) dedicating an additional 1% of all General Fund revenue to transportation in years when revenues increase more than five percent. Bottom line: within eight years, the motor fuels tax will account for perhaps one quarter of VDOT funding.
Why is that so bad? After all, we use General Funds to underwrite the cost of schools, corrections and Medicaid. Why not roads, too?
Here’s why. When government subsidizes the cost of building and maintaining roads, people drive more. When people drive more, they increase the wear and tear on roads and they aggravate traffic congestion, both of which intensify the pressure on government to raise more taxes. Thus tax subsidies beget more tax subsidies.That is fiscally unsustainable.
By comparison, when government pays for public education, people don’t go out and have more children.When government pays for prisons, criminals don’t go out and commit more crime. When government pays for free health care, Medicaid patients don’t go out and get sicker… Well, actually, people probably do make less effort to stay healthy when they know that someone else will pay for their medical treatment. Bad example. That’s a big reason our health care system is so dysfunctional. It, too, needs to change.
In an economically ideal world, Virginia would eliminate every tax listed above except the motor fuels tax and raise that tax by enough to offset the lost revenue. That would mean roughly tripling the gas tax. Virginians wouldn’t be any worse off — by definition, the tax burden would be the same. Actually, I could make the case that Virginians would be better off: (a) because the tax would be totally transparent and they would know what they’re paying, and (b) they could reduce the amount of tax they pay by modifying their behavior — driving less.
Admittedly, there is one big problem with shifting to an all-motor fuels tax. That tax, as I have oft preached and McDonnell noted in justifying his raid-the-General Fund proposal, is living on borrowed time. Gas tax revenues will decline as automobile gas mileage improves and as people buy more alternate-fuel vehicles. But the solution isn’t subsidizing transportation with General Funds, it’s replacing the motor fuels tax with a Vehicle Miles Traveled tax. Any VMT tax would pose administrative challenges, so we need to start studying the options now in order to get the kinks worked out when it’s time to make the switch.
From a moral perspective, subsidies for middle-class drivers are no more defensible than payments to welfare queens or bail-outs for Wall Street bankers. In every case, government robs Peter to pay Paul. And in every case, there are adverse consequences. Just as welfare breeds a pathological culture of poverty and bail-outs encourage bankers to gamble recklessly with other peoples’ money, subsidizing roads leads to more driving, more gasoline consumption, more congestion, more pollution and greater dependence on foreign oil. Genuine conservatives will oppose McDonnell’s transportation-funding proposals.
Plans to mine uranium in Southside Virginia did not get the boost some had been hoping for now that a 22-month-long review by the National Academy of Sciences and the National Academy of Engineering has been released.
Far from rubber-stamping the plan, the independent analysis reported that there are “significant” health and environmental obstacles with the plan, which would allow mining 119 million pounds of uranium from the properties of several politically connected families near Chatham.
Among those challenges are that Virginia, which must protect the environment and the lives of mining workers, has no experience doing so and lacks any regulations covering mining uranium. The study did not give a go or no-go recommendation but said that mining could occur if proper safeguards were put in place. Getting them will take much time and effort.
In other words, the juggernaut towards the uranium mining idea, which has included all-expenses-paid trips to France for legislatures considering ending a two-decades-long ban on such mining, just got a big, bright yellow caution light, not exactly what proponents had hoped for.
Even supporters started backing away from the idea. Gov. Robert F. McDonnell, who wants to make Virginia “the Energy Capital of the East Coast” seemed to mumble that uranium mining should be done safely. Virginia Energy Resources Inc., which owns 29 percent of the mining project, put the happiest face it could on the report, stating that we now have a “roadmap” to employ the “best practices” in safety that have been in practice in the U.S. and Canada. Mining opponents hailed the report as vindication of their fears.
What’s going to be interesting is the next step. How Virginia’s business elite handles the report and the moratorium will be the determining factor about whether the ban is ended and the mining goes through.
The sad truth is that many of these people see only one side of the energy equation and are loath to consider environmental issues or even get a deeper understanding of energy itself. Instead, legitimate concerns are painted as over-regulation madness by the likes of Barack Obama and his band of socialists. What is sad is that these very critics really have no real idea of what the global energy mix and what the markets really are.
For proof, read a piece of a couple of weeks ago by Barry E. DuVal, the new president of the Virginia Chamber of Commerce who was once mayor of Newport News and a cabinet secretary under Republican Gov. Jim Gilmore. DuVal’s piece was a diatribe against the Obama Administration for not including areas offshore Virginia for exploration and drilling. He also attacked Obama’s concerns about the controversial Keystone XL pipeline that would take fossil fuel energy from an oil sands project in Canada to Gulf Coast refineries. Without a major change in direction from the White House,” DuVal wrote, Virginia won’t be able to drill offshore, expand renewable electricity sources and build nuclear power plants.
A few little problems here. First, there are no known, large deposits of oil off the Virginia coast. There may be natural gas, but nothing certain. If you want to discuss natural gas, one thing DuVal fails to mention, is that hydraulic fracking of Marcellus shale in Pennsylvania and New York, has resulted in an unexpected flood of new gas. The quantity is so great that electric utilities are shifting to gas from coal. As far as nuclear, DuVal seems to have forgotten the August earthquake that pushed the North Anna nuclear plant to its design limits and caused a national review of just how susceptible the country’s nuclear stations are to earthquakes. As for wind, Google plans a huge wind farm just off Virginia’s coast. No mention there. As for the Keystone pipeline, the petroleum is exceptionally dirty. The pipeline will result in zero jobs in Virginia, if you bother to look at a map.
And lastly, for the first time in decades, the U.S. has become a net exporter of energy. This is all happening without Bob McDonnell’s fantasy of the state becoming the “Energy Capital of the East Coast.” The Old Dominion is a huge shipping port for coal exports, but it involves coking coal for steel for skyscrapers in Shanghai and Mumbai and has nothing to do with energy.
So, given the level of understanding of the energy outlook, it should come as no surprise that this crowd will be pushing for an end to uranium mining and pressing on without substantive regulations. We hate regulations. We’re Virginians. In any event, it’s all Barack Obama’s fault.
Gov. Bob McDonnell has submitted a proposed budget for the next biennium that is built upon anticipated revenue growth of 3.3% in 2013 and 4.5% in 2014. Crafted with an eye to maintaining Virginia’s AAA bond rating, which Moody’s Investors Services had placed on credit watch this summer, the governor couples modest spending increases in core areas with several moves designed to shore up the state’s financial strength.
Among the highlights, McDonnell proposes:
Allocating $2.21 billion in total employer contributions to shore up Virginia’s under-funded retirement system, helping make up for previous under-funding.
Boosting the state’s Rainy Day Fund by $132 million in FY 2013 and $168 million in FY 2014, bringing the total to more than $600 million.
Appropriating $50 million to eliminate the accelerated sales tax affecting roughly 7,000 retailers.
Leaving $31 million unappropriated, “reflecting the need for a greater cushion given economic uncertainty.”
The new budget finds more money for Medicaid, K-12 education, higher education, mental health and economic development, and it does so without raising taxes. For the most part, it’s a sober-minded budget for a sobering time.
“I believe government must get more focused and effective,” McDonnell said in a prepared statement he was scheduled to deliver to a joint meeting of the Senate Finance, House Appropriations and House Finance Committees. “That work must occur as we navigate through a financial world marked by crisis and insolvency in Europe, the rise of China and India, crushing debt, shutdown threats and unfunded mandates from Washington and our citizens’ rightful demand that government work better.”
Looking at the big picture, McDonnell takes only one major wrong turn, but it’s a biggie — diverting tens of millions of dollars from the General Fund budget to transportation, which traditionally has relied upon dedicated revenue streams. Refusing to raise the motor fuels tax, McDonnell is abandoning any pretense of a “user pays” principle for transportation funding. That is wrong, wrong, wrong, as I will explain in a future post.
Graphic credit: Brookings Institution. (Click on chart for more legible image.)
by James A. Bacon
While Virginia’s Public Private Partnership Act may be experiencing growing pains as more projects see the light of day and invite public scrutiny (see “The Promise and Pitfalls of P3s“), there is little doubt that PPPs, or P3s, are the wave of the future. Indeed, the United States is something of a laggard in embracing this mechanism, which draws upon private-sector capital and management to build roads and other infrastructure. Europe has roughly five times the P3 investment as the U.S. Even Latin America has availed itself of this option more than the U.S. has.
However, P3s are getting more attention in the United States as resistance to higher taxes starves federal and state government of funds to ramp up more construction projects. Two very recent reports, one from the libertarian-leaning Reason Foundation and the other from the center-left Brookings Institution, are a sign that P3s are gaining legitimacy as a transportation-funding option.
Reasons’ “Risk and Rewards of Public-Private Partnerships” argues that the dynamics of P3s are well understood now that dozens have them have been implemented around the world. PPPs have five major advantages, writes author Baruch Feigenbaum. They (1) deliver needed transportation infrastructure sooner; (2) raise large new sources of capital; (3) shift risk from taxpayers to investors; (4) provide a business-like approach, (5) and enable innovation. “PPPs can be utilized in most types of projects and are most successful in states with strong enabling legislation.”
Imilia Istrate and Roberto Puentes at Brookings make another important point in their paper, “Moving Forward on Public Private Partnerships.” P3s are complex contracts, and negotiating them is not a task best left to amateurs and part-timers. The authors suggest that states develop “public private partnership units,” entities within the government that develop the technical and financial expertise to evaluate, negotiate and monitor P3 projects. It is encouraging to see that the paper specifically cites the the Office of Transportation Public-Private Partnerships in Virginia as one of only three examples of a genuine “public-private partnership unit” among the 50 states.
Virginians should take pride in the state’s recognition as a leader in implementing P3s, but the commonwealth’s enabling law still may need massaging. As I reported in “Promises and Pitfalls,” there is an inherent tension between inviting public input on the one hand and protecting the integrity of the very complex negotiations between the state and the private-sector concessionaire on the other. Citizens have a right to know how these mega-projects will affect them before deals are signed, and they should have some right of of appeal if the terms are onerous. Yet openness and transparency must be tempered by the reality that it would be impossible to ever complete a transaction if the public were involved at every turn and if key negotiating points were politicized.
A related problem is the project selection. The most fundamental question we need to ask ourselves is, “Should this project even be built in the first place?” It is of little comfort to know that a P3 can bring in a project cheaper and faster if we’re building the wrong road/bridge/rail project in the wrong location. In Virginia, the P3 projection circumvents the normal process for approving transportation projects. The Commonwealth Transportation Board is informed of major developments, but its consent is not required. The McDonnell administration is in the process of committing $1.5 billion in state funds to P3s and committing the state to 50- to 80-year concessions, all with toll-backed financing that will cost citizens billions of dollars more, and it does not appear to be accountable to anyone. No avenue exists for appealing unpopular projects.
I’m not singling out the McDonnell administration for blame here, by the way. The problems are inherent in the legislation, not the individuals in charge of carrying it out. And I’m not sure how we fix the problems. But they do need addressing.
Mid-Atlantic Regional Spaceport (MARS) at Wallops Island
by Jack Kennedy
Earlier this month, news of a proposed Virginia tax incentive for sending cremated remains into space went viral around the globe. Stories appeared in Germany, the Arab Emirates, Australia and throughout the United States. Most mocked the idea.
All missed the underlying storyline of opportunity to boost primary satellite payloads at a significantly lower cost than exists today. There is more to the story of the state tax credit than meets the eye.
If Virginia’s Legislature were to adopt a tax credit to seed the Virginia market for launching cremated human remains into low earth orbit, the buyers of mortuary space science would defray costs associated with carrying the primary satellite payloads to orbit. In many cases, the primary payloads of rockets lofting from Wallops Island are scholarly and scientific, involving students learning engineering and science skills.
In other words, Virginia high school, college and university students would have a better chance of lofting miniaturized satellite research experiments to space from Wallops Island at a more reasonable cost if coupled with a secondary commercial payload defraying the costs of the booster rocket. A small satellite (MicroSatellite or NanoSat) is typically less than 1,000 pounds with technology advancing to place them in low earth orbit at a significantly lower cost than the typical NASA suborbital sounding rocket.
Universities throughout the United States today are participating in various NanoSat space launches as a secondary payload. One such program is the University NanoSat Program administered by the United States Air Force. A similar program is underway among Kentucky universities under the moniker “Kentucky Space.”
While Virginia’s universities have yet to take a networked leadership position in building and flying NanoSats to low earth orbit, the time is right for them to make it so. The University of Virginia, Virginia Tech, Old Dominion University, James Madison University, George Mason University and others need to have such a discussion.
For example, Thomas Jefferson High School students have built a 10-centimeter cube satellite that weighs less than 1.2 kilograms. The Fairfax County students plan to place their space satellite into orbit from Cape Canaveral, Florida in 2012 after having it tested this month at Virginia headquartered Orbital Sciences Corporation.
High profile efforts like the Apollo program have come and gone. The space shuttle has been retired after 30-years of service. Government-sponsored launch programs are in demise. The entrepreneurial market for space access is emerging with a more diverse cast of actors.
Small, entrepreneurial rocket-launch firms are building markets and driving down costs. Unique and unusual means to generate cash flow will sustain business and provide access to space for the next generation of earth and space science researchers.
Virginia can seed lower cost university and high school space science experiments by boosting the economics of an underlying secondary satellite payload – human cremated ashes. Orbital Sciences Corporation, a Northern Virginia firm, first entered this unusual market when it flew human cremated remains as a secondary payload aboard a Pegasus air launch rocket in 2002.
The proposed tax credit exclusively for Virginians has a sunset provision after a few years. The chances of taxpayer costs exceeding more than a hundred thousand dollars would be slim. The opportunities created for science and engineering education may be significant, however.
Del. Terry Kilgore’s bill is already a success in generating worldwide media attention to Virginia’s emerging commercial spaceport and the tourist opportunities along the Eastern Shore. More Virginians will learn of their spaceport as well. Given serious effort, it may launch new science and innovation making the primary NanoSat payloads a more viable proposition.
If journalists resist the temptation to make the space burial legislation the butt of sarcasm, Virginia may continue as an innovative space policy leader. Building a capital nexus between student-driven NanoSat primary payload launches and the underlying secondary payload of cremated remains will provide a unique pathway to build a more dynamic Virginia space access market.
This column responds to a story, “HB19: Fly (What’s Left of) Me to the Moon,” posted by Groveton last week. The author, Jack Kennedy, is an attorney and former member of the state legislature. He holds a MS in Space Policy from the University of North Dakota. Contact him at [email protected].
Norfolk view of the MidTown Tunnel. Photo credit: Virginia Department of Transportation
The $2.1 billion Midtown-Downtown Tunnel project will alleviate some of the worst traffic congestion in Hampton Roads. But the deal raises questions about transparency and accountability in Virginia’s public-private partnership law.
By James A. Bacon
Last week state officials and their private-sector partners took the podium at the Governor’s Transportation Conference in downtown Norfolk to describe the $2.1 billion Midtown-Downtown Tunnel project that had received the final go-ahead only days before. Chris Guthkelch, Elizabeth River Crossings (ERC) project director, described the engineering feat of moving 1.5 million cubic feet of sediment and depositing eleven massive sections of tube-tunnel, barged down from Baltimore, onto the river floor so they aligned perfectly. Dennis Heuer, Hampton Roads district engineer for the Virginia Department of Transportation (VDOT), explained how upgrading the tunnels linking Norfolk and Portsmouth would reduce congestion, improve safety and boost regional productivity by between $174 million to $254 million annually.
But across the river in Portsmouth, details of the massive public-private partnership were not being received very well. Local officials expressed outrage at project financing that would impose tolls of $1.59 for cars during off-peak hours and considerably more for trucks and cars during peak hours. In future years, tolls will escalate at the annual rate of 3.5% or the Consumer Price Index, whichever is higher. Adding insult to injury, ERC will begin collecting tolls in 2012, five years before the project is even complete and the public experiences any benefit from it.
Addressing a crowd outside City Hall, Portsmouth Mayor Kenny Wright vowed to roll back the tolls. He called upon other cities in South Hampton Roads to join the effort. The state might have signed a comprehensive agreement, locking in the arrangement for 58 years, but Wright had only begun to fight. “This thing is far from over,” he said. “It is never too late, even with a signed contract, to negotiate how the tolls will be implemented.”
Public-private partnerships like the Midtown-Downtown Tunnel are incurring closer scrutiny now that the McDonnell administration has announced a series of new projects and promised a “pipeline” of other deals in 2012. As conventional sources of road-construction funds are eroded by inflation and mounting maintenance needs, McDonnell has turned to debt – his administration will borrow $4 billion for road construction – and P3s, as the public-private partnerships are known, to fill the gap. He is counting on the P3s to attract billions of dollars of toll-backed private investment to build projects the state never could afford otherwise.
In early December, the administration announced a series of major deals in quick succession. First, news broke of the $2.1 billion Midtown-Downtown Tunnel agreement. The next day, the governor announced an agreement in principle for a $940 million HOT lanes project on Interstate 95. The day after, word came that the state would invest $124 million to advance the Coalfields Expressway. Meanwhile, the newly formed Office of Transportation Public Private Partnerships (OTP3) is actively working on a deal to upgrade U.S. 460 between Petersburg and Suffolk to Interstate standards, a project that also will require significant state funding. The OTP3 is expected to release a list of other projects under consideration next month.
But even as the McDonnell administration charges ahead, making good on the governor’s campaign promise to “get Virginia moving,” critics are getting more vocal. While the critique of individual projects may differ, depending on details, several common themes are emerging:
The P3 enabling legislation provides for little accountability. Citizens can’t see critical details of a transaction until the deal is already done, and there is no effective appeal.
Concessions take the form of long-term agreements – 58 years in the case of the Midtown-Downtown Tunnel, 73 years for the I-95 HOT lanes – that effectively lock in transportation policy for decades to come.
Some contracts contain clauses that either protect private-sector partners from competing projects or compensate them for lost revenue from future public investments, including mass transit service.
P3 projects are suitable only for mega-projects that generate revenue from tolls or, possibly, special tax districts. By circumventing the usual process of review and approval by the Commonwealth Transportation Board for the expenditure of state money, projects jump to the head of the line and lay claim to scarce state dollars that could be more effectively spent elsewhere.
Transparency vs. Confidentiality
“I’m furious. The price of the tolls is too high and the governor signed this deal without consulting the mayors of the cities affected. We haven’t had a chance to weigh in and it’s not fair.”
— Portsmouth Mayor Kenny Wright
An inherent difficulty in crafting a public-private partnership law is the need to strike a balance between transparency and public involvement on the one hand and the confidentiality required to negotiate complex transactions on the other. McDonnell administration officials maintain that current law makes reasonable trade-offs.
“Our function is to deliver a completed project to the people of the commonwealth,” says Tony Kinn, the McDonnell administration’s point man on transportation public-private partnerships. “There are a lot of checks and balances.”
Those checks and balances can be seen in the process by which the Midtown-Downtown Tunnel reached final approval. VDOT solicited conceptual proposals in May 2008. When Elizabeth River Crossings submitted a proposal in September, VDOT promptly posted it for public inspection. An Independent Review Panel (IRP) held five meetings, including two public hearings, between February and June 2009 and recommended that the proposal be kicked back to VDOT for more work. During that evaluation phase, says Dwight L. Farmer, director of the Hampton Roads Metropolitan Planning Organization and member of the 12-person panel, the proposals were an “open book.”
In January 2010 VDOT and ERC executed an interim agreement to do more detailed work. Those deliberations were not open to the public. Still, as discussions progressed, VDOT released important details. In May 2010, then-acting VDOT Commissioner Gregory Whirley made a presentation to the Commonwealth Transportation Board that contained a project estimate of $1.9 billion. He also revealed that in the base case tolls would be $2.17 for cars with transponders in off-peak hours, but expressed the goal of buying down the tolls with subsidies to $1.50 per car in off-peak hours. Those numbers proved reasonably close to the figures contained in the final agreement executed a year-and-a-half later. However, many important elements, such as the length of the concession, the size of the state contribution and the toll price escalators had yet to be worked out.
In November 2010, VDOT also delivered a “Hampton Roads legislative briefing.” (Although there is a link on the VDOT website to the presentation, the document is not functioning at the moment. The link displays an error message.)
In January 2011, VDOT and ERC entered into “comprehensive agreement negotiations.” Those talks were highly confidential. A half-year later, in July 2011, however, discussions had progressed to the point where the new P3 czar, Tony Kinn, could describe “major business terms” to the Commonwealth Transportation Board. He provided information about toll rates, the toll escalation provision, the duration of the concession, the size of the state contribution and other key terms and conditions.
Throughout the process, VDOT posted studies, press releases, presentations and other documents on a Midtown-Downtown Tunnel website nested within the VDOT website. Content includes a project timeline, procurement and environmental schedules, 14 different technical studies, seven press releases, links to Virginian-Pilot articles, a newsletter (with only one edition), presentations made at four public meetings, minutes of the Independent Review Panel, a document library and answers to FAQs.
“The question is,” says Farmer, the MPO official, “when do you re-engage the public?” There is no easy answer. The process must respect the proprietary nature of the proposals that companies submit to VDOT, he says. Businesses can spend millions of dollars fleshing out their ideas. “You can’t reveal to your competitors what you’re thinking,” he says. Furthermore, negotiations can be protracted and contentious. It would be counter-productive to conduct delicate talks in the public arena.
Those are legitimate points, critics say. But the result is that public input effectively ceases after the Independent Review Panel. Although the CTB was informed of major developments as they played out, the statewide board has no authority to veto the project. Once McDonnell announced the comprehensive agreement, which runs 160 pages plus dozens of exhibits, the transaction was done. If someone has a problem with the contract, there is no appeal. Unless the state is willing to pay significant penalties, there is no opening the deal for renegotiation.
Experience has shown, says Trip Pollard, an attorney with the Southern Environmental Law Center, that the public-private partnership act “shifts power from the CTB and the legislature to VDOT.” The law, he contends, empowers the governor of Virginia to commit to long-term, multibillion-dollar contracts with minimal accountability or oversight. And that should worry people.
Tolls, Competition and Risk
A project like the Midtown-Downtown Tunnel will define Hampton Roads’ transportation future for the next six decades. No one disputes the desperate need for some kind of improvement. Roughly 38,000 vehicles per day pass through the narrow MidTown Tunnel and travelers routinely spend a half hour in bumper-to-bumper traffic during rush hour. Addressing the bottlenecks at the Midtown Tunnel, the Downtown Tunnel and Martin Luther King Boulevard, an inter-related set of projects, is critical, says Kinn. “The benefit of those projects is huge.” The state does not have the money. The public-private partnership gets the job done.
But does Elizabeth River Crossings offer the best long-term solution for the region?
That’s hard to say because the deal locks terms and conditions into place for 58 years. The project addresses real needs today, but no one knows what the state’s transportation needs will be 20 years from now, much less 40 or 60 years from now. No one knows what new technologies, economic trends or land use patterns might transform the transportation landscape. One could argue that a more flexible, more adaptable, arrangement would better serve the region in the future.
But not only will the deal lock in tolls for the next two or three generations, it will lock in escalating tolls. Hampton Roadsters will start out paying $1.59 for cars during off-peak hours. After years of escalating at a minimum rate of 3.5% annually, tolls will climb to $12 by 2075.
One can argue that the tolls aren’t so bad. VDOT estimates conservatively that the tolls will save drivers 15 minutes each way, a total of a half hour for a round trip. Assuming drivers value their time around $16 an hour on average (the figures used by the Texas Transportation Institute in its Urban Mobility Report) that represents a time savings valued at $8. Thus, $3.18 in tolls ($3.68 during rush hour) buys $8 in time savings. “As the economy improves,” says Kinn, “those terms will lessen.”
The contract also limits the state’s ability to make other improvements that might compete for, or siphon off, toll revenue. ERC can file for compensation if VDOT undertakes initiatives such as new bridges that divert traffic from the tunnels.
Kinn stresses that the contract does not contain a non-compete clause. The state can make any improvements it wants. However, he concedes, certain state actions could trigger “compensation events.” If after detailed study it can be shown that the state damaged ERC’s revenue stream, the concessionaire can submit to the state for compensation.
Another sticking point for regional Hampton Roads officials is the fact that the tolls won’t go just to pay for new construction but to address tens of millions of dollars in backlogged maintenance needs the state should have addressed years ago as well as maintenance going forward. In effect, Hampton Roads motorists will be paying for maintenance twice – once through the motor fuels tax, the revenue source that pays for maintenance across the state, and again through tolls.
That’s true, says Kinn, but VDOT is offsetting much of the double-taxation effect by contributing $362 million in state dollars to the project and buying down tolls.
Yet another objection is that the public has no way to judge whether VDOT drove a hard bargain. ERC will contribute $318 million in equity and borrow the rest. It is not known from public documents what profit margins ERC expects to earn. Is it the same rate as, say, a regulated electric utility? Or will ROI run higher on the grounds that the company is taking greater risks that traffic volumes and revenue might not materialize? There is no requirement in the Public Private Partnership Act for letting the public know.
Similar concerns apply to other public-private partnerships around the state.
In a draft white paper he has circulated, Pollard, the SELC attorney, raises other issues. P3s circumvent the environmental review process by advancing a project before alternatives have been evaluated, he says. Requirements for competitive bidding are inadequate, he adds: It’s too easy for the company proposing a project to establish a sole-source arrangement. Also, he says, projects can lead to more driving, sprawl and environmental damage. “Most PPTA projects built or proposed thus far,” he writes, “have been highway construction that will subsidize sprawl and increase motor vehicle dependence, destroying open space and increasing air and water pollution.”
Pollard argues that the Public Private Partnership Act needs to be amended. Projects should be limited to those already contained in state transportation plans, he says, not ideas dreamed up by a private-sector player looking for business. Among other changes he seeks: The public should be allowed to comment before a comprehensive agreement is signed, and the Commonwealth Transportation Board should be required to sign off.
“Experience with PPTA projects and proposals,” writes Pollard, “indicates that the statute is seriously flawed and raises significant doubts about how effectively it serves the public interest.”
=============
This article was made possible by a sponsorship of the Piedmont Environmental Council.
Gov. Bob McDonnell is asking the General Assembly to hurry the phase-out of one of the jinkiest budgetary gimmicks ever foisted upon the people of Virgina, the so-called “accelerated” sales tax. About time! Too bad we can’t finish the job this year.
The 2010 General Assembly required larger retailers — anyone with $1 million or more in taxable sales — to pre-pay a portion of their July 2010 sales tax remittance in June, thus collecting an extra month’s revenue with which to close the budget gap. In the 2011 session, the legislature partially rolled back this abusive and dishonest expediency by raising the sales threshold to $5.4 million, thus exempting some 7,000 merchants and decreasing revenue by $45.7 million.
McDonnell’s proposal would raise the threshold again to $26 million in sales, exempting another 1,400 dealers from the accelerated tax at a cost of roughly $50 million. “I have always opposed the policy of playing budget games with sales tax receipts,” the governor said in a press release. “The accelerated sales tax can feel to retailers like a ‘double tax.’ It penalizes Virginia retailers and merchants and skews states revenues. It is bad policy and it needs to be eliminated as quickly as we can. ”
The accelerated sales tax was the ugly, co-joined twin of the General Assembly’s decision to cut payments into the Virginia Retirement System. Both maneuvers in essence took money that didn’t rightfully belong to the state and eventually would have to be phased out at considerable cost. McDonnell is doing the right thing. It’s the very least we expect from a state that purports to be serious about maintaining its AAA credit rating, and it’s exactly the kind of thing I’m talking about when I say we need to “bullet proof” the state budget.
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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