Bacon's Rebellion

by James A. Bacon

The Commonwealth Institute has peered into Virginia’s fiscal future and doesn’t like what it sees. The state faces another $500 million budget gap next year, and a $300 million gap the year after that, meaning that the prospects of restoring cuts to education, health care and public safety are bleak.

Although tax revenues are recovering, they remain below pre-recession levels, write Sara Okos, Laura Goren, and Michael Cassidy in “In the Red: Early Warnings About Virginia’s Fiscal Outlook.” (Click chart for more legible image.) Meanwhile, prolonged joblessness and poverty require more spending on social services such as food stamps, Medicaid and Temporary Assistance for Needy Families (TANF).

Not only is the economic recovery anemic, the state has significant obligations like replenishing the Rainy Day Fund, repaying the Virginia Retirement System funds it borrowed, and repaying the federal government for unemployment-insurance money it borrowed. Also, funds from the federal stimulus package (the American Recovery and Reinvestment Act) will have expired. Write the authors:

Inadequate revenue growth, coupled with the loss of Recovery Act funds, and increasing other demands on state resources will likely place Virginia on red alert unless action is taken. This could hinder much-needed investments and innovation in public education, health care, public safety, and economic and workforce development.

I share the Commonwealth Institute that Virginia’s conviction that the fiscal situation looks dire, and I believe the think tank deserves credit for bringing the issue to the public’s attention in a more authoritative way than I have been able to do. However, I do take issue with conclusions it draws from its fiscal analysis.

The Institute contends that state and local spending cuts and accompanying layoff of 6,000 employees have “impeded” the economic recovery. Not so. Given the reality that state and local governments must balance their budgets, the only alternative to layoffs would have been increasing taxes. Higher taxes would have killed jobs. Moreover, higher taxes kill private-sector jobs, not public jobs. As some commentators on this blog need reminding, private-sector jobs are more valuable fiscally than public-sector jobs because private-sector employers pay taxes — property taxes, BPOL taxes and corporate income taxes — that governments do not. Offsetting the loss of private-sector jobs with public jobs is a sure-fire way to erode the tax base.

Likewise, the Institute argues that a “cuts-only approach” to balancing the budget will hurt economic recovery. Maybe, but it would hurt less than raising taxes a like amount. The fact is, Virginia is in a fiscal jam and there is no easy way out. Instead of adopting a strategy of spending more money to meet core responsibilities, we should prioritize spending on programs that offer the greatest economic, fiscal and social return on investment.

How to Hold Higher Ed More Accountable
National Governors Association
States need to insist  upon greater productivity at public colleges. A starting point is to track basic data like how many students are graduating, and how well are colleges meeting industry’s needs for an educated workforce?

How Much Is that College Degree Really Worth?
National Bureau of Economic Research
Parents would like to know, and policy makers should know, how much a college education contributes to a students’ future earnings. This study finds that the earnings premium of prestigious state universities is close to zero.

How Community Colleges Can Help Build a STEM-Savvy Workforce
National Governors Association
At least eight million of the jobs available to college graduates in 2018 will be in the science, technology, engineering and mathematics (STEM) professions. States should look to community to colleges to help build that workforce.

Reengaging College Dropouts
National Governors Association
Nearly 400,000 kids drop out of school every year. States need to set goals to reduce the dropout rate, track the data and provide more options for recovered dropouts.

A Demographic Portrait of Charlottesville
Weldon Cooper Center for Public Service
The Demographics and Workforce Group at the Weldon Cooper Center has published a demographic profile of Charlottesville. It’s worth a look to see the analysis of rising housing prices and gentrification.

The Latest Effort by Wine Wholesalers to Thwart Competition
Competitive Enterprise Institute
Recent court rulings have challenged anti-competitive state laws regulating alcohol wholesalers. Now wholesalers are trying are lobbying Congress to allow states to discriminate against out-of-state wineries.

Tax Holidays Are Poor Public Policy
Tax Foundation
Tax holidays like Virginia’s yearly sales tax exemptions for the purchase of back-to-school and hurricane supplies are an ineffective gimmick that distracts lawmakers from fundamental tax reform.

Should States Exempt Groceries from the Sales Tax?
American Enterprise Institute
Virginia is one of 43 states that provides a full or partial exemption for groceries from the sales tax. There are more efficient ways to help the poor.

Local Law Enforcement Needs to Do a Better Job of Reporting Missing Children
Government Accountability Office
Missing children who are not found quickly are at increased risk of victimization. Local law enforcement efforts to report missing children to the national database are patchy.

By Peter Galuszka

Moody’s Investor’s Service has rained on Virginia Gov. Robert F.
McDonnell’s parade.

On the day the Republican governor was proudly announcing a $311 million budget surplus with the prospect of being even $40 million more in the black, the ratings service announced that Virginia could be one of five states to see its pristine AAA credit rating tarnished if Congress and President Obama don’t reach a budget deal and raise the federal debt limit by Aug. 3. The news came just as McDonnell was beaming about the surplus, some of which comes such schemes from deferring payments to the state pension system.

“I’m very unhappy. In fact, we’re furious” about the ratings problem, he said at a news conference. I guess I can understand why. Virginia has had the best possible credit since 1938. McDonnell has come on strong, rightly or wrongly, as a paragon of fiscal responsibility. This is his party credo and raison d’être. If he goes down in history as the governor on whose watch the state’s credit rating was downgraded, despite plenty of Democrats having been in the governor’s mansion over the years, well, it won’t look good.

Another issue is McDonnell’s stubborn refusal to acknowledge that, whether he likes it or not, Virginia is a major locus of federal jobs. The Old Dominion is chock-a-block with defense and intelligence installations, along with other units such as the Federal Aviation Administration, and so on. This is one of the reasons Moody’s served notice on such high-government-worker states as Maryland, South Carolina and Tennessee. If the feds lose their AAA credit rating, so, too, will the places where they employ a lot of people.

In his quest for jobs, McDonnell always puts special emphasis that the ones he’s helped create are “private,” as if that’s somehow more politically correct than having more public-sector jobs. Government work doesn’t fit with current GOP dogma. Apparently, federal workers are less desirable and certainly greedier than their private-sector counterparts.

Of course, that’s nonsense, and McDonnell ought of to know it. He grew up in Northern Virginia, a haven for the civil service, and was educated in defense-saturated Hampton Roads. Federal money has saved Virginia from having a much higher unemployment rate than it does.

If McDonnell is worried about what Moody’s might do, he does have a
remedy at hand, though. It’s simple. Call up his fellow Republican,
House Majority Leader Eric Cantor, and tell him to stop acting like a
spoiled kid and work for a bipartisan way out of the federal budget
mess. It’s a win-win thing they both should understand.

(Previously posted and printed in The Washington Post)

by James A. Bacon

Gov. Bob McDonnell is chapped that the inability of the buffoons in the nation’s capital to reach a budget deal and raise the debt ceiling could impact negatively on Virginia’s AAA credit rating. He made the comments last week in response to news that Moody’s Investor Service had put the state rating on a review downgrade list because of its reliance on federal funding. (See the Times-Dispatch article.)

I am sympathetic to a degree. Democrats and Republicans in Washington, D.C., are playing a game of chicken — the car is heading toward a precipice and the first guy to take his hand off the wheel loses. Unfortunately, the American economy is in the back seat. There could be a lot of collateral damage, including Virginia’s AAA rating.

On the other hand, Virginia’s dependence upon the federal government is no secret. I’ve been harping upon it for a long time on this blog. I’ve also argued, on the grounds that federal default on its debt is highly likely within the next 15 to 20 years as I explained in my book Boomergeddon, we need to get our fiscal house in order while we still can. The first order of business is increasing the strength of the commonwealth’s balance sheet — paying down long-term debt, not adding to it. The second order of business is de-coupling the Virginia economy from its excessive reliance upon federal spending for economic growth.

What has McDonnell done? Well, he championed a transportation-funding plan built around the borrowing of $3 billion, thus pushing state indebtedness to the limit of what it can handle without jeopardizing its AAA rating. Also, his economic development strategy has emphasized attracting more federal investment in the state, thus making our economy even more dependent upon the fiscal health of the federal government.

It’s fine to lecture Congress — we all do it! But that’s no substitute for crafting sound fiscal and economic development policy. If the debt ceiling talks do crash, pointing a finger of blame at Congress won’t cut it. Moody’s won’t be impressed. One thing Moody’s will want to know is what contingency plan the governor is developing in case Uncle Sam does run off the cliff. Do we have a plan? If we do, the governor hasn’t made it public. I have submitted an email request to McDonnell spokesman Jeff Caldwell for details.

Here is Caldwell’s response: “Because we do not know a) if a deal will come together to mitigate the impact, b) what that plan would entail or c) what cuts will be made and how they will be made if no deal is reached, we really cannot ascertain the size or scope of any impact to Virginia. We have been examining areas where we think there could be impacts, but cannot make any firm contingency plans because of the uncertainty of what impacts we may see from the federal government.”

Fair enough. The uncertainties are massive.

A couple of days ago I caught some flak for daring to suggest that some Virginians drawing public benefits might be committing fraud — failing to report under-the-table income in order to qualify for food snaps, Medicaid, rental assistance or whatever. How beastly of me to cast such aspersions! What proof did I have? (See “Poverty Does Not Mean Destitution.”)

Heh! The timing couldn’t be better. James O’Keefe, the conservative investigator of ACORN-busting fame, has released a video of one of his accomplices posing as a Russian drug dealer filing for Medicaid benefits for his sister and father. When he asked if he would get in trouble for reporting income from his illegal drug and prostitution businesses, he was instructed, “Just leave that off your application.”

The fact that an undercover investigator with a preposterous story is given license to cheat doesn’t prove that other people cheat. But the incident certainly does raise issues about how effectively the Medicaid eligibility rules are enforced. Do Medicaid case workers see themselves as advocates for applicants, or as stewards of the taxpayer’s dollar? In this one case, at least, the answer is very clear.

Gov. Bob McDonnell has the right idea with a new pay-for-performance system the state will be piloting in 25 schools across the commonwealth in the next school year. It would be foolhardy to expect miraculous results, but if the results are even mildly encouraging, Virginia public schools will have a new tool for recruiting and retaining the best teachers.

Participating schools must implement performance standards and a teacher-evaluation system that bases 40 percent of a teacher’s evaluation on student academic growth. The General Assembly set aside $3 million for the program, which will provide bonuses of up to $5,000 for teachers who win exemplary ratings.

“There is a growing consensus,” said McDonnell in a prepared statement, “that public schools must move beyond a compensation model that equally rewards mediocrity and excellence and is rooted in a past when our young people did not face fierce global competition. Bipartisan support – at both the state and federal levels – is allowing Virginia to implement performance pay in some of the Commonwealth’s most hard-to-staff rural and urban schools. I look forward to this program getting underway. It will benefit our students, parents and teachers.”

It’s a good idea in theory. Teacher quality is the single-most important in-school factor influencing student achievement. Research consistently shows that students learn more from the best teachers. It especially makes sense  for schools in the inner city and the countryside to reward their best teachers. As Roanoke Superintendent Rita D. Bishop said in the press release, “We have had some success with signing bonuses but still lose too many teachers to surrounding divisions. By participating in the performance-pay pilot, we are able to provide additional incentives for talented teachers to remain in four of our schools where they can make a real difference in the lives of students.”

If designed properly, the pilot programs should answer some important questions. Is the uncertain prospect of a $3,000 to $5,000 bonus enough to motivate teachers to do better? Will teachers buy in to the validity of the methodology for calculating gains of their students’ educational achievement? Should teachers even be rated on individual performance when teaching is increasingly team driven? New York City has just announced that it was dropping its three-year performance-bonus program, noting that it had no discernible effect on student achievement.

Virginia’s program is designed very differently than New York’s, which was geared to rewarding the collective performance of teachers and staff. Still, it would be remarkable if Virginia got all the details right on the first try. Before rolling it out statewide, the McDonnell administration should be prepared to tinker with the program for three or four years in order to get it right.

One last point: Ideally, the pilot project would follow the social-science protocol described in “Evidence-Based Social Policy” to ensure that the findings, whatever they are, leave no ambiguity. Otherwise, the politicians and educrats evaluating the results will revert to their default positions and little useful knowledge will be gained.

Out-of-Wedlock Births and the Culture of Despair
National Bureau of Economic Research
Out-of-wedlock births among women in low-income households arise from a culture of hoplessness and despair that is more likely to take hold in communities marked by inequalities in wealth.

Oregon Boosts Health Coverage Despite Recession
Oregon Center for Public Policy
Despite adverse fiscal conditions, Oregon has been able to expand its health care coverage for children and low-income households.

The Changing Demographics of Head Start Kids
Urban Institute
Head Start programs are comprised of increasing numbers of Hispanic and Asian kids. Time for Head Start professionals to start brushing up on their Spanish and Cantonese.

Neighborhood Early Warning Systems
Urban Institute
Neighborhood Early Warning Systems (NEWS) are valuable statistical and analytical tools for groups working to revitalize neighborhoods.

The people can’t afford to buy cars? Let them drive limousines?

— James A. Bacon

Succumbing to public pressure, the Metropolitan Washington Airports Authority (MWAA) has back-peddled on its plan to build an underground rail station as part of the Rail-to-Dulles Metro rail extension. That will chop about $300 million off the $3.8 million price tag for Phase 2 of the project. But negotiations continue between federal, state and local authorities on what still needs cutting and how to pay for what remains. (See the WaPo account here.)

The MWAA board endorsed the framework of a deal brokered by U.S. Transportation Secretary Ray LaHood. It’s not clear from any of the reporting that I’ve seen whether that includes pushing for maximum competition in the construction bids by eliminating the requirement for a union-shop Project Labor Agreement. That move could potentially save another $300 million.

— James A. Bacon

Maine Leads the Way in Market-Driven Health Care
Heritage Foundation
Maine tried Obama-styled health insurance reforms and found they didn’t work. Now the Pine Tree State is trying market-based reforms.

Time for Progressives to Think Natural Gas
Progressive Policy Institute
Want to get a fast, cheap, 10-20% reduction in U.S. greenhouse gas emissions? Back out oil- and coal-fueled electricity by fully utilizing existing natural gas power plants with excess capacity.

States Fail to Report Many Clean Water Violations
Government Accountability Office
States can do a better job of reporting clean drinking water violations.

Public Sector Unions Influence Wages More than Pensions
Center for Retirement Research
Pension benefits are legislated, not bargained, putting a premium on lobbying influence, not union membership numbers. But union clout does seem to influence bargaining outcomes for wages.

By Peter Galuszka

Moody’s Rating Service is about to pull the rug from under U.S. Rep. Eric Cantor and Gov. Bob McDonnell. It’s about time they had a reality check but too bad it will be so expensive.

Moody’s says that Virginia is one of five states whose credit it might downgrade if the federal government misses its deadline to raise the debt ceiling and go into default. A primary reason is that Virginia depends very much on federal jobs given its proximity to Washington and its many military bases.

This may be news to Eric Cantor, the House Majority Leader, who is pushing a childish campaign to demolish any negotiated deal for raising the debt ceiling while addressing federal spending.

After voting for just about every budget hike George W. Bush presented, Eric the Boor, is now playing Tea Party by insisting on huge federal cuts while playing chicken with our future.

He seems to think that it is good politics to run head of the Tea Party parade while also servicing his biggest campaign donors, namely Goldman Sachs, Bank of America, Capital One Financial, and others. They all stand to pay more if some of Grand Bargains go through. Managers of billion dollar and largely unregulated hedge funds might have to (sniff, sniff) pay 15 percent extra in fees. The ultra-rich might have to pay more taxes. Imagine!

Bob McDonnell is trying hard to be our Jobs Governor. He says he’s created thousands of private sector jobs while balancing the budget.

He seems to forget just how dependent Virginia is on the evil federal government which might not be able to write checks after Aug. 3.

Both Cantor and McDonnell have made careers playing the anti-tax, anti-spending, anti-Washington game. It is make believe given the reality of the state’s true employment picture and who pays the bills.

Want to see how it affects you and me? If Moody’s takes us down a peg, then we’ll all be paying more for Transportation Secretary Sean Connaughton’s billions in bonds for questionable roads. Virginia’s years-old reputation will be squandered.

And who will have done it? The very people who claim to be the most fiscally responsible.