Tag Archives: Stephen D. Haner

Clean Virginia: A Powerful Swing That Misses

The full list of elements covered by Clean Virginia’s so-called “Dominion Tax”.  Click to see a larger copy.

Clean Virginia’s recent report accusing Virginia’s two investor-owned electric utilities of annually “taxing” their customers $254 or $89 respectively has a strong basis in fact, and beautifully packages the information, but ultimately is flawed and unfair.

Which is a shame, because the basic premise is correct.  The utility regulation process in Virginia has been badly subverted, the regulators disabled, enriching utility shareholders at the cost of shareholders.   Reading the entire report tells the story of how every well, and I endorse (and recognize) many of their recommendations.   But be very wary of that “tax” figure.

Read the Washington Post’s account and others uncritically and you will assume that you, average residential customer, could be paying $20 a month less to Dominion Virginia Energy or $7 less to Appalachian Power Company.  Those figures might be used in political conversation (such as by somebody’s opponent in a primary) or regularly cited by Dominion opponents in legislative debate.

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Fools Rush In: Coal Ash Scene Setter

Coal ash pond at Bremo Power Station. Photo credit: CBS 19

“I hate to give out directions without knowing what the cost is going to be.  There’s far too much of that in government.” 

That was Senator Frank Wagner of Virginia Beach expressing his deep reservations about various proposals to deal with the 27 million cubic yards of coal ash that Dominion Energy Virginia has collected over decades near its major power plants.  Wagner, who chairs the Senate Commerce and Labor Committee, was part of a joint subcommittee of that committee and its House counterpart that heard testimony  Monday but took no actions.

Legislation is coming.  Coal ash disposal in 2019 might turn into a replay of grid transformation in 2018, an omnibus electric utility regulation bill that takes on epic and expensive proportions as it moves through the legislative process.  It will also be a textbook example of what happens when legislators jump in to make billion-dollar decisions that could be made a better way.

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Green Virtue, Certified By The Hour

Is it enough to be green and virtuous on a month by month basis, or must one be green and virtuous every hour of every day?

That is a facetious version of a real question facing the State Corporation Commission as it considers the most recent effort by Dominion Energy Virginia to create a 100-percent renewable energy tariff for its residential and smaller commercial customers. A hearing examiner who has looked at the year-old case recommended last week that monthly virtue will be enough.

This is a case that pits consumer choice against a utility’s monopoly, and a small window for choice may close if this new voluntary tariff is approved. 

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Will Yellow Jackets Come To Richmond?

Gilet Jaune

I keep wondering when the new French fashion rage, the yellow safety vest or gilet jaune, finds its way across the Atlantic.  The next few weeks may provide some motivation in Virginia, because the General Assembly returns with financial pressures high and consensus in short supply.

Tuesday morning the 2019 General Assembly sees its opening ritual, with Governor Ralph Northam standing in front of the combined money committees to outline his financial plans.  The speech is probably written, the cartons of printed budget bills probably on a truck heading for the State Capitol, and the on-line posting has undergone its final edit.

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Read All About It: The Virginia Way

Former Lieutenant Governor Bill Bolling

In his defense, you must realize that Bill Bolling is not a lawyer, so he couldn’t do what some lawyer-legislators do at the end of their careers and become a judge.  With the Virginia Retirement System’s pensions based on the highest salary period, you must top out as governor or attorney general or a cabinet member or judge, something with a real salary if you want that monthly thank-you-for-life from the taxpayers to have any zeroes on it.

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JLARC: Discount Incentive Benefits By 90%

Click for larger view. Source: Joint Legislative Audit and Review Commission.

Virginia’s legislative audit agency started its most recent analysis of Virginia’s economic development incentive grant programs with an assumption boosters would quickly dispute – that 90 percent of the economic activity they produce would have happened anyway.

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Governor Hints At Local Business Tax Reform

On Friday, after skirting the topic in a major address to a business conference in Williamsburg, Governor Ralph Northam told a reporter that “he’s planning to ask the General Assembly to tackle business tax reform,” adding it would be “comprehensive.”

The reporter asked about it because of other comments made by Secretary of Finance Aubrey Layne and the President of the Virginia Economic Development Partnership, Stephen Moret.  Since his arrival in Virginia, Moret has from time to time mentioned local business taxes as a hindrance to economic recruitment and business start-ups. He did that again Friday in his own presentation to the Virginia Chamber of Commerce.

For more than a decade local business taxes, especially two of them, have been the focus of the Thomas Jefferson Institute for Public Policy, among others.  The taxes are generally despised by the business community, but local governments are highly attached to them, because they are a revenue source other than residential real estate taxes.

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IRP Rejection Part of a Pattern of Trouble

The State Corporation Commission’s decision Friday to reject the Dominion Energy Virginia integrated resource plan is just the latest sign the energy package sold by the utility to a compliant General Assembly in early 2018 still has an uncertain future.

Two headline elements of the legislation – the promised massive renewable projects and a rebuild of the grid — are in limbo as the 2019 General Assembly looms.  Another headline element, the ability of the utility to use excess profits it is holding to pay for both and thus eliminate risk of rate cuts or refunds, won’t even be tested in front of the SCC until at the earliest 2021, when the utility might (might) undergo its next rate review. Continue reading

“Incomplete!” SCC Sends Back Dominion IRP

SCC Offices on Richmond’s Main Street

The State Corporation Commission today rejected the 2018 integrated resource plan (IRP) filed by Dominion Energy Virginia, stamping it “incomplete” and asking the utility for additional information in a supplemental submission.

The IRP is only a planning document, and the one for 2017 was just approved by the Commission a few months ago.  But in response to the 2017 plan and the massive revision to utility laws by the 2018 General Assembly, several specific directives were imposed for this next plan, which is supposed to have a longer shelf life.  The SCC asserts Dominion failed to comply with some of those directives.

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EITC, TANF and the Benefits Cliff

The “Benefit Cliff” for a mother with two children in Albemarle County. As income rises, SNAP, TANF, Medicaid, housing assistance and other benefits disappear.  This example does not include the Earned Income Tax Credit.  Source: VA DSS

For low income families receiving assistance in Virginia, their cash benefit from the federal Earned Income Tax Credit (EITC) is larger – often substantially larger – than the cash provided by Temporary Assistance for Needy Families (TANF).

A single mother with two small children who has a full-time minimum wage job ($7.25 per hour) qualified for EITC benefits of $436.33, in an example provided by the Virginia Department of Social Services based on 2015 data.  The EITC is paid out as a lump sum but the example broke it into monthly increments.  Doing that underlines its origin as a form of guaranteed minimum income, with the grant adding the equivalent of an additional $2.50 per hour to income.

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To Get Useful Answers, Ask Correct Questions

It’s all in how you ask the question.

The Judy Ford Wason Center for Public Policy at Christopher Newport University has done a pre-General Assembly poll testing various issues that may dominate the 2019 session.  The headlines are driven by the favorable and unfavorable rankings (ask me about President Tariff Man this morning as I survey my portfolio) and the apparent openness of Virginians to ending restrictions on gambling.

The poll’s authors took a dive into the complex world of tax policy, as well, seeking to tease out how voters view various moves related to the windfall tax conformity revenue.  It could have been more useful.  To start the discussion, here is the question they used:

Q8: Virginia is expected to receive as much as $600 million in additional tax revenue as a result of the recent federal tax reform. There are several ideas about what to do with this additional money. I’m going to read two of them and I’d like you to tell me if you support it or oppose each one.

  1. Provide an across-the-board tax cut to all Virginians who pay state income taxes.
  2. Provide a fully refundable tax credit to low and moderate-income Virginians regardless of how much they pay in state income taxes.
  3. If only one of these options could be done, which one would you most prefer to see done, an across-the-board tax cut to all Virginians who pay state income taxes or a fully refundable tax credit to low and moderate-income Virginians regardless of how much they pay in state income taxes?

The results were ambivalent, with a healthy portion of voters liking either approach.  There were predictable partisan divides, with Republicans preferring the idea of a broad-based cut for all taxpayers and the Democrats leaning towards a tax credit targeted to the lower and middle income.  But 59 percent of Democrats were positive on Q1 and 49 percent of Republicans were positive on Q2.  Forced to choose by Question 3, the partisan divide appeared again.

The problem is those are not the choices, at least based on the discussions so far.

First, missing from the mix was the idea which may yet prevail, taking no steps to return the money.  A fair additional option to give the poll respondents would have been: “Retain the money to increase the state’s financial reserves and spend it on other pressing state priorities.”  Listing especially popular priorities would have pumped up the positives on that question.

That is the biggest and most important question:  does the General Assembly keep the money or give it back?  They didn’t ask it.

Second, nobody has proposed an across the board tax cut to all those who pay the income tax.  We at the Thomas Jefferson Institute have come closest to that, with a proposal to double the standard deduction that might reach 70 percent of taxpayers, and we may tout the Wason result as supporting our case.  But that is not a tax cut for everybody who pays, so they didn’t poll our idea.

Third, I doubt if more than a handful of people polled know what a “fully refundable” tax credit is (or a partially refundable one, for that matter).  It sure sounds nice; everybody loves a refund – the word by itself may inject a bit of question bias.  Which of course is why it has always been used to describe the Earned Income Tax Credit grant payments.

But imagine the answer to this question, which more accurately describes the proposal around the Earned Income Tax Credit: “Provide an annual cash payment to low- and moderate-income Virginians who do not owe any income tax but are still struggling to meet the needs of their families.”

There still would have been positive responses to that, but how many?  Would it have proven to be as popular a choice as a general tax cut?  More popular?  We will never know.   Will we hear repeatedly in the coming weeks that this or that idea has been “strongly supported in a poll”?  Probably.

To borrow a line used about modeling, all polls are wrong, but some polls are useful.  This poll unfortunately is not very useful because it left off the main choice – keep it or give it back – and didn’t really describe the two choices for giving it back getting the most attention.

I do commend the CNU center for releasing the full text, cross-tabs and demographics of their sample.  Absent those, nobody should believe any poll result featured in the media or in campaign materials.

Updates: Deadly Road Diet? Rider T1 Case

The Powerful Law of Unintended Consequences

A raging forest fire is hard to imagine in Northside Richmond, but there could be other emergencies where the city and its residents would come to regret the loss of vehicle travel lanes on Brook Road. A recent deadly fire in California we all watched on television may be giving us a warning.

Apparently, evacuations from the lightning-quick brush fire around Paradise, California, were complicated by a 2014 decision there to impose a “road diet” on a four-lane road that became the escape route.  The push for “road diets” is also behind the argument for creating new bike lanes in both directions of several miles of Brook Road, a topic of earlier Bacon’s Rebellion posts and furious local debate.

A description of the bottleneck created by the highway adjustments in Paradise, and its impact on the fire evacuation, was published on wattsupwiththat.com, an interesting blog I only found because it linked to one of my posts on Dominion Energy.

The bottom line problem is that people just like building in dangerous places in California, including fire-prone areas.   When I lived in Southern California in the 60’s there were regular local stories about houses sliding into the ocean or homes destroyed by brush fires, only to be quickly rebuilt.  The population has grown, development has pushed further into countryside and mountains, and now there are regular national stories.

Bottlenecks have already developed on Franklin Street because of its seldom-used bike lane.  Just about any activity (parked or parking delivery trucks, leaf removal) in the one remaining travel lane causes a backup.  Similar bottlenecks will happen if the Brook Road project proceeds.  In both cases there are parallel streets that were not available to evacuees in the High Sierra, but it still calls into question whether safety ever trumps ideology with some people.

Next Step, Supreme Court of Virginia?

The State Corporation Commission issued an opinion Friday reaffirming its earlier decision that Dominion Energy Virginia must include payments it receives from the PJM regional transmission authority along with the payments it makes to PJM in the separate Rider T1 it puts on all our bills.

Following the commission’s August decision the utility filed for reconsideration.  The next step, should it decide to take it, is to the Virginia Supreme Court.

The amount of money in dispute is minor, so the precedent must be the point.  Dominion Energy is seeking to book the payments it is getting back from PJM into base rates, which increases the amount customers must pay in Rider T1 (for transmission) and increases the profit the company earns (and keeps) in base rates – base rates that seemingly will never be adjusted downward again and profits which may never be shared as rate credits again.

“Put simply, Dominion seeks to charge customers dollar-for-dollar for these transmission costs through Rider Tl but opposes crediting customers in the same manner for transmission revenues received for the exact same service,” the order reads.

Since 2007, more and more of the company’s operations are being paid for with stand-alone rate adjustment clauses outside of base rates.  New renewable generation may be funded that way, and the coming rebuild of the distribution grid might be as well.  If there are to be silos keeping all the costs in one place, the same silos should hold any and all related revenues to offset those costs.

Bacon Bits: Taxaginia, SCC Approvals, Blue VA

The Taxaginia Total:  $1.7 Billion in 2020

The four taxes I wrote about in “Taxaginia” last month could reach a combined fiscal impact of $1.7 billion by about 2020.  In preparation for a talk (which I will not get to give today after all), I did a bit more digging and some additional information has since come out.

The $611 million estimate for the state income tax hike resulting from conformity to federal tax changes is a Northam Administration estimate, known since summer.

The legislative money committee retreats last month produced a firmer estimate for the provider assessments (a.k.a. taxes) on private hospitals, with $719 million tagged as the revenue haul for 2020.  (Don’t you wish you could develop a futures market on these estimates?  That’s not going to hold.)

The Virginia Department of Taxation is now using $165 million as its projection of additional revenue once Virginia revises its sales and use tax to comply with the Wayfair decision and demand more tax collection by online merchants selling and shipping into the state.

The estimate on the carbon tax that will be imposed when Virginia joins the Regional Greenhouse Gas Initiative (RGGI) is a year old and is likely being revised as a new iteration of the regulation is considered. I’m using the number of $203 million, the upper range from last year’s Department of Planning and Budget estimate.

Under the newest version of the proposed regulation, electricity producers burning fossil fuels will need to pay for permission to emit 28 million metric tons of CO2, and the price per ton can only be estimated until the auction process gets underway.  As it stands now, the plan is that all the money the utilities pay for their carbon rights will be returned to ratepayers somehow and not spike rates, but that mechanism is unclear. 

Nobody Fights The Energizer Bunny

Not all the proposals Dominion Energy Virginia makes spark controversy. Proposed guidelines on planned pilot programs for utility-sized storage batteries have now cleared the State Corporation Commission.  No objections were raised, no pile of testimony accumulated, and only a few tweaks were made to the original language.

One provision in the massive 2018 electricity regulation revision authorized Dominion to install up to 30 megawatts of storage, and Appalachian Power up to ten megawatts.

Another New Option for Customers Who Want Renewable

Also uncontroversial, but far more complicated, is a new choice offered to large electricity customers, the so-called Schedule RG tariff.  This is a way for a Dominion Energy Virginia customer to buy exactly the kind of renewable power desired, but still remain under the umbrella of Dominion’s existing monopoly.

Attorney Will Reisinger of the Richmond firm GreenHurlocker has written about the SCC’s approval of the new tariff on that firm’s blog.  Limited to 50 large customers, it is designed to prevent any costs being borne by non-participating customers, in contrast to a recent solar project.

Reisinger represented Mid-Atlantic Renewable Energy in the case, and other participants included Wal-Mart Stores and Sam’s East, Inc., possible customers for the new rate schedule.  Your correspondent admits he has not plowed through the record but relies on Reisinger.

“Finally, it is important to note that Schedule RG was not approved under Va. Code § 56-577 A 5 and would not constitute a 100% renewable energy tariff under this statutory provision,” Reisinger wrote.  “As we explained in our Regulatory Guide, this Code section authorizes any Virginia customer to purchase electricity “provided 100% from renewable energy” from non-utility suppliers, so long as the customer’s incumbent electric utility does not offer an SCC-approved tariff for 100% renewable energy.

 “Therefore, if Dominion received approval to offer a 100% renewable energy tariff pursuant to Va. Code § 56-577 A 5, Dominion customers would lose their existing rights to shop for such energy.

“Currently, no Virginia utility offers an SCC-approved 100% renewable energy tariff. Dominion and Appalachian Power have both applied for approval to offer such tariffs, which thus far have been rejected.”  

So that one chink in the utility monopoly remains.

And Finally, A Stunning Endorsement for Bacon’s Rebellion!

The following excerpt is from no less than Blue Virginia!  It was part of a piece where Jim Bacon was attacked for being a damnable climate-denier, of course, and the Richmond Times-Dispatch was roundly condemned for hiring him, but it also included this:

Let’s be clear: Bacon’s Rebellion material is sometimes entertaining and, in some of the material, has a form of wonkiness that can be attractive/engaging for policy nerds. On its best days, it can provides (sic) valuable windows and thinking about policy interests with enough substance that can enable thoughtful engagement.

The Push for EITC Cash Grants Accelerates

A useful EITC example from the Commonwealth Institute’s website. Whether anybody “earns” a credit is debatable, but that claim will appeal to those who benefit.

With the 2019 General Assembly now a handful of weeks away, the main advocacy group for a new cash welfare entitlement in Virginia is ramping up its efforts with various appeals, perhaps testing themes for later use.

On Wednesday on its website the Commonwealth Institute for Fiscal Analysis was arguing that the state Earned Income Tax Credit (EITC) should be converted to a “refundable” cash grant because of how it would help “communities of color,” who pay a larger percentage of their income in state and local taxes.

A few weeks back, the focus was on how “veterans and their families deserve full credit.”  And, of course, they have broken down their data by legislative district, conflating the number of people who claim the EITC already with the number who would benefit from their idea.  Not everybody who now claims the state EITC would qualify for a grant.

The first to advocate for converting the tax credit into a cash payment was Governor Ralph Northam, who mentioned it last summer as his favored use for the windfall state income tax dollars generated by conformity.  It has nothing to do with that windfall.  In order to benefit from this idea, you already must be paying zero state income tax.

In recognition of that, the argument now is people need to get the balance returned in cash because they are still paying sales, excise and other taxes, just not income taxes.  It’s not good enough to zero out their income tax, advocates claim.

As previously explored, the Earned Income Tax Credit is a program with conservative credentials and has succeeded in improving the finances of low-income working families.  At the federal level, if your income and family size qualify you for a credit which is larger than your tax bill, the difference is sent to you in cash.  To call it a “refund” is political fiction, because it is not cash you paid in taxes to start with.  It just comes at the same time the rest of us are getting refunds.

The federal version has grown into a major income transfer program, about $60 billion annually, and as always with these programs the push to expand them is constant.  A Democratic House of Representatives will be more attentive.

In an earlier tax reform effort, Virginia added its own version of the program, allowing a credit against state taxes equal to 20 percent of the federal EITC.  But Virginia did not take the second step of paying cash grants from state revenue to people who had larger credits than tax bills.  That is what Northam and the Commonwealth Institute are talking about doing now.

The cost impact is about $250 million, based on an earlier legislative proposal which failed, but a full analysis is lacking.  The cost to taxpayers – and it is a cost to taxpayers, not a refund and not tax reform – will need to be more carefully spelled out when a bill finally appears.  Advocates have developed a calculator for individuals and for some the grants would be substantial.

While this proposal is not tax reform, but instead is a way to share the windfall revenue with low-income working families, the idea is not incompatible with tax reform.  It would be possible to couple it with an increase in the standard deduction or some other change in personal income taxes that actually aligns with to the conformity windfall.  It is only a question of how much revenue with which the legislature is willing to part (for some, the answer is none).

The proposal to expand the standard deduction would reach far more Virginians – more in “communities of color,” more veterans, more in every legislative district – than would turning EITC into a cash grant.  The problem for some on the left is they would not all be poor or working-class and might even be well-off.

What they would not be is the same people.  As noted before, to qualify for the cash grant Northam and the Commonwealth Institute are talking about, you already must be paying zero state income tax.  If the EITC credit has already wiped out your state tax bill, an additional standard deduction is of no value.

But there is this, which should appeal to the Commonwealth Institute:  The additional standard deduction would add to the number of people who pay zero income tax.  An EITC cash grant would go to those already paying zero but would not grow their ranks.

And this:  The additional standard deduction would stay with you as your income grew.  EITC – whether a credit or both a credit and grant — shrinks as your income grows, and that is what people really want, growing income.

If the General Assembly must choose, it should choose tax reform and increase the standard deduction.  If its willing to do both, well, this is why the legislative process is great theater.  It cannot be predicted.

State Colleges Face New Financial Stress Test

Source: Auditor of Public Accounts

The Virginia Auditor of Public Accounts has applied a nationally-recognized strategic financial analysis tool to Virginia’s fourteen public colleges and universities, revealing that only one – the University of Virginia – has a strong financial foundation and several are vulnerable to stress.

The work done by Eric Sandridge, Director of Higher Education Programs at the APA, was published in a full report in late October and was summarized in a presentation to the House Appropriations Committee on November 13.  It is the first of what are planned to be annual reports tracking the results over time, focused on the same kind of risk created for the state by stressed local governments.

The key composite financial index (CFI) he used has a ten-point scale. “A score close to one indicates that the institution may be very light on expendable resources and have difficulty meeting operating demands in the current environment,” Sandridge wrote in his main report. Longwood University, Christopher Newport University, Norfolk State University and the University of Mary Washington have all had recent years with a composite score of one or below.

A CFI score of three is considered healthy and of one is concerning. And then there is UVa. Source: APA

The College of William and Mary’s scores have only barely exceeded a one on this scale in recent years, but look far better when the financial resources held in its foundation are factored in. Several of the schools see better scores with their foundations included in the measurement. But not all have substantial endowments.

A score of three “generally indicates that an institution is financially healthy,” Sandridge wrote in his report. Even with their foundations included, eight of the fourteen schools miss that mark, although Radford University is close.

The University of Virginia is everybody’s rich uncle, to the point Sandridge pulls it out of some averages. VMI’s endowment is also off the charts for public schools of that size thanks to its loyal alums.

CFI Test with foundation resources included, improving the position of several schools. Source: APA

“The Composite Financial Index or CFI combines four core ratios by assigning various weights to generate an aggregate score for financial strength and stability. These ratios: Primary Reserve ratio, Viability ratio, Net Operating Revenues ratio, and Return on Net Position ratio provide for an understanding of the institutions’ available resources and results of current operations,” is how Sandridge summarized the method, devised by the accounting firm of Prager, Sealy & Co., LLC.

The various financial tests, similar to those a business analyst might use, look at the schools’ debt, the comparison between their operating revenue and expenses and available reserves. Their auxiliary enterprises are measured, along with their endowment and the investment success on that endowment. The age of facilities is factored in. Enrollment trends count. The haves and have nots comparison that results is stark, but it is not clear just what if anything the state might do about it.

One possible conclusion:  Virginia is the only school well-positioned to fully end its status as a state school.

Sandridge was the APA expert called in when the University of Virginia’s Strategic Investment Fund was making headlines, and the legislative attention on that issue might have sent the state looking for a deeper analysis tool.

One of the slides he used with the House broke down endowment divided by student head count, and the disparity there really underlies much of the rest of the report. The per capita amount at the University of Virginia exceeds $260,000 and the per capita amount at George Mason is just one percent of that, about $2,600.

You don’t get more have and have not than that.