Author Archives: James A. Bacon

Housing Prices and Homebuilder Oligopoly

Competitive intensity of the homebuilder industry in the Washington-Baltimore area, 2006. Yellow indicates where 6 or more firms account for 90% of construction, dark blue indicates only two firms.

by James A. Bacon

What is driving up housing prices in Virginia, especially Northern Virginia? In the simplest terms, the increase can be explained by a sustained imbalance in supply and demand. Between population growth and rising incomes, the demand for new dwellings is outpacing the supply of new dwellings built. Then the question becomes, what is restricting supply?

My commentary on this blog has emphasized the role of local zoning codes, comprehensive plans, and NIMBYism in restricting the density of development where demand is greatest, in and near the urban core of Virginia’s major metros. But Jacob Cosman and Luis Quintero with the Johns Hopking University business school point to a different, though related, phenomenon: The consolidation of the home building industry.

Intensity of competition in 2015. Source:Cosman and Quintero.

“Our empirical results indicate that a higher degree of concentration in local housing construction markets leads to less housing production, a decreased rush to build more units, and greater volatility in prices,” conclude the authors in their paper,  “Fewer players, fewer homes: concentration and the new dynamics of housing supply.Continue reading

Tax-and-Spend Pressure Builds Inexorably

There are two items in the news today indicating that pressure for more spending and taxes will be remorseless in the 2019 General Assembly session: (1) The Virginia Retirement System board of trustees has lowered the expected rate of return on its $82.3 billion investment portfolio, requiring $215.6 million-per-year additional contributions from state and local governments, and (2) the Virginia Board of Education has approved changes to the Standards of Quality for Virginia public schools that would require $950 million more in state support to meet. And that doesn’t include increased demands from Medicaid, the program that ate Virginia’s budget; higher education where state support is the only thing restraining runaway tuition increases; or more money to meet the state’s burgeoning mental health needs.

First, the VRS. Last year the retirement system for public-employee and teacher pensions earned a 6.7% return on investment: not shabby but below the 7% assumption used to calculate contributions from state and local governments. In recognition of poorer investment prospects in an era of super-low interest rates, the board reduced its assumed rate of return to 6.75%. To make up the difference, state and local governments will have to contribute $215.6 million a year more during the two years of the next Biennial budget, reports the Richmond Times Dispatch.

“I know it’s going to take more money out of the budget, but it’s the right thing to do,” Secretary of Finance Aubrey Layne told the RTD. Continue reading

Electric Vehicles Are Punishingly Overtaxed in Virginia


by Alleyn Harned

In an October 15th post, James Bacon asked the question: How should we tax electric vehicles?

Bacon’s bottom line is reasonable, and it is worth noting that electric vehicles (EVs) and clean fuels already pay more than their fair share in Virginia with equivalent or excessive taxes, according to Consumer Reports. It is easy to agree with Bacon’s ideas of user fees and externalities, where EVs also pay, and where pollution externalities are integrated into state fee structures.

However, Virginia has not ignored the transportation revenue potential of EVs and reaps a high tax on these vehicles. Since the McDonnell administration, electric vehicles been assessed a punishing $64 a year fee in order to gather an approximate amount of revenue equivalent to somewhat more than traditional vehicles pay in gas tax. This fee has been used by the oil industry to justify high fees nationwide.

A recent Consumer Reports study in September showed that now in many states, electric-car fees often cost far more than what owners of gasoline-powered cars pay in gas tax. Virginia’s fee is 5% higher, even though EVs and clean fuel vehicles have great benefit to the Commonwealth through emissions reduction.

I suggest we should tax electric vehicles no greater than gasoline and diesel vehicles. Other financing mechanisms are great, but punishing cleaner vehicles fueled by domestic energy creates an unbalanced playing field favoring high cost oil. Continue reading

Hey, Sultan, Your Mother Swims out to Troop Ships!

Reply of the Zaporozhian Cossacks to Sultan Mehmed IV of the Ottoman Empire

This is apropos of nothing in Virginia, and I’m not trying to make a political statement of any kind, but… With Turkey and Ukraine much in the news these days, a famous 19th-century Russian painting is making the rounds on the Internet: a rendering by Ilya Repin of free-wheeling Cossacks composing a ribald and insulting response to a demand by Ottoman Sultan Mehmed IV for their submission. In language even less diplomatic than that employed by our current president, the Cossacks literally told the Sultan in 1676 to shtup his mother. Read the hilarious letter on Wikipedia here. Russia had a history every bit as colorful as the U.S. wild west, but Americans aren’t taught it. Seeing this painting makes me want to learn more. I was so tickled that I had to share.

— JAB

Board of Education Wants $950 Million Mo’ Money

Elections have consequences, as former President Obama famously said. In Virginia, where the Democratic Party displays enormous momentum in the 2019 election for control of the state Senate and House of Delegates, you can get an idea of what those consequences will be in this article today in the Richmond Times-Dispatch.

In a preview of a Virginia Board of Education (SBOE) meeting today, Justin Mattingly with the RTD reports that the board will review a proposal calling for $950 million in new money for public schools, much of which will be reserved for schools serving high proportions of low-income households.

In a Republican-dominated legislature, even one that prioritizes K-12 spending, the proposals would be Dead on Arrival. But there’s no telling what a Democratic-controlled General Assembly will do in collaboration with Governor Ralph Northam, who, in contrition for his blackface episode of 35 years ago, has pledged to redeem himself with policies favored by progressive politicians. Continue reading

Is Massive Dem Fund Raising Lead a One-Off or Sign of Fundamental Change?

Source: Virginia Public Access Project

The latest Virginia Public Access Project data for the 2019 electoral cycle shows a surge in campaign donations to Democratic Party candidates. The gap is dramatic — and unprecedented in recent Virginia politics. The big question: Are we seeing a fundamental realignment of politics parties and voting blocs in Virginia, or is this an aberration arising from an anti-Trump backlash that will recede when Trump retires (or is expelled from office)?

There is a growing body of thought that “Trumpism” will survive Trump, not because people are enamored with the president’s grating personality but because the underlying social/cultural conflicts that gave rise to Trump will endure. In this interpretation, to which I subscribe, Trumpism is a manifestation of the new class divide.

Democrats predominate among high-income Virginians who derive their wealth from the “new” economy that is supplanting the “old” money associated with more conservative political and cultural views. Democrats also predominate among the educated elite that increasingly dominates the state’s cultural institutions — media, universities, schools, museums, and the arts. This new intelligentsia champions the poor and oppressed in its rhetoric (although the consequences of elite-driven policies, as I have repeatedly shown, is often destructive to the poor). The new elite blames the greatest ills of society (racism, sexism, homophobia) on the benighted blue-collar and middle classes. Working- and middle-class Americans with traditional values react negatively and feel alienated. Not surprisingly, this demographic constitute Trump’s most loyal supporters Continue reading

Go, Nats, Go!

by Bill Tracy

Virginia’s own Thomas Jefferson along with his friends Abe Lincoln, Teddy Roosevelt, George Washington are very happy today.

In case you did not notice, there is big news in NoVA: The Washington Nationals are National League Champions for the first time in franchise history!

Unexpectedly, many wholesome life lessons appear to be coming from this very fun sports effort. Appearing to be down-and-out in May, Washington’s home team persevered to win the National League pennant. Attendance was down, and even die-hard fans felt the team had no chance to advance in the playoff as late as a few weeks ago. Team manager Davey Martinez was on the outs with many fans in May, but the Lerner family (team owners) trusted in his potential as a 2nd-year baseball manager.

Suddenly, only a few days ago, people started using the words “World Series” and “Washington Nationals” in the same sentence.  Washington, D.C., will now host its first Word Series since 1933.

Is there a Virginia angle here? Aside from many NoVA fans like me attending games? Jim always insists that I talk about Virginia in my posts.

How about Ryan Zimmerman? According to Wikipedia, Zimmerman graduated from Kellam High School in Virginia Beach, Virginia and played college baseball at the University of Virginia. He has been a member of the Nationals since his and the Nationals debut in 2005. He is well known for his clutch hitting and walkoff hits. Continue reading

Finally, an Anti-Poverty Program that Actually Might Reduce Poverty

by James A. Bacon

Most anti-poverty programs are double-edged swords. They alleviate the symptoms of poverty — insufficient money for housing, food, health care — but do nothing to induce poor people to change their behavior and improve their condition. But this program is different: With funding from the the Cities for Financial Empowerment Fund (CFE), the City of Richmond will start providing free, professional, one-on-one financial counseling as a public service to residents.

“Financial empowerment is necessary to build an equitable economic environment,” said Mayor Levar Stoney in a press release. “This opportunity for one-on-one counseling will give residents the power to make informed financial choices with confidence.”

Bacon’s  translation: Rather than treating poor people as passive victims, the financial counseling program will explain how they can take control over their financial destinies by taking modest, achievable steps. The program teaches, dare I say it, personal responsibility. Continue reading

Hey, Governor, How About the Rest of Us?

by James A. Bacon

Having expanded Medicaid coverage for more than 325,000 Virginians, Governor Ralph Northam now has issued an executive order directing actions to increase the number of Virginians enrolled in “quality, affordable health care coverage.” Secretary of Health and Human Resources Daniel Carey will explore ways to expand Medicaid enrollment, reduce insurance premiums, increase transparency of insurance choices, and develop a “data-driven strategy to create efficiencies in coverage and improve outcomes” with a special focus on “vulnerable” populations.

We won’t know what these initiatives will cost the non-vulnerable (the vast majority of Virginians) until we see the proposals. But as Carey undertakes his inquiries, he and the Governor would be well advised to remember how much health care in the form of Medicaid is already costing the state.

State General Fund spending on Medicaid services has increased from $2.29 billion in Fiscal 2010 to $4.88 billion in Fiscal 2019, according to a recent update on state spending by the Joint Legislative Audit and Review Commission. That was an annual growth rate of 9% yearly, and it accounted for 39% of the growth of all General Fund spending, crowding out other priorities.

Meanwhile, the Kaiser Family Foundation has found that the average cost of employer-provided family health care coverage now exceeds $20,000 a year, with workers paying slightly more than $6,000. That’s a 5% increase from last year — and it doesn’t take into account steadily rising deductibles and co-pays. Middle-class Virginia households are caught in a triple whammy — supporting ever-inflating Medicaid costs, paying more for their own insurance, and paying more out-of-pocket. Continue reading

Demolishing Oxfam’s Laughable Ranking

by Chris Saxman

Some things just have to be challenged at the outset before they gain traction and become an untrue reality.

Gaining traction among too many candidates for the General Assembly is a ranking, released by a British organization, Oxfam, that graded American states and the District of Columbia on best states for workers. This is the second year of their ranking. Here’s what their release stated:

In 2018, workers are not sharing in the bounty of our thriving economy—and the federal government is not going to make changes that matter. However, some states are taking steps to keep working families out of poverty, and to give them a decent chance. How does your state rank?

According to Oxfam’s rankings, Virginia ranks LAST out of the 50 states and DC.

A ranking of #51 out of 51, we believe, is worth challenging.

How are these rankings compiled? And what is Oxfam anyway? (Click the above link,) Continue reading

How Should We Tax Electric Vehicles?


by James A. Bacon

Electric vehicles (EVs) are commonly touted as a necessary part of America’s green energy future: Shifting from cars powered by gasoline-combustion to cars powered by 100% clean electricity will cut CO2 emissions (and other pollutants) implicated in global warming. Virginia ranks among the states with the lowest EV market share. But on the assumption that EVs eventually will become part of Virginia’s energy future, there’s no time like the present to start thinking about what EV taxation should look like.

Perhaps the most pressing issue is whether to tax EVs the same as conventional cars for the purpose of raising money to pay for the construction and maintenance of roads, highways and bridges. EVs contribute to traffic congestion and cause traffic accidents like any other kind of car. Should their owners not share in the cost of building, maintaining and operating roads?

The rise of EVs, hybrids and high miles-per-gallons vehicles was part of the justification when Virginia overhauled its transportation tax structure during the McDonnell administration. Revenues from the gasoline tax were stagnating, and legislators saw a need to diversify the source of transportation revenues. Once the tax increases were enacted, however, cogitation about the tax structure largely ceased.

Virginia cannot ignore the problem forever. One good place to start thinking about the issue of EVs and road maintenance is a new paper by two University of California professors, Lucas W. Davis and James M. Sallee, “Should Electric Vehicle Drivers Pay a Mileage Tax?” The paper explores the many trade-offs involved. Continue reading

Is Inclusionary Zoning the Answer to the Housing Crisis?

Source: “Inclusionary Zoning and Housing Market Outcomes.” 

by James A. Bacon

I have often advanced a common-sense proposition: If you want to create more affordable housing, increase the supply of housing. If the housing stock increases faster than demand, the price declines. A new study on “inclusive housing” policies in the Washington-Baltimore metropolitan area, which includes Northern Virginia, gives some support to that proposition, although it suggests that in highly regulated housing markets, the relationship between supply, demand and price is not straightforward.

Emily Hamilton, a research fellow at George Mason University’s Mercatus Center, has undertaken an in-depth study of inclusionary zoning in the Washington-Baltimore metro. Inclusionary zoning (IZ) is a policy in which local governments require or incentivize real estate developers to provide below-market-rate houses in new housing developments.

Economic theory (which has informed my thinking on this blog) predicts that IZ could be counter-productive. By increasing the cost of building new units, the policy diminishes the supply of new housing, which has the effect of pushing housing prices higher overall. But IZ programs vary widely in design and impacts vary, says Hamilton in her paper, “Inclusionary Zoning and Housing Market Outcomes.” Continue reading

Our Little Five Billion

UVa President James Ryan

by James A. Bacon

University fund-raisers are like presidential elections — as soon as one campaign ends, another one starts. Here in the Old Dominion, the University of Virginia is in the midst of a $5 billion boodle-building campaign. Meanwhile, Virginia Tech is raising $1.5 billion, the College of William & Mary $1 billion, Virginia Commonwealth University $750 million, and George Mason University $500 million. That’s pretty serious dough. For purposes of comparison: Harvard, the wealthiest institution of higher education in the country (and probably the world), raised $9.6 billion in its last five-year campaign.

It never ceases to fascinate me how higher ed, which obsesses over issues of racial and socio-economic equity, has become such an engine of elitism. Donors get tax write-offs for their contributions, and public university endowments pay no taxes on income. (The 2017 federal tax law imposes a 1.4% excise tax on private-institution endowments worth $500,000 or more per student.) Here in Virginia, public university endowments also are exempt from the Freedom of Information Act. Sweet deal — tax breaks out the  wazoo, and freedom from public scrutiny! All to benefit whom? Faculty, administrators and, disproportionately, the children of the well-to-do.

Not surprisingly, university administrators cast their pitches for mo’ money as benefiting students and the public — more financial aid, more enriching education, more research, and, of course, as UVa President James E. Ryan, puts it, a “fearless search for truth.”

You can’t spend $5 billion without doing some good for somebody. But it bothers me that almost no one ever pushes back. No one ever questions the fund-raising goals. No one asks if the money could be spent to better effect elsewhere. There are rare exceptions — listen to Malcolm Gladwell’s podcast, “My Little Hundred Million.” But you never hear such voices in Virginia. Continue reading

Bacon Bits: Monday Morning Kick-Starter

No limits to human ingenuity, er, depravity. The developers of flying drones promised all manner of wonderful things, from saving lives to home deliveries. I doubt any of them considered the latest use for drones highlighted in the news: sneaking drugs into prison. In August, security staff of the Buckingham Correctional Center found a small white drone by the side of the road stuffed with $500 worth of marijuana, an eight ball of cocaine, a cell phone, three SIM cards and a handcuff key. That was only one of 33 drone sightings near prisons since January 2018, reports The Daily Press. Never forget Bacon’s Rule of Technology: for every beneficial use of a new technology conceived by the inventer, bad guys can think of a malevolent use.

$100 Million Gift for UVa Scholarships. David Walentas, a University of Virginia undergraduate and business school alumnus and New York real estate developer, is giving $75 million to the university in support of a $100 million Jefferson Scholars Foundation initiative to provide financial support to first-generation students from Virginia and New York. The gift will serve as “a cornerstone” for a larger $5 billion university fund-raising campaign, the university says. Walentas is to be admired for his generosity and for using his money to address the manifest injustice of the rising cost of attendance at UVa. Question: Does Walentas’ benefaction take pressure off the General Assembly to maintain financial support of the university and off the UVa administration to rein in runaway spending?

Oops, Virginia did it again. Ivy Main, an energy/environment blogger for the Virginia Sierra Club, is distressed by the latest electricity usage for Virginia, which showed a 2% increase last year, continuing a three-year upward trend and (something she doesn’t mention) confirming Dominion Energy’s forecast of continuing electricity demand growth for the state despite assurances from many quarters that electricity consumption would decline. Writing in the Virginia Mercury, she attributes growing electricity consumption to the proliferation of energy-intensive data centers and a failure to invest in energy efficiency. Continue reading

Bacon Bits: Weekend Catch-up

Wait… what? Cut Richmond schools some slack? John Butcher, author of Cranky’s Blog, normally doesn’t have much sympathy for the City of Richmond public school system. But he notes in a recent post that the Virginia Department of Education (VDOE) methodology for assessing schools is stacked against those with a higher percentage of economically disadvantaged kids. Comparing majority-white Mary Munford and William Fox elementary schools with majority-black Barack Obama and John B. Cary elementary schools, he notes that affluent Munford and Fox have significantly higher SOL pass rates. But economically disadvantaged kids at Obama and Cary out-perform economically disadvantaged kids at Munford and Fox. The Board of Education abandoned a system, the SGP, that was uncorrelated with economic status. Says he: “We are left with a reporting system that punishes schools and divisions that serve larger populations of poor students. If that is fair, I am Santa Claus.”

I wish Mike Thompson were still around to see this. Back in April, in one of his last publications, Mike Thompson, then-president of the Thomas Jefferson Institute for Public Policy, issued a study concluding that hiking the tax on cigarettes rarely yielded the revenues predicted by static analysis. Now comes this story from the Richmond Free-Press: “Profits up in smoke as city merchants report hefty sales slumps since start of city cigarette taxes.” Richmond Mayor Levar Stoney expected a 50-cent-per-pack increase in cigarette taxes to yield $3.5 million in added revenue. The first month, July, collected a nifty $770,000 in taxes. After smokers got wind of the new tax, however, August collections declined 60% to $307,000. Owners are driving past Richmond convenience stores to buy cigarettes in Chesterfield County. No report on how much Richmond stores are losing in non-cigarette sales as a result. Somewhere up in heaven, Mike is smiling.

Who are you calling “inequitable,” dude? On the issue of “inequitable” school funding, I argued recently that high-poverty  rural/small town localities in Virginia were taxing less than their fiscal capacity would enable them to, while more affluent school districts were taxing more, although differences in the Cost of Living between Northern Virginia localities and Rest of Virginia localities made statewide school-spending comparisons tricky. Jim Weigand, of Lynchburg, drove home the point with the following numbers: Continue reading