Author Archives: James A. Bacon

Amazon, Incentives and Alternate Opportunity Cost

Source: Mercatus Center

George Mason University’s Mercatus Center does not like the deals struck by Virginia and New York to split Amazon, Inc.’s $5 billion HQ2 project. In a new commentary, the market-oriented research center raises a valid consideration rarely mentioned by politicians touting favored government expenditures of any type: alternate opportunity cost. Money spent on “A” is money not spent on “B.” Continue reading

Fralin Donates $50 Million for Roanoke Research Center

Heywood Fralin

Heywood Fralin, his wife Cynthia, and the Horace Fralin Charitable Trust have announced a $50 million gift to Virginia Tech to attract top-ranked scientists to the university’s Roanoke medical research center. The gift is twice the size of the university’s previous single largest donation.

“I came up with the size based on what I felt I could do. I wanted to make a maximum gift that was a challenge to me and to the trust because I thought it was important to the community. And I thought it could benefit everyone, and it would have a lasting impact that would help to change the future of the Roanoke Valley and the surrounding area,” Fralin said in a Wednesday interview with the Roanoke Times. Continue reading

Dissent Must Be Crushed

Peter Vlaming. Photo credit: Richmond Times-Dispatch

Social mores in the United States are changing so fast, it’s hard to keep up. If you fail to conform to the latest turn in politically correct thinking, you’re toast. You could lose your job. Not just in California, but here in Virginia.

Peter Vlaming, a high school teacher in West Point, was fired yesterday by the West Point School Board for resisting administrative orders to use male pronouns to refer to a ninth-grade student who had undergone a gender transition, reports the Richmond Times-Dispatch. Here are the details: Continue reading

Amazon Deal Could Create 59,000 Virginia Jobs

Amazon, Inc.’s $2.5 billion investment in major new East Coast headquarters in Arlington/Alexandria will generate $14.2 billion in economic activity over the next 12 years, projects a new study by Richmond-based Chmura Economics & Analytics. While Amazon has committed to hiring 25,000 employees, indirect effects of the investment will create more than 59,000 jobs.

“The entire state of Virginia will benefit from Amazon’s decision to locate part of its second headquarters in Northern Virginia,” said Christine Chmura, the firm’s CEO and chief economist. The Richmond Times-Dispatch has the story here. Continue reading

Amazon’s New Home in NoVa Will Bolster Private Sector

An Amazon home-delivery drone. Private-sector applications of unmanned systems would fit nicely with Virginia’s economic development priorities.

In the lead-up to Amazon, Inc.’s announcement that it would split its massive HQ2 expansion between Northern Virginia and New York, there was considerable speculation that Northern Virginia had an edge among the 20 finalist regions due to its proximity to the federal government. The company was aggressively vying for federal government business, most visibly in cloud services, and Amazon, like other federal contractors, needed a Washington location in order be close to the world’s biggest customer of IT services.

But Amazon’s decision to locate in Arlington practically next door to the Pentagon is not a federal government play, says Stephen Moret, CEO of the Virginia Economic Development Partnership. Furthermore, Virginia is not shelling out an unprecedented $550 million in job-creation inducements by FY 2035 (plus up to $200 million more in later phases) to magnify Northern Virginia’s dependence upon federal government spending.

The Amazon expansion is driven mainly by private-sector initiatives, says Moret, and Virginia’s incentives package is “right in the bulls eye” of Virginia’s strategic goals of diversifying the economy away from the federal government and bolstering the region’s high-tech industry. “For us, this is principally a private-sector diversification opportunity,” he tells Bacon’s Rebellion. “In terms of the jobs we incentivize, no more than 10% can be associated with federal government contracts.”

That’s why the Amazon-Virginia Memorandum of Understanding requires “a certification as to whether more than 10% of the New Jobs at the Facility during the prior calendar year were primarily engaged in supporting Federal Government contracts, and, if so, the percentage of New Jobs so engaged.” If new jobs tied to federal work exceeds 10% in the new facility, they would not be eligible for state employment incentives.

The percentage of federal-related jobs was not a significant issue in negotiations between Amazon and Virginia, Moret says. VEDP included the language as a “safeguard” to advance Virginia’s diversification goal. “We just wanted to make sure that the opportunity we saw would be ensured by the incentive structure.”

Last June Amazon announced a decision to expand the presence of Amazon Web Services (AWS) in Virginia with a new East Coast campus in Herndon. The deal was expected to create 1,500 new jobs in the cloud computing field. The press release from the Governor’s Office described the business this way: “AWS offers over 90 fully featured services for compute, storage, networking, database, analytics, application services, deployment, management, developer, mobile, Internet of Things (IoT), Artificial Intelligence (AI), security, hybrid, and enterprise applications, from 42 Availability Zones (AZs) across 16 geographic regions in the U.S., Australia, Brazil, Canada, China, Germany, India, Ireland, Japan, Korea, Singapore, and the UK. ”

While AWS was pitching cloud services to Uncle Sam, the list of add-on software applications clearly was aimed at an audience beyond the federal government.

Known primarily as an e-commerce giant and, more recently, as a provider of cloud services, Amazon is expanding into many exciting fields, Moret says. In vying for HQ2, an even bigger investment, VEDP scrutinized the public job postings for Amazon’s Seattle headquarters and found the company was recruiting talent for fields from health care to big data analytics.

Amazon Business, launched in 2012, provides an Amazon.com shopping experience for business supplies. Amazon is expanding its array of consumer electronics products beyond the Kindle e-readers and Echo smart speaker into smartphones TV set-top devices and credit-card readers. The company is pushing into digital streaming of music and games, and with its Whole Foods acquisition is experimenting with the home delivery of groceries. Amazon wants to rationalize the logistics of the health care industry, peddle event tickets online, sell educational toys on a subscription basis, and penetrate the home Internet-of-Things market. (See a list of Amazon products and services here.)

Moret expects new private-sector initiatives will take root in Northern Virginia, enlarging the region’s innovation ecosystem, generating new Amazon business lines, and creating new opportunities for non-Amazon entrepreneurs. Ideally, the new ventures will play to Virginia’s strengths in areas such as unmanned systems, cloud computing, Artificial Intelligence and cyber-security.

Says Moret: “We saw these as big growth opportunities for Virginia.”

Washington City Council Puts Virginia Taxpayers, Metro Riders at Risk

Well, Washington City Council has gone and done it — decriminalized Metro fare evasion. America now will be treated to an interesting social experiment. If it doesn’t go well, Virginia taxpayers will wind up picking up part of the tab.

The financially strapped Metro, which operates the mass transit bus and rail system for the Washington metropolitan area, is already losing $25 million a year from turnstyle jumping and other forms of non-payment. Metro officials worry that decriminalization could mean even bigger losses.

City council members counter that criminal enforcement, along with criminal penalties and jail terms, disproportionately impacts African-Americans. Ninety-one percent of citations and summonses were issued to blacks. “That is a problem,” Council member Robert C. White Jr. said, referring to the 91 percent figure. “I’m sad that’s Metro’s losing money, but I’m more sad about what’s happening to black people.”

The interesting question is whether fare evasion and lost revenue will increase. Evasion arrests, citations and warnings have surged in recent years, from 4,000 in 2013 to 15,000 by 2017, reports the Washington Post. Eighty percent of those losses occur in the District of Columbia.

“We have a big problem with fare evasion at Metro,” said D.C. Council member Jack Evans, who also serves as Metro board chairman. “And when it is understood that you will just get a civil citation that is largely unenforceable, you have a higher incidence.”

Advocates of decriminalization have likened the nonpayment of fares to the nonpayment of parking tickets, which is a misdemeanor. If parking-ticket scofflaws don’t face criminal charges, why should turnstyle jumpers?

Advocates of criminal penalties and enforcement invoke the “broken windows” theory of policing, which contends that failure to punish small offenses emboldens criminal behavior and leads to worse offenses. Conversely, enforcing minor criminal offenses suppresses worse crimes.

Metro posits that increased enforcement against fare evasion has led to a reduction in more serious offenses, owing to the police presence and the proportion of fare evasion stops leading police to more severe offenders.

For example, the board argued, while 8 percent of fare evasion stops lead to arrests according to current figures, most of those arrests resulted not from the initial fare evasion charge but rather from existing warrants for other offenses — a further crime such as assault on a police officer, or failure to produce identification.

Bacon’s bottom line. The D.C. councilpersons raise a fair point: Why should fare skippers (mostly black) be treated so much worse than parking scofflaws (of undetermined racial composition)? Isn’t there a double standard at work? Here’s how I would respond.

First, nonpayment of parking citations doesn’t create an environment that leads to other crimes. Failure to crack down on turnstyle jumping, by contrast, contributes to a sense of lawlessness in the D.C. subway system that encourages other forms of criminal behavior.

Second, revenue lost from turnstyle jumpers is only part of the fiscal equation. If lawlessness increases — more pickpocketing, more robbery, more assaults — many law-abiding Metro passengers will stop riding the rails. A small increase in lawlessness could spark a large change in behavior, especially among risk-averse riders such as women and the elderly. Thus a doubling of fare evasion, should it occur, could quadruple or quintiple the revenue losses if we account for lost ridership. Remember, ridership has been declining in recent years due to safety, scheduling and riding-experience concerns. Lawlessness could accelerate the trend.

Of course, this is all speculation. We won’t know the result until the new policy is implemented.

Here’s the rub. While Washington City Council conducts its social experiment, Washington shares the fiscal pain of lost revenue with Virginia and Maryland. Should revenues decline, Metro will be faced with a choice of cutting back operations, deferring maintenance, or going to the state and local governments whose population it serves and asking for more money. Washington City Council has put Virginia taxpayers and Metro riders at risk.

Crazy Time in Virginia

David Toscano

Del. David Toscano, D-Charlottesville, is an old-school, moderate liberal Democrat. He consistently earns low ratings from conservative groups (only 7% from the American Conservative Unions) and high ratings from core Democratic constituencies (100% by the Virginia Sierra Club and 100% from the Virginia Education Association.” But, like many old-school Democrats, he’s fairly pro-business. The Virginia Foundation for Research and Economic Education (Virginia FREE) gives him a lifetime rating of 72%, and even the fiercely small-government National Federation of Independent Business (NFIB) gives him 50%.

Sally Hudson

And that, it seems, is just too darn conservative for some Charlottesville-area Democrats. Sally Hudson, an assistant professor of public policy, education and economics at the University of Virginia, announced Tuesday that she intends to run against the House Minority Leader in the Democratic Party primary next year, reports the Daily Progress.

Hudson’s campaign said it’s time for the area to send someone with “more progressive values” to Richmond.

“I think Charlottesville is ready for new leadership, and Charlottesville is ready to lead,” Hudson said in a press release. “We’re one of the strongest Democratic districts in Virginia. We should be setting the agenda. We should be setting the bar.”

Bacon’s bottom line: With the mauling of Corey Stewart in his bid for Sen. Tim Kaine’s U.S. Senate seat and what many think is the inevitable transfer of power from Republicans to Democrats, the Republican Party of Virginia is in severe disarray. The GOP doesn’t know if it’s the populist party of Donald Trump or the party of traditional conservative principles. Republican morale is in the basement.

Meanwhile, with electoral and funding strongholds in Northern Virginia and Charlottesville, the Left in Virginia is stronger than it has ever been. And the Tom Periello wing of Virginia’s Democratic Party doesn’t have much more patience with old-school liberals like Toscano (or Ralph Northam) than it does with Republicans. If there’s anything that can reinvigorate Virginia’s GOP, it’s a Leftist purge of old-school Democratic Party politicians such as Toscano, and the elevation of candidates who make Republicans look tame and moderate by comparison.

Stay tuned. The 2019 House and Senate elections will get more interesting than you think.

Amazon Deal Highlights Virginia’s Competitive Advantage Over Maryland

Many Virginians have qualms about the $550 million in job-creation incentives plus more than $1 billion in promised transportation and higher-ed investments it took to recruit a $2.5 billion Amazon facility to Northern Virginia. But things could be worse. Maryland offered an $8.5 billion package — and didn’t land the deal. The Washington Post is asking if the Old Line State, which pitched a Montgomery County location, has lost its economic-development mojo.

For the record, Maryland officials are putting on a positive face. They are delighted that Montgomery County was one of Amazon’s 20 finalists, and they say that the facility’s location in Arlington/Alexandria will send positive economic ripples throughout the Washington region.

But Montgomery County — the Fairfax of Maryland — has studiously refashioned itself over the past few decades as a walkable urban community with access to abundant mass transit, just the kind of urban fabric Amazon was looking for. The county has access to the same high-tech labor pool as Arlington and Alexandria, which snagged the deal. And the state offered $6 to $7 billion more in inducements than Virginia.

Anirban Basu, chairman of the Maryland Economic Development Commission, has been asking himself, “Why would Amazon turn away billions of dollars in subsidies to go across the river?”

Experts quoted by the WaPo pointed point to site-specific factors that favored Virginia. National Landing (the rebranded location in Crystal City and Potomac Yard that Amazon selected) is closer to downtown Washington, D.C., and so close to Reagan National Airport that Virginia has offered to build a walkway to link it to the Amazon office complex. National Landing has direct access to a Metro station, which the Commonwealth has offered to upgrade. And most of the property involved in Virginia’s bid is owned by a single developer, JBG Smith.

And who would believe this? Northern Virginia’s transportation infrastructure compares favorably to that of Maryland.

Northern Virginia’s transit and road networks also outpace the Maryland suburb’s. Virginia recently expanded its part of the Capital Beltway with tolled express lanes, and the second phase of Metro’s Silver Line, which will extend the subway to Dulles International Airport and into Loudoun County, is slated to open in 2020.

Finally, Basu cited Virginia’s “creative stroke of genius” in lining up $1.1 billion in higher-education support to build the computer-science talent pipeline. Virginia’s plan includes $250 million toward Virginia Tech building a $1 billion “Innovation Campus” near the future Amazon hub.

I would add another factor not mentioned in the WaPo article. Amazon has a history of working closely with Virginia officials and its largest utility, Dominion Energy, fostering development of Amazon’s cloud-services business in Northern Virginia. The company knows it can get things done in Virginia, whereas Maryland, where it has had little experience, is more of a cipher.

But Maryland’s competitiveness issue runs deeper. “One of the reasons Maryland created such a large incentive package for Amazon is because we know our business climate is not as competitive,” said Basu, whose Baltimore firm, the Sage Policy Group, conducted the state’s economic impact study of Amazon’s potential benefits but was not involved in the bid.

As the WaPo quotes regional economic analyst Stephen S. Fuller, 25 years ago economic activity in the Washington region was split equally among Northern Virginia, Washington and the Maryland suburbs. By last year, Northern Virginia’s share had grown to 48 percent, while the Maryland suburbs held about steady with 31 percent, and Washington had dropped to 21 percent.

Think about that. For all of Northern Virginia’s horrendous problems with traffic congestion, autocentric land uses, skilled labor shortages, lack of a top-tier research university, local-government unfunded pension liabilities, and some of the highest taxes in Virginia, it has been kicking Terrapin butt for two-and-a-half decades as measured by job creation. Writes the WaPo:

[Basu] has concluded that Amazon must have rejected the state’s “antiquated” regulations and higher taxes for corporations and top-earning residents. Amazon has said salaries at the new headquarters will average $150,000. Unlike in Virginia, Maryland jurisdictions impose a local income tax in addition to the state tax.

According to the Tax Foundation, Virginia is has a more favorable tax climate than Maryland almost across the board.

Personal income taxes
Virginia ranked 35th
Maryland ranked 45th

Corporate taxes
Virginia ranked 10th
Maryland ranked 22nd

Sales taxes
Virginia ranked 10th
Maryland ranked 18th

Property taxes
Virginia ranked 30th
Maryland ranked 42nd

Only in “unemployment insurance taxes” does Maryland compare favorably to Virginia, with a 28th ranking compared to Virginia’s 43rd.

Bottom line: Virginians get to keep more of their paychecks. When you’re  a company recruiting high-end business and technical talent, that counts for a lot.

Update: I have edited the original version of this story to distinguish between Virginia’s “incentives” paid directly to Amazon and state and local promises to invest in transportation and higher-ed.

Fairfax Supervisors Face County’s Monster Pension Crunch

Fairfax County Board of Supervisors Chair Sharon Bulova

Once upon a time, way back in the year 2000, Fairfax County’s general-employee pension plan was amply funded at 109% of projected needs. But the funding ratio dropped severely during the last recession and has been hovering around 70% in recent years. Today unfunded pension liabilities for Virginia’s largest local government are roughly comparable in size to that of the Virginia Retirement System, which which state employees and many local government employees participate.

Taxpayer groups are sounding the alarm and, astonishingly, the Board of Supervisors is actually studying proposals to address the shortfall.

County officials have proposed a range of tweaks to the pension plans for public safety workers and general employees. (School teachers have their own plans not controlled by the county board.) Among the changes: The minimum retirement age would be bumped from 55 to 60, the retirement-eligibility formula would increase age + years served from 85 to 90, and the final salary-averaging period for calculating retirement-payments would be increased from three to five. The changes would apply only to new employees hired on or after July 1, 2019, reports Inside NoVa.

Said Board Chair Sharon Bulova (D): “The Board, all of us, have felt this is a contractual, really, issue. If you joined the county under certain expectations and you’ve based your retirement plans on what you believed would be the deal when you came to the county, we are not changing that for current employees.”

Sean Corcoran, president of the Fairfax Coalition of Police Local 5000 described the proposed pension changes as “a completely contrived crisis.” Others speaking for county employees warned that the plan would create a new class of “second-class employee” and would hurt morale and recruitment.

But taxpayer advocates said the proposed reforms were just a start.

Arthur Purves, president of the Fairfax County Taxpayers Alliance, said while the county’s population increased 20 percent since 2000, inflation-adjusted salaries for county employees rose 35 percent, health-insurance payments went up 194 percent and pension costs increased 244 percent.

County real estate taxes since 2000 have increased three or four times more than the inflation rate, said Purves, who blamed compensation increases as the culprit.

The proposed pension cuts for new employees “are only a small and necessary start,” he said. “You need to look at raises.”

McLean Citizens Association president Dale Stein said county pension borrowing went up $600 million during the last three years and added officials were basing their calculations on average annual returns on investment of 7.25 percent, while returns over the past decade averaged just 5.9 percent.

“We strongly urge the Board of Supervisors to ensure a strong, competitive compensation package for all county employees,” Stein said. “In making those packages possible, the realistic question is, ‘Where in the heck is that money going to come from?'”

The Inside NoVa article did not say how much the proposed changes would reduce the unfunded liabilities.

Bacon’s bottom line: You can keeping kicking the can down the road but eventually you run out of road. The time to act is now. Relatively small changes today can fix a problem that is still a couple of decades away from a full-blown crisis. Failure to enact reforms, however, will make necessary changes all the more painful in future years.

The Uncertain Economics of Offshore Wind

Source: “Lazard’s Levelized Cost of Energy Analysis.” Click graphic for more legible image.

As Virginia hurtles towards a renewable energy future with lots of solar and wind power, ratepayers and taxpayers should acquaint themselves with the complexities of Levelized Cost of Energy (LCOE) analysis. LCOE incorporates the costs associated with electricity generation — up-front capital costs, fuel costs, ongoing operations and maintenance costs — to compare the economic viability of conventional and renewable energy sources with very different characteristics.

In almost anybody’s analysis, the cost of utility-scale solar power in Virginia is highly favorable. The up-front capital costs are modest, fuel costs are zero, and ongoing operations and maintenance costs low. A heavy reliance on solar, an intermittent energy source that varies with the level of sunlight, does raise issues of system reliability. But as an energy source, it’s the cheapest around. However, the same cannot be said of smaller-scale solar projects or wind power.

The Lazard Levelized Cost of Energy Analysis is widely regarded as one of the most authoritative comparisons of LCOE. The chart above shows Lazard’s calculation of LCOE for the major categories of conventional and renewable energy. Utility-scale solar is the least expensive. Community solar and commercial & industrial rooftop solar are considerably more expensive but potentially competitive, and residential rooftop are not remotely competitive on cost. Nearly all of Virginia’s solar is utility-scale. Although environmentalist and activist groups are fighting for more community and residential solar, those categories are likely to remain marginal contributors to Virginia’s energy mix — options for those whose environmental consciences weigh heavier than their pocketbooks.

Wind power is a trickier issue. Lazard shows the LCOE ranging from $30 to $60 per megawatt/hour (or 3 to 6 cents per kilowatt/hour). Even the higher-cost wind is cheaper than all conventional sources excepting combined-cycle natural gas (large gas plants that burn gas with jet-like turbines and recycle the waste heat to run steam generators).

However, LCOE analysis depends upon various assumptions that may or may not pan out. Lazard’s “wind” numbers are based primarily upon the cost of generating wind on land, not establishing an offshore wind sector on the Atlantic Coast from scratch. The only thing we know for certain is that early adopters of offshore wind, who build before a supporting infrastructure is fully established, will pay more.

Another critical question is how many years wind turbines last before they must be retired. Coal, gas, and nuclear power sources are assumed to last 30 to 40 years, although some have lasted longer. The National Energy Energy Laboratory, accused by some of having a fossil fuel bias, says solar has a 25-year to 40-year economic life, but wind turbines only a 20-year life. I don’t know what life span Lazard assumes for wind, but I did find a LCOE analysis for wind power in Iceland that assumes a 25-year life.

Writing in the Center of the American Experiment, Isaac Orr notes, however, that 14 turbines in an industrial wind facility in Kewaunee County, Wisconsin, “has been decommissioned after just 20 years of service because the turbines are no longer cost effective to maintain and operate” — confirming the NREL assessment.

If the NREL numbers are accurate, the implications for Virginia’s energy future are significant. The Grid Modernization and Security Act of 2018 enshrined the goal of increased wind power as in the “public interest.” The State Corporation Commission has protested the cost of electricity generated from two proposed experimental wind turbines would be astonishingly high but approved the project anyway because the General Assembly, without conducting any of its own analysis, had declared it to be necessary.

The two experimental turbines are mere prelude to development of a much larger, 2-gigawatt offshore wind farm at cost of billions of dollars. Thanks to economies of scale in erecting offshore turbines, the levelized cost of the larger wind project will be a fraction of that of the experimental project. But if the 20-year life span of the Wisconsin turbines is any guide, wind turbines may not last as long as assumed, and may cost more. Moreover, we still don’t have any data on how well wind turbines will hold up in East Coast conditions — especially when buffeted by hurricane winds and waves.

Complicating the analysis, a kilowatt of electricity generated by a conventional fuel source upon command is worth more for maintaining grid reliability than a kilowatt generated by a renewable energy source delivered only when the sun is shining and the wind is blowing.

Not that it matters. In its wisdom, the General Assembly has mandated wind generation with no clear idea of what it will cost.

Filling Virginia’s Flood Insurance Gap

by Lisa Miller

A new Federal Emergency Management Agency report is shocking: 69% of Virginia homes in high risk flood zones do not have flood insurance. Another report reveals 17% of Virginia properties should be listed in high risk zones – but are not. Congress’s continued failure to reform an increasingly expensive National Flood Insurance Program (NFIP), coupled with last year’s record-setting floods and now Hurricanes Michael and Florence, has created an urgent need to improve the availability and affordability of flood insurance. The Virginia General Assembly and legislatures in other states can help address this dangerous situation by encouraging a larger private flood insurance market.

There is only one private insurance company writing primary flood insurance in Virginia, defined as up to $250,000 in coverage. Although 106,000 Virginians have NFIP coverage, FEMA’s report, “An Affordability Framework for the National Flood Insurance Program,” found that only residents with higher incomes are buying it, leaving an ever-growing majority of others unprotected.  While FEMA studies the situation, the private market is moving ahead and delivering more affordable flood insurance where it can.

New catastrophe models are allowing insurance companies to better understand risk and thus accurately price flood premiums – down to the individual property – providing greater consumer choice and alternatives to the federal NFIP. When state government encourages it, a vibrant, competitive environment emerges as it has in Florida where, in just 3 years, almost 30 companies are offering better coverage at a cheaper price. In Miami-Dade County, ground zero for Hurricane Andrew in 1992, one private insurer’s average premium is $677 compared to the NFIP’s $980 average.

Catastrophe models, model law. The use of catastrophe models in setting rates isn’t new. But it’s usually used together with claims data, something the NFIP hasn’t been willing to share, citing privacy concerns. Also, greater consistency is needed among individual state insurance departments on how catastrophe models may be used in submitting rates.

The National Conference of Insurance Legislators (NCOIL) has begun reviewing a simple two-page proposed draft law, based on Florida’s, whose concept is, “If you build it, they will come.” The draft law permits companies, as an example, to test market rates in order to promote competition and choice, with the regulator approving policy language if a state requires a review (some do not) to ensure policies meet or exceed NFIP coverage.

The model law also ensures that insurance agents educate consumers about the dangers of going without coverage, and that insurance commissioners certify that policies are adequate to meet mortgage banking requirements. The safeguards in this simple model law will reduce our reliance on federal flood insurance.

Some in the insurance industry are concerned that this proposed regulation is overreaching or unnecessary. It is nonetheless designed to provide suggestions to regulators and those regulated on how to work together to launch and grow a successful market. What isn’t in dispute is private flood coverage’s cost savings, improved benefits, and greater consumer choice.

Start the conversation. NFIP premiums are rising an average of 8% this year but in some areas by 18%,the maximum annual increase allowed under law. So it just makes sense for state legislators and regulators to begin the conversation to fast-track the growth of a private market, which has the added benefit of spreading the risk to private insurers and away from U.S. taxpayers.

Too many Virginians are unprotected from the hazards of flood waters. There’s an urgent need to improve the availability and affordability of flood insurance so more homeowners are able to buy protection for their property and families. While Congressional paralysis stymies needed NFIP reforms, we must work toward model private flood insurance legislation to let Washington know “we got this.”

Lisa Miller is a former Florida Deputy Insurance Commissioner who served as an advisor on passage of Florida’s key laws encouraging a vibrant private flood insurance market. She is CEO of Lisa Miller & Associates, a Tallahassee, Florida-based consulting firm. @LisaMillerAssoc

Medicaid Expansion’s Achilles Heel: the Doctor Shortage

Source: “Virginia Physician Workforce Shortage” presentation to the Joint Commission on Health Care, Sept. 2013.

The Northam administration sold Medicaid expansion to the public in part by claiming that the net cost to Virginia taxpayers would be minimal. Uncle Sam would pay for 90% of the cost of extending medical coverage to up to 400,000 Virginians, and the state’s 10% share would be offset by savings in prisons, mental health, and other areas. What no one talked about, except in the fine print, was the necessity of increasing reimbursements to physicians.

The Richmond Times-Dispatch editorial page explains today why higher reimbursements for physicians are an integral and unavoidable part of Medicaid expansion:

Medicaid underpays its physicians, reimbursing them at only 71 percent of the rate they get paid by Medicare, and an even smaller percentage of what private insurers pay. As a consequence, only 63 percent of physicians accept Medicaid patients, and only 71 percent of those are taking new patients. So, when Medicaid expands eligibility to as many as 400,000 near-poor Virginians this year, many will find it difficult to find a primary care physician, and they’ll wind up seeking care in the emergency room, just like they always have.

The Department of Medical Assistance Services (DMAS), which administers Virginia’s Medicaid program, now is asking for $19.1 million in the second year of the next biennial budget for Virginia’s share of the cost to lure more docs into the program. The hope is that hiking reimbursements from 71% of the Medicare benchmark to 80% of the benchmark will induce a meaningful number of physicians to take more Medicaid patients.

How likely is that?

Virginia has about 25,000 full-time-equivalent physicians, according to “Virginia Physician Workforce: 2016” published last year by the Healthcare Workforce Data Center (HWDC).

Source:  “Virginia Physician Workforce: 2016”

HWDC found that 57% of physician were accepting new patients at their primary office. Of those who are taking in more patients in their primary offices, 35% can accept no more than 50, while 23% can accept between 50 and 99 new patients. If I understand its presentation correctly (see the chart to the left) HWDC estimated a “new patient capacity” of about 14,000 at both primary and secondary locations. That’s a drop in the bucket compared to the expected influx of 400,000 new Medicaid patients.

The shortage is not likely to improve. Nearly 4,000 doctors, about 17% of the physician workforce, are over 65 years or older. Although many docs plan to work into their 70s, 8% of Virginia’s physicians plan to retire within two years, and 30% expect to do so within 10, estimates the HWDC.

If 8% of physicians retire in the next two years — about 1,000 per year — there are two ways, broadly speaking, to replace them. (1) working physicians can take in more patients, and (2) hospitals can recruit more doctors.

Female physicians work fewer hours on average than males at all ages. Source:  “Virginia Physician Workforce: 2016

While older physicians are predominantly male, the younger generation of physicians is half female. That’s great for gender equality, but it stretches the profession even thinner because female physicians tend to work fewer hours than males (presumably because, as mothers, many are juggling professional and domestic responsibilities). As male physicians age out and are replaced by females, doctors on average will tend to work fewer hours, meaning they will see fewer patients. For this and other reasons, 2,531 doctors told HWDC they were planning to decrease patient hours compared to 2,183 who said they were planning to increase their hours within the next two years — a net of 348 doctors intending to cut back.

Another way to accommodate 400,000 more Medicaid patients is to train and recruit new doctors. According to HWDC data, Virginia medical schools granted 1,322 residencies over the past five years. That’s a pipeline of barely 600 per year. Assuming every Virginia resident stayed in Virginia (which they don’t), the number fall significantly short of the 1,000 or so doctors expected to retire. That means the gap must be filled by recruiting doctors from outside the state. How likely is that to occur? Who knows. That’s a big uncertainty.

Some regions of Virginia will be able to absorb the influx of Medicaid patients better than others. The major metropolitan areas have higher doctor-population ratios than the non-metros. Indeed, as shown in the map at atop of this post, a 2013 presentation to the Joint Commission on Health Care designated much of the state as “primary care shortage areas.” That presentation cited a shortage of 126 primary care physicians in those areas. Continue reading

Cranky Shows the Educrats How It’s Done


Cranky, er, I mean John Butcher, continues to do the kind of statistical analysis of Virginia’s public schools that I wish we would see from our public officials. In a recent post on Cranky’s Blog, he dove deeper than ever into the relationship between economic disadvantage and SOL outcomes. And he demonstrated with greater clarity that some schools do better at educating disadvantaged students than others.

It is universally acknowledged that students classified as “disadvantaged” — qualifying for free school lunches — perform worse on average in Standards of Learning tests than do students not so categorized. Likewise, it is universally acknowledged that schools with higher percentages of disadvantaged students will tend to show lower SOL test scores than schools with fewer disadvantaged students, and that any evaluation of their effectiveness should take that fact into account. While the percentage of “disadvantaged” students accounts for roughly half the variability between schools, other factors — some of which schools and school districts can manage — also account for half.

In a graph published on Bacon’s Rebellion last week, John showed the variability between school districts. In the graph shown above, taken from his most recent post, he showed the correlation between English SOL pass rates and the percentage of disadvantaged for all schools. Then he did something particularly interesting — he overlaid schools from a specific district over the universal graph to show how that district compares to state averages.

The graph above compares average SOL scores for both advantaged and disadvantaged students statewide. It shows that the higher the percentage of disadvantaged students in a school, the worse both categories of students perform. In schools dominated by disadvantaged students, even the non-disadvantaged students do worse. Statewide, the depressive effect is roughly the same, as can be seen by the slope of the two lines.

Now, let’s look at some individual school districts.

In Fairfax County, Virginia’s largest school district, we can see that the effect of higher percentages of disadvantaged students upon non-disadvantaged students (the green line) is in line with statewide averages, but the impact on disadvantaged students (the yellow line) is particularly striking. What is going on? Do Fairfax School Board members have a clue that this is happening? Continue reading

Big Changes for Bacon’s Rebellion

I am pleased to announce that I have joined the Editorial Department of the Richmond Times-Dispatch. Working on a part-time basis, I will contribute signed op-ed pieces and unsigned editorials to the newspaper. I will focus, as I have for Bacon’s Rebellion, mainly on state and local public-policy issues.

I will continue publishing Bacon’s Rebellion independently. Editorial Page Editor Bob Rayner and I are committed to exploring ways in which the Editorial Department and the blog can work together to create a stronger online editorial presence for both. We envision several avenues of collaboration.

First, the RTD has given me permission to re-publish op-eds I write for the newspaper on Bacon’s Rebellion (although unsigned editorials will remain the newspaper’s exclusive property) after a 24-hour delay.

Second, the RTD will link to Bacon’s Rebellion for expanded versions of the newspaper’s editorials and op-eds with additional commentary, tables, graphs and maps that the newspaper does not have space to print.

Third, we have discussed ways to further expand the RTD’s commitment to civic conversations on a wide range of issues affecting the Richmond region and Virginia as a whole. Recently, the RTD Public Square celebrated its 75th program and we’ll be looking to further promote civil dialogue.

In the meantime, I will continue to post commentary to Bacon’s Rebellion as time permits. Fortunately, the blog has two strong contributors in Steve Haner and Don Rippert, so readers can be confident that the blog will be as timely and incisive as ever.

I am hopeful that the new partnership between newspaper and blog will demonstrate one possible way to reinvigorate local journalism – so essential for our democracy – in the digital era.

— Jim Bacon

Virginia’s Air Is Pretty Darn Clean

Air quality for Richmond, Va., on Nov. 25, 2018. (Click graphic for larger image.)

In the comments section on Steve Haner’s latest post, Reed Fawell provided an intriguing quote from Oren Cass, a senior fellow with the Manhattan Institute: Environmental Protection Agency regulations have grown so tight, he said, “that Brussels, the capital of the EU, would be the single dirtiest city in the US, if it were here.”

Really? I wondered if that were true. So I checked the AGICN.org website that maps air quality measurements globally, incorporating data for particulates, ozone, sulfur dioxide and nitrogen oxide. As a proxy for Virginia urban areas, I selected an air quality monitor in downtown Richmond (which turns out to be the second highest of 18 measuring Air Quality Index monitoring stations in Virginia.

Air Quality Index for Brussels, Belgium.

Lo and behold, it turns out that the AQI for Brussels for the past 48 hours is twice that of Richmond. That’s just a snapshot of one particular point in time. Air quality varies with air pressure, humidity, wind, and temperature, so the comparison may or may not be representative of air quality over a full year.

Recognizing that downtown Richmond may or may not be representative of American cities generally, and Brussels may or may not be representative of European cities, I captured a higher-altitude perspective by comparing maps of the Eastern U.S. and most of Europe. Note: The green markers stand for “good” levels of air pollution, yellow for “moderate,” and red for “unhealthy.”

Cass’s statement is almost literally true… but not quite. There are a handful of locations in the U.S. with higher air pollution than Brussels. In the Eastern U.S. only Albany New York had worse air quality, and only by a small margin. Out west, Denver, Colo.; Tacoma, Washington; Long Beach (Los Angeles), Calif.;  and Phoenix, Ariz. were somewhat higher. Iowa City, Iowa’s index was significantly higher — high enough to fall under the “unhealthy for sensitive groups” category.

While air quality varies considerably from country to country, there are large patches in Europe where air quality is problematic, especially in the Belgium-Netherlands area, northern Italy, and big chunks of formerly communist countries. Then, for purposes of comparison, here’s a look at Asia:

Here we get into the “very unhealthy” and “hazardous” air-quality categories. When air quality rates hazardous, “everyone may experience more serious health effects.” It’s almost (but not quite) fair to say that the U.S. city with the dirtiest air is cleaner than the Chinese city with the cleanest air.

Here’s one more map, this one showing how Virginia stacks up to neighboring states: Continue reading