Category Archives: General Assembly

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.

With that assumption baked into the data, the Joint Legislative Audit and Review Commission found very small benefits for the various grants or tax incentives Virginia offers employers for new business locations or expansions.  This year’s summary looked at $1.8 billion spent on grants or foregone through tax exemptions over eight years.

Continue reading

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.

Continue reading

Virginia’s Most Effective Legislator: Emmett Hanger

Virginia’s most effective legislator: It helps to belong to the party in power.

Sen. Emmett Hanger, R-Augusta, was the nation’s 10th most productive legislator serving in a state senate in 2018, according to FiscalNote, a consulting firm that uses real-time policy data to provide issues-management solutions.

A long-time veteran of the General Assembly, Hanger sponsored 444 bills during the multi-year time frame covered in FiscalNote’s analysis, 57% of which were passed. His top policy issues were agriculture, technology, and government administration. FiscalNote described the senior Republican lawmaker as an ideological “moderate.” 

Continue reading

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

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.

Altria rumored to be in talks to buy Canadian cannabis company Cronos Group

High in Henrico.  Henrico County based Altria, makers of Marlboro cigarettes among other products, is rumored to be interested in buying Canadian cannabis company Cronos Group.  Altria is refusing comment while Cronos said it “confirmed that it is engaged in discussions concerning a potential investment by Altria Group … in Cronos Group.”  Cronos went on to say that no agreement had been reached and there is no assurance that the discussions will lead to a deal.

Is that really a maple leaf on the flag?  Canada legalized possession of marijuana nationally effective October 17, 2018.  Under the national law provinces have some latitude regarding specific cannabis regulation.   In Quebec and Alberta, the legal age is 18; it’s 19 in the remainder of the country for example.  However, unlike the United States, there is no dichotomy between national and provincial (state) law.  There can be no doubt that this legal clarity is encouraging companies like Altria to consider entering the Canadian marijuana market while sitting on the sidelines of American states which have legalized grass.

Implications for Virginia.  Pot legislation and the business of selling pot is moving quickly in North America.  In November Michigan became the tenth US state to legalize possession of marijuana.  There is legislation pending for the 2019 General Assembly session to decriminalize marijuana in the Old Dominion.  Now an iconic and politically connected Virginia-based company apparently sees no moral or ethical issue with participating in Canada’s legal marijuana market.  Given that Altria’s board includes Virginia luminaries such as Thomas F Farrell, CEO of Dominion and John T Casteen, former President of UVA one wonders if Altria’s plans might lend respectability to marijuana reform in Virginia.

I smell refund.  In 2018 a bill to decriminalize possession of small amounts of marijuana (SB 111) was defeated along party lines in the Courts of Justice.  Nine Republican state senators voted against the bill.  Over the years all nine have received campaign contributions from Altria.  Given that these nine politicians see marijuana possession as a serious crime one would hope they will return these campaign contributions given that Altria is trying to engage in marijuana production, distribution and sale.  After all, is it moral to keep money contributed by a company engaging in practices you think should be illegal?  Here are the amounts (per VPAP):

Obenshain – $44,250
Norment – $128,433
McDougle – $58,000
Stuart – $8,500
Stanley – $9,500
Reeves – $28,265
Chafin – $1,500
Sturtevant – $8,000
Peake – $500

— Don Rippert

Marijuana arrests and racism in Virginia (especially Arlington County)

Reefer madness.  The upcoming debate in the Virginia General Assembly over decriminalizing possession of small amounts of marijuana may have racial overtones.  VCU Capital News Service studied the data for marijuana arrests in Virginia from 2010 through 2016.  African Americans were 3.2 times more likely to be arrested for marijuana crimes than whites.  At the same time separate research shows almost no difference in marijuana use between white and black Americans.  Across America it’s even worse.  Nationally, a black person is 3.73 times more likely to be arrested for a marijuana crime than a white person.

Location, location, location.  VCU Capital News Service breaks down the data by locality.  You can find the numbers here.  The only jurisdictions where the per capita arrest rate for whites is higher than blacks are those counties where the population is so low that a single arrest can make a statistical difference.  Highland County, for example, averaged 13 African American residents over the study’s time period and none of the 13 were arrested for marijuana crimes.  Two white people (out of about 2,200) were arrested for marijuana crimes in Highland County.  In all of Virginia’s populous localities the African American arrest rate was notably higher than the corresponding rate for white people.  In Hanover County for example, blacks were arrested at a frequency 6.3 times that of whites.

Libtopia.  Anybody who has ever been to Arlington County knows that safe spaces are mandated by the building codes, snowflakes can be seen in July and rainbow colored unicorns prance in the bike lanes.  It’s a progressive paradise.  So it probably comes as a surprise that African Americans were more than eight times more likely than whites to be arrested for marijuana crimes in Arlington from 2010 – 2016.  Arlington County’s Board has five Democrats, no Republicans and no independents.  The lone independent (John Vihstadt) was defeated in November.  How is it possible for the Lions of Libtopia to turn a blind eye to rampant racism occurring in their social justice warrior wonderland?

The Hook is dope.  If you do want to posses marijuana you ought to consider residing in the City of Charlottesville (25 total arrests per 100,000 residents) rather than the City of Emporia (1,595 total arrests per 100,000 residents).  You are 64 times more likely to get a reefer bust in Emporia than in Charlottesville.  Does anybody think that the people of Emporia use marijuana 64 times more often than the people in Charlottesville?  In fairness, I95 comprises about 1/2 of the border of Emporia so many of the arrests may be people using that highway.  However, Falls Church (51) vs Fairfax City (589) makes one wonder.

Unfair at any speed.  As the General Assembly considers decriminalizing the possession of small amounts of marijuana it should also consider the fairness of the present system.  Vast differences are observable in the enforcement of marijuana laws across race and location.  In locality after locality you are more likely to be arrested for marijuana if you are black vs white.  The City of Charlottesville (pop 45k) made 11 marijuana related arrests from 2010 through 2016, fewer than 2 per year.  The City of Danville (pop 43k) made 354 arrests over the same period, over 50 per year.

— Don Rippert

2019 General Assembly Session – Amending the State Constitution

Lucky number seven.  Virginia has rewritten its original constitution (1776) six times thus making our current constitution (1971) the seventh state constitution.  While there is no serious movement afoot to get to the eighth constitution there are plenty of carry over, first reference and first resolution bills that propose to modify our present constitution.

Right to vote.  HJ578, Keam D-Vienna (first reference).  Provides there is a right to vote and requires the Commonwealth to provide all resources necessary to assist qualified voters in the exercise of their right to vote.

Redistricting Commission.  HJ 582, Heretick, D-Portsmouth (first reference).  Establishes a 13 member Virginia Redistricting Commission.

Governor’s term of office.  HJ584, Keam D-Vienna (first reference).  Permits governor to succeed himself or herself in office.  Permits two terms, either in succession or not.  Prohibits a third term.

Joint election of Governor and Lt Governor.  HJ585, Keam D-Vienna (first reference).  Joint election of Governor and Lt Governor.  Both candidates to appear jointly on the ballot similar to the US president and Vice President.

Reapportionment after redistricting.  HJ591, Cole – R-Fredricksburg (first reference).  Reapportionment of legislative electoral districts following census-based redistricting.  Limited to getting districts to coincide with voting precincts.

Definition of marriage.  SJ1, Ebbin – D – Alexandria (carry over).  Repeals language defining marriage as”only a union between one man and one woman” based on ruling oif US Supreme Court in Obergefell v. Hodges (2015).  Legislation refiled as first reference under SJ251.

Qualifications for Governor.  SJ2, Chase – R – Midlothian (carry over).  Increases from five to eight years the time a person must be a resident of Virginia before becoming eligible to be governor.  Legislation refiled as first reference under SJ252 and as a first resolution under SR82.

General Assembly term limits.  SJ3, Chase – R – Midlothian (carry over).  Limits members of the Senate to three full terms and members of the House of Delegates to six full terms.  Legislation refiled as first reference under SJ253 and as a first resolution under SR83.

Restoration of right to vote for non-violent felons.  SJ5, Lucas – D – Portsmouth (first reference).  Allows the General Assembly to enact a law automatically restoring the right to vote for non-violent felons who have completed their sentences.

Governor’s term of office (see also HJ584).  SJ8, Ebbin – D- Alexandria (carry over).  Permits governor to succeed himself or herself in office.  Permits two terms, either in succession or not.  Prohibits a third term.  Legislation refiled as first reference under SJ250.

Qualifications to vote.  SJ9, Locke – D – Hampton (carry over).  Removes restrictions on the right to vote from those convicted of a felony or adjudicated to be mentally incompetent.

Qualifications to vote.  SJ12, Lucas – D – Portsmouth (carry over).  See SJ9 (above).

Virginia Redistricting Commission.  SJ25, Hanger – R – Augusta (carry over).  Established seven member redistricting commission.  Establishes standards to remain in compliance with state constitution requirements for districts.

Restoration of right to vote for felons.  SJ27, Hanger – R – Augusta (carry over). Allows General Assembly to legislate automatic restoration of right to vote for felons who have completed their sentences other than in cases of “barrier crimes” (to be defined by the General Assembly).

Virginia Redistricting Commission.  SJ34, Barker – D – Alexandria (carry over).  Establishes an eight member redistricting commission.

Seized drug assets used to promote law enforcement.  SJ39, Reeves – R – Fredericksburg (carry over).  Proceeds from the sale of forfeited property for drug offenses be paid into the state treasury and distributed for the purpose of promoting law enforcement, the purpose of promoting law enforcement shall be as defined by general law.

Virginia Redistricting Commission.  SJ51, Deeds – D – Bath (first resolution).  See HJ582 (above).

Criteria for electoral districts.  SJ68, Vogel – R – Warrenton (first reference).  Provides criteria for drawing electoral districts including “contiguous and compact” territory.

Political reform.  SJ258, Chase – R – Midlothian (first reference).  Prohibits the establishment of electoral districts that intentionally or unduly favor or disfavor any political party and requires the General Assembly to regulate the role of money in elections and governance to ensure transparency, to prevent corruption, and to protect against the buying of access to or influence over elected officials.

— Don Rippert.

2019 General Assembly Session – Privatizing Public Roads in McLean, Va

Judge Dillon’s revenge.  Development vs transportation has been a long running battle in Virginia. Northern Virginia’s local government  politicians never met a developer (or developer’s campaign contribution) they didn’t love. Virginia’s state legislators love NoVa growth since it provides more state tax money to spread around like party favors to their downstate constituencies. However, those same state legislators loathe the idea of repatriating many of those tax dollars back to Northern Virginia to fund needed transportation improvements. The local pols blame the state pols for failing to fund transportation in NoVa. The state pols blame the locals for ineffective land use planning. Meanwhile, both localities and the state are throwing their shoulders out of joint patting themselves on the back over winning half of the new Amazon HQ2 deal. There have even been rumors that Apple may be looking at NoVa for another 20,000 jobs. What could possibly go wrong?

No need to wait for chaos. While Amazon HQ2, Apple and the “densificiation” of Tysons are all largely future events, the chaos of underfunded transportation is already here. Loudoun County’s population grew 97% between 1990 and 2000, 84% from 2000 to 2010 and 27.5% from 2010 to 2017.  Meanwhile, over 50% of Loudoun workers commute to work outside of Loudoun County (hint: they are not working in West Virginia). At the same time, a veritable caravan of immigrants from The Socialist Republic of Maryland cross the Virginia border every morning seeking a better life through employment in Virginia. The predictable result is that the American Legion Bridge has become a chokepoint that backs up the Beltway for miles, especially in the evening.

Adding insult to injury. The same kind of advanced technology that so enthralls Virginia’s politicians in the HQ2 deal creates nightmares for McLean residents. Navigation apps like Waze and Google Maps are being blamed for showing Loudon commuters and Maryland economic refugees how to bypass Beltway traffic by using the surface streets of McLean. The resulting backups on streets that are often narrow and shoulder-less wreak havoc on the daily lives of those living in the affected neighborhoods. One can only wonder how much worse this will get once the new construction in Tysons is completed and Amazon HQ2 starts adding traffic to Arlington, Alexandria and Tysons.

It’s good to be Queen. Del. Kathleen Murphy, D-McLean, has a plan.  Privatize McLean’s public streets for the exclusive use of McLean residents, at least during rush hour. Murphy’s HB295 has been carried over from the 2018 session. The bill is summarized as follows …

“Allows counties that operate under the urban county executive form of government (Fairfax County) by ordinance to develop a program to issue permits to residents of a designated area that will allow such residents to make turns into or out of the neighborhood during certain times of the day where such turns would otherwise be restricted.”

It seems Del. Murphy will protect herself and her well-heeled neighbors in McLean by simply banning traffic she finds inconvenient. Let the commuters eat cake. It’s easy to feel sympathy for the residents of the many areas in Northern Virginia being ruined by clogged streets full of cut through traffic. However, it’s hard to see where this ends. Will the far less affluent citizens of the Route 1 corridor be able to ban cut through traffic on their streets too? Or will this remedy be reserved for Del. Murphy and her wealthy neighbors in McLean?  Limousine liberalism anyone?

Correction: HB295 was incorrectly described as pre-filed in the original version of this article. In fact, it was carried over from the 2018 session.  The content has been changed to reflect this correction.  

— Don Rippert

Dominion Grid Plan Battered in Testimony

Caroline Golin, Ph.D., witness for Appalachian Voices, SELC

Two witnesses told the State Corporation Commission Tuesday that Dominion Energy Virginia’s proposed grid transformation program will not bring the utility’s customers into the modern energy economy.

Both Scott Norwood of Texas, an expert witness often used by the Office of the Attorney General, and Caroline Golin, an expert from Georgia hired by environmental groups, paralleled their written testimony reported on in an earlier post.

The commission must agree that the company’s $917 million first phase of its plan, which includes a roll out of new automated metering technology, is reasonable and prudent before the company can proceed. Just how customers will pay for this – either through a rate adjustment clause or the use of excess profits retained by the company – is not yet before the commission. With financing costs and profits the long-term revenue requirement for all phases of the plan is estimated at $6 billion by the SCC staff.

“The company is not proposing to operate the grid in any new way,” Golin said Tuesday. If it were moving aggressively to distributed energy, to more customer-driven demand management, to time-of-day pricing, to use of storage, “then I would agree they need more control of the grid. But right now, they are not proposing any of those.”

Norwood noted that a major part of the plan’s cost will be spent to reduce average outages by a few minutes per year. “I’m skeptical most customers will notice. It’s like the break we took at midmorning.” Benefits of that kind of reliability flow to larger, commercial and industrial customers but will be paid for by the residential customers.

Golin picked up on the same point: “There is a difference between reliable and perfect” and the company is now shooting for perfect. “This is something the commission needs to be very critical of. The average customer does not require perfect power.”

Support from some of the environmental groups, and a neutral stance taken by others, was crucial to passage of the 2018 legislation. Dominion Energy packaged it to the public it as a grid modernization effort, but its final version also included major incentives and directives to build more renewable generation. Now the environmental groups are leading the charge against the grid-related element of the bill, claiming it is a lost opportunity to truly transform the utility for a renewable energy future.

Golin, who has joined Google since being retained in this case, has been involved in grid redevelopment cases around the country and has also been especially critical of Duke Energy’s North Carolina plan.  Her statement that Dominion had no plans to operate the grid differently was vigorously challenged by Dominion and even an SCC staff witness later in the hearing.

Since the first round of written testimony was filed, Dominion’s leaders have supplemented the record with rebuttal testimony, but it was picked apart at the hearing as more evidence that no real cost-benefit analysis had been done, much of the engineering work is preliminary, cost estimates have little valid basis, and some obvious grid-related issues were flat ignored.

Dorothy Jaffe of the Sierra Club used questions to a Dominion witness to point out no real plans were made for the growth of electric vehicles, and the initial $3 billion plan would have to be supplemented – perhaps at additional cost – to support that expected transformation.

The Office of the Attorney General and the SCC staff have not asked for a total rejection of the proposal, but acceptance with conditions or acceptance of only the early pieces that involve planning and engineering. 

As with most of the issues that have reached the commission growing out of that legislation, the key question is does the regulatory body have the power to say no. In some cases, such as the off-shore wind demonstration project, the legislative wording was a clear directive. In the case of the grid projects, however, the new language mandated a review for reasonableness and prudence. A separate hearing on the commission’s authority was held November 7.

“The new law does not require a single one of these projects to be implemented,” said Nate Benforado, an attorney for the Southern Environmental Law Center, who used his opening statement to dismiss the whole effort as “a plan to spend money” which “puts the customer last.”

“This is a huge issue for the coming decade,” Benforado said. Dominion really doesn’t need to build new generation. There is testimony in the current integrated resource plan case that demand is flat or dropping, with plenty of generation assets available through connection with other utilities. “Dominion is looking for ways to spend customer money and earn a rate of return.”

The decisions on this case and on the integrated resource plan will probably need to be viewed together to glimpse Virginia’s future. The IRP case appears ripe for a published opinion with no further hearings planned. The commission has until mid January to issue a decision on this matter.

2019 General Assembly Session – Sports Betting Legislation Prefiled

Republican General Assembly Member

I’ll take the Giants by 2.  Sports betting was made illegal in the United States through the federal Professional and Amateur Sports Protection Act of 1992 (PASPA). The legislation was signed into law by George H.W. Bush.

I’ll bet the Supreme Court overturns PASPA. Had you made that bet you would have won. In May, 2018 the US Supreme Court ruled PASPA unconstitutional. The high court decided that individual states should be able to decide for themselves whether to allow sports betting.

What’s the line on the Virginia game? Del Mark Sickles, D-Fairfax County, has pre-filed HB1638 to make sports betting legal in Virginia. However, the line on Virginia would not be applicable since all Virginia collegiate and professional teams would excluded from legalized sports betting. Sickles legislation would only authorize online betting and would allow for a maximum of five licensees with a revenue tax of 15%.

Party Boy Petersen. On the Senate side Chap Petersen, D-Fairfax, has publicly stated that he will also introduce legislation making sports betting legal in Virginia. Petersen’s promised 2019 sports betting legislation would add public places as legal betting sites in addition to Sickle’s online venues.  As Petersen told the Virginia Mercury, “I’m not interested in people sitting in their parents’ basement with their pajamas on betting on a ‘Monday Night Football’ game, I want this to be part of a social entertainment package where people get out and spend money.” Party on, Chap!

What’s the vig? Oxford Economics estimates an annual $5.2 billion betting handle with $380 million in net revenue.  The state’s 15% would come to $60 million per year. Since the Virginia State Lottery would administer the sports betting, the lotto gang would also take a cut of the action. The rest would go to research projects at state universities under the Sickles approach but would become aid to Virginia community colleges under the Petersen plan.

The odds of passage  I’m going to go with 3-1 against passage of this legislation in 2019. I predict that the usual gang of ossified, conservative, downstate Republican legislators who wax poetic about the importance of liberty will block Virginians from having the liberty to make sports bets.

— Don Rippert.

Confusion, Silence Will Earn Business Higher Taxes

State revenue impacts of conformity to federal business tax changes without a corresponding cut in tax rates. Source: Department of Taxation

“I’m not going to get into it unless anybody wants me to.”

So said Kristin Collins, policy development director for the Virginia Department of Taxation, as she neared the end of her November 19 slide presentation on federal tax conformity and its impact on Virginia state taxes.  The final handful of slides focused on the business tax issues, and not one member of the legislative panel asked her to get into them.

With all the focus and political discussion swirling around individual income taxes and conformity, the business tax issues have received little notice.  In the projections on the state’s revenue windfall the higher business taxes produced by conformity play a big role.  In 2023 and 2024, the later years in the state’s projection, higher business taxes account for over 40 percent of the new revenue, according to an outside consultant’s study.

Collins was presenting to the Joint Subcommittee to Evaluate Tax Preferences, the closest thing Virginia has to a permanent tax commission in its legislative body.  Many key players on the money committees belong.   The chair, Delegate Lee Ware of Powhatan,  who also chairs House Finance, intends to call the joint panel together again for a deeper discussion and perhaps some decisions before the General Assembly starts in January.

A group I’m working with has already recommended on the individual side that Virginia increase its standard deduction, and on the corporate side we think Virginia should start to cut the corporate income tax rate, from 6 percent now down to 5.5 percent for this tax year and 5 percent for next tax year.  The full Thomas Jefferson Institute paper on our proposal is now available.

The business community needs to get its act together and decide what it wants, or it’s going to get the full effect of these business tax increases.  Unincorporated businesses – S corporations, pass-throughs, partnerships – do very well under conformity but incorporated businesses get hit.  The cut in the corporate income tax rate we propose effectively short-circuits that tax increase in general but does not return the benefit directly to the companies hit with the highest new taxes.

Some in the business community would prefer to leave the tax rates intact but instead get the General Assembly to restore the corporate deductions targeted by Congress.  They would have Virginia refuse to conform to those certain aspects of the federal system, which does target the corrective action directly to those facing higher taxes.

Our proposal is full conformity but rate cuts aimed at all corporate taxpayers.  It represents general tax reform, not maintenance of the status quo.

A short list of changed business provisions create the big tax hike, and they are spelled out in the Tax Department chart above.  You can see that several grow in impact over time, and a major change in the treatment of research and development expenses doesn’t even kick in for three years.   Unlike some of the new individual tax provisions, these changes have no sunset date.

What is wrong with that chart – and potentially misleading – is it includes provisions for both unincorporated and incorporated businesses.  The two changes producing lower taxes are mainly for the entities exempt from the corporate income tax, and most of those raising taxes are for corporations.  It also fails to detail one of the more controversial changes dealing with repatriated international earnings.

That provision, which goes by the wonderful acronym GILTI, is already the subject of a lobbying effort by some Virginia corporate taxpayers, who note some other states (Tax-achusetts included) have already elected to allow that deduction despite the federal action. It stands for Global Intangible Low-taxed Income, and the IRS guidance runs to 150 plus pages.  The argument over whether and how to tax intangible income (royalties on patents and copyrights for example) is an old one.

The Section 199 deduction also known as the domestic production activities deduction (DPAD) has been a source of contention in Virginia before, because when Congress expanded it Virginia balked at going along in full.  Its purpose was to lower the effective tax rate on manufacturers, and by lowering the tax rate for everybody by 40 percent Congress largely addressed that problem.  It then killed Section 199. (Virginia should do the same:  accept the change and lower its rates!)

The largest cash impact comes from new limits on the deduction for interest expenses, and here Congress also had reasons for its move.  Why subsidize excessive debt?  Apparently there is also a push on in Virginia to keep that deduction in place on Virginia corporate returns.

The limits on amortization of research and development expenses have a delayed impact, but eventually a large one.  That’s another one where Virginia could stay the course, maintain the old rules, but at the cost of a lost opportunity to lower overall rates.

The business community has some decisions to make, and it may be a handful of companies who have a developed presence at the General Assembly who get to make them.  Long-term considerations and discussion of overall economic policy tend to get ignored when lobbyists can angle for their own client’s advantage. That game is now afoot.

SCC Staff: Convert A Dominion RAC Into A PPA

All-in lifetime revenue requirement for two solar projects related to Facebook. Key data is hidden. Operating and maintenance costs are also kept secret, perhaps to prevent simple math from disclosing the RECs. ARO stands for “asset retirement obligations” and ITC is the federal tax credits. Source: SCC staff testimony.

“Facts are facts, and the SCC does a really good job of compiling them.”  Former State Senator John Watkins of Chesterfield.

After demonstrating that two solar energy facilities Dominion Energy Virginia has proposed in a deal with Facebook leave ratepayers holding all risks, reported already in the Richmond Times-Dispatch, the State Corporation Commission staff suggested an interesting solution that shifts that burden.

“Should the Commission determine that the proposed US-3 Solar Projects are not prudent as filed, the Commission may want to condition approval on the implementation of cost recovery through a rate adjustment clause (“RAC”) based on the market index in lieu of the cost of service model proposed in this case,” wrote Gregory L. Abbott, deputy director of the utility division.  His and other documents are available online.

“This would reasonably protect the nonparticipating customers from performance risk as the customers would only pay for the actual MWhs that the proposed US-3 Solar Projects produce.  Implementing cost recovery through a RAC based on the beginning market index price of $31.82/MWh would also meet the Commission requirement in Case No. PUR-2017-00137 that Schedule RF should be implemented in a manner that holds nonparticipating customers harmless,” Abbott concluded.

So.  Instead of guaranteeing the utility a full return of its capital costs with profit, the SCC might instead charge ratepayers no more than the market value of the power produced.  On this deal, Dominion would be no better protected than an independent merchant power producer.

This little case, involving only 240 megawatts of production and $410 million of construction cost, is important because after Facebook come others with similar or larger appetites.  This is the first of many such arrangements the company expects under its experimental special rate for customers demanding the appearance of green energy virtue.  Any new plants need SCC certificates of public necessity and convenience.

The Commission last year approved the experimental “RF” tariff designed to serve the new Facebook facility and others like it, but included this in the order:  “As acknowledged by the Company, however, our approval herein does not represent a presumption or pre-approval of any subsequent proposals related to Schedule RF….We agree with Consumer Counsel that Schedule RF should be implemented in a manner that holds non-participating customers harmless.”

Here is how it appears to work:  Facebook will buy the same “tainted” power including from fossil fuels and nuclear from the grid as everybody else, but to keep its green cred intact also promises to buy 100 percent of the renewable energy credits and other “environmental attributes”  for a comparable amount of power from solar.  Those contracted payments are applied to the capital pay-off for 20 years and lower the cost of the project for other ratepayers, who will still see a rate adjustment clause (US-3) on their bills.

Dominion is not building solar to connect directly to Facebook, and should a third party try to do that in Dominion’s monopoly territory, heads would roll.  That monopoly is the most valuable asset its stockholders enjoy.  The only difference between this and any other solar project appears to be the sale of the RECs to Facebook instead of into some other market.  I’m open to correction on that point.

One point the SCC staff makes is it didn’t have to be a company-built project.  Staff witness Earnest J. White said Dominion could have met Facebook’s needs by purchasing an existing solar facility. “This option would have permitted the Company to know, rather than estimate, the benefits to customers before exposure to risk of performance,” he wrote.  (Unmentioned by him – that option does not produce 9.2 percent annual return on equity for the utility. )

Another instance of redactions rendering SCC data useless to the ratepayers and reporters.

The revenues from the renewable energy credits at the two plants, along with the tax credits, are applied to the 35-year payoff on the two new solar facilities, reducing costs to ratepayers.  But as the SCC testimony makes clear, two variables then become crucial.  The first is the capacity factor of the project (what percentage of the time power is produced) and the second is the market value of those renewable energy credits.  The two are interrelated because the RECS are based on actual output, not 100 percent capacity – less output, less REC revenue.

Complicating reporting on this case, as usual, are all the key data covered up with black ink or entire memos withheld from public scrutiny.  The projected REC revenue is kept confidential.

Continue reading

Va 2019 General Assembly session – prefiled House of Delegates bills

Click here to see the 9 weird laws

Much ado about nothing.  As of this morning there were 83 prefiled bills for the House of Delegates and 225 prefiled bills for the State Senate.  With a few exceptions the House prefiles are pretty “ho hum”.  I will examine the Senate prefiles in a subsequent column.

One from column A and two from column B.  I use a somewhat arbitrary approach to categorizing the prefiled bills.  By my analysis … governmental process (17), education (12), crime and courts (10), election reform (8), finance and taxes (7), health care (6), nonsense (6), environment (6), transportation (4), campaign reform (4) and energy (2).

Governmental process.  These are the day to day clarifications, corrections and amplifications needed to make existing legislation more effective.  For example, HB246 clarifies the role of the code commission in preparing legislation at the direction of the General Assembly.  One of these bills will further depress Jim Bacon’s journalistic sensibilities.  HB1629 eliminates the requirement that Virginia procurement contracts be reported in newspapers.  Mixed in with the proposed routine legislation are some zingers.  For example, there are three separate bills to ratify the Equal Rights Amendment (HJ577, HJ579, HJ583).  There are also four bills proposing changes  to the Virginia Constitution.  HJ578 would add a right to vote to the state constitution, HJ582 would establish a redistricting committee, HJ584 would allow the governor to run for a second consecutive term and HJ585 has the governor and lieutenant governor running as a single ticket instead of separate offices.

Education.  The only theme in the education prefiles is an attempt to provide financial incentives for localities to rebuild the physical plant of their schools.  One of the more interesting bills would allow commercial advertising on school buses (HB809) while another would guarantee that our children’s God given right to wear unscented sun block not be abridged (HB330).

Crime and courts.  Bail bondsmen and bondswomen are forbidden from having sex with their clients (HB525) and shooting a police dog, or even showing a gun to a police dog,  becomes a more serious crime (HB1616).  Other than that, pretty mundane stuff.

Finance and taxes.  Way too many people and too many companies are paying taxes (HB966) and veterinarians really need a break from those pesky sales taxes (HB747).

Potpourri.  The remaining categories contain a few interesting ideas.  Del Rasoul wants to ban the use of fossil fuels in electricity generation (HB1635), Del Cole wants to give I95 some love (HJ580, HJ581) and he also has the radical idea that campaign contributions should not be for personal use (HB1617).  In fact, Del Cole’s proposed legislation is putting him perilously close to making my very short list of competent Virginia legislators.

Closer to home.  My delegate, Kathleen Murphy, continues to propose jaw dropping, eye popping examples of legislative uselessness.  She proposes to let her pals skirt Virginia traffic laws by displaying a special sticker on their cars (HB295) and offers some odd rules on distance learning reciprocity (HB659).  I guess issues like mass transportation don’t cross her mind these days.

— Don Rippert.

Medicaid Is The Story With State Budget

New hospital taxes collected from Virginia private hospitals in this budget cycle, and the federal matching Medicaid dollars they draw down. The larger portion covers higher payment rates, not coverage of new patients.

The General Assembly’s key money committees gathered in their annual end-of-year financial retreats last week to talk about Medicaid.  Sure, the state’s multi-billion-dollar budget delves into plenty of other areas that were mentioned, and the Amazon location announcement grabbed headlines, but the meetings were about Medicaid.

The explosive and uncontrolled growth of Medicaid is all but eliminating any new dollars for those other areas of state responsibility, and existing dollars are under pressure.  There is no point in talking about anything else.  The opportunity for tax reform due to windfall revenue may be short-circuited by Medicaid.  If the rosy projections of new state money from Amazon come to pass, every dollar may be needed for Medicaid.

Every year the Joint Legislative Audit and Review Commission (JLARC) does this dry report about the growth in state spending.  The simple bottom-line fact it has demonstrated over and over is that Medicaid is squeezing everything else out.  It looks back at a ten-year period and during the ten years leading up to and including 2017, 60 percent of all General Fund growth went to for Medicaid.

JLARC: 60 percent of the growth in state spending over ten years has gone to Medicaid (Department of Medical Assistance Services). The was before the 2018 expansion.

At the beginning of the period the state’s allocation to localities for public schools was the top expenditure, but it dropped down to second by Fiscal Year 2017.   During that same ten-year period, from FY 2008 through 2017, the Department of Education didn’t even make the list of the ten agencies with the highest growth in General Fund dollars.

Right behind Medicaid’s 60 percent of the new money over the decade was the Treasury Board (debt payments) and the Department of Behavioral Health and Developmental Services, the other state agency providing major direct medical services to citizens.  A similar chart from the 2009 report, looking at 2000-2009, had Medicaid getting 19 percent of the growth revenue, and the Department of Education 39 percent.  A healthy share of growth dollars going to education may never happen again.

Medicaid (DMAS) and Department of Education have switched places on JLARC’s latest report on state spending. This includes state and federal shares.

The figures in the JLARC report, of course, do not include the impact of the expansion of the program to an estimated 375,000 more recipients by July 2020.  Nor do they include the $463 million in cost overruns announced since the budget was adopted (several months late, remember) in the existing pre-expansion program.  Those will not show up in a JLARC look-back report until the 2020 report on Fiscal Year 2019.

That would be after the next election.

The state’s economy is improving and an additional $600 million or more in tax dollars are expected this year and next, the committee staffs reported, but about 75 percent of those new dollar will be needed for that overrun.

Continue reading