Category Archives: Inflation

Impressions from a Weekend in Charlottesville

by James C. Sherlock

Sometimes, things just force their way into your consciousness.

My wife and I were in Charlottesville this weekend. We were not there to visit the University, but its continuing construction overwhelms both the senses and attempts to get from A to B. Most of the growth is vertical — very vertical — on land that the University owns on or adjacent to the central Grounds.

Drive down Jefferson Park Avenue for a sense of the scale of it. Look straight up. Go to the intersection of Rt. 29 and 250 to see a new 14-acre complex under construction.

There is a sense that there is never to be an end to it.

There is certainly nothing to suggest a considered approach to growth in the University’s Strategic Plan. Sinclair Lewis recognized the symptoms a century ago.

No room was found in the Plan for any possibility of stopping doing something for which there is no longer sufficient demand in order to do something new in existing buildings.

Instead, University infrastructure growth seems on a self-generating loop — an idea for a new building, the land identified, a search for donors, an alumnus writes a check to buy immortality (unless the donor is later “cancelled” by the left), and voilà, some of the initial funding, if not the long-term sustaining money, is found. Skilled construction workers are brought in by the contractors who build at such scale, who then leave when the job is complete.

Replay. Continue reading

The Strike at the AdvanSix Chemical Plant in Hopewell – A Complex Story

AdvanSix Chemicals Plant Hopewell Virginia Courtesy AdvanSix

by James C. Sherlock

We don’t see very many industrial strikes in Virginia.

Regular readers know that I have often supported blue collar unions in the private economy.

My family roots are linked to Pennsylvania coal mines. Those miners’ strongest claims were for their own safety. Followed very closely by their demands for living wages.

I started researching the story of the current strike by unions representing some 340 workers at the AdvantSix chemical plant in Hopewell with a bias towards supporting the strike.

Safety. I still do support it to the degree that they are striking for worker and plant safety. They reasonably want the company to prevent excessive overtime of current employees under inherently dangerous conditions that require close attention to detail.

Hopewell employees tell stories of consecutive 18-hour shifts.

They want the company to hire more workers to solve that.

But that workforce is far more skilled — better educated and trained, and higher paid – than I assumed.

AdvanSix has been unable to readily fill the jobs that they already advertise. It is hard to attract skilled workers to Hopewell. The company may need to cut production instead.

Wages. I thought I would also support the union wage increase demands in excess of what the company has offered, but I have found that issue is complicated and the public does not have a clear picture of the differences. Continue reading

Housing Cost Burdens in Virginia – A Survey

by James C. Sherlock

With all of the public policy discussion of housing in Virginia, it is useful to examine how burdened Virginians are by the costs of their housing.

Based on brand new data from the Bureau of the Census, the average Virginia homeowner is in pretty good shape compared to others in America.

But still over a third of them carry a cost burden for that housing that exceeds the recommended 30% of household income. Those burdens in turn challenge the futures of the very industries that build and finance housing.

In the case of renters, it is difficult to see how half of them can pay the rest of their bills and save to buy a house.

Just like the rest of American renters.

We’ll take a look. Especially at the outlier case of Virginia Beach. Continue reading

This Year the VRS “Diet COLA” Will Really Hurt

by Steve Haner

The most recent year-over-year inflation measure approached 9%, with many key food or energy items growing in cost even faster. The official inflation estimate just used to increase the state’s gasoline taxes as of July 1 was 7%. So what inflation factor will be used to adjust state and local employee pensions this summer? Those will go up less than 4%.  Continue reading

America’s Petroleum Refining Capacity in the News – What is Going On?

By James C. Sherlock

This is a note about perhaps the highest profile national inflation issue, the price of gasoline and diesel.

The President is demanding more supply from U.S. refineries.  Headlines like this one blare at us today:

Biden threatens oil companies with ’emergency powers’ if they don’t boost supply amid inflation spike.

The letter behind such headlines, which is exactly what it seems to be, was sent to the largest refiners in the country.  Among other things, the President wrote:

My administration is prepared to use all reasonable and appropriate Federal Government tools and emergency authorities to increase refinery capacity and output in the near term, and to ensure that every region of this country is appropriately supplied.

I looked up the data on oil refining that Mr. Biden’s Energy Information Administration has published.

From the numbers on American refinery input and capacity, Mr. Biden will need more than “emergency powers” to increase refining output.

He will need a a genie.

Continue reading

Home Price Volatility and Virginia Property Taxes

Case-Schiller Home Price Index – National

by James C. Sherlock

Housing prices have more than doubled since 2012, reflecting shortages of supply and the resulting speculation. The increasing slope of those curves above is not comforting.

Prices have soared over 20% in a year. Mortgage rates are up. What could possibly happen next? Most can figure that out.

But this article is about the effects on local government property taxes of what most predict will be extreme volatility in the housing market going forward.

How are Virginia real property taxes adjusted to mitigate the effects on both property owner tax bills and government receipts in this boom and very likely bust cycle?

We’ll look at the law. Continue reading

How are Virginians Preparing for the Coming Food Price Shocks?

by James C. Sherlock

Virginians have only begun to experience price inflation at the grocery store.

Price increases are in the food pipeline that will be a much bigger problem starting this summer.

Farmers and ranchers invest up front. They borrow money to do it. They are incredibly efficient at what they do, but are at the mercy of input prices. They must wait until their crops and animals are sold to recoup their investments.

Everything farmers and ranchers do with their farm machinery requires diesel. So do the trucks that move crops to those who prepare them for our use and then to market. Diesel prices are expected to reach more than $6 per gallon this summer, a 35% increase from current prices. Inventories are low.

Most fertilizer is an oil derivative and has skyrocketed up to 300% since early 2021. On average, fertilizer in March of this year was 35% more expensive than it was in the fall of 2021, with Roundup up nearly 90%. In six months.

Of course, the feed ranchers buy for their animals comes from the produce of America’s farmers.

Producer prices that reflect what they have paid for diesel and fertilizer and the trucking costs of moving those crops are predicted to reach grocery stores in the summer and fall. That hardly suggests that the 9% inflation recently seen in retail food prices is the end of it.

It is important to ask what our governments and our best charities are doing to prepare. Continue reading

Inflation and the Budget

by Dick Hall-Sizemore

In addition to conventional budget requests, the Youngkin administration is likely to receive requests from agencies in the fall budget development exercise for additional funding to enable them to cover additional costs resulting from higher inflation. (Yes, I realize that the 2022-2024 biennial budget has not even been agreed upon yet, but, once one round is out of the way, budget folks are always getting ready for the next round.)

With some exceptions, inflation is not normally built into budget bills. Budget development for a biennial budget starts with a base budget, which is the appropriation for the second year of the most recent biennium. Adjustments are made to the base, but rarely are those adjustments for inflation. As for the mid-biennium budget, agencies normally are not provided additional appropriations to cover inflationary costs. Continue reading

What Virginia Can Do to Temper Inflation

by James A. Bacon

Governor Glenn Youngkin has proposed using $437 million in unanticipated transportation revenues, much of it generated by the wholesale tax on gasoline, to give Virginians a three-month break on the 26-cent retail gasoline tax.

During his campaign, Youngkin ran on a platform of addressing Virginia’s high cost of living and reversing the erosion of middle-class living standards. A vacation on the gasoline tax is certainly consistent with that theme. And with inflation running at nearly 8% over the past 12 months, Virginians need help wherever they can find it. They will find no succor from Democrats, whose list of unmet societal “needs” is endless. They are delighted to spend every dime in tax revenue on one of their favored causes — which, alas, rarely includes helping financially strapped middle-class taxpayers.

While Youngkin has identified a winning issue, he needs to think bigger and more systematically. It’s fine to dial back the gasoline tax for a time, remove the sales tax on groceries, and try to repeal the Regional Greenhouse Gas Initiative (RGGI) carbon tax, but there is so much more that he can do.

Forty-one percent of the cost of living, as calculated by the Bureau of Labor Statistics, is housing, 17% transportation, 7% medical care, and almost 7% education. Each of these categories is, to some degree, influenced by state-level budgetary and regulatory policy. Continue reading

Virginia Policy in the Face of Inflation and Recession

by James C. Sherlock

I now expect both higher inflation and a recession, perhaps a deep one.

The West is at war, whether or not we are prepared for the effects on our federal and state governments.

The bad guys have a lot of natural resources that help keep our economy running. They will cost more and supplies will be constrained. Defense budgets will have to rise. Our governments are waking up to that slowly and too late. We will discover the costs of too late.

The greens should have already discovered the costs of too early on feeling good because a barrel of oil is produced by a dictator rather than in America. The costs of too soon.

The classic way to repay a debt that otherwise cannot be paid back is to inflate the currency at which the debt is denominated. The federal government is extended beyond its ability to borrow and to pay back investors for inflation risk without more inflation. It will cost state and local governments far higher rates to fund new debt.

Virginia is about to spend or refund rather than save money that was generated by the federal activity that raised the debt. Continue reading

“Frozen” Property Taxes

by James C. Sherlock

I admit my fascination with how newspapers present various issues. It is an important window into the information their readers are getting.

City manager and county executive proclamations that property tax rates are “frozen” are meant to sound like fiscal constraint. Consider this headline from The Washington Post:

“Fairfax County executive proposes budget with tax-rate freeze, less pandemic austerity”

First paragraph:

“Fairfax County Executive Bryan Hill proposed a budget Tuesday that would freeze the residential property tax rate while spending more on county services — part of a push to end fiscal austerity in Northern Virginia amid signs of economic stability”

End “fiscal austerity” in Fairfax County. Seriously?

“Hill was able to present a $4.85 billion spending plan that focuses on some key areas of growth for Virginia’s most populous jurisdiction while keeping the residential property tax rate at $1.14 per $100 of assessed value.”

Where do we get such men? Everybody wins, right? Continue reading

Virginia is Facing a Citizen Revolt on Inflation-Driven Tax Increases

Virginia’s Capitol

by James C. Sherlock

Virginians must fund their local governments.

It is not wise to chip away at local government revenue without an integrated plan to ensure they are funded to carry out the things we need them to do.

However, two key ways in which we raise local revenue, property taxes and sales taxes, are both regressive and highly exposed to inflation.

Those are taxes that with high inflation, without any increase in rates, hit everyone. They hit the poor, persons on fixed incomes, the middle class and small businesses the hardest.

What to do? I believe that Sen. Emmett Hangar and others have it right. He suggests a joint subcommittee on taxation and a complete study so that next year the General Assembly can enact tax reforms.

Studies disappear into the ether, you say. I honestly don’t think this one would.

Virginians will have had way more than enough of inflation-driven tax increases by this time next year. Continue reading