Category Archives: Labor & workforce

Virginia’s Disconnected Youth

Source: StatChat Blog.

Virginia’s overall unemployment rate has been declining steadily for years, reaching 3.2% in June 2018. But youth unemployment remains disconcertingly high. Indeed roughly 10% of the state’s 16- to 24-year-olds are “disconnected” from the labor force, neither working nor pursuing an education, reports Shonel Sen, a researcher with the Demographics Research Group at the University of Virginia.

Living up to stereotype, almost 60% of disconnected youth still live with parents. A majority of the economic dropouts are white, although a significant minority are black, Sen writes in the StatChat blog. While one out of five is a high-school dropout, half have high school degrees or GEDs, one out of five has some college, and 7% have B.A. degrees or higher. Continue reading

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.

The Workforce Skills in Greatest Shortage Are Not Math and Science


As Virginia legislators ponder future investments in the Old Dominion’s talent pipeline (see my previous post), they might consider consulting data recently published by the Organisation for Economic Cooperation and Development (OECD). The organization defines skills as hard-to-find (or in shortage) when employers are unable to recruit staff with the required skills in a labor market at the going rate of pay and working conditions. Skill surpluses arise in the opposite case, when the supply exceeds of demand for a given skill.

In the United States, surplus skills tend to be associated with physical abilities (strength, coordination, speed, reaction time) — no surprise there. But, given focus on the shortage of IT workers in Virginia, one might surmise that STEM (Science, Technology, Engineering and Math) skills are in shortest supply. According to OECD data, those skills are in modestly short supply, but the greatest skill deficits are education & training, social skills, verbal abilities, and management. (Those are national numbers, not Virginia-specific. Virginia labor markets may or may not reflect national trends.)

What does this tell us? It’s all well and good to strengthen Virginia’s K-12 and higher-ed math and science curriculum. But we can’t neglect reading, writing, communications, and collaboration. Who knows, a humanities education might come back in style one day.

Where Will 30,000 More Tech Degrees Come From?

There are many moving parts to the Amazon, Inc., deal to invest $2.5 billion and hire 25,000 employees in Northern Virginia. In one of the most important deliverables, the Commonwealth has committed to increase the number of bachelor’s and master’s degrees in computer science and related fields by 25,000 to 35,000 over and above the already-ambitious baseline forecast over the next two decades.

Peter Blake, executive director of the State Council of Higher Education for Virginia (SCHEV), says the goal is achievable but it won’t be easy. The number of students graduating from Virginia high schools is not forecast to increase substantially in the near future. If the baseline student population isn’t increasing, where will the IT degree seekers come from?

He sees four places to find the students to earn those degrees.

  • More college-ready high school graduates. On average about 72% of Virginia high school graduates continue their education at college-level institutions. One way to increase the number of tech-degree seekers is to boost the percentage of high school graduates who pursue higher education.
  • Improved college retention. Only 70% of the students who enter college manage to earn a degree within six years. Virginia can bolster the talent pipeline by reducing the college dropout rate, thereby increasing the retention rate.
  • Improved “recovery” of college dropouts. Tens of thousands of Virginians have earned college credits but failed to earn degrees or credentials. Potentially, the higher-ed system can coax some of these college dropouts back into school to complete their degrees.
  • More out-of-state students. If all else fails, Virginia can increase admittance of out-of-state students into Virginia higher-ed institutions.

“We have to step up in each of those areas,” Blake says. “Business as usual won’t get us there.”

The deal makers negotiating the Amazon package anticipated some of these issues. The Governor’s website explains how it expects to build Virginia’s talent pipeline.

  • Bachelor’s degrees. To expand the number of bachelor’s degrees, the Commonwealth will establish a performance-based tech talent investment fund, with General Assembly approval. This fund will enable higher education institutions across Virginia to receive startup funds for faculty recruitment, state capital investment (where required), and enrollment funding to expand the number of bachelor’s degrees the institutions confer annually in computer science and closely related fields (e.g., computer engineering).
  • Master’s degrees. To expand the number of master’s degrees, the Commonwealth plans investments of up to $375 million for academic space and operational support over the next 20 years. These performance-based, master’s degree investments will be provided to George Mason University for its Arlington campus and Virginia Tech for a new campus expected to be located in Alexandria.  Those institutions must match the state commitment dollar-for-dollar.
  • K-12. Virginia will invest $25 million in the K-12 STEM and computer science experience for students and teachers over the next 20 years.

Blake offers no comment on whether those resources will be adequate. Legislators will have to decide whether they will be adequate. Here’s my concern: The General Assembly can set aside money to increase the institutional capacity to provide ~30,000 more advanced degrees, but that’s no guarantee that the so-called “talent pipeline” starting with K-12 schools can increase the supply of students with the aptitude and desire to earn those demanding technical degrees.

If Virginia can’t develop enough home-grown talent to fulfill the demand, Blake suggests, colleges and universities may have to consider recruiting out-of-state students more aggressively. In that case, legislators may have to re-consider the out-of-state enrollment caps it has placed on some institutions.

The good news, says Blake, is that SCHEV reports key metrics — number of degrees granted, college dropout rates, out-of-state students enrolled, and the like. Legislators will be able to see if Virginia stays on track to meet its 20-year targets, and they should have time to make any needed mid-course adjustments.

A Tightly Focused Plan for Boosting Virginia’s Business-Climate Rankings

Virginia’s business climate rankings have recovered modestly in recently years, but they remain significantly lower than in its glory days and well behind the states with which the Old Dominion competes for major corporate investment. That harsh reality comes through loud and clear in a presentation made by Stephen Moret, president of the Virginia Economic Development Partnership (VEDP) at a Virginia Chamber of Commerce executive briefing on the business climate yesterday.

Virginia trails its competitors in the perception of relocation consultants on the cost of doing business, the corporate tax environment, business incentives, access to capital, and other key business-climate attributes.

But Moret, who was hired to reinvigorate Virginia’s economic development machinery, has a plan to bolster the state’s business climate. He is working on five targeted initiatives that he thinks can make a big difference.

Create a world-class, turnkey, customized workforce development and training incentive. Workforce typically tops the list of site-selection priorities. While Virginia has a highly regarded public system of higher education, the system does not work closely with economic developers on turnkey, customized workforce solutions for corporations interested in investing in Virginia.

Moret, who developed a highly touted program in Louisiana, said the General Assembly has funded a VEDP-community colleges collaboration to the tune of $2.5 million in Fiscal Year 2019. Once the team is assembled and ready for launch, VEDP will identify three to five pilot projects in preparation for a full launch. His ultimate goal: “Virginia will break into the top five of state workforce development programs in the country within three years, with a solid chance of top three within five years.”

Implement a robust, third-party marketing program. One reason that Virginia’s perception lags among CEOs and site consultants is that competing states market themselves more aggressively. Virginia now has a $1.7 million marketing budget for FY 2019 (and $2.7 million for FY 2020), still short of what is needed to implement a program designed for a budget of $10 million (similar to that of some competing states). But the funding should be sufficient, Moret said, to improve Virginia’s perception as a place to do business among key influencers.

Goals for the marketing campaign include pushing Virginia back into the Top 10 in business rankings, creating 100 additional leads per year, and bringing 5 to 7 additional projects and 1,200 jobs to Virginia per year. A fully funded marketing budget would accomplish commensurately more.

Secure transformational economic development projects that create positive national attention. A small number of high-impact economic development projects, such as Fortune 500 headquarters locations, major auto assembly facilities, and the like, attract outsize national media attention, and influence executive perceptions about business climate. Moret proposed “aggressively courting leading companies with a custom-fit, aggressive approach,” which includes developing “a list of potential custom incentives and investments by region and sector that could be deployed to attract transformational projects.”

The goal would be to snag two or three of these mega-projects per year, gradually covering every region of the Commonwealth, benefiting both urban and rural areas.

Enact targeted tax changes to reduce state/local tax burdens on new business investments and expansions. Virginia’s corporate tax system treats established businesses well but is punitive toward new capital-intensive manufacturing enterprises — indeed, the effective tax burden is the second highest in the country. The tax burden on new investment hurts Virginia’s business climate rankings — the Tax Foundation’s Location Matters scores are incorporated into several state business-climate rankings — and discourages new investment, especially the kind of transformational projects Moret seeks.

Moret’s presentation offered no details beyond suggesting that the tax burden needs to be lower. He proposed collaborating with key stakeholders such as the Virginia Association of Counties and Virginia Municipal League to develop specific proposals.

Assemble more shovel-ready sites. The ready availability of industrial sites served by with all necessary infrastructure often looms larger in corporate investment decisions than incentives. Georgia, Tennessee, and North Carolina often win over Virginia because they have invested in build-ready sites. The lack of prepared sites and buildings have cost Virginia nearly 50 projects and $6.5 billion in investment over the past five years.

Virginia has a “relatively robust portfolio” of project-ready sites less than 25 acres in size, according to Moret’s presentation. But the economic impact is small, so VEDP is focusing on building the portfolio of sites 25 acres or larger, the development costs of which are beyond the scope of any one locality to fund, and often beyond the capability of any one region.

A Massive Waste of Human Capital

Graph source; Cranky’s Blog. (Click for clearer image)

In the 2012-13 school year, roughly 32,000 students entered Virginia’s public universities. Six years later, some 9,000 of them, 28%, had failed to graduate. And if they hadn’t graduated within six years, the chances were remote that they ever would. John Butcher provides the numbers in his latest post at Cranky’s Blog.

Think of the waste in human capital — 9,000 kids, the vast majority of whom took on student-loan debt and were unable to earn a degree that would give them to earning power to pay off that debt. Nine thousand kids mired in modern-day indentured servitude.

As John points out, the problem doesn’t originate at the University of Virginia or the College of William & Mary, which accept only students with high SAT scores. High SAT scores are highly correlated (almost 90%) with college graduation rates. The college drop-out rate is highest at schools that cater to students with low SAT scores. But even then, some schools do a worse job than others of nursing students through to completion. The biggest under-performers, adjusting for average SAT scores, are George Mason University, Virginia Commonwealth University, and Old Dominion University.

ODU has the excuse that it serves a transient military population. What’s VCU’s and GMU’s excuse?

Why is this a scandal only for for-profit diploma mills?

JLARC Report on Licensing: Useful, But a Missed Opportunity

As the old saying goes, you find what you look for. And in its examination of occupational licensing in Virginia the Joint Legislative Audit and Review Commission (JLARC) largely found what it was looking for — inefficiencies and overcharges. Conducting the review was worthwhile, but the exercise was small ball — it missed the opportunity to examine much bigger issues.

In 2017, JLARC instructed its staff to study the Department of Professional and Occupational Regulation (DPOR) staffing and organization, its processing of occupational licenses, and its enforcement of occupational rules. Staff also assessed the affordability of fees and the processes for adjusting fees.

Here’s what JLARC did not study: To what extent does licensing create barriers to entry into the regulated occupations and professions? To what extent do regulated professions use regulations to protect their occupational turf and boost their earnings? To what extent does the public suffer from these legalized labor monopolies?

To its credit, given the limited scope of its inquiry, JLARC did come up with some interesting findings in “Operations and Performance of the Department of Professional and Occupational Regulation“:

  • No legal justification for regulating 11 occupations. Eleven occupations regulated by DPOR appear not to meet the criteria for regulation established in the state code. These include community managers, opticians, residential energy analysts, soil scientists, landscape architects, waste management facility operators and others. Regulation of these occupations does nothing to advance the public health, safety and welfare of the public.
  • Excess fees. DPOR is funded by the fees it charges to applicants. DPOR’s method for calculating fees has over-projected agency expenses leading to unnecessarily high fees in the past. Fees have been reduced since, but the balance still has grown $27.2 million — up from $15 million ten years ago, and far more than needed.
  • Many complaints go unexamined. Staff closed 71% of the disciplinary cases it opened in FY17. Staff do not investigate all potential violations.
  • Poor use of IT. DPOR does review and approve licensing requests in a timely manner, but it would make the process more user friendly by making it more accessible online and by automating key processes.

These are all useful findings, and the report makes some 36 recommendations on how to improve the system. While the goal of improving administrative productivity is laudatory, however, making a flawed system work more efficiently doesn’t do much to build a more prosperous, equitable Commonwealth.

Conservatives have long targeted occupational licensing for creating barriers to upward mobility. Do the state’s 73,000 barbers and cosmetologists really need regulating? Do they really need formal education and credentialing? Is the public health and safety truly harmed if someone gets a bad haircut or cracked fingernail? The crafts of hair cutting, cosmetology and hair-braiding, which provide an avenue of occupational mobility for lower-income Virginians, could be taught perfectly adequately in informal apprenticeships. Why burden people with educational costs and licensing fees?

Of greater concern is the regulation of the medical professions. In theory, the system is designed to protect the public from frauds, charlatans and malpractice. The system does do that, so some form of licensing is necessary. But the system also carves out occupational turf, protecting doctors from competition from nurse practitioners, and nurse practitioners from registered nurses, and registered nurses from licensed practical nurses, and so on down the line. That may not be a big problem in major metro areas, but it is a huge problem in large swathes of rural Virginia that have trouble recruiting medical professionals.

Indeed, it is fair to say that the crisis of access and affordability in rural health care is largely the result of rigid occupational licensing rules that prevent nurses from performing a high percentage of the routine procedures, and dental hygienists from cleaning teeth and filling simple cavities. No health care, it appears, is better than health care not delivered by doctors and dentists.

I would love to think that the General Assembly might get serious about tackling these issues. But I don’t see it ever happening. As the Richmond Times-Dispatch editorial page observes today, only one in twenty jobs required government certification a half century ago. Today, one in four does. It should come as no surprise that highly compensated professions, intent upon maintaining their occupational monopolies, have become major campaign contributors. According to the Virginia Public Access Project, physicians have donated $347,000 to political campaigns so far in 2018-19, dentists $223,000, optometrists $114,000. Nurses? Only $33,000. Don’t expect rural healthcare reform unless it involves paying doctors and dentists more money.

What It Takes to Build Virginia’s Talent Pipeline

House Speaker Kirk Cox

It’s time to give Virginia’s colleges and universities some “tough love,”  House Speaker Kirk Cox, R-Colonial Heights, said yesterday.

The answer to sky-rocketing increases in the cost of attending college is not tuition freezes, caps, unfunded mandates or other one-size-fits-all measures like those that surfaced in the General Assembly last session, the Speaker said in a speech to the GO Virginia Foundation board meeting in Richmond.

But he added: “If the higher education institutions do not come together with the state government and the business community to address affordability in a meaningful and tangible way… if they do not support common-sense reforms like the bill passed by the House of Delegates last session to allow public comment before raising tuition… then I fear there will be little anyone can do to stop a wave of policy proposals along those very lines.”

Cox issued the warning while addressing the broader topic of the link between workforce development and economic development. In the most concrete proposal of his speech, he called for partnerships between government, business and individual higher education institutions that spell out (1) what the school will commit, (2) what the state will invest, and (3) what the business partners will contribute.

“We don’t need more people playing politics with the price of education, but we also don’t need people with their heads in the sand, pretending the problem doesn’t exist,” he said. “We need people partnering in practical ways to bring the price of education down!”

There is no silver bullet or quick fix on college affordability. We need to move forward on a range of solutions: alternative pathways; transfer programs; online options; cost-saving innovations; more efficient collaboration among institutions; more help for students through financial aid, TAG grants, and work-study opportunities and so on. …

In the institutional partnership agreements that I envision … in return for a financial commitment from the Commonwealth, each school will make transparent commitments concerning the four-year net cost of attendance for in-state undergraduates, the internship and work-study opportunities that will be provided, and the maximum student loan debt levels that any Virginia student may incur.

Virginians cannot expect tuition predictability and restraint at the campus level if the General Assembly cannot provide “adequate, reliable funding,” Cox said in a reference to erratic state support for higher education. But he placed much of the onus for declining affordability and access on the higher-ed institutions.

“Higher education is at a pivotal moment,” Cox said. “We have never needed our higher ed system more than we do now … because it is the key to the talent pipeline, and the talent pipeline is the key to the future. But, at the same time, higher ed’s political position has never been shakier.” The bond of trust between colleges and elected officials “has never been more at risk.”

If our colleges and their leaders don’t recognize the shift in public opinion on higher education…. if they don’t understand how the populist message is resonating…. and if they don’t come to the table seriously on the points of greatest concern — affordability and accountability — then it is very likely that the criticism will reach critical mass, and it will be impossible to maintain the progress we have made.

The talent pipeline. In one of the most comprehensive speeches on workforce development to come from a Republican legislator in recent years, Cox affirmed the need for an educational system that provides young Virginians with the skills they need to participate in a growing economy.

“What we hear from Virginia businesses, large and small, is this: The main reason their business is not growing is they can’t find qualified workers.” At the same time, Virginia is experiencing a brain drain — unable to find good jobs here, people are leaving for better opportunities elsewhere. For four straight years, he said, Virginia has experienced a “net loss of talent” to other states.

The “build it and they will come” approach is not only ineffective. It costs too much… is too resistant to innovation… moves too slowly to keep up with the fast-changing economy… and, frankly, is too old-school and uncool to appeal to eager, creative, tech-savvy young people.

Cox embraced the goal of making Virginia the Top State for Talent, similar to the long-term objective stated by the State Council of Higher Education for Virginia (SCHEV) to make Virginia the best educated state in the country. But he stressed that increasing the number of college graduates must be accompanied by efforts to provide grads with meaningful employment, or they will leave. Continue reading

Shrinking Community Colleges Looking to Pivot

Germanna Community College

Nothing like losing a quarter of your customers to get your attention.

That basically is what has happened to Virginia’s Community College System, with last term’s enrollment down 57,000 (actually only 22 percent) from its peak six years ago during the early days of the economic recovery. That drop exceeds the total enrollment at the 17 smaller campuses and has cost the institutions millions in revenue and forced personnel cuts.

Chancellor Glenn DuBois and two of the community college presidents shared that information and spent about an hour Tuesday with the State Council of Higher Education for Virginia laying out steps underway to attract more students, which will have to happen if Virginia is to meet the goals it has set for degrees and work certifications.

DuBois, who has served as chancellor since 2001, spoke again during the meeting at Richard Bland College of his vision of “a college graduate in every household” and of abolishing the phrase “first-generation student.”

One response has been only modest increases in VCCS tuition and fees for the coming year, at 2.5 percent below the official inflation rate and in stark contrast to the four year institutions. The annual cost for a full semester load is around $5,000, but DuBois noted that is still a great deal of money for many Virginians. Students in the community colleges are older, lower income, working part time. Fifteen of the 23 schools have food banks.

Like many of his predecessors, Governor Ralph Northam has made education and workforce development a high priority and Northam talked during his campaign about lowering or eliminating the cost of attending the public community colleges. About 20 states now have some version of a “promise program” where all or some high school graduates face no tuition bills at community colleges.

DuBois said that remains under discussion, which was confirmed a bit later in the meeting by the Governor’s Chief Workforce Advisor Megan Healy. But with a price tag in the hundreds of millions of dollars, “I don’t think that’s going to happen this year,” Healy said. In 2019 the General Assembly will be considering budget amendments, but the Governor doesn’t do his own full budget until 2020.

Absent a sudden commitment to free or almost free tuition, a VCCS task force responding to the situation focused heavily on marketing and process improvements. They are leaving the comfort zone, DuBois said, using words like “pivot” and “evolve.”

What if students didn’t have to apply to attend? The system is working on an open enrollment approach, but it isn’t there yet. It is making progress on reducing the paperwork and migrating the application process to smart phones. People should enroll in one day, “one and done,” said President Janet Gullickson of Germanna near Fredericksburg. “Believe it or not, that’s radical.”

The task force also said to make scheduling, degree planning, advising and even payment and financial aid compatible with the mobile environment. An early alert system can flag a struggling student, so a counselor reaches out to them rather than the other way around.

Do people understand how an associate degree or even a workforce certificate can boost their income? Better marketing may spread the word about the FastForward program which offers reimbursement grants on completion of a workforce credential. The grants “sold out” in their first two years and the General Assembly boosted the funding for this new budget, which may sell out again.

The target audience is no longer 18 to 24-year-olds. DuBois mentioned a Winchester man who lost his long-time job at a recycling center, came to the community college looking for his GED, but in 12 weeks earned a manufacturing technician certificate. He quickly landed a job with 40 percent more pay and, for the first time in his life, full benefits. He will be highlighted as the 10,000th FastForward graduate.

Another popular certificate program for forklift operations takes just four days. Before any of these programs is approved there is a demonstrated demand for the skills.

Gullickson mentioned a basic marketing problem she found at Germanna when she started – no one able to translate for Spanish students dealing with administrative matters. With the changing demographics in that region, the website needed a Spanish version, at an 8th grade reading level so the parents of potential students could understand it.

Work continues eliminating remaining barriers or duplicate requirements for students seeking to start at a community college and then transfer to a four-year institution. There are state grants for that process, too, which not long ago was getting the most attention as a new role for the community colleges. But based on comments Tuesday, the long-term response to the current challenge may be a system that looks more like its original 1960’s focus on workforce training.

Washington Metro Downsizes Board

Succumbing to political pressure from Virginia, the Washington Metro board has voted to reduce the participation of so-called “alternate” board members. The move, which will enhance the power of the eight “principal” board members, was necessary to comply with the Commonwealth’s demand for board restructuring as a condition for receiving $500 million a year in dedicated funding.

The measure passed Thursday, reports the Washington Post, bars alternates from participating in board or committee proceedings. The change, proponents say, will streamline discussions, reduce parochialism, and increase the level of expertise among board members.

“Over the long term, the jurisdictions will compensate for the supposed loss of access to expertise by putting forward, as members of the board, individuals who possess levels of expertise and experience of complex organizations that few, if any, members of the board today possess,”  said David Horner, a federal representative on the board. “At the end of the day, that is a better model for governance of a complex transit property.”

But not everyone was happy with the change. “I strenuously object to the changes in the bylaws that you are considering, which will basically circumvent the compact that governs this body,” said ­alternate board member Malcolm Augustine, who represents Prince George’s County. “Virginia is holding all of us hostage, and it will disenfranchise Prince George’s County.”

Bacon’s bottom line: I haven’t attended Metro board meetings, so I haven’t seen the board in action, and I don’t have an informed opinion on whether a streamlined board will improve the quality of its decisions. But I am dubious that much will change. Metro’s structural problems run too deep.

First, Metro has set its fares too low, thus depriving the mass transit organization of desperately needed funds. The board is worried about two things: that increasing fares will depress ridership, and that higher fares will punish lower-income riders. Sidelining the alternate board members doesn’t change that calculus.

Second, fundamental reform is subject to a union veto. An unwillingness over the years to confront the Amalgamated Transit Union, which has the power to shut down the Metro and throw the Washington economy into a tailspin, has resulted in excessive pay, featherbedding, favoritism, and unproductive work rules that make the bus and commuter rail systems far more costly than necessary. But clawing back  concessions will be extremely difficult, no matter how many members the board has.

Virginia should have used its financial leverage — no reform, no $500 million — to stiffen the backbone of management and the board to make the tough decisions. The Northam administration settled for governance reform. We’ll find out if eight board members show more courage than sixteen. I’m not counting on it.

Virginia’s Hidden Deficit: the Unemployment Trust Fund

Virginia Trust Fund Solvency. Graphic credit: “Trust Fund Solvency Report 2018.”

There are many measures for gauging a state’s fiscal condition. The most commonly cited is the condition of its General Fund: Is the state balancing its budget? Digging deeper, one can examine the degree to which a state is funding (and falling short of) its pension obligations. And one can track the extent to which a state is neglecting repairs of  highways, transit systems, buildings, water-sewer facilities, and other public infrastructure, thus building up future maintenance obligations.

Then there’s the Unemployment Insurance Trust Fund. This is the fund, financed through employer payments, from which states draw to pay benefits to Virginians laid off from their jobs. State funds are designed to build up reserves during good times so they can maintain benefits during bad times when payments spike. If states run dry, they can borrow money from the federal government, which they then are required to repay. States are not directly on the hook for unemployment insurance. But restoring solvency to a fund by hiking employer contributions is the functional equivalent of a business tax increase. Lower business contributions make for a better business climate; higher contributions do the opposite.

So, it’s worth asking what kind of shape Virginia’s unemployment insurance reserves are in. And the answer is… not very good. Not the worst — we’re not in the same abysmal condition of California, Ohio or Texas, but we fall below the recommended minimum adequate solvency level. We probably could ride out a weak recession, but are ill prepared for a severe one.

The U.S. Department of Labor publishes an annual “State Unemployment Insurance Trust Fund Solvency Report.” Twenty-nine states, including Virginia, are beneath the recommended solvency standards. The Old Dominion’s relative position compared to other states is shown in the chart above. We’re in the middle of the pack. While we’re not far from the recommended level of solvency, we’re still below it — and we certainly haven’t built up large reserves like Wyoming and Oregon.

(For those tracking the 50 states’ progression toward Boomergeddon, note that several states noted for their fiscal profligacy — Illinois, Connecticut, Kentucky and New Jersey — have among the least adequately financed trust funds.)

As of Jan. 1, 2018, Virginia has $1,148,000,000 in its unemployment insurance trust fund. That may seem like a lot, but the number is meaningless without comparing it to the number of workers it is meant to cover. The chart atop this post gets to the adequacy of that number. Unfortunately, it is far from self explanatory.

The key numbers are associated with the four blue arrows.

The reserve ratio is derived by taking the trust fund balance and dividing by the state’s total wages paid for the year.

The 2017 benefit cost rate is calculated by expressing the level of uninsurance benefits as a percentage of yearly wages. A smaller number — Virginia’s is 0.19% — is good. It reflects Virginia’s low unemployment rate and low unemployment insurance payments.

But low unemployment is expected during periods of economic expansion. The acid test is how well the trust fund holds up in a recession. So, the Labor Department benchmarks against two measures: (1) the highest benefit cost rate ever, and (2) the average of the highest three highest years over the past 20 years.

The Labor Department then calculates the Average High Cost Multiple, which is the Reserve Ratio divided by the Average Benefit Cost rate. “Values greater than one,” states the report, “are considered the minimum level for adequate state solvency going into a recession.”

Virginia’s value is 0.92, meaning (as I understand it) that its trust fund has 92% of the reserves deemed adequate to make it through a recession without resort to extraordinary measures.

Virginia’s Housing Shortfall

Underproduction as a % of 2015 housing stock.

Between 2000 and 2015, 23 states fell 7.3 million units short of meeting the housing needs of their growing populations — equivalent to about 7.3% of the housing stock of the United States, according to a new study, “Housing Underproduction in the U.S.,” published by the Up for Growth Coalition.

Although not the worst offender, Virginia was one of the states notable for housing underproduction, falling short of demand by 131,000 units over the 15-year period.

Restrictive zoning and development policies in Virginia and elsewhere have created an imbalance in supply and demand imbalance that has dire economic consequences. States the report:

As people migrate toward cities in search of jobs, education and economic opportunities, the demand for housing in our most populous and economically productive regions has far outstripped the production of new housing units. Due to dramatic shifts in generational preferences and household demographic trends, migration to cities over the past decade are at the highest level since World War II, while housing production has fallen to historic lows. This imbalance has led to rapidly rising housing prices, economic displacement of lower income families and communities of color, and increases in homelessness.

Long-term Bacon’s Rebellion readers familiar our Smart-Growth-for-Conservatives critique of Virginia land use and development policies will be right at home with this study. The report blames “restrictive local development and land use policies that reflect opposition to high-density, multi-family urban growth in favor of low-density, single-family, suburban sprawl.” Offending policies include:

  • Zoning restrictions, which create a shortage of zoned, high-density sites;
  • Escalating and misaligned fee structures, such as impact and linkage fees;
  • Poorly calibrated inclusionary housing requirements; and
  • Lengthy review processes that invite gaming and abuse by growth opponents that can delay projects, create unpredictability, reduce incentives to invest and increase the per-unit cost of development.

Not only do dysfunctional housing markets produce fewer units than would be supported by demand, according to the report, they produce units in the wrong locations. The market for housing in walkable, high-density, high-value urban areas is significantly under-served, while housing continues to be built in lower-density suburban communities with a backlog of land zoned for residential.

Average change in home prices by county, 2000-2016.

The study advocates a loosening of anti-development restrictions to encourage  a “smart growth” model of growth that promotes high-density residential development in major transportation corridors. Benefits will include increasing the housing supply, exploiting existing infrastructure, and increasing tax yields to local governments. Four broad tools would achieve these aims:

  • By-right approval. Establish “by right” high-density residential development in a half-mile radius around a transit station (roughly 5 percent of a metropolitan region’s land area).
  • Impact fee recalibration. Recalibrate impact fees to reflect actual costs of infrastructure service for high-density development.
  • Property tax abatement. Use property tax abatement as a gap financing tool to enable denser and more affordable housing production.
  • Value capture. Establish mechanisms to capture value created through up-zones and tax abatement investments to be used as dedicated funding for a range of housing programs.

Clearly, Virginia has a lot of work to do. We’re not as bad as the West Coast, the Northeast, or even our neighbor to the north, Maryland, but we’re the worst state in the Southeast (excepting Florida). The cost of housing is harming our economic competitiveness and hindering our ability to adapt to economic circumstances.

One of the ways to address rural poverty in Virginia, for instance, would be to encourage unemployed or under-employed workers in small towns and countryside to migrate to metropolitan areas offering better employment opportunities. When local governments in metro areas restrict housing development, they block this migration. Lower-income Americans literally can’t afford to make the move. The result is the worst of both worlds: sub-par employment opportunities in rural areas combined with job shortages in the major metros.

The higher cost of housing also helps explain another phenomenon — the shift of Virginia in recent years from a state from a people-importing state into a people-exporting state.

Finally, as the report alludes to, high housing costs disproportionately impact the poor and minorities. High housing costs, not racism, keep minorities trapped in public housing projects and slums. High housing costs block them from becoming homeowners, building home equity, and accumulating wealth, thus perpetuating income inequality.

Where is the General Assembly on the housing issue? Where was the McAuliffe administration? Where is the Northam administration? AWOL, all of them.

About those Student Loan Default Rates…

The distinction of having the highest student-loan default rate of any higher-education institution in Virginia goes to Everest College in Chesapeake. The default rate at the for-profit college (now doing business as Altierus Career College), which prepares students to be dental assistants, HVAC technicians and the like, is 36%, reports WVTF Radio IQ.

In absolute numbers, non-profit Liberty University took the top spot. A 10% default rate translated into 2,903 students.

The highest default rates tend to be small, for-profit vocational schools. Although the Radio IQ data doesn’t show it, some public colleges have a fairly high default rate as well. Low-income students are disproportionately likely to drop out of college — whatever the institution — and find themselves unable (or unwillling) to repay their loans.

Many progressives purport to be concerned about minorities and the high default rate blame for-profit colleges. The Radio IQ article quotes Diane Standaert with the Center for Responsible Lending (CRL) as noting that many for-profits are converting into non-profits to avoid state and federal regulations aimed at curbing “abusive practices.”

Acccording to CRL’s Virginia state profile, for-profit colleges disproportionately harm: low-income families, communities of color, and women.” Undergraduate enrollment at for-profits is 54% low-income, 45.4% African-American, and 60.9% female. Students at for-profit institutions in Virginia are less likely to graduate, more likely to take out student loans and graduate more indebted, and are more likely to default on their college debt, according to CRL.

What this analysis ignores is that there is considerable variability in the default rate for for-profit, private non-profit, and public non-profit institutions. The best for-profit institutions have lower default rates than the worst non-profits. Public institutions such as Norfolk State and Virginia Union University that cater to lower-income African-Americans have default rates comparable to many for-profits. Conversely, the for-profits cater to adult African-Americans — look at their television ads if you doubt me — who didn’t get a chance to attend college immediately after high school but, as adults, would like to advance their career and obtain a better job.

If mean ol’ fiscal conservatives wanted to shut down for-profit institutions with high default rates on the grounds that they were costing taxpayers, some progressive group would describe the disproportionate impact on upwardly striving African-Americans as racist. But the impetus for shutting down for-profits isn’t coming from the Right. It’s coming from the Left, hostile as always to the idea of someone somewhere making a profit.

The real problem isn’t whether an institution is for-profit or non-profit, it’s the fact that the federal government hands out student loans indiscriminately. Federal loans are not granted on the basis of a student’s likelihood to repay, whether based on SAT scores, class standing, credit score, years in the workforce or any other relevant factor. Why? Because objective lending criteria might impact minorities more than whites, which would constitute a different type of discrimination and invoke the inevitable cries of racism.

So, if you think with a leftist mindset, instead of insisting that the federal government establish standards to reduce the number of students defaulting on their debt, which would be racist, you attack for-profit institutions… even thought, by leftist standards, limiting educational opportunities for minorities by this indirect means also could be construed as racist. But if you think with a leftist mindset, that’s OK because you’re suspicious of for-profit enterprises anyway. Furthermore, you control the commanding heights that shape public opinion formulation — the media, academia, the educational bureaucracy — so you have the power to frame the issue the way you want.

That, folks, is democracy at work in America today.

Here’s an Idea, Let Maryland Have Amazon

Virginia’s friend: Maryland Governor Larry Hogan

Maryland legislators approved Wednesday an $8.5 billion incentive package to lure Amazon’s second headquarters to Montgomery County. Governor Larry Hogan (R), who proposed the plan, is expected to sign the bill.

I love it! This is the best of all worlds for Virginia. Amazon has estimated that the headquarters will invest $5 billion and employ 50,000. If Amazon puts its second headquarters just across the Potomac River in Montgomery County, Md., Northern Virginia will benefit from many of the positive spillover effects without undermining its tax base to bribe the company into locating there.

Nonpartisan analysts with Maryland’s General Assembly said the incentives would cost the state $5.6 billion in tax breaks, $2 billion in transportation spending, and $924 million in local tax credits, for a total of $8.5 billion. While a solid majority of Maryland legislators backed the package, a sizable minority objected to the massive subsidies, reports the Washington Post.

“Amazon is getting the gold mine and we’re getting the shaft,” said Del. Herbert H. McMillan, R-Anne Arundel. He described the package as “corporate welfare.”

(Virginia has offered an incentive package as well, although nothing that has required approval by our General Assembly. The details remain confidential, despite efforts by anti-Amazon groups to obtain them through Freedom of Information Act requests.)

Let’s game this out. Let’s assume that Maryland’s bribery package is so generous that it outweighs anything Virginia can cobble together under existing legislation and appropriations. Let’s assume that Amazon builds an 8-million-square-foot  headquarters campus in Montgomery County, invests $5 billion, and hires 50,000 highly compensated workers, as it says it will. Where does that leave Virginia?

In the cat bird seat.

Maryland and Montgomery County hired the Sage Policy Group, Inc., to study the economic impact of an Amazon relocation to Montgomery County. The study finds that a full build-out would support more than 101,000 jobs in Maryland, generate nearly $7.7 billion in employee compensation, and boost economic activity by more than $17 billion. (Presumably these are annual figures, although the study’s Key Findings does not say so explicitly.) Writes Sage:

Complete development of Amazon’s HQ2 will create approximately $112 million in augmented tax revenue at the County level. The bulk of this will flow to Montgomery County through direct income and property tax effects, though indirect and induced activities will also augment local tax revenues as far north within Maryland as Frederick and Baltimore Counties. This tally includes nearly $64 million in property taxes and nearly $34 million in income taxes.

At the state level, tax receipts will increase by an estimated $190 million over the duration of development, including $84 million in sales tax revenues, $62 million in income tax revenue, and more than $10 million in nontax revenues (e.g., fees, and permits.)

Here’s what the Sage study overlooks: the costs associated with an added workforce of 101,000 in an era of full employment.

Unemployment for the Washington metropolitan area was 3.6% in February. That verges on a labor shortage. Indeed, for IT-related jobs, there is a labor shortage. To fill those jobs, Amazon will either (a) induce skilled employees from other metros to move to the Washington area, or (b) recruit skilled employees from local employers, who in turn will have to induce skilled employees from other metros to move to the Washington area. Those people will have to live somewhere, and they will require state and local government services.

The increased economic activity resulting from the Amazon headquarters will more than offset the drain from $8.5 billion in subsidies. But will it also offset the cost of building new infrastructure and providing state/local government services, including schools, to the tens of thousands of households moving into Maryland?

Let’s assume for purposes of illustration that a third of those 101,000 employees joining the Maryland workforce have children, and let’s assume that they have only one child at home on average, and let’s assume that only 75% of those children are of school age. That means we can expect an enrollment increase of 25,000 students in Maryland schools. The average cost per K-12 student in Maryland is about $15,000. Let’s say a 20% of that is overhead and that the variable cost per child is only $12,000. That pencils out to $300 million in added K-12 school expenditures.

Guess what. The total anticipated increase in state and local tax revenues is…. $300 million. That leaves nothing for public safety, public works, higher education, health care, social services, the environment, or the mandatory bloated bureaucratic overhead. Fiddle with the numbers in my assumptions, if you want, but understand the principle: Sage’s economic impact formula considers only tax benefits, not fiscal costs.

By contrast, Virginia will enjoy economic benefits from Amazon in Maryland without the tax giveaways.

The Sage study does not publish an estimate of the economic impact of an Amazon-in-Montgomery-County scenario on Virginia or Washington, D.C. scenario.  I suspect there’s a reason why Sage didn’t disclose those numbers — because an embarrassing proportion of the benefits of an Amazon move to Maryland will accrue to the entire metropolitan area.

“Entrepreneurship related directly or indirectly to e-commerce, cyber-security, big data analysis, and other segments would accelerate,” states the report. As it happens, cyber-security and big data analysis are industry sectors at which Virginia excels. It is inevitable that Amazon will do business with Virginia companies, and it is likely that Amazon or former Amazon employees will seed new enterprises in Virginia.

No doubt some Amazon employees will live in Virginia and drive across the Potomac. We’ll have to provide schools and other public services to them. Here’s the difference: We won’t have to eviscerate our tax base to do so.

Is Mo’ Money the Solution to the STEM Job Shortage?

Governor Ralph Northam. Photo credit: Daily Progress

Speaking at the Charlottesville Regional Chamber of Commerce yesterday, Governor Ralph Northam enumerated the main challenges he sees for Virginia’s business environment: diversifying regional economies, creating more opportunity in rural communities, providing dedicated funding for the Washington Metropolitan Area Transit Authority, and reforming state taxes and regulatory structures. Reports the Daily Progress:

The Democratic governor tied most of these problems to two solutions — well-funded schools at all levels and Medicaid expansion, arguing the federal Medicaid funding would allow more state money to be spent in other areas.

“We need to diversify our economy by understanding what the jobs of the 21st century are,” Northam said, citing biotechnology, data collection and data analysis.

“We do that through having excellent colleges and universities that are affordable to all Virginians, but also through supporting and marketing community colleges,” he said. “There are thousands of good, high-paying jobs that don’t require a four-year education.”

Medicaid expansion might pay for itself, but let’s just say I’m skeptical that it will actually save the state money. How many other states that have enacted Medicaid expansion make the claim that they have freed up spending for other priorities? But that’s a side issue.

Of greater interest is Northam’s observation that there are “thousands of good high-paying jobs that don’t require a four-year education.” He is absolutely right about that. He seems to be suggesting — although it’s not entirely clear — that Virginia needs to spend more money to help ameliorate the problem.

As Bacon’s Rebellion readers know, I tend to be skeptical that waving the magic money wand fixes many problems. I’d like to see an analysis of why Virginia’s educational/workforce training system has been unable to meet the demand for STEM jobs.

It is widely known, for example, that there are widespread job shortages in the IT sector. One plausible explanation is limited teaching capacity — there just aren’t enough college and university courses in which to enroll, and existing classes are so full to the brim that would-be IT practitioners are being turned away. Is that, in fact, so?

If there is a capacity shortage, why is there a shortage? Are colleges, universities and even for-profit career schools too dim-witted to see the business opportunity and expand the course offerings? Or, alternatively, do they see the opportunities but are having trouble recruiting instructors to staff the courses?

What if the supply of students is the problem? It is widely acknowledged that STEM programs have high drop-out rates because many American students can’t handle the work. What if the problem is that high schools are not preparing students for college-level STEM work? What if American students don’t have the self-discipline to perform demanding work with right-and-wrong answers?

Finally, what kind of workforce credentials are needed to fill these STEM jobs? Do employers crave workers with certifications that can be obtained at community colleges or for-profit career schools? Or do they need employees with B.A.-, M.A.-, or Ph.D.-level degrees obtainable only through advanced programs? Presumably, both are needed. But what is the proper mix? If more funding is the answer, what is the proper distribution between community colleges and four-year institutions?

I’ve not seen any of this analysis. And I have no confidence that we truly understand the nature of the problem or how best to invest public dollars. Virginia doesn’t have the luxury of throwing dollars at problems we don’t understand. We need to act upon hard evidence, not conjecture.