Northam: Take the Bricks Off the Life Rafts

My first post in two weeks. What the heck, I should join the parade and give a bunch of advice to our beleaguered Governor which he is likely to ignore.  This first appeared today in the Fredericksburg Free Lance-Star. It has one of those annoying “take a survey” paywalls, but in this case asks a question we should all answer. Try it.    

By Steve Haner

The assumptions underlying the most contentious debates of the 2020 General Assembly session are gone. Sixty days ago, activists were arguing that this was a rising economy and state government should mandate raising workers to a higher level.

This is a now sinking economy, and the General Assembly’s actions have piled bricks on the life rafts that workers in the commonwealth will need to survive.

The priority now is containing the spread of this respiratory virus, but soon it becomes reviving an economy that has come to a near stop. Nobody knows when or where unemployment will peak, but this is starting to look more like 1929 than 2009.

Gov. Ralph Northam’s lasting legacy will not be his response to the virus, but the speed of the following recovery. 

There are bills on the governor’s desk which will be standing in the way of that, bills which will tie weights to employers just as they try to sprint again. But these bills can still be amended or delayed. There is still time to veto them or add clauses to delay their effect.

It truly will matter whether employers have to budget to pay $7.25 an hour for the lowest-skill jobs or $9.50 per hour, the new minimum wage as of January 1, 2021. With payroll taxes, that will add $5,000 annually to the cost of each position. The higher the payroll costs involved, the fewer the number of people hired back and the slower they are hired. Payroll costs will already be inflated by higher unemployment tax rates, and the businesses may be struggling with debt.

A one-year delay in the minimum wage hike, at least, should be considered. More people will be working in January and July of 2021 if that happens.

More people will also be working if the governor vetoes or delays the new mandate for project labor agreements and the new mandate to pay union-driven prevailing wages on state and local construction projects. Studies have shown that such proposals raise project costs by 20%. The unions ask for them for that very reason.

Capital spending, when it resumes, will be essential to recovery. Putting more people back to work is more important than paying a smaller subset of workers substantially higher wages.

When state and local governments are repairing their own operations, they too will look hard at the impact of the minimum wage, the cost of union labor rates on construction projects, and may grow leery of another idea sitting on Northam’s desk: unionizing their own workforces.

With great fanfare, the General Assembly authorized all counties to tax prepared meals, if they don’t already. The foolishness of doing that to an industry now truly in a depression is obvious.

In fact, all of the local option taxing authority granted in the 2020 legislation should be delayed – including the taxes on transient occupancy, on tobacco products or on entertainment venues (theater admissions.) Just like restaurants, travel and entertainment will need all the help they can get coming back.

Any effort to raise any tax in the next year would impede the coming recovery, including the new carbon taxes in the energy omnibus bill. The one exception to that might be the coming statewide tax increases on motor fuels, but only if the governor is sure that the state will have active construction and maintenance spending over the summer and fall.

If those contractors are all hunkered down and staying home, if contracts are not being let, then the gas tax increases should also be delayed until activity resumes.

Again, there will be more transportation construction jobs created by those taxes if project labor agreements and prevailing wage requirements are removed.

Several bills raised other taxes (transportation and otherwise) for use by local transit operations. With the recession, and perhaps due to health concerns, those operations are slowed and may even cease for a while. Transit-related tax increases can wait a year.

Sixty days ago, we worried that these bills would lower future economic growth. Now they may prevent growth from reviving.

Northam has one final chance to take a step back, to put economic recovery ahead of satisfying political allies, and to keep Virginia among the first rank of choice locations for new investments.

UPDATE:  The same message has now been delivered by some Virginia local governments (Saturday AM RTD).  

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11 responses to “Northam: Take the Bricks Off the Life Rafts

  1. You have it backwards. The priority is containing the disease. The economy comes next. Continued disease will overturn any economic efforts. This is really very simple.

  2. “The priority now is containing the spread of this respiratory virus, but soon it becomes reviving an economy that has come to a near stop.” How did you miss that? Or did you just choose to ignore it? (Larry does that, too). Failing to look ahead on the virus is no excuse for failing to now lay a groundwork for the recovery.

  3. Life does not follow anybody’s computer models. If life did follow my computer models, I would be a not a billionaire but a trillionaire, richer than Jeff Bezos. And nobody is special in that regard, even hedge fund managers prove themselves fools in the end.

    No, life ebbs and flows by its own life force known only to God. This virus will fade very soon into the background of life’s ongoing noise and our own until another comes along to do its own flow and ebb in its own special short lived way.

  4. Re: Utilities costs
    I mentioned once before, the AEP CEO was on Cramer a few weeks back and he said the work-at-home economy is good because the residential sector pays the highest electricity profit margins.

    Tell me if I am hearing that right at the 3:40 time mark:

    So I agree excess charges on the utility bills are less justified. On the other hand, with gasoline not being a profit-guaranteed-monopoly and heading possibly as low as $1.00/gal in some parts of Virginia, the gaso tax increase may be less onerous.

    • There should be a VSCC investigation into profit levels of Virginia utilities. With the federal funds rate at 0.15%, last time I checked a couple days ago, the current permissible earnings caps are excessive beyond belief.

      • What’s beyond belief to me is that we elect people to the GA who take Dominion’s money and blatently, openly, restrict the SCC’s oversight and investigatory powers and still have the gall to say “we are doing this in the public interest.” The very investigation you are asking for is currently illegal in Virginia.

    • You heard it right, TBill. But in defense of AEP let me point out what happens in rate design: you have loads that are price-responsive and those that aren’t. All other things equal, any business will pack as much cost recovery as it can into the former, not the latter, categories. In the case of the electric utility industry, differences in profit, or rate of return, between classes of customers are generally forbidden by state regulators as “discriminatory,” but the big exception is where there’s price competition for energy for business/institutional/industrial load, and there is, in AEP’s retail service territory, which is the heart of the Marcellus Shale natural gas drilling region and where alternative energy sources have been used for decades. Many of these businesses can simply throw a switch to change from electric heat pumps to gas heat, chiller power and manufacturing process inputs, etc. Also they are already largely on time-of-day or even wholesale-market-price-passthrough rates, which lend themselves more to competitive switching — whereas most residential customers are on a flat rate 24/7. In those cases the retail price regulators will go along with a business retail rate that discounts the overall “class rate of return” for these business categories if it preserves some of AEP’s market share and prevents more precipitous customer loss. In other words, even the regulator understands and agrees with the way it’s priced.

  5. Yup, in the FLS this morning a good third of the editorial page and pretty sure the name Stephen D. Haner has been there before!

    It’s a well written piece(as usual) on a standard article of faith for those who believe minimum wages are harmful and that includes the TJI under whose auspices this was written as Mr. Haner is indeed a Senior Fellow, State and Local Taxes there.

    Sometimes the FLS does two columns on a subject, a “pro” and a “con” but in this case, they apparently believe that there is only one view of minimum wage thinking.

    Minimum wage theory is an article of faith for many Conservative thinkers and if only pure theoretical circumstances were present it would work exactly as the theory says – but the real economic world is not that way and there are lots of conflicting views on minimum wage and I’m quite sure that Northam has advisers who know this also.

    So I’d offer this : ” Why it’s so hard to study the impact of minimum wage increases”

    ” Just last year [2017], separate Seattle minimum wage studies by researchers at the University of Washington and the University of California Berkeley suggested polar opposite effects

    https://qz.com/work/1415401/why-minimum-wage-research-is-full-of-conflicting-studies/

    • First, thanks for the compliment. Note I didn’t call for repeal of the minimum wage hike (I can count votes) but for a little thought about delaying it. I really don’t know anywhere else that raised it more than 30% in one step during a recession.

      And I would add this note, if anybody from the Governor’s staff reads this far down: The sooner you get the state off lock down, the less important some of this becomes. But 60-90 days of this will leave us in a deep hole, and there is excellent reason to expect a fall flare up.

  6. I am all for laying the groundwork for an economic recovery. But there’s no sense pretending the crisis usbover.

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