What the Obama Giveth, the Trump Taketh Away

The federal budget sequestration may have kept a lid on escalating federal budget deficits, a good thing, but it was a disaster for Virginia’s economy. The cap on federal spending hammered a Northern Virginia economy built largely around the Pentagon. The ascension of Donald Trump to the presidency signaled a possible return to the region’s glory days as the new president promised to increase defense spending by $50 billion.

But the president has created massive uncertainty with a vow to slash discretionary spending in civilian programs and bureaucracies. The Washington Post is all in a dither:

The cuts Trump plans to propose this week are also expected to lead to layoffs among federal workers, changes that would be felt sharply in the Washington area. According to an economic analysis by Mark Zandi, chief economist for Moody’s Analytics, the reductions outlined so far by Trump’s advisers would reduce employment in the region by 1.8 percent and personal income by 3.5 percent, and lower home prices by 1.9 percent. …

Trump’s emphasis on defense spending might provide a buffer for Northern Virginia, although, as noted previously on this blog, there are some within his administration who believe that the Pentagon civilian bureaucracy needs to be whacked down to size in order to free more resources for fighting forces. Under a serious effort to rebuild the U.S. Navy, Hampton Roads’ military bases and shipbuilders could be big beneficiaries.

We can’t say anything with certainty until Trump releases the details of his plans later this week. But at this moment in time, it looks like the new budgetary policies could be a mild plus for Virginia with boosts in defense spending offsetting cuts in other areas. Conversely, Maryland and Washington, D.C., with their large non-military exposure, could be in for a world of hurt

Adding to Washington’s woes…. The metro area’s job performance in 2016 has been revised downward. Reports the Washington Business Journal: “The D.C. region added 55,600 jobs in 2016, according to final data released Tuesday by the Bureau of Labor Statistics — about 16,800 fewer than the agency had initially counted.”

“We are talking slashing and burning several different agencies on the discretionary, non-defense side. That could have a pretty chilling effect for the local economy,” said Clifford Rossi, a professor of the practice at the Robert H. Smith School of Business at the University of Maryland-College Park.

Rossi agreed that the revised job growth numbers reveal an economy that was weaker than it originally appeared, and that the federal spending cuts proposed by Trump could have a compound effect on the regional economy.

Bacon’s bottom line: Actually, the loss of 1.8% employment and 3.5% income is no worse than what dozens of other metros experienced in the last recession. But have compassion! Washington has never been through anything like this before.

(This article first appeared in Bacon’s Rebellion on March 14th, 2017)

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Increased military spending could benefit Virginia’s economy

Virginia stands to receive more benefit than any other state in the country under the president’s plan to increase military spending.

In President Trump’s address to Congress last week, his plan “calls for one of the largest increases in national defense spending in American history.”

Defense spending contributes to the Virginia economy in multi-facet ways.

The Department of Defense operates in Virginia as well as military bases such as Quantico, Fort A.P. Hill, Norfolk Naval Base and Fort Lee. Those operations and bases create thousands of military and civilian jobs in the state.

Virginia’s firms also benefit from defense spending through contracts. Some of the nation’s largest defense contractors, such as Huntington Ingalls Industries, General Dynamics and Northrop Grumman, are based in the state.

In fact, Virginia ranked first in the nation in defense spending with $53 billion in the fiscal year that ended Sept. 30, 2015, according to the defense department’s spending by state report. That’s 13 percent of all the defense spending in the nation.

California ranked second with $49.3 billion during the same time period, or 12.1 percent of the defense spending in the nation.

If proportions hold, Virginia and California stand to receive a quarter of the benefit of the increase in spending.

But the increased spending will have a bigger impact on the Virginia economy given its relative size.

Defense spending in Virginia represented 11.2 percent of the total gross regional product of $473.2 billion during the fiscal year that ended Sept. 30, 2015.

That ranks Virginia No. 1 in the nation for its dependence on defense.

By comparison, only 2.1 percent of California’s gross regional product came from defense during the same time period. That ranked California the 24th most dependent state on defense spending.

The buildup in defense spending helped fuel Virginia’s growth in the first decade of this century.

The state’s dependence on defense contributed to the relatively smaller decline in employment during the Great Recession when compared to the nation.

Going further back in history to the Reagan-era Cold War build up in defense, the state saw similar benefits largely because of spending in Northern Virginia.

Northern Virginia was once considered recession proof — that was until the Cold War draw bore down on the region.

The draw down from the war in Afghanistan and sequestration related to the Budget Control Act of 2011 also dampened economic activity in Virginia.

Employment growth in the state slowed from a year-over-year pace of 1.4 percent in December 2012 to a contraction of 0.2 percent in February 2014. During the same time, national employment growth continued to recover from the Great Recession and hovered around 2 percent on a year-over-year basis.

The year-over-year pace of employment growth has picked back up to 1.3 percent in Virginia based on the latest data for December 2016.

However, cutbacks in defense spending contributed to a slower-growing state economy that lead to budget shortfalls in Virginia and calls for diversifying the economy.

With the prospect of an acceleration in defense spending, Virginia is poised to benefit more than other states.

However, the state should take this opportunity and continue its diversification effort to achieve sustained long-term growth, with an understanding that defense spending inevitably runs cycles as well.

(This column first ran in the Richmond Times Dispatch on March 6, 2017)

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‘A Day Without a Woman’ Won’t Help Alexandria Public-School Students

(Editor’s note: this column ran on the “Day Without a Woman” protest and Alexandria’s schools closed for the day)

Public schools in Alexandria, Virginia, will be closed Wednesday because roughly 300 staff sought to take the day off for the “Day Without a Woman” protest. The school system did not have enough male staff to make up for the absences, so schools will be closed for what is being called, in perfect irony, a “teacher work day.”

“A Day Without a Woman” aims to “highlight the economic power and significance that women have in the U.S. and global economies, while calling attention to the economic injustices women and gender-nonconforming people continue to face.” Organizers have already succeeded in blowing up the plans of working parents in Alexandria, who now have two days’ notice to find all-day child care or take an involuntary day off from work.

Because of its location near the nation’s capital, its charming historic Old Town, and its median family income of $109,228 (the highest of any city in Virginia), outsiders might think that Alexandria boasts a first-rate public-school system. It doesn’t. The quality of the public schools within the city varies greatly, and system as a whole lags behind those in neighboring Arlington and Fairfax Counties.

Pick your measuring stick: U.S. News & World Report, Zillow, GreatSchools.org, Trulia, parental chat boards, the Washington Post ranking of local high schools. Alexandria performs poorly by any metric. SchoolDigger ranks the district 96th out of 130 districts in the state. This isn’t to say Alexandria schools are bad, exactly, but some of them are particularly subpar for an area with such relative wealth. Jefferson-Houston, which teaches students from pre-K to eighth grade, lost its accreditation in 2012. The school, which is 67 percent black, narrowly avoided being taken over by the state in a subsequent court battle.

A little more than 15,000 students attend 16 public schools in Alexandria, and the district spends $16,999 per student, according to the latest statistics. Class sizes are small, averaging 18 students in elementary school, 20 in middle school, and 22 in high school.

Despite those advantages, students in Alexandria’s public schools underperform the statewide average in subject after subject. In the 2015–16 school year, 80 percent of Virginia students passed English proficiency exams; 73 percent of students in Alexandria did. In math, 80 percent statewide passed; 68 percent of Alexandria students did. Statewide, 77 percent of students passed a test of writing proficiency; 69 percent of Alexandria students did. In history, 86 percent of students passed statewide; 77 percent of Alexandria students did. In science, 83 percent of students statewide passed; 69 percent of Alexandria students did.

As a whole, Alexandria residents have considerable wealth, but the wealthiest parents don’t send their children to public school, at least in part because the city has some of the region’s best private schools. The students who remain in the public-school system, particularly at the high-school level, disproportionately represent the city’s poorer residents. In fact, more than half of the city’s public-school students qualify for free or reduced-price meals at school.

The problems in Alexandria’s public schools — disappointing test scores, insufficient preparation for the challenges of college and work — are real, tangible, thorny, and intractable. They existed before Donald Trump took office, and some variation of them will likely exist after he’s gone. Abstract problems such as “sexism” and “the economic injustices facing women and gender-nonconforming people” are not nearly as easy to define as the ills that plague Alexandria schools and, indeed, schools around the country. They’re also unlikely to be solved by “A Day Without a Woman.”

(Copyright 2017 National Review. Used with Permission — article here.)  

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Hens win! Animal welfare claims can’t stand up in court

On Feb. 27, 2017, the 9th Circuit United States Court of Appeals issued a common sense opinion regarding housing and safety conditions where hens lay eggs.

Compassion Over Killing, Animal Legal Defense Fund, (NGOs) and 6 individuals claimed FDA, USDA’s Agricultural Marketing Service, Food Safety and Inspection Service, and the Federal Trade Commission were required to “…promulgate regulations that would require all egg cartons to identify the conditions in which egg-laying hens were [housed] during production.” The Court of Appeals agreed with all of the federal agencies that they “…lacked authority to promulgate plaintiffs’ proposed labeling regulations for shell eggs.”

Compassion Over Killing and Animal Legal Defense Fund were represented by the large San Francisco law firm of Orrick Herrington & Sutcliffe LLP. The NGOs had submitted rule-making petitions to each of the federal agencies and asked each to revise labeling requirements on each carton of eggs sold in a store. NGO petitioners wanted all egg cartons to identify housing conditions for the egg-laying hens and they also wanted egg cartons in the grocery store to bear labels such as “Free-range Eggs, Cage-free Eggs” or the label of “Eggs from Caged Hens.”

Compassion Over Killing argued that “…consumers are being misled by certain statements and images on egg cartons that imply that the hens are being raised in cage-free environments.” Compassion Over Killing and Animal Legal Defense Fund told the court that various egg labels on cartons suggest images of uncaged hens and claimed the conditions the eggs were produced in were natural or animal friendly. It was argued that misleading images on egg cartons could mislead a consumer into believing hens were being raised in fields rather than in cages.

Nutritionally inferior?
The NGOs told the court that new regulations regulating the production of eggs are needed “…because eggs from caged hens are nutritionally inferior to and carry a greater risk of Salmonella contamination than eggs from free-range hens.”

Common sense prevailed!

Each federal agency denied Compassion Over Killing’s petition for rulemaking – arguing that none of them had either the authority or the information which would allow each agency to conclude that current egg-labeling practices are unfair or deceptive.

The FDA provided evidence which should be used in California courts to overturn its rule when it declared it had not been provided “…persuasive evidence that eggs from caged hens are either less nutritious or more likely to be contaminated with Salmonella than eggs from uncaged hens.” In troubling follow up language, the FDA did say if it wanted, it could bring individual enforcement actions against misbranded eggs.

The two NGOs also claimed that FDA had acted arbitrarily and capriciously when the agency denied claims that egg cartons are widely misbranded and that current labeling practices “affirmatively misrepresent” conditions regarding hens’ housing. The two NGOs again argued their scientific evidence regarding egg-laying hens have a greater risk of producing Salmonella contaminated eggs. Again, FDA rejected the NGOs’ scientific evidence. “[T]he court will not second guess the FDA’s conclusion that these studies were insufficiently reliable, largely because they fail to control for relevant variables.” This determination by federal agencies and a U.S. Court of Appeals provides a strong basis for challenging the California egg cage size statute.

Had the six Attorneys General challenging the California legislation used data from the federal agencies in a more appropriate legal procedure, they might have won in a U.S. District Court in California rather than losing. The U.S. Court of Appeals for the 9th Circuit has given the six state Attorneys General a new opportunity to amend their Complaint and win for egg farmers. The 6 Attorneys General have not chosen this correct legal procedure and instead have appealed a portion of their legal loss to the U.S. Supreme Court. (Likely to lose.)

Meantime, egg producing farmers are having criminal animal cruelty cases brought against them and are spending hundreds of millions of dollars increasing egg cage size for what federal agencies claim is based on bogus or unscientific grounds.

(This column first ran in Farm Futures on March 8, 2017)

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Progress on Trucks and Tolling?

Politico reported last week (Feb. 8th) on an interview with Chris Spear, the relatively new CEO of the American Trucking Associations. Spear told Politico that ATA sees room to compromise on toll finance—for newly constructed roads or bridges. But he drew the line on tolls for “existing roads that we’ve already paid for.” The previous week, House Transportation & Infrastructure Committee chairman, Rep Bill Shuster (R, PA), was quoted in the Washington Post along similar lines—that tolling “existing” Interstate highways is “a non-starter.”

As one who has lambasted some toll agencies for diverting toll revenues to canals, economic development, and transit, I agree with the underlying point made by Spear and Shuster. Charging a second time for infrastructure that users have already paid for is unfair and should not be allowed.

But what about when a highway or bridge wears out and needs replacing? And what if all the existing highway revenue (from fuel taxes) is already spoken for by the numerous programs embedded in the overall federal highway and transit program, each with its own vociferous constituency that will work very hard to make sure that any increase in fuel taxes is shared among all those programs? That is the actual situation we face today. There is no source of funding for the $1 trillion or more it will take to replace and modernize our aging Interstate highways.

So I invite my friends in the trucking industry to consider the use of toll finance solely to replace worn-out infrastructure on the most-vital corridors their business depends on: Interstate highways. The Interstates were designed and constructed with a 50-year design life, if properly maintained. Many corridors are already past their expiration date, and most of the rest will reach that status over the next two decades. Moreover, the trucking industry complains (justifiably) about the top 100 truck bottlenecks around the country—nearly all at interchanges on urban Interstates. And many of the most important Interstates for trucking lack enough lanes to handle the truck traffic FHWA projects between now and 2040—they are good candidates for dedicated truck lanes.

All these reasons would make it sensible for the trucking industry to support a carefully limited expansion of the current federal pilot program for toll-financed Interstate reconstruction/replacement. As laid out in the 2015 Reason study, “Truck-Friendly Tolls for 21st Century Interstates,” federal restrictions should include:

  • All-electronic tolling (no toll booths);
  • Toll rates limited to covering the capital and operating costs of the replacement Interstates (no revenue diversion);
  • State legislation to guarantee no revenue diversion;
  • Rebates of fuel taxes for the miles driven on toll-financed replacements (no “double taxation”); and,
  • Tolling to begin only after the replacement facility is finished and open to traffic.

On February 1st, the Alliance for Toll-Free Interstates send a letter to all members of the House T&I Committee, arguing against any expansion of tolling and for repealing the three-state pilot program. Interestingly, while every state trucking association and ATA all signed, as did various truck-stop groups, conspicuously absent were most of the major trucking companies themselves, including Fedex and UPS. Those two firms, along with major trucker YRC Worldwide, various shipper groups, the U.S. Chamber, and the National Association of Manufacturers recently created a coalition called Americans for Modern Transportation. Let’s hope that this group is willing to think outside the box about how we are actually going to pay for and implement a 21st century Interstate highway system.

(This article first ran in the February 2017 issue of Surface Transportation Innovations)

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