Subtle Signs of Malaise in Puerto Rico

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East of San Juan, a boardwalk and walking/jogging trail runs along the shore line of Puerto Rico. It would be an exaggeration to describe the views as “stunning,” but they certainly qualify as picturesque. The beaches aren’t wide enough to attract the interest of big hotel developers, but the sand is clean and the views more interesting than anything you’ll find along the crowded shores of the Outer Banks.

When the Bacon family and friends visited Saturday, the beach-side promenade was little used. The action was concentrated near clusters of open-air restaurants specializing in fried and barbecued food and blasting out catchy Latin music. The roads and parking lots were clogged with locals. But it was evident that the island had seen better days. Many establishments abutting the boardwalk looked abandoned and dilapidated — a consequence, I suppose, of Puerto Rico’s shrinking, debt-ridden economy.

This vantage point offered a tremendous view of waves crashing on coal rocks. But what’s that yellow piece of metal junk doing there?

One of many abandoned properties along the beach-front walking trail.

I often fantasize about relocating the Global Command Center of Bacon’s Rebellion from Richmond to some sunny locale where the temperature rarely strays from 75º. I wonder if there are some bottom-fishing opportunities in Puerto Rico. I find it astonishing that just a couple of miles from one of the largest metropolitan areas in the Caribbean, properties fronting the boardwalk and trail are being abandoned. My friends (not to mention my wife) think I’m crazy. Puerto Rico still has a long way to fall, they say. The territory’s massive indebtedness will lead to a deterioration of infrastructure and services, and even more people will immigrate. Wait until the next recession when the tourism industry takes a hit, and beach-front property will go for a song.

I suppose that’s good investment advice. I feel badly for the Puerto Ricans, though. They are a welcoming and friendly people, and they have a beautiful country. It’s a shame that their government and ruling elites have served them so poorly.

Note to readers: We’ll be boarding a cruise ship this afternoon, and I refuse the pay the extortionate $40-per-day Internet charge. I’ll try to blog if I can find free Wi-Fi on shore. But, then, I may have better ways to spend my Caribbean vacation hunched over a laptop at Senor Frogs.

MTR, Would You Take over Metro, Please?

MTR, the Hong Kong commuter rail system, is arguably the world's most efficient.

MTR, the Hong Kong commuter rail system, is arguably the world’s most efficient.

Here’s an idea for readers to chew on while the Big Bacon is on vacation: How about privatizing the Washington Metro system? Honk Kong privatized its subway system in 2000, and it has worked out pretty well.

Writing on the Cato Institute blog, Chris Edwards quotes a report by McKinsey:

Hong Kong’s MTR Corporation has defied the odds and delivered significant financial and social benefits: excellent transit, new and vibrant neighborhoods, opportunities for real-estate developers and small businesses, and the conservation of open space. The whole system operates on a self-sustaining basis, without the need for direct taxpayer subsidies.

MTR’s railway system covers 221 kilometers and is used by more than five million people each weekday. It not only performs well—trains run on schedule 99.9 percent of the time—but actually makes a profit: $1.5 billion in 2014. MTR fares are also relatively low compared with those of metro systems in other developed cities. The average fare for an MTR trip in 2014 was less than $1.00, well under base fares in Tokyo (about $1.50), New York ($2.75), and Stockholm (about $4.00).

The ratio of passenger fares to operating costs is a high 185 percent, which means that fares cover not only operating costs but a share of capital costs. MTR raises other funds for capital from real estate deals under which it gains from land value increases near stations — a concept known as “value capture” that we have touted on this blog. MTR is so highly regarded in the mass transit world that it has contracted to run commuter rail systems in cities China, the United Kingdom Sweden and Australia. Why not Washington? (Hat tip: Tim Wise.)

Bacon’s bottom line: It would be unrealistic to expect Hong Kong results in in the Washington Metro. For one reason, Hong Kong is far more densely populated and rail is a more attractive option compared to driving. For another, it’s not clear whether Washington Metro could extract the same economic benefit from putting real estate deals together that MTR could. Zoning controls and land use planning may work very differently in the U.S. than in Honk Kong.  But the idea certainly appears to be worth pursuing. If MTR could do no more than bring operational efficiencies to Metro, Virginians would benefit from better service and lower subsidies.

Mofongo!

The Bacon family is on the road again. Well, on the “road” is perhaps not an accurate description. We’ve made our way to San Juan, Puerto Rico. As always, I try to partake of the local cuisine (unless it’s something disgusting like sheep eyeballs or monkey brains). In Puerto Rico, that means eating mofongo.

The base ingredient of mofongo is plantain. The Puerto Ricans shred the banana-like plant, add garlic and other spices I couldn’t identify, sprinkle with carrots and meat, and drown in a delicious sauce. I’m not a huge plantain fan, but I found the mofongo I ate at an unremarkable neighborhood restaurant to be pretty tasty. If you’re looking for a different taste sensation, it’s worth sampling.

State Oversight of Physicians Needs Tightening

State officials are lax when it comes to disciplining doctors for infractions of the law.

State officials are lax when it comes to disciplining doctors for infractions of the law.

by Victoria Nicholls

State Sen. Diobhan S. Dunnavant, R-Henrico, a Henrico County physician, broke federal health privacy laws when she sent a political solicitation to her patients during her 2015 campaign, the Richmond Times-Dispatch reported two weeks ago. And what were the consequences? Nothing.

The first-term senator won’t face fines or penalties, according to a letter from the U.S. Department of Health and Human Services’ civil rights office. And that should concern every Virginian and American.

In the Times-Dispatch article, Dunnavant stated that her campaign solicitation letter was approved by a medical practice board and lawyers. Really? Did she chastise her lawyers for malpractice? Did any of her advisers suggest that she consult the Health Insurance Portability and Accountability Act (HIPAA) specialists first? No? Why not?

Patients should be alarmed that Dunnavant was willing to transfer their data to a political campaign without their permission. If a nurse or admin had done the same, would the public agree that it was of no consequence for them to mine patients’ info for volunteer help and votes? What if another doctor or nurse used patients’ data for political purposes? Would they get the same hand-spanking?

“For me, it’s really all about the fact that none of my patients were harmed,” said Dunnavant.

What does Dunnavant have to say about her patients’ loss of data? What about their loss of privacy, which she was obligated by law and public/social agreement to protect? What about the loss of trust in the system? What other “enterprises” do doctors conduct on the side that we, the patients, are sacrificing our privacy for?

Authorities said Dunnavant, when aware of the potential privacy violation, moved quickly to “mitigate the damage” by deleting the protected data from a campaign computer.”

I’d like to know who else might have that data now. Was it backed up? If so, where? Who had access to it? Who else saw it? Did they sign confidentiality agreements? Are they even bound by HIPAA laws? No they aren’t. This is what makes this a huge, huge issue. Most people do not realize how much their personal data is sold on the market.

The system in Virginia isn’t willing to hold physicians accountable. In July 2016, I SENT Virginia physician-legislators including Dunnavant and Del. John O’Bannon, R-Henrico, information that a convicted Tennessee pill-mill doctor was working in a hospital in Virginia. Federal law mandates that convicted drug traffickers be jailed pending sentencing. No response. I asked the Virginia Department of Health Professions how either (a) he got a license or (b) the State Medical Board missed the fact that he had no license.

Still no response.

Victoria Nicholls describes herself as a concerned Virginia citizen living in Chesapeake.

Clash over Rate Freeze Shifts to Va. Supreme Court

Earlier this week, the Virginia Senate shut down a bid by Sen. Chap Peterson, D-Fairfax, to revoke the rate freeze on Dominion Virginia Power’s and Appalachian Power’s electricity rates. But the battle over electric rates is far from over. The contest now moves to the Virginia Supreme Court.

Today is the deadline for foes to submit legal briefs in a case filed by the Old Dominion Committee for Fair Utility Rates. The case challenges a 2015 law that was enacted shortly after the Environmental Protection Agency (EPA) announced details of its Clean Power Plan for cutting carbon dioxide emissions in the electric power industry. State Corporation Commission staff had estimated that the new regulations could cost Dominion rate payers between $5.5 billion to $6 billion, but no one knew for sure, so lawmakers cobbled together a bill that would freeze base rates through 2019.

Proponents said the idea was for Dominion to absorb the risk for higher costs stemming from the regulation in exchange for rate stability. But critics say it was a cover for Dominion and Apco to lock in excessive rates.

Critics have become even more vocal now as Donald Trump prepares to enter the White House. The president-elected has pledged to kill the Clean Power Plan. If he succeeds, the justification for the rate freeze will disappear.

Ken Cuccinelli, a former Republican attorney general, contends that Dominion and Apco took advantage of the agitation over the Clean Power Plan to get a law enacted that guaranteed excessive rates for years without providing any real protection to rate payers. Working with another former AG, Andrew Miller, he argues that the law is constitutionally dubious because the General Assembly usurped the role of the State Corporation Commission to set electric rates.

Dominion responds that state Constitution clearly states that the SCC power to set rates is subject to “such criteria and other requirements” as set by law. Company lawyers have cited six instances in the past two decades in which the General Assembly either capped electricity rates or defined how rates would be set, all without constitutional challenges. Furthermore, says company spokesman David Botkins, consumers have not been harmed. The average monthly residential bill in January 2017 is 3.6% lower than it was two years ago when the law was enacted.

There are four categories of electric rates in Virginia, Cuccinelli explains. One is the “base” rate, which covers most operating costs and accounts for about half the electric bill. A second is a fuel-adjustment clause, which adjusts charges for coal, natural gas, and nuclear fuel as prices move up and down. A third is a seldomly invoked emergency clause to reimburse electric companies for clean-up costs associated with storms, hurricanes and natural disasters. And the fourth is a rate-adjustment clause (RAC), which allows power companies to recover costs associated with new construction and other major capital expenditures, such as those required to comply with new federal regulations.

In a scenario in which Dominion was forced to shut down its Chesterfield coal-fired plant, denied licenses to extend the life of its nuclear plants and required to replace the capacity with solar, Dominion could recover the cost of multibillion-dollar capital expenditures through a Rate Adjustment Clause.

A second reason the 2015 rate-freeze law was bogus, says Cuccinelli, is that the Clean Power Plan was not scheduled to go into effect until 2022 — when the rate freeze expires. “The costs don’t even hit during the time addressed in the bill.”

Botkins responds that the rate freeze has protected rate payers against a variety of costs that would have been charged to them otherwise. The company ate tens of millions of dollars in clean-up costs from Hurricane Matthew, the ninth most costly storm in the company’s history. Citing another instance, he says, when 250,000 customers in Central Virginia lost power in a windstorm, “We worked around the clock. We absorbed those costs.”

The 2015 law also provided for a $57 million infusion into Dominion’s statewide weatherization program for low-income Virginians. And it committed the company to build 400 megawatts of solar power, which it is in the process of fulfilling, Botkins said. Just last week the company announced that it had completed work on three solar facilities in Virginia capable of producing 56 megawatts of electricity.

Addressing Cuccinelli’s argument that the costs of the Clean Power Plan wouldn’t hit rate payers until 2022, Botkins said that was unlikely. “You have to prepare for these things in advance. You can’t flip a switch and start complying.”

Cuccinelli is not impressed by the miscellaneous costs that Dominion has covered. SCC staff had determined before the rate freeze that the company was generating excess profits. The rate freeze cemented those profits into place for seven years. Paying for big storms that cost $100 million every ten years is a small risk compared to locking in a billion dollars in excess profits, he says. “Short of Noah’s flood, there will not be costs absorbed by utilities to offset the massive profits locked in” by the 2015 law.

Attorney General Mark Herring says the law is constitutional, says Botkins. “Virginia has an energy plan, and it’s working well. Low rates, superior reliability, and cleaner air than ever before — all to the benefit of our customers.  With all the regulatory uncertainty still swirling in Washington, now is not the time for political grandstanding at the expense of Virginia’s energy future.”

Time to Disinvest in Higher Education?

Richard Vedder: heretic

Richard Vedder, director of the Center for College Affordability and Productivity, suggests that the United States might be overinvested in higher education. We might be spending billions of dollars as a society on activity of marginal value.

Arguably, one of the most important functions of higher education in America is signalling to employers that a given individual is intelligent, industrious, and otherwise employable. Many students learn few job-relevant skills in college, Vedder writes in Forbes. As an alternative to spending four years in college, he suggests giving students tests certifying to skills and competencies demanded by employers.

Government subsidies and private philanthropy have prevented a healthy disinvestment in higher education from occurring,” he says. “Few colleges ever fail. … America could use the failure of at least 500 colleges over the next decade to assist in needed resource allocation.”

“If we were to spend, say, one-third less than we do on colleges,” Vedder writes, “we would lose relatively little output from declining labor productivity, and if those savings were invested in other productive ways, we likely on balance would be materially ahead of where we are today.”

(Hat tip: Dwayne Lunsford.)

Bacon’s bottom line: If Americans want to enjoy college as a luxury good — going to frat parties, cheering at football games, participating in late-night dormitory bull sessions, taking classes on obscure topics that will do them absolutely no good in the real world — and if parents want to pay for that activity, well, it’s a free country. People can do what they like.

But should public policy be blindly subsidizing millions of Americans to partake of the residential campus experience? What is the justification for state and federal government subsidies for higher education, if not to prepare Americans to participate in the workplace? There is a compelling public interest creating economic opportunity for all. There is no compelling public interest in immersing students in 18th-century English novels or the tenets of Tibetan religion.

Governors as Heroic Champions of the Economy

Ed Gillespie. Photo credit: Associated Press

Writing in the Richmond Times-Dispatch today, Bart Hinkle takes Republican gubernatorial candidate Ed Gillespie to task for asserting that he’s going to shape a “dynamic economy that creates jobs” in contrast to the anemic economy under the tutelage of Democrat Terry McAuliffe. As Hinkle correctly observes, a governor’s actions have a limited impact on a state’s economy. Gillespie’s claims are as empty as those of McAuliffe, who takes credit for having overseen the creation of thousands of jobs during his administration.

When the federal government accounts for 30 percent of the state’s GDP, there is nothing that a governor of any partisan or ideological stripe can accomplish in three or four years to offset cuts to the defense, intelligence and homeland security sectors. As for the corporate-investment deals announced by the Virginia Economic Development Partnership, to which every Virginia governor since time immemorial has attached himself, rare has been the instance in which a governor’s involvement proved decisive.

What governors can do is promote public policy that creates a more favorable business climate. Gillespie has some good ideas on that score — modernize the outdated tax code, repeal outdated regulations, and foster entrepreneurship and small business formation. But let’s be realistic. A case can be made that reforming the tax code could give a modest boost to Virginia economic growth, but Virginia’s tax code is business friendly already and any gains would be incremental. As for the repealing-outdated-regulations trope, every governor campaigns against red tape. But very few have the stomach for tackling the regulations backed by powerful constituencies that truly do stifle job creation, such as occupational licensing and the Certificate of Public Need.

As McAuliffe has said repeatedly, and as I have emphasized on this blog, tens of thousands of jobs are going unfilled in Virginia because companies cannot find employees with the skills to fill them. The job of equipping Virginians with  the requisite skills falls to the public sector, both K-12 schools and higher education. If a governor truly wants to be known as a “jobs” governor, he will it make his No. 1 priority to make government get better at its core mission of educating and training its citizens.

Government can do other important things, such as enabling the evolution of the built environment toward more cost-efficient human settlement patterns and creating a transportation system to serve it. To my mind, this would entail a market-driven shift to an Uber-flavored “smart growth” future. As in so many areas, the biggest obstacle is outdated regulations, particularly zoning codes. I blogged about that topic for years, but I despair that it is too esoteric for most of the voting population to understand, which means that it’s too esoteric for elected officials to care about.

In any case, overhauling K-12, higher ed, transportation and land use cannot be accomplished in a single gubernatorial term. It is the project of a generation, which means it requires a broad social consensus. We need to abandon the idea of governors (or presidents) as heroic champions who can single-handedly revive ailing economies. They can’t. They need to concentrate on what they can do.

Should Lawmakers Cap College Tuition Increases?

Now for something totally different — the first poll in the 14-year history of Bacon’s Rebellion!

I would say that I offer this poll in response to popular demand, but that would be misleading. No one but Bacon’s Rebellion‘s skeptic-in-chief, Larry Gross, AKA LarrytheG, has been agitating for polls. Moreover, I know that I will catch unmitigated grief for biasing the results by the way I frame the poll questions, thus creating another set of headaches for myself! But I plunge ahead in the conviction that polls will increase reader engagement. Indeed, I would go one step further and invite readers to compose their own poll questions and responses. I will happily consider them.

Accordingly, I have concocted the following in response to Larry’s challenge in a comment on the previous blog post to address the following topic:

It goes without saying, please vote only once. If I find evidence of cheating, I will have to search for a poll that restricts voters to those who register with the blog, which makes it more laborious for readers to participate, and it means I’ll be spending more time on technology/administrative tasks at which I am incompetent and less time writing blog posts for all the world to enjoy.

Update: I encourage you to elaborate upon the reasons for your vote in the comments section.

Virginia Higher Ed Faces Legislative Backlash

Virginia higher ed, and the University of Virginia in particular, are facing toughest General Assembly scrutiny in twenty years.

Virginia higher ed, and the University of Virginia in particular, are facing toughest General Assembly scrutiny in twenty years.

Frustration with Virginia’s higher education establishment boiled over during a press conference in the state Capitol building this morning as 15 senators and delegates from both political parties expressed their intention to curtail tuition hikes at public colleges and universities.

Legislators have introduced some 20 bills so far in the 2017 session addressing affordability and access at Virginia universities, and they expect more will be filed. A primary source of concern is how the state’s elite institutions are steering millions of dollars into financial aid to out-of-state students even as Virginians find the cost of attendance increasingly unaffordable.

Del. Tim Hugo, R-Centreville, a graduate of the College of William & Mary, decried the high percentage of out-of-state students at his alma mater. Referring tongue-in-cheek to William & Mary as “the College of New Jersey-Williamsburg campus,” he said, “We need more in-state students.”

The University of Virginia is spending $20 million to $30 million in scholarships for out-of-state students, said Del. Dave Albo, R-Springfield. He found that dispensation ironic given the fact that “for years we were told we needed out-of-state students to fund the schools.”

Another source of resentment was the accumulation of large financial reserves, particularly at the University of Virginia. UVa had cobbled together a $2.2 billion “strategic investment fund,” expected to generate $100 million a year in investment returns, even as the board of visitors raised tuition aggressively and lobbied for more state support.

The press conference followed the release of a poll released yesterday by Partners 4 Affordable Excellence @ EDU, a group created to fight runaway college tuition hikes (and a sponsor of this blog). That poll of registered Virginia voters found that a large majority overwhelmingly believe that the cost of college attendance is too high and support greater transparency of university budgets and decision-making.

Dr. James V. Koch, a former president of Old Dominion University and president of Partners 4 Affordable Excellence, opened the event with a review of data. Since 2000, he said, the Consumer Price Index had increased 35.2%. Over that same period the national Higher Ed Price Index had jumped 52.9%. In Virginia, the cost of in-state tuition and fees had shot up even faster, even as incomes have stagnated. The number of work-hours that it took a Virginian earning the median hourly wage to pay average tuition and fees for a four-year college increased from 227 in 2001-2002 to 438 this year.

Bills before the General Assembly would cap the percentage of out-of-state students at 25% at Virginia higher ed institutions, forbid colleges from using in-state tuition revenues to pay for financial aid, restrict the amount of out-of-state tuition that could be applied to financial aid, and limit tuition increases to the rate of inflation, among other measures.

University officials justify high enrollments of non-Virginians on the grounds that out-of-state students on average pay 160% of the tuition cost, in effect subsidizing Virginia residents. If lawmakers cut out-of-state enrollments, they will increase pressure on universities to jack up in-state tuition. Also, providing financial aid to some out-of-state students, they argue, is necessary to make attendance affordable for lower-income students and preserve socio-economic and racial diversity.

Del. Lionell Spruill, D-Chesapeake, was more concerned with helping poor, minority Virginia students. In Virginia, the percentage of students receiving Pell grants for low-income students is around 20%, the lowest rate in the nation, he said. The reason for the low participation, he explained, is that tuition, fees and other costs are so high in the Old Dominion that low-income students can’t afford to attend. Poor Virginian students should be first in line for student loans, he contended.

A similar argument was advanced by Del. Terry Kilgore, R-Gate City, who represents an district in far southwest Virginia. As unaffordable as costs are for a family in affluent, suburban Fairfax County, he said, they create an insurmountable barrier for many families in Appalachia.

While legislators at the press conference shared a common concern about the cost of Virginia higher ed, they indicated no agreement upon which bills to support. Indeed, the issue of financial aid may prove divisive. While Spruill and Kilgore focused on the need of their lower-income constituents, a disproportionate percentage of of whom rely upon financial aid, other lawmakers represented middle-class households who are tired of seeing some of their tuition money diverted to financial aid for others.

“The high tuition, high aid model is out of control,” said Sen. Bill DeSteph, R-Virginia Beach. Continue reading

Making School Vouchers Palatable to Democrats

School vouchers have brought about demonstrable improvements to students' educational achievement -- in some cases, but not all. How can we combined free choice with accountability?

School vouchers have brought about demonstrable improvements to students’ educational achievement — at some schools, but not all. How can we combined free choice with accountability?

The Richmond-based Commonwealth Institute (CI) has staked out a reasonable position on two school choice bills before the General Assembly this session. Rather than opposing school vouchers and health savings accounts out of hand, CI acknowledges that children, especially poor children, can benefit from alternatives to public school. But the center-left think tank insists upon holding private schools accepting taxpayer dollars as accountable as public schools.

Not all private schools are created equal. Some excel, far surpassing public schools in performance, while others can be described only as failures. “If the goal of school choice is to provide options for a high-quality education,” writes Chris Duncombe in CI’s Half Sheet blog, “then it makes sense to hold private schools receiving taxpayer dollars to the same standards as public schools.”

Two bills before the General Assembly — HB 1605 and SB 1243 — would create voucher-like educational savings accounts that would provide taxpayer dollars for families pursuing private education or home schooling. One way to hold hold private schools accountable to taxpayers is to adopt a policy practiced in some other states: If a private school falls short of accreditation standards, bar them from accepting vouchers the following year.

As a practical matter, if I understand the system correctly, that means private schools with voucher students will have to administer the Standards of Learning (SOL) exams. For a school to receive accreditation, a specified percentage of its students must rate proficient in the exams. That might well mean “teaching to the test,” which some private schools find objectionable. But unless someone suggests another means to hold schools accountable and weed out the inevitable fly-by-nights, meeting state accreditation standards may be the least bad option.

For Duncombe, a second issue is equity. The school vouchers would vary widely from locality to locality, dependent upon state Standards of Quality funds appropriated. “That means a family in Lee County would receive over three times as much as a family in Falls Church,” he says. “This variation is not based on the financial need of the family or the cost of pursuing private education in the area.”

(I’m not sure I see the objection here. A family in Lee County is already receiving three times as much state aid as a family in Falls Church. So, how would funding school vouchers on the same basis be any more inequitable?)

Duncombe’s third criterion is income eligibility: “A millionaire could get tax dollars to send their kid to private school, while a family who lacks the means to supplement the voucher with their own income would be left out.” His proposed solution would be to limit the benefit to households whose incomes are below 133% of free-and-reduced-price lunch eligibility — about $60,000 for a family of four.

These proposals are not unreasonable. Duncombe is not taking a position of “Vouchers, hell, over my dead body.” He’s trying to address the criticisms of school vouchers in a substantive way — in effect, taking away the arguments who those who are inclined to accept school choice over their dead bodies. If these compromises are what’s necessary to win legislative approval, expand the sphere of choice, and empower parents, then I can live with them. With luck, the General Assembly and Governor Terry McAuliffe will decide they can live with them, too.