What’s This? Medicaid Expansion Pays for Itself?

Reversing its long-standing opposition to Medicaid expansion, the House Appropriations Committee yesterday adopted a budget proposal that would accept more than $3 billion in federal funds to provide Medicaid coverage for more than 300,000 uninsured Virginians.

Here’s the remarkable thing: You can read the news accounts of the Richmond Times-Dispatch, Washington Post, and Daily Press and never discover that the state of Virginia will save more money from “Medicaid Transformation” than the state share of supporting the state-federal program will cost.

I started out this blog post trashing House Appropriations for capitulating on Medicaid expansion. But after absorbing this report of the Health and Human Resources Subcommittee, I had to delete everything I wrote and start all over. It appears that House Appropriations has figured out how to eliminate the biggest objection to the program’s expansion, namely that it would constitute a big, ongoing drain on the General Fund. This turn-about is so extraordinary that I have to say that I, a long-time foe of Medicaid expansion on fiscal grounds, feel compelled to support it now.

Medicaid Transformation would provide coverage to adult Virginians up to 38% above the federal poverty line, injecting billions of federal dollars into Virginia’s health care system. The federal government will provide a 94% match in 2018, 93% in 2019, and 90% in 2020. The state share will level out at 10%.

The estimated cost of the program to Virginia will be $80.8 million in FY 2019 and $226.1 million in FY 2020. But  the state expects to save $101.3 million and $269.7 million respectively from programmatic cost reductions.

Where do the savings come from? Primarily from cutting indigent care funding to hospitals, and from reducing expenditures on state-funded community behavioral health, prison inmates, the FAMIS program for pregnant women, and the GAP program for the seriously mentally ill.

The proposed legislation also includes a 0.5% assessment on hospitals’ net patient revenue in FY 2019 and 1.4% assessment in FY 2020 on the grounds that Medicaid expansion will reduce indigent care costs (charity care and bad debts), resulting in significant improvements to hospital bottom lines. I’m not sure why this tax is necessary if the Medicaid Transformation results in a net savings to the General Fund without it. The hospital lobby opposes it, and for once I can sympathize.

 

I still have long-term concerns. The United States entitlement state is unsustainable, and the recent round of federal tax cuts and spending hikes has done nothing to change my opinion. At some point, the federal government will experience a fiscal crisis that will force it to shift the cost burden of Medicaid to the states, in which case Virginia will have to shoulder a much bigger share of the cost at hideous expense or dump hundreds of thousands of Virginians from the Medicaid rolls. But that’s 15, 20, or 25 years from now. And participating in the program will inject billions of dollars in federal funds into the Virginia health care system and economy right now.

I also question how much Medicaid expansion will actually improve medical outcomes. There’s still a physician shortage, many physicians refuse to take on Medicaid patients, and most add-on patients likely will continue seeking treatment in emergency rooms. But any improvement to the public health, even if marginal, is better than nothing. And it seems foolhardy to reject billions of federal dollars that cost the state nothing.

House budget writers are at loggerheads with their counterparts in the Senate Finance Committee, who propose a budget without Medicaid expansion. But if the House numbers stand up to scrutiny and Virginia can actually save money from the expansion, I don’t know how the Senate can resist. Medicaid expansion looks like a done deal.

UVa Snags $27.5 Million Computer Research Grant

Kevin Skadron

Thanks to a $27.5 million grant from the Semiconductor Research Corp., the University of Virginia’s Department of Computer Science is tackling one of the most pressing problems in computer science and engineering — the so-called “memory wall,” reports the Daily Progress.

As health care, science and technology systems grow more and more data-intensive and analytics become more sophisticated, current computer systems are unable to feed data to the processor fast enough, wasting time and energy. That gap between needed power and ability, first articulated by UVa professor emeritus William Wulf and graduate student Sally McKee, is often called the “memory wall.”

The 20 faculty members on Skadron’s team will investigate how to rebuild the entire computer processing system, from better memory chips and wiring to new software that can process complex and fragmented problems. They are focusing on several specific areas of application, including advanced genomics, new cancer biomarkers and predictive home health care.

“The volume of data here, as well as the ways that we have to mine it, are basically impossible to work with in today’s systems,” Skadron said. “But if we can make that tractable, we can help do things like diagnose cancer patients.”

From an economic development perspective, the grant sounds like unalloyed good news. Kevin Skadron, chairman of the computer science department, says that he expects the university will garner some intellectual property rights from the research, providing funding for more research and innovation at the university. Who knows, perhaps UVa’s computer science school will form the nucleus of a Charlottesville-based innovation ecosystem that spins off new enterprises and highly paid private-sector jobs.

The program also could contribute to Virginia’s workforce development. According to a university press release, the center will create opportunities for undergraduate students to get involved in research as well as internships with companies that are program sponsors. Tens of thousands of IT jobs in Virginia are going unfilled, and this program conceivably could increase the supply of qualified workers (although it’s not clear if Ph.D.s with expertise in computer design match up with the skills demanded by Virginia’s IT companies).

Before we get too excited, it’s also worthwhile asking, “Who’s paying for all this?” As the Daily Progress notes, “Over the past few years, UVa’s School of Engineering & Applied Sciences has been pouring investment into cyber infrastructure.”

In other words, UVa had to make a big investment to get the computer-science program to the point where it could attract the “memory wall” research grant. How big of an investment? The Daily Progress did not think to ask, and UVa apparently did not volunteer a number. Moreover, there is the matter of overhead. Research contracts typically allocate a negotiated percentage of the grant to cover overhead such as lab space, computers, the labor-intensive grant-application apparatus, and general administration. It would be useful to know how much this research grant pays for, and whether it fully covers all costs.

In recent posts, Bacon’s Rebellion has asked to what extend university R&D programs are subsidized by undergraduate tuition. Interestingly, the new Center for Research in Intelligent Storage and Processing in Memory, or CRISP, will fund positions for about 100 Ph.D. students. One might infer from the wording of the press release that the graduate-student positions will be fully funded by outside money. If that inference is correct, perhaps we can likewise assume that graduate student stipends are not being subsidized by undergraduate tuition. But we don’t know for sure until someone asks.

UVa and Virginia’s other research universities are not accustomed to much oversight of their research programs. Research institutions have been free to pursue their dreams of R&D glory by running monies through an accounting black box. Meanwhile, state policy is to foster university research, even to support it with General Fund dollars, in the name of economic development, so no one in state government is asking questions. 

The Daily Progress reporter didn’t ask where the money is coming from, what investments UVa made to reach the point where it qualified for the grant, and what ongoing obligations it might incur that aren’t covered by the grant. That’s no slight on the reporter — until a few months ago, I would have assumed that the grant meant, “Whoopee! Free money!” Indeed, I still don’t pretend to know how the system works. But I am going up the learning curve, and I’ll keep asking questions.

How Critical Is “High Quality” Electric Power?

Among the more influential business groups backing the Grid Transformation and Security Act of 2018 is the Northern Virginia Technology Council. In a Richmond Times-Dispatch op-ed today, President Bobbie Kilberg outlines her reasons for supporting the legislation, which would repeal the electric rate freeze and plow utility over-earnings into modernization of the electric grid.

Kilberg cites several advantages of an upgraded grid, including faster responses to power outages and greater security against cyber sabotage or physical threats. What intrigued me most was this statement: “High-quality power must be available on a 24/7 basis; even minute disruptions can have serious consequences for technology-dependent businesses.”

What does Kilberg mean by “high-quality” power? My primitive understanding is that high-quality power equates to electric current subject to a minimum of voltage fluctuation and micro-interruptions. Electronic equipment is designed to work at a specific voltage, and one of the great challenges of electric utilities is to maintain stability as customers dial their consumption up and down and as power sources kick in and drop off. That challenge will grow as Virginia comes to rely increasingly upon intermittent solar power. The problems appear to be well understood, however, and technology exists to address the problem. It just needs to be installed.

So, here’s my question: Are tech companies more dependent upon high-quality electric power than ordinary businesses that rely upon computers? Are tech enterprises more vulnerable to minute fluctuations in voltage and frequency? What costs are imposed by variations in electric current that might be imperceptible to the rest of us? Finally, if the quality of electric power is an essential input for tech companies, would modernization of Virginia’s electric grid confer a competitive advantage for the Old Dominion? These questions would seem to deserve greater scrutiny.

If the answer is yes, high-quality electricity does confer a competitive advantage in the tech sector, that introduces an important and under-reported consideration into the debate over grid modernization. There may be multiple paths toward the goal of high-quality electricity — the Grid Transformation Act is not the only way to finance upgrades to the electric grid — but whichever approach we choose, it would be useful to gain a keener clearer understanding of the economic-development stakes involved.

The Crisis in African-American Student Indebtedness

The student loan default crisis is bad… and getting worse, finds Judith Scott-Clayton, a Brookings Institution scholar, based on her analysis of the latest student loan data released by the U.S. Department of Education.

Debt and default has reached “crisis” levels among African-Americans, and even a bachelor’s degree is no guarantee of security. Black B.A. graduates default at five times the rate of white B.A. graduates (21 versus 4 percent). Black graduates are even more likely to default than white dropouts.

Trends are most alarming among for-profit colleges, says the report, “The looming student loan crisis is worse than we thought.” The results, Scott-Clayton argues, justify robust efforts to regulate the for-profit sector, improve degree attainment, and promote income-contingent loan repayment options.

Remarkably, the conclusion that I find most obvious eludes Scott-Clayton: Student loans are handed out so indiscriminately, in such disregard to a student’s academic potential or prospects of repayment, that a program designed to promote social mobility for the poor and minorities has exploded like a Loonie Toons cigar. Student loans have become a instrument of immiseration for the very people they were designed to assist.

While the author’s public policy musings are debatable, her presentation of the data is useful. Rather than looking at the entire body of student borrowers, she tracks the fate of different student “entry cohorts” — those who entered postsecondary school in 1996 and and 2004 — and tracked them 12 years and 20 years after entry.

In this chart, we can see what happened to people who entered college in 2004 twelve years later. Despite significant financial assistance for lower-income students available at every four-year college and university, African-Americans racked up more than $21,000 in undergraduate debt on average. Total amount borrowed, which includes graduate school debt, was nearly $56,000. In contrast to other racial/ethnic groups, which managed to pay down some of the debt twelve years after entering college, African-Americans saw average debt loads increase — to $64,000. More than one in five blacks were in default, compared to one in twenty-five whites.

It fascinates me how social scientists such as Scott-Clayton obsess over the black-white differential. As the data clearly shows, Asians have the lowest default rate of any racial/ethnic group. Why aren’t Asians the standard for comparison? Why isn’t the disparity described as an Asian-black disparity and an Asian-white disparity? Because, I suspect, emphasizing the gap between whites and blacks reinforces the “white privilege” narrative, while framing the gap as between Asians and other groups would undermine the narrative. “Asian privilege” just doesn’t have the same ring to it.

One thing seems undeniable, though: There is a student loan crisis among African-Americans. Scott-Clayton does her best to explain this crisis as the fault of for-profit institutions, which, in a narrow sense it is. But her analysis ignores a couple of things. First, there is considerable variability between for-profit institutions. Some are fly-by-night, others do a pretty good job of graduating their students and placing them in jobs. Second, there is considerable variability among non-profit colleges. Historically black colleges and universities have student loan profiles comparable to that of many for-profits.

The real problem runs much deeper. There is a widespread belief in America that everyone has a right to attend college and that the federal government should help make that education accessible by means of student loans. Moreover, there is an assumption that student lending programs should not “discriminate” against students on the basis of academic preparation, family financial resources, or other factors predicting the applicant’s likelihood of graduating and repaying their loans the grounds that blacks and minorities would be negatively impacted.

As these beliefs and assumptions play out in the real world, millions of African-Americans are winding up in financial peonage. As blacks accumulate loans that cannot be discharged, they ruin their credit scores, impair their net worth, ramp up their debt-to-asset ratios, and, as we have seen in a recent post (“Racism, Racism, Everywhere You Look,”), find that their home mortgage loans are rejected at a higher rate than whites.

But some people are incapable of peering past the paradigm of omnipresent racism. So scholars like Scott-Clayton try to frame the issue as for-profit colleges, and investigative reporters compile data purporting to show discrimination in mortgage lending without accounting for credit scores and debt-to-asset ratios. Thus, apologists for the status quo perpetuate policies that entrap African-Americans in poverty.

Grading Virginia at Crossover? Give them an A! 

by Chris Saxman

We are now on Day 38 of the General Assembly and only have 22 more days to go before Sine Die (adjournment) on March 10th. Tuesday of this week marked Crossover when each legislative chamber must have acted on its respective legislation, which is then sent over to the other chamber. House bills go to the Senate and the Senate bills go the House — the legislation “crosses over” to the other side of the Capitol.

If you are a follower of Virginia politics, you probably heard your inner monologue say, “Yes, I know. We do this every year.”

In November of 2014, leaders of Virginia FREE gathered at the University of Virginia’s Miller Center of Public Affairs to examine the “Virginia Way” of governing. We were joined by former governors George Allen and Gerald Baliles who offered us their perspectives on how Virginia should govern itself following the trial and conviction earlier that year of former Governor Bob McDonnell. Baliles was then the Director and CEO of the Miller Center and had flown back the night before from the Clinton Presidential Library in order to participate.

Baliles offered that in order to restore broken trust, we must take the time to identify the real problems while intellectually agreeing on solutions through mutual respect and consensus. We also must work together to help our political leaders govern by example; however, it will take time. While that is not a direct quote, Baliles did quote 19th century British Prime Minister Benjamin Disraeli asking us to “remember the context.”

So let’s “remember the context” of our political reality in this year’s General Assembly and gubernatorial inauguration of Governor Ralph Northam.

The election results of 2017 here in Virginia were, to say the very least, unexpected. Those results followed the unexpected results of the 2016 election. In fact, today marks the 32nd month since Donald Trump announced his campaign for President of the United States on June 16, 2015.

What’s the context then of the 2018 Virginia General Assembly? Consider the timeline first.

2014 – McDonnell conviction
2015 – Trump
2016 – Presidential nominations and elections
2017 – Virginia Governor and House of Delegates elections

Previously, I have shared the Napoleon quote “There is no destiny, only politics.” Now, allow me to insert into your consideration a quote from journalist Andrew Breitbart “Politics is downstream from culture.”

So what’s the context? Disruption. Massive disruption. Not simply change. Disruption.

Disruption – noun. disturbance or problems that interrupt an event, activity, or process.

Our culture and economy have been disrupted. Naturally our political disruption then follows since we are a republican democracy in which we elect people to represent us. Elected officials reflect us.

Enter the 2018 General Assembly and newly inaugurated Governor Ralph Northam. New delegates (a lot of them – 19), a new executive branch, and a not so new building in which to work.

Chaos, right?

NO! Not at all. In fact, there is relative calm and a high level of productivity.

Amid all the disruption and potential for chaos, the ship of state is, so far, weathering the storm.

But why?

Well, it just doesn’t happen.

Speaker Vance Wilkins and I were walking across the varsity baseball field of Riverheads High School in the spring of 2002 following an event he had initiated for the nearby elementary school. It was a thrilling event for this old history and government teacher as scores of students and teachers were learning about American government. I said, “Mr. Speaker, that was awesome!” Wilkins never broke stride as we walked replying, “Thanks. You know, nothing happens without leadership.”

So what’s happening so far in Richmond?  Continue reading

The Accounting Games Universities Play

Slowly but surely penetrating the black box of higher-ed accounting

I have received correspondence from a professor, who prefers to remain unnamed and is employed at a Virginia university s/he prefers not to identify, regarding how colleges and universities account for the funding sources for research. Thinking that his/her observations would shed light on yesterday’s blog posts on the same subject, I publish them here.

At [University X], and most other institutions, the “source” of [research] funding is mostly a matter of labeling.

Faculty member Y is paid $100,000. At [University X], the “standard” teaching load is 12 semester hours per semester. Hardly any tenured or tenure-line faculty member actually teaches 12 hours, however. If I teach only 9 hours, then I am considered to have one-quarter of my time assigned to research and scholarly productivity. Hence, tote up $25,000 of my salary for research support. I suspect, but don’t know, that much of Virginia Tech’s huge institutional contribution comes from this sleight of hand. Wherever this occurs, if you do it for 1,000 faculty members, then the numbers add up.

Why play this game?  To make the research numbers look larger when [the National Science Foundation] and similar organizations report research rankings. Prestige. It’s analogous to reporting SAT scores, but leaving out a segment of the freshmen class (which several institutions in Virginia regularly find innovative ways to do).  The end result is that the data don’t really say what casual readers think they say.

There is partial legitimacy to this potential legerdemain if faculty actually are doing reputable things and one can see firm output. The practice breaks down, however, when one is dealing with a professor who really isn’t doing much of consequence, but is protected by colleagues who aver that he is working on something of long-range importance that eventually, surely will bear fruit, or they exaggerate the importance of this professor’s occasional contributions, or they protect him by including him as a co-author on a piece every now and then.  “He” obviously also could be “she” in these examples.

There is the additional ticklish issue of whether another article on Milton’s Paradise Lost really should be considered to have the same significance as pieces dealing with, say, cybersecurity, cancer, or drones. Should such disparate contributions really be equated by placing their released time dollar values in the same financial column?

More questions. Let us recall that Virginia Tech reported $219 million in research from “institutional” sources of funding in fiscal 2016. Where did those institutional funds come from? I speculated that they might originate from tuition, state support, or endowments. But my professorial friend from University X suggests that the funds really reflect the contribution of professors’ labor spent on research.

That raises a new set of questions. In just six years, Virginia Tech saw a $123 million surge in such “funding,” an increase of nearly 130%. Was the increase real or an accounting fiction? If it was real, it suggests a massive shift in the time that professors spent teaching to time spent “researching.” It also calls into question the seemingly impressive increase in R&D, which was coincidentally almost exactly the same amount: $124 million. Was Virginia Tech research activity truly booming over those six years, or did it flat-line? I suspect that Tech board members would like to know the answer to both questions.

One more point: My correspondent’s insight explains the mechanism by which undergraduate tuition and state support subsidizes research. Tuition and state support pay professors’ salaries and fringe benefits. A percentage of that compensation, reflecting professors’ time, is shifted from instruction to research. Over the years, it appears, an increasing share of faculty time is dedicated to less to instruction of the people paying the bills and more to research.

As I have said on many occasions, we cannot begin to understand the affordability crisis in higher education without deciphering higher-ed accounting and tracking the right metrics. Faculty productivity and the allocation of faculty time, we now know, is one of those metrics.

Teaching Race at UVA

Incoming! … Duck, T.J.!!

Ever wonder where the University of Virginia’s research dollars are going? Here’s one new initiative: “Teaching Race at UVA.”

The following missive was distributed to UVa faculty by Provost Thomas C. Katsouleas and Vice Provost for Faculty Affairs Kerry Abrams:

Faculty from all schools and departments at UVA are invited to participate in the first cohort of a faculty development seminar called “Teaching Race at UVA.” The seminar, sponsored by the Office of the Provost, will provide UVA faculty with an in-depth understanding of the history of race at UVA, in Charlottesville, and in the context of Virginia and the United States more broadly. The goal of this initiative is to equip a cohort of faculty from across UVA to be able to teach in their disciplines effectively in relation to the history and present reality of race and racism both locally and nationally.

All participants will receive $3,000 in research funds, with an additional $1,000 available to those who turn in revised syllabi that incorporate seminar content. These additional funds can be used to support site visits, guest speakers, research projects, or other aspects of the newly developed course. Please see the Call for Applications for more details about the program and for information about how to apply to participate.

The UVa website provides more details about the seminar itself:

All participants will be expected to incorporate at least part of the seminar content into an existing or new course.

The seminar will include the historical periods of early colonial Virginia, the founding of UVA, the history of enslaved laborers here and regionally, Emancipation, Reconstruction and Jim Crow, the Civil Rights movement, and struggles for justice and equity by African Americans at UVA and in Charlottesville. We will connect historical events and struggles with contemporary concerns such as health, educational, and economic disparities, as well as white supremacist discourse and actions and present efforts toward justice and equity. Sessions will include a combination of site visits, presentations by subject matter experts, and discussions with colleagues.

Hmmm… Am I wrong to assume that the only non-politically correct points of view to be presented will be those of white supremacists? Will views of mainstream conservatives and libertarians be explored?

Perhaps I’m reading too much into this, but this initiative looks like an effort to inject a social-justice-warrior perspective into a broad cross-section of courses that have nothing to do with race and race relations. I can think of nothing more damaging to the university than this. If the incoming administration wants to alienate a large swath of its alumni base and friends in the legislature, this is just the ticket.

I desperately hope my fears are unfounded. I will endeavor to find out more from UVa.

(Hat tip: Steve Haner)

Update: UVa spokesman Wesley Hester provided the following response to my questions regarding who would teach the courses, how much the initiative would cost, and whether journalists could attend the seminars:

The seminars are offered as part of UVA’s faculty development programming and will be taught by UVA faculty members and other subject matter experts, primarily scholars of history. The faculty members will offer historical perspectives on race and encourage open dialogue among the seminar participants. The Provost’s Office has not set a total budget yet as planning is ongoing. At this time, we are anticipating seven seminar sessions that range from three hours to half a day in length.

More details about the seminars will be announced as faculty proposals are reviewed and plans are finalized.

Racism, Racism Everywhere You Look

Pseudo-data alleging racial disparities in mortgage lending in Hampton Roads.

The Center for Investigative Reporting has published an in-depth analysis of lending data showing that African-Americans have been denied home loans at a significantly higher rate than whites in 48 out of the 61 metropolitan areas examined. The Virginian-Pilot picked up that research and published an article yesterday stating that African-American homebuyers in Hampton Roads were more than twice as likely than whites to have loans denied.

It just goes to show, if you look for racism hard enough, you’ll find it anywhere and everywhere.

Let’s take two theoretical findings. Let’s say six percent of whites have their loans denied, and 18% of blacks have their loans denied. That means blacks are three times more likely to be denied a mortgage! Now, let’s say that 94% of whites have their loans accepted, and 82% of blacks have their loans accepted. That means whites are only 14% more likely to qualify for a mortgage.

Which one sounds more racist to you? The first statement, right? Of course, the two statements are based on exactly the same data. It’s just that one is framed to make lending patterns look more racist and the other framed to appear the opposite. Which way did the Virginian-Pilot and Center for Investigative Reporting choose to present the data? The way that framed mortgage lending as racist.

Likewise, the investigative report emphasized that racial discrepancies were found in 48 metros, largely overlooking the fact that none were found in 13. Who would be interested in running a headline, “No Sign of Racism in Twenty Percent of American Cities”?

But the problems in the analysis run far deeper. The data is inherently flawed and useless.

The intrepid investigators describe how they adopted a “binary logistic regression” methodology that assesses the relationship between multiple independent variables against a single binary input (whether or not a mortgage was denied). Then it looked at nine different variables:

  • Race/ethnicity
  • Sex
  • Whether or not there was a co-applicant
  • Applicant’s income
  • Loan amount
  • Ratio between loan amount and applicant’s income
  • Ratio between median income of the census tract and median income of the metro area
  • Racial and ethnic breakdown by percentage for each census tract
  • Regulating agency of the lending institution

The authors do concede that they leave out two important variables — credit scores and debt-to-income ratios — because the data is unavailable. However, those are the two of the most important variables of all! If someone has a lousy credit score, regardless of their income or income-to-mortgage ratio, lenders are less likely to finance a mortgage. If someone is loaded up with credit-card debt, student loan debt, or auto loan debt, those other obligations will figure rightly  into a bank’s calculations.

The Center for Investigative Reporting notes in its article that, according to U.S. Census Bureau data, the median net worth of African-American families is $9,000, while the median net worth for whites is $132,000. That’s a real disparity, and it’s based on complex historical reasons arising from the legacy of slavery, Jim Crow, and the Great Society. But racially blind lending algorithms look at credit scores, net worth, and debt obligations — not the historical reasons behind them.

In sum, running a binary logistic regression without including the most critical lending variables is a worthless exercise, and making broad indictments of the mortgage banking industry on the basis of such worthless findings is reckless. Race relations are frayed enough as it is, and the last thing the country needs is another “study” alleging discrimination where it does not exist, and engendering resentment that is unwarranted. It’s bad enough that Russian bots are spreading fake news to intensify racial animosity. We don’t need journalists feeding the fire.

Like the boy who cries wolf, such studies deeply damage the credibility of those who issue the alarms. One is tempted to assume that the methodology of every study showing institutional racism is just as shoddy and the ideological biases of the authors are just as blatant. There is a danger that many people will ignore instances in which claims of racism actually are justified.

If a properly conducted study adjusted for credit scores, net worth and indebtedness, who knows, it might show that residual racism still exists. But after enough studies like this, millions of Americans would slough it off as more noise from social justice warriors passing themselves off as journalists.

Economic Development Requires Grid Transformation

by Todd P. Haymore

Building a more diversified economy and regaining Virginia’s status as best for business were the overarching goals during my time as Secretary of Commerce & Trade under Gov. Terry McAuliffe’s administration.

Working in partnership with hundreds of companies, the General Assembly, regional entities, and colleagues in federal, state, and local governments, we were successful in our efforts to build a new Virginia economy, one less reliant on federal spending and more focused on private sector investment.

I have great confidence the momentum of the last four years will continue under Gov. Ralph Northam.

One way to help keep the positive results going is for state lawmakers to take steps needed to invest in the infrastructure of tomorrow. The Grid Transformation & Security Act of 2018 is an opportunity to address one of the state’s key economic building blocks and ensure we are best positioned for future investment, job creation, and prosperity.

Supported by state legislators on both sides of the aisle, this comprehensive energy policy package ensures a continued supply of clean, reliable, and affordable electricity from Dominion Energy and Appalachian Power for powering modern businesses.

Stakeholder input, which began last year, has continued during the current legislative session to ensure the proposal balances these needs with consumer protections and regulatory oversight. This work has led to greater immediate savings for customers, more opportunities for refunds and rate cuts, and an increase in State Corporation Commission reviews. The recent changes have been incorporated into both the House and Senate versions of the bill.

During my time in Gov. McAuliffe’s cabinet, we worked hard to keep Virginia at the forefront. We traveled the globe to open new markets to Virginia’s products and attract foreign direct investment. We promoted tourism, lured new employers, and supported existing businesses, which generated approximately 70 percent of the more than 200,000 jobs created from 2014-2018. The results included a record $20 billion in new capital investment, a drop in the unemployment rate from 5.4 to 3.7 percent, and significant increases in exports and tourism spending. Forbes, CNBC, and Site Selection magazine recognized the Commonwealth with top ten rankings for business climate.

Make no mistake about it, the affordability and reliability of energy is a key component of the site selection process.

Unfortunately, Virginia’s electric infrastructure is no longer keeping up with the pace of modern business innovation. Originally designed to take electricity one-way, from the power plant to your home, it wasn’t built to accommodate private solar generation from rooftop panels or spikes in demand from electric vehicle chargers.

As new technology emerges, so have the accompanying threats, which have been foisted upon our aging electric infrastructure. Cyber and physical threats are growing more complex, and frequent. Using secure communications networks and devices along with hardening for circuits and substations gives energy companies the ability to know with greater accuracy what is impacting their system.

With the influx of renewable energy sources in Virginia, come challenges we have never faced, or even imagined. A modern, or smart, grid would make it easier to continue the exponential growth of renewable energy needed to meet the clean energy demands of high-tech firms and continue to shrink the carbon footprint of residential customers.

The regulatory framework also needs to evolve. Policy experts, lawmakers, and stakeholders are working to redefine the current structure to ensure utilities can undertake a project of this scope without hiking rates on customers.

The Grid Transformation & Security Act allows investments to modernize the grid and expand the Commonwealth’s use of renewable energy primarily through existing rates. And it provides customers with bill credits, rate reductions due, and elimination of existing surcharges.

In short, I believe lawmakers want to ensure the costs of this transformation will not result in higher rates which would impact residential customers and hinder economic development. Indeed, transforming the grid is a necessary step to pave the way for the continued growth of a new Virginia economy.

If the General Assembly doesn’t act, others will overtake us and gain an upper-hand in retaining and recruiting businesses and the thousands of jobs that accompany them. Virginia can’t let this happen if we want to continue building a more diversified economy, and regain our title as the best state for business.

Todd P. Haymore served as Virginia’s secretary of commerce and trade under Governor Terry McAuliffe from 2016 – 2018. Prior to that, he served as Virginia’s secretary of agriculture and forestry under Gov. McDonnell and Gov. McAuliffe from 2010 – 2016.

When Virginia Universities Fund their Own Research, Where Does the Money Come From?

In the previous blog post, Reed Fawell makes the argument that America’s research universities are subsidizing their R&D programs to the tune of some $18 billion a year. The subsidies, which are especially high among public universities, contribute significantly to cost pressures that drive up undergraduate tuition. There is significant variability among universities and higher-ed systems in the fifty states, however. Does the national trend that Reed describes apply to Virginia?

Examine the table below. It breaks down sources of 2016 R&D spending for Virginia’s six leading research universities as well as the total for all U.S. universities. The column headed “institution” covers funding from university sources — tuition, state support, endowments, and the like. All told, Virginia’s six research universities contributed $478 million toward $1.39 billion in R&D. 

How does that contribution compare to the national average for all universities? The following table tells the tale.

The average “institution” contribution for all U.S. universities is 25% of the total raised for research. Virginia Tech, George Mason University, the College of William & Mary (primarily the Virginia Institute of Marine Science), and Old Dominion University all exceeded the national average by wide margins. The University of Virginia and Virginia Commonwealth University fell short of the national average by small margins. In other words, Reed’s critique does apply to Virginia higher-ed institutions.

Furthermore, his argument that research funded by the universities themselves has increased in recent years applies to Virginia institutions as well. This table compares research funding from all sources (“total”) to funding paid with university resources in 2010 and 2016, a period which saw a surge in institutional funding nationally.

The raw numbers aren’t as meaningful as the change in the numbers. In the following table we see the increases in total funding and institutional funding, both in absolute dollars and expressed as a percentage.

Here the variability between individual institutions is evident. Between 2010 and 2016, ODU slashed its institutional support for R&D by $33 million, or 53%. Not surprisingly, total R&D funding declined by a similar amount, $27 million. William & Mary increased its institutional support modestly, by $1.2 million, or $6.3%, and its total R&D funding increase was likewise modest.

By contrast, Virginia Tech pumped $123 million additional institutional dollars into its research program in just four years, while UVa upped its ante by $69 million, VCU by $27 million, and GMU by $24 million.

Unfortunately, the National Science Foundation doesn’t tell us where these so-called “institution” dollars come from. Tuition increases? State aid? Gifts and endowment? Some other source entirely? We don’t know. If the institutional dollars came from gifts and endowments, students and taxpayers have little cause to complain. If the dollars came from state support or undergraduate tuition, it’s a very different story. But the NSF data is not granular enough to allow us to confirm Reed’s hypothesis — that undergraduate tuition is subsidizing research — for specific universities.

To do that, we need to dig deeper. While the universities do publish a lot more data than the NSF does, the data does not necessarily answer the questions we are asking. I’ll poke around and see what I can come up with.