Author Archives: James A. Bacon

What’s Driving up the Cost of Attendance at Virginia Colleges?

Source: 2017 State of the Commonwealth Report

In the 2017 State of the Commonwealth Report, authors Robert M. McNabb and James V. Koch address the perennial question of why the price of higher education is increasing so much faster than everything else. While acknowledging that stagnant state financial support for the higher-ed system has played a contributing role, they insist that’s only part of the story.

As evidence, they proffer the graph seen above. The red line tracks the increase in the Consumer Price Index (CPI). The green line shows the cost of room & board, which relies on charges to students, with no contribution from the state at all. That cost has risen consistently over twenty years at about twice the rate as the CPI. The orange line shows mandatory student fees, which also receives no state funding. That cost has risen about three times the increase in the CPI. Together, the two categories account for roughly half the expense of attending college.

Tuition, the blue dotted line, rises at a rate somewhat faster than room and board. That’s the only piece influenced by the level of state aid. What factors other than state support might influence the cost of tuition? McNabb and Koch offer several in this list of factors driving up the overall cost of attendance (including tuition, fees, room and board), which I replicate here almost verbatim:

  • Institutional concern with national rankings is epitomized by U.S. News & World-Report rankings. Fixation on rankings can lead to decisions divorced from the needs of taxpayers, students and families.
  • Amenities competition stimulates institutions to offer such things as recreational spas and climbing walls as well as upscale (and expensive) food services.
  • Institutions often construct new, spacious buildings even though it is costly to maintain this space, and utilization of existing space is surprisingly low. A 2014 study by the State Council of Higher Education for Virginia (SCHEV) disclosed that no residential four-year campus in the Commonwealth of Virginia utilized its classrooms more than 76 percent of reasonably available hours, and three campuses ranged below 60 percent usage. Parenthetically, it is not clear that adding significant new space is an intelligent public policy when internet-based instruction is expanding and head count enrollments are declining. Modernization and rehabilitation of existing space may make more sense and be less expensive.
  • Institutions increasingly assess mandatory fees to support items ranging from student centers to athletic teams. In 2016-17, eight Virginia four-year public institutions charged their full-time undergraduate students athletic fees of $1,538 or more. Consider Christopher Newport’s $1,886 annual fee. This corresponds to a charge of $188.60 per three-hour undergraduate course. Doubtless, CNU’s Captains are well regarded, but they also are expensive, and students bear a substantial portion of that cost.
  • The growth of institutional room and board charges at most Virginia institutions easily has exceeded the growth of the consumer price index. First-rate residence halls and excellent food are pleasing, but costly.
  • Administrative proliferation (as measured by the number of administrators per faculty member or student) exists on most campuses. Further, these administrators tend to be paid well.
  • Institutions have reduced the proportion of their budgets they spend on instruction.
  • Disproportionate growth in spending on employee fringe benefits (which sometimes have substituted for pay raises during difficult years) has pushed tuition and fees upward.
  • Federal government financial aid policies are based upon institutional costs. Hence, when institutional costs increase, the “feds” supply more money.
  • Institutions are reluctant to take advantage of new teaching and learning technologies, flipped classrooms and other innovations that have the potential to scale higher education.
  • Institutions are disinclined to share resources with other institutions, even in low-enrollment areas such as foreign languages and literatures.
  • Institutions are averse to pricing the resources they use internally, such as space, and this leads to suboptimal behavior and hoarding.
  • Institutional mission creep has propelled many institutions into offering new, low-enrollment programs, often at the graduates level.
  • Faculty productivity, as measured by faculty credit hours generated, has declined on most campuses.
  • Subsidies from undergraduate students often are required to support faculty research activity and this is true even in cases where the research also is supported by outside grants.

While the influence of these factors varies widely from institution to institution in Virginia, the authors acknowledge, “collectively, these are among the primary reasons why tuition and fee increases at Virginia’s public colleges and universities not only have vastly exceeded the growth in the consumer price index and median household income, but also why they have been substantially higher than the national average.”

Bacon’s bottom line: While I agree with the thrust of the McNabb-Koch analysis, I would be more circumspect in concluding that the factors listed above are “the primary reasons” for tuition and fee increases. In many cases, we just don’t have the data to say one way or the other. Despite that reservation, I think the list provides several fruitful lines of inquiry, and I suspect that the data would prove the authors correct in many instances.

Space utilization. To what extent, for example, is space underutilized on Virginia campuses? Every institution provides a different story. When Norfolk State University saw its enrollment plummet several years ago, for example, its space utilization went down as well. Utilization should improve as enrollment rebounds. Elsewhere, research universities cite the need for new buildings outfitted with specialized laboratories or other features to pursue advanced scientific and engineering disciplines, even if it means leaving former space underutilized. Thus, there may be legitimate explanations for temporarily low space utilization. However, I would agree that every college or university president should include in his or her dashboard of institutional performance a metric showing the utilization rate for individual buildings and campus-wide.

Low-enrollment programs. How many universities maintain low-enrollment programs? Which departments are fully enrolled? Which are under-enrolled? If I were a university board member, I would like to see a faculty-to-enrollee ratio for every department. If a department had persistently low enrollment, perhaps it should receive fewer resources — or perhaps it could compensate by pursuing more online enrollment. Do university presidents even collect that data?

Faculty productivity. My sense is that faculty productivity has declined over time, especially for tenure-track faculty members who are subject to the publish-or-perish dictum. What is the relative teaching load for full professors, associate professors, assistant professors, instructors, and graduate institutions? How many courses do they teach — and how many students are enrolled in those courses? This data should be readily available, and there is no excuse for institutions not compiling and publishing it.

McNabb and Koch are both industry insiders — Koch is former president of Old Dominion University. As long-time participants in the academic enterprise, they know how higher-ed works. They have tremendous credibility. Let’s hope that Virginia’s political class is paying attention.

Virginia: 31st in Tax Climate

Source: The Tax Foundation

Just a reminder: Virginia is not a low-tax state. According to the Tax Foundation’s 2018 ranking of state business tax climate, Virginia scored 31st. While the Old Dominion scores pretty well for corporate taxes and sales taxes, it flunks the grade for individual taxes and unemployment insurance taxes.

Here are the category rankings:

Overall rank: 31
Corporate taxes: 6
Individual taxes: 40
Sales taxes: 10
Property taxes: 31
Unemployment insurance taxes: 41

If you are taxaphobic, the best states in the country are Wyoming, South Dakota, Alaska, and Florida. The worst: New Jersey, New York, California, Vermont, and Minnesota.

On the positive side, higher taxes pay for higher levels of services and amenities such as schools, higher-ed, public safety, roads, mass transit, Medicaid, and social services. On the negative side, you don’t always get what you pay for. In many states, public employee unions have captured a big share of tax revenue, and lots of the money has been spent to little effect. Tax-paying citizens continue to vote with their feet, leaving high-tax states and seeking opportunity in lower-tax states.

The High Cost and Social Inequality of Higher Ed in Virginia

Source: 2017 State of the Commonwealth Report

Everyone knows that the cost of attending college in Virginia has soared in recent years, even as family incomes have stagnated. A good way to visualize the divergence between cost and affordability is to calculate the number of hours it takes for a family earning the Virginia median hourly wage to pay for a year of average tuition & fees. That’s exactly what Paul M. McNabb and James V. Koch have done in their 2017 State of the Commonwealth Report. The results can be seen in the chart above. The number of working hours required to attend a four-year college has increased 82% since the 2001-02 academic year, while the number for a two-year college has increased 67%. (These numbers don’t include room, board, textbooks and other miscellaneous costs.)

Higher education is the most inflationary sector of the U.S. economy, with cost increases outpacing that of the inflation-prone housing and healthcare sectors. In their analysis of Virginia’s higher-education system McNabb and Koch explain the causes of runaway tuition increases and explore the impact on Virginians. (Note: Koch, a former president of Old Dominion University, serves on the board of Partners 4 Affordable Excellence @ EDU, a sponsor of this blog.)

The question naturally arises whether Virginia’s colleges and universities are pricing state residents out of higher education. Pointing to the declining head count in the state’s public institutions — nearly 6% between the 2011-12 school year and the 2016-17 year — the authors say yes. “Simply put, increasing numbers of students have decided that our public colleges have become too expensive compared to the benefits they generate in return.”

The sticker price of college tuition & fees is not the same as the actual price that many students pay. The federal government dispenses Pell grants to low-income students, the state operates its own financial-aid program, and higher-ed institutions themselves extend financial aid. Consequently, the net price paid by students often is considerably lower than the advertised price.

Colleges and universities raise much of the money for financial aid by raising the sticker price that students from affluent families pay. In effect, the authors write, “the pricing policies of most colleges and universities today … administer a collegiate version of a steeply progressive income tax, taking from the more wealthy and giving to the less wealthy by means of the net prices each group pays.”

Despite their redistributionist tuition policies, universities remain economically and socially stratified. While some of Virginia’s elite public universities do offer steep discounts to low-income students, high admission standards mean that, as a practical matter, only a small number make it in.

If the denizens of the bottom 60 percent of the income distribution can be fashioned as “common people,” then one might say that at least five Virginia public institutions (University of Virginia, William & Mary, Virginia Tech, University of Mary Washington, and Christopher Newport University) have relatively few common people in their undergraduate student bodies.

Source: 2017 State of the Commonwealth Report

McNabb and Koch raise the question of whether the General Assembly should financially support colleges and universities whose pricing policies imitate that of private universities.

Is it appropriate for the citizenry to subsidize institutions that increase social and economic inequality rather than provide the traditional ladders of opportunity that diminish differences?

Tough question. Virginia’s elite universities are unlikely to change their policies. Programs designed to increase the presence of lower-income students at the elite institutions might endanger their coveted Top 25 rankings if they eroded SAT score, ACT scores and on-time graduation rates.

Rare is the president of a top-ranked institution who wants to preside over a noticeable decline in his or her institution’s rankings. What member of an institution’s board of visitors will brag about the lower national ranking that came about because more Pell Grant recipients were admitted?

The authors point to the University of California system as an alternative model that Virginia might emulate. At the University of California at Berkeley, for example, 30% of undergraduates were Pell Grant recipients in 2015-16, while at UCLA the number was 35%.

But Virginia institutions are moving the opposite direction. At least a half-dozen Virginia public four-year institutions appear to have pursued policies that had the effect of restricting access of lower-income Virginians, say McNabb and Koch. “Is this a trend that the citizenry should support? We do not have the answer to this question, but it is easy to observe that what is perceived to be good for an individual institution’s national rankings may not be synonymous with what is good for Virginians.”

Bacon’s bottom line: That’s where the authors leave it. They don’t carry their thinking to its logical conclusion: that Virginia should cut off state funding and turn its elite public universities loose, letting them be free to be what they want to be — like, say, Duke or Dartmouth — and then redistribute state funds to institutions that appeal to a broader cross-section of the population.

I’m not sure how I stand on the issue, but I do see the logic.

What College Presidents Measure and Manage

Among the data sets tracked by University of Mary Washington President Troy Paino are metrics for college seniors who participate in high-impact experiences such as service learning and faculty research. Source: University of Mary Washington

One of my goals in covering Virginia’s higher education system is to understand how colleges and universities operate as business enterprises. What are the key variables that drive revenue, costs, the quality of the educational product, and the ability of institutions to carry out their missions? As the old business saying goes, “You manage what you measure.” If we as Virginia citizens and taxpayers want to understand how college/university presidents manage their enterprises, we need to know what they measure.

When I interviewed University of Mary Washington President Troy Traino two weeks ago for the profile I published yesterday, we chatted about the metrics of his business. Traino described himself a data-driven administrator. When he first came on board last year, he could not easily lay hands on all the numbers he thought was important, he says. But he’s got a handle on the situation now, and he maintains a dashboard of institutional effectiveness that measures UMW’s progress towards its goals.

The November 2017 dashboard, which he distributed to the UMW Board of Visitors, contains 33 charts encompassing topics such as:

  • Fall headcount
  • Admissions data (applications, acceptances, enrollments)
  • Average SAT scores and high school GPAs
  • In-state vs. out-of-state enrollments, on-campus vs. off-campus residency
  • Demographics such as gender, ethnicity, geography, Pell grants, 1st-generation status
  • Graduation rates, retention rates
  • Participation in high-impact practices such as faculty research, service learning, internships, study abroad
  • Satisfaction levels, alumni salaries
  • Student debt profiles, loan default rates
  • University debt levels, cash balances
  • State General Fund support for the institution, per student
  • Net tuition (revenue minus institutionally provided finance aid)
  • Instructional cost per FTE student and per credit hour
  • Endowment size, annual gifts and pledges

For a small liberal arts university, it seems like a pretty comprehensive list. However, I would note that there are a few things that the dashboard does not measure — faculty and staff headcount, faculty-to-student ratios, staff-to-student ratios, average class sizes, faculty and staff compensation, and comparisons with peer institutions, among other productivity metrics. (And that’s just off the top of my head.)

While Paino’s dashboard does not provide all the data that I would like to see, were I on UMW’s Board of Visitors, it encapsulates more crucial information in one document than I have found for any other Virginia university. That’s not to say that other presidents don’t have similar dashboards, just that I haven’t seen them. As I come across others, I will share them with Bacon’s Rebellion readers.

Regardless, Paino deserves credit (a) for collecting the data, and (b) for sharing it with the BoV and the public. I’d like to see that best practice implemented across Virginia’s higher-ed system.

The Airbnb Dilemma: Regulate or Not?

Revenue growth in the rental of dwellings in Virginia through Airbnb has outstripped the rental of single rooms. Source: “2017 State of the Commonwealth Report”

Airbnb, the website that allows homeowners to rent rooms and houses for short periods, no longer occupies an obscure niche in the Virginia lodging marketplace. The company is capturing a disproportionate share of growth in lodging industry rooms and revenues, and it depresses the ability of hotels to raise rates during periods of peak demand, concludes the “2017 State of the Commonwealth Report.”

The number of Virginia listings has surged from just over 2,000 in October 2014 to 10,400 in October 2017. Total revenue has increased over the same period from $1.52 million to $17.4 million. Airbnb share of the lodging market rose from less than a half percent to nearly 4.7%.

“While the Airbnb rental sector may be smaller than the traditional lodging sector, Airbnb is a rising competitor,” write Robert M. McNabb and James V. Koch, the lead authors of the report.

The image most people have of Airbnb participants is of homeowners renting out a spare room for pin money. But the data suggest that it’s becoming an increasingly big business in which property owners are renting entire dwellings. While private room revenues increased sixfold over the three-year period studied, the rental of entire places increased thirteenfold, as seen in the chart above.

That reality has implications for how Airbnb should be regulated. Whole-house oceanfront rentals in Virginia Beach have generated numerous complaints regarding unruly behavior, illegal parking, and trash. The lodging industry has argued that Airbnb rentals should be taxed on the same basis and should meet the same regulatory standards as hotels and motels are.

McNabb and Koch are sympathetic to Airbnb to a degree.

It is not the job of government to protect existing firms and industries from new, more efficient or more attractive competitors that would serve consumers better and do so at lower prices. … Enabling citizen consumers to spend their dollars where they wish is a welfare-maximizing stance for government to adopt. … As a rule, challenging competing firms to meet “the market test” — that is offer goods and services at prices and levels of quality that are attractive consumers… — not only is an equitable approach that treats all citizens and firms the same, but also generates the best overall results for the citizenry.

However, they add an important caveat: Government should not intervene as long as the use of Airbnb “does not generate undesirable side effects such as pollution, noise, traffic congestion, crime, unsanitary conditions that impact the public health, and the like.”

While some Airbnb hosts have consciously evaded city regulations and taxes, it does not necessarily follow that localities should devote substantial resources to cracking down on them. Single-room hosts account for a small percentage of rooms, revenues and taxes, and they are rarely the source of behavioral problems. They go in and out of the market, and they’re difficult to identify and force to comply. The payoff for local governments is low.

Cities would do better to devote scarce enforcement sources going after Airbnb hosts offering their entire place for rent. “Plainly speaking, this is where the revenue is and evidence suggests that any behavioral problems that Airbnb generates are concentrated among these properties as well.”

Meanwhile, the authors advise hotels operators to re-evaluate their pricing and quality strategies. “Airbnb and similar rental hosting firms are not going to go away.”

The Economic Cost of Virginia’s Opioid Epidemic

Source: “2017 State of the Commonwealth” report

The rate of drug overdose-related deaths is lower than Virginia than it is in the United States as a whole — 16.5 deaths per 100,000 compared to 19.8 nationally — but that is about the only morsel of consolation that can be derived from a special focus on the opioid crisis in the 2017 State of the Commonwealth Report.

The number of opioid deaths in Virginia was relatively stable between 2007 and 2010, after which it began climbing sharply as the epidemic spread, reaching 1,138 in 2016. Aside from the personal tragedies of overdose victims and their families, the economic cost has snowballed as state and local governments has spent more on emergency response and substance abuse treatment, and as drug addicts have dropped out of the workforce.

“The consensus is that opioid addiction causes individuals to drop out of the labor force by making them less ambitious, more lackadaisical and even unresponsive to ordinary labor market incentives,” states the report, written by Robert M. McNabb and James V. Koch with the Center for Economic Analysis and Policy at Old Dominion University.

Labor force participation in the U.S. has been on decline for many years, reaching a 40-year low in May 2015. As of Sept. 2016, 11.4 million men between the ages of 25 and 54 were not working or seeking work. Forty-four percent of men not in the labor force were taking painkillers daily; by contrast only 20% of working men and 19% of unemployment men took painkillers. A Federal Reserve Bank of Boston-sponsored study estimated that 20% of the decline in labor force participation could be attributed to opioid use and abuse.

What is the cost of such behavior to the Virginia economy? This is not easy to measure. If, however, labor force participation rate data in Virginia have declined 3 percent due to opioid addiction, then the Commonwealth has experienced between $4.5 billion and $7.6 billion in lost productivity. To put it another way, the lost productivity is at least equal to 1 percent of the Commonwealth’s gross domestic product for 2017 and may be as high as 1.6 percent.

In addition, in 2008, untreated substance abuse resulted in $613 million in public safety expenditures (police, jail, prison) and health car services by local and regional governmental units, according to a Joint Legislative Audit and Review Commission (JLARC) study. In 2010, the average hospital stay for drug abuse patients was 3.8 days, and the treatment cost was almost $30,000. “No doubt these numbers are higher today,” the authors write.

What is to be done? While the opioid epidemic has become a top-of-mind, national issue, some physicians are insufficiently trained in how to prescribe opioids while managing chronic patient pain. “Both physician and pharmacy education are in order.” McNabb and Koch also recommend researching nonaddictive painkillers, creating a national prescription registry to catch abusers who obtain multiple prescriptions from multiple physicians, and funding the use of methadone to wean users from their addiction and naxalone to reverse the effects of overdoses.

But there are no magic solutions. “Opiate misuse and abuse ultimately reflect our society — the values attitudes, laws, geography and range of economic opportunities that together make us who we are. Hence, one cannot press a single button and eliminate the scourge of opiate addiction because this wave of abuse represents the conjunction of a set of complex phenomena deep within us.”

No Paino, No Gaino

Troy Paino

The University of Mary Washington had endured ten tough years when it hired Troy Paino in 2016. The new president is working to restore its competitive stature among public Virginia colleges.

Between its founding in 1908 and 2006 almost a century later, the University of Mary Washington (UMW) had only six university presidents. In the decade following, it suffered extraordinary churn at the top. One president had a drinking problem, one had a falling out with the board, and one, a senior administrator, stepped in twice, first as an interim president and then as a permanent one until he retired. The turnover, which coincided with the 2007-2008 recession, did not work out well for the Fredericksburg-based liberal arts college.

While more students applied to UMW in the 2016-17 academic year than ever before, the university also accepted a higher percentage of applicants — a sign of waning selectivity — to offset the declining percentage of those who, once accepted, actually enrolled. Out-of-state enrollment plummeted to a fifth of the 2000 peak, costing the university almost $9 million a year in lucrative out-of-state tuition payments. Also discouraging: The graduation rate slipped three percentage points over the decade, even while it improved at most other state public universities. All these numbers trended negative, even as UMW borrowed heavily to renovate dormitories and install amenities needed to stay competitive with peer institutions such as James Madison University (JMU) and Christopher Newport University (CNU).

That was the situation facing Troy Paino when he gave up his job as president of Truman State University, a public, liberal arts institution in Missouri, to take the top spot at UMW. Sixteen months after taking the helm, early indicators suggest that the university has turned the corner. Selectivity metrics have ticked back up, and so has out-of-state enrollment. Perhaps most important, UMW has honed its niche among public Virginia institutions as the university that puts the “liberal” in liberal arts, cultivating a “culture of acceptance” and a commitment to service.

Paino invited me to his office to discuss a blog post I wrote last month examining the college admissions data. I had speculated that the low yield rate — the ratio of students accepted to the university who chose to enroll — was evidence that the university was running into price resistance from students and parents. To the contrary, Paino says, the tuition hikes of the previous decade had been moderate, and UMW, far from scraping against the upper limits of what it can charge in tuition, has considerable leeway to charge more should it wish — which it doesn’t. But that doesn’t mean the university doesn’t face big challenges.

“We’re in a very competitive market,” Paino says. When aspiring students apply to Mary Washington, they most frequently cross-apply to the University of Virginia, George Mason University, JMU, and CNU. He concedes that many regard UMW as a fallback school — they plan to attend only if they don’t get into the institution they really want. That’s why so many of those who get accepted don’t enroll. Paino wants to turn that around. “We want to be the institution where they want to go.”

Among its advantages, Mary Washington is a liberal arts institution, not a research university. It offers smaller classes taught by tenured faculty, not graduate-student teaching assistants. The university is “ahead of the pack,” says Paino, in helping students gain fluency in digital technologies. The Hurley Convergence Center, which stays open 24-7, is a place where students can do everything from record videos in a production studio and edit music in the multimedia lab to host events at a digital auditorium and display art in the Convergence Gallery.

Mary Washington also has a unique “culture of acceptance,” says Paino. By his estimates, UMW has twice the percentage of students with physical, learning and other types of disabilities as other universities. Students have a commitment to service, civic engagement and justice. Graduates go into the Peace Corps at one of the highest rates in the country. 

The balancing act in higher education is to invest in buildings, amenities, and student enrichment while remaining affordable. Keeping a lid on costs can be tough when college-bound students are heavily influenced by the quality of amenities such as food service, dormitory rooms, student commons and athletic facilities. UMW ran up its debt load earlier in the decade to upgrade its early-20th century structures as a “direct response” to the competitive challenge of Christopher Newport, which had built a handsome campus of new buildings.

Ironically, surveys indicate that students living in the old dormitories with the fewest creature comforts have the highest levels of satisfaction based on the sense of community they experience. But prospective students don’t know that. “When students come to visit, they go for the ‘wow’ experience,” Paino says. “It has become a bit of an arms race.”

The Mary Washington board has instituted three policies to avoid excess accumulation of debt. First, the university can spend no more than 10% of its operating budget on debt service. The debt-to-revenue ratio did increase from 4% in 2008-09 to 8% in 2015-16 to pay for upgrades to two residence halls, an athletic center, and the student union, but it eased somewhat in 2016-17. Second, debt must be less than 50% of the value of total university assets. And third, debt cannot exceed a $200 million cap.

Paino also is aiming to build up cash reserves to a level equivalent to 10% of revenues. Reserves have three components: a rainy day fund, a revenue-stabilization fund, and a fund for strategic investments. To meet those goals Mary Washington needs $12 million. When Paino arrived, cash reserves were $5.7 million. In the past year, he has built them up to $8.5 million.

The General Assembly is discussing a law that would allow public universities to take unexpended surpluses at the fiscal year end and apply them toward the institutions’ own revenue stabilization fund. Paino isn’t waiting for legislative action. “We have to be self sufficient. We can’t wait for the legislature to stabilize the funding for us.”

One key to getting Mary Washington back on the right track is bolstering its appeal to out-of-state students. In the 2016-17 school year, the university charged in-state students tuition, fees, room, and board of $21,508, while it charged out-of-state students $36,098. If the university could get back to its peak of 20% out-of-state enrollments, a gain of roughly 400 students, it would net an additional $9 million a year — a 7% boost to its budget.

A major challenge in an era of ever-escalating enrollments is accommodating the surge in lower-income Pell grant recipients. Paino characterizes the student body as predominantly middle class, which it is: the 18.5% level of Pell recipients is significantly lower than the state average. But over the past decade the number of Pell students increased at twice the rate of Virginia’s public state schools overall. Low-income students require extra student aid over and above what the federal government provides. If they don’t get it, they are more likely to drop out for financial reasons. Over the past decade, UMW has boosted institutional aid by $3.1 million, or 164%, without benefit of a large endowment. Despite the increase in financial support, the drop-out rate increased slightly, even as Virginia’s other public institutions were able to bring the rate down, although, Paino points out, UMW did a better job this year in retaining members of the freshman class — a positive sign for the future.

Despite the difficulties, Paino remains upbeat. A big believer in metrics, he distributes a dashboard of institutional effectiveness to board members. UMW’s acceptance rate is slightly down (meaning UMA is slightly more selective), and the percentage of accepted students who enrolled was slightly higher — equivalent to James Madison. The SAT scores of entering freshmen are higher, averaging 1173, and so are high school GPAs. Compared to its competitors, its 71% six-year graduation rate is “pretty darn good” and its student loan default rate is “pretty impressive.”

It takes time to change direction, and Paino credits his predecessors for building positive momentum. Now that he has been at the university long enough to get to know it well, he says, he thinks UMW is heading “in a very positive direction.”

If there’s one thing Paino would ask from the state — aside from more money, of course — it’s a tweak to Mary Washington’s governance system. Visitors typically serve for four years. The issues relating to running a university are so complex and so different, he says, it takes two or three years before most board members know enough to contribute fully.”

“Every year, we have to educate these new board members,” he says. “I would argue for a little longer term.”

Virginia’s New Metropolitan Growth Leaders

Northern Virginia has set the pace for economic growth in Virginia for so long, it’s hard to remember when any other region led the way. But this decade’s contraction of the defense industry has hit the NoVa regional economy hard. Inflation-adjusted growth in the Gross Domestic Product between 2010 and 2016 averaged only 1.2% in Northern Virginia, according to the 2017 State of the Commonwealth Report. Thanks to the innovation capacity of NoVa’s technology sector, the growth rate could have been far worse. Hampton Roads, also dependent upon military spending, experienced essentially zero growth over the same period.

Economic growth leadership for the past several years has shifted to the Richmond, Charlottesville and Blacksburg metropolitan areas. Richmond experienced 2.0% growth, while the home towns of the Hoos and Hokies racked up 1.8% annualized growth. Not one metro area matched the U.S. average growth rate of 2.1%, however. The economies of Staunton, Harrisonburg and Lynchburg actually contracted. (The figures don’t tell us about non-metropolitan Virginia, but the picture probably wasn’t pretty.)

Here’s the State of the Commonwealth report’s breakdown of GDP growth by metropolitan area (click for more legible image):

Somewhat different story for wage growth: Here Charlottesville and Roanoke led the way. Northern Virginia was the state laggard.

And one more measure, taxable sales, where Richmond and Lynchburg blazed new paths to consumer excess:

Sluggish Economic Growth May Pick up in 2018

The decline in Department of Defense contracts (red line) has hit Virginia hard since 2011. Source: 2017 State of the Commonwealth Report

Economic growth in Virginia has under-performed the national average since the beginning of the business cycle, and will continue to do so in 2018, concludes the 2017 State of the Commonwealth Report. Proposed increases in defense spending could boost growth and job creation by the second half of the next year, but the Old Dominion faces long-term challenges in stimulating the creation of new and innovative business enterprises.

The report, authored by Robert M. McNab and James V. Koch, economists with the Center for Economic Analysis and Policy at Old Dominion University, updates an all-too-familiar story — lagging growth caused by the contraction in defense spending under the Budget Control Act, most commonly known as sequestration.

Virginia depends upon Defense Department (DoD) spending more than any other state, and the dollar volume of DoD contracts fell 21% between FY 2008 and FY 2016, while the number of active-duty military personnel declined more than 25%. Those fall-offs crimped growth in Northern Virginia and Hampton Roads. Meanwhile, Virginia’s smaller metropolitan areas and rural areas suffered from a declining of mining and manufacturing. Even Virginia’s top-performing metros between 2010 and 2016 — Richmond, followed by Charlottesville and Blacksburg — fell slightly short of the national compounded annual growth rate in Gross Domestic Product for the nation as a whole.

Fortunately for Virginia, there is widespread sentiment in both Congress and the Trump administration that the United States needs to invest more in the defense budget, say McNab and Koch, so there is a good chance that military spending will give the Virginia economy a positive jolt by the second half of 2018.

GDP is just one measure of economic health. If the metric is unemployment, Virginia fares somewhat better: Despite sup-par growth, the unemployment rate here remains lower than the national average. But the report gives even this positive news a gloomy footnote. Traditionally, Virginia’s unemployment rate has ranged around 1.5% lower than the national average; the differential has shrunk to 0.7%. “Could this signal a new economic era for Virginia?” the authors ask. “Perhaps.”

Another measure of economic vitality is labor force participation — the percentage of adults actively working or seeking work. Almost 66% of all Virginians participated in the workforce in 2017 compared to 63% nationally. But the figure varies widely by geographic region, as seen in this map:

While three-quarters or more of adults are in the labor force in Northern Virginia and much of the Richmond metro, the participation rate is less than 50% in the coalfield counties of the far Southwest.

Yet another metric is weekly earnings. Virginians’ earnings growth outpaced that of other Americans 3.4% to 2.6% in 2016, but had fallen behind to less than 2.0% this year.

A disturbing underlying trend, write McNabb and Koch, has been the lack of vigor in the small and medium-sized business (SME) sector. For most of the 21st century, net new business formations (business births exceeding deaths) by SMEs has trailed that of the U.S., although the numbers have surged in the past couple of years.

The report doesn’t offer an explanation for the uncharacteristic leap in SME business formations in 2015. Whatever the reason and however lasting the trend, the authors suggest that Virginia public policy should give closer attention to business formations and deaths. “It is not enough to proclaim the number of startups as a measure of success,” they write. “Reducing the mortality rate of these firms is important to retain the newly created jobs and create economic growth in the Commonwealth. Redirecting scarce public funds from grandiose development efforts to services that sustain small firms is a step in the right direction.”

Speaking of those “grandiose development efforts,” McNabb and Koch contend that dedicating economic investment dollars to “showpiece hotels, arenas, and other visible structures” beloved by elected officials is a poor idea. Abundant evidence shows that the rate of return on such public investments is “impressively low, or even negative.”

Instead, Virginia needs to make long-term investments in infrastructure, K-12 education, “ed-med” (educational-medical) activities, and SME business promotion, the authors say.

Call Before You Friggin’ Dig!

What’s Dominion’s slogan? “Call before you dig.”

Well, pay attention people, and call before you friggin’ dig! Some lame brain failed to call before he dug today, and he knocked out the power for much of my neighborhood, including me, for four hours. Thanks a lot, dude!