Bacon's Rebellion

Democracy Thrives in Sunlight

Wagner Plays the Offshore Drilling Wildcard

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by

James A. Bacon
in , ,

So far, the special General Assembly session on transportation has been shaping up as a flounderfest: no one agreeing on anything, everyone just flopping around. But Sen. Frank Wagner, R-Virginia Beach, has thrown a wild card into the game.

In a news conference today, Wagner linked offshore drilling for natural gas with Virginia transportation. He called for Gov. Timothy M. Kaine to use his “considerable influence in national Democratic politics” to urge his fellow party members to lift the federal ban on off-shore drilling. And he promised to introduce legislation next week that would devote much of the state royalties from such drilling to transportation, Chesapeake Bay clean up and energy-related uses.

Wagner, who reminds readers in his press release that he was the chief patron of the bill calling for the Virginia Energy Plan, would establish the Offshore Energy Revenue Fund. Proceeds would be distributed as follows:

40% to the Transportation Trust Fund
40% for Chesapeake Bay cleanup efforts
10% to the Renewable Electricity Production Grant Fund
10% to the Virginia Coastal Energy Research Consortium

Now, some might accuse Wagner of cheap political grandstanding. After all, what can Gov. Kaine really do to influence the federal ban on offshire drilling? Further, what are the chances that a Democratic Congress, which looks forward to aligning itself within half a year with a Democratic president, will make a move that would anger its environmentalist base? Pretty low, I’d say.

Moreover, there is absolutely no logical nexus between offshore drilling and transportation. I can see a tangential connection to the Chesapeake Bay: If people are worried about the environmental impact of drilling, it sorta makes sense to dedicate some of the royalties to environmental clean-up. Drilling offshore would take place in the water… The Chesapeake Bay has lots of water… What more could you ask for?

Other than the fact that the Business As Usual interests are desperate for a new source of revenues to perpetuate Virginia’s failed transportation model, however, why should the revenues be dedicated to transportation as opposed to any other need? None that I can think of.

But the gambit is sure to generate a lot of headlines and absorb a lot of discussion. A special session that was shaping up as snooza-palooza just might be fun to follow after all.

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  1. Anonymous Avatar
    Anonymous

    Mr. Bacon, You also should point out that Sen. Wagner’s proposed allocation of the royalties, if it passes in that form, do not tie the hands of future General Assemblies. So, the voters could be sold a bill of good once again.

  2. E M Risse Avatar
    E M Risse

    All discussion of increasing supply of energy without addressing decreasing consumption is just addressing the obesity problem by buying larger belts.

    Future generations will need that gas and oil for important things, not toing and froing.

    See post on the prior post re climate change commission.

    EMR

  3. Larry Gross Avatar
    Larry Gross

    I give the guy credit for trying to get some movement on the issue but wonder if this has anything to do with Gilmore and his election position on offshore drilling.

    Also.. as anon 8:41pm pointed out – why not add as part of the proposal a “lockbox” on the revenues – in good faith?

    He could also have made it an even tougher/stronger proposition by adding that the oil extracted could only be used domestically and not exported and that the price could be done like Dominion – cost of production plus a reasonable profit .

    This would not make EMR happy, I’m sure.

    Finally.. where are the numbers?

    How much money would likely come from royalties.

    No having a number is like saying – “we need an increase in gas taxes” without saying how much – much less how much is needed.

    I think if Wagner is serious, he puts together some numbers and he sweetens the deal … drawing in the folks on the fence.

  4. Scott Leake Avatar
    Scott Leake

    Folks, I believe I can answer some of your questions and reservations.

    1. Jim, here’s the connection between transportation and the royalties. The U.S. Dept. of Interior must approve how states spend the proceeds. There is a strong inclination to activities that help the environment, hence Frank’s proposal to put 60% directly into the bay cleanup and alternative energy pursuits. A case can then be made that 40% can be directed to transportation to help mitigate congestion and air pollution. Of course, that depends on how those transportation dollars are spent; but yes, there is a nexus.

    2. Anon and Larry, ditto on the Interior Dept. point. The formula is locked in.

    3. Larry asks if this had anything to do with Gilmore’s campaign. You might raise the same question with Bush and McCain. I can state with first hand knowledge “no.” This was planned several weeks ago without knowing what other parties might be planning. In fact, Frank would have gotten more individuals press had his news conference not come on the same day as Bush, Mark Warner, et al.

    4. All, please remember Frank proposed dedicating 50% of these royalties to transportation in 2006.

    5. As for “hard numbers” the $200 million per year estimate comes from House of Representatives staff and Interior. Unlike the governor’s spokesman who says Frank is proposing “40% of nothing” these are real numbers based on real research. There’s gas under them thar waves.

    Hope this helps.

  5. Jim Bacon Avatar
    Jim Bacon

    Scott, Thanks for the background information. I, too, wondered if this initiative was a ploy tied to the Gilmore-Warner race, but I accept your word that it isn’t. I still think the nexus between drilling royalties and transportation is pretty weak, though.

  6. Anonymous Avatar
    Anonymous

    The offshore drilling ban was put in place to prevent the costs of environmental damage. Now we see that the costs of high fuel prices also produce damage.

    If offshore drilling is allowed, we will have effectively set a new value on the cost of potential environmental damage, as a trade off to reduce the “damage” from fuel prices. Eventually, that value will become a new benchmark for other environmental costs, similar to the way teacher’s salaries in the next county over become the new benchmark.

    RH

  7. Anonymous Avatar
    Anonymous

    “Future generations will need that gas and oil for important things, not toing and froing.”

    EMR previously stated that if we add the cost of upper altitude emissions to the cost of aricraft tickets, then only the very rich will fly. I pointed out that this depends on what the cost of aircraft emissions are. (We can, of course price them any way we choose.)

    Regulating aircraft emissions to zero means the cost must be infinitely high. In this case EMR is effectively arguing that the discount rate is infinitely high, or at least very high.

    He suggests that we must decrease consumption. But decreasing consumption more than you can increase efficiency means that someone is going to do without or do with less.

    I don’t think we ae going to get infinite efficiency from better settlement patterns. We still know how to farm with mules, but I’d suggest that if we actually tried that today, as a means of reducing consumption, a lot of people will starve.

    When we start talking about future geneartaions, sustainability, and reducing current consumption, we need to be clear about whom we are talking.

    RH

  8. Anonymous Avatar
    Anonymous

    Want to reduce consumption? Just raise the tax. Reducing consumption, you see, isn’t free.

    “The hits just keep on coming: Starting July 1, Kentucky will collect another 1.5 cents tax on each gallon of gasoline, adding a bit more to prices that have held at $4 or higher in Louisville for much of the past month.

    Kentucky’s gas tax, which goes toward the state road fund, will increase to 21.1 cents, and the diesel tax will rise to 18.1 cents, according to Jill Midkiff, spokeswoman for the state Finance and Administration Cabinet.

    The legislature designed the fuel tax to reset at least once a year based on the state’s average wholesale price of gas. It could go down if prices fall, but the tax has increased, on average, by a little more than a penny every year since 2004, when it was 16 cents.”

    This will make the total tax burden on gas in kentucky about a half cent higher than in Virginia, where it is 38 cents per gallon.

    In Pennsylvania it is 50.7 cents per gallon and in California it is 63.9 cents per gallon.

    In Alaska it is only 26 cents per gallon. I guess they must know how to build roads much cheaper than we do here.

    Alaska is one of only six states with a lower tax burden on gas than Virginia has.

    http://www.virginiagasprices.com/tax_info.aspx

    Quote from the environmental economics blog. “It’s possible to raise the gas tax when prices are high”

    Rh

  9. Anonymous Avatar
    Anonymous

    When gas prices are high – and people expect them to stay high:

    -They buy smaller cars.
    -If they have two cars, they begin to use the smaller car more often.
    -They bicycle more.
    -They walk more.
    -They make greater use of public transportation.
    -They take fewer trips.
    -They make shorter trips.
    -They move closer to work or closer to public transportation connections.

    All these things ae happening in record numbers according to USA Today.

    It appears that the fastest way to get all the things smart growth advocates and environmentalists want and have been working for for decades, is to raise the price of fuel.

    Who wouldn’t want that?

    RH

  10. Anonymous Avatar
    Anonymous

    Another case of the costs of environmental regulation being rethought, as a result of deprivation:

    “At present the UK government regulates genetically modified food out of the market. This was done following an ill-informed scare campaign backed by environmental lobbyists, encouraged by a complicit media and left unchallenged by weak-willed politicians. With the global food crisis, it is surely time for politicians in this country to lead the way by embracing biogenetic food, the latest development in the Green Revolution.

    It is telling that the term “Green Revolution” is now often used counter to its original meaning. Instead of the agricultural revolution beginning around the middle of the last century, it is increasingly being used as synonym of the confused ideas behind organic and sustainable agriculture. Such backwards thinking will not meet the increased demand and consequent rising cost of food. It will not be to the benefit of the farmers and consumers in this country, nor those living in abject poverty in the poorest countries of the world.

    ……………………

    The GM debate needs to be had again. This time those in favour of GM food should have the loudest voice and those against it in the past should be contrite in the face of the obvious falsity of their doomsday predictions.”

    RH

  11. Larry Gross Avatar
    Larry Gross

    The Kentucky increase in chump change… probably does not even cover the increased inflation costs of roads – just as Virginia is currently looking at about 50 cents worth of gas tax JUST to maintain the funds for maintenance and not a penny for new construction.

    Kaine has proposed a set of cafeteria taxes on cars to cover the maintenance deficit – 445 million dollars worth. The gas tax in Virginia raises 50-60 million per penny. So if you wanted to..say as a Republican with a “better” alternate idea of using the gas tax -you’d have to put numbers like a 45 gas ent increase in your alternate proposal.

    that is what is missing from much of this debate..

    we have “ideas” of how to find new money but when you actually get done to the numbers – those “ideas” don’t look so good anymore.

    and yes.. right now.. right now when we need 445 million dollars – THIS YEAR – 40% of offshore royalties 5-10 years from now IS 40% of nothing…

    and I’m going to keep harping on this point.

    If the proposal was that NONE of the oil could be exported – that ALL of it could only be sold domestically … AND it could ONLY be SOLD for the cost of extraction PLUS a reasonable profit and not the world speculation price…

    then you MIGHT win over some folks who otherwise would oppose it.

    In other words, put a REAL proposal on the table – instead of one that is likely to be perceived as those already skeptical as more smoke and mirrors…

    and if you wanted competing proposals.. I offer mine as a competitive alternative to offshore drilling and that is non-profit financing of roads from the State Pension Funds.

    Instead of investing in the open market – invest in Va. Guarantee that the Pension funds will receive exactly what they would have received on the open market and use the pension money to leverage transportation funding.

    I think if you offered folks the alternative of paying tolls that would benefit Virginians Retirement Plans whose pension funds helped build roads that they might pick that over drilling offshore. And I’d let private sector employees also invest in those funds.

    Give folks the opportunity to invest in their own State as opposed to selling it to Oil Interests.

  12. Anonymous Avatar
    Anonymous

    The Kentucky increase in chump change…

    Yes, but they do it every year – automatically.

    Just think of the roadwork we could have paid for with what the abuser fees debacle cost.

    RH

  13. Anonymous Avatar
    Anonymous

    “we have “ideas” of how to find new money “

    Maybe you do. I don’t.

    It is the same amount of money no matter how you get it. It all comes out of our pockets. It is not new money, it is my old money, one way or another.

    Get it the most efficient and painless way possible. All but five other states seem top “get it”.

    RH

  14. Anonymous Avatar
    Anonymous

    “not the world speculation price…”

    Jesus Larry, the speculation price is the price. Speculators close out at the actual price for delivered product, that someone buys and uses.

    We would be better off to sell it overseas at the speculation price, and do without here.

    RH

  15. Anonymous Avatar
    Anonymous

    “Guarantee that the Pension funds will receive exactly what they would have received on the open market and use the pension money to leverage transportation funding.”

    How is this any different from just borrowing on the open market, other than it puts our pensions at risk?

    For that matter, how is it any different from collateralized mortgage debt?

  16. Anonymous Avatar
    Anonymous

    The reason we need $445 million THIS YEAR is because we have been kicking the can down the road for thirty years.

    The Kentucky plan raises the money available every year. Our plan kicks the costs down the road to our grandchildren.

    RH

  17. Anonymous Avatar
    Anonymous

    “Give folks the opportunity to invest in their own State as opposed to selling it to Oil Interests.”

    Or, we could invest in such a way to cash in on those windfall oil profits. The way you get a bigger slice, is make a bigger pie, right?

    RH

  18. Larry Gross Avatar
    Larry Gross

    re: getting “more” by raising the gas tax

    FYI –

    Highway travel down sixth month in a row: govt
    … [yegads]

    A new report on Thursday from an energy advisory group reflected the drop in total highway travel, saying U.S. gasoline demand may have peaked last year and will likely decline in 2008 for the first time in 17 years.

    [lord, give me strength ]
    …

    The downside for the government is less money to pay for highway projects and public transportation, which is funded by an 18.4 cents-per-gallon gasoline tax and a 24.4 cents-per-gallon diesel fuel tax.

    [ oh oh .. it’s deep doo doo time ]

    “As positive as any move toward greater fuel efficiency is, we need to make sure we have the kind of sustainable funding measures in place to support needed highway and transit improvements well into the future,” said Acting Federal Highway Administrator Jim Ray.

    http://www.reuters.com/article/domesticNews/idUSN1945470320080619

    now .. Ray .. what does this mean ?

    does it mean if we raise the gas tax that we’ll actually bring in more money for roads or will it result in even less gasoline purchases?

  19. Anonymous Avatar
    Anonymous

    re: getting “more” by raising the gas tax

    Read the post, Larry.

    You get more of all those things on the list. Things environmentalists and smart grwoth advocates say they want. The items on the list include fewer and shorter trips – less travel. That is one of the things you want, environmentally speaking.

    Economically speaking might be a different story. But, the point of the post was ALL of those things are being increased by higher fuel prices, and if that’s what you want, the the fastest way to get it is not jawboning for 20 years, but by raising gas prices.

    It doesn’t matter if you actually get more take-home revenue or not, because the benefit you are buying is all the things on the list.

    ——————————

    “Does it mean if we raise the gas tax that we’ll actually bring in more money for roads or will it result in even less gasoline purchases?”

    Those two are not mutually exclusive, Larry. Posing the question as if they are is a logical fallacy.

    You could get less gasoline purchase and less revenue. Less gasoline purchase and more revenue, or more gasoline purchase and more revenue.

    But you are (probably deliberately) missing the entire point. The idea is NOT to get the least travel or th MOST tax revenue from travel.

    The idea is to give travelers (and everybody else) the most benefit for the least cost. Which is why the environmental answer and the economic answer are not the same.

    RH

  20. Anonymous Avatar
    Anonymous

    Ray, you and others are smoking and, indeed, inhaling something if you believe that higher taxes will lead to more roads — at least in NoVA.

    Here’s an excerpt from a letter to the Burke Connection from state senator Chap Petersen. “3. Focus Funding on Transit: We need more and better rail service augmented by rapid bus. That is the reality of Fairfax County in the 21st century. Locally, that means more trains and better service on Metro and VRE, with rapid bus linking those stations to the outer suburbs. On a larger scale, we should in the next five years develop a high-speed rail link between Norfolk, Richmond and Washington, D.C., with key stops in Northern Virginia. Out of every dollar we spend on transportation solutions here, we need to spend at least 50 cents on transit. The demand is there.”

    Urban areas will spend most of their transportation revenues on transit and not on roads. If you want more roadways, you will need to toll them. (I’m not arguing that this is right, but it is reality.)

    TMT

  21. Larry Gross Avatar
    Larry Gross

    I think Kaine’s proposal to raise money from the sales tax rather than the gas tax – allows proponents of transit to argue that since the tax comes from everyone and not just cars that the money can legitimately be used for transit also.

    This is part of the fallout from switching from funding transportation from “user-pays” gas taxes to “everyone pays” sales taxes.

    The other benefit is that since the sales tax is regional – the process for determining priorities will be regional also and if the folks in this region, like TMT, believe than transit is an important part of the transportation puzzle, then it will be.

    I note this morning in the RTD that there are actually some competing proposals starting to surface.

    “Sen. Charles J. Colgan, D-Prince William, is developing a proposal that will call, in part, for a gas-tax increase that would correspond to increases in the consumer price index and cap after 10 years. Colgan estimates that over 10 years, the tax would rise from 17.5 cents per gallon to about 30 cents.”

    This is a statewide proposal and each penny is expected to produce 52 million.

    At best though – this will ultimately bring in about a billion -Statewide – when the maintenance deficit will swell to 600 million in 2014.

    The question in NoVa is what percentage of NoVa is represented by TMT’s views about the need for transit and what percentage of NoVa is represented by Bob/Ray’s view of transit?

    I’ve not seen a poll, at least recently, but my sense is that the region as a whole supports transit and if there were a referenda that transit would garner a good share of the votes.

    And this goes back to the consequences of using a gas tax verses using a sales tax.

    The argument can be made with the gas tax that it “belongs” to cars but that argument is gone with the sales tax – which allows a full debate about how it should be spent.

  22. Anonymous Avatar
    Anonymous

    “Ray, you and others are smoking and, indeed, inhaling something if you believe that higher taxes will lead to more roads “

    What I said was:

    The idea is to give travelers (and everybody else) the most benefit for the least cost.

    Where does that say ANYTHING about roads?

    “Urban areas will spend most of their transportation revenues on transit and not on roads.”

    And that is the right thing to do ONLY if it provides the most benefit at the least cost. I don’t have any problem with transit, and there are places where it works, and it is efficient.

    Other places, not so much. Where I get off is when transit is credited with benefits it doesn’t really provide, or when we study transit to the specific exclusion of autos. Even if you can have transit that works, you still need to plan for autos, and how they work intermodally with transit.

    EMR proposes that we build entire areas specifically so that transit can work. That’s OK, too, except now a substantial part of that (building or renewal) cost is really a transit cost and it should be recognized as such. In the end, this may mean tranit is still not (generally) cost effective.

    Whereever it works, or can be made to work, you won’t hear anything out of me.

    But, lets use transportatioon funding for transportation, not auto fees for transportation. Or if we do, lets not lie to ourselves and call them user fees: they are taxes. New taxes; a Republican No, No.

    If you just call things waht they are, I won’t argue with you.

    RH

  23. Anonymous Avatar
    Anonymous

    “I think Kaine’s proposal to raise money from the sales tax rather than the gas tax – allows proponents of transit to argue that since the tax comes from everyone and not just cars that the money can legitimately be used for transit also.”

    So do I, and I think that’s a good thing.

    RH

  24. Anonymous Avatar
    Anonymous

    “The other benefit is that since the sales tax is regional – the process for determining priorities will be regional also “

    See, was that all that hard?

    RH

  25. Larry Gross Avatar
    Larry Gross

    “The idea is to give travelers (and everybody else) the most benefit for the least cost.”

    whose idea is this?

    and who gets to decide?

    and what happens to those who don’t get their way when they are in the minority?

  26. Anonymous Avatar
    Anonymous

    A need for clarification. By quoting Senator Chap Petersen, I did not intend to endorse his views. I did, however, intend to show that, from a political perspective, it will be very hard to obtain large sums of money for road construction in NoVA, especially in Fairfax County. Transit is king in the eyes of Fairfax County elected officials and many voters.

    Having said this, I think that, from a theoretical perspective, transit can be very important to the extent that it can remove trips from roads during the busy hours. If it is cheaper to build and operate a transit system than to build and operate road improvements serving the same population, we ought to construct transit. If not, we should not construct it.

    We also need to look at other alternatives, including the establishment of rewards and penalties for telecommuting. Further, the next Governor needs to take Tim Kaine’s initial steps at linking land use and transportation and turn them into the Marine Corps Marathon. Just as government places all sorts of restrictions on the use of other property, especially stocks and bonds, it too must limit landowners’ rights to develop land without regard to the costs imposed on other residents by such development. Virginia needs the strongest adequate public facilities in the nation. If we had such a law, we’d have less traffic and a need for fewer additional taxes and fees for more transportation projects.

    As a state delegate told me, it’s way past time to drag Virginia’s real estate laws out from the 18th Century.

    TMT

  27. Larry Gross Avatar
    Larry Gross

    What? No response from Ray?

  28. Anonymous Avatar
    Anonymous

    “Whose idea was this?”

    I think it is generally credited to Pigou and Coase, who got a Nobel prize for it.

    Some people would credit Jesus with similar ideas, much earlier.

    RH

  29. Anonymous Avatar
    Anonymous

    “who gets to decide?”

    What is to decide? You either get more benefits or less, it costs more or it costs less.

    All you have to do is go measure. If we can measure TV viewership, measuring what Metro is really worth shouldn’t be too hard.

    But, if you are a hard-core metro advocate, the the first thing you have to do is agree that the benefits ought to be measured, and measured well.

    We don’t let just any old yahoo be a land surveyor, and public benfits surveyors or assessors should also b e professionals.

    RH

  30. Anonymous Avatar
    Anonymous

    “If it is cheaper to build and operate a transit system than to build and operate road improvements serving the same population, we ought to construct transit. If not, we should not construct it.”

    That sounds like searching for the most benefit for the least cost to me.

    “including the establishment of rewards and penalties for telecommuting. “

    And how about rewards for car pooling?

    If it is cost effective, of course.

    RH

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