As Cost Kills TCI in Connecticut, Virginia Dems Dig In To Defend Virginia Green New Deal Laws

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The Governor of Connecticut has abandoned his efforts to enroll that state in the Transportation and Climate Initiative, an interstate compact which would impose a cap, tax and ration scheme on gasoline and diesel fuel.

Virginia remains a part of the planning group that developed the compact, which has now been under consideration for more than a decade but not implemented anywhere.  In late 2020, Connecticut was one of four jurisdictions pledging to go forward in 2021, while Virginia remained on the sidelines

As in Virginia, Connecticut’s participation in the compact required legislative blessing, which Governor Ned Lamont was unable to secure during 2021, even in a legislature controlled by his own party. In light of that failure, and the lack of any other signs of movement toward an agreement, Lamont announced Tuesday he would not try again in 2022.  He was quoted in the Hartford Courant:

“Look, I couldn’t get that through when gas prices were at a historic low, so I think the legislature has been pretty clear that it’s going to be a pretty tough rock to push when gas prices are so high, so no,’’ Lamont said Tuesday, acknowledging that the cost of motor fuel was likely to rise under the initiative, known as TCI.

At a later appearance in East Hartford, Lamont said that gasoline prices had reached a seven-year high and there was not enough support in the legislature in 2022 — a year when both Lamont and the entire legislature are up for reelection.

The Rhode Island legislature also passed on the issue in 2021 despite its governor’s efforts.  Only Massachusetts and the District of Columbia are poised to join TCI once enough states make it viable, and in Massachusetts opponents have put the issue in front of the voters in a 2022 referendum question.

Virginia Governor-elect Glenn Youngkin has made no pronouncements on TCI, which would first cap and then slowly reduce the total volume of gasoline and diesel fuels available for sale in Virginia.  While they enjoyed full control of all branches of Virginia government, Democrats signed the state up for the Regional Greenhouse Gas Initiative (RGGI) cap and tax on fossil fuels used in electric power plants but failed to even introduce legislation on joining TCI.

They have now shifted to a defensive posture, promising their supporters that Democratic control of the Senate – and one key committee in particular – provides a firewall to protect various climate-fear-driven measures approved in 2020 and 2021.

Typical was a prediction made by Senator George Barker, D-Alexandria, at a meeting with the Alexandria City Council Monday, reported on Virginia Public Media outlets.  He and other Democratic legislators who represent that city were asked about coming efforts to repeal or amend some of those earlier laws, efforts that now might be successful in the House of Delegates.

“If the bill, a bill, does come over backing down on some of the climate change types of things from the House, and it’s certainly possible it will,” Barker says. “I think we have the ability to deal with it in the Senate and box it up and it’ll probably never get to the floor and have the bill basically defeated in the committee.”

The committee in question, Senate Commerce and Labor, has 12 Democrats and only three Republicans as voting members, and it only takes seven votes or even a tie to defeat a bill in committee.  That imbalance exists despite a 21-19 split in the body overall.  Barker went on to claim that some of his Republican colleagues, when he speaks with them privately, express support for the bills which have passed.

A day later over at Virginia Mercury, an anti-fossil fuel advocate affiliated with the Sierra Club surveyed the new Virginia political landscape and was similarly encouraged, partly by the remaining Senate firewall and partly by Youngkin’s lack of specific statements on the various issues during the campaign.

Attorney Ivy Main pointed to the one candidate debate segment that touched on the issues, heartened by Youngkin’s statement he “wholly supported” the coming offshore wind project Dominion is set to build, but dismissive of his complaints about other elements of the Virginia Clean Economy Act and his advocacy of continued use of natural gas.

With Democrats still in charge of the Senate, Youngkin isn’t likely to find a RGGI or VCEA repeal on his desk. Creating an energy transition framework was one of the Democrats’ biggest successes in the past two years and protecting that success will be a party priority.  

But there are many ways Republicans can undercut climate action. They might attract just enough Democratic votes with bills that, for example, grant exemptions for powerful industries that have friends among Senate Democrats. They could also use the budget process to undermine the transition by starving agencies and grant programs of funding. 

But the TCI idea failed in solidly Democratic Connecticut because it would clearly raise costs on every family and commodity in a time of inflation, and for the same reason has never even been pushed here in the Commonwealth.  The same is true of every other aspect of Virginia’s misguided response to overblown threats of climate disaster.  Making that clear is the first step toward a change in course.

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Election Shows Why Caution Necessary on Local Collective Bargaining

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Virginia’s new collective bargaining law is forcing local government officials to deal with a controversial issue fraught with potential errors and legal risks.

If the 2021 election showed anything, it was that Virginia voters felt the Commonwealth was going in the wrong direction. The sweep of Republicans for governor, lieutenant governor, attorney general and the House of Delegates sent a clear message: Voters wanted change.

Local governments should take heed, especially on controversial issues such as public sector collective bargaining. Elected officials should carefully consider not just voter sentiment, but what new executive authority means for interpretation and implementation of recent laws.

One law, passed in 2020 by a Democratic governor, House and Senate, was a radical change to decades-old precedent. The new law gave local elected officials the ability to pass ordinances allowing government unions to have a monopoly and represent all public employees (even those that do not want representation) and to bargain on almost any issue. However, now there may be stricter scrutiny on the interplay between these ordinance and state laws, not to mention the U.S. Constitution.

Outgoing Virginia Attorney General Mark Herring celebrated the law when it went into effect in May 2021, saying he was “proud to have worked alongside Delegate Guzman and other labor advocates to craft this important legislation and ensure its passage.” But incoming Attorney General Jason Miyares voted against the bill and may not give unions such wide latitude with potential conflicts to state law and employee rights.

For example, the city of Alexandria narrowly avoided violating the state’s Secret Ballot Protection Act by allowing a union to organize via an open petition process, but at the last minute city officials realized their error and amended the city ordinance.

Unfortunately, the ordinance has several other troubling provisions that may not stand legal scrutiny. For one, the city and the few other jurisdictions have collective bargaining provisions that permit unions to take money out of public employee’s paychecks and show they want to be members of the union though “voice authorizations,” rather than giving employees the protection of a secret ballot.

These provisions are similar to other ordinances proposed in a number of other localities and have already been enacted in a few jurisdictions. They also include giving unions the ability to limit when public employees can leave the union and stop paying.

Many of these provisions may violate the First Amendment rights of public employees and their right to a private ballot.

The Supreme Court in the 2018 case Janus v. AFSCME held that employees have a First Amendment right to choose to pay dues or not and to protect this right, money can only be deducted from their wages after “clear and compelling evidence of “affirmative consent.”

Several attorneys general have said that allowing unions to take money from public employees and limit when they can exercise their right to leave a union is a violation of the employee’s First Amendment rights. Attorney General-elect Miyares may be more willing to agree with his colleagues across the county and protect the constitutional rights of Virginia’s public employees than his predecessor, who was proud to work alongside the government union advocates who may violate those rights in the future.

These are just a few examples of the legal landmines present for local governments passing government union collective bargaining creating monopoly union contracts, and demonstrates the process shouldn’t be rushed.

Unfortunately, that is exactly what the language of the state legislation forces local officials to do.

The law rushes the process by requiring governing bodies to take a vote to adopt or not adopt a collective bargaining ordinance within 120 days after getting a petition from public employees.

If government unions present a petition to local elected officials, they have a few short months to either vote it down or work on an entire new section of law. It could also come at a time when many staff are working on other things (such as dealing with the COVID-19 pandemic) or out of the office.

For instance, Prince William County is being forced to vote on such an ordinance in early January. This means that if the Prince William Board of Supervisors wants to enact it, county staff will need expedite the work, especially dealing with time off over the holidays. This could lead to long-term mistakes or illegal provisions accidently making their way into the ordinance.

Other than the political and legal pitfalls, there also have been examples of vague language that harms public employees. The recently passed Fairfax ordinance creates a Hotel California situation by requiring only a majority of votes from public employees to form a union but a majority of all employees to remove one.

This means that in a union with 100 employees, if 30 vote for the union and 20 vote against it, the union would represent all the employees. However, if that same vote was to remove the union, it would fail. Employees wanting to remove the union would need 51 yes votes. This provision could have been intentional, or it could have been the result of rushed, poor drafting.

Finally, even supporters of allowing government unions to bargain have noted unions are not effectively communicating with public employees. Phyllis J. Randall, Loudoun County Board of Supervisors chair and supporter of public sector bargaining, remarked that unions such as the Service Employees International Union have not been doing a good job communicating with their potential members.

With the changing political winds in Virginia, the potential for legal missteps, an incoming attorney general who may do more to protect public employees, and even the potential for drafting mistakes, localities presented with a 120-day clock on drafting a massive ordinance creating an entire new section of code are put in a difficult position.

The good news? They can always say no.

A version of this commentary originally appeared in the online blog VirginiaWorks on November 16, 2021. F. Vincent Vernuccio is a Visiting Fellow with the Thomas Jefferson Institute for Public Policy and a senior fellow at Virginia Works.

 

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Time To Reform Virginia’s Energy Policies

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Dominion Energy Virginia’s announcement Friday that its proposed offshore wind project has jumped almost 25% in cost to $10 billion, with years to go before construction even starts, has put Virginia’s energy policy and its response to claims of climate disaster on the front burner for 2022.  

Below are my suggested priorities, based on 15 years of dealing with these issues at the General Assembly and the State Corporation Commission.  This is based on a similar summary published on Bacon’s Rebellion in August.  First and foremost: 

  • Restore the proper oversight role of the State Corporation Commission over utility rates, profits, and capital planning. Let the SCC decide how to allocate costs between customer classes. The General Assembly has dangerously usurped that function, often leaving the SCC nothing but an administrative agency subject to changing political winds.

One of the first key decisions the new General Assembly will need to make is whether to give a full term on the SCC to Angela Navarro, elected by the Democrats last year after serving as an architect and advocate for the Virginia Clean Economy Act of 2020 and other anti-fossil fuel efforts.  As I wrote elsewhere, personnel is policy. 

  • Limit campaign contributions from all donors (still important even if the General Assembly stops usurping the SCC’s job in the future.)  We’ve now held another election where utilities and the vested interests behind unreliable, intermittent generation sources poured incredible amounts of money on candidates and parties.

 

  • Limit or eliminate non-disclosure agreements in cases before the SCC. Too much vital information is redacted and never made public.  The first motion Dominion Energy Virginia has made to the SCC in its effort to build 2,600 megawatts worth of ocean wind turbines is motion to seal much of its data.  Saturday, I urged outgoing Attorney General Mark Herring to oppose that motion and demand transparency. 

 

  • Move the Consumer Counsel function outside of the Office of the Attorney General. Perhaps the job should be filled in the same manner as the SCC itself, or some other judicial position.  But it needs to be at least shielded from the election process and the person holding it should have a term certain and perhaps no expectation of reappointment.  Attorney General-elect Jason Miyares would probably resist this suggestion.

 

  • Review every code section dealing with electricity regulation or other energy use and reconsider each instance of the phrases “in the public interest” or “shall be deemed reasonable and prudent.” Those are the words the General Assembly uses to dictate policy to the SCC despite the ignorance of most legislators on these matters, and their sensitivity to donors.  Likewise remove hard numerical targets for various forms of generation, which were based on politics, not engineering.

 

  • Review every code section and reconsider any financial subsidies or rewards offered to influence utility decisions about one project over another, especially any remaining bonus returns on equity for stockholder-favored investments. This would include recently approved (but not yet funded) subsidies for rich people to buy electric cars.

 

  • On the other hand, remove any penalties on specific energy sources or carbon taxes, such as the recently imposed power bill tax to cover Dominion’s participation in the Regional Greenhouse Gas Initiative.  Do not join the Transportation and Climate Initiative, which we can hope is now a dead issue in Virginia.

 

  • Require local governments providing monopoly utility service to maintain that service or turn it over to the private sector if they wish to exit.  The recent indication that the City of Richmond might close its gas utility and leave 120,000 customers stranded is a warning the Assembly must heed. 

 

  • Require more competition for utility-scale generation services both to discourage placing all the cost and risk on ratepayers, and to be sure of fair and honest pricing on utility-owned projects.  The monopoly utilities don’t need to own so much of the generation.

Virginia should not abandon the current structure entirely. The pure competitive supplier model has plenty of downsides (See Texas).  It is only attractive to so many in Virginians at this time because Dominion Energy Virginia has corrupted the market to unfairly enrich its stockholders.  If all these other steps are taken and electricity costs in Virginia stabilize, the desire to bolt from the monopoly service will wane. 

Now to the various controversial decisions on generation and transmission being dictated by the Virginia Clean Economy Act, which will be radically revised by several of the points above.

  • The remaining coal generation should be allowed to die a natural death from market forces. As the environmental costs grow, and the revenues shrink, remaining will be closed early without any action by the SCC necessary.  Requests to fund improvements should be viewed with skepticism.  No new coal plants are going to be built.  Dominion’s Virginia City plant in Southwest Virginia was always a good political investment, never a good energy investmentIf it is now a financial liability, it should be closed.

 

  • The SCC should be making the decision how much utility-scale wind or solar generation is justified, and when, and what are the best options for reasonable cost and reliable supply. That will likely reduce the amount of those wind and solar investments over the next 25 years below the VCEA’s goals, with more natural gas remaining.   The offshore wind proposal in particular demands a real evaluation of its cost and prudence.

This is not a complete list, and of course some of these points would engender incredible debate and even full scale war at the General Assembly.  But it is where Virginia needs to go to keep energy abundant and costs reasonable.  With the flip in the Governor’s Mansion and House of Delegates, a change of direction on this front must follow.

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Confirmed: Virginia Economy Lags National Growth

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It’s official now:  Even the Joint Legislative Audit and Review Commission (JLARC)  has documented and highlighted how poorly Virginia’s economy is performing, how far our state is lagging national growth averages.

The admission comes in the most recent summary on state spending trends, an annual report (detailed version here) which was submitted to and approved by the legislators on the panel last week.  It covers the ten-year period of 2012-2021 and does a rolling update on previous years.

Virginia’s average annual change in gross domestic product of 1.2% was just 63% of the national average, our per capita income grew 1.1% annually (58% of the national average) and our labor force grew just 0.6% annually over the period, 60% of the national average.  The general correlation of the three deficits just demonstrates their interdependence.

During the period, a Democrat sat in the Governor’s Mansion for 80 percent of the time, but it was divided government until recently with Republicans controlling at least one chamber of the legislature for eight of the ten sessions.

Looking back a decade, to the comparable 2011 report, one key measurement jumps out.  In the ten years ending in 2011, the state’s population grew 10 percent.  That then slowed to 5.4% over the decade in the most recent census.  The older population, however, more dependent on some services but paying less in taxes, surged.  It grew 20% in the decade ending 2011, then 36% in the past ten years.

The JLARC staff highlighted the weak economy to explain relatively weak general fund tax growth during the period, since income and sales tax collections rise with those economic indicators.  But that flat economic output didn’t prevent state government from showing spectacular spending growth.  State spending in all categories was $40 billion ten years ago and $67 billion in the fiscal year that ended June 30.

And don’t forget, even with that amazing 68% increase in total state spending, the state ended the 2021 fiscal year with $2.6 billion in unspent general funds, almost $400 million in unspent transportation department funds, and other balances as yet unreported.  The revenue surge continues.

The value of the JLARC report is it combines all the various pots of money, something you seldom see in other legislative reports.  The host of different funds – general, non-general, special, debt, federal – confuse even those who work with the numbers regularly.  But these are all dollars paid by people either as taxes for general operations or fees for specific state services.

It will surprise no one that the ten-year growth in the most recent report was mainly in the non-general fund categories (87% growth in non-general versus 39% in general funds).  That’s been the pattern for a long time now.  That 2011 report showed an even higher spike of non-general fund spending, 105%, but slower general fund spending growth of 29%.

The 2018 decision to expand Medicaid eligibility brought in a rush of new federal funding and special assessments on hospitals.  The Department of Medical Assistance Services (DMAS) grew more than $1 billion annually, accounting for more than one-third of the total state spending growth.

In comparison, the Department of Transportation came in second in total growth, averaging $353 million in additional spending per year.  Its growth was fueled by two tax increases during the period, one in approved in 2013 and another in 2020.

Beyond those two, the top ten list is dominated by higher education spending, fueled by steady tuition increases.  Four universities (Virginia, Virginia Tech, George Mason and Virginia Commonwealth) and the state category for student financial aid were all among top ten for overall spending growth over the decade.  The aid account is obviously chasing higher tuitions across the entire system.

DMAS, Transportation, and the universities are largely non-general fund agencies, less dependent on general fund taxes.  The largest surge in non-general funding came in the final three years of the report, fiscal years 2019, 2020, and 2021.  In 2019, it was in large part the infusion of federal funds and hospital assessments to cover Medicaid expansion.  In 2020 and 2021, most of the growth resulted from the waves of federal COVID-relief funding, about $18 billion accruing to the state in that period.

The Department of Education’s funding for direct aid to local schools showed the strongest growth when only general funds are considered.  They grew from about $4.9 billion to just under $6.9 billion, about 40 percent over the period.  DMAS appears second on that list for its own consumption of additional general fund dollars for Medicaid, with the state’s hospital and service agency for the mentally ill or disabled coming in third (Department of Behavioral Health and Developmental Services.)

Only two agencies suffered a decline in general fund spending over the period, and they didn’t really.  Transportation was receiving extra general fund infusions in 2011 and 2012, which went away with the 2013 funding package.  The Department of Business Assistance and Department of Minority Business Enterprise merged, and one of their big grant programs was sent over to the Virginia Economic Development Partnership.

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The State Tax Gravy Train Accelerates

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Any claim that Virginia cannot reduce taxes on its citizens without damaging state programs has been further eroded by two recent announcements.

The explosion of revenue from recent state tax increases is continuing, pointing to a potential repeat of last year’s $2.6 billion general fund surplus, which the state’s leadership is still trying to attribute to anything but all its tax bills.  In the first three months of this new fiscal year general fund revenue is running $570 million ahead of last year’s record amounts, blowing out budget projections that assumed last year’s surplus was pandemic-related lagniappe.

The flood of money wasn’t related to the pandemic.  It was related to tax policy decisions made in 2019, 2020 and 2021, the bulk of the surplus revenue coming from higher individual and corporate income taxes.

Adding to that, the Virginia Retirement System told legislators Monday that it has done so well with its investments (a 27 percent return in one year), the next General Assembly will be able to reduce the amount of cash it invests in the next few years, a significant reduction in annual costs.

The largest reduction in required contributions will be to the teacher retirement account, which will benefit both the state and the local school system budgets.

Normally the state and localities need to budget for increases in the annual pension contribution.  A fiscal consultant to local governments told the Richmond Times-Dispatch the good investment news points to a savings, instead, of about $350 million over two years, about $210 million of the benefit accruing to the localities.

That would compensate quite a bit for the lost local revenue that would result (for example) if Virginia eliminated its existing 2.5% sales tax on unprepared food.  Not long ago the same fiscal consultant was worried that the local governments could not afford any such reduction.  There is no longer any question they can.

Governor Ralph Northam’s administration will not admit that its tax policy changes are driving the surpluses.  This from that Times-Dispatch article:

“Overall, this quarter’s revenue performance was strong,” said Secretary of Finance Joe Flores, who will review the revenue outlook with General Assembly budget committees next week. “It is important to remember that we are comparing this quarter’s performance to the heart of the pandemic closures last year when there was still not a vaccine on the horizon.”

No, the COVID-19 economic trough was earlier in 2020 and the state was on the upswing by fall.  But ignore all that and seek a comparison from before the pandemic even started.

In the first three months of this fiscal year, the corporate income tax collected $459 million, compared to $253 million four years ago.  An 81 percent growth in collection cannot be attributed to inflation or economic growth or better corporate profits.  It grew out of the General Assembly’s conscious desire to capture every dollar of the state revenue windfall created when it adopted all the new tax rules created by the federal Tax Cuts and Jobs Act of 2017.

The Assembly did make some adjustments to personal income taxes to compensate for the federally-created windfall.  Even so, first quarter personal income tax revenue is up 24 percent ($800 million) in four years.  Collections in those two categories are running $1 billion ahead of four years ago.  After three months.

How to cut taxes?  In the same Joint Legislative Audit and Review Committee (JLARC) meeting where the good news from VRS was discussed, legislators were also briefed on the status of a study on the state’s income tax.  A General Assembly resolution has asked for recommendations on how to make the income tax more progressive, meaning shifting the burden off the lowest income categories.

The interim report was basically just a primer on the issue, with the recommendations not expected for a full year, in time for the 2023 General Assembly. That timing is problematic as both the House and State Senate face elections in 2023, but the Assembly set the deadline.

The data presented Monday by JLARC do point to some obvious steps, steps which won’t be unfamiliar to anyone familiar with previous recommendations from the Thomas Jefferson Institute:

“Bracket creep has made Virginia’s income tax less progressive over time” reads the headline on slide 25. For a typical taxpayer, the study indicated, income rising with inflation has gone up 96 percent since 1990, but their state income tax has rising 152 percent.  That is bracket creep. Rising inflation will make it worse rapidly.

Raising Virginia’s standard deduction and filing threshold have also increased progressivity,” reads slide 28.  Both observations fit nicely with our long-standing advocacy to begin indexing the state’s tax code to inflation, and to at least double the standard deduction taken by most taxpayers (with a goal of matching the federal amount eventually.) Again, absent indexing, inflation rapidly erodes the value of any standard deduction.

It would be a huge mistake for the 2022 General Assembly – no matter which party is in charge — to use this unfinished report as an excuse not to act, to delay another year.  The state is sitting on excess revenue now, dollars which are vastly in excess of the amounts required to meet the budget, a revenue explosion set to continue.  If that’s not the time for a tax cut, when is?

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