Federal Spending Significantly Impacts Virginia

Posted on July 20, 2016 by matt ohern
Share this article on:

fed reserveThe federal government spends billions of dollars buying goods and services from private sector firms each year.
Just as the fortunes of businesses dependent on federal spending ebb and flow with federal budgets, so do the budgets of the states where those employers are concentrated.

And while non-defense contract spending has supported economic growth in many states over the past decade, it will contract when budget reform becomes a priority.
When that happens, states like Virginia whose budgets are more dependent on that spending may experience shortfalls.
In the fiscal year that ended Sept. 30, federal contracts decreased by $5 billion, or 1.2 percent. And 64 percent of the purchases in the most recent fiscal year were driven by the Defense Department.
In Virginia, federal government contracts decreased more sharply, falling 4.4 percent — or by $2.4 billion — based on data from USASpending.com that Chmura Economics & Analytics adjusted for place and time of performance.
Virginia is more dependent on DoD spending than the nation.
Sixty-five percent of the purchases in Virginia during the most recent fiscal year are from Defense Department spending — and those purchases made up 7.1 percent of the state’s gross domestic product, compared with 1.5 percent in the nation.
While the majority of these awards support the Defense Department, numerous other federal agencies enter contracts to purchase goods and services. For example, the Department of Health and Human Services contracts with pharmaceutical companies to produce vacc-ines, and the Department of Energy awards contracts for, among other things, research and development.
The state also is more dependent on non-Defense Department federal spending, which makes up 3.8 percent of its GDP compared with 0.8 percent in the nation.
Since non-Defense Department contract spending has been less volatile than the department’s spending over the past 10 years, it has contributed to more stable growth in some states — like Virginia — that are dependent on defense spending.
In Virginia for the fiscal year that ended Sept. 30 compared with the prior 12 month-period, a $1.4 billion increase in non-Defense Department contract spending partially offset a $3.8 billion decrease in the department’s contract spending. In other words, Virginia would have been impacted more severely without the expansion in non-Defense Department contract spending.
Non-Defense Department contract spending advanced at a modest 32 percent from fiscal year 2005 to fiscal year 2010 compared with a 49 percent gain in Defense Department spending over the same period. The non-defense spending was particularly strong, jumping by $30 billion from fiscal year 2008 through fiscal year 2010 as fiscal policy expanded in response to the recession.
After peaking at $152.9 billion in fiscal year 2010, annual non-defense contract spending has declined by only 1 percent. That compares with a 19.4 percent drop in defense contract spending after it peaked at $336.7 billion in fiscal year 2009.

Non-defense contract gains by state

non-defense-spending part1
non-defense-part2
Here are the non-defense contract gains by state from fiscal year 2005 (12-month ended Sept. 30, 2005) to fiscal year 2015. (The per capital gains are in parentheses.):

  • Virginia: $8,542,008,667 ($1,019)
  • District of Columbia: $5,839,744,820 ($8,687)
  • Maryland: $5,593,916,049 ($931)
  • Pennsylvania: $3,285,748,606 ($257)
  • Massachusetts: $2,857,615,828 ($421)
  • California: $2,039,365,210 ($52)
  • North Carolina: $1,173,863,398 ($117)
  • Florida: $1,173,274,726 ($58)
  • Colorado: $939,922,764 ($172)
  • Mississippi: $929,920,035 ($311)

Source: Chmura Economics & Analytics
(This column first ran in the Richmond Times Dispatch on July 11, 2016)
Email this author

Posted in Economy | Comments Off on Federal Spending Significantly Impacts Virginia

What is Behind the Great Transit Crackup?

Posted on July 20, 2016 by matt ohern
Share this article on:

metro-180x150This year has seen a plethora of major troubles in legacy transit cities—Boston, San Francisco, and Washington, DC in particular (but there are also serious deferred maintenance problems in Chicago and Miami). In addition, there were major disruptions within the American Public Transit Association, the trade association for nearly all of America’s public transit systems.
The year began with what has been described as a “melt-down” at the Massachusetts Bay Transportation Authority, which failed to keep its trains running during a snow storm. San Francisco’s 44-year old BART system had to take 50 railcars out of service in March due to damage to electronics from a still-unexplained power surge. Philadelphia’s SEPTA recently took a fleet of new Silverliner railcars out of service, due to cracks in a key component of their suspension system. But by far the greatest fiasco was the closure of the Washington Metro for an all-up safety inspection, after a series of crashes and fires that have included a number of fatalities.
Broadly speaking, deferred maintenance is the common factor in most of these cases. As DOT Secretary Anthony Foxx put it in remarks delivered June 29th , the mentality in previous decades was “build it, build it, build it, and let’s worry about repairs later. We bought the house, but didn’t set aside any maintenance dollars for the house. So the roof got leaky, the floorboards started popping up. We decided we could live with it for a while, and now things have gotten so that the repairs are so much more expensive.” Referring to the Washington Metro in particular, Foxx said, “My view is that Metro needs to really get its house in order and focus on what it has, before thinking about doing any expansion.” Better late than never, but it’s tragic that no previous DOT Secretary (say 10 years or so ago) had the courage to say that.
The problem at many of these agencies is basically the incentives of the political appointees who constitute their governing boards. Zachary Schrag’s 2006 book, The Great Society Subway: A History of the Washington Metro, includes a serious discussion of what even then was “a looming maintenance backlog” that was greatly exacerbated “by the constant desire of politicians to prioritize shiny new stations and extensions,” rather than boring old maintenance work. (The quotations here are Eno Transportation Weekly editor Jeff Davis’s paraphrase of Schrag’s discussion.) In other words, what we have is an institutional failure, at its core a dysfunctional governance model.
In the case of San Francisco’s BART, much of its current maintenance problem was self-inflicted by engineering hubris. Back in the early ’60s, determined to reinvent rail transit, its designers opted for a unique 5′ 6″ track gauge, which required custom-made trucks and wheelsets, brake systems, and track repair vehicles, not currently available from any suppliers. They created a unique 1,000-volt electrical power system, for which no replacement parts are available. The train control system, still using 1972 microprocessors, is responsible for more than 25% of all delays, because it creates “ghost trains” wherein the computer freezes train movements due to images of a train that is not there.
While all this was going on, a great shake-up took place at APTA. It began late in March when New York’s Metropolitan Transportation Authority announced that it was quitting the organization, effective immediately. In its letter explaining the decision, MTA’s top officials noted that there were no Legacy System members on the APTA Executive Committee, nor any operators of commuter rail systems—two segments that “alone make up the overwhelming majority of total customers served by public transit” in this country. Moreover, there was only one Executive Committee member from the Northeast, compared with six from California alone. The Legacy System members alone (all major rail and bus operators) account for almost 60% of all transit passengers. Their needs, especially “state of good repair” needs, are “an order of magnitude greater than the non-Legacy rail systems.” And after a period of serious cost-cutting at MTA ($1.8 billion in reduced costs in a $14 billion annual budget), MTA could not justify the $400,000 annual cost of continued APTA membership, compared with the value it was receiving from other memberships.
Less than a month after MTA’s April 8th letter, APTA President Michael Malaniphy had resigned, after less than five years on the job. So far there have been no announced changes to APTA’s Executive Committee, but Vice President Rosemary Sheridan told Politico that the criticisms raised by the MTA would not be ignored. Given how serious the problems facing legacy transit systems have become, that would be an appropriate challenge for APTA to focus on under a new president.
(This column first appeared in the July 12 issue of Surface Transportation News on Reason.org.)
Email this author

Posted in Transportation | Comments Off on What is Behind the Great Transit Crackup?

Federal Land Grab is An Assault On Private Property

Posted on July 20, 2016 by matt ohern
Share this article on:

BLMLogo
Utah’s Attorney General filed a lawsuit in February 2016 against the Bureau of Land Management (BLM) in the Department of the Interior and the United States Forest Service (USFS) in the Department of Agriculture. Utah claims that in 2015 a federal plan was issued which amounts to grabbing control of millions of acres of ranchland and directly prohibiting mining on 233,300 acres of land in Utah. In the West, 10 million total acres of land would be off limits to mining because the sage grouse habitat. Utah’s sage grouse plan, according to all studies, has been enormously successful. Utah claims the federal government plan amounts an improper “overthrow” of the state’s plan.
Generally states and their wildlife agencies have had the primary authority over the regulation and management of species such as sage grouse.(Photo: gdbeeler/Thinkstock)
this-land-is-your-land
Generally, states and their wildlife agencies have had the primary authority over the regulation and management of species such as sage grouse. Not content with the state’s success in managing the sage grouse, BLM and USFS want to use it as an excuse to take more control over mining and grazing rights on federal land.
The regulations of BLM and USFS are worth examining. (They are preposterous!) The federal agencies identify “grazing” as a threat to sage grouse in Utah and as a result impose “…numerous prohibitions and restrictions on grazing, permitting and leasing.” They include maintaining grass heights at 7 inches or higher until June 15 of each year while the sage grouse are breeding and nesting on ranch land. When cattle grazing occurs within 4 miles of a breeding and nesting sage grouse, from June 16-Oct. 30, perennial grass heights are to be maintained at 4 inches or higher. A requirement, which could only be written in Washington, declares “drought and degraded habitat cannot be used as a basis to adjust grass height table requirements.” Another requirement, “fences and roads identified as negative impacts…must be minimized.” BLM and USFS also declare that “construction of new permanent livestock facilities including windmills, water tanks, and corrals will not be permitted within 1.2 miles from the perimeter of occupied leks.” [breeding areas]
Ranchers will love the fact that they have to get rid of their ponds for watering cattle. The new rule declares “livestock ponds built in perennial channels that are negatively impacting riparian habitats must be removed and no new ponds will be permitted in these areas.” It is easy to see why ranchers and miners in the West believe that once again they are being forced off the land and out of business due to regulations coming from Washington.
The Wall Street Journal on March 11, 2014, in an article entitled, “Sage Grouse Rebellion” wrote that half of the land west of the Mississippi belongs to the federal government, which includes 48% of California, 62% of Idaho, and 81% of Nevada. The WSJ wrote, “In partnership with green activists, the Department of Interior may attempt one of the largest federal land grabs of all times.” The article claims the sage grouse population occurs on private property and that such property “…could become subject to some of the most invasive private land-use rules…in the history of protected-species law.”
A new administration will have its hands full in protecting property rights in the West and needs to issue a new Executive Order protecting property rights.
(This column first ran in Farm Futures on July 18, 2016)
Email this author

Posted in Agriculture, Land Use | Comments Off on Federal Land Grab is An Assault On Private Property

Reflections on the McDonnell Saga

Posted on July 7, 2016 by matt ohern
Share this article on:

mcdonnellreform120Justice Department lawyers and lower federal courts have been unanimously over-ruled by the U.S. Supreme Court in the corruption case brought against former Governor Bob McDonnell.
The Supreme Court’s ruling is a breath of fresh air.  
Johnny Williams, a person McDonnell thought was a friend, offered and the former Governor and his family members accepted, $175,000 in various gifts.  A Governor, any Governor, simply should not accept such gifts, because there is no way it can ever look “good.”   
So what did Williams get in return from the Governor? Nothing. Williams’ dietary supplement did not impress the Health Secretary … the Secretary of Commerce did not want the state to get involved with this product… … Williams didn’t even receive an appointment to one of several hundred positions on commissions and other government bodies that a Governor has available to offer. All Governor McDonnell did, as previous governors have done, was ask a couple of Cabinet officers to meet with Williams to see if there was anything worthwhile with his diet product. Those Cabinet officers, after meeting with Williams, did not want to deal with the product and the Governor never urged otherwise.
And what did the Justice Department do?  Its attorneys approached Jonnie Williams, whose company was facing serious legal problems itself with the federal government and whose product had not received state support, and told him if he would turn on Governor McDonnell and offer damning evidence against this popular Governor who was prominently mentioned as a future vice presidential candidate, they would cancel the federal investigation into his company.  And guess what?  Williams turned on McDonnell.  The Justice Department went after McDonnell using an expansive interpretation of the federal law, and convicted him and his wife of trading government favors for personal gain.
And what was the government favor?  McDonnell did what elected officials and private citizens do many times for someone who has an idea or a product that might be interesting and worth pursuing: he had experts review the product – in this case two of his appointed Cabinet Officers.  And when those experts said, “Thanks but no thanks” to Williams, the Governor accepted those conclusions and did not ask for reconsideration. And the Governor also invited some health experts over to his official home to hear the story of this local company’s dietary supplement.  Again, nothing nefarious.  
The U.S. Supreme Court ruled, with every Justice appointed by a Republican or Democrat president voting in unison, that the Justice Department was wrong to rely on such an overly expansive definition of the federal corruption law.  It said, as did over 40 state attorneys general, a majority of them Democrats, that no Governor or elected official could be “safe” if setting up meetings for constituents became the reason to prosecute for corruption.
Bob McDonnell accepted gifts that should have been turned down, not because they were illegal under state law, but such gifts simply “look bad.”  However, no government quid-pro-quo occurred in exchange for these gifts.  McDonnell did not provide Williams with anything from the government.  He did not “sell government favors.”  Bad judgement is not criminal behavior.  There is a huge difference as the Supreme Court unanimously ruled.
Bob McDonnell was pursued by an overly aggressive Justice Department offering immunity from a federal prosecution to Jonnie Williams in exchange for testimony against the former Governor.  As it turned out, not only was the Justice Department and lower federal courts slapped down by the Supreme Court’s unanimous decision, but Williams is now free from that federal prosecution that was hanging over his head at the time.  The federal government’s Justice Department blew it across the board.   
This Supreme Court ruling shows the genius of our Founding Fathers in setting up our three independent branches of government.  In this case reason prevailed.  The system worked.
During a radio appearance on WTOP’s “Ask the Governor” program, Governor McAuliffe was asked if he agrees with those who think McDonnell shouldn’t face a second trial. The Supreme Court “pretty much said that,” McAuliffe replied.  “It is time to move on,” McAuliffe said. “This man has paid the price.”
Governor McAuliffe is absolutely correct.
Email this author

Posted in State Government | Comments Off on Reflections on the McDonnell Saga

Transparency and Market Competition in Virginia

Posted on July 7, 2016 by matt ohern
Share this article on:

Virginia-State-Capitol-Building-small With little fanfare and scant media attention, Virginia government became more transparent, efficient and business friendly on July 1 thanks to a new law authored by Delegate Jim LeMunyon (R-Fairfax).
During the administration of George Allen, Virginia led a national trend to bring competition and private sector effectiveness to government services.  One of Governor Allen’s first actions was to establish a Commission on Government Reform, known as the Blue Ribbon Strike Force, to review and reinvigorate state government. The commission examined every aspect of the executive branch of state government and recommend ways to improve state services.
One such recommendation was to implement an institutional infrastructure for a statewide competitive government program through legislative formation of a Governor’s Council on Competition.  In 1995, the Virginia General Assembly passed and the Governor signed into law the Government Competition Act, creating the Commonwealth Competition Council.  For more than 15 years, Virginia’s “CCC” helped government to work better, cost less, and not compete with private enterprise by promoting outsourcing, privatization and the use of public-private partnerships.  The council became moribund under Governor Mark Warner, focusing on briefings at the expense of positive action, and was terminated by the General Assembly upon the recommendation Governor McDonnell’s Commission on Government Reform and Restructuring in 2011.  (That Commission also recommended privatization of the Virginia Department of Alcoholic Beverage Control (ABC) distribution and retail system, a proposal that stirred controversy but ultimately failed in the General Assembly.)
Virginia law (§ 2.2-5513) requires the Governor’s “examination of the commercial activities that are being performed by state employees at state agencies and institutions to ensure such activities are being accomplished in the most cost-efficient and effective manner.”  The Commonwealth’s procurement code, (§ 2.2-4300 et seq) procedures for the procurement of goods and services from nongovernmental sources, is to include an open and transparent process.
However, a glaring loophole existed in the law applicable to inter-agency transactions. When a Virginia agency purchased a good or service from another state agency that is otherwise commercially available, the procurement code did not apply. If the Virginia Department of Transportation (VDOT) needed widgets, and the Virginia Department of Conservation and Recreation (DCR) made widgets, using state employees, VDOT could buy widgets from DCR with no public notice or competition. A behind closed doors monopoly existed for inter-agency transitions.  And if there was a private small business, let’s call it Old Dominion Widget Manufacturing, Inc., the company not only was denied the opportunity to supply VDOT with widgets, but it never even knew DCR had a widget requirement.
With the termination of the CCC, Virginia businesses had no recourse and nowhere to go to lodge a complaint.
Delegate LeMunyon’s reform legislation changed all that by injecting transparency and open competition into the process.
HB 823 requires that any state governmental agency that purchases goods or services from another governmental agency – including universities and colleges — to first make such a requirement public by posting it on the Department of General Services’ central electronic procurement system.  It also requires the Department of General Services to publish on its central electronic procurement system website a government-to-government transaction transparency report.
While the widget example is hypothetical, actual situations of agency-to-agency purchasing existed. Back room deals and non-competitive arrangements were not only permitted under the law, but actually transpired.  Tax dollars were wasted, government operated in the dark, and business as well as employment opportunities for private enterprise were denied.
While being known for small, limited and frugal government, Virginia still has hidden activities in need of reform.
“Agriculture, manufacturers, commerce, and navigation, the four pillars of our prosperity, are the most thriving when left most free to individual enterprise,” according to Mr. Jefferson.  There is a little more of that in Virginia today thanks to Delegate LeMunyon’s new law.

Email this author

Posted in Transparency | Comments Off on Transparency and Market Competition in Virginia