We Must All Sacrifice for the Environment

Posted on October 3, 2018 by matt ohern
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Have we become a society of people who want to regulate others, but not ourselves? We laugh at those who suddenly object to a policy that seemed perfectly OK when (they thought) it only applied to others.
We make fun of Al Gore demanding that “we” end “our” fossil fuel use, while he travels the world in private jets and SUVs. We chortle about politicians and Hollywood stars advocating gun control while surrounded by heavily armed bodyguards.
In truth, such hypocrisy is common, because the desire to control other people’s behavior is human nature, at least for many. Yet our attempts at control frequently come back to haunt us.
In Hamlet’s most famous speech, he predicted that a would-be assassin might end up being “hoist with his own petard.” A “petard” is a bomb, so Hamlet meant the bomb maker might be blown up (“hoisted” off the ground) by his own explosives.
Today that Shakespearean phrase is a common proverb describing poetic justice, another way of saying “caught in his own trap,” or “what goes around comes around.”
San Francisco officials are once again learning this, as they struggle yet again with water shortages. Several times, endangered species issues have come back to haunt some of the nation’s most unyielding environmental campaigners and their elected officials. (San Francisco is the birthplace and headquarters of the Sierra Club.)
Yet the City has never moderated its in-your-face, holier-than-thou environmentalism. When President Trump announced the U.S. exit from the Paris climate deal, San Francisco announced that it would comply with the intent anyway, by limiting local fossil fuel use.
The City has also banned plastic straws, grocery bags and Styrofoam containers. It even requires solar panels on private buildings. If something is on the environmental industry wish list, San Francisco is leading the way.
But when the same activists insist on leaving more water in the rivers, to protect salmon, they mean water from Central Valley farmers – not their own water. Up to now, state regulators have obliged, and water restrictions have been imposed on farms to the south for 25 years.
Hundreds of billions of gallons of water previously used for irrigation have been flushed to the ocean, rather than sent through the California Aqueduct to the Central Valley, supposedly to protect salmon migration and spawning. Nevertheless, area salmon remain endangered.
So now the California Water Resources Control Board proposes further restrictions, this time including water that is part of San Francisco’s municipal supply.
Public hearings are generating numerous angry responses. That’s hardly surprising, since the plan would double the flow of water in the Tuolumne, Stanislaus and Merced Rivers, leaving more water for salmon, but less for the City – a lot less.
In fact, it could mean an annual reduction of 300,000 to 675,000 acre-feet of water for the Bay Area. In everyday household terms, that’s 98 billion to 220 billion gallons per year! Imagine how many baths, showers, laundry and dishwasher loads, lawn waterings and restaurant glasses of water that would mean.
Imagine how many almonds, walnuts, tomatoes, grapes, olives, apricots and peaches, how much cotton and rice, how much milk and cheese would not be produced in the Central Valley, if that much additional water is taken from farmers.
While San Francisco’s water supply has been mired in controversy for a century, today the city has some of the purest water in the nation. That’s because its water comes from the Hetch Hetchy reservoir in Yosemite National Park.
The losing battle against building that dam and reservoir was a defining battle cry of Sierra Club founder John Muir, who vigorously opposed it. The dam was built anyway, and since the 1920s it has delivered Tuolumne River water to San Francisco, and to farms near Modesto.
But San Francisco’s water rights are junior to the agricultural rights, so the City could actually face the largest reductions.
Golden Gate City leaders, their environmentalist allies and normally ultra-green citizens are outraged. They never intended that water reductions they so strongly support would have any effect on themselves.
Meanwhile, a local group called “Restore Hetch Hetchy” advocates tearing down the dam. In 2012 it got an initiative on the local ballot for that very purpose. But San Francisco voters voted it down. They support tearing down other people’s reservoirs, not their own.
The opponents then went to court, and have been there ever since. Ironically, they’re fighting the City itself, which argues that the legality of Hetch Hetchy is “settled,” and that the reservoir’s water supply is now indispensable.
Adding still more to the petard-like irony, the reservoir doesn’t just supply water to 2.7 million residents and businesses in more a dozen Bay Area communities. It also generates significant hydroelectric power, which is vital for a city and state that have vowed to end all electricity generation from nuclear, coal and natural gas facilities.
Suddenly, the once vital salmon somehow seem less important to City leaders.
Their alternative is (predictably) to have the State spend vastly more on “river restoration,” including killing competing fish. But even if that helps the salmon, it won’t satisfy the environmental industry, which still wants more water restrictions.
Perhaps water leaders across the West can be forgiven for thinking, “Welcome to our world,” if San Francisco is being hoist with its own petard. It is a world the Golden Gate City helped create.

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VA CPA's Say Conform, Hold Tax Funds for Later

Posted on September 19, 2018 by matt ohern
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The Virginia Society of Certified Public Accountants (VSCPA) Monday called on the 2019 Virginia General Assembly to conform Virginia tax with recent federal changes, to track and sequester the hundreds of millions of dollars in higher taxes thus generated and to hold those funds for a future tax reform effort.
Nobody knows these issues better than the people who prepare tax returns, and the CPAs cite continued uncertainty over the full impact of the federal changes, especially with several issues still awaiting guidance from the U.S. Internal Revenue Service.  The society’s position is detailed in a white paper.  It offers no firm advice on what policy changes should eventually be adopted.
“VSCPA leadership and the VSCPA Tax Advisory Committee considered and discussed numerous policy options in an effort to make a recommendation, considering extensive input from VSCPA members and tax professionals, and determined that there was no member consensus on any single policy prescription,” Vice President Emily Walker wrote in an accompanying news release.
The VSCPA has enhanced its clout on this issue by hiring former Senate Finance Committee Chairman Walter Stosch as an outside lobbyist.  Stosch’s message to conform in full and then hold the money for later decisions is likely to carry greatest weight with his former colleagues in the Senate.
On the same day the CPA’s position was announced the first piece of proposed conformity legislation was filed, a House bill seeking to allow one major deviation from conformity.  It would allow Virginians to take the standard deduction on their federal returns but still itemize deductions on their state returns.  The deductions they can take will be under the new federal rules, however.
In previous Republican-generated statements pledging to allow Virginians to keep state itemized deductions while taking the federal standard deduction, the question of which deductions – new or old — has not been addressed.  The new federal law places limits on state and local tax deductions, eliminates the moving expense deduction, and make many other changes.
Delegate Richard Bell (R-Staunton) is not on either the House Finance or Appropriations Committees and it is likely other bills will emerge, probably many of them, before the session starts in January.  To apply retroactively to tax year 2018 any bill will have to pass with 80 percent super-majorities in both chambers, requiring a bipartisan consensus.  A bill changing policy for tax year 2019 needs just the usual majorities plus the Governor’s signature.
Secretary of Finance Aubrey Layne was back discussing the issue before the House Appropriations Committee Monday, at the end of his regular presentation on the state’s finances.  A CPA himself, he probably helped influence that society position paper.  The Northam Administration is resisting efforts to make immediate tax policy changes in response to conformity but has not ruled out a tax reform effort next year.
That approach has its own challenges.  By the administration’s own estimates, conformity with no policy changes produces almost $600 million in additional revenue for tax year 2018 from individuals and businesses.  To hold the funds in reserve for a future tax policy debate would require great discipline on the part of the elected leaders.  And if done in special session next year that debate would take place during the run-up to what is likely to be a bitter primary and election season for both House and Senate.
Layne has access to the revenue model produced for the state by Chainbridge Solutions LLC and added a data tidbit yesterday:  While some people will see a tax increase if Virginia adopts full conformity, others will see a tax increase if the state does not.  The individual tax hike from non-conformity is more than $181 million.  That’s far less than the other way around but demonstrates the complexity of all this.
Speaking of complexity, an effort to explain this in easier-to-understand language led to the production of another white paper, this one mainly written by me and distributed Monday.  You can find it on the Thomas Jefferson Institute website here.
(This article first ran in Bacon’s Rebellion on September 18, 2018)

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E-ZPass Still Not Inter-operable, Two Years After Deadline

Posted on September 19, 2018 by matt ohern
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Since the advent of electronic toll collection, toll agencies have been pushing for nationwide inter-operability. Inter-operability allows a toll road user with an account in one state to use that tolling technology on toll roads in a different state. In 2013, the bill that reauthorized federal surface transportation policy and funding, MAP-21, set a deadline of October 2016 for all U.S. electronic tolling systems to be inter-operable.
It has been almost two years since the deadline and many systems are not inter-operable. Along the east coast, Florida’s SunPass, Georgia’s Peachpass and North Carolina’s Quick Pass are inter-operable with each other but not with the Northeast’s E-ZPass. Drivers with an E-ZPass can use it on toll roads managed by the Central Florida Expressway Authority but they cannot use it on those managed by the Florida Turnpike. Florida drivers, meanwhile, cannot use their SunPass on any roads in the Northeast.
To be fair, there are scores of toll authorities. Many use different equipment readers. For nationwide interoperability, each toll agency needs to be able to read all the others’ transponders. Since the states have been unable to agree on a single technology, each tolling agency will typically have to read the equipment of three to four other agencies. Florida is working on a technology that can read every transponder, but it is still in the testing phase.
And not only do we lack nationwide interoperability, many of the E-ZPass states are not truly interoperable with other E-ZPass states.  As I found out on a recent trip to the Midwest, the states have very different policies and back-offices that make interoperability a bit of a joke. On a trip from Washington DC to Detroit, I traveled on tolled highways in Pennsylvania and Ohio, and on the westbound trip everything went smoothly. I did not have to stop at any of the tollbooths.
However, the trip back to DC was another story. I was able to enter the Ohio Turnpike via the E-ZPass lane but when I tried to exit in the E-ZPass lane, the gate that Ohio uses in its E-ZPass lanes would not go up. Assuming the gate was not working, I backed up and went to a lane with a toll collector. I explained that I had a valid transponder but the collector said my transponder must be invalid. After several minutes of trying to explain how E-ZPass is supposed to work, I gave up and paid the toll with a credit card. My trip through Pennsylvania was uneventful so I assumed the problem was with Ohio’s system.
But several weeks later, I received two Pennsylvania violation notices in the mail. I checked my Virginia E-ZPass and found it was working properly. Dumbfounded, I called Virginia E-ZPass to try to determine the problem and received an education in the different E-ZPass rules by state.
First, states have different rules on E-ZPass accounts. My home state of Virginia allows accounts to go negative; rather than sending a violation notice, it debits $35.00 from the account holder’s credit card once the balance falls below $10.00. Some other states including Maryland also do this. But certain states including Pennsylvania and Ohio do not allow a negative balance. If an account is negative, they will not debit the credit card but will show the user as a violator.
States also have different rules on gates at toll booths. Some don’t have any gates for any lanes; many have gates for customers paying by cash only; Ohio has gates for customers paying by cash or using E-ZPass. There are a number of other policies in which they differ, but the large differences in these two policies show that E-ZPass states are not truly interoperable.
One of the most frustrating aspects is the attitude of some state toll agencies. While most try to offer good service, a few seem to offer Soviet-like service. Their approach is that they operate the toll road and if you like the service they operate, that’s good; if you don’t like it, that’s too bad. Many tolling groups, including the International Bridge Tunnel and Turnpike Association (IBTTA) and the Alliance for Tolling Interoperability (ATI) have suggested toll that agencies adopt the model of the user as a customer, but not all agencies are on board.
These different operating policies will depress toll road usage. I work in the transportation field, so I understand the complexity of these toll systems. But Joe Regular just wants his E-ZPass to work. And if he is forced to pay with a credit card in Ohio or receives violation notices from Pennsylvania, he may cancel electronic tolling. There are real costs to the agency; sending out toll violation notices takes staff time and resources to confirm the violation.
Electronic tolling benefits both the toll agency and the toll road customer. For agencies, electronic tolling reduces costs by eliminating toll collectors and improves safety by eliminating merges near toll plazas. For customers, electronic tolling is more convenient than searching for quarters; many toll agencies also offer discounts for using a transponder.
Members of the E-ZPass group need to adopt consistent usage policies. If a majority of members don’t want to allow customer accounts to go negative, then the system should be set up to debit accounts more quickly. If a majority of members have true open road tolling without gates, then all agencies need to work to have open road tolling. Not every decision needs to be based on majority vote; in some cases an agency might want to try new technology.
It’s long past time for toll roads to be truly interoperable. If the E-ZPass states cannot achieve interoperability, nationwide interoperability may be many years away.
(This article first ran in the September issue of Surface Transportation Innovations.)
Baruch Feigenbaum
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The Nation of Kiribati Is Growing, Not Sinking

Posted on September 19, 2018 by matt ohern
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(Editor’s note: One of the problems today is that journalism has become advocacy in too many cases. This is a sad commentary since the readers deserve to receive reasonably accurate “news” and the opinion page should be just that. This article is another example of the problem we all face today and one that illustrates why the media is held in such low esteem.)
Journalists are traveling to the Pacific island nation of Kiribati, because they believe that global warming is causing it to sink into the ocean, and it will soon be gone. However, the people of Kiribati are telling reporters this is not the case. A newsman has chalked this up to a “mental block” that makes the locals unwilling to face the truth. Yet, the facts of the matter prove that the people of Kiribati are correct, and the journalists are disconnected from reality.
The nation of Kiribati is comprised almost entirely of coral reef islands. These are typically found in the Pacific Ocean and are primarily made of gravel, silt and sand that has accumulated on coral reefs. Because these islands are only slightly above sea level and are made of loosely bound sediments, they are considered to be among the most vulnerable places on Earth to rising sea levels.
In a recent Washington Post feature entitled “The Sinking State,” Joshua Keating, a staff writer and editor at Slate, claims that “not that long from now” rising seas caused by global warming will “probably” destroy Kiribati. He also says:

  • it may be “one of the first” nations “wiped out by the effects of climate change.”
  • the entire nation could become little more than “a reinforced platform with a flag perched in the open ocean….”
  • its capital city of “Tarawa, where nearly half the country’s 110,000 residents live, could soon be substantially underwater.”

To support these predictions, Keating quotes a 2015 report that the administration of Kiribati’s former president sent to the United Nations. It says that “within a century” the nation’s farmland “will be largely submerged, while other islands and atolls will … disappear altogether.” This report contains no citations or links to document these allegations. It also repeatedly mentions the financial resources that Kiribati wants from others to mitigate these catastrophes.
Kiribati Has Actually Grown
In contrast to those claims, the authors of a 2010 paper in the journal Global and Planetary Change used aerial and satellite photographs to conduct “the first quantitative analysis of physical changes” in 27 central Pacific coral reef islands, including those in Kiribati. The study examined four islands in Tarawa over periods of 31–65 years and found that:

all four islands exhibited an increase in island area. Notably the three urbanized islands of Betio, Bairiki and Nanikai increased in area by 30, 16.3 and 12.5% respectively. Buariki in the north of the atoll exhibited an increase of 2%.

The study also found that these circumstances are not unique to Kiribati, and among the 43 islands surveyed:

  • 43% remained stable.
  • 15% decreased in area, with changes ranging from 3% to 14%.
  • 43% increased in area, with changes ranging from 3% to 30%.

In the words of the paper, the “results of this study contradict widespread perceptions that all reef islands are eroding in response to recent sea level rise.”
Likewise, the authors of a 2013 paper in the journal Sustainability Science used aerial and satellite photographs to examine “changes in shoreline position on the majority of reef islands” in Tarawa from 1943 to 2007. They found that these islands “substantially increased in size” and:

Despite the widely held perception that reef islands around the perimeter of coral atolls are eroding and will disappear as a consequence of sea-level rise resulting from global warming, this study shows that the total area of reef islands on Tarawa Atoll has increased over recent decades.

The study determined that the vast majority of this increase was from human activities. For example, people have filled in marine areas with materials from nearby beaches and shore areas to create new land. Yet, even in rural areas where natural processes dominate, the study found that “most reef islands show stability” and have had “modest natural rates” of growth.
The same paper notes that some individuals observe “evidence of erosion of reef islands” and “infer” that they “are threatened by sea-level rise” from global warming. “However,” as the authors explain, “these trends have often been shown to be cyclic” natural changes that have nothing to do with global warming.
Journalists and activists frequently point to short-term or local trends as proof that humans are causing harmful changes in the earth’s climate, but long-term, inclusive data often shows that these changes are well within the bounds of natural variation. Beyond coral reef islands, they have done this with diverse subjects like hurricanes, temperature changes, famines, rainfall, and ice conditions.
Since long before humans began using fossil fuels, the earth and its climate have been changing. As stated in the college textbook Evolution of Sedimentary Rocks, “Every area of the continents has been at one time covered by the sea, and there are some places that show clear record of being submerged at least 20 separate times.”
Global Versus Local Trends
Data from tide gauges show that the average global sea level has been generally rising since 1860 or earlier. Since 1993, instruments on satellites have also shown a rise in the average global sea level.
That does not mean that sea level has risen everywhere. The ocean’s vast waters are not evenly distributed like they are in small bodies like lakes. For instance, the sea level in the Indian Ocean is about 330 feet below the worldwide average, while the sea level in Ireland is about 200 feet above average. Even though all the oceans are connected, such variations are caused by gravity, winds, and currents.
Also, the practical effects of these phenomena are dynamic. For example, between 1992 and 2010, sea level rose by about 6 inches in the tropical Western Pacific while falling by about the same amount in San Francisco.
In other words, local sea level trends commonly differ from global ones. Hence, it is a mistake to assume that the average global trend applies to everywhere on earth.
It is also a mistake to assume that a rise in the average global sea level translates to a net loss in coastal land. Per a 2016 study published in the journal Nature, the earth gained a net total of 5,000 square miles of coastal land area from 1985 to 2015.
Mental Blocks
Near the end of his piece, Keating frets that the citizens of Kiribati “seem no more troubled about the issue” of climate change “than people in the United States are.” Reporting on his visit to Kiribati and interviews with the locals, he writes:

  • “Most people I met weren’t making plans to relocate anytime soon.”
  • “Instead, I heard a lot of frustration that the rest of the world seems to take notice of the I-Kiribati only to tell them they’re doomed.”
  • “Several people I spoke with had already given interviews about climate change to foreign reporters. ‘In my case, you are the fifth person,’ remarked Teewata Aromata…. ‘People come and ask us the same questions. They see pictures of us and think we are drowning in the ocean.’ ”

Instead of considering the possibility that these people are correct, Keating evaluates the situation and psychoanalyzes them as follows:

Yet the stubborn facts remain. Countries like the Maldives and Kiribati are probably disappearing—and not that long from now. I came to Kiribati expecting to find a place planning for its own destruction, but instead I found something more dispiriting: a place that, with a few exceptions, wasn’t even contemplating that destruction. …
The mental block that prohibits thinking about what will happen when the islands are no longer inhabitable seems to be a major impediment to planning for that eventuality. In this regard, too, Kiribati is a microcosm of the world’s unwillingness to face the reality of the future.

This episode highlights the media’s propensity to embrace false narratives and look down their noses at others who don’t. Given the effects of media on the public and governments, this can waste enormous resources on fake problems, while diverting them from real ones.
(This article was published by Just Facts on September 10, 2018.)
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Virginia and the Next Global Debt Crisis

Posted on September 19, 2018 by matt ohern
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Ten years ago the Lehman Brothers debacle precipitated the financial meltdown we associate with the Great Recession, and the financial media are full of retrospectives. A key question is what lessons we learned from the epic failure. The main conclusion drawn, according to Daniel J. Arbess in the Wall Street Journal today, appears to be that the way to dig out of a debt-fueled financial crisis is to pile on more debt. But that doubles down on the original problem, he warns:

In the past decade, total global debt (sovereign, corporate and household) has spiked nearly 75%. This includes a doubling of sovereign debt, from $29 trillion to $60 trillion, according to a recent McKinsey report. Total corporate debt increased by 78% over the same decade, to $66 trillion. Bank loan volumes have been stable, although low-quality “covenant lite” loans have dominated. Bond markets have filled in, with nonfinancial bonds outstanding up 172%, from $4.3 trillion to $11.7 trillion. McKinsey says 40% of U.S. companies are rated one notch above “junk” or lower, and the Bank for International Settlements estimates 10% of legacy companies in the developed world are “zombies,” meaning earnings before interest and taxes don’t cover interest expenses.
This is what zero interest rates and quantitative easing have wrought — more debt and lower credit quality. … Higher rates are coming, possibly heralding a tsunami of credit defaults.

As the Federal Reserve and the European Central Bank slowly dial back quantitative easing, interest rates will rise, stressing debt-laden governments, corporations and households. We are already seeing the effects in Turkey, Venezuela, Argentina and other developing nations as higher U.S. interest rates push the value of the dollar higher. Defaults in developing countries will be transmitted to the developed world in ways foreseeable and unforeseeable. The financial media have remarked upon the massive exposure of Spanish banks to the Turkish economy, for instance, which could prove problematic for the larger Spanish economy, the 13th largest in the world. But global markets are so complex and intertwined that defaults can spread as unpredictably and explosively as the sub-prime mortgage loan crisis in the U.S. did ten years ago via financial innovations that have so far eluded the notice of media and regulators.
What’s it to us? That’s all fine and good for bond traders and hedge fund managers, you say, but what difference does it make to Virginia? It matters because Virginia is part of the global economy and global financial system, and what happens elsewhere will impact us. The policies we pursue at the level of state/local government can make us more vulnerable to, or more resilient in the face of, the next financial crisis.
To be sure, the Commonwealth is nowhere as vulnerable as, say, Puerto Rico was before it declared bankruptcy, or as Illinois and Chicago now are. We have a AAA credit rating, we balance our budget with only a modicum of chiseling, and we pay our bills on time. But the bond rating of the Commonwealth does not tell us anything about the indebtedness of our local governments, our universities, our hospitals, our quasi-government organizations, our economic development authorities, our housing authorities and all the other bond-issuing entities in the state. No one has toted up all those numbers.
We continually discover things we didn’t know before. While Virginia’s $20 billion or so in unfunded pension liabilities are well known, only recently has our attention been drawn to the $3.5 billion in pension liabilities at the Washington Metropolitan Area Transit Authority (WMATA), which operates Northern Virginia’s heavy rail mass transit system and much of its bus system. As the Government Accountability Organization concluded, “Due to their relative size, proportion of retirees compared to active members, and investment decisions, these pension plans pose significant risk to WMATA’s financial operations, yet WMATA has not fully assessed the risks.”
How many other WMATAs are out there?
The Metropolitan Washington Airports Authority (MWAA) comprehensive annual financial report indicates that the authority’s two pension plans were fully funded as of Dec. 21, 2017. The General Employees Retirement Plan was seemingly in great shape with assets amounting to 105% of pension liabilities. Great news! But dig into the assumptions, and we see that the pension plan projects a 7.5% annualized investment rate of return. Many actuaries are saying now that a 7% or 6.5% rate is more realistic.
Similarly, the Ports of Virginia reported an unfunded pension liability of only $8.9 million as of June 30, 2016, an improvement over the previous year. The pension was about 91% funded. The ports assumed a 7% investment rate of return, somewhat more conservative than MWAA’s assumption.
MWAA and the Ports of Virginia are two of the largest quasi-governmental business entities in Virginia, and it is reassuring to see that they have their pensions under reasonably good control. But there are dozens if not hundreds of other bond-issuing entities in the Commonwealth. After the Petersburg fiscal meltdown, the General Assembly began watching for early warning signs in Virginia’s local governments, but there are dozens if not hundreds of other entities that issue bonds and borrow money. The federal government conducts “stress” tests on too-big-to-fail banks to see how they would hold up under adverse economic circumstances. Is anyone conducting stress tests for Virginia’s public and quasi-public entities? Not very likely.
The bottom line: Another global debt crisis is inevitable, the only questions are when it happens and how the damage ricochets throughout the global economy. How vulnerable is Virginia? We really don’t know. To be forewarned, as the saying goes, is to be forearmed. We are neither.
(This article first ran in Bacon’s Rebellion on September 15, 2018)
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