Archive for the ‘Maryland’ category

Does Burning Money Increase MoCo’s Carbon Footprint?

28 April 2014


Council member Roger Berliner sponsored a set of environmental bills that made it through the council last week.  The worst one — which was passed, of course — requires the county to purchase 100% of its electricity from “clean fuels”.  The current requirement is 30%.

This initiative is all cost, and no benefits.

Based on the county’s fiscal impact statement, the law will increase the county’s energy expenditures in the range of $279,000 – $545,000 per year.  That gets over a million easily, in less than four years.Plaudits to Nancy Floreen, who argued for looking at this from a budgetary standpoint.  None of the other council members thought that was worthwhile.

And what do we get for those millions of dollars? Nothing.   The incremental change from this bill is so infinitesimally tiny that it adds up to nothing. No change in greenhouse gas emissions, no impact on climate change. Zero. Just a meaningless statement and bit of bluster.

So if the environment is not improved, who does benefit from those millions of taxpayer dollars? Well, council members like Berliner and George Leventhal get to crow about their wondrous accomplishment. (Leventhal excelled at playing the pompous windbag on this one.  He called it “the most urgent public policy challenge that we face.”   Really, George? More urgent than homelessness? Crime? Poverty? Educational failures for low-income neighborhoods?)

And certain energy producers, politically favored, get a more than tripling of the subsidy they currently receive. These producers are too expensive to compete, so they work through the political process to extract funds from MoCo taxpayers.

I can understand wanting to reduce emissions from fossil fuels.  I can understand reasonable policy proposals to do that.  But anyone with a lick of sense can also see what is purely symbolic, useless, and wasteful.This is a useless and expensive heap of corporate welfare, that allows the politicians to beat their chests, but accomplishes nothing. Nothing, that is, except take away funds from needs that really are urgent.



Maryland Business Climate: Close to the Worst

20 February 2014

Politicians usually realize the importance of attracting business to an area, and keeping existing businesses from moving.  There are two ways in which they can develop policy towards those ends.

One way is through targeted subsidies and other bribes to firms.  An example would be the tax incentives offered by Montgomery County to Westfield, to subsidize Costco’s arrival in Wheaton Plaza.  Another (on a grander scale, though no different) is the $200 million that Maryland gave to Art Modell to bring the Browns from Cleveland to Baltimore (on top of building the stadium for Modell).

Another way is to develop a set of policies that make an area a friendly place to do business.   Good, well-designed and fair tax systems are simple, transparent, don’t require large resources to comply, don’t skew towards particularly favored enterprises, and minimize the impediments to growth and prosperity.

What’s the difference between the two strategies?  And why do both the State of Maryland and Montgomery County prefer the first strategy?

The first strategy is general, and aims to provide a good climate for all business.  But that doesn’t gain very many brownie points, or rack up debts and favors that politicians can draw on later.  When something benefits the population in general, no one business gains enough that a politician can show up at the door with hat in hand.  However, the first strategy gains the politician just that.  By helping out Westfield,  MoCo councilmembers can count on campaign donations and other favors from the corporation.  For the most part, politicians don’t gain from advancing the general public good (as much as I hate using that nebulous and overused term).  They do gain from granting favors to individual actors, who then enter into a mutually advantageous backscratching relationship with the pols.

Maryland devotes a nice chunk of the budget to the Department of Business and Economic Development,  devoted to handing out this kind of corporate welfare to favored businesses.  When it comes to creating a favorable business climate (syn) however, the state government doesn’t do so well (for the reasons outlined above).  In fact, it does pretty lousy.

A report issued by economist Kail Padgitt at the Tax Foundation concluded that the Maryland fits in the ten worst business tax climates in the nation.  (Sixth from the bottom, actually).  The  report doesn’t look at an overall business climate (a pretty complicated assessment, one would think, covering transportation and other infrastructure, real estate costs, education, etc.), but rather just the tax aspect of the business climate.

The ranking is hardly incontrovertible, but is methodical and fairly applied across the 50 states.  It evaluates the business climate tax index by a weighted ranking of five tax factors.  Here’s how Maryland is ranked in comparison with Virginia (since those states competes for businesses):

MD            VA        PA

Corporate Tax                          14            4         38

Individual Income Tax            49            17        14

Sales Tax                                       11            8        28

Unemployment Insur Tax        47            29        42

Property Tax                                 40            25        44

Overall Ranking                      44            12        26

To his credit, Padgitt cites critiques of the annual Business Tax Climate Index report, but also notes several academic studies that demonstrate that the index tends to correlate well with economic growth in the state.

It is likely that tax policy is helping to steer some businesses (and jobs) away from Maryland into border states.  Without discounting other factors that are part of business location decisions, we have seen several cases in the past few years where businesses considered – and rejected – Montgomery County as a location for operations.  It would seem that if we want to improve the employment situation in Maryland, the General Assembly is going to have to take a hard look at the the areas where we do most poorly in comparison to other states – the individual income tax, the unemployment insurance tax, and the state property tax.

Public Service Commission Doesn’t Help the Public

15 April 2013

Nearly a year after the dreadful power outages of the 2012 derecho,  the Public Service Commission has finally taken decisive action, to show how well government can regulate utilities to protect consumer interests.  They’ve decided … to do nothing.

They did, however, note “a significant and unsatisfactory disconnect between the public’s expectations of the distribution system reliability… and the ability of the present-day electric distribution systems to meet those expectations.”

There are two basic ways to ensure that service providers are aware of the needs of their customers, and remain responsive to those needs.  One way is to promulgate and enforce government regulations on the service providers.  The other is to have market pressures and competition as the hammer to induce businesses to meet customer needs efficiently and effectively.

Once again, then, we see the impotence of government regulation when it comes to protecting consumer interests  Contrast it with the consumer sovereignty in a market system.  When products or services don’t meet their expectations, consumers don’t meet for a year to decide to do nothing.  They don’t need to become experts in the ins and outs of distribution systems and economic regulation.  Instead, they simply move their business elsewhere.  The state of Maryland should be focused on revamping the regulatory system to resemble a real market with choice, to enable electricity customers to do just that.

State Budget: Worse than They are Telling Us

23 September 2012

After years of  the state government spending more money than it takes in,  Comptroller Pierre Franchot announced recently that Maryland ended this fiscal year with a surplus.  One shouldn’t be deceived by the appearance of good fiscal news, however.

First, because most of that surplus  is due to the tax increases that Governor O’Malley pushed through the General Assembly.  Soon, you can bet, he’ll be proposing more places to spend that money.

Second, the surplus is illusory.  The  balance sheet, as we can usually expect from government accounting, doesn’t reflect all of the liabilities the state is carrying. A recent study by the Pew Center for the States shows that Maryland is actually in deep debt in terms of keeping up with its obligations for funding pensions.  The state pension plans have a liability of $ 71 billion, and
are poorly funded – not only by professional standards, but also well below averages for states across the country.  Most disturbingly, retiree health care funds are even worse, as they are only about 1% funded.  Maryland health care funding got the lowest grade possible in the report.

So take the reports of fiscal health (like most positive trumpeting from Annapolis) with a huge grain of salt.  Fiscally, we are still in very bad shape, and spending on health care is going to skyrocket soon.

Addressing PEPCO Problem — for real

4 September 2012

I thought it best to follow up on the snarky approach from my post on PEPCO solutions.  How about something a little more practical?

The problems that need to be addressed include (apparently) better maintenance of the infrastructure for distributing electricity, and improvement of PEPCO’s responsiveness, especially to repairing wiring and connections when storms cause outages.

How can these problems best be addressed?

First, forget about Councilman Berliner’s dream of a publically owned power company.  There is little empirical evidence to suggest that a publically owned utility would be more efficient or responsive than an investor-owned utility like PEPCO.

Keep in mind that PEPCO is already a monopoly – granted and enforced by the state.  The main problem with a government-granted monopoly like PEPCO is that the firm has little incentive to improve service.  Since the law precludes any competition with PEPCO, they don’t have to fear that customers will abandon them in favor of a different electricity provider.

How, then, can we provide incentive for PEPCO to do better?  In theory, oversight from the state is designed to pressure them to be more responsive to consumer needs.  And there have been many cries for the Public Service Commission to “crack down” on PEPCO.  But the PSC doesn’t seem to have successfully induced PEPCO to better service.  In fact, it almost seems like PSC has done the opposite.

The policy solution may go back to that problem of incentives.  Despite the monopoly they are granted, there are ways to improve the utility’s performance incentives.

1)      Emphasize competition, wherever possible.  Maryland law has already been changed to allow some flexibility and competition in generation of electricity.  You can choose which of several firms you would like to buy power from.  But in distribution  of electricity – that is, bringing it into your home — we have no competition yet allowed by law.  One way to do this is to emulate the model that is used for pay television services.  In much of the county, you can choose your service provider for pay television.  In addition to satellite services like Direct TV and Dish Network, service is provided by Comcast, RCN, and Verizon.   If you get junk mail, or see television commercials, you know how fiercely those three firms battle for customers.  For the most part, they are not building redundant wiring networks.  They are competing for the right to use the existing network infrastructure (both cable and telephone) to provide services to customers.   A similar model is used in telephone service.  You don’t have to purchase your telephone service from Verizon; there is an array of CLECs (competitive local exchange carriers) that you can contract with.  This doesn’t even discuss VOIP or other options.  All of this competition has helped lower rates and improve service;  wouldn’t it be nice to see the same thing happen for electricity distribution?

2)      Reduce barriers to entry.  We need to make sure that the legal framework for electricity is advancing to meet the technological framework, which is changing all the time.  Cogeneration, home solar, local generation – these are just a few ways for people to get electricity and (at least partially) bypass the PEPCO network.  Any legal or administrative obstacles to increasing these options need to be removed.

3)       Fix the “decoupling” policy.  Decoupling was the legislative solution to an apparent paradox (or conflict of interest) that confronts electric utilities.  On the one hand, the state wants to conserve energy, and utilities are required to subsidize energy efficiency programs for consumers.  That left the utilities in the awkward position of urging customers to buy less from their businesses.   The decoupling policy was the remedy: it guaranteed income to the utilities even if power consumption dropped.

The problem is that this creates a tremendous disincentive for utilities to be efficient about restoring power.  As UMBC economist Tim Brennan phrases it, “[T]he silliest thing we could do would be to promise these utilities the same profits regardless of how much electricity they deliver.”   The PSC has already taken steps to limit the charges that utilities can make, but the issue needs to be addressed more comprehensively.

The Costs and Benefits of Real ID

14 April 2009

The Department of Homeland Security establishes 18 separate benchmarks that need to be met in order to be compliant with the Real ID act.  To date, Maryland has met less than half of those benchmarks.    The state is now grappling with the issue of meeting the remaining benchmarks — including verification of legal immigration status — despite the expense of doing so.

And the expenses are significant.  First, the budgetary costs.  Are these in the budget? How much are they estimated to run?  DHS estimates the costs to average $78 per state — so you can assume it will cost Maryland at least $150 million.

There are also security costs.  Implementation of Real ID will surely lead to a loss of security.  Forming a national database that lists all the private information of license-holders, is like putting all your money in one box.  Sophisticated (and maybe not-so-sophisticated) hackers will have a ready-made avenue for identity theft.  In that respect, Real ID represents a tremendous security threat.  Identity theft is already a widespread problem, and Real ID would make it worse.

Then there are costs to physical safety:  Already, 30-50% of non-native applicants for Maryland drivers’ licenses are being rejected by the MVA, because of insufficient documentation of residence.  The General Assembly is currently considering, independent of Real ID, six separate bills to require proof of federal immigration status for drivers.   What will happen if Real ID is put into effect, and even more drivers are rejected?

It’s not likely that they will just quit their jobs and plop down on the couch at home.  Rather, it’s likely that they will just drive anyway.  This means that they become kind of a black market on the highway.  They will avoid police, maybe decline insurance, and become kind of an underground, below-the-radar fleet.  Unlicensed drivers mean it’s harder for police to track them down in the event of an accident, and it is harder to hold them accountable.  The overall effect is reduced highway safety.

And what are the benefits of implementing Real ID?  Maybe you could say that all the costs are worthwhile, if it reduces the threat of terrorism.  Right.   Somehow, I just can’t imagine Mohammed Atta calling up Osama bin Laden to report, “Uh, sorry chief, we have to scrap the whole operation because I couldn’t get driver’s license from the MVA.”

“Maybe We Can Build Our Own Racetrack”

31 March 2009

Magna Entertainment, which owns the Maryland Jockey Club, has filed for Chapter 11 bankruptcy.  The Jockey Club owns not only Laurel Race Track and Pimlico Race track, but also the rights to the Preakness itself.

If they go under, they will sell their assets, including the Preakness, which might then be moved out of state.  But Senate President Mike Miller won’t let that happen.

Once again, he’s floating the idea of the State building its own “super track” for racing in Baltimore.  He would have the state purchase the rights to the Preakness from Magna, and run the Preakness at the state-owned track.  He also said it might be necessary for the state of Maryland to skip over Pimlico, and build its own racetrack.

What’s the thinking here?  That the state can do a better job, and make money where Magna failed?  “Well, those people don’t know how to run a racetrack.  But Mike Miller surely does.”    More likely, the thought is that the business will still run in the red, but the taxpayers can pick up the slack.

Does this make sense to anybody? (As much as the US government placing itself as the guarantor of automotive warranties, I suppose.)

Miller, by the way,  has his office in the Mike Miller Senate Office Building — yes, it’s named after him.  I wonder how many State office buildings are named after living office holders — and how many of those are politicians who are still serving in office.  That has to be some kind of a record, outside of small Third World countries with imperious dictators.  Apparently, that’s not enough.

I think he’s envisioning the “Miller Preakness Stakes” at the “Mike Miller Race Track” now.  And Imperial Government continues to gain power.