Sustained Outrage

Getting the right information on Marcellus Shale

West Virginia’s political leadership and much of the media continue their push to show how great Marcellus Shale drilling is going to be for our state, and to dispel any notion that the state’s tax structure and regulatory requirements are not tough enough on the industry.

Take today’s top story in the Charleston Daily Mail, in which statehouse reporter Ry Rivard writes:

West Virginia appears to place a higher tax burden on natural gas operators than five surrounding states, according to a recent study by the Marshall University Center for Business and Economic Research.

A team led by professor Calvin Kent compared West Virginia to 18 other states, including Kentucky, Maryland, Ohio, Pennsylvania and Virginia.

“West Virginia places more taxes and fees on natural gas production than most of the other states which were studied,” Kent and his team concluded. That includes Pennsylvania, which is in direct competition with West Virginia for drilling activity.

Before we’re too tough on our buddy Ry, though, let’s not forget that the Gazette’s statehouse reporter, Phil Kabler, took this Marshall spin without question, writing last week:

A report by the Marshall Center for Business and Economic Research found that West Virginia’s taxes and fees imposed on natural gas production are comparable overall with other natural gas producing states, but noticeably higher than surrounding states.

West Virginia’s severance tax, 5 percent of gross value, is higher than neighboring states, including the states of Pennsylvania and Maryland, which have no severance tax on natural gas.

“You’ve got a huge advantage in Pennsylvania right now, because natural gas is being exploited out of that state with very minimal taxation,” Marshall professor Cal Kent told an interim committee on Finance.

The report said it is impossible to determine what impact the tax rates will have on development of Marcellus Shale drilling in the state, since taxation is only one of many factors that determine where companies will locate.

Now, this Marshall University report is certainly being promoted by industry groups and their supporters. But if anybody had bothered to dig a little deeper, they might have found this preliminary analysis by the West Virginia Center for Budget and Policy, which explains that simply comparing the basic tax rate isn’t enough — it doesn’t show the full picture. To do that, as the center explains, you have to look at “effective rates” of taxation:

However, effective rates are often lower than statutory rates. The effective rate is the end result after you adjust for deductions, limits and credits.

As we’ve written before over on the Gazette’s Coal Tattoo blog, that sort of review paints quite a different picture, showing that West Virginia’s severance tax (for all mining – industries, including coal and natural gas):

Using this method, West Virginia has an effective severance tax rate of 3.2%, well below the average of 5.2% for the top ten states. Alaska had the highest effective rate at 11.2%. Of the ten state’s most reliant on the severance tax, West Virginia ranked 7th for effective rate. West Virginia also had a lower effective rate than neighboring energy producer Kentucky, and a lower rate than the western states whose production is growing more competitive with West Virginia every year.

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Beware the Marcellus Shale gas boom?

A new report from the West Virginia Center for Budget and Policy offers some cautions about the much-touted boom in oil and gas drilling in our state.

The report, Booms and Busts: The Impact of West Virginia’s Energy Economy, concludes:

In the past, West Virginia counties with a concentration in mining saw their economic performance dramatically decline after an energy development boom. Today, their economies are weaker than the rest of the state, and they are ill-positioned to compete and grow. It is uncertain whether today’s energy boom, led by natural gas extraction, will bring the prosperity to West Virginia that it promises. While the potential revenues from this boom seem to be an attractive source of economic growth for communities, history shows that natural resource booms inevitably lead to busts.

This pattern is likely to repeat itself in counties that focus heavily on the Marcellus Shale development as the main source of economic growth. Indicators suggest that relying on an energy boom is not a definite solution for long-term growth and prosperity. The Marcellus Shale development has the potential to place unprecedented strains on the communities where drilling occurs. Researchers and analysts are just beginning to understand the environmental, health, and infrastructural impact of Marcellus Shale drilling. It remains unclear if natural gas drilling can create sustained economic growth for counties.

While the present and future impact of natural gas drilling remains uncertain, there will certainly be an initial boom in economic activity due to the Marcellus Shale development. However, positive long-term economic growth will come only from a diverse economy with a highly educated workforce. West Virginia can benefit in the long-term by capturing revenue from today’s boom activity and converting it into a permanent source of wealth. This can be done through the creation of a Permanent Mineral Trust Fund financed by severance taxes. Such a fund would be used to promote economic diversification and development, and would help ensure that the wealth generated by the energy boom stays in West Virginia and remains long after the mining resources are gone. The interest income from the permanent fund can be used for economic diversification, such as investments in early child care and higher education, infrastructure projects like high-speed broadband, renewable energy and remediation, and grants to help entrepreneurs and other business owners.

In 2009, we reported on the problems some West Virginians were having with a then-new unemployment program that gave  people their benefits on prepaid debit cards, rather than old-fashioned checks. People who were already struggling to pay the bills were getting hit with big fees when they went to some ATMs to withdraw their benefits.

Today, 40 states use debit cards instead of checks to distribute unemployment benefits. West Virginia contracts with JPMorgan Chase for its cards.

The program doesn’t cost the state anything. Instead, the banks shift the costs to the  jobless card users by charging them fees for checking their balance, using out-of-network ATMs, and other services.

A report released this week by the National Consumer Law Center examined each state’s program, and the organization rated West Virginia’s “problematic:”

The West Virginia card has the highest denied transaction fee [$1.75]  and out-of-network ATM fee [$2.75] of any state. The card could be improved by eliminating fees for balance inquiries and adding a paper statement option. On the positive side, the card offers unlimited free in-network ATM withdrawals, and the state recently added direct deposit, making it one of only three states to give recipients all three options: direct deposit, a prepaid card or a paper check.

The center has a summary of the report here, and you also can check out a chart comparing each state’s program.

UPDATED: Tomblin cancels Marcellus meeting

UPDATED: Just heard from Kurt Dettinger, general counsel for the governor’s office, and he informed me that they’ve called off tomorrow’s task force meeting, citing the inadequate public notice.

“It was determined that we needed to give more notice,” Dettinger said. The meeting will be rescheduled for early May, Dettinger said.

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It’s been more than two months since Senate President Earl Ray Tomblin, acting as governor, created a “task force”  to encourage further development of the Marcellus Shale and to try to lure spin-off industries into West Virginia.

That group appears to be actually starting to get down to work, with a meeting scheduled for tomorrow at the Capitol … Interestingly, the meeting is being billed — and was filed with the Secretary of State’s office — as an “emergency meeting.”

That designation allowed the governor’s office to avoid the five-day-in-advance public notice requirement when the meeting hit the State Register on Friday.

But is this really an emergency meeting?

Under state law, such meetings may be held only when there is some facts or circumstances “requiring immediate official action,” and those “facts and circumstances” must be spelled out in the meeting notice.

In this instance, the task force says it is having an emergency meeting “to discuss organizational matters.”  There is no mention of a need for immediate government action …

The meetings is set for 2 p.m. in the Governor’s Cabinet and Conference Room.

Will the Marcellus boom help the economy?

A few weeks ago, a West Virginia University study touted the economic benefits of the Marcellus gas drilling boom to our state. The study got a lot of attention from the West Virginia media.

But another brief report, released last month by the West Virginia Center on Budget and Policy, doesn’t seem to have gotten nearly as much coverage. Perhaps that’s because the center’s preliminary findings  offers some cautions about whether a big drilling boom will be the economic savior that some political leaders would have us believe.

Among other things, the center points out that during the time period when the natural gas industry was on the rise in West Virginia (since 2002), the counties that have dominated gas production in our state have nonetheless experienced population loss, lower incomes, higher poverty and less economic diversity.

The report offers some important cautions about the gas boom:

— Annual production from a shale well declines by about 50 percent in the first year alone, and economically recoverable gas production is uncertain beyond five years.

— A boom in activity has a different impact than a slower ramp-up, providing an economic spike that is unlikely to be sustainable in the longer term.

— Expectations of wealth from development of this sort works against diversification and increases the cost of doing business in other industries.

— After the initial boom and construction phase, few jobs remain.

The report advises that state policies that mitigate negative effects on local communities and deal with environmental impacts can help.

And, it concludes that a mineral trust fund that uses revenue from increased severance taxes to promote economic diversity would be a positive step.

The Legislature is still considering bills concerning the Marcellus boom … so stay tuned.

While the Kanawha Vally ponders the loss of 220 jobs at the Bayer CropScience plant in Institute, it’s worth noting that this isn’t the only place Bayer is cutting its workforce.   Back in November, the Bayer parent company announced:

Bayer plans to invest its resources even more systematically in growing the company and enhancing its innovative capability. The focus will be on researching, developing and marketing new products, particularly in HealthCare and CropScience, and on expanding activities in the emerging markets. This will require a high level of investment in the coming years. However, sales and earnings are under pressure from generic products, rising development costs and the effects of health care reforms.

What’s that mean? Read on:

In connection with this program, it is planned to reduce the global headcount of 108,700 by an aggregate of about 2,000 by 2012. Approximately 4,500 positions – including roughly 1,700 in Germany – are to be cut, while some 2,500 new jobs will be created over the same period, particularly in the emerging markets.

Also worth considering in the wake of Bayer’s announcement this week is this commentary by West Virginia Media President Bray Cary, who you would hardly describe as some anti-job environmental extremist:

For too long, we were a community held hostage by “what if,” and in 2008, when a deadly explosion rocked that plant and killed two men, we got far too close to a tragedy of epic proportions.

It’s disheartening to know that some of our own are going to lose their job because of this, and you’ll never find a bigger proponent of economic development than me, but no paycheck is worth a life.

Breaking news: Bayer to stop using MIC

We’ve got an early version of our story online now about the latest moves at the Bayer CropScience plant out in Institute. They bottom line:

Bayer CropScience announced this afternoon that it will stop making, storing and using the deadly chemical methyl isocyanate at its Institute plant as part of a corporate restructuring that will also cost the plant 220 jobs.

This comes after Bayer’s announcement in August 2009 that it would cut its MIC inventory by 80 percent, but according to company officials has far more to do with the August agreement between Bayer and the U.S. Environmental Protection Agency for the phase-out of the extremely toxic pesticide aldicarb.

The changes at Institute are part of a corporate shift that also involves the closing of Bayer’s plant in Woodbine, Ga., which makes similar products. That facility employs 80 people.

Bayer’s formal press release explained things this way:

“The decision was based on a number of factors, with both strategic and economic considerations. It is fully in line with our global strategy to focus on delivering innovative solutions to modern agriculture and replacing older compounds in our portfolio, including WHO Class I products”, said Achim Noack, Member of the Board of Management of Bayer CropScience.

In recent years, the carbamate family has been largely substituted by newer products, prompting a review of the company’s carbamates business strategy. Following the August 2010 agreement with the U.S. Environmental Protection Agency (EPA) to phase out Temik® brand insecticide/nematicide, the production of certain carbamates is no longer economically viable for Bayer CropScience.

“Temik® has been the cornerstone of our carbamate manufacturing strategy,” said Chris Evans, Senior Vice President of Industrial Operations in North America for Bayer CropScience. “The decisions to exit Temik® and to discontinue our Methomyl and Carbofuran production, made it impossible to maintain competitive operations at parts of our Institute site and at the formulation unit at Woodbine.”

State and local officials are understandably focused on the loss of 220 good-paying jobs in the Kanawha Valley. Bayer officials did not announce an exact time-line for this, but said the jobs would gone within “several years.”

And undoubtedly, some folks will blame the job loss on environmental regulations, or perhaps more directly on area residents who have for years worried and complained about the stockpile of the same chemical that killed thousands of people in 1984 in Bhopal, India.

But Kanawha County Commission President Kent Carper pointed out that Bayer agreed to the EPA phase-out of aldicarb, and said the better course of action now is to work with Bayer to find other tenants and job opportunities for the soon-to-be-vacant space in the Institute plant:

There is so much talk about clean coal and about developing byproducts of natural gas. The job of all of us should be to make appropriate use of that plant. We have to save as many jobs as we can.

An avalanche of cash in judicial campaigns, Pt. 1

With the election just days away, I thought now might be a good time to revisit the topic of money and judicial campaigns. Right now, with control of the U.S. Senate and the House of Representatives at stake, most of the media’s focus is on the flood of third-party cash poured into the closest congressional races without the true source of the funding being divulged. (Thank you, U.S. Supreme Court, for Citizens United.)

But as this report, jointly produced by JusticeatStake.org, The Brennan Center for Justice, The National Institute on Money in State Politics and Hofstra Law School, documents how, over the last decade, the amount of money involved in judicial campaigns has exploded. And, as retired Justice Sandra Day O’Connor explains in her introductory letter, the glut of campaign cash has a potentially pernicious effect on the judicial system.

We all expect judges to be accountable to the law rather than political supporters or special interests. But elected judges in many states are compelled to solicit money for their election campaigns, sometimes from lawyers and parties appearing before them. Whether or not these contributions actually tilt the scales of justce, three out of every four Americans believe that campaign contributions affect courtroom decisions.

This crisis of confidence in the impartiality of the judiciary is real and growing. Left unaddressed, the perception that justice is for sale will undermine the rule of law that the courts are supposed to uphold.

We all have a stake in ensuring that courts remain fair, imparitial, and independent. If we fail to remember this, partisan infighting and hardball politics will erode the essential function of our judicial system as a safe place where every citizen stands equal before the law.

The report itself concluded that in the past 10 years, $206 million has been spent on state Supreme Court races alone. Here’s what that looks like, in two-year units:

And here’s that $206 million figure broken down by source of funds:

Where does West Virginia figure into all of this? Well, with a total population of 1.8 million, which ranks 37th in the nation, West Virginia ranked 10th in spending over the past ten years, with almost $9.6 million in total spending.

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Toyota’s disclosures: Savings before safety?

Akio_Toyoda_001In the coming weeks, Toyota officials — including President and CEO Akio Toyoda (right), a grandson of the company’s founder — will testify before Congress to answer questions about when the company knew what about various safety issues, including unintended acceleration in some models.

In preparation, Toyota has turned over thousands of pages of company documents. These include, as the New York Times and many others reported, an internal memo that claimed that the company saved $100 million when it “negotiated an equipment recall” with the National Highway Traffic Safety Administration in 2007 in response to reports of unintended acceleration in certain Camry and Lexus ES 350 sedans. Consequently, 55,000 floormats were recalled, and the agency did not find a defect. As the Associated Press noted:

The savings are listed under the title, “Wins for Toyota – Safety Group.” The document cites millions of dollars in other savings by delaying safety regulations, avoiding defect investigations and slowing down other industry requirements.

The documents could set off alarms in Congress over whether Toyota put profits ahead of customer safety and pushed regulators to narrow the scope of recalls.

The memo, from July 2009, observed that Toyota faced a challenge from an “activist Administration and Congress.” Policito.com has posted part of the document here.

Under the heading “Key Safety Issues,” the memo lists the following bulletpoints:

  • U.S. DOT/NHTSA under Obama Administration not industry friendly
  • OEMs [origina equipment manufacturers] anticipate a more challenging regulatory and enforcement environment, with a potential for revisiting key regulatory proposals
  • NHTSA’s new, more aggressive management includes more attorneys at the agency, even in the leadership of Rulemaking and Enforcement
  • The new team has less understanding of engineering issues and are primarily focused on legal issues.

And Toyota wasn’t the only one taking notice of issues with unintended acceleration well before the recent recall. Again, from the Associated Press report:

Separately, the government said Sunday it was already investigating reports of sudden acceleration in Toyota vehicles when the nation’s largest auto insurer shared complaints about the issue.

The Transportation Department released documents showing that in December 2003 it began investigating 39 complaints of sudden acceleration involving 2002-03 Toyota Camry sedans. That was about three months before State Farm shared with NHTSA complaints of sudden acceleration in 2003-04 Lexus ES300s and 2002-04 Camrys.

And today, as reported in the Wall Street Journal, Toyota confirmed that it has received subpoenas from both the Securities and Exchange Commission and a federal grand jury in the Southern District of New York.

Gov. Manchin, jobs and transparency

Good for Gov. Joe Manchin, who has agreed to hold his next big meeting on the South Charleston Tech Park issue in public. This after a variety of media folks, led by the Daily Mail’s George Hohmann, protested the closed-door meeting the governor previously organized.

But you know, if Gov. Manchin really wanted his administration to operate with some transparency — and believed the public has a right to know about how economic development efforts work and don’t work — he would urge lawmakers to repeal the Freedom of Information Act exemption that shrouds such matters in secrecy.

Currently, W.Va. Code 5B-2-1 says:

Any documentary material, data or other writing made or received by the West Virginia development office or other public body, whose primary responsibility is economic development, for the purpose of furnishing assistance to a new or existing business shall be exempt from the provisions of article one, chapter twenty-nine-b of this code: Provided, That any agreement entered into or signed by the development office or public body which obligates public funds shall be subject to inspection and copying pursuant to the provisions of said article as of the date the agreement is entered into, signed or otherwise made public.

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