Evergreen Solar

The mysterious “brett” over at the indispensable Universal Hub takes a contrarian view of Evergreen Solar, a company that received $44m in state incentives, saying:

Evergreen Solar, is touting how they’re going to triple their employee count. It’s a big thank you for that 44 million dollars Patrick gave them. Unfortunately, almost exactly a year ago, Evergreen Solar was bragging about how it’d double its workforce to 650. Well, it’s April 2008, and the company has 300 workers; oops. That’s a bit of a disappointment. Also curious that a company bragging about “increasing annual sales fourfold to approximately $100 million in 2006″ (and just raised $200M in capital) was deemed deserving of such a massive handout.

I don’t know the author and cannot vouch for him, but take a look at the original post — its got links to the original articles to back up each of the claims.

It does make one question the level of retrospective analysis that goes into our economic development programs.

Add comment April 10th, 2008

9C Cuts and Full Disclosure

I can’t shake an uneasy feeling that there is more to this budget crunch than meets the eye.

First, the state went $800m over its $1b borrowing cap. More bluntly, a month after the Treasury and A&F stated they would only need $1.4 billion, they suddenly needed another $400m on short notice. And no one seemed to have any idea why. (I’m working on converting the quarterly cash flows into something more user-friendly which would answer this. I’ll post as soon as I have them.)

My suspicion is that something went wrong with federal reimbursements in January, but I can’t be sure. If its a simple question of timing, not a huge deal. If the money is not coming in, that’s a big problem. Someone has to (or should) know this with certainty. But if they do, they aren’t talking. And isn’t any answer better than none right now?

Now, A&F is putting spending controls in place and collecting $150 million in potential 9C cuts. All this in year where we are $820 million over last year and $320 million over current year estimates. Odd, isn’t it?

And for those with long memories, Candidate Patrick felt that being $320 million over estimates in FY07 was reason enough to reverse then-Governor Romney’s 9C cuts, saying “these broad-based cuts, especially coming mid-year, have a serious negative impact on thousands of Massachusetts residents who have planned for the relief and relied upon the services these programs provide.”

Stay tuned.

Add comment April 7th, 2008

Proposed Cuts for State House Budgeters

Immediate Savings

· Adopt Gov. Patrick’s proposal to increase the share of health insurance premiums borne by state employees. This would bring public employee contributions more in line with the private sector.
· Consolidate transportation operations — A merger between MHD and MTA would save at least $20 million and including other agencies could capture additional efficiencies.
· Eliminate the Board of Library Commissioners – Municipalities run libraries, with few exceptions. These funds should either be incorporated into local aid, if warranted, or removed from the budget altogether. It is an unnecessary and duplicative layer of bureaucracy.
· Replace State House Park Rangers – 50 DCR Park Rangers guard the State House while 5 rangers oversee 400,000 acres of state parks and forests. Meanwhile, the Ashburton State Office Building across the street uses private security guards.
· Rollback Funding for the Commonwealth Museum — This almost unknown museum, located at the Massachusetts Archives facility (which receives multiple streams of budgetary and capital funds), has seen its budget quadruple in less than two years.
· Consolidate the State House Library. The library utilizes thousands of square feet of the State House but is lightly utilized.
· Studies and task forces. All studies should be performed by in-house resources without additional expenditures.
· Eliminate Item Pricing Requirements – Our archaic item pricing law puts Home Depot in violation every time it fails to tag each individual washer and bolt. Repeal this law and eliminate this line item at the Division of Standards.
· Reform State Police Overtime Practices – Overtime costs are inflated by restrictive work rules that prevent lower ranking officers from being assigned to these duties.

Conditional Savings

· Sell surplus state property. The state spends millions maintaining and securing abandoned public properties. A standard process is needed to allow the sale of these properties.
· Consider privatizing the management of the Lottery. The goal of privatization would not be to maximize an upfront payment, but to smooth out the funding stream of the lottery, minimize administrative costs, and provide a predictable yearly payment to cities and towns for a 30 – 40 year period.
· Eliminate additional assistance. Any rational additional assistance formula has long been abandoned. Necessary aid should be provided on the basis of a merit and any remainder should not be spent.
· Replace police details with flagmen. Massachusetts is currently the only state that requires that police – often at overtime rates – patrol roadway construction sites.
· Outsource the management of state office buildings: A number of state-office buildings, including the Mass Information Technology Center, are already administered by private management companies. BSB’s $6.86 million budget could be more efficiently spent with a private operator.
· Lease the Ponkapoag and Martin Golf Courses and the former MDC skating rinks: These facilities could be leased to private operators, resulting in income to the state, improved maintenance of the golf courses, and increased availability.
· Amend the “Pacheco Laws” to allow greater competition by the private sector to provide public services.

Long-Term Savings

· Empower the courts to manage themselves: The state-level judiciary in Massachusetts is beholden to the Legislature which micromanages their budgets and even sets most salaries by statute. Courts should be funded at the department level and required to manage their own allocation of resources.

· Rationalize the pension system: The current defined benefits system provides a generous set of benefits for a single set of employees (those with 20+ consecutive years of service) at the expense of taxpayers and those employees who might work at several jobs in their career. The system should be dramatically reformed to provide for the needs of our future workforce.

· Hold down debt levels: Current debt payments total almost $2 billion. By not radically expanding our debt levels (and eventually working through the bulge in debt from the Big Dig) we can save money in this area.

· Cap Quinn Bill Payouts -This $50 million program has resulted in massive cost inflation at the municipal level and increased pension and healthcare liabilities. The program should be amended to contain a flat bonus payment, rather than a lifetime percentage increase.

· Reform of prisoner management: The Commonwealth currently spends over a $1 billion on the Sheriffs and the Department of Correction, operating a two-tiered structure of facilities and management that is highly duplicative and unnecessarily decentralized.

2 comments April 3rd, 2008

Floor falls out in California housing

On the LA Times blog today there is a distressing bit of news about the distressed California housing market. Home prices in the state, the blog notes, fell 26 percent (three times the national average) between February 07 and February 08!

–Statewide, median sales prices fell by a stunning 26% in February, with home prices dropping at a rate of nearly $3,000 a week, the California Association of Realtors reports. Further, the CAR says the Fed’s interest rate-cutting campaign “will have little near-term direct effect on the housing market.”

–In the San Fernando Valley, losing a home to foreclosure is now almost as common for families as buying a home. The L.A. Daily News: “During January and February, there were 1,084 foreclosures and 1,335 sales of houses and condos in Valley communities from Glendale to Calabasas, according to the San Fernando Valley Economic Research Center at California State University, Northridge.”

“It’s bad. It’s really bad,” market analyst Nima Nattagh told the Daily News.

We’re lucky. We don’t build houses anymore in Massachusetts (1980s production was around 40,000 units, from 2000-2006 around 20,000-23,000, and currently we are building at an annual rate of about 12,000 to 14,000). Very small increases in supply means that in a recession our housing prices should decline much less than elsewhere. But also expect a sharp upturn in already high prices as soon as consumer confidence comes back.

Add comment March 26th, 2008

Fed corporate tax killing state competitiveness

One could sum up a report from the Tax Foundation as saying the equivalent of – the French are eating our lunch. And you know that is not good. We, for many reasons, including avoidance of indigestion, should be eating theirs. The latest report from the Foundation shows that

nearly half of U.S. states tax job providers at a higher rate than any other country in the developed world. Counting the federal rate alone, the U.S. has the world’s highest corporate tax rate, but including average sub-national rates (federal plus state in the U.S.), Japan edges out the U.S. for the highest-tax location.

This study breaks the tax down by state, adding each state’s corporate tax rate to the federal corporate tax rate. The results show that 24 states impose, when combined with the federal rate, a higher corporate tax rate than in any other nation. In fact:

· 24 states have a combined corporate tax rate higher than top-ranked Japan.

· 32 states have a combined corporate tax rate higher than third-ranked Germany.

· 46 states have a combined corporate tax rate higher than fourth-ranked Canada.

· All 50 states have a combined corporate tax rate higher than fifth-ranked France.

The study of the author, Scott Hodge, sums it up:

The high federal corporate tax rate is literally crushing states’ competitive abilities. That means fewer jobs for American workers. If federal lawmakers are serious about making the U.S. corporate tax system more competitive globally, they will have to partner with state officials to lower the nation’s overall corporate tax burden.

Even corporations in the three states that do not impose a major state-level corporate tax—Nevada, South Dakota, and Wyoming—still shoulder a higher corporate tax rate than France, and 25 other major countries, because of the 35 percent federal corporate rate.

1 comment March 24th, 2008

Counterintuitive Healthcare Cost Data

It has been the conventional wisdom that small businesses are getting killed on healthcare costs and we’ve heard anecdotal evidence to support this when we’ve presented our research on the various costs associated with doing business in Massachusetts.

But Charlie Baker at Harvard Pilgrim begs to differ, and he’s even got internal Harvard Pilgrim data to prove it. He notes:

Small businesses, on average, had lower medical claims expenses per member than larger businesses, and lower health insurance premiums(!). In fact, much lower. On average, per member premiums for small businesses were 10 percent lower than the premiums paid by larger businesses, consistent with claims costs that were also about 10 percent lower.

Why? Mr. Baker explains:

I think it comes from the pricing rules for small businesses. Small group rates are regulated at the state level, and the highest price can’t be any more than a defined percent of the lowest price, and the group needs to be priced and managed “in toto.” Put more simply, if the highest price is $100, then the lowest price can’t be below $50 — no matter what the demographic or medical expense variance might be across all small businesses.

On the other hand, larger company premiums are priced more directly on the calculated medical expenses of each group, meaning there is no ceiling and no floor for large groups overall. If one group pays $100 per person, another can pay $50, or $25, or $200 — depending on their own medical expenses.

Add comment March 20th, 2008

So, which is it?

Our friends at CURP and A Better City held an event on Oct. 31st to promote a new study that advocated for additional transit spending to aid the biotech industry in Boston and Cambridge.

But this Sunday’s Globe reports that biotech firms are moving to the less costly suburbs.

Which suggests that additional transit spending is not required to aid this industry.

2 comments March 3rd, 2008

Debating biotech on NECN

Some improvements in the House version of the biotech bill resulted from the good work of Pioneer and other groups like the Associated Industries of Massachusetts.

For Pioneer’s testimony click here, for a Pioneer op-ed in the Globe click here.

That said, apart from the research components and some of the infrastructure funding, the bill still stinks, as I think came out in the back and forth on NECN’s NewsNight with Jim Braude.

In retrospect there is a better answer to Jim’s query “If the bill is so bad, why is it getting the support of the Governor, the Senate President and the Speaker?” I should have said something like the following:

1. It’s borrowed money (a kind of funny money), so it is easy to spend.
2. There was already $3.4 billion (that’s a B) in VC money invested in Massachusetts in 2007, so the $100 million a year in investment called for in the bill is bound to be associated with some successes. No doubt, all three will take significant credit for job growth in the sector, even though $100 million is about a 3 percent increase in the total pot of VC money.
3. They don’t have the courage to reduce the cost of business, so this is the only acceptable way they have to try and say that they are pro-business.

With grey hair comes wisdom, but the brain is a tad slower…

Add comment March 3rd, 2008

One down, two to go

Just a few months ago, a wise man said the proof of success in reforming the auto insurance market would be the entrance of major national firms like Geico and Allstate.

Well, there’s at least one firm entering the market — Progressive announced yesterday that it will start selling policies on May 1. No doubt the entry is part of a right-wing free-market plot.

To give credit where its due, the Patrick administration, through appointee DOI Commissioner Nonnie Burnes, have stood up to withering criticism on this issue to push for less regulation of auto insurance.

Two interesting sidenotes – AG Martha Coakley has been an outspoken opponent of these reforms. And she’s also arguably the most popular politician in the state. Let’s see how these reforms work out and how her stance affects her.

Lastly, your loyal correspondent is one of those supposedly hapless inner city drivers who will be crushed by these reforms. I’ll be watching my car insurance bill closely.

Add comment February 26th, 2008

Nice job by Regional Planning Agencies

Kudos to the state’s planning agencies for coming together to do a great service for communities and businesses statewide. The Massachusetts Association of Regional Planning Agencies has cobbled together the basic premises for effective local permitting in its A Best Practices Model for Streamlined Local Permitting.

The document lays out ways to improve communication, standardize procedures and how to implement expedited permitting for select sites, per legislation (Ch. 43D) passed in 2006.

Timely and helpful work.

Add comment February 19th, 2008