Archive for June, 2011

We should be using America’s incredibly large fossil fuel storehouse such as our 200 year supply of coal and 110 year supply of natural gas. However, we should also be using them more effectively with smart technology solutions. These solutions are well summarized in a recent book by John A. Moore and Toby Shute titled “The Hidden Cleantech Revolution”. We can reach previously unavailable resources and do it cleaner, safer, more reliably and cheaper.

Our biggest challenge right now is oil. Global proven reserves, the oil we can actually extract, will last for 42 years and the slightest supply disruption sends prices soaring. However, Only 8% of identified reserves have been used and there is more to find. As recently as the 1970’s there was only a 20% chance of drilling a producing well. Advances in 3D seismic studies have improved the rate to between 80 and 90% and existing fields are turning out to be larger than thought. Forties, the largest North Sea oil field was recently found to contain 800 billion more barrels than originally thought.

Recovering the oil from a known field has also been limited. It is estimated only 30 to 35% of oil and gas are extracted from a field. New technology such as real time or 4D seismic profiling using down hole microphones and steerable wired drill bits combined with computer modeling of fields may boost recovery to 50%. Enhanced oil recovery techniques such as carbon dioxide injection, chemical flooding and steam flooding could boost recovery another 10%. If we also improve data flow and analysis further it is estimated we can increase U.S. proven reserves by 125 Billion barrels, enough to supply our needs for another fifty years at current usage rates.

There are huge reserves of oil trapped in deep layers of oil sands. A new technique called steam assisted gravity drainage, or SAGD, is unlocking this oil with low environmental impact. Two wells are drilled to the oil sands. Horizontal wells drilled at different depths allow steam to be injected in the upper well with oil to be collected in the lower well.

Oil is not the only fuel making gains. We have previously discussed natural gas fracking1. Higher pressure coal fired boilers are 35% more efficient than current boilers meaning the same amount of electricity can be produced with 35% less fuel. New modular designs for nuclear plants offer more safety, efficiency, faster construction times, and lower cost in a wide variety of sizes. Increasing efficiency at existing nuclear power plants provided over three times the power of all non-hydro renewable energy sources since 1990.

David T. Stevenson
Director, Center for Energy Competitiveness
Caesar Rodney Institute

Note 1: Natural Gas Fired Power Plants Key to Job Creation and Clean Energy

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Forty-two states have introduced legislation in 2011 to create or expand school voucher and scholarship tax credit programs, according to an analysis completed today by the American Federation for Children — the nation’s voice for school choice.

If these bills pass, millions of children would have the opportunity to attend the private schools of their parents’ choice, demonstrating historic momentum for the popular educational choice movement.

Fifty-four bills create or expand voucher programs and 42 bills create or expand tax credit scholarship programs. Many bills often target disadvantaged children, including 27 bills for special needs children, two bills for military children, and two bills for children in foster care, according to AFC analyst Michelle Gininger, who conducted the research.

Since the beginning of the year, 12 bills have been enacted in nine states that will create, expand, and restore highly accountable and effective school choice programs.

For example, Arizona created the nation’s first-ever Education Savings Account program for children with special needs. The Arizona Empowerment Account Program will allow participating families to receive 90 percent of the per-pupil funding to use on a variety of educational options, including: tutoring, online education, testing fees, college courses, and textbooks. Any unused funds after high school graduation can be used for college tuition.

In Washington, D.C., Congress reauthorized the highly successful and popular D.C. Opportunity Scholarship Program for five years. Funded at $20 million per year, this reauthorization will provide scholarships to thousands of low-income students and revive one of the nation’s most recognizable school voucher programs.

Indiana’s legislature, with the backing of Governor Mitch Daniels, created the Choice Scholarship Program, the broadest voucher program in the country. This legislation, which creates a highly accountable program that provides scholarships to low- and middle-income students to attend the private schools of their parents’ choice, is set to benefit 15,000 by the program’s second year.

As many as 19 bills have been introduced to expand existing programs to increase student enrollment caps, expand student eligibility, and create stronger accountability measures. Wisconsin, for example, is on track to expand its highly successful voucher program to include even more students in Milwaukee, as well as to expand it to Racine. Governor Kasich in Ohio is working with leaders in the legislature to expand the Educational Choice Scholarship Program to 60,000 students by 2013.

The American Federation for Children (www.FederationForChildren.org) praised the growing trend towards passage of school choice legislation as a vital step toward providing educational options to all children.

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Every year the U.S. Department of Education produces a report card with the test performance of 4th and 8th grade students by state. The latest available test data is for 2009. What does it show for Delaware and what does it mean exactly?

The tables in the article show the ranking across the states of the Delaware, Maryland and Pennsylvania on 8th grade public school students’ average NAEP test scores in reading and math. Maryland and Pennsylvania are shown as these are the states to which persons who work in Delaware and have school age children can most easily locate.

What is clear from the two tables? First, Delaware 8th graders perform worse in reading and math than 8th graders in the two surrounding states. Second, this same pattern holds true for white 8th graders. Third, black and Hispanic 8th grades tend to score higher in Delaware than in the surrounding states.

How does Delaware’s relatively high rankings by race (e.g., 13, 3 and 9 in reading) result in a lower overall rank (e.g., 26 in reading)? The answer is a mixture of the racial composition of the students, economic disadvantage, and English language proficiency.

Among 8th graders across the nation, on average whites score about 11% higher in reading and math than do blacks and Hispanics, and Asians score higher than whites. Pennsylvania’s public school population is far more white than Delaware and Maryland, and Maryland has double the proportion of Asian students as Delaware. This pulls down Delaware’s overall average test scores.

Additionally, 40% of Delaware’s public school students qualify for free/reduced lunches compared to 35% in Maryland and 32% in Pennsylvania. Economically disadvantaged children tend to score lower on reading and math tests. Delaware also has almost double the proportion of public school children enrolled in English proficiency programs.

So, what do these test scores mean exactly? First, Delaware’s lower rank on reading and math tests for 8th graders is due, in part, to the variations in the racial composition of public school students among states. For example, when the Pennsylvania racial composition of public school students is applied to the 2009 Delaware test scores by race, the overall Delaware reading and math test scores become virtually equal to the Pennsylvania scores.

Second, in 2010 Delaware lost a net of $2.3 billion of wages from folks who worked in the Delaware and lived outside the state. Most of this net loss came in New Castle County. This is very unusual for a county that is contiguous to a major metropolitan area. As the test score data shows, it is very tempting for white families with school age children to pay the higher property taxes in such high performing school districts as Unionville-Chadds Ford, Wallingford-Swarthmore, or Avon Grove in lieu of even higher private school tuitions in New Castle County.

Further analysis of the test scores by contiguous county and school districts among Delaware, Maryland, and Pennsylvania would be helpful, as would the proportion of students in private school.

Dr. John E. Stapleford, Director
Center for Economic and Policy Analysis

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On May 11, 2011, the Caesar Rodney Institute filed an amicus curiae or “friend of the court” brief before the U.S. Court of Appeals for the Eleventh Circuit in State of Florida, by and through Attorney General Pam Bondi, et al. v. U.S. Department of Health and Human Services, et al. (CV 11-11021). This case involves challenges by 26 States (not including Delaware), the National Federation of Independent Business and two individuals to the Patient Protection and Affordable Care Act (PPACA). The Caesar Rodney Institute filed its brief in support of the States, arguing that the PPACA’s individual mandate requirement should be declared unconstitutional because it exceeds Congress’ power under the Commerce Clause of the U.S. Constitution. In addition, on May 24, 2011, we filed an amicus curiae brief in the U.S. Court of Appeals for the District of Columbia in Susan Seven-Sky, et. al. v. Eric H. Holder, et al. (CV 11-5047), making the same arguments in support of seven individuals challenging the constitutionality of the PPACA. The Caesar Rodney Institute was represented on the briefs by the New York law firm Lally & Misir, LLP which has an experienced federal appellate team. We have posted the DC Circuit brief on our website for your review.

The Caesar Rodney Institute focuses on promoting individual liberty, property rights, rule of law, and transparent and limited government for all Delawareans. Delaware has for many years been a leading domicile for U.S. corporations. Over 50% of all publicly traded companies in the U.S. and 63% of all fortune 500 companies are domiciled in Delaware because of the singular competence and proficiency of our courts in business law. As Delawareans, CRI and its’ members have a great interest in the PPACA because it requires all U.S. Citizens to purchase or obtain private health insurance, imposes significant new requirements on corporations and establishes new laws for the health insurance market. Non-compliance results in stiff fines and penalties. The courts permit entities, such as the Caesar Rodney Institute, who are not parties to the litigation, to file friend of the court briefs if they have a strong interest in the case. Other groups filing friend of the court briefs in these health care cases included the American Civil Liberties Union, the Cato Institute, the Chamber of Commerce and the Heritage Foundation.

Our major concern with the PPACA is that the law improperly broadens Congressional power under the Commerce Clause, and threatens the delicate balance between Federal Government and States. Our brief focused on the fact that the PPACA regulates activities outside interstate commerce. The Commerce Clause of the U.S. Constitution only empowers Congress to regulate activities within interstate commerce. This is not a novel legal position. Supreme Court Justice Thurgood Marshall explained it best in his 1971 opinion in U.S. v. Bass, limiting a federal gun possession statute because it did not adequately tie the covered gun possession to interstate commerce. “In traditionally sensitive areas, such as legislation affecting the federal balance, the requirement of clear statement assures that the legislature has in fact, faced, and intended to bring into issue, the critical matters involved in the judicial decision.” In the PPACA, Congress failed to follow the law as articulated in the Bass case and other subsequent Supreme Court decisions. The courts must uphold the rule of law and system of federalism that is the heart of our great Nation.

We believe it is in the best interests of all Delawareans and all U.S. Citizens that the PPACA be judged unconstitutional. Health care reform can, and should be approached in a totally non partisan manner that ensures all constituencies have a seat at the table. We believe robust solutions can be developed at the State level utilizing the best attributes of our current health care system, while developing cost effective ways to increase access.

Robert Prybutok, Vice Chair                                                                                                                                                                                                                      Caesar Rodney Institute
President & CEO Polymer Technologies Inc.

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Delaware’s insurance commissioner has requested a waiver of the Federal rule requiring health insurers to spend 80 percent of each premium dollar on medical care. This is the wrong waiver. If Delaware would simply open itself to health insurance competition the terms of the balance between company costs and medical payouts would be dictated by consumers.

A more important waiver for Delaware to be seeking at this time is from the Federal Medicaid rules. Rhode Island has led the way by obtaining a waiver from Medicaid rules in favor of a $12.1 billion Medicaid spending cap from 2009 through 2013. The cap gives Rhode Island the flexibility to promote home and community based care over institutional care for long term care patients and engage consumers in the decision process through such mechanisms as health savings accounts.

To date innovations have saved Rhode Island over $100 million relative to what they projected would have to be spent under the Federal Medicaid rules and has made the Medicaid program sustainable within the state’s budget constraints. Starting in 2008, the talk of a waiver has substantially slowed the growth rate of health services jobs in Rhode Island, especially with regard to nursing and residential care.

Due to liberal eligibility requirements, Medicaid utilization in Delaware is soaring. Since the year 2000, Medicaid enrollment across the nation rose 49%, while rising 44% in the region, and almost 70% in Delaware. As of 2007 Medicaid enrollment was 21% of the population in Delaware compared to 17% in Pennsylvania, 13% in Maryland, and 11% in New Jersey. The Department of Health and Human Services is the second largest expenditure center in Delaware state government. The estimated FY-2011 Medicaid spending of $487 million from the General Fund comprises more than half of the DHHS budget. At least two-thirds of the health services spending in Delaware is from Medicaid and Medicare funds.

It is time for Delaware to seek a waiver from the Federal Medicaid rules. As was demonstrated with welfare reform, states can find more creative and effective ways to handle social service spending than “one size fit all” regulations imposed from Washington, D.C.

Dr. John E. Stapleford, Director
Center for Economic Policy and Analysis

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Electric industry analysts were shocked when recent capacity auction prices quintupled current levels. Combined with expected increases in cap and trade auction prices and the higher cost from expanded use of expensive and unreliable wind and solar power1, we can expect prices to soar. Delawareans are already suffering from significantly higher electric bills than other states making it difficult for manufacturers to expand production or to locate here. Fortunately, it is not too late to turn this around. We need the political will to repeal the regional cap and trade program and the forced use of wind and solar power while encouraging local ownership and construction of new natural gas fired electric generation plants. We can not only avoid the price increase, but actually reduce current prices while adding thousands of construction jobs and about sixteen hundred permanent jobs.

The capacity auction shock was caused by a reaction to new EPA rules requiring dramatic reductions in pollution emissions from coal fired electric generation plants. Coal fired plants supply about 53% of the electricity used in Delaware. The local NRG Indian River power plant is a good example of what is happening regionally. NRG is spending $360 million to add new pollution control technology to the newest and largest boiler but will shut down three older boilers. This effort is likely to be replicated throughout the region.

The added investment and lower regional capacity was expected to result in a modest increase from last year’s capacity auction of $27.73/megawatt-hour to about $40.00. Instead the price averaged $126.00. While this will only add about $3/month to residential electric bills, it could add $2 to 3 billion/year in 2014/15 over the entire region. The renewable energy segment added to concerns about its reliability offering only 13% of expected wind capacity and 38% of expected solar capacity representing only 0.005% of total guaranteed supply.
When Delaware and other states de-regulated electric generation prices several years ago the electric grid manager, PJM Interconnection, was given authority to set prices using two new pricing models. The Reliability Pricing Model is used to ensure adequate generation capacity and an auction is conducted annually where generators bid to provide generating capacity three years out. The auction results are added to customer bills as Capacity Charges. Locational Marginal Pricing (LMP) is an hourly bidding process to supply real time power and was established to deal with peak power needs and to account for grid congestion. Since Delaware imports 60% of its power from out of state we suffer a penalty for causing grid congestion. These charges can be avoided if a power customer owns the generation as a cooperative or the power distributor, such as Delmarva Power, owns the generating capacity.

To determine the impact on your bill look at the Supply Charge portion of your electric bill. The Capacity Charge will increase five-fold and the Standard Offer of Service Charge will increase $0.0225/KWh. My Delmarva Power bill would increase 18%. The cost of cap and trade auctions, wind and solar power premiums, and LMP charges are hidden in the Supply Charge.

David T. Stevenson, Director
Center for Energy Competitiveness

See CRI publication “The Cost and Economic Impact of Delaware’s Renewable Portfolio Standard”

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With the economic recovery underway in Delaware projected state government revenues are running ahead of projected expenditures for this fiscal year (FY 2011) and next (FY 2012). At this time, according to DEFAC, the expected surplus will be $156 million for FY-11 and another $218 million for FY-12. Naturally everyone in Dover has ideas for spending these surpluses, including the Governor.

The major sources of increased revenue are tied to the economic recovery. Almost 75% of the increased revenue comes from the personal and corporate income taxes and the bank franchise tax. Another 11% is from “other” taxes which include excise taxes (e.g., alcohol) and school district repayment of debt.

The spending proposal put forward by the Governor is cautious, balanced, and should facilitate continued economic growth. The proposed spending of $256 million would fall short of the current expected total surplus of $374 million. The spending is mostly on one-time projects that will not result in long-term increases in the operating budget.

The research literature on state economic growth consistently shows that lower taxes and spending on infrastructure and education raise the growth rate over time.

Almost $13 million is designated for reduction of the gross receipts tax and personal income tax. This will certainly help reduce the flow of tax refugees from Delaware. Delaware’s high energy costs will be partially offset by reductions in the public utility tax, although further subsidies to high cost alternative energy may offset this.

Half the proposed spending ($125 million) is to assist the construction industry (infrastructure, highways, state capital assets, housing). From the pre-recession peak total construction employment and wages in Delaware are down about 30% and unemployment remains high. The spending will not generate as many construction jobs as possible since the contracts will subject to the Delaware Department of Labor’s prevailing wage rate calculations. The prevailing wage rates are almost 40% above the wages for experienced construction workers in Delaware.

One-fifth of the proposed spending ($52 million) is targeted for higher education and early child care and education). Higher education institutions will be putting the money into capital improvements (another boost to the construction industry). The latest evaluation of head start and the benefits of early child care education is discouraging…the effects dissipate quickly.

The remainder of the spending is scattered here and there. Nearly $4 million will be used to reimburse the hard hit Unemployment Trust Fund. In the face of rapidly rising state borrowing, a minimal $20 million will go to debt reduction. There is money for open land and agricultural land preservation, and for hazardous waste cleanup.

Two very important things, however, are not addressed in the Governor’s proposal. First, there is no mention of the process that will be used to choose the specific projects upon which the money will be spent. Who will determine what the “critical needs” are? After the recent DELDOT sweetheart deals and the no-bid contracts at Delaware State University, wouldn’t more oversight and public transparency be good?

Second, will there be any accountability? Other than defaults on loans, there has been no assessment of compliance to the agreements signed for the $201 million doled out from the Delaware Strategic Fund over the past decade. Is the recent Stimulus spending on the housing weatherization program an example of the kind of oversight that will be given to this state surplus spending?

The Governor has put forward a sound plan that should benefit Delaware’s economy. Now the mechanisms to avoid cronyism and nonperformance need to be added to the plan as well.

Note: The additional spending recently proposed by the Joint Finance Committee, including $19.2 for a bump in the salaries of state employees, all violate the Governor’s tenet of “one time spending “ They add to the annual base of government spending and represent a return to the poor fiscal discipline that create this crisis.

Dr. John E. Stapleford, Director
Center for Economic Policy and Analysis

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