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Archive for the ‘Government Spending’ Category

 

State support for higher education is slipping with one large exception at the University of Delaware. One department, actually one individual, at the university is slated for a 38% increase according to the latest draft of the state budget.  This is in contrast to the state contribution for university operating expenses falling from about 21% in 2000 to about 12%, according to the University’s 2015 Investment Office Annual Report.

The currently proposed 2017 Fiscal Year proposed budget consists of fifty-nine pages of tables of budget numbers by department, and two hundred and twenty-six pages of “epilogue” language.  The epilogue pages are similar to footnotes and most of it is innocuous and a pretty boring read.  It can also be a place where bad policy goes to hide.

This may be the case with Section 285, page 199, which reads:

Section 285. Section 1 of this Act makes an appropriation to Higher Education, University of Delaware  (90-01-01) for the College of Arts and Sciences. Of this amount, $290,000 shall be allocated to the Center for Energy and Environmental Policy for research supervised by Dr. John Byrne as principal investigator

Yes, while other departments struggle as costs rise faster than state contributions, Dr. Byrne is expecting $290,000 to use as he sees fit, not even with direction for what he is researching.  The transfer effectively raises the earth sciences budget 38%.  Dr. Byrne and the University of Delaware have not responded to requests for comment.  A similar transfer was authorized in the last three year’s budgets but was designated more generally to the Center for Energy and Environmental Policy run by Dr. Byrne.

Unlike specific legislative bills there is no acknowledged sponsor of epilogue language.  However, Dr. Byrne and State Senator Harris McDowell (D – Wilmington North) have worked together for over a decade.  Senator McDowell is Co-Chairman of the Joint Finance Committee that writes the budget, and of the Senate Energy Committee.  Dr. Byrne and Senator McDowell jointly chaired the Sustainable Energy Utility (SEU) and its Oversight Committee over the last decade.  Dr. Byrne would be expected to consult with Senator McDowell in his role with the Center for Energy and Environmental Policy.  The obvious question is Dr. Byrne getting special treatment in the state budget because of his relationship with Senator McDowell.  Senator McDowell has not responded to requests for comment.

Senator Greg Lavelle (R – Sharpley) commented, “Based on the fact Dr. Byrne’s name is specifically mentioned in the epilogue language is a unique event, and we will be asking questions”.  He went on to say. “It would make one think that authority for use of the funds rests with Dr. Byrne and not the Center for Energy & Environmental Policy”, or the University.

David T. Stevenson, Policy Director

Center for Economic Policy

 

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2015 will soon be upon us and for those who are passionate defenders of freedom and liberty our work just goes on when the clock strikes midnight. Here is CRI in review and our goals for 2015:

  • Dave Stevenson’s lawsuit against DNREC and former DNREC Secretary Collin O’Mara is still ongoing. Dave and the other three plaintiffs, including CRI Director John Moore, won standing to continue their lawsuit. We will refrain from making a prediction on a court ruling less we jinx the lawsuit but we are optimistic the Plaintiffs will win. This is because in order to get standing the Plaintiffs had to prove they had a valid reason to sue in the first place, such as being aggrieved by the Defendants actions. Winning means stopping DNREC from changing the rules on how many carbon permits can be sold at carbon auctions, saving Delaware taxpayers over $100 million a year in increases in utility bills.
  • We testified in favor of HB353, the Parent Empowerment Education Savings Account Act (PEESAA). Jim Hosley, our former CEE Director, spoke in favor as did a dozen Wilmington parents and grandparents (and one student!) and the leaders of Tall Oak Classical Academy. The bill was tabled in the House Education Committee, a move we are unfortunately not surprised by. However, we hope 2015 will be a better year as more and more people realize the need to improve Delaware’s education system, and the only effective way to make the changes our students need to be prepared for the future is to provide parents with school choice options to do what’s best for the child. CRI will always maintain the belief that parents and/or legal guardians can make a better choice about their children’s education than politicians and bureaucrats in the state Department of Education.
  • We brought in Dr. Bartley Danielsen, business and economics professor from North Carolina State University to keynote our Sixth Annual Dinner. Dr. Danielsen has proposed a theory tying in environmental benefits to school choice. The basic theory is, parents moved to the suburbs to flee poorly performing public schools which left a lot of people uneducated and unable to find respectable work, and many turned to crime as a result. His theory is if inner city schools were to improve their quality, many families would move back to the cities from the suburbs and the result would be a reduction in traffic and environmental pollution from people driving from the suburbs to the cities. View is presentation here and here

In addition to these challenges, we still have issues Delaware must resolve in order to improve our economy:

  • End to the prevailing wage which makes public construction costs so expensive many end up getting no work at all. See: Rockwood Museum.
  • A Right to Work law for Delaware. Union leaders are pushing the “scab” theory that somehow union members will drop out and reap all the benefits the union “works” to get. We have responded by noting that a) manufacturing businesses have responded by moving factories elsewhere, depriving Delawareans of job opportunities. See: loss of auto industry, Valero plant, Evraz Steel plant, Georgia Pacific plant. b) as a moral issue, should union bosses have the right to take someone’s money just because someone works at a particular location? What if the union bosses don’t serve their member’s needs, such as organizing or donating to political causes or candidates the members don’t support?

We wrote: “While in the short run unionization may force wages up for those involved, in the long run closed shops reduce capital spending and induce the out-migration of jobs and workers.”

Read HERE and HERE and HERE

  • tax reform. Delaware is one of just five states with a gross receipts tax (tax on sales, even before factoring in profit/loss and expenses). Three of the other four don’t have an income tax and the only state with both like Delaware is Virginia who has lower tax rates. Coupled with high corporate and personal income taxes while Nevada and North Dakota compete with us for corporate business, and without reforms we will see money and jobs leave the state at even higher numbers.

Merry Christmas, Happy Hanukkah, Happy Holidays, and a Happy New Year to all. Let’s be thankful for a good 2014 and hope for better things in 2015.

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Happy Thanksgiving! We hope you have a happy and safe holiday.

For this week’s post we are going to respond to the post of blogger Lyman Stone, a grad student at George Washington University’s Elliott School. In his November 21 blogpost titled “North Dakota, Illinois, and Delaware: A Boom State, a Struggler, and a Winner”, he wrote about Delaware’s migration and why the state has had an overall increase in people from 2000-2010 (source: U.S. Census). His top four points and our response:

1. “Many of the people Delaware loses, as I’ve already shown, are richer people. That is to say, Delaware is exporting its richer people (many of them retirees) to states like Arizona, Florida, Virginia, and Texas. Meanwhile, it is inundated with floods of lower-income, somewhat less-educated individuals. Delaware’s in-migration includes very high rates of retiree migration and migration of the young.”

Delaware lost roughly $480 million in net wealth from 2000-2010, predominately from New Castle County (source irs.gov). Some of that wealth went across the border to Chester/Media, PA; many of the top 1% retired to Florida or Arizona, but many people did stay in Delaware and moved to Kent or Sussex Counties where property is even cheaper and cost of living is lower than New Castle County. Delaware’s low property taxes attract retirees mainly from DC, MD, NJ, and NY. Young people move to New Castle County for the corporate jobs. But Lyman is missing this point: Families with school-age children tend not to stay in Delaware. (see here and here). Unless the parents can afford a private school or get to a good charter school, the parents more often than not leave for PA. A graph within the presentations in the links shows a huge drop-off with parents with at least one child aged 5 or older leaving for places like Valley Forge or Media while parents with children 0-4 stay in Delaware. So it’s like “come when you’re young, leave when you have a family, return when you’re ready to retire”.

2. “Once again, like Illinois, Delaware has lots of high-traffic borders and nearby border metro areas, thus we can fruitfully look to policy variables as one part of the explanation. Delaware has income taxes at a similar rate to most of its regional peers (though much higher than Virginia’s) and is in the minority of states in that it still has an estate tax. In that regard, it is peculiar that so many retirees would choose it.

That is, until we recall Delaware’s three most salient tax features: it has no sales tax (thus reducing cost of living), among the lowest property taxes in the nation (reducing cost of living), and funds its infrastructure through tolls and user fees more than any other state (reducing burdens on people who drive less: young and old). Its taxes overwhelmingly fall on businesses, but it attracts businesses by offering highly favorable legal and regulatory conditions.”

Delaware has a gross-receipts tax, a tax on business revenue BEFORE profit and loss is considered. Only Virginia has both a gross receipts and income tax, both of those rates are lower there than Delaware. The result has been that Delaware has had more businesses closing than opening and we are 51st in the country in jobs created by existing firms (Source: deconfirst.com). This means no state or DC is worse than Delaware at getting businesses already here to hire more people. The state is very good at helping start-ups but not good at helping established businesses, especially medium-sized businesses.

Delaware’s Court of Chancery is known for its fairness, and incorporation laws are lax. This is favorable to larger businesses to want to headquarter here, which is why the Wilmington area has so many corporate offices with high-paying administrative jobs. This is a good thing for the state but again, this benefits larger businesses and not small- or medium- sized businesses.

3. The net result of Delaware’s policy choices is that “New Economy Index” produced by the liberal-leaning Progressive Policy Institute ranks the 2nd best in the nation, the conservative-leaning American Legislative Exchange scores 27th in their “Rich States, Poor States” publication, the business-backed Tax Foundation (disclosure: my former employer) ranks 14th-best, and even the libertarian Mercatus Center identifies as 17th “most free” in their Freedom in the 50 States report. A report by 24/7 Wall Street found Delaware to be the 13th best-run state in the nation, and academic measures of state corruption rank Delaware no worse than middle-of-the-pack. In fact, it is a real challenge to find any organization that scores Delaware poorly on any major policy metric or index.

Corruption in Delaware is not as bad as it is in places like Illinois, Rhode Island, California, or Louisiana. But saying it’s “good” is more on an indicator of how corrupt those states are. Delaware’s small size means “everyone knows everyone” attitude impacts the government but the state is not very forthcoming with state pension data or with how education dollars are being spent. That said, we are better than every other Mid-Atlantic state besides Virginia. We posted on the Tax Foundation’s analysis.

4. Likewise, Delaware has one of the lowest average price levels of any state in the region (except Virginia), and that price level is lowest in southern Delaware, where in-migration is highest.

I’ve repeatedly cast Delaware as a state that’s providing opportunities: for the young, for the less educated, and also for regional retirees who may not have the money for a bigger relocation to Texas or Florida (or who may not want to pay property and sales taxes in those states). That’s because Delaware’s migration record is simply the strongest across the most different categorizations of almost any state, especially among states without major oil and gas reserves. I’d love to hear more from people familiar with Delaware on how the state attracts people: beaches with rising popularity? corporate headquarters? retirement communities? strong university recruitment? sprawl from Philadelphia?

To Lyman’s final point, Delaware IS a very attractive place between Philly and Baltimore/DC. We are a train ride or short drive from all three cities and only three hours from New York City. The Beaches draw in tourists and retirees, and there is some Philly sprawl in the Claymont area. But Delaware is beginning to lose our status is a “tax haven”, now that Nevada and North Dakota are competing with us for our corporate business. The state spends way too much money and like most states will suffer from having to choose between Medicaid and public education once the federal government cuts back on its Obamacare obligations by 2019. Our three casinos are losing money and, barring a change in visitor habits ore legislative policy, will go out of business; 6% of our state’s revenue comes from casino taxes. We have a state carbon tax and cap-and-trade system (Regional Greenhouse Gas Initiative) which is costing so much money CRI’s Energy Policy Director Dave Stevenson and our board member John Moore are suing DNREC to prevent a new carbon tax fee from being imposed on residents and businesses.

Delaware’s population is aging at a faster rate than the nation as a whole; right now half the state receives Medicare or Medicaid. By 2030 that number will be closer to 67% at current migration rates. Sussex County is already 25% senior citizens and that number grows ever year. As much as we at CRI love our seniors, someone has to help pay for Medicare/Social Security/ public housing assistance/public transportation, and other quality-of-life benefits seniors need to enjoy their retirement since we know the Feds won’t meet their future obligations.
Because of its strong migration record in a highly competitive area, other states could benefit from studying Delaware’s experience and determining which policies they can adopt for their own states.

Please don’t pass a gross receipts tax or block natural gas pipeline from reaching your states. We have high electricity prices and a mediocre public education system. Don’t be so aggressive and seizing abandoned property, even down to the Amazon gift cards which went unused. End the prevailing wage and establish a Right-to-Work law if your state doesn’t have one yet.

What do you think about Lyman’s blog post or our response?

Please consider eliminating your state’s sales tax and lowering property taxes, and have a court system which is seen as quick, efficient, and fair.

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The Wall Street Journal ran an article yesterday based on a longer study by the Brooking Institute on the trend of the average age of businesses in America aging:

“Why it’s worrying that U.S. Companies are Getting Older”

“Older firms are increasingly controlling the largest market share in different sectors of the economy, according to a paper by the Brooking Institution’s Robert E. Litan and Ennsyte Economics’s Ian Hathaway. By 2011, the portion of U.S. businesses aged at least 16 years reached 34%, compared to 23% in 1992. Moreover, those mature companies went from employing only 60% of private-sector workers in 1992 to employing nearly three quarters of the private-sector labor force in 2011.

The report attributes this trend to declining entrepreneurship, among other reasons. The rate of new business creation in the U.S. has been constantly shrinking in the past three decades. “The decline in new firm formation rates had occurred in every U.S. state and nearly every metropolitan area, in each broad industry group, and in all firm size classes,” the authors explain.

Moreover, it has become more difficult for younger companies to survive and compete with the bigger ones. Business failures are more frequent and likely among start-ups, which may account for the fall in business creation after the 1990s. The economy has grown more advantageous for incumbent firms and less helpful for fledgling ones.

The authors argue that younger companies are crucial to attaining a healthier economy as they have had the largest contribution to past “disruptive and thus highly productivity enhancing innovations” across different sectors ranging from airplanes and automobiles to computers and internet search.

“If we want a vibrant, rapidly growing economy in the future, we must find ways to encourage and make room for the start-ups of the future that will commercialize similarly influential innovations,” said the authors.”

 The first chart shows that more businesses close than open, which includes start-ups which fail. Nearly 90 percent of all businesses fail within 10 years. The second chart shows a specific breakdown by industry.

 

 

 

This is not difficult to understand: new business face the inherent challenges of promoting a brand of a product or service in the face of well-established, existing brands. Why try something new when the old version works for you? Then you add in the high tax rates, high energy costs regulation compliance costs, all sorts of entry fees (examples include taxi medallions and occupational licenses), and new laws pushed by the old businesses, mainly larger firms, which drive out the smaller competitors who cannot keep up with the ever-increases taxes and regulations, and the result is that fewer and fewer people even consider starting up a new business, and those who do are more likely to keep the size small enough to handle the taxes and compliance requirements  manage rather than spend energy trying to grown the business or make it more profitable. This is a significant reason why most of the new start-ups are companies which do not need a lot of energy use or space, such as a tech start-up where one only needs a computer with the right programming and internet access and which can be done from an apartment or coffee shop. The problem is that not everyone knows how to, or is capable of, learning to code and managing a computer-based business. On the downside there are fewer start-ups in other sectors of the economy like construction and manufacturing which can offer good-paying jobs needed for many working Americans. Start-ups provide people with job opportunities and can create new ideas which make civilization’s progress better for more and more people. Just imagine a world with no light bulbs, automobiles, or commercial internet access, for example.

The short- and medium-term implications is that this is a disaster decades in the making. Fewer competitors in a particular sector means less choice, which inevitably leads to higher prices and a lower quality product or service because the incentive to be better disappears if either a) you do not have competition or b) if you can simply lobby the government’s elected and unelected officials to devise ways to limit or defeat the competition’s ability to challenge the “established” brands. The resulting weakness in economic growth then fuels the “need” for stimulus dollars, tax credits, and subsidies to keep certain businesses competitive, rather than allow the private marketplace to decide what is valuable and what is not. But even in this way we are only taking money from those who produce and redistributing the wealth to those who are well-connected or who are in the business those in charge of the money deem “sustainable business.”

This is what cronyism does to the economy: it will enrich the well-connected and wealthy while making prosperity harder and harder for an increasingly few people. We are past the debate as to whether cronyism harms economic growth; the question is if and when the majority of people will recognize the problem and stand with organizations like CRI in opposing cronyism and the devaluing of the dollar.

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The President is scheduled to personally present new regulations requiring carbon dioxide emissions be reduced at existing power plants, and you need to see the facts below. The President couldn’t pass a national carbon tax. Enough legislators understood taking unilateral action to lower carbon dioxide emissions would not solve anything but would make the United States less competitive in global markets. The Environmental Protection Agency (EPA) can write standards but the states must write the implementation rules.

“We have to act now as 97% of scientists agree we already face catastrophic extreme weather from manmade greenhouse gas” – The source of the 97% is vague and depends on repeating it enough that you begin to believe it. Most scientists agree man is increasing carbon dioxide levels and this will probably cause some increase in temperatures. Most do not agree there is a link with extreme weather events or we face a near term crisis. In fact, US satellite data show temperatures have not increased in seventeen years, a period that saw greenhouse gas increase 34%. The US Energy Information Agency reports US emissions have been reduced 9% since 2007 while the rest of the world is up 10%.

“The Environmental Protection Agency (EPA) has made a thorough review” – The Administrator of the EPA has the authority to determine what science is used to calculate standards and how rules will be developed and applied so the books are cooked against using coal for electric generation.

“These Standards will cost only $10 billion for implementation but will save us a $100 billion so it’s a good deal” – Our review of recent regulations indicates the EPA will most likely exaggerate indirect benefits based on fewer premature deaths from fine particle air pollution. Using less coal incidentally reduces fine particle emission. The problem with that is Air Quality Standards are already set to a level that will not cause harm in even sensitive groups such as asthmatics and those standards are being met by a wide margin. The EPA will ignore the Air Quality Standards and assume fewer deaths from any level of fine particle reduction. Plants need carbon dioxide to grow so higher levels means tens of billions of dollars of increased crop production which should offset most of the exaggerated benefits associated with carbon dioxide reduction.

“These standards are fair” – Red states with a high concentration of coal fired plants providing power to the rest of the country will bear most of the cost. Energy importing blue states with expensive requirements for wind and solar power, and existing carbon taxes will be rewarded.

“This plan is flexible and won’t require a carbon tax” – The options will probably include switching fuels from coal to natural gas or wind and solar, requiring energy efficiency improvements, using carbon sequestration, or using a carbon tax and trade program. Electric grid reliability is already in danger during cold snaps as natural gas for home heating is given preference over electric generation. Until more pipelines are built we should avoid further fuel switching. Sequestration is unproven and expensive. Proponents will likely argue carbon taxes are the easiest solution to implement, and the revenue could be used for efficiency programs. In reality, most states will be forced into carbon tax and trade programs, the President’s real intent. Unfortunately, we have six years experience with a nine state Regional Greenhouse Gas Initiative (RGGI) to prove the carbon tax and trade model doesn’t work. Our review showed RGGI had no success in either reducing carbon dioxide emissions, or in increasing energy efficiency, and will cost electric customers $3.3 billion extra between now and 2020 (RGGI, Inc estimate). Coal fired power plants closed because of other EPA regulations, and coal plants switched fuels because of lower cost natural gas, not because of RGGI. Most of the energy efficiency projects funded by RGGI had no post project audits to confirm the energy savings were real, and there was no accounting for “free riders” or the “rebound effect”. Free riders accept grants but would have done projects anyway. Rebounders might install an energy efficient heating unit but then keep their homes warmer.

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Governor Markell released his budget for FY2015 and it includes new taxes, including a 10 cent per gallon increase in the gas tax. He also wants to increase taxes on businesses and move money from the Transportation Trust Fund to help offset the deficit.

Where are we going with this?

Much of this increase in spending is unnecessary and there are ways to pay for the spending without new taxes. For example, Delaware could save $90 million a year in the infrastructure category if they simply change their prevailing wage methodology from the state’s prevailing wage survey to the US Bureau of Labor & Statistics (BLS) survey. This is because Delaware’s survey is much more union-friendly and has caused public works projects to see an explosion in spending. The BLS survey includes more businesses and while still union-friendly is much less so than the state’s.

Delaware has $29 million sitting in bank accounts, unspent money collected from the Regional Greenhouse Gas Initiative. This is money polluting businesses pay to the state in order to “offset” their emission of CO2. The idea was that money would be spent on low-income weatherization projects (like installing energy-efficient windows or dishwashers in homes), but in reality most of the money spent was on administrative costs, with very little going to these projects (which had their own problems).

Delaware also makes the cost of business difficult, with electric prices 25% higher than the national average, the state with the worst gross receipts and corporate income tax rate together, and a personal income tax rate which make Delaware uncompetitive with Florida or Texas for jobs; in place the state has to essentially pay companies like ILC and Kraft Foods to keep jobs here. What we need is a natural gas pipeline to lower energy costs, a repeal or at least reduction in the tax rates mentioned above, and more support for existing firms. Delaware was last in the nation in terms of job expansion by existing in-state firms.

Let us hope that the General Assembly decides to move Delaware in a pro job-growth direction and away from punishing the middle class and small businesses of Delaware with onerous taxes and fees which are only encouraging the state to spend more.

*Note:This article will be updated when further details about the FY2015 budget are revealed.

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please enjoy another guest blog post from Lindsay Leveen, from greenexplored.com
No doubt Bloom Energy knows the way to San Jose.  They do not need Dionne Warwick to show them the way.  They were pleased to announce on their website on October 29, 2012 that they placed two boxes at the San Jose Pavilion where the Sharks play NHL hockey.
Bloom provided the Sharks spokesman the data in the press release that they will save 4.8 million pounds of CO2 emissions over a ten year period with the two boxes at the Pavilion.    I contacted the Sharks Spokesman (Jim Sparaco) by email and told him that if the PG&E data on the grid emissions only being 393 pounds of CO2 per megawatt hour are correct and the data in the Bloom permit filing in Delaware are correct and if the boxes have an uptime of 95% then the Pavilion will in fact be adding 16.3 million more pounds of CO2 over the ten year period than the case where they continued to simply buy electricity off of the grid from PG&E.
The Sharks Spokesman replied to my email that he had contacted Bloom to ask about the discrepancy between the data Bloom provided him for his press release and the PG&E and Bloom Delaware data.  I am happy that the spokesman takes his job seriously and does not want to be the cause of greenwashing.
Today I sent an email to the spokesman as well as the Mayor of San Jose, Chuck Reed, and helped inform the Mayor of the possible greenwashing at the state-of-the-art arena.    You see the mayor was quoted in the press release as follows:  “Congratulations to HP Pavilion for being the first arena in the nation to implement Bloom Energy’s cutting-edge fuel cell technology.”  Yeah Mr. Mayor this cutting-edge technology may well be an illusion.
The City of San Jose owns the arena and they are therefore directly responsible for the emissions of CO2 and VOCs as well as the toxic and hazardous solid wastes that accumulate in the Bloom Boxes.  I am sure that the Mayor just like the spokesman was given misleading information by Bloom.
We now have evidence that Bloom gave the operators of the San Jose Pavilion the data on their emissions.  Bloom can either respond to the spokesman and the mayor that PG&E is fibbing about the grid emissions and / or that Bloom provided Delaware with incorrect information in a permit application submitted under penalty of perjury.  Or they can tell the city of San Jose that the boxes will not save 4.8 million pounds of CO2 emissions over the 10 years.
No matter what Bloom tells the Spokesman or the Mayor their data somewhere are not correct.  Won’t it be nice if they misled Delaware rather than San Jose?  That is a crime under penalty of perjury.  If they misled San Jose rather than Delaware that is a crime against me and my neighbors as we all pay money into the SGIP to lower carbon emissions.  We all breathe the crisp air in the San Francisco Bay Area.
Interestingly the population of Delaware (917,012) is similar to the population of the city of San Jose (982,765).  It looks like Bloom likes boondoggling in places with approximately one million people.  My congressman pretends to represent the 707,530 people living in the 2nd Congressional district of California.  While Mr. Huffman is a champion boondoggler, Bloom has him beat by an extra 275,235 people in San Jose and 209,482 extra people in the First State.
Now the zinger!!! The  Secretary of the Delaware  Department of Natural Resources and Environmental Control (DNREC) is Collin O’Mara.    Quoting from the DNREC web site “Prior to joining Governor Markell, Secretary O’Mara served as the Clean Tech Strategist for the City of San Jose, and was the primary architect of the city of San Jose’s Green Vision, built upon the belief that environmental sustainability and smart economic development are inextricably linked and entirely compatible. “
Wow there is a link between the San Jose Boondoggle and The Delaware Boondoggle.  It is Mr. O’Mara!!!  Honestly the whole thing reads like a novel called “Carbon Dioxide Into The Wind”.  Our hero is Green not Rhett and the leading high maintenance person is O’Mara not O’Hara.  But the key line from this book is “frankly my dear Scollin, I do give a damn!”

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