Category Archives: Economy

Dear Sir: Your Presidency is a failure

Dear Mr. President: Your presidency so far is a failure.  Not necessarily in legislative terms.  Not necessarily in terms of a poorly articulated agenda.  However, when we look at what is supposed to be your “wheelhouse,” your “strike zone,” business management, you’ve tossed the playbook.

You’ve not made the distinction between a boss and a leader.  Let’s discuss it in business terms — a boss directs employees and manages the production in a system of rewards and punishments; a leader uses mentorship and encouragement to get employees to work towards shared goals. [BND] It doesn’t take much consideration to reach the conclusion that productivity is higher for the latter than the former.  One piece of advice on bosses/leaders which is well worth a reminder is:

“A good boss elevates everyone around them, provides the resources they need to do their job well and acknowledges them often,” Borba Von Stauffenberg added. “Additionally, a good boss allows each team member to be brilliant by staying out of their way but is willing to get in the trenches with them when needed.”

The next time the president is tempted to launch a Twitter rant or issue threats to members of Congress or to members of his administration he would do well to read the last sentence with great care.  There are some other precepts from the business community which call for more consideration in this administration.

A good “boss” or leader communicates a clear vision to employees.  Good leadership can be measured by looking at how well the employees understand why they are doing what they are doing.  Needless to say,  the manager who resorts to threats and badgering may “make the quarterly numbers,” but will fall well short in terms of overall success.  An element of this is the establishing of equally clear performance objectives.  What did the president want in regard to health insurance reform legislation? Was it outright repeal? Was it repeal with a plan to cut Medicaid? Was it a plan to cut taxes without cutting Medicaid?  Answering these questions requires reading Tweet Streams that are constantly changing and range from alternative one to alternative three.

A good boss/leader listens.  Listening means the boss gets answers to operational issues and systemic problems from the shop floor.  Once received the advice should be acknowledged, credit must be given where it is due, and the employees are recognized as human beings, not merely “human resources.”   If your Secretary of State is saying one thing and you are saying something else entirely, then you’re not listening.  How much longer can this situation continue before a subordinate decides there is such a paucity of trust and support that further efforts are futile?

There are personal traits which are associated with good business management which aren’t really in evidence in the Oval Office at the moment.  One is the capacity to acknowledge faults and weaknesses,  and to work to minimize these when it comes to team building for successful operations.  A good manager will leave meeting participants feeling that their contributions were appreciated and that they were personally respected.  That infamous cabinet session during which members each offered sycophantic accolades to their Dear Leader wasn’t at all reassuring that we’re led by those who feel respected themselves.

Trust, respect, and operational success are never a given when employees and subordinates feel there’s a bus coming around every corner.   The following is as good a summation as any:

“Terrible bosses throw their employees under the bus. Good bosses never throw their employees under the bus.  Memorable bosses see the bus coming and pull their employees out of the way often without the employee knowing until much, much later… if ever, because memorable bosses never try to take credit.”

Attorney General Sessions may be thinking of this summary at the moment?  Additionally, notice that last sentence above, the one about never trying to take credit for all the successes and deflecting blame for any failures.  That requires getting one’s ego out of the way.  While the boss may be personally responsible for the advancement of the company, he or she should not take things personally.  For example, the chaos created when a major supplier goes out of business may cause issues, but that’s no reason to rail at the manager of the procurement department.

Not to put too fine a point to it, but even a cursory examination of articles on good leadership and business management yields a pattern of management practices which are violated on a daily basis by this mis-administration.  It’s about time for the board of directors to start speaking of putting some additional pressure on the Boss to review and revise his management practices.

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The Russia Sanctions: From Headache to Migraine for the Trump Administration – Updated

The US Senate approved amendment S. Amdt 232 to S.722 (Iran Sanctions bill) on June 14, 2017 on a 97-2 vote (No. 144) and it’s worth our while to look at precisely what this amendment provides [Congressional Record]:

The amendment would do a number of things. It would codify and
strengthen six existing Obama administration Executive orders on Russia
and Ukraine and on Russian cyber activities and the sanctions flowing
from them.

The Obama Administration imposed sanctions on Russian in the wake of Russia’s incursions and take over of Crimea, described by Reuters on December 20, 2016. The article notes that the incoming administration, Rex Tillerson included, were in favor of easing these sanctions.

It would provide for strict congressional review of any effort by the
President to relax and suspend and terminate or waive Russian sanctions
patterned after the Iran Review Act.

This provision likely won’t be well received at the White House, as it removes the administration’s power to unilaterally ease the sanctions, including the ones added in the aftermath of Russian meddling in the 2016 election.  The ‘cyber’ sanctions included the removal of 35 Russian diplomats and the closing of two Russian properties identified as “rest and recreation” locales, but commonly believed to be intelligence centers by US authorities.  It was reported last May that the administration was giving consideration to returning the two controversial properties to the Russians.[WaPo]

It would require mandatory imposition of sanctions on malicious cyber
activity against the United States, on corrupt Russian actors around
the world, on foreign sanctions evaders violating the Russia, Ukraine,
and cyber-related sanctions controls, on those involved in serious
human rights abuses in territories forcibly controlled by Russia, and
on special Russian crude oil projects around the world.

The use of the term “mandatory” is important in this context.  The message is clear, should the Russians or their agents engage in further acts of “malicious cyber activity, then imposition of sanctions is an absolute, non-negotiable, manner.  Notice, please, the list of activities which would trigger sanctions: Violating sanction controls, human rights abuses, and Crude Oil Projects.  The latter will be of great interest to the Russian oligarchs and “comrade” Putin.

It would authorize broad new sanctions on key sectors of Russia’s
economy, including mining, metals, shipping, and railways, as well as
new investments in energy pipelines.

The inclusion of “metals” is interesting,  considering the Trump promise to build oil pipelines with American steel.  The promise has a compromise:  On March 31, 2017 the Los Angeles Times reported that about half the steel for the Keystone Pipeline would come from an Arkansas plant and the rest will be imported. The rationale?

“The steel is already literally sitting there” waiting to be used, White House spokeswoman Sanders told reporters, explaining the reversal. Evraz Steel, a Canadian subsidiary of Russia’s Evraz PLC, had signed on to provide 24 percent of the steel before the project was rejected under Obama, according to Reuters, and some pipe segments have already been built.” [CSMonitor]

It would crack down on anyone investing in corrupt privatization
efforts in Russia–something we have seen a lot of over 20 years.
It would broaden the Treasury Department’s authority to impose
geographic targeting orders, allowing investigators to obtain ATM and
wire transfer records so Treasury can better target illicit activity of
Russian oligarchs in the United States.

A few translations might be in order.  “Corrupt privatization” is an analytic term used to describe Russian versions of privatization as essentially corrupt — “corruption has resulted from the privatization of public assets whether “bought” (typically at grossly undervalued prices) or by government officials in effect taking private control of assets still officially publicly owned.”  “Geographic targeting” refers to the authority given to the Department of the Treasury to regulate sanctions over regions, and not just specific countries or companies.  ATM and wire transfer records are of great interest to FINcen, and FINcen is the division of the Treasury which investigates financial fraud and other illegal activity.  (See also OFAC FAQ compliance)  At the risk of unsupported speculation, we can muse that if FINcen has the power to investigate wire transfers to Russia, and if the Special Counsel has access to FINcen investigations, then any attempts to evade sanctions can end up in the hands of the Special Counsel’s investigation.  This might get messy indeed.

It would require Treasury to provide Congress with a study on the
tangled web of senior government officials from Russia and their family
members and any current U.S. economic exposures to Russian oligarchs
and their investments, and that includes real estate.

This portion of the amendment widens the net.  “Any current US economic exposure to Russian oligarchs and their investments” is sufficiently broad to include anyone, any company, any corporation, and any family.  And, while we’re discussing real estate, this opens the possibility — even the probability — of a report on the transaction in which Russia’s “Fertilizer King” bought a Trump property in Florida at a price well over the market. [Miami Herald]  The term exposure could also extend to the fine art of money laundering, succinctly explained by this Business Insider article.  When the word “investments” pops up we can assume that the powers thus authorized in the Amendment can look into shell corporations.  “The real big shots don’t bother with casinos, crooked bank managers, junkets, or smurfs. They manage to transfer millions, or billions, without handling cash or involving banks at all, instead funneling their money through corporate deals (bribes, kickbacks, and embezzlement schemes), which are exempt from currency controls.”

It would require the administration to assess and report to Congress
on extending secondary sanctions to additional Russian oligarchs and
state-owned and related enterprises.

We can also safely assume that an administration which wanted to ease sanctions on Russia will not be best pleased with having to self-report on the possibility of extending secondary sanctions to “additional Russian oligarch,” etc.  For clarification, “secondary sanctions” are defined as follows: “Secondary sanctions are a relatively new kind of sanction that has been implemented frequently over the past five years, particularly relating to Iran. These kinds of sanctions supplement other sanctions programs by targeting non-U.S. persons (primarily foreign financial institutions and foreign sanctions evaders) who do business with individuals, countries, regimes, and organizations in Iran.” [OFACnet]  The Amendment provides for an administration report of the relative effectiveness of levying such secondary sanctions.

So, what to expect?  Since the administration failed to apply the brakes on the Senate, we could reasonably expect it to try to ameliorate these provisions in the House.  This should separate the Reagan Would Be Spinning In His Grave Republicans from the Dear Leader Trump Is Always Right Crowd.  Speculation Warning: Trump friendly representatives may try to argue that the Senate Amendment is “too broad,” or “too vague.”  The problem with this is that the Senate amendment is neither too broad or “void for vagueness.” There will be the “sanctions don’t work” argument perhaps — but this falters if those in favor of reverting to the old level of Cuban sanctions try to have it both ways — Cuban sanctions OK, Russian sanctions not OK.

Not to put too fine a point to it, but 97 members of the US Senate have just elevated the administration’s Russian sanctions headache to a full bore hemiplegic migraine.

Update: S. 722 (Iran Sanctions Bill with Russian Sanctions Amendment) passed the Senate on a 98-2 vote (number 147) The only members of the Senate voting against the bill were Sanders (I-VT) and Paul (R-KY).

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Deregulation isn’t the solution, it’s the problem

Representative Mark Amodei (R-NV2) was pleased to vote for the so-called “Choice Act,” which rolls back some of the reforms enacted in the wake of the Wall Street casino debacle and subsequent recession as the Great Wall Street Derivative Monster collapsed like an air dancer in a Nevada wind.   The theory behind this ridiculousness is that regulations restrict commerce, and a restriction of commerce diminishes wealth, therefore diminished wealth impacts investment, ergo diminished investment equates to a limit on economic growth.  Not. So. Fast.

Yes, regulations restrict “commerce,” but only some kinds of “commerce,” generally the fraudulent variety.  I am free to issue shares of stock in my corporation — however, I am not free to issue shares of stock in the Reese River Steamboat Company.  Some sharp soul offered shares of this highly dubious company during one of the mining booms, and assuredly some investors were cheated by this obviously fraudulent sale.  We have regulations to prevent this.  We have laws and related regulations to prevent insider trading, to prevent “blue sky” stocks, and to reduce the possibility investors are cheated by financial products which promise high returns with little or no risk.  Sometimes the adage, “If it looks too good to be true, it probably is,” isn’t quite enough to prevent mismanagement of other people’s money.

Recently, Wells Fargo was found guilty of violating regulations and laws relating to the creation of phony accounts, the fine totaled a massive $185 million and some 5,300 individuals were fired. [NYT] The situation was all the more egregious because the bank was ripping off its own customers.  $100 million of that fine was the highest penalty the CFPB ever levied against a financial institution.  This is precisely the agency the so-called “Choice Act” wants to ham-string.

The “Choice Act” would eliminate the regulation regime which was intended to prevent the collapse of banking institutions.  Just for the record, let’s look at the list of US institutions that either disappeared or were acquired during the Great Recession: New Century, American Home Mortgage, Netbank, Bear Stearns, Countrywide Financial, Merrill Lynch, American International Group, Washington Mutual, Lehman Brothers, Wachovia, Sovereign Bank, National City Bank, CommerceBancorp, Downey Savings and Loan, IndyMac Federal Bank, HSBC Finance Corporation, Colonial Bank, Guaranty Bank, First Federal Bank of California, Ambac, MFGlobal, PMI Group, and FGIC.

If we extrapolate the “let the market sort it out” argument to its conclusion — it’s acceptable to allow banking institutions to over-extend themselves to such an extent that they will ultimately collapse; that’s just the market “at work.”  Fine, if the impact of such deregulation solely impinges on the banking institutions themselves, but that’s not what happens in the real world.  In the real world such supposedly safe havens (money market accounts) were in peril:

“A little over a year ago the collapse of Lehman Brothers sparked heavy redemptions from the dozen or so money market funds that held Lehman debt securities. The hit was particularly hard at The Reserve Fund, a money market fund that had a $785 million position in Lehman commercial paper. Soon The Reserve saw a run on its Primary Fund, spreading to other Reserve funds. Reserve tried to furiously sell its portfolio securities to satisfy redemptions, but this only depressed their values.

Despite its best efforts, The Reserve Primary Fund couldn’t find enough buyers and on Sept. 16 the unthinkable happened. The Primary Fund “broke the buck,” meaning that the net asset value of the fund, $1, fell to $0.97 a share. It was only the second time a money market fund, which are commonly thought of as guaranteed, broke the buck in 30 years.”

Meanwhile in Nevada, unemployment soared to 14+%, the state endured being listed among the states with the highest levels of foreclosures, and it took until 2016 for the state to recover almost all the wealth and jobs lost in the aftermath of the deregulated Wall Street casino debacle. [LVRJ]

Deregulation may sound fine when discussed in theoretical, ethereal, terms, it obviously didn’t work in the real world in which Bear Stearns, Lehman Brothers, WaMu, and IndyMac collapsed, and where the Reserve Primary Fund “broke the buck.”

The questions someone should ask of Representative Amodei, and other “deregulators,” are:

(1) Do you favor a return to the regulatory environment in which investment banks were allowed to over-extend and engage in risk taking far beyond their capacity to remain solvent?

(2) Do you favor a regulatory environment in which those being regulated are allowed permission to “self regulate,” without oversight from governmental agencies and institutions?

The second question is particularly important because it addresses the question of trust in commercial relationships.

The most basic of all commercial relationships is the simple act of buying and selling.  I have something to sell, and there is a potential customer for my goods or services.  This is another point at which deregulation can easily become part of the problem.  If I am selling food, there are self-evident reasons for regulating the conditions under which that food is prepared and served to the general public.  Deregulation invites disasters of the public health variety.  We trust that the food offered for sale by restaurants and groceries is safe for consumption.

If I am selling financial products does the buyer (consumer) have the expectation that my product is what it purports to be?  That it is backed by sufficient funds for ‘redemption?’ That it conforms to the standards of acceptable practices?  And, if it doesn’t, are there avenues of redress such that the consumer can be compensated?  In short, can the customer be assured that he or she can trust the product?

If I am selling a manufactured product, can the consumer trust that the item was produced in a safe way, that the product will perform as advertised, that the product will not create a hazard in my home or office?  There are voices on the fringe of Free Market thought calling  for the abolition or at least the restriction of the Consumer Product Safety Commivoicssion, who would love to see the return of Caveat Emptor, but most reasonable people agree that regulations pertaining to product safety are conducive to commerce, NOT restrictive.  A vehicle which meets or exceeds safety standards is more likely to be my choice than a vehicle which does not.  A vehicle which meets or exceeds fuel consumption standards is more like to be my choice than one which does not.  In short, regulatory standards benefit the best products (and their producers) while those who do not meet the standards have a more difficult time at the point of sale.  Now, the question becomes — do we want a regulatory environment which benefits the marginal, the inadequate, or perhaps even the corrupt producers?

Unfortunately, the deregulatory voices are answering this question in the affirmative.

Is this really the answer Representative Amodei and his cohorts want to give to constituents in the Second District? In the US?  To our customers around the world?

 

 

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Filed under Amodei, banking, Economy, financial regulation, Foreclosures, Nevada economy, Nevada politics, Politics

Anti-Choice: The Rebirth of Deregulation

I don’t think anyone in the state of Nevada doesn’t know what happened the last time Wall Street was left unfettered.  The Bubble splattered all over the state.   The offcast included 167,000 empty houses. [USAToday]  Nevada’s unemployment rate soared to 12.8% by December, 2009.  By October 2010 the state’s unemployment rate was 14.4%.  And now the House of Representatives is on track to vote on H.R. 10, the “Choice Act” to dismantle the financial regulatory reforms enacted in the wake of the Housing Debacle and deregulated banking disaster.

Two procedural votes are on record to move this bill forward — House vote 290, and House vote 291 — and Representative Mark Amodei voted in favor of bringing this bill to a vote by the full House.   Watch this space for an update on the vote for passage.

Update:  On House vote #299, Representative Mark Amodei (R-NV2) voted along with 232 other Republicans to essentially gut the financial reform regulations enacted in the wake of the Housing Bubble debacle. (HR 10)

Representatives Kihuen, Rosen, and Titus voted against this deregulation bill.

Comment: Be aware of Republican representatives to frame this vote as one against Bank Bailouts and “Too Big to Fail.”   In a polite world we’d call this something euphemistic like “south bound product of a north bound bull.”  The Dodd Frank Act requires banks to have a plan for unwinding failing banks, and bankers have screamed to the heavens about provisions to allow outside oversight of banking management.  More simply, if you approve of the antics of Wells Fargo — then you’ll love the “Choice Act,” a bill which gives banks the “choice” to skewer its customers and investors.

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Filed under Amodei, Economy, financial regulation, Nevada economy, Nevada politics, Politics

The Not-So-Stealthy Attack on Americans

During this something less than merry Month of May the United States Senate is scheduled to take up the Regulatory Accountability Act which will make it all but impossible for our own government to protect citizens (and citizen consumers) from corporate depredation.  We have a warning:

“Among its most egregious provisions, the RAA sets an impossibly high burden of proof that agencies would have to meet before finalizing and implementing a new rule, such as a new air quality or food safety standard. The bill also requires agencies to conduct several rounds of cost-benefit analyses that give more weight to the compliance costs to industry than the benefits to Americans. Taken together, these provisions and others in the bill could lead to total gridlock in the agencies charged with protecting the food we eat, the water we drink, and the air we breathe; ensuring that products are safe before they enter the market; and reining in the worst financial market abuses.”

Interestingly enough the Big Corporate Interests don’t even bother to mention “small businesses” in their push — read shove — for this anti-consumer, anti-worker, anti-Main Street bit of legislation.

A better label would be the Unaccountability Act of 2017 — in that corporations would be protected from citizens who like drinking clean water and breathing clean air, eating healthy and uncontaminated food, driving safe cars, and being reasonably assured that Wall Street investment interests aren’t pulling a “de-regulation” extravaganza that could make the debacle of 2007-2008 seem mild by comparison.

If you enjoyed the scandals of Enron, the predatory behavior of Wells Fargo, the Great Recession brought on by Wall Street Casino operations — then you’ll love this draft to deregulate the major corporations.

On the other hand if one is appalled by the “Screw Grandma Milly” antics of the Enron crowd, if one isn’t concerned that the bank isn’t surreptitiously opening accounts (and charging fees) like Wells Fargo, or if one isn’t concerned that mortgages might be oversold, and fed into another giant bubble of derivative trading — then a phone call to the Solons of the Senate is required.

As the machinations of the Russians, the squirming of the administration, and the daily deluge of tweets from Dear Leader, suck the air out of the room, beware that major corporate interests are working through the halls of Congress.

This is the time to contact our Senators, Senator Dean Heller (who has made no secret of his affinity for deregulation) and Senator Catherine Cortez-Masto who is more likely to be amenable to the concerns of ordinary citizens.  The so-called “Regulatory Accountability” is nothing more than a not-so-stealthy attack on ordinary Americans by extraordinarily powerful corporate interests.

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Filed under conservatism, consumers, Economy, Enron, financial regulation, Heller, Nevada politics, Politics, public safety, secondary mortgage market, subprime mortgages

America Last

The first law of negotiation:  It is impossible to be part of any bi-lateral or collective agreement if an agency is not at the table.

And thus, the Rose Garden Jazz Concert and International Default Announcement last week violated the First Law, by a noted (albeit self-described) deal maker.  Green lit public buildings around the nation and globe notwithstanding, the Grand Announcement was more theater than substance.  There’s a pattern herein.  First, the administration announces its announcements.  “On Wednesday, June ___, at 12:05 pm the White House will ____”  This sets up our cable news “panels” for almost interminable displays of speculation, multiplying the publicity.  Thence comes The Announcement, which may or may not be substantive.  Witness the now infamous Rick-Rolling “announcement” by the administration about President Obama’s birth certificate authenticity.  Notice there was never any apology issued for the Birtherism, and attendant racist cant, just an “announcement” made in conjunction with the opening of a family business hotel.

In reality, the first time the U.S. can withdraw from the Paris Accord comes after the next presidential election.  In reality, the accord is entirely voluntary, and has been noted in several commentaries, can’t be both draconian and voluntary at the same time.  In reality, the rest of the nations aren’t about to allow the US to “renegotiate” the terms, especially since the Paris agreement was framed to answer US objections to the Kyoto version to which the US would not agree.  In reality, the world witnessed a statement expressing the narrow vision of the current administration, violating the First Law of Negotiation.

In short, reality has precious little to do with the Rose Garden Jazz Concert Announcement.  Nor does reality square with the Trumpian bluster that the Deal Maker can get America a better deal in the foreseeable future.  At the risk of redundancy, in order to get a deal an agent must be at the table.  The question then becomes does the administration even want a seat at that table?

One theme among the pundits is that the current administration sees international agreements in zero sum terms, that is, every multi-national treaty or protocol is a link in the shackles restraining American sovereignty.  The problem, of course, is that each American retreat also comes with an obverse side — leadership abhors a vacuum, and others will step in where the US fears to tread.  Isolationism brings with it the specter of Splendid Exile.

A related theme is a theory of executive management in which Dear Leader sits atop the pyramid, in a well appointed corner office, issuing edicts which others are expected to follow without dissent.  This, however, is also a formula for a toxic corporate culture:

“Companies hire people because the managers can’t do everything themselves. It stands to reason that we should trust the people we hire to do their jobs, but some fearful managers can’t give up control.

They have to make all the decisions and call all the shots. A rule-driven, command-and-control culture is a toxic culture that will drive talented people away.”  [Forbes]

It will also drive away those who want to cooperate in major projects and programs — like environmental improvement.  Applying a “toxic” corporate culture model to the management of major governmental projects and processes is counterproductive.

It is equally toxic to consider that an increase in cooperative engagements means that gains by some necessarily means someone must lose.  It’s easy to see the world in terms of Winners and Losers, but this perspective excludes the possibility that if everyone gives a little then the prospects for mutual gains are improved.  This philosophy also denigrates the idea that improvement is always possible, holding instead that destruction is the best option.  One of the first regional trade agreements in the modern era, NAFTA, has problems (which may be feeding discontent with other agreements), however, this doesn’t mean that the benefits of freer movement of goods and capital need to be obliterated in the interests of “removing the shackles.”

The idea that the US can effectively lead by abandoning the field (or the bargaining table) is inherently false, as are the promises extrapolated therefrom.

The second law of bargaining says “never negotiate with yourself.”  Pronouncements concerning unilateral actions — as being preferable to mutually agreed upon items of interest — rarely lead to positive outcomes. It’s essentially bargaining with yourself.  For example,  the United States under the current terms of the Paris Accord can set its own carbon emission standards and goals.  Operating in mutual terms, the US could modify its goals and simply inform global partners of the changes and rationale.  The isolationist response assumes that xenophobia is a positive feature of national policy, and no other nation is deserving of notice of our intentions and reasoning.  This is tantamount to that isolated corporate executive in the corner office who sees no benefit in having his or her board actually question directives.

When other voices are ignored those directives and policies coming from the top floor are more likely to be the produce of interior monologues than of well crafted discussion, in other words the CEO/President is negotiating with himself.

Violating the first two essential rules of negotiation aren’t exactly the way to cement one’s reputation as a deal maker.

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Filed under ecology, Economy, Politics

Infrastructure Funding and Financing: Another Trumpian Disaster in the Making

Let’s start with the ASCE’s report card on Nevada’s infrastructure.  The last report card on our kitchen table gives us an overall average C-.  Nevada’s two lowest grades (both D’s) are in categories for schools and dams. The claims from the current White House administration would imply that Nevada will see marvelous levels of investment in Job Creating Infrastructure Projects.  Not. So. Fast.

There are some questions related to projected infrastructure legislation which Nevada elected officials may want to consider very carefully.

#1. Does the infrastructure legislation address Nevada’s greatest needs?  The answer at present is “maybe not.” The commentary coming from the White House, and from members of Congress imply that most of the infrastructure plans are part of the Transportation budget.  [Hill] Again, roads and bridges are important, so are airports, but the greatest needs in this state are for projects and funding for upgrading schools and dams.

This past February a dam failed in Elko county, flooding farmland, homes, and stopping traffic on the Union Pacific RR. Obviously dams must eventually get their due. First, we should notice that the state of Nevada doesn’t keep a ranking of hazardous dams, most of which fall into the “earthen” category.  Secondly, it should be noted that a high hazard dam refers to the damage possible should the dam fail, not to the actual condition of the dams themselves.  Third, many dams in this state are privately owned.  About one third of our 650+ dams are constructed for flood control, another third for mining operations, and the remaining third fall into the amorphous category “anything else.” The state has been relying on 11 engineers to keep track of the 650+ dams, and Governor Sandoval’s budget proposal calls for three additional engineers in the Water Division for the next fiscal term. [LVRJ]

School facility upgrades and construction generally lie outside the common understanding of ‘infrastructure’ expenditures, being the province of local school districts, and based on the shifting sands of bond issues. Nothing signaled by the administration thus far would suggest expansion of federal interest in this category of infrastructure investment.

#2.  Will the legislation address Nevada’s needs for the construction and maintenance of roads and highways?  Maybe not.   The situation at present:

“The Nevada Department of Transportation maintains 5,300 miles of state highways, which includes many rural roadways within Nevada. Without an increase in the gas tax since 1992, the state funding levels have stagnated and Federal funding has remained at a similar level the past 5 years. Hence, the maintenance of the existing highway system has fallen behind and the state will need approximately $285 million annually for the next decade to catch up on the current backlog of highway maintenance. The current funding levels provide only 60% to 70% of the required funding to maintain the state highways. This has resulted in an increase in the number of lane miles requiring either an overlay or full rehabilitation from 28% two years ago to 38% currently.” [ASCE]

New construction is great, no one should argue against it where it’s needed to improve the flow and traffic and attendant commerce, however, when nearly 40% of the current roadways need overlays or full rehabilitation, the problem is focused on maintaining what we have at present not necessarily on new construction projects.

#3. Does the administration’s plan differentiate between financing and funding?  This is important.  A definition is in order:

“Infrastructure funding and financing are different concerns. Funding specifies how resources will be collected to pay for infrastructure construction, operations and maintenance, and repairs. Financing generally concerns how to raise the large upfront costs needed to build the infrastructure.” [EPI]

So, the administration has spoken of “a trillion dollars in infrastructure investment,” what does this mean?  For the administration is apparently means “leveraging private dollars.” Again, some translation is necessary.  What the administration is talking about is the financing of construction projects. And, we’re back to the difference between funding and financing — if states are facing the same questions posed back in 2015, when Republicans proposed that HTF projects be limited to the revenue accumulated from gasoline and diesel taxation, then many projects, especially of the improvement and maintenance variety will be put on hold. [BondBuyer] Infrastructure funding will be a function of how the administration budget addresses the issue of raising the money necessary to construct, operate, and maintain.  However, if the administration is speaking of “leveraging private funds,” then we should assume that the White House is referring to new construction.  And, now we enter the land of the P3.

A P3 is: “Public-private partnerships (P3s) are contractual agreements formed between a public agency and a private sector entity that allow for greater private sector participation in the delivery and financing of transportation projects.” [DOT]

Let’s put this question of infrastructure investment in purely financial terms:  Who benefits from P3 structuring?  Hint: It isn’t necessarily the state and local governments because bond yields for such things as school construction, road construction, and other large projects have been dropping since their “highs” around 1982 (13+%) to the current rates (3.5+%). [MuniBond]

Bluntly stated, it’s not the financing that’s a problem for state and local governments, they’re paying almost historic low yields (interest) on the bonds they’ve issued for major projects.  The administration is approaching the infrastructure investment issue from the wrong end of the stick — focusing on the financing and not the funding.

#4. Is the use of the P3 structure based on the needs and capacities of the states and municipalities or the desires of private investment?  Some attention is required because:

“In theory, they can(P3)  be effective—but they provide no free lunches. Funding must still be found for the projects—and ordinary households will end up paying the costs through taxes or user fees. In addition, the details of contract construction and oversight are daunting and require a competent, democratically accountable government to manage them. In short, P3s do not allow for simple outsourcing because they do not bypass the need to fund infrastructure or the need for competent public management.” [EPI]

Or, P3s don’t replace the more traditional methods of financing — local and state taxation is still required for paying project costs. There’s nothing ‘simple’ about these arrangements, and they require extensive oversight and management.  Before leaping into a P3 it should be revealed that these generally allow governments and investors to ignore the requirement of Davis-Bacon Act ‘prevailing wages.’ This may ‘create jobs’ but it doesn’t create ‘good paying jobs’ in the construction sector.

#5. Does the administration plan specify financing and funding of infrastructure projects or is it simply a “tax credit” giveaway to investors?  It certainly sounds like it at this point, but the administration, as is becoming more obvious every day, seems to be short on specifics, and the only solid at the moment is the “tax credit” portion of the pronouncements.  If this is a tax credit for projects already in the planning stage, then it’s hard to characterize this as a bright and shiny new proposal.

#6. Location, Location, Location?  Granted that Nevada is an urban state, with most of the population located in two counties, but the roads, bridges, and dams are aligned through predominantly rural areas. Investors, in P3 or other financing schemes, can clearly see the benefits of construction in urban areas (toll roads, toll bridges, etc.) Rural areas, not so much. Nor does the financing strategy address other infrastructure issues in urban areas — how, for example, does Clark County improve its public transportation facilities and components? Washoe County? Or, Douglas, Lyon counties, and Carson City?  How will investment be directed to poorer areas, or areas under served by current transportation systems? Stated more generally:

“The other problem is that Trump’s approach makes it less likely he’ll actually create new jobs. If the customer base can afford it, and they really need the infrastructure, then the project is almost certainly already profitable and private firms are already willing to do it. The tax credit just sweetens the deal on the margins. Where there’s demand, the private market can already create jobs. The less you’re willing to redistribute, the fewer new jobs you can create.” [TheWeek]

This is another point at which the magic hand of the Market fails on one side and succeeds on the other — where there is demand (and the capacity to meet that demand, the tax credits are minimally useful (except to investors) — where there is great need but little capacity to meet the demand, then the tax credits aren’t an inducement to job creation.

We need to take some care to observe whether the “infrastructure” plan is (1) truly about infrastructure needs in Nevada? (2) truly a job creating plan and not merely a way to get tax credit benefits to the investor class, or ignore the Davis Bacon Act requirements for American workers, (3) about getting the infrastructure investments where it is actually needed.

Caveat Emptor.

 

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