Archive for the ‘Policy’ category

Residential Customers are Reshaping NH’s Electricity Market

July 9, 2013

You can’t write about energy debates in New Hampshire without writing about the largest provider of electricity in the state – Public Service Co. of NH.  This is not an anti-PSNH post, they already have enough people calling for their heads and I am uncomfortable among crowds.  I have known and worked with too many good PSNH employees to want to “pile on” with criticisms and even if I did the company has too sophisticated a public and community relations operation to be concerned with the writings of a blogger.   By way of disclosure, I am not currently involved either professionally or personally in any issue that directly affects PSNH.  I am, however, intensely interested in energy markets and energy policy in NH and the nation.

The NH Public Utilities Commission and Public Service Company of New Hampshire have sharply differing views on the outlook for the electricity market and what should be done about it.  Whichever view is deemed more accurate by the PUC will likely determine the how electricity markets are regulated and deregulated in NH in the coming years.   In this post I look briefly at the most prominent issue facing customers, regulators, and PSNH,  and the issue at the heart of what will be the most important policy debates (no offense Northern Pass proponents and opponents) over the electricity market in the state.

For decades electricity markets were affected much more by large commercial and industrial customers than by residential customers but that has chganged.  As I suggested at the beginning of the year in my post “The Coming Consumerism of Residential Electricity Customers”, competition for residential electricity customers would likely accelerate in NH.  As the chart below indicates, the migration of residential electricity customers away from PSNH has been accelerating and the implications are enormous.

residential customers

As PSNH’s electricity customers switch to competitive suppliers revenues decline, and  more importantly for the future of the market, the customer base shrinks.  For a company like PSNH with high “fixed costs” in electricity generating plants and other system costs, these fixed costs do not shrink with a reduction in electricity sales or a decline in the customer base .  The result is that fixed costs are recovered from a smaller number of customers which of course leads to higher prices and a further migration of customers and still greater costs for the smaller number of customers of that remain.  For an electricity provider with high fixed costs and a regulatory system that allows those fixed costs to be recovered from its customer base, revenues will not decline in proportion to declines in electricity sales.   As the chart below shows, the decline in PSNH’s electricity sales has been much larger than has been the decline in its revenues from electricity sales.

Energy sales and revenues

When revenues decline more slowly than do sales of electricity, the revenue derived per unit of electricity sold increases, despite a decline in both sales and revenues.

revenue per MWh

That can temporarily help cushion an electricity provider from the impacts of declining customers and sales but  is not a sustainable long-term strategy or good thing for customers and the economy.  It seems that both PSNH and the Public Utilities Commission agree on that.  What they don’t agree on is how long these trends will last, how far they will go, and most importantly, what to do about them.  Some of these issues will be topics of future blog posts.

What Do Help Wanted Ads Say About the “Skills Gap”?

April 18, 2013

It has been quite a while since I wrote about some of my favorite topics, the “skills gap” and occupational supply and demand.  But since there are recent media reports about the issue and more and new or renewed groups in NH looking to influence the debates and discussions on the issue, let me once again add my $.02.

I’ve made the plea for empirical rather than anecdotal or ideological evidence on the issue and produced a little evidence myself that both points to a skills gap as a contributor to slower than desired employment growth as well as evidence that suggests the issue may not be as prominent an explanation for slower job growth as some believe.  I’ve also noted the larger economic policy debate that engulfs the skills gap issue.  The data I’ve presented in this blog only hints at  answers to the fundamental question of whether slower job growth is more of a problem of labor supply (the number and/or quality available workers with the education, skills and training desitred by employers), or one more of labor demand (not enough employers looking to hire qualified, educated and skilled workers in NH).  I think the charts below  again provide some clues to labor supply and demand trends in NH and also illustrate some bigger trends in the NH economy.

The first chart most directly addresses the skills gap issue.  It shows that in terms of broad occupational groupings, professional and technical job openings are the largest component of on-line help wanted advertisements in NH.  Because these tend to be among the most-skilled and highest-paying jobs we assume that if there were a sufficient supply of labor then job growth in the industries that most employee these occupations would be relatively strong.  In fact, one  industry grouping – business and professional services  – employs a lot of professional and technical occupations and it is growing almost twice as fast as is overall private sector employment in NH.

The crux of the skills gap issue is this: “would a larger or better qualified supply of individuals in these occupations result in faster job growth in NH, or are there other or complimentary factors that also need to contribute to faster growth?”   How you define the problem of slower job growth also largely defines the range of your solutions. Increasingly, and I think somewhat disappointingly,  it also seems to define your ideology (if you have one).

March 2013 HW

The chart  below is less sanguine.  It shows that compared to the same month in 2012, March 2013 help wanted ads in NH for professional and technical ads declined by more than 10 percent.  One month isn’t a trend but recent months have shown more weakness than strength in this indicator.  The chart also shows that the largest improvements in labor demand are not among the most skilled occupations, although changes in the occupational make-up of manufacturing industries makes it increasingly likely that production workers will  have higher levels of education, training and skills.

Pct Change in HW in March

 

Getting What You Want But Not What You Need

April 10, 2013

Business taxes are about one-quarter of NH state government revenues and an even higher percentage when you take out sources such as the statewide property tax which is largely an accounting fiction that really does nothing to support state services.  That is a higher percentage than any state with the exception of some states that get oil, gas and mineral extraction revenues.

When business taxes are that important to a state’s fiscal health it better make sure that it takes care of its businesses and its business climate because if and when they go south (or south and west just as more people have) it becomes very difficult for the state to produce a budget.   The chart below shows how NH’s “own source” general and education fund revenue from the nine largest sources of revenue (exclusive of the statewide property tax) have grown comparatively since 2003.  I think the chart shows how important trends in business tax revenues are to overall revenue trends in the state.  The bad news is that revenues from the business profits and business enterprise tax are still more than 20 percent below peak.  The good news is that they are growing.

Growth in Own Source Revenue

The chart also says a few other things to me.  First, a strong and dynamic business climate is the best fiscal policy for the state.  Second, if you are going to cut business taxes you had better be certain that it is a good way produce a strong and dynamic economy because if not, the fiscal health of the state will suffer.  Third (and related), if revenues rise in response to cuts in business taxes great, it will be evidence of a stronger economy and healthier state finances, but if revenues  fall you better be sure that the service and spending reductions that result don’t affect those things that most contribute to a strong and dynamic economy because economic growth (and thus revenues) will be at risk for falling further.   All businesses want lower taxes and it that is the quickest and easiest way for policymakers to demonstrate how much they love  businesses.  But businesses also need and want a lot of other things to prosper and, like lowering taxes, they aren’t shy about asking for them.  Unfortunately, in a state so dependent on business tax revenues businesses getting what they want can sometimes make it more difficult to get what they need.

NH lawmakers, like lawmakers in most other states, want prosperity and opportunity for residents .  Most  also recognize that a strong and dynamic economy is the way to assure that.   So unless you are big financial institution, a big oil company, or just about any business or industry that is prefaced by “big,”  it’s a pretty good time to be in business because almost everyone wants to show you some love, they just can’t agree on how to demonstrate it.  Right now a lot of ideology and little evidence is being brought to bear on the question of “what policies are most helpful in producing a strong and dynamic NH economy.”   That makes it a lot harder to see that we all have a common interest in a strong economy and even more difficult to agree on what to do about it.

Betting on Gambling Assumptions

March 5, 2013

The gambling debate in NH is as hot as it has ever been as the NH Senate just passed a casino gambling bill.  Since I have no dog in the fight (or more appropriate to the debate – no pony in the race) I’ll use this blog to add my $.02.   I think the issue will be decided largely on the basis of something other than the impact casino gambling would  have on state revenues, but to the extent that fiscal impacts are a part of  policymaker’s decision process I’d like to see them have access to the best information and tools with which to make their decision.   Public policy analysis is not physics, there aren’t formulas with constants that govern  behaviors today the same way they did one million years ago.   Policy research is mostly social science that relies on a combination of disciplines like economics, sociology, and demography, and others.  The goal of policy analysis isn’t to prove anything or have something published in an academic journal (a fact usually lost on academics)  it is to improve the information in the debate and to marginally improve the decision-making process.  Policy research is best when it not only provides information, but also when it increases policy maker’s understanding of the issue and how even small changes in policy proposals might affect the ultimate impact of a proposal.   A lot of lobbyists want to provide the one “answer” to what will be the impact of this or that proposal or what will be its fiscal costs or benefits.  A lot of lawmakers want a single “point estimate” of impacts as well, when in fact there is always a range of likely impacts (some more likely than others) and usually they depend on a set of assumptions.   I’ve done a lot of policy research and I never assume anyone will agree with any of the assumptions I include in my policy models so I always design them for policy makers to insert their own assumptions in order to calculate the impacts of policy proposals.  That both increases the confidence policy makers have in their decision-making by helping them understand the sensitivities of estimates to different assumptions and the key determinants or levers that produce different impacts, and it reduces concerns that my analyses are using unrealistic assumption or “cooking” the numbers.  But what it really does is provide a ‘tool” for policy makers to use rather than giving them my “answer” to any policy question.  I usually do have my preferred answer but it doesn’t do any good unless lawmakers can see that it isn’t just “my preferred answer” bu the result of some pretty sound empirical analysis, even when it can be interpreted differently.  Invariably I offer to make my models available to policy makers but to date at least, only a few have every taken my up on it.

With that long preface I’d like to suggest that all sides of the gambling debate make their models and assumptions available and allow policy makers to get a better understanding of the sensitivities of their estimates to different assumptions.  My friend Dennis Delay at the NH Center for Public Policy Studies  is about the best there is at shooting straight and trying to develop the best estimates possible but while he does the analysis I don’t think he does all of the report writing so I would like to see more attention in their analysis of gambling to demonstrating likely impacts under a range of assumptions because it seems that not everyone agrees with theirs.  I haven’t seen any detailed analyses by gambling proponents and think they need to provide their assumptions and models for estimating revenues and impacts as well if they want lawmakers to adopt their proposals (they may have done this I just haven’t seen any analysis).

To demonstrate how important assumptions are in estimating revenues I developed a small model of gambling revenue in NH (not including any social costs).  The model results presented below assume one casino in Southern NH with 5,000 slot machines (or video lottery terminals) but any number of slots can be entered as a variable.  The base for state revenues (on which a state tax would be applied) is estimated using  per slot machine revenue data from Connecticut Casinos for the most recent year (2012).  This seems like the most similar market but again, a different per slot figure can be entered into the model to yield different results.  In addition, different tax rates and different impacts from Massachusetts casinos can be entered into the model.  I’m not trying to estimate revenues here but I am trying to highlight just how important model assumptions can be in determining fiscal impacts and until all sides show how their estimates are affected by their assumptions I think it is hard for lawmakers to make reasoned decisions based on fiscal impacts.  As the chart below shows, estimated state revenues vary greatly when even a few assumptions change.  The “Y” or left, vertical  axis shows estimated state revenues, and the “X”  or bottom, horizontal axis shows increasing tax rates from left to right.  Each colored line on the graph shows estimated state revenue at each tax rate and each  colored line represents a different assumption about the impact on revenues depending on how much casinos in Massachusetts affect casino revenues in NH.

Sensitivity of Revenue Estimates

Finally, I would like someone to articulate and provide some data on how  casinos in NH would perform in a competitive market depending on the type of experience they provide.  That seems to me to be a question best answered by the industry.  I think it is important in understanding the impacts of an increasingly competitive gambling market and the data I have looked at suggest that, at least in Nevada (see below), casinos have derived an increasing share of their revenues from rooms, meals, beverages, retail and shows.  Entertainment seems to play a larger role in the business models of casinos in that state and I wonder if that will be true in NH or in Massachusetts and what are the implications if it isn’t in either, both, or if it is in just one state.

Sources of Casino Revenue

Taking Aim at the Data in Gun Policy Debates

February 21, 2013

I have no problem with guns or  most of the people who own them, just like I have no problem with cats or the people who own them, except that maybe I like cats a little less.   Guns are a “hot-button” issue that makes reasoned policy debates difficult.  What makes the debates especially difficult is the relative lack of data available that could increase understanding, help inform  decisions, and which might help reduce the relative importance of emotion, ideology and other non-empirical sources of information in policy making.  I am not advocating anything in this post except for the availability of more data.  There can never be too much garlic, cowbell, or data.

I started this post with the idea of looking at gun sales in the U.S. and some states to look for some correlates of trends in gun sales.  I was surprised to find no publicly available data on gun sales.  Data on background checks is available, and on the number of firearms reported stolen (by state), but no direct sales data.  Because the Celtics were down by as much as 20 points to the Lakers last night I spent more time researching than usual and found some interesting but not quite satisfactory data that tells a story but an incomplete one.  First, production of  small firearms is booming, and has been since just before the last recession (see chart below).

U.S. Gun Production

Was it the election of President Obama and concerns about new gun laws?  Was it a severe worldwide recession  that prompted more “doomsday preparations?”  Or was it the apparently rising probability of a “zombie apocalypse?”   The chart shows that while production doubled between 2002 and 2011, by far the largest increases was in handguns (pistols and revolvers).  Handgun production tripled during the decade.  I know rifles and  assault weapons get most of the attention but when handgun production triples that says to me that concerns about individual safety and security are big reason for the trends (assuming that there has been no fundamental change in the ability of criminals and bad guys to get hand guns during the decade).  Interestingly, according to data from one sportsman’s association, New England owns a smaller percentage of handguns than would be expected given the size of its population, while our rates of rifle and shotgun ownership is at or above what would be expected.  It  does not appear that the increase in production is due to manufacturers exporting more firearms because the percentage of firearms exported has actually dropped slightly during the decade to a low of 3% in 2011.  But it is hard to know what is really happening from this indirect information in the absence of better data on gun sales.  I don’t care about people’s names being associated with the data, just like I don’t when I look at millions of bits of U.S. Census data.

Other data comes in the form of the tax imposed on U.S. gun manufacturers and importers.  Since the early 1990’s, manufacturers and importers of guns have been required to pay 10% or 11% of the sale price of the guns they produce or import.  This data, along with production data, adds some information about concern over an “influx” of imported guns but it still doesn’t capture information about sales at the retail level, including repeat sales.  The chart below shows the volume of gun manufacturer and importer quarterly tax collections on an annualized basis.

Firearms Tax Collections

The data are inflation adjusted to 2012 dollar values using the producer price index for small firearms and ammunition, thus it provides some information about the volume (number of firearms produced) not just the dollar value of what is produced.  But because the mix of guns produced changed over the decade (more handguns produced relative to rifles), it still doesn’t give an accurate reporting of sales, only an indication of trends. The increase in tax collections seems more dramatic than the already dramatic increase in guns manufactured so this could indeed be an indication of  an influx of imports, but it may also just be an indication of the changing mix of guns manufactured and differences in the prices of the  types of guns manufactured or imported.  So who knows what is really happening to gun ownership and by whom?

A lot of people I know clamor for more transparency and openness in the process of public policy making and, like me, they often complain about the ability of the public sector to provide the data and information necessary for the public, lawmakers, and policy nerds to make informed choices.   Many of those same people have no problem with the relative dearth of data related to guns and gun sales.  The absence of data invites suspicion and suspicion invites inquiry and its a surprisingly short trip from inquiry to inquisition .

Striking an Economic Strategy With Maslow’s Hammer

January 22, 2013

The great psychologist Abraham Maslow is famously quoted as saying:  “When the only tool you have is a hammer you tend to see every problem as a nail.”   Maslow gave us all too much credit. When we (NH) have a hammer and know how great it is, we not only treat everything as a nail, we actually perceive everything to be a nail.  We (me included) develop a blindness to “non-nail” problems and creative problem solving takes a back seat to picking up that hammer and smashing the problem.

NH’s relatively low state and local tax burden, especially compared to other states in the Northeast, has and should continue to provide the state’s economy with significant competitive economic advantages.  In an era where “talent” – skilled, well-educated individuals are the resource businesses are most in need of, our state’s fiscal structure has been a magnet for higher-skill, more highly-educated and more mobile individuals and families.  So why does it currently not appear to be offering a competitive advantage (based on job growth and population migration data)?   The question is whether our fiscal system will be enough of an advantage in today’s economy to assure the kind of growth and prosperity the state became accustomed to over much of the past several decades.  Based on the screams of joy I heard last week, the answer for many in NH is a resounding yes.  The news that Massachusetts’ Governor Patrick is proposing to raise income tax rates in that state has been greeted by many in New Hampshire as if the cloud that is NH’s slow job growth is about to be lifted.  Once those new Massachusetts tax rates are enacted NH’s schools and students will perform better, our electricity prices will drop, our young people will choose to enroll in the  newly affordable colleges in NH,  and our communities will be safer, cleaner and offer more and better services at ever lower prices.  For too many in our state,  the future of  NH’s economy is largely determined not by what we do as a state, but by the mistakes that other states make.  I’m no Doc Rivers or Bill Belichick but I don’t think their game plan is ever solely predicated on the other team’s mistakes.   Great states, like great teams, can succeed even when the other “team”  is playing their best.

The monthly state job growth numbers for December, released late last week, continue a disappointing trend that should have NH businesses, policymakers, and citizens asking whether Maslow’s hammer is the only tool to use in shaping an economic strategy for NH’s future.

Annualized Emp. Growth

In the case of economic policy in NH, the “nail” is the high taxes which we have been pounding with our hammer for decades.  For the most part,  NH has successfully pounded that nail well below the surface.  As the chart below shows, state and local taxes as a percentage of personal income in NH are well below the U.S. and neighboring state averages.  Occasionally the nail it pops-up but is usually driven down.  Note that while it did rise for a time during the recession, this was a result of a slow and declining income growth rather than a rise in taxes.

State and Local Tax Burden

The problem is that our love of the “hammer’  as our primary economic tool appears to result in us using a longer and longer nail set in an effort to achieve the same levels of economic success as we have in the past.   Governor Patrick’s proposal to raise Massachusetts’ tax rates may benefit NH, I hope it does, but if it increases the use of our hammer, to the exclusion of other tools,  the benefits may be illusory.  A low tax burden is a great asset but the skilled, well-educated, individuals that drive economic success for the most part (it is certainly not unanimous)  also want the amenities and services that people free from want generally like to enjoy – things like good schools, civic, cultural, social, natural  and recreational amenities.  People want to pay as little as possible for these amenities for sure (and in many cases they expect them for free), but they want them nevertheless.  I think NH’s advantage is really been about providing ‘value” as much as it is about providing just a low tax burden.  As long as we can provide the services and amenities that people want, at a tax price lower than other places, we should be a magnet for the kind of individuals that will help our state thrive.

Our state’s hammer is and will continue to be a great tool, but not for every job, and not if it is used indiscriminately.  Every increase in a tax or raising of a fee isn’t an end to the “NH advantage.”  It wasn’t during the 1980’s or 1990’s when the state was growing remarkably even as taxes and fees with tinkered with (and even one or two major changes) by both Republican and Democratic administrations.  The key is knowing the true economic consequences of changes to different fiscal policies, which ones really hurt or help the economy and which ones have little impact  and by how much.

I like NH’s hammer and I have argued how it has been a great tool in helping us build a house that withstood the ill winds that blew through the Northeast region for decades.  I hope NH’s basic fiscal structure doesn’t change.  But we have become so comfortable wielding our hammer that in our casual over-reliance on it we may just be pounding on the thumbs of those who would live in the nice house with which it was built.

PureHost is “PureHell” and a Reprise of a Cautionary Column

January 15, 2013

Unless I send-out email notifications about posts on this blog I don’t get a lot of readers. Either I don’t have much of anything interesting to post or people have more than enough to look at without needing another nerdy economic and policy blog to read.  I’d put-up a poll to determine which is more responsible if I weren’t afraid of the results.   Thanks to my web host (PureHost or “PureHell” as I have come to know it) any email that contains a link to my or another WordPress blog is filtered from outgoing or incoming email – thus no email notices to eager readers who just need a little prompting about the “can’t live without” information in this blog.

So while I spend another day with poor tech support trying to resolve the email foible, Ive decided to reprise a column (slightly shortened) that I wrote for Business New Hampshire Magazine after the November 2010 elections.   It is a cautionary opine about the election results and in retrospect holds-up pretty well.  I liked it in 2010 and I like it as much now –  Business New Hampshire Magazine liked it so much that they stopped asking me to write a policy column shortly thereafter.

(From a January 2011 Column I Wrote for Business NH Magazine)

The  Double-Edged Sword of Populism

“Mass movements can rise and spread without belief in a God, but never without belief in a devil.”

      Eric Hoffer “The True Believer: Thoughts on the Nature of Mass Movements” (1951)

The tsunami that swept conservative Republicans into elective office this past November is due, in large part, to a mass movement called the Tea Party that shook the political ground and released seismic levels of populist energy in New Hampshire and across the country.

It’s a businesses community’s dream if the November election produces a public policy agenda of smaller government, lower taxes, and fewer regulations.  The big government, more regulation, higher spending, and bailout policies of recent years are the “devil” that unified the Tea Party movement in New Hampshire and the nation and what makes the movement’s agenda attractive to many business leaders.  But neither seismic nor populist energy is predictable, and neither has yet been effectively harnessed.

From its inception in 2009 through the November elections, what the Tea Party was against was more important to the business community than what the movement was for.  As long as the business community and Tea Party populism share as their common “devil,” big government, more regulations and more spending, then their interests are generally aligned.    But many, if not a majority in the loosely defined Tea Party movement have no love for much of the business world – big business, finance, insurance,  and multi-national companies to name a few – they just happen to dislike President Obama and most Democrats more.

What “devil” will unify and sustain the populist movement after it has vanquished Democrats and/or big government?  For businesses in New Hampshire, especially larger corporations, the stakes are large.   The anti-immigration sympathies of Tea Party populists will clash with New Hampshire businesses increasing need to hire technology workers.  The average educational attainment of foreign-born workers in New Hampshire is higher than that of its native-born population.  About 45 percent of New Hampshire’s foreign-born residents have a bachelor’s degree or higher (the second highest of any state in the nation) compared to about one-third of native-born residents. Foreign born residents in New Hampshire make up an especially large percentage (32%) of al PhD’s and young workers age 25 to 34 with graduate degrees (24%).  Thirty (30) percent of computer programmers in New Hampshire are foreign born as are 25 percent of the software engineers in the state.

Populist calls for protectionism and anti-globalization sentiments can also threaten what will be about $4 billion in exports by New Hampshire manufacturers in 2010, as well as the jobs that those sales support, up about 60 percent from $2.5 billion just since 2005,.  In addition, the New Hampshire economy relies more on foreign direct investment than all but three states.  In 2008, almost seven percent of workers in New Hampshire were employed by foreign-owned firms.

New Hampshire’s economic successes over the past several decades are the result of a transition to an innovation-dependent, technology-rich, economy that increasingly relies on workers with higher levels of educational attainment, across virtually all industries.   Research and development, strong universities, high performing schools, attracting and retaining talented employees, and a reputation for being “ahead of the curve,” all support innovation.  There are different ways policy makers can support or facilitate innovation but it is critical that they recognize its importance.

The recent election is sure to produce many spending, revenue, and regulatory policies in New Hampshire that will please most businesses.  But at least a portion of the business community should be wary of becoming a unifying “devil” of the populist movement.   Small business is off- the-hook and it is easy to see why.  Most small businesses receive no loans, subsidies or other support from the government, and relatively few sell goods and services outside of the U.S. or hire any foreign-born workers.  Moreover, most of the high-profile public policies that energize the populist movement have their greatest impacts and generate the largest costs for small businesses.  Not all Americans love businesses or even capitalism, but they increasingly worship small business, according to one public opinion poll, small business is viewed more favorably by the public than are churches.

Big government is at the top of a short list of unifying ‘devils’ needed to sustain today’s populist movement, but “big” business isn’t far behind.  While occasionally justified, in New Hampshire it would be unfortunate.  New Hampshire is home to world-class, innovative businesses whose connections throughout the world benefit the state’s economy.  Financial institutions in the state have avoided the practices that evoked populist outrage and their lending has been a key to the milder recession and stronger recovery of our state’s economy.  Only about 100 New Hampshire businesses have more than 500 employees and only 260 have more than 250 employees, but combined they employ one-third of all workers in the state.  That is far from a majority, but if a movement targets businesses employing one-third of New Hampshire’s workers, it is best described as something other than populist.


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