Generating Electricity
From mankind’s earliest days, searches have been conducted for appropriate sources of energy to meet specific needs. They have differed dramatically since the discovery of fire, and each has presented varying challenges and opportunities. Although we’ve come a long way from our cave-dwelling days, the need for fuel has continued to mount.
With the ongoing growth in population and the continuing expansion of our economy, it is evident that there will be greater requirements for power in the future for Texas, especially in the metro areas. A substantial portion of these energy needs will be met through the use of electricity—demand for which is predicted to climb by more than 60% over the next two decades.
Currently, approximately half of the electric power generation in the Lone Star State is dependent on natural gas. That’s almost three times the use of natural gas for this purpose for the nation as a whole. In fact, nearly all of the new electric generation capacity (apart from wind farms) built in Texas in recent memory use natural gas.
Due to the potential fluctuations in the price and availability of natural gas, other fuel options for generating electrical power need to be developed, a concept known as “fuel diversity.” There are several choices, of course, but among them coal probably has the most distinct advantages, at least in the near term. We need to develop new capacity soon. Nuclear is again promising, but it will take years to bring online. Alternative energy is an exciting prospect, but not large enough or reliable enough for meeting ongoing daily needs. We do not have the water resources that lend themselves to extensive hydropower. Thus, coal is what remains.
Some of us may tend to think of coal as a fuel of the past, but across the country, there are some 148 coal-fired electric plants in the planning stages and almost two dozen are in the construction phase. In China, a coal-fired unit goes online almost every week.
There are many reasons for using coal as an input fuel for generating electricity in addition to fuel diversity. The first is price stability. Natural gas prices vary widely dependent upon supply and demand, but costs for coal are usually lower and generally more stable.
A major advantage to the use of coal is the fact that there is an extremely large domestic supply. Current estimates indicate the supply is enough to last 200-250 years. Having so much of it right here at home helps us move toward the goal of greater energy independence and enhanced national security.
In addition, improved technologies have greatly lessened potential negative impacts on the environment. Because of the supply and the fact that coal is one of the lowest-cost electric power sources for the foreseeable future, President Bush has pledged government commitment to more advanced clean coal technologies through his Clean Coal Power Initiative which in turn is enabling utilities meet the President’s Clear Skies Initiative.
Research is ongoing into better methods of reducing the emissions from coal combustion. While some of these are presently untried, they certainly hold promise for the future. Even today, adding new capacity with proven technologies can actually lower overall emissions.
Of particular interest to Texans is the FutureGen project, which is designed to study advanced coal gasification technology in order to create the first zero emissions power plant that will produce electricity and hydrogen from coal. Last summer, two Texas locations were among the four sites selected as finalists for the development of this new power plant. Later this year, a final site will be chosen, and construction will begin.
Another reason for using coal as a fuel for creating electricity is that the lignite coal industry is a notable source of economic stimulus to the Texas economy and is responsible for thousands of jobs. Increasing the use of coal will inevitably result in added workers, preserving an industry that is very important to various regions of the state.
Additional facilities for generating electricity certainly are essential for Texas to meet its future power needs. When all factors (including environmental enhancement) are considered, coal-fired plants appear to be the only viable choice to meet immediate requirements.
posted @ 08:10 AM CST [link]
Friday, February 16, 2007
Coastal Area Vital to Texas Economy
An old and catchy tune that was popular in the early 20th Century and is still frequently heard noted how the bones of the body were connected, all the way from the toe bone to the head bone. Although the song, “Dry Bones,” has nothing to do with the Texas economy, it is a good analogy regarding the connectivity of various sections of the state to others.
The Independent Insurance Agents of Texas recently commissioned my firm to conduct a study regarding what impact a catastrophic hurricane on the Gulf Coast would have on the rest of the economy of the Lone Star State. Of prime importance were the extremely high increases in property and casualty insurance rates in the areas vulnerable to such storms and the prospect of such escalation undermining the capacity to maintain coverage and, thus, minimize disruptions.
Currently, this 14-county area, with its 5.6 million residents, accounts for approximately 30% of the state’s overall business activity and about 27% of aggregate income.
The area comprises virtually all Texas import activity and handles the vast majority of water shipments for goods produced for export throughout Texas. Among its many industries, petroleum and coal products [refining] and chemical manufacturing are critical inputs to production in a variety of other Texas industries and are essential to the viability of these sectors. For some industry groups, the Gulf Coast area is responsible for almost all of the state’s activity.
The Gulf Coast complex of petroleum refining operations has a crude operable capacity of more than four million barrels of refined petroleum products per day, an amount equal to 87% of the total for Texas and almost 25% for the entire United States. These products are essential to business activity throughout the state. From diesel fuel for agricultural operations in the High Plains to jet fuel for Texas-based airlines, the availability of refinery output is vital to the state’s economic stability.
With expectations for healthy growth in the future, the Gulf Coast area is projected to see an increase in its importance to the Texas economic vitality in the years ahead.
The Perryman Group study pointed out the regional dependency on industries in the Gulf Coast, noting that it varies from almost 33% of aggregate production activity for the Upper Rio Grande Region to more than 56% for the Golden Crescent and Texoma regions.
For the state as a whole, approximately 39% of the total real gross product and 44% of the total income is critically linked to the Gulf Coast area. From a regional point of view, the percent of income dependent on the Gulf Coast area varies from around 30% in the Central Texas Region to over 58% in the East Texas and Texoma regions.
Nationally, property and casualty insurance rates have generally been falling. Along the Gulf Coast, however, property and casualty rates have been rising sharply. Furthermore, availability has declined in the wake of catastrophic hurricanes in 2005. In areas considered particularly vulnerable to storms, some insurance companies are adjusting rates and underwriting criteria.
This rapid escalation in insurance expenses has enormous potential fallout, both within the directly affected area and across the entire state. Companies facing the doubling of property and casualty insurance rates will likely see competitiveness and profits diminish. In addition, some may elect not to purchase adequate coverage due to lack of affordability. The consequences of such actions are decidedly negative and have the potential to significantly damage the Texas economy.
The Perryman Group study indicated that if a Katrina-type hurricane struck the Gulf Coast, the state could lose approximately $50 billion a year in real gross product over the short term and perhaps up to some 600,000 jobs. If the storm punched through the Port of Houston directly, the output loss increases to about $70 billion during the next couple of years and around 850,000 jobs. In addition, the state budget would suffer a reduction in fiscal revenue of approximately $1.8 billion plus a loss of as much as $450 million yearly from premium tax offsets over an extended period.
An increase in insurance costs of the magnitude that is currently being discussed would lead to “dead weight” economic harms (higher costs without corresponding benefits). Moreover, it would contribute to underinsurance as firms and individuals elected not to pay the much higher premiums. In the event of a major storm, insurance insufficiencies would delay the recovery process and negatively affect not only the immediate area, but also the rest of Texas.
Without the key inputs and services provided by the industrial base located along the Texas Gulf Coast, prosperity and business activity—from the Panhandle to the Rio Grande Valley and from the Big Bend to the Piney Woods—would be significantly diminished.
In a similar fashion to the “Dry Bones” song, all sections of Texas are critically linked to the dynamic coastal area. As a result, the entire state has a strong economic interest in finding a workable solution to the current property and casualty insurance situation in and around the Gulf Coast area.
posted @ 07:59 AM CST [link]
Friday, February 9, 2007
Local Parks
As the number of Texans living in urban areas continues to climb, the importance of local parks rises. In addition to the demand from growing populations, trends toward greater participation in youth sports and increased physical activity are expanding park usage. Of course, parks are also vital to smaller communities as well.
Local parks are important components of the overall parks system which includes national and state facilities. While the primary purposes of different parks vary, there are certain common elements such as offering a venue for outdoor activities.
Most Texans consider parks and recreational opportunities to be valuable attributes of a community as they are associated with improved quality of life. Additionally, parks provide a positive influence on the desirability of communities. Not only do parks enhance the ability to attract viable companies and an educated workforce, they also rank high on characteristics that the aging population looks for in retirement locations.
Moreover, beyond their important role in the daily life of cities large and small, municipal parks are significant generators of economic activity. In fact, my firm recently conducted a study of the impact of local parks across the state and found that they lead to the creation of more than 45,600 jobs through their maintenance and operations activity, capital investment, and direct tourism. (You can see the study in its entirety at www.tprFoundation.org.) Even when this total is adjusted for the effect of tax support necessary to sustain the activity, the economic gains remain quite high, with nearly 38,400 permanent jobs on a “net” basis.
In addition, an analysis of approximately 30 studies by The Perryman Group found a positive impact of about 20% on property values abutting or fronting a passive park area.
Unfortunately, given the current fiscal constraints and priorities confronting numerous government entities, both state and local parks in Texas are struggling to remain financially viable. Funding shortages abound, and many budgets are dwindling. Like state parks, local parks are currently suffering from declining infrastructure and a lack of sufficient resources for maintenance.
Funding for state parks has continued to wane, and Texas ranks at or near the bottom of all states in per capita investment. It is within this context of strong demand for outdoor space and widespread funding difficulties that local municipal parks are operating.
Ironically, on a direct-only basis, parks programs partially pay for themselves. Incremental revenues (from increased receipts and various events) offset about 57.7% of all direct outlays by municipal parks departments. When overall benefits to local economies are considered, they far exceed the cost.
Even so, in such a tight budgetary environment, it is difficult for many cities and counties to adequately maintain and operate local parks, much less expand them to deal with growing needs. As a result of these circumstances, local parks should receive substantial State support. We found that the incremental net fiscal revenue to the State government from local parks activity is approximately $171.6 million per year, or almost 7 times the level of funding proposed by a recent task force.
The economic success of parks, like other facilities, is reliant on investments in their services and amenities. Such investments lead to more usage and increased revenues, while reductions in state and local funding tend to have the opposite effect. Many state parks also incorporate irreplaceable natural beauty or historically significant sites which can be threatened with extreme budget constraints.
A recent poll estimated that 65% of Texans support lifting caps on the distribution of sporting goods sales tax revenue which would increase state park funding. Moreover, grants awarded to municipal parks programs would bring an excellent return with overall benefits far exceeding costs.
Revenue generated from the sales tax on sporting goods can be a way to not only help pay for the operations and maintenance of state parks, but also to increase funding for the acquisition and development of local parks.
Given the fact that local parks are a notable source of retail sales of sporting goods and generate even more in other revenues to the State, allocating a sizable block of proceeds from the tax to local parks represents a logical and beneficial course of action.
Every county and metropolitan area in the Lone Star State benefits from the presence of local parks. Expenditures to support them represent an excellent investment of public resources.
posted @ 08:24 AM CST [link]
Friday, February 2, 2007
Health Care
Texans have always been known for being friendly and willing to provide a helping hand, but giving money to other states to use for their health care programs might be carrying it a bit too far. Let me explain.
As practically everyone is aware, health care costs have been soaring over the past several years along with corresponding hikes in health insurance premiums. Even though health care spending has slowed lately, American consumers are being required to shoulder a greater share of their own costs. Spending in 2005 (latest data) on medical care set a new US record of $1.99 trillion, which is about 16% of the nation’s economic output.
The Centers for Medicare and Medicaid Services recently noted that federal and state governments currently pay around 40% of all health bills. American households provide about 31% of costs through private insurance premiums, taxes, deductibles, and out-of-pocket expenditures.
Unfortunately, approximately 5.5 million Texans, or one out of every four, do not have health insurance, and that’s the highest rate in the nation. There are another three million or so covered only by Medicaid or the Children’s Health Insurance Program (CHIP). To be eligible for CHIP, a family must earn too much money to qualify for Medicaid, yet not enough to afford private health insurance for the children.
The monthly income level to qualify for assistance differs depending on the number of family members, but ranges from around $800 for one household member to $2,800 for eight or more for Children’s Medicaid and $1,634 to $5,600 for CHIP.
In 1997, Congress authorized a block grant to fund the State Children’s Health Insurance Program (SCHIP), known in Texas as CHIP. Monies were provided to each state based on perceived need. The law mandated that a state had to spend its annual SCHIP block grant within three years. Funds not used would be returned and redistributed among those states that spent their full allocations.
In the early years of the program, Texas lapsed (lost because it didn’t spend) substantial funds, primarily because of late implementation. (Block allocations started in fiscal year 1998, but the program did not begin in the Lone Star State until May 2000.)
The need in Texas was significant, and for the first three years following implementation, there was record enrollment. In 2003, the Texas Legislature passed numerous bills designed to reduce enrollment and spending, primarily through changes in eligibility rules. Similar procedures were enacted in 22 other states.
These actions resulted in enrollment in the CHIP program dropping some 36.4% over the next two years, which amounted to more than 185,000 children. Since June 2005, the number of children enrolled in the program has fluctuated around the same level—326,500.
Before the 2003 Texas Legislature cuts, the Texas Health and Human Services Commission (HHSC) projected a funding shortfall to occur sometime between late 2006 and 2008. The legislative changes prevented this from happening, but it also meant that the state lapsed SCHIP funds because it did not spend all that the federal government had allocated. The excess, of course, was returned and redistributed to those states that had spent their allotments.
Next month, some $20 million is scheduled to lapse in Texas. These funds added to the previous lapsed monies total more than $913 million. In other words, Texas has given away to other states more than three times the $288 million in federal SCHIP funds provided the state in 2005 to run the CHIP program.
Congress is scheduled to debate the reauthorization of the block grant sometime this year. If Congress provides only enough money to support current enrollment, hundreds of thousands of children will still miss out on health care assistance. Texas needs to make every effort to counter the possible attempts to reduce the SCHIP allocation based on the state’s current enrollment.
One step being made in this regard is the introduction of House Bill 729 which seeks to return the eligibility requirements for CHIP to the pre-2003 level. In doing so, the state would not be out any extra money according to data collected by the HHSC which indicated that during the 2006 budget year, the state left unspent some $400 million in state funds dedicated for CHIP and Medicaid. Those dollars would cover all the children who have lost CHIP coverage.
Since the reason the 2003 bills were enacted was to decrease the budget deficit, and since the state now has an approximately $14 billion budget surplus, perhaps consideration might be given to using some of these funds to provide health care coverage for the state’s most valuable asset—our children.
posted @ 08:05 AM CST [link]