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The State-by-State Economic Impact of Proposed EPA Regulations

As a nation, we’ve made great strides in combining growing the economy and cleaning up air pollution. But as the Environmental Protection Agency (EPA) is setting up to roll out nine new new rules or regulations, most of which are related to coal-powered electricity, it’s worth asking, “Is the gain worth the pain?”

The report, Economy Derailed: State-by-State Impacts of the EPA Regulatory Trainwreck, comes in four sections: what new regulations are under review; how those regulations would affect the economy, on a state by state basis; who is opposing the regulations; and what officials in the states can do to respond.

Economy Derailed is from the American Legislative Exchange Council (ALEC), the demon of the day. But take note: Much of the data in the report comes from various units of the federal government, including the EPA itself.

With that aside, let’s get to a quick overview.

SECTION ONE, “the causes of economic derailment,” explain nine broad categories of proposed regulations, which for the most part deal with coal-based electricity. You’ve probably heard of some (greenhouse gas emissions), but not others (“Utility MACT Rule”). This section describes each regulation as well as recent developments. Most importantly, it outlines some of the potential costs of each new regulation.

Here are some of the potential costs:

Job loss. As a result of new rules on the use of coal, 27,000 jobs in coal mining could disappear. But the effects go far wider than that. The “Boiler MACT rule,” for example, could result in 800,000 jobs gone, nationwide. Rules based on the quantity of ozone (a natural substance) in the air could could threaten 7.3 million jobs by 2020.

Opportunity costs.  The Utility MACT rule could cost $11 billion a year (EPA estimate); a rule on coal combustion could cost anywhere from $1.5 billion a year (EPA) to $20 billion per year (other estimates). You could tell a similar story for other regulations. These sums represent spending that could be spent on paying employs, investing in equipment, and so forth.

Your electronics, lighting, heating, and air conditioning at risk. I’m stretching a bit here, but bear with me. What do the following have in common: your smart phone, computer, TV, refrigerator, air conditioner, and furnace? Most likely, they all depend on electricity. If you’re going to use them, you need to have access to reliable (always there, almost always on) electricity that you can afford.

Enacting just one of the proposed rules–the MACT rule–could result in a moratorium on new electricity plants. The rule is so divorced from the state of the art that even recently completed plants would not meet it.  Restricting the supply of something and what happens to its price? Up, up, and away. Imagine what happens next. Brownouts, anyone?

SECTION TWO gives you estimates of the effects of the proposed regulations, broken out by each state. Here’s a snapshop of the impact on Minnesota:

  • Jobs lost: Roughly 12,000
  • Increase in electric rates: 7.8 percent
  • Electric generating capacity: Enough to power 700,000 homes.

How hard a state is hit will be determined by several factors, including (a) how much of the state’s electricity comes from coal; (b) how many people work in coal mining in the state; and (c) how important larger energy users are to the state’s economy.

SECTION THREE of the report describes the “broad and diverse coalition opposing the EPA.” Depending on your view, this is a list of heroes or a rogue’s gallery. The opponents include the coal industry (of course), including its unionized workforce. But they also include governors, legislators, trade groups, and state regulatory officials.

SECTION FOUR offers up tools that state legislators can use to respond to EPA rules. These include:

  • Hold oversight hearings
  • Write to members of the state’s congressional delegation
  • Pass resolutions of opposition
  • Weigh in with comments on proposed rules

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The report, regardless of how you evaluate it, is a good reminder that we shouldn’t make policy in a vacuum. The EPA is concerned with regulating, not creating jobs. It is concerned with minimizing risks to the natural environment, but it isn’t so concerned with minimizing risks to the economic environment, which bears a great deal upon the quality of the human environment.

Consider what you do when you buy an expensive product such as a house or a car–or even a relatively inexpensive item such as a smart phone or a computer. Take the purchase of a new car. You’ve settled on the make and model, but what happens if the car has three trim lines. The cheapest line has a manual transmission, uses basic materials, and has a cheap stereo. The most expensive line has leather seats, a deluxe stereo, and a larger, more powerful engine. Which one do you pick? Your income and wealth are not unlimited, so you need to balance your desire for a nicer car with your desire to spend money on everything else. Given what you know, does this or that option actually contribute anything to your well being? Only you can make that decision.

But in environmental policy, who makes the call? Can an environment be too clean? Not for the EPA. Quite reasonably, it operates as with a one-track mind, meaning it can seek reductions in particulates or other substances to the Nth degree. So the political class must step in; regulatory items sold as environmental protection measures are but one thing that a member of Congress or (to use the state equivalent) a legislator must consider when surveying the economy. And in this case, as with many others, we have the problem of … politics. There are roughly 300 million Americans, who have a nearly infinite range of preferences and ability to pay for this or that measure sold as the latest in environmental protection. The EPA, whose employees number in the thousands, make decisions for those 300 million. What’s the chance they will get them right?

Policy making might be improved by the increase in technical knowledge, which the EPA accumulates. But it’s also too important to be left to a few narrowly focused experts. Give ALEC credit for bringing the EPA rules to our attention, and giving us all more information to chew on. Read the report and then ask: Should we “buy” these policies? If so, which ones?

You can find the report, as well as related materials, at RegulatoryTrainwreck.com.

Minnesota #41 out of 50 on economic outlook

By current standards, Minnesota’s economy is among the best in the nation. But will it continue to be in the top tier?

Last year, the Bureau of Economic Analysis said that Minnesota ranked 13th in per capital personal income. The state’s average income of $42,843, was six percent higher than the national average. That’s pretty good, though I suspect it’s lower than most Minnesotans would have expected.

Yesterday, a new report, Rich States Poor States, 5th Edition, looked at each of the states, and gave Minnesota a very different evaluation: It put Minnesota at 41 out of 50 states, both for recent economic activity, and in expected performance going forward.

“Minnesota at 41? That’s crazy talk!” Let me explain.

The looking backward component examined growth in three variables: personal income, population, and non-farm employment. Growth is the important word here. To paraphrase Frank Sinatra, you can be riding high in April, and shot down in May. Some economies continue to grow, while others stagnate.

Between 2000 and 2009, Minnesota’s per capita income grew 33 percent. Good, but that gave the state a ranking of only 29 among 50 states. In that same time, non-farm employment fell slightly, putting the state at 28th among the 50. Minnesota also lost domestic population, putting it 39th in the country in “absolute domestic migration,” which measures, among other things, how people respond to the economic climate of a state. On three measures, Minnesota was below average. Weight these three variables equally, take an average, rank the states again, and you come up with a composite ranking: Minnesota dropped to 41 out of 50 states.

What about the future? Here, the authors take 15 different measurements that reflect state policy. These include rates for income taxes, property taxes, sales taxes, and also taxes as a percentage of personal income. Other measurements include the existence and quality of limits on taxation, the existence (or not) of a right-to-work law, and the number of public employees (both an asset and a liability) as a portion of the population. Once again, Minnesota came in with a ranking of 41 out of 50 states. So Minnesota is by absolute standards doing well. But in the department of “what have you done for me lately?,” the answer may be “not much.”

The report will bring back the classic chicken-and-egg debate: Does Minnesota enjoy a higher-than-average income due to its higher-than-average level of taxation and government spending, or does the state’s above-average income allow it to pay for a more-active-than-average public sector? While I admit that some public spending has economic benefits, I’d argue for the latter explanation. Once you get beyond a certain size and scope of spending, government ceases being a necessary good and starts being a luxury good. And I think it’s fair to say that Minnesotans have treated government as a luxury good: We can afford it, we’re smart enough to spend it wisely, and we like our extensive social safety net, bike trails, sports stadiums, arts facilities, etc. Need a little more money? Oh, just tax the rich; they like it here anyway.

But can we continue our habits? Looking at, say, the fact that spending on long-term care and health care will only go up, up, up, due to the Affordable Care Act (more subsidies!) and the aging of the baby boomers, I’d have to say no. Minnesota will have to spend less, tax more (and hope the people who pay the bills don’t leave), or do both.

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On a note of disclosure, I was involved in the creation of Rich States, Poor States as an editor. Another thing to note is that it was produced by the American Legislative Exchange Council (ALEC), a group that has in recent months been accused of everything from letting large companies buy legislation to providing the intellectual justification for the shooting of Trayvon Martin. Needless to say, I think ALEC has been maligned for political purposes.  If, on the other hand, you have some helpful criticism to suggest to the authors, drop me a line, courtesy of the Center, and I’ll pass it along.

A Surplus Now, but the Deficit’s On the Way

Minnesota Management and Budget has forecast a tiny surplus in the state budget for the current biennium. Great. But as Commissioner Jim Schowalter observes, “we still have lots of IOU’s” to pay back–including the “school shift” of $2.7 billion.

The press release also shows another cloud on the horizon: “The forecast shows a projected deficit of $1.1 billion for fiscal years 2014-15.”

Uh-oh.

The state’s spending trajectory is still unsustainable.

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