Monday, December 27, 2010

The Legacy of Debt, Part II: The Election of 1877 & The Rise of the Readjusters

This is the second article in a series to provide historical context to the rationale of Virginia’s debt limit and tradition of pay-as-you-go.

In the prior article, A Legacy of Debt, Part I: Readjusters & Funders, I wrote about how the interest owed on Virginia’s Civil War Debt had completely hobbled the state’s ability to launch any new programs such as public schools, roads, or any kind of safety net after the Civil War. Debate in Virginia was dominated by the Conservative Party (also called “Funders” or “Bourbons”) who believed that Virginia’s “honor” required payment of the debt and more progressive elements who believed that the Legislature should force a “readjustment” of the debt (called “Readjusters”).

At the conclusion of Governor Kemper's term the Conservative Party rallied behind Stonewall Brigade veteran and Conservative F.W. Holliday who was elected in 1877. Holliday was unambiguously a Conservative "Funder" politician. Notwithstanding Holliday's clear position, a majority of legislators were elected who favored readjustment of debts comprised of “Independent” Conservatives and Republicans.

Shortly after the session started, Governor Holliday vetoed new legislation that prioritized public school transfers over the payment of debt interest. Conservatives attacked this legislation claiming public education was “socialist,” “unjust,” “taught children to look to the state for support throughout life," characterized debt readjustment as "communism" and said they were ready to shut down schools to honor the state's debt obligations. Holliday pointed out that his forebearers did not need public education to achieve success.

By 1879, with the Governor opposing any kind of reform and bond interest continuing to exceed revenues, the situation became ugly – the state’s school transfer payments went further into default, half of of Virginia's limited public schools closed, salaries of state employees were suspended, and the state began borrowing money to fund government.

That year, the Confederate hero of the Battle of the Crater, General William Mahone (click here for a short bio by the Virginia Foundation for the Humanities), called a convention to form a new political party who named themselves the Readjuster Party. The Readjuster Party was a coalition of freed blacks and poor whites and its focus was Virginia's debt. They were extremely popular in Southwestern Virginia and with Virginia's relatively sizeable African-American population - 40 counties were majority black after the Civil War.

The 5'5" William Mahone became the Readjuster's chief spokesman. In 1879, Virginians sent 56 Readjusters to the House of Delegates and 24 to the State Senate. Mahone was elected by the legislature to the U.S. Senate (before direct election of U.S. Senators) and caucused with Republicans giving them a majority in the U.S. Senate. Legislation readjusting the state debt yet again was promptly vetoed by Governor Holliday.

In 1881, Virginia elected a Readjuster Governor, William Cameron from Petersburg and Virginia moved into a progressive era. Cameron immediately signed legislation issuing new bonds cutting interest in half to 3%, rebuked a presumed share of the debt owed by West Virginia, wrote off bonds issued to cover interest accrued during the Civil War & Reconstruction, and prohibited bond interest coupons from being used for tax payments. The new bonds were named for the legislation’s sponsor and called “Riddlebergers.” Virginia's schools reopened. The tax code was reformed in favor of farmers and small businesses and against the railroads. Virginia spent more on hospitals, jails, and its few colleges. He also started the Virginia Oyster War of 1882 which is an interesting short story.

Litigation immediately ensued over the legality of “readjustment” and continued for decades.

In 1879, future-Delegate Richard Evelyn Byrd of Winchester turned 19. He personally witnessed the Conservative-Funder-Mahone debt struggle during a critical formative time in his life. Byrd went on to serve as Virginia's 40th Speaker from 1908-1914. His namesake became a famed naval aviator. His younger son had a career in apple farming, newspaper editing, turnpike management, and changing Virginia history. More on that later.

The next article will discuss the Readjusters conversion to the Republican Party, their fall, and the Conservatives return to power to "redeem" Virginia from "Mahoneism."

Sunday, December 26, 2010

General Assembly Commendation for New Hope & Rising Hope

Below is an article that ran in the Mount Vernon Voice regarding a commendation I presented to New Hope Housing and Rising Hope Methodist Church for the work they did during Snowmageddon to get people off the streets and into a hypothermia shelter on U.S. 1.

VIC HOP Opening General Assembly Commendation

Friday, December 24, 2010

Happy Holidays & New Year From the Surovells!

7 Days in Peru - The Inca, Mountains, & Pisco Sours

If you've been wondering why things were a bit quiet here - I was out of the country from December 12-19 in Peru. It was an interesting trip. (CLICK on any of the pictures below to blow them up)

View Larger Map
Peru sits on the Pacific Coast just south of Ecuador, west of Brazil and Bolivia, and north of Chile. The country is dominated by the Andes Mountains and ranges in terrain from coastal plain, desert, alpine, and tropical rain forest. Although it is on the equator, the elevated terrain and influence of the southern Pacific current hold the temperature way down. And no, I also discovered that the coriolis effect does not cause the water to spin clockwise in the toilet.

We flew into Lima and then in to the City of Cusco which is approximately 3,000,000 people, 11,000 feet above sea level, and being the former Capital of the Inca Empire is the launching point for all things Inca. There's a picture of the Cusco Airport to the left.

After spending a day getting used to the altitude and recovering from 24 hours of air travel, we checked out the ruins in the Sacred Valley 13,000 feet up at Pisaq (right) and then back towards Cusco at Puca Pucara, Quenco, Tambomachay, and the former fortress of Sacsayhuaman (zoom in on the map and look for gray splotches and ruin symbols). The next day, we road the super fancy Hiram-Bingam Train down into Machu Picchu at 8,500 feet and spent two days exploring there. I climbed Wayanpicchu and up to Intipuku (the Sun Gate), we explored the city, and basically wandered around dumbfounded for two days, and then went back to Cusco for the duration.

There's too much to write about in one column. But here's a few thoughts.

First, Peruvians are awesome. Peru was a very welcoming place. There's no question that Peru is a Third World Country. The vast bulk of Peruvians do not have a car, internet, or a computer. But they are a happy people, proud of their cultural heritage and their history.

The Inca were simply amazing. The Inca could move 120-ton rocks without wheels and erect them into extremely precise structures that still stand today without mortars and have survived earthquakes in one of the most active fault zones in the world. If you look at intricacy of the polygonal stonework they create, their abilities were simply mind boggling given the technology they possessed.

The food we had everywhere was awesome. One day, we wandered off out of the tourist area and at lunch at a restaurant in "downtown" Cusco. We were fed a four-course meal with a soup, appetizer, and two main courses for 8 soles or about $3. I rediscovered Quinoa, dried corn & beans, and the Peruvians really like their soups. Peruvian beers are great - Cuscena, Pilsen, Cristal, and of course Chicha, the traditional Peruvian beer. I also had my fair share of Pisco sours which if you've never experienced is a must, and coca tea and coca products are served everywhere.

My brother got to know the bartender, Carlos, at our hotel who invited us to spend an afternoon having lunch with him and his family. Outside of Lima, learning english is one of the keys to earning a decent living in Peru. Carlos and his family were all very curious about America and eager to see our country, but it was also apparent that even visiting the United States is out of reach for all but the rich in a country like Peru.

Inca traditions are proudly carried forward today by Peruvians and the clothing is dominated by all things Alpaca - a North American form of camel. I have never seen so many hats, gloves, bags, rugs, masks, scarves, etc. You can outfit an entire family at a Peruvian market with about a months's worth of clothes for about $200.

My visit to the Inca markets was eye opening. You are first greeting by entire pig's bodies splayed open and various animal parts and organs. If you want a slice, they whip out the saw and saw off a chunk for you. There were piles of vegetables, spices, beans, & corn everywhere. Rows and rows of ignots of chocoloate were laid out. Women were working on clothing with old school Singer sewing machines nonstop. As you walk, everyone says "Amigo, tienes un precio especial para tu" (Friend, I have a special price for you) - of course, NOTHING has a price tag on it in Peru.

Lastly, I can't finish this without saying something about Machu Picchu. I took this trip with my brother, sister, sister in-law, and my father because my dad has always wanted to see Machu Picchu. I can't begin to explain how profoundly unique and incredible Machu Picchu is. The ruins sit on a "penninsula" of a mountain, surrounded on three sides by the Urubamba River 2,000 feet down. You are surrounded by mountains 3,000 to 4,000 feet above you on all sides. You are surrounded by sounds of rushing water at all times. It is a cathedral of nature.

The point of the penninsula has a steep mountain called Wayanpicchu. When I saw that it had a "trail," of course, I had to climb it. The "trail" is basically a series of switchbacks that end at a staircase which pretty much goes straight up - it's also not up to code - no railing, even stair height or grip strips. On top of this mountain, the Inca built a guardhouse, terraces for growing food and facilities. It was just incredible.

The Inca basically carved off the top of the mountain and built a fortified city on top with terraces running down cliffs to the river for growing food. It was "discovered" by American historian Hiram Bingham in 1911 after a child led his him up a staircase. The City lies at the end of The Inca Trail which is a stone road that runs from Cusco. Many people spend 4 days backpacking up and through the Intipuku - the Sun Gate - which frames the sun into Machu Picchu's Sun Temple on the Winter Solstice.

If you ever have a chance to go to Peru - GO.

Monday, December 13, 2010

The Legacy of Virginia Debt: Part I - Readjusters & Funders

After a Governor's Fellowship piqued my interest in Virginia History, I read a book called From Virginia Boubonism to Byrd, 1870-1925 by Allen W. Moger which opened my eyes to a lot of state history. As the General Assembly continues to debate the merits of increasing the state's debt load, I thought it might be useful to revisit the history of why Virginia's debt limits exist. Today, most people don't have any historical understanding as to why these limits came into existence.

Prior to the Civil War, the Commonwealth had purchased stock in companies owning several turnpike, toll bridge, canal, and water and rail transportation improvements (click here for 1848 VA Internal Improvement Map). These improvements were financed using debt instead of cash which is the more modern practice.

After the Civil War, much of the improvements in Virginia were destroyed. The improvements in West Virginia were fine, but West Virginia's share of the debt was in dispute. The debt was owned by Yankee and British investors.

Many of the early post-Reconstruction legislative battles were driven by this debt and satisfaction the debt which amounted to $45 million in 1870 which at that time was a massive amount of money.

During Reconstruction, Virginia's government had been controlled by freed slaves and poor whites, largely due to the disenfranchisement of Confederate veterans. As Reconstruction closed, Confederates were enfranchised and the Democratic Party's predecessor, the Conservative Party was formed in reaction to governance by freed slaves and increased suffrage among poorer whites.

In terms of Virginia's debt, the Conservatives were focused on preserving Virginia's honor, moral obligation, and good name. Also known as "Funders," they were white, institutional and wealthy. They became known as the "Funders" and ulimately most affiliated with this group became Democrats.

The new Constitution of 1870 had called for the state to fund a public education system for hte first time, but the debt situation was utterly crippling. After the Conservatives wrested control of government in 1873, they recapitalized Virginia's debt with new bonds at 6% interest with redeemable coupons. The coupons could be used to "pay" taxes.

At the time, Virginia's taxes were actually higher than in New England because of this debt. Before Virginia had an income tax, sales tax or gas tax, and before real estate taxes were reserved to localties, Virginia's government was largely funded with real estate taxes. In 1870, Virginia's real estate tax of $0.50 per $100 of value was 35% more than the average real estate tax in the northern states and 50% higher than Pennsylvania, New York, and the six New England states.

The budget situation grew so bad that in 1875, the Commonwealth had $1 million less revenue than its debt interest payments alone. Part of this was caused because wealthier Virginians could buy the bond coupons from investors at a discounted price and then pay their taxes using the face value of the bond coupons.

In 1879, the Commonwealth even deliberately refused to make mandatory payments for free public schools because it preferred debt payments over other obligations. Pickett's Charge hero Governor Kemper (left) resented this legacy and tried his best to convince the General Assembly to reform the tax structure to no avail.

The initial opposition to the Conservatives were the Republican Party.
Eventually, the more liberal elements of the state became more organized in large part to the debt issue and were focused on readjusting the debt. They became known as "Readjusters" and ultimately became Republicans in the 1880's.

The Readjusters were generally poorer, less educated, more diverse and felt that the Commonwealth had been destroyed by war, should not rebuild and pay this debt, and also wanted to maximize West Virginia's share. African Americans felt it was not their debt to pay given that they were enslaved when it was incurred. The Readjusters were led by former Confederal General William Mahone whose picture is to the right. The western part of the state leaned Readjuster while the relatively more affluent eastern Tidewater leaned Conservative/Funder.

One of the primary motives of the Readjusters in minimizing the Commonwealth's debt obligations was their interest in focusing limited government revenues on public education and improved social services to improve the condition of Virginia's poor.

Next: The Legacy of Debt, Part II: The Election of 1877 & Rise of the Readjusters.

Who Were the Readjusters

Wikipedia: Readjuster Party

Wednesday, December 8, 2010

Mt Vernon Multiplex Auction: A Depressing Video

Lots of memories in this place, but better something new than an empty property.

Monday, December 6, 2010

NVTA Highlights Transportation Funding Challenges

Last week, the Northern Virginia Transportation Alliance gave a briefing on the challenges facing Virginia's current transportation system. Their briefing is below.

Northern Virginia Transportation Alliance Presentation Regarding Challenges for Financing Virginia's Transp...

My law partner, Senator Chap Petersen, summarized it with some stats on his blog a few days ago.

The bottom line is that our transportation system is suffering from two decades of neglect. Significant revenues intended for construction are being siphoned off for maintenance and our federal highway matching funds will be endangered in the near future. Our current Six-Year Improvement Plan budget is actually less than (-$2.8B) our 2001 Six-Year Improvement Plan budget.

It's a depressing briefing. The position we are in today, is effectively like being asked to save for your child's college education in about 2 years instead of over the child's 18 year-lifetime leading up to college.

Sunday, December 5, 2010

2011 Budget Preview: Rising Debt & Budget Cuts

The Senate Finance Committee held a retreat a few weeks ago regarding the current budget situation. You can read the briefings here.

The bottom line is that while the economy and tax revenue have improved, revenue is still below budgeted projections which means the state budget must be cut the budget again. The Senate Finance Commitee is projecting about $200 million in cuts.

This year's budgeted General Fund revenues are projected to be slightly above collections from five years ago - 2005. We are still in a weak economy.

Moving into FY 2012, things are not likely to get markedly better given that the current budget holes were plugged using substantial amounts of federal stimulus funding such as the recent receipt of $200 million of Federal Medicaid monies.

The Senate Finance Committee also pointed out that the three largest debt authorizations in the history of the Commonwealth have occured since 2007. Debt service is now the sixth largest program in the General Fund behind Public Education, Medicaid, Higher Education, Adult & Juvenile Corrections and the Car Tax Repeal. The use of debt has been driven by lagging General Fund and transportation revenues. The General Assembly also authorized an additional $1.3 billion of debt, but because of lagging revenue growth, the Commonwealth is prohibited by statute from issuing the debt due to statutory debt limits. The purpose of the cap is to ensure Virginia's AAA bond rating which keeps interest rates down and is a fiscally conservative policy.

The trends are troubling. Last session, about $300 million of our $2 billion budget hole were closed with "revenue adjustments" which have now proven to have been overly optimistic (wrong). Last year's budget hole was also plugged using a number of gimmicks including deferring over $600 million of retirement fund contributions - one of many reasons I voted "no" on the final budget.

We can only continue to avoid dealing with reality for so long. Virginia faces significant structural imbalances in its General Fund and Transportation Trust Fund. Until something is done to address these problems, Virginia's residents should not expect to see significant improvements to education, improved affordability higher education, or any relief to transportation gridlock.

Wednesday, December 1, 2010

Rye Back on Sale at Mount Vernon

Today, I swung by the Mount Vernon Estate and picked up four bottles of their new line of Rye (Whiskey) made at their new distillery. The bottles are individually numbered and sell for $99/ea. When I left there were still about 300 left. Last year, they sold out in 3 hours.

I haven't tried it, but if I did, my comments would be "tastes like whiskey." Here's a review of the stuff by Dowd on Drinks who knows more about whiskey tasting:

Remarkable color for something only in the wood for a year. ... Obviously, the
maturation process had been sped up by using small, 10-gallon casks which
surround the raw whiskey with very accessible oak. ... Fine nose, promising
spiciness and herbal nuances. ... Much of the expected initial heat usually
present in young whiskey was missing, leaving a warm yet palatable initial
taste, along with the expected spice from the rye grain, and a satisfactory
finish. ... All in all, a definitely promising young whiskey that I'd love to
re-taste a year or two from now.
The Estate was able to manufacture and sell the whiskey on premises (instead of an ABC store) due to legislation shepherded through by Mount Vernon Senator Toddy Puller in 2008.

George Washington was formerly in the rye business and the estate has taken his original recipe and started manufacturing it again in Mount Vernon's replica 18th Century Distillery - the only one of its kind in the United States. The original recipe was 60% rye, 35% corn, and 5% malted barley. You can see part of the newly reconstructed distillery in this picture I took of the Grist Mill and Dogue Creek last year.

Here's more info from an article published on Yahoo:

The distillery was set up in the cooperage, which provided the barrels for the whiskey. Washington was so pleased with the results of this new venture that a new stone building was constructed to house five stills. The efficient farm used the waste products to feed hogs and cattle kept nearby. The first Mount Vernon rye whiskey was used locally, but was also shipped to other communities near and far. The businessman in Washington must have been very pleased with the 11,000 gallons of whiskey which returned a profit of $7500, a substantial sum in 1799.

His heirs let it deteriorate and fail. The death of George Washington in 1799 brought this venture to a close. If he had lived longer, or had more successful descendants, the country might have been drinking George's whiskey throughout its history. When he died, the distillery and gristmill were left to his step-granddaughter and her husband, but they were not equal to the
business sense of the clever Washington. The property was allowed to deteriorate, and the very successful financial venture of distilling whiskey failed.
Mount Vernon is the largest tourist attraction in Virginia with over 1,000,000 visitors per year. It is also one of the largest private employers in the 44th District with over 400 employees.