Re-evaluating the Agriculture Department's Federal Crop Insurance Program

By: Erin Murphy, Staff Member

President Obama has vowed to reduce the nation's deficit. However, one federal program had a record cost last year.[1] The 2012 bill for the Agriculture Department's federal crop insurance program could reach $16 billion, up from $9.4 billion in 2011.[2] The crop insurance program was established in the 1930s to aid farmers who experienced crop losses.[3] A discussion of the expansion of the program can be found

here

.[4] In addition to the cost of administering the program, a record $11.4 billion has been paid out in indemnities to farmers for crop losses in 2012.[5] Some officials believe this number could reach $20 billion.[6] In addition to these costs, the Agriculture Department also spends millions of dollars annually in grants to industry trade groups and universities to promote enrollment in the crop insurance program.[7]

Critics of the program claim the program only benefits insurance companies and large farmers.[8] The insurance companies that sell the policies receive approximately $1.3 billion annually for their services.[9] The government could also pay an additional $7 billion to cover losses and other costs by the insurance companies.[10] Thus, insurance companies greatly benefit because the government pays the companies a large amount to administer the program and the company incurs very little risk as the government covers their losses. Large farmers also benefit. The 2012 net income for farmers may reach $114 billion, the second highest in 30 years.[11] Thus, as farmers experience losses, the program insures the farmers against revenue losses, thereby protecting their net incomes.

As this program reaches a record cost, Congress must reevaluate the program's implementation approach in light of the nation's deficit. Congress must heed the words of critics and address the inequitable benefit the program grants to insurance companies and farmers. Agreements with the insurance companies administering the program should be renegotiated. The fees the government pays the insurance companies must be lowered. Further, the government must discontinue backing the companies against all losses. Rather, the insurance companies themselves must experience some risk. If the government continues to allow the insurance companies a windfall for merely administering the program, the program will no longer serve the purpose intended: to aid farmers who have experienced crop losses. In addition, the government must place some responsibility on the farmers themselves for the crop insurance they receive. If the government continues to pay 62 percent of the farmers' insurance premiums, the farmers themselves have little incentive to farm responsibly and prudently.[12] The farmers themselves must experience some personal financial incentive to farm in a manner that minimizes losses. Congress must address the record cost of the program by realigning the administration of the program with the goal of the program.

___________________

[1] Ron Nixon,

Record Taxpayer Cost is Seen for Crop Insurance

, 

The New York Times 

(January 15, 2013), http://www.nytimes.com/2013/01/16/us/politics/record-taxpayer-cost-is-seen-for-crop-insurance.html?_r=0.

[2]

Id.

[3]

Id.

[4] Jocelyn Arlinghaus,

Crop insurance: The agricultural equivalent of the mortgage crisis?

, 

Kentucky Journal of Equine, Agriculture, and Natural Resources 

(August 23, 2012), http://www.kjeanrl.com/search/label/crop%20insurance.

[5] Nixon,

supra

 note 1.

[6]

Id.

[7] John Soloman,

USDA agency's largesse grows crop insurance

, 

The Washington Times 

(December 30, 2012), http://www.washingtontimes/com/news/2012/dec/30/usda-agencys-largesse-grows-crop-insurance/.

[8]

Id.

[9]

Id.

[10]

Id.

[11]

Id.

[12] Nixon,

supra

note 1.

Wind Energy Tax Credits Given One-Year Extension

By: Colby Khoshreza, Staff Member

Who doesn't like clean energy? It appears as though at least a portion of the GOP congressional delegation feels as though the wind energy tax credit is an unnecessary form of corporate welfare. The GOP led a recent protest to end the tax credit that provides assistance for wind energy development. The GOP's primary concern remains the same: the credit, which costs approximately 1 billion dollars per year, assists private wind developers but not the public and is an unnecessary subsidy in an era of rising and abundant production of natural gas.[1] While in uncertain territory for at least a portion of December 2012, the "fiscal cliff" deal reached by Congress and the President at the end of 2012 will extend the tax credit through 2013.[2]

The topic brought considerable debate in the 2012 Presidential election as the GOP adopted ending the tax credit into their platform.[3] Despite this move, governors, both Republican and Democratic, have begun calling for a long-term extension of the credit and have formed a bi-partisan group of 28 governors who support the tax break.[4] The break, first signed in 1992 by President George H.W. Bush, supports developers of wind farms and companies that make turbines and parts that supply them.[5]

Argument by the GOP and coal/natural gas advocates that the credit doesn't benefit taxpayers seems to ignore the fact that power plants, the nation's top source of greenhouse gas emissions, continue to alter the climate and environment in dangerous and expensive ways. In addition, fossil fuel plants, including those that burn natural gas, add toxins to the air and oceans, prematurely killing thousands of people every year and boosting healthcare costs.[6] Even though natural gas is 35% cheaper than wind without subsidies, costs for wind energy have decreased 90% over the last two decades.[7] Clearly, more time is needed to develop this renewable energy source. The one-year extension keeps the subsidy alive but does not ensure that further wind energy development will be able to continue long-term. This short-term extension is likely to hinder long-term planning and project development. In reality, the credit needs a longer extension in order to provide the wind energy industry enough time to develop technology and efficiencies and compete subsidy free by 2018-2019.[8]

In the long run, the wind sector should be able to compete on their own; however, at the given time, this industry is too underdeveloped without having the advantages of the tax credit. Rather than ending the subsidy, a long-term assistance program that phases out the subsidy over time would be the ideal solution.[9] In fact, the American Wind Energy Association (AWEA) had proposed a six-year phase out credit, ending the subsidy at the end of 2019.[10] This would give the wind sector time to further develop and plan before the tax credit expires. Ending the credit prematurely is likely to stall advancements in wind as a renewable energy source and result in a loss of jobs.[11] In fact, AWEA estimated that 37,000 jobs would have been impacted if the tax credit had not been renewed at the end of 2012.[12] Given the one-year extension, jobs and wind advancement will be saved, at least temporarily. However, the debate will likely continue, as the wind sector will likely not be ready to compete without the credit as 2013 begins.

_____________________

[1]

A Breath of Stale Air from the GOP

, 

Los Angeles Times

 (Dec. 26, 2012), http://www.latimes.com/news/opinion/editorials/la-ed-wind-energy-tax-credit-20121226,0,364449.story.

[2] K. Kauffman,

Wind Energy Tax Credit Extension Part of "Cliff" Deal

, 

USA Today

 (Jan. 2, 2013), http://www.usatoday.com/story/news/nation/2013/01/02/fiscal-cliff-wind-energy-extension/1804447/.

[3] Riccardi Nicolas and Barnard Jeff,

Some Governors Call for Renewing Wind Energy Tax Credits

, 

The Seattle Times

 (Nov. 15, 2012, 4:46 P.M.), http://seattletimes.com/html/localnews/2019692110_windcredit16.html.

[4]

Id.

[5] 

A Breath of Stale Air from the GOP

, 

Los Angeles Times

 (Dec. 26, 2012), http://www.latimes.com/news/opinion/editorials/la-ed-wind-energy-tax-credit-20121226,0,364449.story.

[6]

Id.

[7] Steve Hargreaves,

Wind Industry OK with Giving Up Tax Credit

, 

CNN Money

 (Dec. 20, 2012, 11:18 A.M.), http://money.cnn.com/2012/12/20/news/economy/wind-tax-credit/.

[8]

Id.

[9] Ehren Goossens and Christopher Martin,

Wind turbine installations soar as tax credit deadline looms

, 

Tulsa World

 (Dec. 25, 2012, 5:57 A.M.), http://www.tulsaworld.com/business/article.aspx?subjectid=49&articleid=20121225_49_E4_ULNSit628138.

[10]

Id.

[11]

Id.

[12]

Id. 

Possible Energy Market Manipulation Leads to DOJ Probing

By: Samuel Jones, Staff Member

Last November, several U.S. Senators called upon the Department of Justice to investigate a possible case of market manipulation performed by several California oil refineries reporting false production information, causing gasoline prices to rise to all-time high levels.[1] Essentially, several oil refineries reported routine factory shutdowns for maintenance and safety protocols, but reviews of production output showed that production continued at regular levels, creating the illusion that supply was down when it really was not, leading to artificial spikes in fuel prices.[2]

Several other state senators, all Democrats, have joined the cause and petitioned the DOJ to investigate possible manipulations in their states, particularly Oregon and Washington.[3] The senators called for a "refinery-by-refinery" probe to analyze the public reports of some of the states' largest oil refineries, including the Valero Energy Corporation and Tesoro Corporation.[4] A letter was sent to Attorney General Eric Holder, and the DOJ responded by saying that they would respond accordingly.[5]

Not only is this the second time this year that some members of Congress have called for a market investigation of this like, but it is also yet again another profitable period for oil and fuel producers.[6] Remarkably, oil producers have seen their profits double since the beginning of 2011, even though refiners have used only 81.7% of their total capital capacity, 7% less capital used from 2010 numbers.[7] Oil companies have blamed the reductions in production and increase in prices on the weak economy and the greater ethanol use for lower demand for oil.[8] Nevertheless, the FTC has compelled oil refineries to turn over records detailing production levels.[9] The Federal Trade Commission (FTC) has legal authority to impose penalties on companies that manipulate their oil prices.[10]

Other Democratic senators have praised the FTC involvement. Sen. Blumenthal from Connecticut stated that such an investigation in possible illegal activity in the energy market "must be aggressive and hard-hitting."[11] "Federal officials are finally recognizing that where there's smoke, there may be fire."[12]

Although I cannot say that I have been personally affected by the alleged manipulation, I agree that a probe should be performed, whether by the Department of Justice or the Federal Trade Commission, if only to send a rippling message through the oil and gas market that such manipulative actions will not be tolerated and to flex some federal muscle control over market practices. Oil prices have risen to almost $115 per barrel this year, a 47% increase from oil prices in June of last year at $78 per barrel.[13] Considering the fact that the national average price for a gallon of gas rose to $3.60 in 2012, up 9 cents from the previous record high of $3.51 set in 2011, sneaky practices that drain revenues from the expanding middle class during a national economic recovery period should not be tolerated with the least degree of allowance.[14] Given these recent events, agency control over the oil and gas markets seems to be lacking; an assertion of more control and possible legal action will likely cause oil producers to think before resorting to unbecoming behavior. I only hope that such federal action will come with more effect and power than that of simply ringing a whistle or blowing a bell.

______________________

[1] Roberta Rampton,

Senators ask U.S. to probe California gasoline prices

, 

Chicago Tribune

 (Nov. 27, 2012) http://articles.chicagotribune.com/2012-11-27/news/sns-rt-us-california gasoline-senatorsbre8aq16h-20121127_1_california-gasoline-prices-los-angeles-area-refinery.

[2]

Id.

[3]

Id.

[4]

Id.

[5]

Id.

[6] Bonnie Kavoussi,

Oil Companies, Refiners Investigated for Possible Market Manipulation

, 

The Huffington Post

 (June 21, 2011) http://www.huffingtonpost.com/2011/06/21/federal-regulators-launch_n_881150.html.

[7]

Id.

[8]

Id.

[9]

Id.

[10]

Id. 

[11]

Id.

[12]

Id. 

[13]

Id.

[14] Steve Hargreaves,

Gas prices hit highest average ever in 2012

, 

CNN Money

 (Dec. 31, 2012) http://money.cnn.com/2012/12/31/news/economy/gas-prices/index.html?hpt=hp_t2. 

Horses are Pets - Not Sandwiches

By: Breck Norment, Staff Member

More than a year ago, Congress effectively lifted a ban on horse slaughtering in the United States.[1] Now, companies can apply to the USDA to obtain equine inspection services to cash in on the potentially profitable business of horse slaughtering for human consumption.[2] Valley Meat Company, one such business in New Mexico, claims the USDA is resisting its application by "dragging its feet" instead of providing the requested inspection services.[3] Valley Meat Co. sued the USDA, claiming the agency was politically motivated in its attempt to delay or stop the company's horse slaughtering business.[4]

As previously discussed on KJEANRL.com, Congress's latest attempts to ban the slaughter of American horses domestically and abroad have been unsuccessful thus far.[5] Meanwhile, some areas of the country have passed bans on the slaughter of horses for human consumption within their own jurisdiction.[6] On the western side of the United States, Snohomish County "voted unanimously... to ban the slaughter of horses[.]"[7]

Some argue that regulation of horse slaughtering in the United States allows for more humane treatment of animals during slaughter,[8] but my concern runs to the foundation of this entire concept. I believe we need to tread lightly down this path. In our culture, animals serve various purposes. Some help with our jobs, some help feed our nation, and some help keep us company. These lines need not be blurred.

Our culture has well-defined categories of meat that we consider acceptable. If you ask the average American, I would guess he or she would not recognize horse meat as a favorite cuisine. Overall, my main concern is the nature of this slippery slope. Which pet will we consider a meal next?

_____________________

[1] Dan Flynn,

Valley Meat Goes to Court to Get Equine Inspection Services

, 

Food Safety News 

(Dec. 22, 2012), http://www.foodsafetynews.com/2012/12/valley-meat-goes-to-court-to-get-equine-inspection-services/#.UOCFYKzhesB.

[2]

Id.

[3]

Id.

[4] Jeri Clausing,

New Mexico meat company sues feds, claiming inaction is delaying horse slaughterhouse opening

, 

FoxNews.com 

(Dec. 20, 2012), http://www.foxnews.com/us/2012/12/20/new-mexico-meat-company-sues-feds-claiming-inaction-is-delaying-horse/.

[5] H.R. 2966:

American Horse Slaughter Prevention Act

, 

GovTrack.us, 

http://www.govtrack.us/congress/bills/112/hr2966/text (last visited Dec. 31, 2012).

[6] Lornet Turnbull,

Snohomish County Council bans slaughter of horses for food

, 

The Seattle Times 

(Dec. 19, 2012), http://seattletimes.com/html/localnews/2019939777_slaughter20.html.

[7]

Id.

[8]

See

 Clausing,

supra

 note 4.

Using Road Salt During Snow and Ice Conditions: Environmental Impact Versus Road Safety

By: Robert Proudfoot, Staff Member

In what may have been obvious decades earlier, states and municipalities throughout the United States are struggling with whether they should use rock salt or other chemical de-icing agents to prevent snow and ice build up on roadways. Environmental groups have pushed state and federal agencies to limit salt use during winter months because studies have shown that salt can pollute water systems.[1] This policy debate has raised legal questions about whether a state has an obligation to provide safe and clear roadways during the winter and also whether the environmental contamination caused by rock salt should be avoided by public authorities.[2]

Environmental activists have pushed to ban or seriously limit salt use on roadways for years.[3] Studies have shown that the road salt can leave pollutants in the surrounding ground and water supply.[4] Road salt, usually comprised of sodium (Na) and Chlorine (Cl), can easily pollute surrounding watersheds, vegetation, animals, and human drinking water.[5] States and municipalities are very concerned about the high toxicity of chlorine, which easily separates from sodium once it is introduced into the environment. The United States Environmental Protection Agency has also set limits for sodium and chlorine content in water supplies.[6] Recent studies have also argued that other more expensive deicers are usually cheaper to use when all the hidden environmental and secondary effects of road salt are taken into consideration.[7] Road salt is highly corrosive and, if it is not removed, can cause long-term damage to automobiles.

Currently, environmental groups have pushed to ban salt use completely while trade associations for the salt industry[8] are still advocating for salt use on roadways. Most academics agree that road salt should be used more sparingly to limit the environmental and corrosive impact but it should still be included in a state or municipality's deicing regimen because of its cheap cost and effectiveness.[9]

By not using salt to clear roadways, this can create disconnect for travelers from out of state that have different expectations for how roads should be cleared. For example, the state of Oregon has started using salt as part of two pilot programs on federal interstates because the driving conditions between western states can vary greatly.[10] Dave Thompson, a spokesperson for Oregon's Transportation Department explains: "The effects can be stark... clear driving in California, Nevada and Idaho, only to hit packed snow and be forced to chain up in Oregon. That leads to traffic delays and, in some cases, crashes..."[11] It is unclear whether states like Oregon will eventually increase their salt use or whether other states will ban salt use in favor of other deicers; only time will tell which approach will eventually win out.

If a state or municipality has an official policy of not salting roadways, then what is the duty for property owners or a state agency to prevent injuries and accidents on publicly accessible roadways? The city of Portland, Oregon is a great example of how environmental and public safety concerns can directly conflict. The municipal government does not use rock salt to clear snow and ice from roadways because of its highly corrosive nature and environmental concerns.[12] However, the city's municipal code states that "property owner(s) and/or occupant(s) shall be liable for any and all damages to any person who is injured or otherwise suffers damage resulting from failure to remove snow and/or ice accumulations."[13] So, do property owners have a duty to use salt even though the city does not? The answer to this question has varied greatly through each state's tort law.[14] Maine and Massachusetts are moving to a "normal premises liability" model which requires that the property owner use reasonable care to maintain the property in a reasonably safe condition.[15]

The generally accepted standard of applying road salt to clear roads and sidewalks is changing because of environmental concerns and less corrosive deicers. This will impact state and municipal approaches to deicing roads. At the same time, states such as Oregon which previously banned road salt are finding that other alternatives are not as safe or effective. The policy of using road salt during the winter is in flux and these changes to government policy could modify the duty of care for property owners.

_______________________

[1] V.R. Kelly, et al.

, Road Salt: Moving Toward the Solution

, 

Cary Institute for Ecosystem Studies 

(Dec. 2010), http://www.caryinstitute.org/sites/default/files/public/reprints/report_road_salt_2010.pdf.

[2]

Id.

;

See

 Brian Lessels & Dave Owens,

Potential Legal Liabilities for Salt Use Reduction

(Nov. 2012), http://lawprofessors.typepad.com/files/salt-reduction-liabilities-white-paper.pdf.

[3] Kristine Bradof,

The Deicing Debate: Will It Ever Be Put On Ice?

, 

The Center for Science & Environmental Outreach 

(Jan. 1994), http://cseo.mtu.edu/community/publications/wellspring/deicingdebate.html.

[4]

Environmental, Health, and Economic Impacts of Road Salt

, 

New Hampshire Department of Environmental Services, 

http://des.nh.gov/organization/divisions/water/wmb/was/salt-reduction-initiative/impacts.htm (last visited Dec.31, 2012).

[5]

Id.

[6]

See

 William Wegner & Marc Yaggi,

Environmental Impacts of Road Salt and Alternatives in the New York City Watershed

, 

Stormwater: The Journal for Surface Water Quality Professionals, 

http://www.newyorkwater.org/downloadedarticles/environmentalimpact.cfm (last visited Jan. 1, 2013). (250mg of chlorine per liter and 20mg of sodium per liter)

[7] Daniel Kelting & Corey Laxson,

Review of Effects and Costs of Road De-icing with Recommendations for Winter Road Management in the Adirondack Park

, 

Adirondack Watershed Institute 

(Feb. 2010), http://www.adkaction.org/files/public/Full_Study_Salt.pdf.

[8]

Road Salt & Our Environment

, 

Salt Institute, 

http://www.saltinstitute.org/Issues-in-focus/Road-salt/Road-salt-our-environment (last visited Dec. 31, 2012).

[9] Jonathan Rubin, et al

., Maine Winter Roads: Salt, Safety, Environment, and Cost

, 

Margaret Chase Smith Policy Center, The University of Maine 

(Feb. 2010), http://mcspolicycenter.umaine.edu/files/pdf/Winter%20Road%20Maine%20Final.pdf.

[10] Harry Esteve,

ODOT plans to use salt for first time to clear snow from two Oregon highways

, 

The Oregonian 

(Oct. 26, 2012), http://www.oregonlive.com/politics/index.ssf/2012/10/odot_plans_to_use_salt_for_fir.html.

[11]

Id.

[12]

Snow and Ice Plan: Why Not Salt?

, 

City of Portland: Bureau of Transportation, 

http://www.portlandoregon.gov/transportation/article/376538 (last visited Dec. 31, 2012).

[13]

Property Owner Responsible for Snow and Ice on Sidewalks

, Title 17, §28.025(B), Portland City Code,

available at

 http://www.portlandonline.com/auditor/index.cfm?&a=19574&c=28857.

[14]

See

 Gregory Sarno,

Liability for Injuries in Connection with Ice and Snow on Nonresidential Premises

, 95 A.L.R.3d 15 (Fifty states survey of property owner liability for snow and ice accidents); Lessels,

supra

 note 2, at 6.

[15] Lessels,

supra

 note 2, at 7. 

Keystone XL Permit Decision, Take Two: Will "National Interest" Prevail in 2013?

By: Megan Pigman, Staff Member

Important concerns of energy independence, environmental impact, and economic growth fuel the debate surrounding the "Keystone XL Project" - a proposal by TransCanada Corp. to construct a 36" underground pipeline that would transport crude oil from Canada, across the border into Montana, and then down to the oil refineries on the Gulf Coast.[1] However, it was not a conclusion based on the merits of balancing such important concerns that led to the project's original permit application being denied in January 2012.

Pursuant to Executive Order 13337, it is the Department of State's (DOS) responsibility to determine whether granting a permit for a proposed pipeline is in the "national interest."[2] It is generally based on this recommendation that the President will decide whether to grant or deny the presidential permit needed to build across the U.S. border. In order to make its national interest determination, the DOS must consider many factors, including: energy security, health, environmental, cultural, economic, and foreign policy concerns.[3] After receiving the initial permit application from TransCanada Corp. in September 2008, the DOS spent three years looking into these concerns as they related to the Keystone XL proposal before issuing its Final Environmental Impact Statement (FEIS) on the project in August 2011.[4]

Despite a finding in the FEIS that Keystone XL would have "no significant impact" on the environment, the DOS announced in November 2011 that it needed more information in order to make its "national interest" determination.[5] A little over a month later, Congress passed the "Temporary Payroll Tax Cut Continuation Act of 2011" which included a provision requiring the President to determine within

60 days

 whether the Keystone XL pipeline is in the national interest.[6]

Even though it had been reviewing the project for three years, on January 18, 2012 the DOS stated that because of Congress' 60 day limit, it had not had adequate time to gather information sufficient to make the national interest determination and, therefore, would be recommending to the President that he deny the Keystone XL permit.[7] The President accepted their recommendation and denied TransCanada Corp.'s permit.[8]

Since the denial of the permit did not preclude subsequent permit applications, TransCanada Corp. submitted a new application May 4, 2012 which offered alternate routing in Nebraska to avoid the "Sandhills" region - an area which was of great concern to environmentalists due to its fragile ecosystem.[9] TransCanada Corp. submitted its own environmental report in September 2012 for the DOS to review in making its new determination.[10] According to the Department of State's "Keystone XL Pipeline Project" website, review of the new application is estimated to be completed in the first quarter of 2013.[11]

While those who strongly oppose or support the construction of the pipeline continue to debate its potential impact on the country, there is one notion that both sides should be able to agree on: for better of worse, the Keystone XL Project is significant and, thus, its application for a presidential permit warrants an outcome based on the factors that the DOS is required to consider when making a "national interest" determination. The DOS's 2011 recommendation being based on lack of sufficient information - whether accurate or not - simply didn't offer enough "closure" on the issue for those across the country who feel much is at stake when it comes to this project. Hopefully, a decision based on the merits as to whether construction of the Keystone XL is in the "national interest" of the country will finally be delivered in 2013.

_______________________

[1] Application of TransCanada Keystone Pipeline, L.P. for a Presidential Permit,

U.S. Department of State Keystone XL Pipeline Project, 

(May 4, 2012),

available at

 http://keystonepipeline-xl.state.gov/proj_docs/permitapplication/index.htm. 

[2]

New Keystone XL Pipeline Application

, 

U.S. Department of State Keystone XL Pipeline Project, 

http://www.keystonepipeline-xl.state.gov/ (last visited Nov. 26, 2012).

[3]

Id.

[4]

Proposed Keystone XL Project Final Environmental Impact Statement: Special Briefing

, U.S. Department of State, Aug. 26, 2011, http://www.state.gov/e/oes/rls/remarks/2011/171117.htm (last visited Nov. 26, 2012).

[5]

Briefing on the XL Pipeline

, 

U.S. Department of State: Diplomacy in Action, 

(Jan. 18, 2012), http://www.state.gov/r/pa/prs/ps/2012/01/181492.htm.

[6]

Id.

[7]

Id.

[8]

Id.

[9] Application of TransCanada Keystone Pipeline, L.P. for a Presidential Permit, 

U.S. Department of State Keystone XL Pipeline Project, 

(May 4, 2012), 

available at

 http://keystonepipeline-xl.state.gov/proj_docs/permitaplication/index.htm.

[10]

New Keystone XL Pipeline Application

, 

U.S. Department of State Keystone XL Pipeline Project, 

http://www.keystonepipeline-xl.state.gov/ (last visited Nov. 26, 2012).

[11]

Id.

Kentucky Contemplates Increased Cigarette Taxes: Symbolic Efforts to Put Out Tobacco Use and Industry

By: Michael Erena, Staff Member

In February of this year, Kentucky Governor Steve Beshear charged the Blue Ribbon Commission on Tax Reform to review and revise the Kentucky tax code.[1] A recent proposal approved by the Commission would increase state cigarette taxes from $0.60 to $1.00 per pack.[2] While the cigarette tax is one of many proposals under consideration by the Commission,[3] it nevertheless raises the question of whether such a tax would serve as a viable and effective option for Kentucky. Furthermore, what does this proposal mean for the tobacco industry in general?

In recent years, hiking cigarette taxes has become a popular strategy employed by state legislatures.[4] The politically appealing cigarette taxes provide monetary incentives to reduce smoking and its negative public health by-products while also bolstering state revenues. Most recently, Illinois lawmakers approved a tax increase from $1.00 to $1.98 per pack, which took effect in July of this year.[5] Despite the overall national trend toward increasing state cigarette taxes, a great disparity remains among the individual states' taxation rates: New York imposes the nation's highest rate of $4.35 while the nation's lowest rate in Missouri is a paltry $0.17 per pack.[6] In November, Missouri voters maintained the national low by rejecting Proposition B, which would have imposed a state increase of $0.73 per pack.[7] This disparity in state cigarette tax rates has led to a booming industry for cigarette smuggling and resale - known as "smurfing" - exacting an estimated governmental cost of $10 billion annually, according to the Bureau of Alcohol, Tobacco, Firearms, and Explosives.[8]

While Kentucky's tax rate would remain relatively low even with the proposed increase and thus not create the sort of high profit margins to incentivize large scale cigarette smuggling operations in Kentucky, it could very well drive Kentucky smokers to take their business across state lines to one of the five border states offering lower prices. Kentucky remains the second highest adult smoking market in the nation,[9] a market that hopefully could be choked down by tax pressures, but one that nonetheless could be outsourced in part to more cigarette-friendly neighbors. This potential for lost cigarette revenues from ubiquitous Kentucky border towns has given pause to some skeptics of the proposal.[10]

Setting aside the potential revenue shifting across Kentucky's borders, it remains to be seen what impact the tax increase would impose on Kentucky's tobacco industry. Although tobacco is not the dominant commodity it once was for Kentucky, it nonetheless produced $325.2 million in cash receipts for 2011.[11] Despite its declining sales, tobacco remains relevant to Kentucky and Kentuckians, and policy decisions such as imposing an increased cigarette tax may very well bring economic and agricultural ramifications.

The steady decline of tobacco sales in Kentucky, and nationwide, is certainly not attributable to any one state's individual tax increases, but rather the result of various and complex factors - chief among them the recognition of the devastating health consequences of tobacco consumption.[12] The fact that Kentucky, one of the principal tobacco-producing states left in the nation, contemplates further increases to its state cigarette tax, arguably decreasing tobacco usage, likely says more about the symbolic decline of the tobacco industry than anything else. Despite stalwart holdouts like Missouri, it seems Kentucky's contemplation of a higher tax falls in line with the national trend that signifies a slow push towards snuffing out an industry.

_____________________

[1] Press Release, Governor Steve Beshear's Communications Office, Gov. Beshear Authorizes Tax Reform Commission (Feb. 9, 2012),

available at

http://migration.kentucky.gov/Newsroom/governor/20120209taxcommission.htm.

[2] Scott Wartman,

Cigarette tax hike among proposed changes by tax commission,

(Nov. 19, 2012, 6:00 PM), http://cincinnati.com/blogs/nkypolitics/2012/11/19/cigarette-tax-hike-among-proposed-changes-by-tax-commission/.

[3]

Id.

[4]

The urge to smurf: When government gets greedy, some people turn to crime

, 

The Economist, 

http://www.economist.com/news/united-states/21567111-when-government-gets-greedy-some-people-turn-crime-urge-smurf (Nov. 24, 2012) ("Since 2007 at least 27 states have raised their cigarette taxes, often to erase deficits or to cover sharp increases in health-care costs.").

[5] Rick Pearson & Ray Long,

Lawmakers OK $1-a-pack cigarette tax hike

, 

Chicago Tribune, 

(May 30, 2012), http://articles.chicagotribune.com/2012-05-30/news/ct-met-illinois-legislature-0530-20120530_1_cigarette-tax-tobacco-tax-measure-tax-hike. 

[6] Map of Cigarette Tax Rates, 

Tobacco Free Kids, 

(July 6, 2012),

available at

www.tobaccofreekids.org/research/factsheets/pdf/0097.pdf.

[7] Michelle Pekarsky,

Missouri Voters Reject Cigarette Tax Hike, 

Fox4kc.com, 

(Nov. 6, 2012, 10:44 PM), http://fox4kc.com/2012/11/06/prop-b-cigarette-tax-in-missouri/.

[8] 

The Economist, 

supra

 note 4.

[9]

Tobacco Use in Kentucky 2012, 

Kentucky Cabinet for Health and Family Services, 

available at

http://chfs.ky.gov/dph/mch/hp/tobaccodata.htm.

[10] Wartman,

supra

note 2.

[11] Lorie Hailey,

Cash Receipts for Kentucky Farm Commodities Nearly $5 Billion in 2011, 

The Lane Report, 

(Nov. 13, 2012), http://www.lanereport.com/15231/2012/11/kentucky-farm-cash-receipts/.

[12]

Vital Signs: Current Cigarette Smoking Among Adults Aged 

≥ 18 Years - United States, 2005-2010, 

Centers for Disease Control and Prevention, 

(Sept. 9, 2011),

available at

http://www.cdc.gov/mmwr/preview/mmwrhtml/mm5745a3.htm.

California's Cap-and-Trade Program: A Potential Model for the Country

By: Maegan Pirtle, Staff Member

California has a history of being at the forefront of state initiatives dealing with urgent environmental problems,[1] and its cap and trade program designed to limit the amount of greenhouse gases produced by industrial polluters is no exception. Under this program, California has set a cap on the amount of carbon that individual industrial entities are permitted to emit and allows those entities that do not use their full allocation to sell excess allowances to other businesses.[2] The hope is that this flexible, market-based approach will incentivize businesses to cut emissions by allowing them to make a profit on unused emission permits.[3]

While the program has been lauded by some as a model for the rest of the country,[4] it is not without its critics. Some argue that the initiative will be too much of a burden on California companies and will ultimately cause businesses to leave the state in droves.[5] On the other side, some environmental groups have also expressed frustration with the program, arguing that it accomplishes too little.[6]

Fears about the impact of this program are to be expected. In addressing serious concerns about industrial pollution, California has adopted a program that is unprecedented outside of the European Union.[7] There is necessarily uncertainty about the effects, both positive and negative, of such a plan. However, there is good reason to believe that effects on business will not be as dire as some are predicting. California, acknowledging these concerns, has taken steps intended to ease the transition, including giving away 90 percent of the initial permits for free with the intent of slowly phasing in the number available for purchase.[8]

Concerns that California's program will not make enough of an impact are also validly considering that one state can only do so much to fix a truly global problem. However, if successful, it has the potential to have wide reaching effects. California's program could serve as a model for the rest of the country, which, as a whole, is responsible for 18 percent of the world's carbon emissions.[9] While there is no guarantee that California's experiment with cap and trade will be as successful as its supporters hope, the potential benefits certainly outweigh the speculative costs.

________________________

[1] Daniel Stone,

California Tackles Climate Change, But Will Others Follow?

, 

Nat'l Geographic 

(Nov. 16, 2012), http://news.nationalgeographic.com/news/energy/2012/11/121116-california-cap-and-trade.

[2] Mem. of P. & A. in Supp. of Verified Pet. for Writ of Mandate and Compl. for Declaratory Relief at 1, Cal. Chamber of Commerce v. Cal. Air Res. Bd. (2012), http://www.calchamber.com/GovernentRelations/Documents/SIGNED_MPA_11-13-12.pdf.

[3] Stone,

supra

 note 1.

[4] Barbara Grady,

Experts Debate Economic Side Effects of California's Cap and Trade Program

, 

Earth Island J. 

(Nov. 16, 2012), http://www.earthisland.org/journal/index.php/elist/eListRead/experts_debate_side_effects_of_CA_cap_and_trade.

[5]

California Debuts Landmark Cap-and-Trade System Aimed at Reducing Carbon Emissions

, 

Wash. Post 

(Nov. 14, 2012), http://www.washingtonpost.com/business/california-to-debut-landmark-cap-and-trade-system-with-pollution-auction/2012/11/14/5da6e20c-2e32-11e2-b631-2aad9dc73ac_story.html.

[6] Grady,

supra

 note 4.

[7]

California Debuts Landmark Cap-and-Trade System Aimed at Reducing Carbon Emissions

,

supra

 note 5.

[8] Stone,

supra

 note 1.

[9] Stone,

supra

note 1. 

Solar Farm Jobs: The Case for Updating Kentucky's Net-Metering Laws

By: Will Emmons, Staff Member

It's no secret that Kentucky's once central crop of tobacco has become less and less a part of our agricultural economy. The 2007 USDA Census of Agriculture reported that Kentucky had shed just shy of 40,000 jobs in tobacco farming in the decade between 1997 and 2007, amounting to just south of 83% of all tobacco jobs in the Commonwealth.[1] While we all reap public health benefits from being part of a society that smokes less, the impact of this decline on our farming communities has been devastating.

In a recent paper, University of Kentucky Professor of Agricultural Economics David Derbetin states that although the shift to producing different commodities cannot produce equivalent income to tobacco, this shift does provide an opportunity for farmers.[2] In this blog post, I argue that Kentucky's energy laws are preventing farmers from producing a lucrative commodity: solar power.

During last year's legislative session, an organization representing small farmers called the Community Farm Alliance sought to update Kentucky's net-metering laws for small scale renewable energy production.[3] Net metering laws, a product of the 1980s, control what benefit utilities companies must give small scale producers of renewable energy for pumping energy into the grid.[4] These laws exist at the state level in 43 states, including Kentucky, and vary widely from state to state.[5] States where the utility companies have a stronger lobby limit the percentage of energy subscribers who may participate. The limitations on the number of kilowatt hours a subscriber may be compensated for and what kind of compensation subscribers receive are also areas of broad variance.[6]

Currently, Kentucky allows small scale energy producers to be compensated for up to 30k into the grid per annum and receive compensation at retail rate from utility companies for this electricity.[7] This is a relatively low limit geared toward domestic producers. However, if we followed North Carolina and upped our limit to 1000kw and required our utility companies to sell more renewable energy, we could provide a real economic opportunity for our small farmers.

In the past five years following a new raft of clean energy legislation, 100 new solar farms have popped up across the Tarheel state.[8] According to one estimate, the boom has created 15,000 new jobs in the renewable energy sector.[9] The winners are North Carolina's formerly tobacco-dependent rural communities. We should follow suit.

____________________

[1]

The Shrinking Role of Tobacco Farming and Tobacco Product in Kentucky's Economy

, 

Campaign for Tobacco Free Kids 

(Feb. 19, 2009), http://www.kyvoicesforhealth.org/news/images/files/Kentucky%20Tobacco%20Farming%20Trends%202-19-09.doc.

[2] David L. Debertin,

Emerging Trends in Kentucky Agriculture and the Future of Rural Kentucky in the 21st Century

, 

University of Kentucky College of Agriculture, 

http://www.uky.edu/~deberti/exten.htm (last visited Nov. 24, 2012). 

[3] Phil N. Ferrill,

Community Farm Alliance criticizes General Assembly's failure to act on net-metering

, 

Barefoot & Progressive 

(April 9, 2011), http://www.barefootandprogressive.com/2012/04/community-farm-alliance-criticizes-general-assemblys-failure-to-act-on-net-metering.html.

[4] Stephanie Watson,

How Net Metering Works

, 

Howstuffworks, 

http://science.howstuffworks.com/environmental/green-science/net-metering.htm (last visited Nov. 24, 2012).

[5]

Net Metering

, 

Database of State Incentives for Renewables & Efficiency 

(Nov., 2012), http://www.dsireusa.org/documents/summarymaps/Net_Metering_map.pdf.

[6]

Id.

[7] Ferrill,

supra

 note 3.

[8] Sammy Fretwell,

Farmers Grow Profit with a New Crop: Solar Panels

, 

News Observer 

(Nov. 12, 2012), http://www.newsobserver.com/2012/11/11/2478266/farmers-grow-profits-with-a-new.html.

[9]

Id.