By Thomas M. Keane Jr., The Boston Herald
Sloppy and unpersuasive, more interested in publicity than crafting a solid analysis, the Beacon Hill Institute is losing its credibility.
The Institute is run by David G. Tuerck, chair of the economics department at Suffolk University. That connection has given the institute a patina of authority. Reports produced by it and other think-tanks, such as MassINC and the Pioneer Institute, are widely reported by the press. Yet while one can generally rely on the methodology of the latter two organizations, with BHI it’s different.
Some of BHI’s work is barely disguised ideology (a 1994 study, for example, called a graduated income tax a “slippery road to serfdom”). Other times it revels in its against-the-grain, counterintuitive conclusions. In 2000, it called for an income tax cut, predicting there would be no meaningful program reductions even if a recession hit. It argued in 2002 that eliminating the state income tax would create 300,000 to 500,000 jobs. Another report that year said the state’s boosted educational spending had all been a waste. Last year BHI claimed people choose to live in communities that tax their residents the least.
The arguments can be intriguing, yet they don’t stand up to scrutiny. When the recession came, it turned out there were severe program cuts. The number of jobs BHI boasted would be created by wiping out the income tax exceeded, by more than double, the number of unemployed Bay Staters. Its conclusions about educational reform are belied by consistent improvements in MCAS scores. And taxes actually are an insignificant factor in determining where people live; indeed, sometimes higher taxes — if accompanied by improved services — attract residents (think Newton or Brookline).
And now BHI is in the news with studies on two hot topics: a proposed wind farm in Nantucket Sound and the economic benefits of next week’s Democratic National Convention.
Last October, BHI issued a report — updated recently — that blasted a proposal by Cape Wind Associates to build a 130-turbine wind farm five miles off Cape Cod. Some landowners have vigorously opposed the wind farm, which would provide up to three-quarters of the electricity used by the Cape and islands. Their group, the Alliance to Protect Nantucket Sound, receives a substantial portion of its funding from the Egan Family Foundation, two of whose members sit on the alliance’s board (prominent supporters of George W. Bush, one of the Egans just released a critical documentary on John Kerry’s failed 1972 congressional race).
And the principal funder of BHI’s study? The Egan Family Foundation.
That raised eyebrows, of course. BHI claimed independence, but conducted an extraordinarily questionable analysis. The heart of it was a series of interviews with landowners and tourists, asking them what they thought would happen to land values and tourism if the wind farm were built. The questionnaire was obviously designed to provoke a negative response (comparing the wind turbines to the size of the Statue of Liberty, for example). Five percent of tourists guessed they would visit less; 20 percent of homeowners speculated that their property values would drop.
That speculation became the basis for BHI’s conclusion that the costs of the wind farm were greater than its benefits. Cape Wind mounted a fierce rebuttal. The margin of error in BHI’s sample could effectively undermine its results. The organization gave too little credence to benefits such as jobs and a cleaner environment. Most importantly, speculation notwithstanding, land values in fact have not declined when other wind farms have been built elsewhere.
Then there is the comedy of errors that is BHI’s analysis of next week’s convention. On March 30, it released a study claiming the net benefits from the convention would be $121.6 million. A week later, it released another study saying the net loss would be $12.8 million. The difference? The first time around, BHI had forgotten to include costs — such as disruptions to traffic — in its analysis. Yet the revised version was equally flawed, with “costs” (such as the cancellation of a planned Tall Ships visit) wildly inflated.
This week BHI mounted a follow-up. It trumpeted a study proclaiming the convention would be a “bust,” helping only 11 percent of Boston businesses. The basis of that was a survey of 100 businesses near the FleetCenter, asking proprietors what they thought would happen.
As Susan Elsbree of the Boston Redevelopment Authority says, “How stupid is that?”
It’s a small and narrow sample size. The impact of the convention extends throughout the entire metro area; its benefits are both short- and long-term. As with the wind study, BHI relies on speculation. Released just three days before the delegates arrive, the report had no real value except, clearly, to get BHI some free press.
Looked at as a whole, it’s not a great record. Just because the institute says something doesn’t mean anyone should believe it.
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UGLINESS CAN be good for you — especially if you are not rich, powerful, or politically connected.
By Joan Vennochi, Globe Columnist | December 14, 2004
As for Romney’s loud opposition, the governor could be feeling pressure from Attorney General Thomas F. Reilly’s strong effort to challenge the project. Or, perhaps he is feeling another type of pressure? Opposition to Cape Wind is organized through the Alliance to Protect Nantucket Sound, which spent $2.4 million fighting the proposed wind farm in 2003. On forms filed with the IRS in 2003, Christopher, Jack, and Michael Egan are listed as directors. Jack and Michael Egan are current board members. They are sons of Richard Egan, founder and chairman emeritus of EMC Corp.
The Egans are major political players. Here, while they also contribute to Democrats, they are big Romney fund-raisers. The Egan Family Foundation was the main funding source for a $100,000 survey done by the Beacon Hill Institute. It concluded that lower property values, reduced tourism revenue, and a loss in year-round jobs would result from the wind farm. The Egan Family Trust and Michael Egan own homes overlooking Nantucket Sound.
Ernie Corrigan, a spokesman for the alliance, said, “This is not a political issue at all.” Opposition is “a matter of common sense,” he said. Asked whether the Egan family’s involvement influenced Romney’s position regarding Cape Wind, Romney aide Eric Fehrnstrom replied via e-mail: “No, not at all.”
Asked to explain the governor’s shifting positions, Fehrnstrom said, again via e-mail: “Gov. Romney supports efforts to encourage greater reliance on renewable sources of energy. There are several areas in the Berkshires region where wind farms have recently been approved. And there are a number of different areas off the coast of Massachusetts that we could also consider. They may not be optimal for the developer from a profit-making point of view, but we need to balance the public and private interest. Nantucket Sound is a national treasure. The governor does not want to turn it into a wind factory. He wouldn’t recommend putting a wind farm in the middle of the Grand Canyon, or at the foot of Mount Rushmore, either.”
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On the Beacon Hill Institute Reports on Cape Wind:
This is the third anti-Cape Wind report the Beacon Hill Institute (BHI) has prepared in the past three years. According to media articles, the Egan Family Foundation has contributed at least $125,000 to BHI for these reports. The Egan Family Foundation is made up of several family members who are also on the Board of the organization that formed to oppose Cape Wind, the Alliance to Protect Nantucket Sound (Alliance), these same Egan family members also own several large homes overlooking Nantucket Sound. Responding to the first two BHI reports on Cape Wind, Boston Herald Columnist Thomas Keane Jr. wrote, “Sloppy and unpersuasive, more interested in publicity than crafting a solid analysis, the Beacon Hill Institute is losing its credibility.” BHI has coordinated closely with the Alliance over the years, even filling in for the Alliance for the ‘con’ side of a debate about Cape Wind on Cape Cod and by participating in Alliance “media availabilities”.
BHI and the Alliance are flip-flopping on the economics of the project to fit their shifting agenda
The 2004 BHI Report entitled “Free But Costly: an Economic Analysis of Wind Farm in Nantucket Sound,” in fact found that the project would yield returns that would NOT be an attractive investment:
“The project would not be a significant moneymaker for the developer. We find that the project would yield a respectable but modest 12.2% rate of return on equity. The rate of return could be as high as 18.1% but as low as 6.6%. … But there is no guarantee [sic] that it will make a profit of this size or, for that matter, break even. Unforeseen increases in construction or maintenance costs and the unpredictability of wind speeds add an element of risk to the enterprise.” On ‘subsidies’ for Cape Wind
The timing of the release of this latest BHI report seems to be closely coordinated with an ongoing attempt of Cape Wind opponents to defend their anti-Cape Wind provision slipped into the Coast Guard Reauthorization Act in Conference Committee in Congress by making misleading arguments about how much Cape Wind would benefit from government “subsidies”.
There are 4 crucial points that need to be made on this subject to correct the public record.
For Cape Wind to become a reality, three central conditions need to be met: 1) Cape Wind will need to receive all permits and permissions from Federal and State authorities that will also require that Cape Wind be found to be in the ‘public interest’, 2) Cape Wind will need to pay whatever lease payments are required by the Minerals Management Service as well as other federal, state and local taxes, and, 3) Cape Wind will need to successfully raise the capital funds to build this project from the private sector. There are Federal and State renewable energy incentives that Cape Wind could possibly qualify to receive that would provide financial benefits based upon the successful operation of the wind farm and its actual production of clean wind energy, these are discussed below.
Massachusetts Renewable Energy Credits. The BHI report, recent Alliance advertisements, and statements by Cape Wind opponents such as Senator Kennedy and Congressman Delahunt all identify the Massachusetts “subsidy” as constituting the bulk of the “government subsidies” that Cape Wind would receive – and in so doing, they seriously misrepresent the nature of the Massachusetts program, how it works, and what Cape Wind’s impact would be. As part of the Electricity Restructuring Act of 1997, the Massachusetts Legislature enacted a Renewable Portfolio Standard (RPS) that mandated greater use of new renewable energy sources in the region by providing such sources with Renewable Energy Credits (RECs) which are bought and sold in an open market. RECs are NOT paid by taxpayers, they are paid by electric resellers which are mandated to buy an increasing number of them through 2009. As stated by the Massachusetts Energy Commissioner, Cape Wind would greatly increase the supply of RECs, thereby driving down the REC market price and reducing the cost of this program to electricity consumers. No one really knows what the value of RECs will be to Cape Wind when the project comes online, the one thing that is sure is that Cape Wind will make this renewable energy policy mandate more affordable to electric consumers than would otherwise have been the case if Cape Wind is not built. The fact that Cape Wind will save money to Massachusetts electric consumers by reducing how much this renewable energy program costs is completely lost by Cape Wind opponents when they seek to create public outrage over a false perception that Massachusetts taxpayers will fund Cape Wind. Finally, as to how Cape Wind fits in with the original policy goals of Massachusetts Legislators in enacting the RPS to increase regional development of renewable energy, several Mass State House Committee Chairs who were architects of this legislation have stated, “Cape Wind is exactly the type of project we envisioned when we enacted the Restructuring Act. The 420 MW Wind Park proposed by Cape Wind Associates will provide affordable, efficient, reliable and clean energy.”– Massachusetts State Senators Michael Morrissey and Susan Fargo and State Representatives Daniel Bosley and John Binienda.
There is a fundamental inconsistency for Cape Wind opponents to criticize Cape Wind’s potential eligibility to receive government renewable energy incentives they otherwise claim to support. The Federal Wind Production Tax Credit (PTC), which reduces the federal tax burden for wind farms, enjoys overwhelming bipartisan support in Congress and has received favorable votes from both Senator Kennedy and Congressman Delahunt. The U.S. Senate also considered a National RPS last year that Senator Kennedy voted for. The Alliance also claims to support both the PTC and the RPS. Cape Wind would not qualify to receive these incentives in any special or unique way, and the PTC would have to be extended again, further out into the future, to even apply to Cape Wind. How can one honestly claim to support these incentives in one breath and then vilify a company in the next breath for possibly qualifying to receive these incentives by producing a substantial quantity of clean wind power that the incentives were created to encourage?
One would reasonably (but wrongly) assume by reading the BHI report or by listening to Cape Wind opponents that wind power gets preferential government treatment not enjoyed by other types of energy production. In fact, all forms of energy production are currently encouraged or “subsidized” by existing U.S. energy policy. According to a Fact Sheet entitled, “Wind Energy Myths”, by the U.S. Department of Energy, published in 2005, “…every energy source receives significant federal subsidies; it is disingenuous to expect wind energy to compete in the marketplace without the incentives enjoyed by established technologies.”
Other BHI claims about Cape Wind
BHI’s report is overly simplistic, makes sweeping assumptions, and overlooks some factors entirely, all of which overstate Cape Wind’s potential profitability. Certainly most renewable energy supporters would hope that renewable energy projects, like Cape Wind, can be profitable as are fossil fuel and nuclear energy projects because if clean energy isn’t profitable the U.S. won’t build very much of it. To be fair to BHI, there is one accurate and important statement about their estimate of Cape Wind’s profitability in their report that should even be underscored to its readers, as it bears upon all of their other analysis about Cape Wind, “this figure is subject to considerable uncertainty because the project faces a number of significant risks.”
The BHI report acknowledges it does not factor in lease payments Cape Wind will be required to make to the Federal Government, and it ignores entirely the Community Host Agreement that Cape Wind has signed with the Town of Yarmouth to provide $350,000 to the Town per year for a period of 20 years, indexed to inflation.
The prior BHI report on Cape Wind, in addition to questioning whether Cape Wind could be profitable, was also interesting in that it refused to classify Cape Wind’s job creation or its impact to reduce electricity prices as ‘benefits’. In the case of Cape Wind creating jobs BHI didn’t count that as a benefit because “…jobs are a cost not a benefit. Jobs are a cost because people have to be paid for the inconvenience, exertion and discipline that they demand.” In the case of Cape Wind reducing energy prices, BHI didn’t count that as a benefit because they just saw that as transferring money from power plant owners to electricity consumers. By contrast, the Massachusetts Energy Facilities Siting Board values maximizing savings to the electricity consumer over maximizing revenues to power plants and in their Final Decision to Approve Cape Wind’s application last year they found that Cape Wind would reduce electricity costs to consumers by $25 Million dollars per year.
Posted 4 years, 4 months ago. Add a comment