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byline: Jessica Sabbath

FDA sends Star Scientific a warning letter

Glen Allen-based dietary supplement company Star Scientific Inc. said Tuesday that it had received a warning from the U.S. Food and Drug Administration for two of its consumer products.

The FDA’s letter states that anatabine, which is used in two of the company’s products — Anatabloc and CigRx — is a new dietary ingredient that required premarket notification to the agency. It also states that the company’s products are unapproved new drugs based on statements on the company’s website, according to Star Scientific.

The agency says that the company’s failure to address these violations could result in regulatory action.

The company says it is responding to the letter and already has told the agency that it plans to work “cooperatively to resolve these issues.”

CigRx is a dietary supplement that is supposed to reduce the urge to smoke. Anatabloc, Star Scientific’s primary product, is an anti-inflammatory drug. Anatabine is an alkaloid naturally found in plants, such as tomato and tobacco plants.

The company also announced Tuesday that it is entered into an agreement with Jonnie R. Williams Sr., who resigned as CEO of the company last week, for a $15 million credit facility. Williams, who owns almost 10 percent of the company’s shares, founded Star Scientific.

Under the credit facility, the company can borrow up to $10 million without shareholder approval. Borrowing the other $5 million may require shareholder approval under NASDAQ rules, the company said.

The company is undergoing an executive management change as it has transitioned away from its roots as a tobacco products company into a drug supplement company.

State and federal investigations are currently ongoing regarding Gov. Bob McDonnell’s relationship with Williams, who gave more than $160,000 in gifts and loans to McDonnell and his family.

Finding a prescription for Medicaid

Expansion of Virginia’s $5.5 billion Medicaid program is shaping up to be one of the most contentious issues facing Gov.-elect Terry McAuliffe and the Virginia General Assembly.

At stake is the possibility of providing health coverage to as many as 400,000 low-income Virginians — and garnering billions of dollars for Virginia’s economy.
Proponents of expansion say the commonwealth shouldn’t decline an estimated $21 billion in federal funding during the next nine years. Opponents worry the state would be on the hook for huge expenses down the road, especially if the federal government reneges on its promise to pay most of the expansion costs.

The issue pits McAuliffe, a Democrat, against a Republican super majority in the House of Delegates. While McAuliffe and Speaker of the House Bill Howell have found common ground on some subjects, such as reforming standardized tests in public schools, they remain far apart on Medicaid expansion.

“[Medicaid expansion] will create up to 30,000 new jobs, and it’s going to be 21 billion of Virginia’s taxpayer dollars [coming] back to Virginia,” says McAuliffe, citing job growth figures from a study by Richmond-based Chmura Economics and Analytics commissioned by the Virginia Hospital and Healthcare Association. “I’ve always said this is the right thing to do, but it’s also smart business.”

Howell, however, questions these claims. “There’s no question in my mind that the federal government is not going to keep paying billions of dollars to Virginians to expand Medicaid,” he says. “We should not increase a broken system by 30 percent under the false hope of giving these people decent care and creating new jobs and booming the economy. The facts just don’t permit that.”

While everyone gets to weigh in, the decision currently lies in the hands of a commission of seven Republicans and three Democrats appointed last year by chairmen of the General Assembly’s money committees. If the commission can’t come to an agreement on expansion, McAuliffe and proponents of expansion will be looking for another way forward. Navigating this thorny issue could indicate how well McAuliffe and the legislature will work together during the next four years.

How we got here

The U.S. Supreme Court’s 2012 decision on the Affordable Care Act created the challenge that Virginia and many other states face today.

While upholding most provisions of the health-care law, the court ruled that the federal government could not force states to expand their Medicaid programs.

For states that do not expand the program, the ruling creates a health coverage gap for some low-income residents and puts a major financial strain on hospitals.
Under the ACA, Medicaid expansion would add residents with incomes of up to 133 percent of the poverty level (or 138 percent under a revised formula). That means coverage would be extended to families of four with incomes of up to $32,499.

These new eligibility guidelines could add 400,000 people to Virginia’s Medicaid program, although it is estimated that about 250,000 would enroll in the program under expansion. Currently, Medicaid enrolls 877,000 people, covering mostly children, pregnant women, the aged, the blind and disabled adults. Even the poorest residents without children are not eligible under the current rules, and parents are covered only if their income is 33 percent of the federal poverty level, an income less than $7,300 for a family of four.

If Medicaid isn’t expanded, some low-income Virginians would fall into a health coverage gap. They can’t enroll in Medicaid, and they can’t qualify for premium subsidies on the new health insurance exchanges if their income isn’t above the 138 percent threshold.

A decision not to expand Medicaid also puts Virginia hospitals in a major bind. The ACA cut Medicare payments to hospitals, as well as DSH (Disproportionate Share Hospital) payments. That money is provided to hospitals that treat a large number of Medicaid or uninsured patients.

The cuts were based on the ACA’s premise that hospitals would see fewer uninsured patients because almost everyone could be covered as a result of Medicaid expansion or insurance purchased on the federal exchange.

“The first problem that hospitals have is that they are already receiving substantial reductions in payments for Medicare services,” which might not be offset by the expansion of Medicaid, says Laurens Sartoris, president of the Virginia Hospital & Healthcare Association. “There’s no replenishment of coffers. Those cuts were made in anticipation of reducing uncompensated care, and no one knows the extent to which that will happen.”

These cuts will be especially difficult for Virginia’s two academic hospitals, at Virginia Commonwealth University and the University of Virginia. They receive 83 percent of the DSH payments in Virginia because of the high number of low-income patients they treat.

The Virginia Department of Medical Assistance Services estimates the two hospitals will lose $500 million to care for uninsured patients between 2017 and 2022.

About half of VCU’s discharges are either uninsured or on Medicaid, says Sheryl Garland, vice president for health policy and community relations at the VCU Health System. An estimated 60 percent of emergency room visits  by these patients are non-emergencies or visits that could be handled in primary care.

Under ACA, DSH payments to Virginia will be reduced starting this current fiscal year by $8.7 million. The reductions gradually will  increase until fiscal year 2019, when Virginia will take a $93 million hit in DSH payments.  

“If the state does not expand Medicaid and the cuts remain intact, we will face considerable difficulty in later years, primarily in 2017 and beyond,” says Garland. “We’re looking at reducing our costs and how it is that we can work with the state to soften the blow as much as possible.”

To expand or not?
For Medicaid expansion proponents, the decision is easy. Take the federal money.

The federal government has promised to cover 100 percent of a state’s cost for expansion through 2017. The federal share gradually would fall to 90 percent by 2022.
“We should not allow our hard-earned tax dollars to go to other states to make their citizens healthy and more economically competitive with us,” says McAuliffe.

The governor-elect has been trying to make an economic case for expansion, saying that a bigger pool of insured Virginians will create a better, healthier workforce. He also says employers should support Medicaid expansion, because the cost of caring for uninsured Virginians ultimately means higher insurance premiums for everyone.

“If the business community doesn’t make this their top priority, it’s probably not going to happen,” McAuliffe told reporters in Richmond in early December. The Virginia Chamber of Commerce has included the Medicaid reform and expansion in Blueprint Virginia, a wide-ranging plan suggesting improvements to keep the commonwealth competitive.

But opponents are raising questions about what expansion could mean for Virginia’s bottom line. They doubt the federal government can afford to cover Medicaid expansion when it already faces a $744 billion deficit in the current fiscal year.

“My main concern is the fact that I don’t think the federal government is going to have the money long term for support in the states,” says Del. Steve Landes, R-Weyers Cave.
By 2022, when the federal government’s share is expected to drop to 90 percent, Virginia’s net cost will be more than $200 million that year, according to the  Virginia Department of Medical Assistance Services.

Virginia’s Medicaid program already takes up about one-fifth of the state’s general fund, the pot of money used to provide essential services such as education and public safety.

Landes says that, if the federal government pulls back on Medicaid funding, the General Assembly would face unpleasant choices to balance its budget, such as cutting the program’s enrollment, reducing its services, cutting other government services or raising taxes.

Caught in commission

The wisdom of expanding Virginia’s Medicaid program is being deliberated by the 10-member Medicaid Innovation and Reform Commission (MIRC). The commission was created as a potential pathway to Medicaid expansion in exchange for Democratic support of Gov. Bob McDonnell’s landmark transportation funding bill, which passed last year.

The commission can choose to expand Medicaid as long as certain reforms are implemented in Virginia’s current program.

The panel, made up of five senators and five delegates, has been accepting public comments, hearing expert testimony and overseeing Medicaid reforms since June.

But the clock is ticking, and the commission still appears far from making a decision.

The federal government’s payments to states that chose to expand Medicaid began Jan. 1. If MIRC approves Medicaid expansion soon, the earliest Virginia could begin enrolling residents into an expanded program is July 1, according to MIRC’s chairman, state Sen. Emmett W. Hanger, R-Mount Solon. That means Virginia will miss out on at least $800 million in federal payments it could have received for Medicaid expansion in the first six months of the year.

This is important because the federal government will cover 100 percent of the cost of the program only through 2017. The commonwealth will not be able to regain the money missed by a late start.

The commission “is a work in progress,” says Hanger, who supports Medicaid expansion. “We aren’t at a decision point, but we continue to work to try and find some avenues where we could come to agreement, where we could move forward.”

Expansion requires agreement from three of five commission members from each house, and many of them are openly opposed to the move. A decision to expand would not require further approval by the General Assembly.

Landes, MIRC’s vice chairman, is one. He believes the commission has helped reform Virginia’s Medicaid program, but he doesn’t see expansion as an option.

“The reforms that we’ve got on the table right now are really a long way from determining whether they work or not,” he says. “I think the commission is in tune to making sure the reforms we put in place are showing some progress … We’re not ready to rush a decision on expansion.”

McDonnell’s budget proposes a sunset clause on Medicaid expansion for June 30, 2016 to determine whether Medicaid reforms have worked. But pulling back on expansion would be difficult politically.

A Virginia way?

One alternative to Medicaid expansion is offering a market-based approach to health-care coverage for low-income residents. In September, Arkansas became the first state to receive federal approval for a program called “premium assistance.”

Under the plan, Arkansas will use federal money earmarked for Medicaid expansion to pay the premiums for new enrollees on the health-care exchange. The agreement with the U.S. Centers for Medicare and Medicaid Services (CMS) lasts for three years, at which time both sides will decide whether to renew.

Other states, such as Pennsylvania and Iowa, also are pursuing alternatives, which have not yet been approved by the CMS.

Virginia Secretary of Health and Human Services Bill Hazel has suggested a Virginia option could include using a broker to manage enrollment through the private health insurance market, establishing commercial-like insurance benefits that require patient responsibility and creating “Centers of Excellence” for high-cost enrollees.

McAuliffe has said he would consider this option, although a more detailed version hasn’t yet been developed.

“I’ve said that I’m open to looking at all options,” says McAuliffe. “I have been an entrepreneur my whole life. I go into negotiations, and I have never taken anything off the table.”

Landes says he still has concerns about this option, such as whether such an agreement could include an “opt out” provision, allowing Virginia to drop out if the federal government didn’t pay what it had promised.
 
Finding common ground

All parties seem to agree on one point — major reforms are necessary for Medicaid expansion. Hanger and Landes see MIRC as a key forum for changing Virginia’s program. “I have believed from the start that we have a great opportunity because of the circumstances that we are confronted with that we can do more than minor reforms in the Medicaid delivery system,” says Hanger. “We can address some of the trends in the heath-care delivery system in general.”

Landes adds that he could see MIRC guiding long-term reforms for two to four years.

Many short-term initiatives already have begun or are in process, including enhancing fraud prevention, putting foster-care children in managed care, implementing a new eligibility and enrollment system, and providing better oversight of community behavioral health services. Reforms are projected to save $96 million a year in general fund spending by 2022.

A longer-term, more difficult reform includes more cost-effective managed and coordinated care for people receiving long-term care. In Virginia’s Medicaid program, the aged, blind and disabled account for 30 percent of Medicaid enrollees but 65 percent of expenditures.

Beyond agreement on reforms, the future of Medicaid expansion remains uncertain. Some General Assembly observers say it will become a budget issue decided at the end of the session.

At least publicly, McAuliffe is putting a positive spin on the issue, saying he’s reached out to all Republican members of the General Assembly, seeking common ground.

“When I’ve reached out to the Republican legislators I’ve started every conversation, ‘Where can we agree. What are the things that we agree on?’” says McAuliffe. “Let’s get the things done that we can agree on, and I want to do the same thing as it relates to the Medicaid expansion.”

Ethical dilemma

Less than three years after a powerful Virginia legislator was convicted of bribery and extortion, ethics reform has again been thrust onto Virginia’s legislative center stage.

Revelations of more than $160,000 in gifts and loans to Gov. Bob McDonnell and his family from the former head of a dietary supplement company have overshadowed the popular Republican governor’s final year in office.  McDonnell has apologized for embarrassing the state but says he hasn’t broken any laws or provided any favors to Jonnie Williams when Williams was CEO of Star Scientific. He has faced state and federal investigations into his relationship with the businessman, neither of which had concluded by the time this issue went to press.

The scandal — known colloquially as “Giftgate” — has shone a spotlight on Virginia’s ethics laws, which are among the weakest in the nation. That means ethics reform is likely to be a hot topic in this year’s General Assembly session and one issue where Democrats and Republicans can find common ground.

“There’s widespread agreement among my colleagues that we should be addressing ethics and financial reporting this legislative session,” says Sen. Adam Ebbin, D-Alexandria, who is working with a bipartisan group of senators to craft a bill to address ethics concerns. “Among the most important reasons to do that is to maintain and improve public confidence in the ethical behavior of elected officials.”

Round 2

Virginia legislators went down this road not long ago.

In summer 2009, Virginia newspapers revealed emails showing that Republican Del. Phil Hamilton of Newport News sought a job at Old Dominion University while he was seeking state funding for a teacher training center there.

A House of Delegates ethics panel began an investigation, but it was closed when Hamilton resigned after his November 2009 election loss to former Del. Robin Abbott.
Hamilton’s resignation, however, did not stop a federal probe. In August 2011, he was convicted of extortion and bribery and sentenced to 9.5 years in prison.
The ordeal resulted in a flood of legislation to address everything from legislators’ ability to accept gifts to how long lawmakers had to wait after leaving elected office until they could become lobbyists. “There was a lot of interest in doing some reform then,” says Megan Rhyne, executive director of the Virginia Coalition for Open Government. “They did indeed make some reform, but those were modest changes.”

In the end, lawmakers passed legislation that requires investigations of the House and Senate ethics panels to continue even after a member resigns. It also required the panels’ meetings to be open to the public after a preliminary investigation and required legislators to disclose income above $10,000 from government and state entities.

Will ethics reform go any further this time around?

It depends, says John McGlennon, professor of government at the College of William & Mary. “The General Assembly is certainly going to see some legislation filed to tighten up rules on ethics, but whether anything emerges at the end of the day is very much an open question,” says McGlennon.

On one hand, Gov.-elect Terry McAuliffe has taken the lead, saying that his first executive order will be to limit the value of gifts he, his family and members of the executive branch can receive to $100. However, lawmakers don’t face voters for another two years, and the ethics issue doesn’t seem to have resonated much with the public. “A lot of people thought it would have taken a greater toll on the governor’s approval ratings,” says McGlennon.
If charges are brought against McDonnell during the upcoming General Assembly session, he says, lawmakers would be under more pressure to pass stricter ethics bills.

At press time, Ebbin says the legislators he’s working with still were ironing out details on what would be included in an ethics reform bill. Ebbin did say he thought the bill would address disclosure of gifts to family members.

Del. Bob Marshall, R-Prince William County, already has introduced two ethics-related bills. One would create a subcommittee to study the adequacy of Virginia’s ethics laws. The other would require the disclosure of gifts of more than $100 to immediate family members if received from an individual or entity that has done business with Virginia in the past year.

McAuliffe supports more stringent measures. He wants to see a limit on gifts public officials can receive, increased penalties for violations of ethics laws and the creation of an independent ethics panel. “I don’t want to punish innocent behavior,” McAuliffe says, “but we should always come down on the side of eliminating potential conflicts of interest.”

Why the weak laws?

When it comes to ethics, Virginia has some of the weakest laws in the country.

In 2012, Virginia ranked 47th out of 50 states on the State Integrity Investigation, a project of the Center for Public Integrity, Global Integrity and Public Radio International. The project measured each state’s laws and practices that promote accountability and openness and prevent corruption.

Virginia received a score of 55, or an F, receiving extremely low points for its ethics enforcement mechanisms and public access to information.

The commonwealth is one of only nine states without an ethics commission and one of four states that have no campaign finance limits, according to the report. There are no limits on gifts elected officials can receive, but they must disclose any gifts worth more than $50, or cumulative gifts from an individual that exceed $100. Gifts to family members, however, are exempt from disclosure requirements. Lobbyists also are required to report any gifts to legislators over $25, although disclosure forms ask for gifts of more than $50.

Virginia’s lax laws partly come from a belief that most legislators are acting ethically — that the commonwealth doesn’t face the same problems as Illinois, where four governors have gone to prison.

Another big factor in Virginia’s weak laws is the commonwealth’s short legislative session and the part-time status of lawmakers. Virginia’s legislators earn relatively little ($17,640 annually for delegates and $18,000 for state senators), and strict laws unintentionally could limit business interactions in their full-time jobs, says McGlennon.

“So that combination of factors makes it easier to justify not imposing strict limits on the financial activities of legislators.”

Finding balance
 

A major obstacle to ethics reform for legislatures is the ability to find the right balance — creating laws that effectively address wrongdoing by elected officials but don’t punish innocent behavior or create unintended consequences.

“I also think that we need to be careful what we do, that we don’t have happen in Virginia what has happened in Washington,” Ben Dendy, president of Richmond-based lobbying firm Vectre Corp., said during a Virginia Business panel discussion in November. Lobbyists now are barred from taking a congressman or senator out to eat, so now only campaign donors can entertain federal lawmakers. “I think we need to be careful not to have everything in Virginia move from any opportunity to entertain and talk to legislators, go to dinner with them, unless you make a political contribution.”

Concerns about overreach in the wake of the Hamilton scandal prevented further reform from being passed. “There’s a real challenge in finding the right balance,” says McGlennon. “Obviously there are some things legislators do that are just part of their normal job.”

McGlennon points out that in states with stringent limits on gifts to legislators, it can be easy for a politician to violate the law — say at an event where food and drink are served — even if nothing nefarious has happened.

“I think that ideally Virginia would look to other states to see what has and hasn’t worked effectively,” says McGlennon.

Seeking common ground

It’s a new era in Virginia politics. Since the close of a bitter, divisive election, Gov.-elect Terry McAuliffe has been  searching for common ground with his Republican counterparts.

McAuliffe’s election means a Democrat will return to the Executive Mansion after four years. To accomplish his goals, McAuliffe must work with a Republican super majority in the House of Delegates and a fairly evenly divided Senate. (Control of the Senate, which has been evenly divided for the last two years, will depend on the outcome of special elections.)

McAuliffe will need to nurture these relationships to make progress on issues such as education, ethics reform and the expansion of Medicaid.

The governor-elect doesn’t seem deterred by the challenge: “The one theme you will hear over and over again from me for the next four years is, ‘Where is the common ground?’” says McAuliffe. “When I’ve reached out to the Republican legislators, I’ve started every conversation, ‘Where can we agree? What are the things that we agree on? Let’s get the things done that we can agree on.’”

Virginia Business spoke with the governor-elect in early December on a range of topics, including sequestration, transportation funding, ethics reform and the expansion of Medicaid.

Virginia Business: It was a huge coup for the General Assembly and [Gov. Bob] McDonnell with the new transportation funding that was passed. Do you have similar or different ideas on exactly how that money should be spent?

Terry McAuliffe: I would say I first applaud Governor McDonnell and the bipartisan coalition of legislators who worked so hard to make the first real investment in transportation funding in 27 years. Their efforts proved it’s still possible to put partisan battles aside, find common ground and do what’s right for Virginia’s families and businesses.

As governor, I will be a responsible steward of the investments that this package makes by choosing the right projects for our economy and making sure they are completed on time and on budget. I have always said, for me in transportation funding, the project, (a) has to ease congestion, (b) have an economic development component and (c) have some local input into how these projects are done. I strongly support public-private partnership as a strategy to attract investments and projects that would not get done otherwise. The key to negotiating those partnerships, we need to do it in a way that moves the project forward but has to provide a good deal for the taxpayers.

VB: For any of the public-private partnerships, such as [U.S.] 460 or the Midtown and Downtown tunnels, are there any changes you’re going to consider for those?

McAuliffe: I’ve talked a lot in the campaign about the Portsmouth tolls [on the Midtown and Downtown tunnels.] I’ve consistently said those tolls are too high. I have nominated Aubrey Layne to be the secretary of transportation. Aubrey and I have sat down to discuss this to try and come up with some creative ways to … deal with that issue.

VB: What types of changes to ethics reform do you think you’d support? How do we ensure we find the right balance of having mechanisms to combat corruption but not punish innocent behavior?

McAuliffe: Since the election, as promised, I have reached out to every Republican in the General Assembly. The conversations that I’ve had with both sides of the aisle in the General Assembly is that we are going to be able to get an ethics reform package agenda done. I have said it’s important that we place a limit on the gifts that public officials can receive. We need to increase penalties for violating our ethics laws. We need to establish an independent ethics panel to hold us all accountable.
As we begin that process, I intend to act independently and set a new standard for transparency and accountability in my own administration. I am going to immediately sign an executive order that will place a $100 gift [limit] on myself, my family and members of the executive branch. I want to make sure that we are not punishing innocent behavior, but we should always come down on the side of eliminating the potential for conflicts of interest.

VB: On Medicaid expansion, since the [Medicaid Innovation and Reform Commission] hasn’t come to a conclusion yet, what are your plans on moving forward?

McAuliffe: [Expanding Medicaid] would help create jobs, grow our economy and make life better for all Virginia families. It will help 400,000 Virginians get access to quality health coverage. It will create up to 30,000 new jobs, and it’s going to be $21 billion of Virginia taxpayer dollars [coming] back to Virginia. I’ve always said this is the right thing to do, but it’s also smart business. We should not allow our hard-earned tax dollars to go to other states to make their citizens healthy and more economically competitive with us…

The issue is absolutely critical to the business community in several ways. We have a world-class workforce, but we’re going to struggle to compete with other states as long as 1 million Virginians do not have health insurance. There’s also a real danger for Virginia’s hospitals and health providers as our federal [Medicaid Disproportionate Share Hospital, or DSH] payments decline under the presumption that we’re going to expand Medicaid to offset them …
And if we don’t take the Medicaid expansion and these federal DSH payments go away, somebody is going to pay the cost of that increased health care, and it’s going to come to the business community. Businesses are going to end up having to pay for that with increased premiums for health coverage, while our money is going to help citizens in other states.

This is a very important issue … but I’m optimistic that we can continue to discuss this issue and find common ground that makes sense for all Virginians.
This is going to be a long process. I want it to work. I want to use the health-care expansion to make our health care more cost effective. We’ve [got to find a] way to do this to bring our money back to us, create jobs, provide for our citizens and do it in a way that … we’re not bringing an undue financial burden to the commonwealth.

VB: Would you be supportive of an option similar to what Arkansas has done [by paying premiums for private health insurance rather than expanding Medicaid]?

McAuliffe: Yeah. And I’ve said that I’m open to looking at all options. I have been an entrepreneur my whole life. I go into negotiations, and I have never taken anything off the table. Let’s have a good, healthy discussion. This is what democracy is all about. And let’s get to a place where we have common ground. The one theme you will hear over and over again from me for the next four years, “Where is the common ground?”

When I’ve reached out to the Republican legislators I’ve started every conversation, “Where can we agree? What are the things that we agree on?” Let’s get the things done that we can agree on, and I want to do the same thing as it relates to the Medicaid expansion. This should not be an ideological, partisan battle. This should be about what’s in the best interest of Virginia families and businesses and can we do this in a manner that we’re helping everyone.

VB: In looking at economic development, you are one of the few governors who has had experience with economic development from a businessperson’s standpoint. How do you think you’ll shape economic development?

McAuliffe: Since the day I was elected, I’ve made calls around the country, around the globe. I’m going to be very aggressive, very engaged …
We have phenomenal assets in Virginia from a business perspective. We have a world-class workforce, we’ve got a great education system, and now the [commonwealth is getting] resources we need to improve and expand our transportation infrastructure. So you think of the universities and colleges that we have. We have the deepest port on the East Coast. We have Dulles International Airport. We’ve got the ocean. We’ve got mountains. We’ve got all the tools that we need. We’ve got 23 great community colleges, which are real engines for workforce development …

I’m eager to get to work on day one promoting all of our assets. I’m going to focus my efforts on making Virginia the leading competitor for every economic development project that would be a good fit for the commonwealth. I want to pursue an agenda that will continue to make us more attractive to job creators all over the globe. You don’t always get everything you want, but you know what? You’ve got to be in that arena trying. And I’m going to be trying.

VB: For pre-K, that’s been a big issue for the  business community. So is it just you want to expand access even more? What’s your focus going to be there?

McAuliffe: I’d like to see it so we have access to all Virginians. We should do it the Virginia way, and that doesn’t mean it’s the commonwealth’s responsibility, and the state has to spend all the money or even close to that. We should do it in a way where we work with many of our local community groups, our faith groups, public and private partners. Eighty percent of the brain is developed between birth and three years old. Let’s not pick winners and losers at birth, let’s not determine who gets pre-K early childhood development depending on their ZIP code or parents’ income. This is important to build a workforce for the 21st century, and it starts at birth. We need to do everything we can working with local communities and faith groups and community-based organizations in the state…all of us working together in a bipartisan common sense way to make sure that we are offering pre-K, early childhood development to as many Virginians as we possibly can.

VB: How do you think we need to deal with the effects of sequestration?

McAuliffe: We are the top recipient of federal dollars in the country. You know that relationship has resulted in great prosperity in Virginia, but it also exposes us to the uncertainty that’s going on now in Washington gridlock and the effects of damaging cuts like those that are contained within sequestration.
My key goal, my top responsibility as governor, is to diversify our economy so we can continue to grow and create jobs in sectors that are a little less dependent on the federal government. That will be a top priority. Jobs of the future are being created in fields like health care, biosciences, cybersecurity, data management and alternative energy.

These are the industries that are going to offer real opportunity to lead the economy of the 21st century and bringing them here and helping us insulate from sequestration and the continued uncertainty and partisan gridlock that we have in Washington is the top priority.

Looking for election clues

Virginia Business looked at the results of the November election at its seventh annual Political Roundtable, held at The Jefferson Hotel in Richmond on Nov. 14. Virginia Business editors and members of an audience of more than 100 people posed questions to veteran panelists Whitt Clement, a partner in the government relations practice at Hunton & Williams who formerly was a state secretary of transportation and a member of the House of Delegates from the Danville area; Chelyen Davis, a political reporter at the Free Lance-Star in Fredericksburg; Ben Dendy, president of Richmond-based lobbying firm Vectre Corp. and  a former senior staff member to two Virginia governors; Stephen Farnsworth, professor of political science and director of the Center on Leadership and Media Studies at the University of Mary Washington; and  Jeff Schapiro, a political reporter and columnist for the Richmond Times-Dispatch. (Clement and Dendy were named to a bipartisan transition team for Gov.-elect Terry McAuliffe shortly before the event.)

Virginia Business: Gov.-elect McAuliffe has vowed to work with Republicans, but after such a bitter, divisive election, does he stand a chance of bipartisanship? 

Schapiro: Gov.-elect McAuliffe has no choice but to be bipartisan.  And the amount of bipartisanship is yet to be fully determined … So I think it’s clear that if McAuliffe wants to get something done, he’s going to have to embrace the other side.  The question is how far is the other side prepared to go to embrace him.  The Republicans have been reduced to a legislative party.  Their advantage is primarily artificial; it’s a result of redistricting.  This has created within both parties many little kings and little queens who are really barely accountable to their own leaders within the legislature.  So there’s this added complication of somehow trying to find middle ground with the body opposite.

Davis: My impression of McAuliffe from the campaign was that partisanship was sort of a business when he was at the [Democratic National Committee].  I didn’t really get the sense that he took it personally in the way that maybe Ken Cuccinelli did in a lot of ways.  I think he means it when he says he’s going to try to work bipartisanly.  As Jeff points out, he’s going to have to [reach out to Republicans] to actually get anything done.  If there’s resistance to that, I would imagine it comes more from the Republican side in the legislature.

Farnsworth: I think it’s important to realize that we’re really looking at a very different Republican caucus than the one that Mark Warner faced when he was able to go across party lines a dozen years ago.  The reality is that the gerrymandering has created a series of safe seats where the only real concern is whether you’re going to be “primaried.”  So if there are Republicans who are interested in cooperating with the governor, and I don’t think there are that many to start with, I think they face great pressures and great risks if they choose to do so.

The evidence going back to the days when you had moderate Republicans like Sen. [John] Chichester and others working a bipartisan arrangement in Richmond, that’s really not today’s legislature.  And I think it’s important to realize that the “Washingtonization” of Virginia politics … is going to create great challenges for this governor.

Dendy: I think there are two areas that they could work together.  One is ethics reform, and the other is education. If you look at their House Republican education package and what the governor-elect has said about education, they’re both in favor of SOL [Standards of Learning] reform.  In talking with some of the Republican legislators in recent days, they’re very much aware that with a governor, just like with a president, if nothing happens, they get their fair share of the blame.  If they can find areas that they can work together, I think they want to do so.

VB:  How big an issue will ethics and political donations be in this legislature?

Farnsworth: I think that with respect to ethics, there’s great pressure to do something.  But politicians often benefit from short attention spans in the mass public, and this is probably one of those cases where they will offer up some measure to show they’ve passed something with respect to ethics reform, but it would probably fall well short of what true reform might represent.  This is a system that’s pretty lax, and there’s plenty of room to tighten it up where it could still remain relatively loose.   I imagine we’ll be looking at something in that sort of middle range.

Clement:  In the lobbying world, I think most lobbyists would feel that the law should be reformed … [If] they’re going to reform the system, they need to fix certain technical things in the law that make it difficult for lobbyists trying to comply with the law.  For example, certain forms you file with the state Board of Elections, others you file with the secretary of the commonwealth.  Some have a July 1 deadline; the others have a December deadline.  … Those things need to be fixed, and I think they will.
A lot of people are concerned that there might be an overreaction.  Unless the Democratic/Republican caucuses are able to work out a consensus bill before the session starts, … I wouldn’t be surprised if there are 50 bills [on ethics].  Everybody is going to want to have a bill in to say that they have made an effort to address the situation.

Schapiro: It is a self-policing system.  I think despite all the talk about tightening the rules, that’s something I think the legislature is going to want to preserve.  The idea of fully criminalizing certain forms of behavior and turning all of this over to commonwealth’s attorneys and prosecutors is sort of alarming to legislators.  They want to be able to look after themselves.  I suspect as long as they’re in a position to do so, the public will probably be disappointed with the steps that the legislature takes, if it takes any.

Dendy: I think you’ll certainly see a broadening of who is covered by this statute to include family members.  But I also think that we need to be careful what we do, that we don’t have happen in Virginia what has happened in Washington.  It’s now illegal to take a congressman or senator to dinner or lunch, but everything has moved to political fundraising.  And to me, that is the greatest influence.  You can go to dinner, you can go to receptions, you just have to make a political contribution.  I think we need to be careful  not to have everything in Virginia move from any opportunity to entertain and talk to legislators, go to dinner with them, unless you make a political contribution.

VB:  How important do you think energy policy will be to the McAuliffe administration? 

Clement: I know that there are businesses in Virginia that are concerned about the direction Terry McAuliffe will take as a new governor.  There were a great deal of political contributions from the environment community, not just in Virginia … but well beyond Virginia’s borders. 

Appalachian Power is very dependent upon coal.  They have spent millions of dollars complying with the EPA.  Say what you will about coal … but there are thousands of Virginians whose livelihood is dependent upon coal.  The new governor, Terry McAuliffe, is going to have to be mindful of and be respectful of the importance of that industry, that energy generating source of coal in Southwest Virginia.  He has come out in support of offshore wind energy, and that’s fine … [E]nergy is going to be a very important issue to this governor and governors in all the other states.  It’s a big deal.  So I think you’ll see a fair share of attention given to that.

Schapiro: There are two panelists [Dendy and Clement] who are associated with the effort to lift the prohibition on uranium mining.  Gov.-elect McAuliffe has basically said not on his watch.  I think you’ll have to ask Ben and Whitt exactly what Virginia Uranium will be doing going forward.  There is that issue.

But on coal, I think it’s perhaps an oversimplification to attribute coal’s difficulties to an overaggressive, Democratic EPA in Washington.  Coal has been in decline in Virginia for years.  The best seams are tapped out.  Employment has been in decline for years.  There are more UMW [United Mine Workers] retirees in Virginia than there are active members.  It is nonetheless an important symbolic industry for Virginia. 

I would suggest that the issue of energy for Southwest Virginia perhaps is more about retooling, recalibrating the Southwest Virginia economy.

Dendy: Regarding coal … we do know that a major, major part of the energy across the United States comes from coal.  And I think it’s going to be part of our energy solution for a long time.

Regarding uranium, I don’t think that deposit is going to go away … I have difficulty imagining how Virginia is going to be a [major leader in] energy if we don’t take advantage of that major energy source.  Now I don’t know when it’s going to be, but I think it will happen at some point.
(Editor’s note: Virginia Uranium is not backing mining legislation in 2014.)

VB:  McAuliffe wants to expand Medicaid in Virginia, but many Republicans are opposed.  Do you think there’s any room for compromise here? 

Schapiro: I wonder if Medicaid expansion is one of those issues [where], in a grand bargain, the resistance, which is most concentrated in the Republican Caucus, in the House of Delegates, could somehow be diluted if it were offered something it values.  Maybe something on the order of a big tax cut …
Of course, the problem with that is when you make reductions in tax rates, or you start fiddling with credits, you’re usually going after a constituent …
But I think the tradeoff becomes more difficult because of what’s going on with the [Affordable Care Act] in Washington.

Dendy: But I do think we need to keep in mind that this is going to be a budget issue.  This is not going to be a freestanding bill that has to pass the legislature.  A majority of the Senate favors Medicaid expansion.  The governor favors it pretty strongly.  There are big problems with it on the House side.  But with the budget negotiations, it may come down to who blinks last like it always does. 

I think the other thing we have to keep in mind, when you talk to people in the legislature, many of them who are publicly opposed to [Medicaid expansion] recognize that it’s the right thing to do.  Virginians are going to be paying billions of dollars in taxes for the Affordable Care Act.  They will get back none of that money if we don’t expand Medicaid.  If they do expand it, we’ll get back almost the full amount …

The Lee County hospital just recently shut its doors. Hospitals are really facing a difficult situation.  When folks show up at their doors, they have to treat them.  We’re 47th in the country in Medicaid reimbursements …  I think that’s going to be an issue that might not be decided until April or May or some time prior to the end of the fiscal year.

Davis:  The thing with Medicaid expansion is the legislature last year put it in the hands of this Medicaid Innovation and Reform Commission [MIRC].  It’s not like McAuliffe can just put out a bill or just put out a [budget] amendment and convince enough people to make it so.  There are steps they have to go through.
I agree with Ben that there are economic arguments that can be made for Medicaid expansion that may sway some Republicans.  I would also say there has been some discussion of things that are like expansion but aren’t called expansions. [State ] Sen. Walter Stosch had mentioned some things like that … I think what they would like to do is provide a way to cover more people without really calling it Medicaid expansion.

Clement:  I think this is going to be a really tough issue because people have staked out their positions, and it’s going to be hard to move them.  I think that … McAuliffe will need to embrace the Medicaid reforms out of MIRC … I think it’s going to be a long, drawn-out process, but I think the first step is for them to find the common ground on the reforms in the Medicaid system that people, hospitals and others have long acknowledged need to be made.

Farnsworth: I, too, agree that there is opportunity here.  This may be one of the areas that we can point to where there may be an ability to work across party lines to come up with some kind of agreement in part because [the issue] really does mix up the traditional Democratic and Republican positions when you start talking about business preferences and so on.

I do think, though, it’s important to add to this conversation that it’s going to be really hard to decouple this from the success or failure of the Obama initiatives in Washington.  I think if the Affordable Care Act continues to have the world of problems that it has with its online registration system, it’s going to be very hard to convince Republicans who are not tempted to give Obama the benefit of the doubt to go along with anything that’s connected to the Affordable Care Act …  The truth is, if they don’t fix it in Washington, I can’t imagine a compromise in Richmond.

VB:   I’d like for you all to comment on what you think is next for Ken Cuccinelli.

Schapiro: Ken Cuccinelli is into ideas.  I somehow just don’t see him going off to a law firm and working on the clock.  I see him going to some place that thinks about issues, maybe a think tank, and that this would be a place that would be an effective forum for him.  I often wonder if perhaps he stood for the wrong office, that he would have been better off deferring to Bill Bolling for governor, and perhaps standing for the Senate in 2014 against Mark Warner.  I don’t know that Sen. Warner, former Gov. Warner, wouldn’t be re-elected, but I have every confidence that Ken Cuccinelli would hold his feet to the fire.

Davis: I’ve certainly heard some rumors that some conservatives would like Cuccinelli to run against Warner.  My money would be where Jeff’s is, some sort of conservative think tank.  Maybe some sort of conservative talking circuit, making speeches.  He remained [attorney general] because he needed the job, and I would imagine he’s going to need another one in pretty short order.

Farnsworth: I think we might consider Fox News as the next stop.  I think Ken Cuccinelli as attorney general was very effective in putting forward a conservative message on Fox News.  They called him often.  He was the most quoted attorney general in the country.  And there does seem to be an opportunity I think to engage fully in these issues of ideas that Jeff was talking about because I do think that we have not heard the last from Ken Cuccinelli.  But it very well may be on the cable networks that we hear from him next.
(Editor’s note: Since this panel discussion, Cuccinelli has ruled out a Senate run in 2014.)

VB:  Do any of you think that Warner is vulnerable in 2014?

Clement:  I think the most vulnerable point is this Affordable Care Act and the rollout and giving Americans the opportunity to sign up for health insurance.  That computer mess has got to be straightened out and straightened out as quickly as possible.  [If not,] there is, I think, huge fallout.  I believe there are 14 U.S. senators who are Democrats on the ballot in 2014.  And, of course, Mark Warner is one. 

Davis:  I definitely think insomuch as Republicans see a weak point for Mark Warner, that is what it is.   Just today I got a press release from [the Republican Party of Virginia] talking about President Obama and Sen. Warner’s Obamacare problems conflating the two. That’s definitely where Republicans see that there is a weakness.

Dendy:  Mark Warner, I think, has one of the strongest political organizations in the state.  And he has stayed in contact with people in the areas of the state that lean Republican.  I think it will be very difficult to defeat him.  I think he’ll win handily.

Farnsworth:  I think whenever we and other universities and political organizations have polled, we’ve found Mark Warner to be extraordinarily fortunate in these poll numbers. Double-digit gains.  Advantages over virtually everybody we could even think would be willing to do this. 
But I think it’s important to realize that the best opponents that Mark Warner might face would have to give something up to run in many cases.  If a Republican member of the House, for example, or a state senator were to try to challenge him, you’re looking at a huge amount of time and a huge amount of money, and the prospects not being particularly good. 

VB:  What lessons can be learned from this election?

Clement:  The Republicans did very well with the voters that one would expect them to do well with:  married couples, married men, married women, the white population.  But it’s obvious to all of us that follow the process that demographics in Virginia are changing. I think what this election means or confirms [what was seen in the presidential election. Despite a lower turnout], the Democrats still were able to pull this victory out.  They were able to do so because of the changing demographics. …
I think the Republican Party and Republican leaders really need to think about how they can stick to their principles but in a more appealing way.

Farnsworth: The Democrats can win by standing in place.  The changes that Whitt’s talking about in terms of demographics are working in the Democrats’ favor, and the Republican Party has not been effective at countering the Democratic message, particularly with Latino voters …
Because of the growing share of the Virginia electorate that comes north of the Rappahannock and in Hampton Roads and in the suburban communities around Richmond, and the extent to which that growth is more Democratic than it is Republican, there really is a fundamental challenge here for the Republicans.  They will lose ground if they stay in place demographically as well as geographically.  I think that’s the big challenge for the party:  How do you have a more compelling message?    

Farnsworth: To pick up on what Whitt was saying, I’ve been doing a study this last week comparing the county-by-county results for the Tim Kaine gubernatorial election eight years ago and this election.  What we find is that the Democrats can win by standing in place.  The changes that Whitt’s talking about in terms of demographics are working in the Democrats’ favor, and the Republican Party has not been effective at countering the Democratic message, particularly with Latino voters …

The truth is that, because of the growing share of the Virginia electorate that comes north of the Rappahannock and in Hampton Roads and in the suburban communities around Richmond, and the extent to which that growth is more Democratic than it is Republican, there really is a fundamental challenge here for the Republicans.  They will lose ground if they stay in place demographically as well as geographically.  And I think that’s the big challenge for the party:  How do you have a more compelling message?  And how do you read a Virginian who is not going to respond as well to the messages, say, of the George Allen governor’s race about traditional Virginia and traditional Virginia cultures?  It’s changing way too rapidly, and the Republican Party has to figure out a way to deal with that.

Schapiro: And part of figuring out that way is taking control of the party apparatus.  Just because the Republicans have the stuffing kicked out of them on Election Day doesn’t mean that the people who crafted this ticket are going to have considerably less influence.  Very conservative people are still sitting as chairs.  They are still active in caucuses and committee meetings back home.  Until there is some change at that level, until the apparatus is in the hands of a more diverse group, if you will, the Republican problems will persist.

Audience question: Would we be having a different conversation if Bill Bolling had been the nominee?

Dendy:  [Virginia Tech professor James] Robertson, who was the author of a book about Stonewall Jackson, made a speech, and someone stood up and asked the question, “Would we have won the [Civil War] if Jackson had not died?”  He said, “Well, you can’t remove one fact from history and expect that everything else stays the same … If Jackson had not died, there would have been no Gettysburg.  It would have been fought in New Hampshire.”…

If you go back to the ’50s, no Virginia attorney general or lieutenant governor has served two terms since that time and gone on to be elected governor.   That says something about their political ability, their willingness to take a chance.  On the face of it, you look at those [election] results you think, yes, he would have won.  But you never would know because you don’t know what would have happened in that case.

I think the governor’s problems would have been tied more directly to him than Attorney General Cuccinelli.  The attorney general made an effort to extricate himself somewhat, maybe unartfully.  But I don’t think Lt. Gov. Bolling could have done that at all.

Davis:  I don’t disagree.  We all look at it, and we can say, “Well, Bolling was as conservative as Cuccinelli, but maybe packaged in a more appealing way for a lot of voters.”  But as Ben says, this was a candidate who dropped out rather than take the fight to a convention when that changed.  He’s a candidate who stood by when McDonnell wanted to run for governor four years ago.  Was the willingness to fight really there?  I’m not sure.

Farnsworth:  The one thing I think would have been very interesting about a Bolling nomination, if he had been the nominee, would have been the extent to which the Democrats could have portrayed him in as negative a fashion as they could Cuccinelli.  I think in many ways, the main strategy of the McAuliffe campaign was to make Cuccinelli the issue.  And Cuccinelli, at least to a Democratic supporter or potential Democratic supporter, was a target-rich environment. 

Bolling would have been a much tougher target to attack, because ultimately for the McAuliffe campaign to be successful, the election had to be about Cuccinelli.  If the election was about McAuliffe, McAuliffe wouldn’t win.  Would the McAuliffe campaign have been able to demonize Bolling to the extent they were able to demonize Cuccinelli?  I tend to think not.  But again, as we’ve been discussing, there are so many hypotheticals in this scenario, it’s really hard to say.  I think the odds would have been much better had the Republicans nominated Bill Bolling.

Audience question: [Libertarian candidate Robert Sarvis won 6.5 percent of the vote in the governor’s race. Does this indicate that political conditions are becoming more favorable for third-party candidates?]

Clement:  They’re very difficult with money being the driving force in elections … I think he’d have to be a great third-party candidate that people could really rally around.  But the odds are really stacked against that person because of the way we do business in this country in electing candidates.

Farnsworth:  I do think that the Libertarians will not be so fortunate as to consistently be able to run up against candidates like Ken Cuccinelli and Terry McAuliffe.  This was an ideal environment for a Libertarian candidate but one not likely to be repeated.
In addition to the issue of money, there’s also the issue of political talent.  Among some of my friends who are Republican consultants, there was no interest in working for Bolling as a potential independent candidate because that would really dry up their business with the Republicans.  They’d never be able to work in this state again, or so they felt.  

Schapiro:  There was a point in Virginia’s political history, and fairly recently, in which the Independent alternative was very desirable and very much a reflection of where a lot of Virginians were.  Harry Byrd quit the Democratic Party in 1970 and was elected as an independent to the Senate, not just barely, but with a very comfortable majority and re-elected in 1976 … 

And of course, in the same era, Virginia elected an independent liberal lieutenant governor, Henry Howell, and in 1973, there was no Democratic nominee, and he again ran as an independent and narrowly lost the governor’s office.

But I think it has got to be somebody like that.  Somebody that is coming out of another party, has a base, and is well known.  It can’t be someone that no one has ever heard of.

Clarion purchases interest in Carlyle Overlook

Clarion Partners LLC has acquired a majority condominium interest in Carlyle Overlook, an office property located in Alexandria for $65.75 million.

The building is 91.4 percent leased.

Clarion acquired an interest in the 126,462-square-foot, Class-A property that includes the top five floors, ground floor retail and tenant parking.

The remaining interest is held by the American Society of Clinical Oncology
(ASCO), a professional organization headquartered in the building.

Carlyle Overlook was developed in 2008, and is located just inside the Capital Beltway and offers ready access to Routes I-495/I-95 and the Washington Metro system.

Wheeler REIT purchases New Jersey shopping center

Virginia Beach-based Wheeler Real Estate Investment Trust Inc. has purchased a 40,695-square-foot shopping center in Sicklerville, N.J.

Wheeler bought the property for $6.6 million, or $162 per leasable square foot. The acquisition expands Wheeler’s geographic footprint into New Jersey.

Winslow Plaza was built in 1990 and was renovated in 2009. It is 91 percent leased and is occupied by 16 retail and restaurant tenants. It is anchored by King’s Liquor Outlet and shadow-anchored by Shoprite Supermarket.

CarMax Inc. reports increase in sales, profit

THE TAKE: CarMax Inc. reported a 13 percent gain in revenues to $2.94 billion in the third quarter as used car sales grew 15 percent. Comparable stores rose 10 percent. CarMax opened three new superstores in the third quarter in Jackson, Tenn., Brandwine, Md. and St. Louis.

THE NUMBERS:

Revenue: Net sales increased 13 percent to $2.94 billion during the third quarter, which ended Nov. 30.

Profit: Net income grew 12 percent to $106. 5 million, or 47 cents per share, during the third quarter, compared with $94.6 million, or 41 cents per diluted share, for the same period the year before.

THE COMPANY’S TAKE: “We are pleased with our continued growth in sales and earnings,” Tom Folliard, president and CEO, said in a statement. “The earnings growth was driven by double digit increases in total used units and [CarMax Auto Finance] income.”

Pinterest engagement grows 50 percent in 2013

 

Content-sharing through Facebook still dominates among social media, but Pinterest engagement grew 50 percent in 2013.

AddThis, a McLean-based company that provides tools for websites to promote content sharing, reported that while Facebook accounts for 26 percent of content sharing, it has declined globally by 11 percent from last year.

Twitter’s social sharing, which makes up 13 percent of content sharing, grew 3 percent last year. While Pinterest makes up only 2 percent of content sharing, sharing through this platform grew 50 percent over last year.

Android dominated the market in mobile sharing, according to AddThis. Android devices represented 57 percent of all mobile sharing and content engagement in the world, up 300 percent over the last two years.

AddThis, however, found that iOS devices dominate in the Northeast market. Android does better in the Southeast, Midwest and California.

AddThis reaches more than 1.6 billion unique consumers each month and its tools are used by more than 14 million domains worldwide to promote social sharing, increase engagement and boost traffic.