The bad news for good performance

If you go to the gas pump, you’ve probably noticed the little sign that says the blend is “10% ethanol.” For several years, the EPA has mandated a certain amount of ethanol be used to slake America’s thirst for gasoline, with a 10% blend of ethanol being just enough to cover the mandate. Unfortunately, with less gasoline being necessary to meet demand thanks to both a stagnant economy and more fuel-efficient cars, the mandated amount of ethanol isn’t being used anymore. I noted the other day that the oil companies were calling on the EPA to scrap the proposed mandate increase this year.

When I wrote that I wasn’t aware that a movement is out there to not just stop at E-15 but go all the way to E-30. Oddly enough, I saw a piece from Rick Weiland, who I referred to in my dark money post, which brought it to my attention. (Damn, that dude has made it on here twice in one week. After he loses that race, he’ll probably move to Maryland and run with his newfound name recognition here.) So I did a quick bit of research and found there is a movement out there which believes E-30 is actually the optimum amount of ethanol to take best advantage of its attributes. Weiland is obviously driving a vehicle tuned to that specification and there are actual service stations which have the blend in his region – in both cases, the average motorist isn’t usually going to have that condition. A check of this site revealed no such stations around Delmarva, so it wouldn’t do us much good.

Needless to say, what the market won’t do government will force. So Senate Democrats are pushing the EPA to increase the mandate, meaning that they’ll artificially create a market for higher ethanol blends. (Flex-fuel cars are supposed to be able to handle E-15, but they’ve never been a popular option because they’re not as fuel-efficient running an E-15 blend. It’s telling that you see a lot of government cars with that option, but not a lot of private cars.)

But let’s say the mandated number of gallons increases. The scarcity will be in the E-10 or straight gasoline which smaller motors need to run properly; in addition, the cost of anything which consumes or has corn as an ingredient will rise. It’s why so many different groups advocated for a smaller ethanol mandate.

If we really wanted to do something to use less gasoline, it makes more sense to me to impose part of the Pickens Plan. Now I don’t think wind power is the way to go because it’s not as reliable as fossil fuels, but I think running fleets on natural gas is a fairly good idea for the reasons they state. To me, using food as fuel for automobiles doesn’t make a whole lot of sense – and yes, I know Brazil uses sugar cane for their ethanol. Brazil can use all the sugar cane it wants.

But I look closer to home, and our chicken farmers want their feed to be as inexpensive as possible. Corn growers already have plenty of mouths to feed, so they really don’t need to fill our gas tanks, too.

The quest for energy security – and sanity

It’s been awhile since I wrote about the energy industry but things are always happening there and I decided to take a peek because of some items I’ve spied in daily updates I receive from the American Petroleum Institute. I like to know what’s going on in important growth industries which profoundly affect our daily lives.

As one might expect, API CEO Jack Gerard is a leading spokesperson against what he calls Barack Obama’s “irrational” energy policy. It makes sense when you consider that the United States is now the world’s leading producer of both natural gas and oil, thanks in large part to recent advancements in fracking technology which have revitalized the once-moribund American energy industry. Speaking before an audience in New Orleans, Gerard noted:

The choice before us is whether we pursue an American future of energy abundance, self-sufficiency and global leadership or take a step back to the era of American energy scarcity, dependence and economic uncertainty.

It is that simple.

There’s a clear benefit to having the abundant resources we do. I was only nine years old when the first oil crisis hit in 1973, but I remember the long gas lines and jump in prices. If you consider the long-term effects in policy and marketing, such as the adoption of fuel economy standards and the push toward smaller cars, ask yourself what may have happened if we hadn’t become so dependent on Middle Eastern oil. Would we have had the resulting mid-1970s recession?

Obviously we have recessionary conditions now in spite of the current oil boom, but there’s a valid argument that opening up the spigots (so to speak) and allowing more extraction would push the economy into more consistent growth.

Another example of an irrational energy policy is our continued ethanol mandate, about which API is asking for another cutout of a mandated increase. The EPA decided not to change the allotment for this year, but needs to finalize the rule.

To me, there are two telling facts about this story: one is that API has given up on legislative relief from Congress and appealed directly to the EPA, which speaks volumes about the transition of our supposedly limited government into a fiefdom unto itself.

The second is the sheer volume of interests on the side of eliminating the mandates entirely – everyone from motorcyclists who complain about ethanol’s deleterious effects on their engines (as is the case for other small engines from boating to lawn equipment) to the poultry producers who have seen corn prices artificially propped up due to the amount of corn necessary for creating ethanol and even environmental groups who fret that the corn-based product is actually worse for the environment. Obviously the corn growers love the price support, though, and farmers have their own determined lobbyists who would love to see an even higher ethanol blend called E-15 allowed.

API and other ethanol opponents are hinging their future hopes on a more business-friendly Congress in the next term, though.

Irrational energy policy on the state level may occur after this fall in Colorado, a state which has taken advantage of the energy boom but may fall prey to the scare tactics environmentalists use to portray fracking in a negative light. There Governor John Hickenlooper, a Democrat, sees his state’s energy success being threatened by a petition drive to place further restrictions on fracking on their November ballot. Hickenlooper is quoted in Bloomberg as pointing out, “(t)hese measures risk thousands and thousands of jobs and billions in investment and hundreds of millions of dollars in state tax revenue.”

I found this interesting because the proposed restrictions would prohibit drilling within 2,000 feet of structures, a change which energy companies complain would “effectively ban” fracking in the state. Their current restriction is 500 feet.

Now something which came out the other day to little fanfare was a draft report outlining some of Maryland’s proposed fracking regulations. The original recommendation, based on other states’ best practices by the University of Maryland Center for Environmental Science, Appalachian Laboratory, was for a 500-foot setback from wells. That guidance was expanded by the Department of Natural Resources and Maryland Department of the Environment to – you guessed it – 2,000 feet. (Page 18-20 here shows the recommended DNR/MDE changes.) In short, these regulations are intended to “effectively ban” fracking in Maryland to the detriment of not just our far western counties, but any of the regions of the state (including the Eastern Shore) that have shale deposits underneath. Talk about an “irrational” energy policy!

So here’s the deal: Maryland wants to depend more and more on methods of generating electricity which lack reliability and increase cost to consumers. Yes, that’s sounds like “smart, green, and growing” to me – not too bright, costing more green, and growing the desire of businesses to leave the state to find a place where energy exploration and extraction is encouraged and rates therefore are cheaper.

I know the Hogan administration would want a “balanced approach” to energy in the state, but I would have to hope part of that balance is returning to the best practices suggested by UMCES and not the onerous restrictions which would effectively ban fracking in the state.

AC Week in review – July 20, 2014

It was a varied palette of items written about on my American Certified blog, The Sausage Grinder. Maybe it was a little more like scrapple. Regardless, I made several contributions to the discourse.

For most of the spring and summer, I’ve been following a sort of obscure Commerce Department case regarding allegations of Korean dumping of a processed steel piping product called Oil Country Tubular Goods – it’s strange that Korea is an OCTG producer when it has little oil. They made a decision favoring American steelworkers, which got positive reaction from a variety of interests.

One of those I quoted in the Commerce piece was the leader of the steelworkers’ union. His fellows at the United Auto Workers got an unexpected surprise from Volkswagen, which let the UAW in the back door despite workers at the Chattanooga plant voting against the UAW in February.

The concept of economic patriotism was brought out last week in a letter from Treasury Secretary Jack Lew, who pressed Congress to do something about the practice of tax inversion, where companies transfer assets overseas to take advantage of lower tax rates. While I didn’t bring up the argument in my piece, locally it’s just like the practice of stores selling big-ticket items locating just across the Delaware line so they can advertise their “no sales tax” prices and hope to increase volume accordingly.

Finally, I restated the obvious: Obamacare rates will go up in 2015. In a government takeover of the health insurance industry, did you really expect otherwise?

As always, I’m working on new stuff for next week, with other stories to follow.

AC Week in review: June 8, 2014

June 8, 2014 · Posted in Business and industry, Education, National politics, Politics · Comments Off 

Wouldn’t you know it: I begin a series only to bump it in week 2 because of MDGOP debate coverage. So this will truly be two weeks in review, but I’m sure you really don’t mind.

I begin by asking the question: can America keep making things? I found an interesting perspective on the question and added my own thoughts. But I also found that workers, STEM-based or not, should be flexible and highly-trained. (And while it doesn’t pertain directly to AC, I was pleased that one of our gubernatorial candidates has the same line of thinking.)

In order for our manufacturing economy to succeed, though, we need to have others around the world play fair. Unfortunately, not only China has been caught cheating on trade, with them and other countries threatening up to 500,000 steel jobs, but right here at home one group of American manufacturers is concerned that federal regulators unfairly have them in their crosshairs as well.

Longtime readers know as well that I’m excited about America’s ongoing energy boom, and in this case I look at how manufacturing can benefit, with a little help from regulators. And while the EPA is trying to do away with the coal industry through onerous regulations, Congress on the other hand is trying to rein in that body run amok with accountability and transparency.

I’m sure in the next couple days – since the unemployment rate is always released on a Friday, for weekend analysis – we will get spin on it, but this is another pre-launch piece I wrote last month on May’s unemployment numbers.

*********

On the first Friday of this month, analysts cheered the new low unemployment number of 6.3 percent, a low not seen in nearly six years. Moreover, the economy added 288,000 jobs – although that news was tempered by a labor force participation drop of more than 800,000 workers.

Yet out of those 288,000 jobs, just 12,000 were added in the manufacturing sector. That was “surprisingly weak,” according to Alliance for American Manufacturing (AAM) president Scott Paul. The AAM, an advocacy group backed mainly by the United Steelworkers union, contends that 5.8 million jobs could eventually be created by stopping currency manipulation by China, citing a recent Economic Policy Institute report which called the practice the “primary cause” of our trade deficit.

On a similar front, economist Chad Mowbray, who writes for the Shopfloor blog for the National Association of Manufacturers, detailed a number of “nagging challenges” for American manufacturers, leading off with the weak 0.1% first quarter GDP growth announced last week. (Editor’s note: that number has since been revised to a negative 1 percent growth.) Mowbray added that high marginal tax rates and uncertainty about health care costs could be factoring into the slow market growth.

In all these cases, policymakers in Washington are at loggerheads on how to proceed. A bill to deal with the currency manipulation was introduced last year and has bipartisan support, but mainly from Democrats. Unfortunately, that side seems to be placing more time and effort into trying to increase the minimum wage, which is a political nonstarter and is thought by many, including the nonpartisan CBO, to be a job killer. Republicans seem to be content with introducing bills to tweak around the edges on both tax reform and health care, but know there’s little chance of them advancing through the Senate, particularly six months before the midterm elections.

The situation, then, remains a challenging one. If, as some analysts have cited, the weather played a factor in slow economic growth, that excuse will dissipate in the summer sun. The question of whether the May jobs report was a mirage or portends better things is important, but there’s little doubt that if the manufacturing sector lags behind any recovery it will impede our progress going forward.

*********

It’s been a busy week, but I’ll keep monitoring the manufacturing market.

Plans and schemes for jobs

One recurring theme of this site is my interest in the manufacturing sector, both nationally and regionally. I suppose the realization that much of what we buy is supplied by a nation which points missiles at us and holds trillions of our debt made me consider the need to think a little bit more about self-sufficiency.

In the generations of my 78-year-old father and my last living grandparent, who died at the ripe old age of 90, America built things. Many cite Detroit as an example of where we as a nation once were “makin’ Thunderbirds,” but we made a million other consumer products as well, all over the country. And while the Thunderbird hung on through 2005 – as did my late grandfather – many of those other manufacturers long since had abandoned us for greener pastures overseas where things could be made more cheaply and regulations weren’t nearly as strict. The latter had to be the reason that companies could spend huge amounts to ship products across the ocean in order to bring them back to our market – the market where, in many cases, these same products were once made in factories which sat shuttered and dormant.

That’s why I’m glad to see some of our gubernatorial candidates pay attention to this long-neglected sector. In doing some research for this piece, I found that just one on the Democrat side, Doug Gansler, is making an issue out of manufacturing and doing more than simply giving platitudes in addressing it. I must say some of these ideas are worth discussion and adaptation; unfortunately Doug takes the time to pander to a certain crowd in advocating for the self-defeating ideas of a higher minimum wage and additional mandated sick leave – these would only discourage manufacturers and businesses from locating in this state. Gansler doesn’t quite understand the concept of market forces with some of his proposals, but with some tweaking a few – particularly the apprentice program – could be workable as an expansion of vocational education.

On the other hand, the leader in this arena on the GOP side is Ron George. While he already had a good beginning as far as job creation goes, yesterday he expanded on his existing ideas of rebuilding manufacturing in Maryland – as he pointed out at our Lincoln Day Dinner, “I cannot cut welfare payments unless I have those entry-level, mid-level jobs.” This is what George proposes to do:

The technology and life sciences industries in Maryland have taken off in part because of significant tax credits and a Tech Services tax repeal. By trusting you to use your revenue to enhance your businesses and create jobs, Maryland has become one of the most successful regions in the country for IT, healthcare technology and biotechnology companies.

I’m proposing we make the same investment in attracting and rewarding new manufacturing firms for creating jobs in Maryland. As Governor:

I will lower the Total Effective Tax Rate of new capital-intensive manufacturing firms from today’s current rate of 31.9% to 20% by 2016.

In the short term, I will work with local and county governments to lower property tax rates and with the legislature to exempt equipment from the property tax of manufacturing firms.

By 2018, I will eliminate the business personal property tax, returning stability and certainty to the manufacturing industry.

This proposal is an investment in the perseverance and innovation of Maryland workers. We must bring manufacturing back to Maryland.

While there is an appeal to eliminating the income tax we have to bear in mind that, as currently constituted, revenues from the income tax make up 22 percent of the overall pie, while business taxes make up far less – eliminating them, one could argue, would create enough of a multiplier effect that the other taxes could eventually also be reduced (with prudent spending, of course.) Having to account for the loss of a 22 percent chunk of state revenue is the reason why all of the income tax proposals out there phase themselves in rather than eliminate the income tax in one bite. (Ever notice, though, that tax increases are rarely phased in?)

But there’s also a lot being left on the table through the short-sightedness of the current administration, and while Gansler and his cohorts on the Democratic side are (literally) tilting at windmills for job creation, we can conclusively show that one $3.8 billion project will help a portion of the state succeed long-term. Maryland was one of the first states studied in a new series of blog posts detailing the impact of the energy industry.

And while the API concedes the state isn’t a leader in the production of oil and natural gas, there’s nothing saying we can’t hold our own through a combination of Marcellus Shale exploration in the state’s panhandle, the prospect of more natural gas in the heretofore barely- or unexplored Taylorsville, Culpeper, Gettysburg, and Delmarva (!) Basins, and perhaps oil drilling offshore. Even the idea of testing the waters can have a positive economic impact on a particular area, and one major key in attracting industry is having inexpensive sources of energy. We hear a lot of complaints from industry about the cost of electricity in Maryland, but having more natural gas (and the power plants to use it) would be of assistance in drawing manufacturers.

Now if the candidates can put together a proposal of transportation structure improvements, one which includes an interstate-grade highway north from Salisbury to I-95 (with the cooperation of Delaware) and the completion of the originally envisioned I-97 across the Potomac to meet with I-95 near Richmond to save trucks from having to deal with congestion around Washington so goods could find their way to market much more easily, I’d really be a happy camper. But for now these will have to suffice.

Just as an aside, you just might be hearing a lot more from me on the subject. Stay tuned.

Pointing out and planning solutions

In life there is a difference between saying and doing. In this case neither protagonist, unfortunately, is in a position where they can do much more than talk and advocate but it is interesting to see what the two men in question have to say about a paticular situation.

First I’ll point out the talker:

More and more of our friends and neighbors are unemployed and our state economy remains stalled. Clearly, the economic policies of Martin O’Malley and Anthony Brown have failed, and it’s time for new leadership and a new direction in Annapolis.

The O’Malley/Brown Administration continues to drive taxpayers and job creators from Maryland and into the arms of better run, lower cost states.

Those were the words of gubernatiorial candidate Larry Hogan, whose campaign went on to point out that 9,800 Marylanders were furloughed in January and the state endured its worst year of job creation since the recession ended in 2009. (At least for some parts of the state, the question of whether we are back in one is open for debate.)

I will give some credit to Larry for beginning to round out a platform which doesn’t simply bash the incumbent and his heir apparent for tax increases or cite his group’s social media prowess:

Hogan, a business leader and former Maryland state cabinet secretary, favors a pro-growth agenda that combines reigning (sic) in Annapolis spending, jump starting the economy by cutting taxes on workers and their employers, and aggressively courting larger employers which in recent years have left Maryland for Virginia and other states.

We’re still a little vague as to specifics, but the ideas are mostly right out of the conservative playbook and certainly won’t hurt. I’m ever-so-slightly leery of the “cutting taxes on workers and their employers” line because that suggests only a targeted tax cut rather than the flattening (or complete elimination) of rates we need, but we’ll see where Larry goes with this one.

On the other hand – and I really wish he had said it a month ago, because it would have went perfectly with this post – David Craig has a grand idea:

Harford County Executive and Maryland Governor Candidate David Craig called on incumbent Governor Martin O’Malley to push the Obama Administration to complete a final regulatory review to enable a facility in southern Maryland to export liquefied natural gas. The issue takes on greater urgency as the Ukraine and several European countries seek long-term solutions to reduce dependence on Russian energy exports.

“Now is not the time for dithering and red tape,” said Craig. “Maryland is on the verge of being only the second state in the country to export liquefied natural gas and our proximity to the Marcellus Shale, and the Atlantic Ocean and existing infrastructure gives us a competitive advantage that nobody else has. Maryland can attract thousands of energy sector jobs and help assert U.S. influence in the crisis in the Ukraine. But we must act now.”

Ambassadors to the U.S. from Hungary, Poland and the Czech and Slovak republics wrote House Speaker John Boehner last week that U.S. “natural gas would be much welcome in Central and Eastern Europe, and Congressional action to expedite [liquefied natural gas] exports to America’s allies would come at a critically important time for the region.”

The U.S. Department of Energy has approved just six export licenses for LNG projects, including Cove Point, since 2011. Dominion Resources-owned Cove Point, in Lusby, MD, is one of about 20 U.S. projects that want to export LNG. Of those, only one, in Louisiana, has full federal permitting.

Delays in Maryland are coming on multiple fronts. Political support among the O’Malley-Brown Administration is non-existent. Gubernatorial candidate and legislator Heather Mizeur is leading the charge in outright opposition to the project, while Lt. Gov. and front-runner candidate Anthony Brown promotes “environmental justice,” a left-wing social movement that attempts to stifle energy exploration wherever politically-favored constituencies may object. The other democratic gubernatorial candidate, the current Attorney General, is opposed to timely approval of the project. Apart from general statements about the importance of developing jobs and traditional forms of energy, GOP primary candidates for Governor have heretofore not yet articulated positions on the issue. (Links added.)

Given my interest in energy-related issues, I can’t believe I missed that originally – the release has been out about a week – but I’m glad David Craig is coming out on the right side of this issue. As I pointed out last month, Dominion Resources, the operator of the Cove Point facility, estimated that 4,000 construction jobs and 14,600 permanent positions could be created through this $3.5 billion investment. Those could be 14,600 people paying taxes and investing in our communities rather than wondering what comes next after the unemployment runs out or making plans to escape Maryland for greener pastures like Virginia, the Carolinas, Florida, or Texas. Democrats often talk about making “investments” with our tax dollars, well, here’s an investment that the private sector is willing to make and government is mad because they can’t control who receives it. Let’s throw them a pity party: awwwwwwww….

Running mate Jeannie Haddaway made another good point in that statement:

Instead of picking winners and losers and subsidizing the most expensive options such as wind energy, we should be taking advantage of our existing resources and diversifying in a way that is meaningful to our economy and to job creation.

The choice is clear, the opportunity is now.

I look at it this way: if there were a market for wind energy, we would already have plenty of infrastructure out there. But the fact we have to subsidize its meager presence and carve out market share for it tells me wind is an economic loser overall. Just like solar energy, it’s only as reliable as atmospheric conditions allow it to be. And while solar and wind are considered “green” energy, the birds being cooked or bats being exterminated might beg to differ.

So we can exacerbate the unemployment problem or we can put the people in place to help create jobs. It’s your choice, Maryland.

Another stroke of luck (and it’s not Irish)

March 17, 2014 · Posted in Business and industry · Comments Off 

Because of the snow, it’s sort of a slow news day today. So I was looking for something interesting to comment on and found out that the practice of fracking can now retire, as it’s reached the ripe old age of 65. From Energy Tomorrow:

We celebrate the first commercial use of hydraulic fracturing 65 years ago on March 17, 1949, conducted by Halliburton in Stephens County, Okla., and Archer County, Texas. But the roots of the fracking story stretch back to the 1860s. In a 2010 article for the Society of Petroleum Engineers’ Journal of Petroleum Technology (JPT), NSI Technologies’ Carl Montgomery and Michael Smith write that energy pioneers experimented with oil well “shooting” that would “rubblize” oil-bearing rock to increase flows. Various methodologies were used to fracture rock formations over the years until Stanolind Oil, a division of Standard Oil of Indiana, conducted the first experimental “hydrafrac” in 1947 in Kansas. It involved pumping fluid carrying “propping agents” at high pressure into a well to create fractures that could be held open to free oil and natural gas in the rock.

People have freaked out over this technology over the last half-decade since the oil and natural gas industry embraced it to bring new life to old fields as well as other places where energy exploration was previously deemed economically unworthy due to quantities thought not to be worth the trouble. Yet the root technology was decades old; the confluence of evolving technique with the increase in oil prices to a point where fracking could be cost-effective gave the impetus to the industry. Truthfully, when oil was $15 a barrel and being pumped like crazy in the Middle East a couple decades ago, there wasn’t much demand for domestic supplies.

On the other hand, natural gas that ran about $4 per thousand cubic feet in 1981 only costs about $9 per thousand cubic feet now (although seasonal fluctuations are more severe.) Since that’s not far off the increased cost of living from then to now, this technology has enabled the natural gas market to hold serve despite increased demand from electricity generation, which receives a much better rate than the residential figures I cited. Granted, the recent surge began around the time when natural gas for residential use hit its all-time peak of $20.77 per thousand cubic feet in the summer of 2008, but opening up export markets can make additional fields profitable while stabilizing prices.

Now there is an element of truth to the argument naysayers in the manufacturing and chemical industries make about the potential that exporting LNG to other countries would increase prices here, although I doubt they would triple as claimed. But let’s explore once again the alternative scenario, one which I alluded to a couple paragraphs back.

Oil companies were laying people off and shutting down wells when prices were $15 to $20 a barrel because there was no way to run many of the old wells profitably. Some seem to forget that entrepreneurs go into business to make a profit, so they can make a living. Just like Staples is lopping off a couple hundred of its lagging retail performers, these companies idled wells which were losing money. In one respect it was great because gasoline went back under a dollar per gallon (remember that?) but that was a short-lived phenomenon which ended about the time of the first Gulf War – meanwhile, it took several more years for the oil industry to recover. Like it or not, that’s a vital cog of the American economy just like automakers and other manufacturers, who can use the incentive of energy which is reliable and still relatively inexpensive to create jobs.

So the ideal this time would be to maintain a fairly steady and predictable price while expanding the supply and maintaining those wells which are in operation so they stay economically viable. But if it weren’t for fracking, we would be in the situation of having to import a greater and greater share of our energy, a policy which would quickly drive up prices and perhaps exacerbate our national economic slowdown to a recessionary point once again. A modest increase in energy prices would be a small price to pay for the creation of thousands of jobs with private-sector investment – and who knows, maybe the predicted price increase won’t come. But I’ll bet the jobs would.

Back to that three letter word: J-O-B-S

I still like picking on Joe Biden. But over the last month or so I’ve collected a lot of divergent information on policy suggestions, each of which promses to be the magic elixir to get our economy moving in the right direction again.

I think the key to this lies in two areas: manufacturing and energy. In that respect, I keep a lot of information handy to discuss in this space, with a group called the Alliance for American Manufacturing (AAM) generally representing the left-of-center, pro-union side. And while their main goal seems to be increasing the coffers of Big Labor, luckily most workers still have free will – ask the employees at the Tennessee Volkswagen plant about how much effort from the UAW can be rebuffed in a simple up-or-down vote.

Currency manipulation is one area in which the AAM has been focusing. A study they cite, by the liberal Economic Policy Institute (EPI), makes the case that:

Many of the new jobs (if the subject is addressed) would be in manufacturing, a sector devastated by rising trade deficits over the past 15 years. Rising trade deficits are to blame for most of the 5.7 million U.S. manufacturing jobs (nearly a third of manufacturing employment) lost since April 1998. Although half a million manufacturing jobs have been added since 2009, a full manufacturing recovery requires greatly increasing exports, which support domestic job creation, relative to imports, which eliminate domestic jobs.

Personally I disagree with the premise that rising trade deficits can be blamed for the job losses; instead, I think an absurdly high corporate tax rate and onerous regulations have contributed more to chasing away American manufacturing. (While many simply blame “outsourcing” for the problem, fewer understand the dynamics which led to the outsourcing.) Yet there is merit to the idea that all sides should be competing on as level of a playing field as possible when it comes to the means of exchange, and China is one of the worst offenders. (And why not? They are communists, after all, and you can’t trust communists any farther than you can throw them.)

Two of EPI’s findings are quite interesting: first, should the EPI model come to its fruition, the oil and gas industry would be the hardest hit, and second, Maryland would be among the states least impacted, with barely a 1% rise in employment.

Yet AAM president Scott Paul is quick to blame Barack Obama:

President Obama promised to hold China accountable. He hasn’t. The White House last month said President Obama would use his pen and his phone to make progress on economic issues. He could start today by signing an order to designate China as a currency manipulator.  Then, he could call the Chinese leadership to demand an end to that practice, and secure an agreement on a plan to cut this deficit in half over the next three years.

I sort of wish Mr. Paul would also figure out the other problems, but he is correct to be concerned about our Chinese policy. Job creation has become more important than deficit reduction in the minds of Americans, both in the AAM poll I cited above and a Pew Research Poll cited by the American Petroleum Institute (API).

And the industry which benefits from API’s efforts represents another piece of the puzzle which we can take advantage of: our abundant energy supplies. While America uses 26 trillion cubic feet of natural gas per year, there is the possibility of as much as 10,000 trillion cubic feet within our land mass. That’s nearly 4 centuries worth, so I don’t think we will run out anytime soon. (Estimates have continued on an upward path as new technology makes previously unworkable plays economically viable.) As I keep saying, it’s too bad we don’t have a nice shale play under our little sandbar. Not only that, but the infrastructure we will need to take advantage of all that (and help curtail spot shortages like the ones we’re having this chilly winter) would be a guaranteed job creator – one which derives its basis from the private sector. New pipelines aren’t just for export facilities like Cove Point, but could benefit this area and perhaps bring more natural gas service to our region.

Unfortunately, Maryland isn’t poised to take advatange of either the manufacturing or energy booms at present, thanks to back-breaking economic policy and a foolhardy go-slow approach on fracking. It takes a strident opponent of the latter to suggest yet another approach which will do damage to the former, but gubernatorial candidate Heather Mizeur accomplishes this with the tired old combined reporting proposal. Hers comes with a twist, though, which she announced last Monday:

In the morning, Mizeur will host several Maryland business owners for a Small Business Roundtable. They will discuss her legislation to provide tax relief to small business owners, as well as other highlights from the campaign’s ten-point plan for jobs and the economy, which was released last fall. She will also hear from the business owners on a range of other concerns.

(snip)

At 1:00 pm, several business owners will join Mizeur in front of Ways and Means to testify on behalf of legislation that would enact combined reporting and distribute the estimated $197 million to small businesses for personal property tax rebates.

It’s the liberal way of picking winners and losers. And according to a 2008 study by the Council on State Taxation – admittedly, an opponent of the practice:

Combined reporting has uncertain effects on a state’s revenues, making it very difficult to predict the revenue effect of adopting combined reporting.

Even proponents don’t address that aspect, instead emphasizing how it would “level the playing field between multistate corporations and locally based companies.” But since Mizeur’s idea is one which would subsidize some businesses under a certain employment plateau, the uncertainty would likely be just another reason to avoid Maryland.

On the other hand, a Republican like Larry Hogan at least gets businesses together to discuss what they really want. Granted, once he gets them together he speaks in broad concepts rather than a more specific plan, but at least he’s listening to the right people. None of the others in the GOP field have specific plans, either, although Ron George probably comes the closest.

One has to ask what states which are succeeding economically are doing to attract new business. The state with the lowest unemployment rate, North Dakota, is prospering – more like crushing the rest of the field – on account of abundant energy resources, and perhaps that success is pulling surrounding states up with it. Its three neighbors (Montana, South Dakota, and Minnesota) all rest within the top 13 when it comes to low unemployment rates and other regional states like second-place Nebraska, Iowa, Wyoming, and Kansas lie within the top 10. Although the top five are right-to-work states, half the bottom 10 are as well. Nor can tax climate be seen as a dominating factor since the top 10 in unemployment vary widely in that category: Wyoming, South Dakota, Utah, and Montana are indeed excellent in that aspect, but North Dakota is decidedly more pedestrian and Iowa, Vermont, and Minnesota are among the worst.

But Maryland has the tendency to depend too much on the federal government as an economic driver. This presents a problem because bureaucrats don’t really produce anything – they skim off the top of others’ labor but don’t add value. Certainly it’s great for those who live around the Beltway, and it’s telling that all three of the Democratic candidates have a connection to the two Maryland counties which border the District of Columbia while none of the Republicans save Larry Hogan do.

In order to create jobs, I think the state needs to diversify its economy, weaning itself off the government teat and encouraging manufacturing and energy exploration. Meanwhile, there’s also a need to rightsize regulation and restore a balance between development and Chesapeake Bay cleanup – specifically by placing a five-year moratorium on new environmental restrictions while cleaning up the sediment behind the Conowingo Dam. Let’s give that which we’ve already done a chance to work and other states a chance to catch up.

The best route out of government dependence is a job. Unfortunately, when the aim of the dominant political party in the state is one of creating as many dependents as possible, a lot of good entrepreneurs will be shown the door. It’s time to welcome them in with open arms.

Denying the market

To be honest, I’m not sure if I was sent this to provoke a comment or if I just happen to be on a list that gubernatorial candidate Heather Mizeur doesn’t use all that often. I think most observers know I have an interest in energy issues, and this definitely falls into one of them. You just have to ask yourself why Mizeur counts herself among the Democrats are so insistent on denying the opportunity for shovel-ready jobs and investment – I thought that was what they were all about.

First of all, this is what Mizeur had to say about the proposed Cove Point LNG export facility.

(Yesterday), Delegate Heather Mizeur (D-Montgomery), candidate for governor, called on Governor O’Malley to join her in opposition to the Dominion Resources liquefied natural gas (LNG) export facility at Cove Point in Calvert County. She made the announcement during a speech at the Stop Cove Point Rally in downtown Baltimore City earlier today.

“I am calling on Gov. O’Malley to take a stand with us today to reject Cove Point,” Mizeur told the audience. “You cannot leave a legacy on addressing climate change and be silent on Cove Point. It’s time for Gov. O’Malley to break the silence and join us in saying no to Cove Point.”

The rally, which was attended by 500 people, was organized by climate, health and anti-fracking activists from across the state, and was one of the largest environmental rallies ever in Baltimore City. It came as the state Public Service Commission begins official hearings on the project.

Mizeur is currently the only gubernatorial candidate to state her opposition to the project. When she announced her opposition in December, both Lieutenant Governor Brown and Attorney General Gansler – the two other Democratic candidates in the race for governor – expressed a desire to build the project without environmental damage, but failed to explain how such a plan would be possible.

Dominion Resources, a Virginia-based energy company, is pursuing the construction of a $3.8 billion facility to serve as a collection point for fracked natural gas from throughout the Mid-Atlantic region, where cargo tankers would then ship it throughout the world.

But the Cove Point facility would release 3.3 million tons of carbon dioxide and other harmful greenhouse gases into the air annually, making it a serious setback to achieving the state’s goals on fighting climate change, including a plan for a 25% reduction of greenhouse gases by 2020.

Mizeur has also called on Dominion Resources to invest $3.8 billion – the construction cost of the proposed facility – in the state’s renewable energy sector. According to the U.S. Department of Energy, clean energy investments create more permanent jobs than exporting fracked gas.

Obviously Mizeur is an adherent to the religion of manmade climate change, a belief system which fails to address why none of the climate models have predicted the lack of warming this century. The fact that they managed to get just 500 people to a climate change rally shows how small the cadre of believers really is – a good Second Amendment or TEA Party rally can rustle up similar numbers without really trying. If this is “one of the largest environmental protests in state history” then we really are letting a tiny minority dictate policy.

But let’s say these guys are really serious – I suppose living in a state foolish enough to believe that artificially limiting its carbon emissions will have an effect on our overall global climate will do that to you. Even if the point source of 3.3 million tons is correct, it doesn’t take into account the reduction in emissions at destination points abroad. Natural gas is cleaner burning than coal, and until we figured out that fracking was a way to supercharge the moribund domestic natural gas market it was a fossil fuel environmentalists weren’t uncomfortable with. To show how the market has changed, the Cove Point facility was originally built in the 1970s as an import facility because the domestic natural gas market was thought to be in an irreversible decline.

On the other hand, the point source investment of $3.8 billion will have a positive effect on the regional and state economies. Last year, in announcing its filing, Dominion claimed the project will create up to 4,000 jobs during the construction phase and perhaps over 14,000 jobs overall, not to mention billions in royalty payments. Because most of the supply would come from regional producers, the entire mid-Atlantic area would benefit (except Maryland and New York, which currently have bans on fracking.) The facility would also provide a needed boost to our export tally to address a persistent American trade deficit, as the LNG is already contracted out to distributors in Japan and India.

Finally, Mizeur complains that the $3.8 billion Dominion is willing to invest in the project could be better spent in the renewable energy sector. Does the name “Solyndra” ring a bell? Despite its best efforts to create a market for offshore wind, companies aren’t willing to make the investment in that area – remember Bluewater Wind? In the area of solar energy, it took billions in taxpayer-guaranteed loans – and mandated renewable energy portfolios such as the one Maryland is saddled with – to get that market off the ground, yet it still produces but a tiny fraction of our electricity needs at a cost several times the going rate for electricity produced from coal or natural gas.

And it’s funny that Mizeur worries about the cost of natural gas going up due to exports, but had no problem with raising the gasoline tax on a perpetual basis. So much for supporting hard-working Marylanders.

So the choices are either zero or $3.8 billion; that’s reality. We can take advantage of proven resources we already have or listen to alarmists whose real goal is to foster dependence on government under the guise of saving the planet. It’s just too bad our little sandbar is energy-poor, unless you deign to call chicken manure an energy gold mine, and even the proponents concede its not as efficient as natural gas.

Another study showing energy job creation

My friends at API alerted me to yet another study touting the benefits of offshore drilling, but this one was more localized because they discuss energy exploration in the heretofore moribund Atlantic Outer Continental Shelf (OCS). This rather lengthy research, sponsored by API and the National Ocean Industries Association, showed that Maryland and Delaware could expect an economic bump of over 12,000 jobs and nearly $1 billion over the cumulative 18-year period (2017-2035) covered in the report. It obviously assumes the case that exploration is opened up at the first opportunity, which will arrive in 2017.

Considering state employment in Maryland alone is about 3 million, with over 212,000 unemployed, these numbers may seem like a drop in the bucket. (Delaware adds about 430,000 and 30,000 to the respective totals.) But it’s worth mentioning that these jobs would be created by private investment, so they’re a net gain to the economy as opposed to simple redistribution of confiscated wealth which typifies government jobs, even those in infrastructure like roads and bridges.

And if there’s one thing I have noticed in the past few years about projections for the amount of oil to be found in a particular place, it’s that the initial estimates are far too low. This is more likely in the Atlantic region, which hasn’t been properly explored with the newest technology yet because there was no prospect for securing leases.

While there was a period where Atlantic leases were granted, no area has been leased out in the last thirty years. Furthermore, the seismic information is also three decades old, which is an eternity in this day and age of computer mapping – that was an era where the conventional wisdom was that many portions of America were played out insofar as oil was concerned. But recent technological advances and methods of exploration have determined there’s still a lot of life in these fields. The same may well be true for the Atlantic OCS, which could have double or triple the expected capacity. (The model used in the study essentially doubles the government’s most recent estimate, but that calculation is based on fields in areas where modeling was more constant than it was in the Atlantic OCS. So it wouldn’t be out of the question to see yet another doubling.)

Regardless, it’s more ammunition for the argument that allowing more energy exploration would be a job creator, with the added benefit of energy self-sufficiency. Drill, baby, drill!

2014 Maryland dossier: part 4 (energy policy)

Today I work into the fourth part of my series, on energy policy.

It’s clear to me that if the state wants to become more successful at improving the standard of living of its citizens, we have to find ways to make energy more accessible and less expensive for the average consumer. That’s the starting point for my critique on energy policy.

There are many points the Republican candidates seem to agree on, which is to be expected.

**********

David Craig: Craig said it is also time to stop studying fracking and enable natural gas extraction to take place in Western Maryland in an environmentally-responsible manner. (press release, October 4, 2013)

*

Harford County Executive David R. Craig, who also is seeking the Republican nomination, said estimates show fracking in Garrett and Allegany counties will bring as many as 14,000 jobs.

If the state continues to study the issue, the people of Western Maryland will suffer as business go to frack in neighboring Pennsylvania, Ohio and West Virginia, he said. (Gazette, September 19, 2013)

Ron George: Make Energy More Affordable, Available, and Less Dependent on unstable governments half way around the world. This includes developing natural gas resources and using clean coal for our own needs. (campaign site)

*

“I have to let you know that I’ve really struggled with the issue and studied the issue, I’ve listened to the fears and looked at the science,” he said. “And I’ve come down on the side of natural gas drilling for ourselves, for Maryland’s use.”

Fracking now will help the state with its energy costs and diversify its alternative energy production, said George, a GOP candidate for governor.

“We have to have other alternatives that are clean,” he said. (Gazette, September 19, 2013)

*

“Before we go building 40 of these [wind turbines] offshore, let’s do this step by step,” said Del. Ron George, R-Anne Arundel. He offered an amendment to build one wind turbine to study the viability of offshore wind in Maryland. He said the Virginia legislature approved a similar plan on Wednesday.

“It will test the economics of large scale offshore wind projects, it will test the mechanics of construction and issues related to offshore wind projects, and it will study the ability of offshore wind projects to withstand weather conditions” 11 miles off the coast of Ocean City.

“It is really doing the next step, so we don’t go wasting money, and we make sure we do it right,” George said. (Maryland Reporter, March 29, 2012)

Charles Lollar: I support development of Maryland’s Marchellus shale natural gas reserves. (campaign website, “Natural Resources”)

Demand that public utilities be held accountable to their customers. (campaign website, “Accountability”)

*

In order to reduce (energy prices) Lollar wants to remove subsidies and allow all forms of energy to compete on their merits. This includes allowing fracking in Maryland’s Marcellus shale so that natural gas can lower the state’s energy costs. He sees O’Malley’s subsidies for wind energy as a way of picking winners and losers in the market, and opposes to the handouts. (Real Clear Markets, September 3, 2013)

*

Lollar said the state could quickly come out of its perennial deficit if it allowed fracking in Maryland. Lollar emphasized the practice would have to be well regulated, but not so much so as to stop businesses from existing. (SoMDNews, November 1, 2013)

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“We absolutely need to take advantage of that resource, not just as another energy source but to put people to work,” Charles Lollar, Republican candidate for governor, said of natural gas. (Gazette, September 19, 2013)

*

I think they [Pepco] have an unfair relationship advantage. I’m not prepared to blame the Democratic party but I am prepared to blame the individual people that have made the system what it is. I do believe that when you have an unbalanced system that heavily favors one party over another, this is the kind of response that you get. There’s a lot of strong-arming. There are strong and forceful relationships that are literally causing people to do things that in their right mind, they would not do.

The power held at the highest levels of our state is incredible and it’s crushing good elected officials and appointed commissioners that want to do the right thing. Let’s put the blame where it needs to be. This idea of charging someone a fee before they get appropriate services is wrong no matter what party you’re from. (Bethesda Now, November 7, 2013)

**********

Insofar as energy policy goes, our friends across the aisle greet the issue with reactions ranging from radio silence (Anthony Brown) to a belief that poultry waste can be a “responsible investment” (Doug Gansler) to a pedal-to-the-metal emphasis on so-called “clean energy” and outright hostility to fracking (Heather Mizeur). None of these proposals meet the twin tests of reliability and market worthiness that coal, oil, and natural gas do. In particular, one has to ponder the viability of poultry waste as a fuel after the Waterkeeper Alliance picked on one family for months in an losing effort to make an example of them, a move one local environmental advocate said “definitely sets us back.”

**********

So what I believe had “definitely set us back” is the de facto moratorium on fracking Maryland has had in effect for the last few years, as the state continues to twiddle its thumbs and study the issue at length in “setting an extremely high bar for industry.” Meanwhile, Pennsylvania has seemed to find a reasonable balance between environment and energy; thus natural gas exploration and extraction is creating jobs and revenue for those counties fortunate enough to sit atop the Marcellus Shale formation.

I think David Craig gets this part of the picture, but there’s a lot more to energy policy than just fracking. It would be good to know where he stands on other market-based reforms like repealing the wind energy bill and renewable energy portfolio – as you’ll see in a future segment David has his eye on restoring a balance between economy and environment. So I give him 4.5 of 8 points.

Ron George took a while to come down on the side of fracking, but also seems to foresee more of an “all-of-the-above” approach. Included in that was advocating a single-unit pilot project for offshore wind, despite the fact the bill he attempted unsuccessfully to amend, if passed, had a fiscal note which warned “State expenditures…increase minimally beginning in FY 2013 and significantly beginning in FY 2017 due to higher electricity prices.” Perhaps his view on this has evolved, however, as he did not offer the same amendment in 2013 and voted against O’Malley’s bill. As you’ll see below, he should get credit for weighing evidence.

But it’s difficult to reconcile George’s stance with his previous votes on the subject. Maybe he’s reached a level of satisfaction with the state’s regulations and if so he’s a little more for red tape than my taste would dictate; for that answer I need more guidance. At this point I’ll score him as a solid 4 of 8 points.

Charles Lollar stands with the rest of the Republicans on fracking, which is good. He also makes it sound like O’Malley’s wind folly would be terminated, which is great. But there’s one piece of the puzzle which troubles me greatly.

It’s noted in the Bethesda Now story, where Lollar was quoted as saying “charging someone a fee before they get appropriate services is wrong,” that the forum was intentionally held without a PEPCO representative present. Had Lollar studied the issue more carefully he would have known this rate increase was based on an executive order from Governor O’Malley, who touted the increase as “hardening” the electric grid. The idea is to accelerate the process of preparing the grid for major weather events, which may have been the point brought out by a PEPCO spokesperson had one been invited to the event.

One thing about being an elected official is that you generally hear all sides of the story as part of your duties in office. On the other hand, coming in without that experience means you have to work at the issue. On his front page, Charles claims his goal is to ”bring together people of different political beliefs, talents and backgrounds to develop solutions to difficult problems.” Yet he attended a forum where a party to a dispute is sandbagged, and that’s disappointing.

It’s populism to pick on a utility without hearing their side of the story. So my question is whether “well regulated” for fracking will be determined by the hype or the facts. Based on this concern I can only give Charles 2.5 out of 8 points at this time.

**********

The next portion is something I would anticipate the candidates do quite well in: Second Amendment rights. I’m hoping to follow that up with a discussion of what the candidates would do about Obamacare, and for that answer I had to ask directly.

It’s also worth pointing out that this process would evolve. In his answer to my Obamacare question, Ron George elaborated a little on education so I believe I should add that portion in. It wouldn’t surprise me as the campaign rolls along that these pieces might be revised once or twice along the way; you should expect no less.

Divergent directions

As you all know I have an interest in the energy field and a disdain for the unproven – so I’m no big fan of technology that’s not reliable 24/7/365. While renewable energy has its uses in limited applications, such as the solar panels on one’s roof or the windmill which augments the rural homestead, all of these sources need a backup for when we endure a week’s worth of cloudy days or still weather. So I have a bias toward the tried-and-true energy sources of coal, oil, and natural gas.

Having said that, it amuses me when I see the potential for infighting among the environmentalist crowd as we could have a battle royale between the animal rights crowd and the renewable energy set – the reason: a study published in the journal BioScience and gleefully critiqued by Steven Hayward at Powerline estimates that 600,000 or more bats are killed each year by wind turbines – a much higher toll than previously thought. And as Michael Todd, writing at Pacific Standard, explains, it’s not for the reason you might think:

Given that wind turbines are basically a collection of whirring blades, you might assume that the bats found dead have been sliced and diced. You might also wonder how an animal that uses radar to find a single mosquito in the dark could fail to sense a monstrous wind turbine. The University of Calgary’s Erin Baerwald explained this to Discovery News in 2008: “When people were first starting to talk about the issue, it was ‘bats running into the turbine blades.’ We always said, ‘No, bats don’t run into things.’ Bats can detect and avoid all kinds of structures,” and are even better at detecting stuff that’s moving. No, they’re exploding. As I learned last year, “Baerwald and her colleagues discovered that bats’ ‘large, pliable lungs’ blow up from change in air pressure created by moving blades. Up the 90 percent of the dead bats they examined showed the internal bleeding consistent with their argument. Birds, by the way, have different kinds of lungs so their deaths are from the more predictable blunt-force trauma.”

Of course, bats are very creepy creatures and tend to be a nuisance if they get into your house. But they have one tremendously useful purpose: keeping the mosquito population at bay. A commentator on Hayward’s post writes about watching bats fly around at dusk and I can vouch for the fact that it is interesting to watch them maneuver around in the fading light of a summer evening, gorging themselves on those pesky bugs.

And the problem seems to be worst in the Appalachian part of the country, which includes the western part of Maryland. While it’s not prime territory for efficient windmills, that area is probably the most desirable in the state for the purpose.

Yet there is another energy source where the two westernmost Maryland counties are prime territory, and that’s the Marcellus Shale formation where natural gas is plentiful deep underground – and by deep I mean hundreds and hundreds of feet below the aquifers. I point this out because portions of New York state endure some of the same effects as their Marcellus cousins in Maryland; both are primarily rural areas which can use an economic shot in the arm. As is pointed out in a Wall Street Journal editorial from last week by Fred Siegel, those areas of southern New York along the Pennsylvania border suffer from the same faraway NIMBYism that the western panhandle of Maryland has to deal with – those who live nowhere near the area think they know best.

But unlike Maryland’s Martin O’Malley, whose sole response has been to study the subject to death, his potential Democratic presidential rival from New York, Governor Andrew Cuomo, at least was willing to allow some limited fracking in that specific region – that is, until he was told by the environmental extremists, “we’ll cream you if you open New York state to fracking.” While neither the western edge of Maryland nor that five-county area of southern New York along the Pennsylvania border (from Steuben County on the west to Broome County on the east and including adjacent Chenango County) has the worst unemployment numbers in their respective states of Maryland or New York, the fact is they can do better.

And it’s not just the energy companies booming – this story by Barbara Miller in southwest Pennsylvania’s Observer-Reporter newspaper (h/t Energy Tomorrow) points out the financial gains in just two of the state’s counties. Quoted in the story was Washington County Commission Chairman Larry Maggi:

I don’t want to use the word envious, but (other counties are) struggling and they do not have this resource to help them balance their budgets.

While amounts from $6 million to $18 million are drops in the bucket for a state budget, they can potentially be huge for some of the rural counties affected. Energy companies are accustomed to paying a fair royalty fee to local governments, knowing the market will support that toll while allowing a reasonable profit.

So, as you’ll see in the next week or so when my candidate dossier on energy is complete, there’s a big difference in stance between Maryland Democrats and Republicans on the fracking issue. Apparently most Democrats are happy with blowing up bats and chopping up birds, but Republicans want to create jobs.

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