State of the South

President Bush, saddled with the lowest presidential job approval rating since Nixon, will deliver his State of the Union address to Congress and the American people tonight. In addition to defending his Iraq strategy, he is expected to speak on domestic issues, most notably health care. He is also expected to speak on energy policy and education, including renewal of No Child Left Behind.

This seems like a good opportunity for a look at the State of the South, and how President Bush's policy proposals might relate.

The Economy

There has been no indication of what Bush might say about the economy, but recent statements suggest the usual "our economy is strong and getting stronger" message. According to the most recent Federal Reserve Southeastern Economic Indicators Report for the Sixth District (which includes Alabama, Florida, Georgia, Louisiana, Mississippi, and Tennessee), the South gets mixed reviews.

Overall, the Fed expects modest growth in the Southeast for 2007:

Just as housing and energy concerns could dampen national economic growth in 2007, these issues are likely to have a similar effect in the Southeast. Regionally, the economic slowdown will probably be most pronounced in Florida because of the state's high concentration of housing-related employment.

Nationally, home construction and sales have been important drivers of economic growth in recent years, but some areas are seeing housing activity shift into a lower gear. So far, declines have been most prevalent in markets where speculation helped drive prices and supply significantly higher. Fortunately, most of the Southeast appears to be at relatively low risk of experiencing a major housing downturn.

In coastal Louisiana and Mississippi, the main problem will remain the shortage of housing caused by the 2005 hurricanes. However, sharply higher insurance costs, which are a drag on housing demand, will continue to confront Florida and other coastal areas of the Southeast in 2007.

A decline in housing demand affects more than just home construction. It also affects housing-related manufacturing industries concentrated in the Southeast. These industries include lumber, wallboard, furniture, home appliances, and flooring. A further pullback in home construction in the United States in 2007 would negatively affect these manufacturers.

Changes in auto manufacturing will also be a factor:

The rapidly changing face of U.S. auto production will continue to affect the region. Ford Motor Co.'s plant in Hapeville, Ga., closed in fall 2006, and the General Motors plant in Doraville, Ga., has begun the shuttering process. These closings will result in several thousand job losses at both the assembly plants and their parts suppliers.

However, Korean automaker Kia Motors began constructing its first U.S. assembly plant in West Point, Ga., in 2006, and foreign-owned auto manufacturers continued to expand their presence in Alabama.

Among the state-by-state highlights for the 4th quarter of 2006:

• Alabama had a 1.5% increase in employment, and unemployment was at 3.6% which is the lowest in 30 years. This is attributed the expansion of foreign auto manufacturing facilities and the computer and electronic products and aerospace industries along with modest growth in the services sector.



• Florida's service and tourism sectors remained strong, with growth of 3% as compared to the national average of 1.5%. Tourism (4%) and professional and business services (5%) led the way.



• Georgia's services sector employment grew by 2%, slightly outpacing the national average. The arts, entertainment, and recreation sector led the way with 7% growth, and the leisure and hospitality industry grew by 3%.



• Mississippi's per capita income grew 3.3 percent in the first half of 2006, slightly higher than the national average. The increase is attributed in part to relief aid including unemployment insurance, federal disaster relief, and insurance payouts. This also boosted consumer spending, resulting in a 16% increase in state tax revenues. While not fully recovered, employment in the leisure and hospitality industry (i.e. casino business) is almost back to pre-Katrina levels.



• Tennessee's economy grew largely in part due to corporate relocations into the state. Overall, employment growth was only 1%, with most gains in the construction, leisure and hospitality, health care, and professional business services industries. Per capita income was also up by 2%, and sales tax revenues increased 6%

There are, however, areas for concern:

• In Alabama, employment in the nondurable goods manufacturing sector declined by 2% overall, with a 10% decline in the apparel sector owing to increased foreign competition and outsourcing.



• Florida's real estate boom has gone bust, with a 34% decline in single-family home sales. Appreciation for single-family homes fell to zero percent, and condominiums lost 3% of their value. Lower demand, higher construction costs, and significant increases in insurance premiums are cited as factors.



• Georgia will feel the effects of GM closing its plant in Doraville and a nationwide decline in residential construction will affect the building materials and flooring products industries.



• Louisiana is still largely an economic disaster area as a result of Katrina. The tourism industry is still struggling to recover, as evidenced by a 40% decline in arrivals at New Orleans International Airport. Office vacancies are high, with many companies leaving or scaling back operations. As thoroughly covered here at Facing South, delays in government funding and insurance settlements, delays in issuing new building regulations, delays in rebuilding infrastructure, labor shortages, and dislocation of large segments of the population are all cited as factors in Louisiana's struggle to recover.



• Tennessee will continue to see a decline in manufacturing jobs due to overseas competition and outsourcing. Lower demand for housing will also affect the state's furniture and wood products manufacturing industry.

One bright spot in the South is unemployment, with a regional rate of 4.1% as compared to the national rate of 4.7% for the third quarter of 2006. Florida and Louisiana (remarkably) tied for the lowest unemployment at 3.3%, followed by Alabama at 3.6%. Mississippi had the highest at 7.4% followed by Tennessee at 5.4%.

Health Insurance

Moving on to specifics of President Bush's expected SOTU policy proposals, his health insurance proposal is perhaps the most interesting and controversial. It isn't clear how taxing employees for employer provided health insurance is going to help. The White House says this will put market pressure on insurance companies and health care providers to control costs. As if employers already reeling from skyrocketing premium increases haven't been doing that already?

It also isn't clear why we would want to punish taxpayers for our broken system of employer provided insurance that leaves out the self-employed, the unemployed, and the underemployed, and introduces privacy, portability, family health, and other issues that are none of an employer's business.

Nor is it clear how providing a tax deduction for private insurance is going to encourage the uninsured to buy insurance as claimed by the White House. Many uninsured either can't get insurance (because they are self employed, unemployed, underemployed, or have preexisting conditions) or they are so poor they can't afford it. And those living in poverty don't pay taxes, much less itemize, in the first place.

A per-family deduction of up to $15,000 isn't going to help a single mom earning minimum wage, which is currently about $11,000 per year, especially if she works for a small business that doesn't provide insurance and is therefore looking at $6000 to $12,000 per year in private insurance premiums. Even if she could afford the premiums and could itemize, her tax savings would be at best $1500 or so, if she even paid taxes which she probably doesn't. (Ed. Note: this is all made up off the top of my head, so feel free to extrapolate your own guesses as to how this is supposed to work.)

At any rate, the number of uninsured in America is a national crisis, and the South is particularly hard hit. According to a Census report (PDF format), as of 2004 Texas had the highest percentage of uninsured at 25.1%. Louisiana (18.8%) and Florida (18.5%) are in the bottom six.

Other Southern states above the national average of 15.5% include Mississippi (17.2%), Arkansas (16.7%), Georgia (16.6%), North Carolina (16.6%), and West Virginia (15.9%).

Comparing the change in two year moving averages, five of the states with increases in the number of uninsured were in the South (Delaware, Florida, Oklahoma, South Carolina, and Tennessee -- if you count Delaware and Oklahoma as being in the South, which the Census apparently does.) It's not clear if the data includes the 170,000 newly uninsured who were dropped from the rolls when Tennessee dismantled its TennCare/Medicaid program.

Education

President Bush is expected to call for renewal of the No Child Left Behind program, and Congress is expected to call for fully funding it. As discussed here recently, this one-size-fits-all solution does not address all the issues involved. In the South, poverty and racial disparities are at the root of our education problems. Unfunded mandates, standardized tests, punishing teachers, and taking over failing school districts will not overcome these obstacles.

As for whether NCLB has resulted in any progress in the South, the percentage of 4th grade students scoring below the basic achievement level for reading suggests that the program is not addressing regional needs. Southern states scoring below the national average of 38% include Alabama (47% below basic achievement level), Georgia (42%), Louisiana (47%), Mississippi (52%), South Carolina (43%), Tennessee (41%), and West Virginia (39%).

Looking beyond test scores, Education Week's recent Chance for Success Index used a variety of criteria including family income and environment, early development, college enrollment, and employment as indicators of the role education plays throughout a person's lifetime.

In a state by state comparison, the study found that "New Mexico, Louisiana, Arizona, Texas, Tennessee, Mississippi, and Alabama lag significantly behind the national average." Except for Virginia, their overall ranking by state puts Southern states in the bottom tier (Virginia 1st, Florida 31st, North Carolina 35th, Georgia 38th, Arkansas 39th, Kentucky 41st, South Carolina 41st, West Virginia 43rd, Tennessee, Mississippi, and Alabama: tied at 45th, Texas 48th, and Louisiana: 49th).

Energy Policy

President Bush is expected to announce a major push for increased ethanol production. At first glance, it appears this could benefit the South's agricultural economy. As it turns out, though, ethanol and other biofuel production is clustered largely in the upper Midwest. According to this map of production facilities, there are currently only four biofuel refinery operations in the South: two in Kentucky, one in Tennessee, and one in Georgia.

But could the South benefit from federal corn subsidies (which are estimated at about 51 cents per gallon of ethanol produced) to encourage production? Probably not. There are no Southern states in the top ten. Iowa, Illinois, and Nebraska top the list with more than $4.2 billion in combined subsidies. Texas comes in twelfth with $167 million in subsidies, followed by Kentucky at thirteenth with $145 million. The rest of the South is at eighteenth or below.

But even if there were economic benefits from expanded refinery operations and more federal subsidies, there are serious doubts as to whether ethanol is even a good idea in the first place according to this 2005 Slate article:

[E]thanol critics have shown that the industry calculations are bogus. David Pimentel, a professor of ecology at Cornell University who has been studying grain alcohol for 20 years, and Tad Patzek, an engineering professor at the University of California, Berkeley, co-wrote a recent report that estimates that making ethanol from corn requires 29 percent more fossil energy than the ethanol fuel itself actually contains.

The two scientists calculated all the fuel inputs for ethanol production-from the diesel fuel for the tractor planting the corn, to the fertilizer put in the field, to the energy needed at the processing plant-and found that ethanol is a net energy-loser. According to their calculations, ethanol contains about 76,000 BTUs per gallon, but producing that ethanol from corn takes about 98,000 BTUs. For comparison, a gallon of gasoline contains about 116,000 BTUs per gallon. But making that gallon of gas-from drilling the well, to transportation, through refining-requires around 22,000 BTUs.

In addition to their findings on corn, they determined that making ethanol from switch grass requires 50 percent more fossil energy than the ethanol yields, wood biomass 57 percent more, and sunflowers 118 percent more. The best yield comes from soybeans, but they, too, are a net loser, requiring 27 percent more fossil energy than the biodiesel fuel produced. In other words, more ethanol production will increase America's total energy consumption, not decrease it.

The article also says that ethanol is unlilkely to ever have a significant impact on reducing oil consumption, noting that a 2005 proposal for 8 billion gallons would only represent about one half of one percent of demand.

In conclusion...

With tax code gimmicks, one-size-fits-all solutions, and expanded programs involving questionable science and lots of subsidies, it appears America is in for another round of out-of-touch, magic-bullet proposals that do not address any real underlying problems. Beyond throwing out some half-baked, soon to be forgotten ideas (remember Mars?), it's almost like they're not even trying.

Good night, and God Bless America and the South. We need all the help we can get!