Jim O’Leary analyses these topics in today’s Irish Times: you can read it here.
Month: August 2009
I noted last week that a new talking point about NAMA was emerging which went beyond the old canard that “it doesn’t matter” how much we pay for bad bank assets. The new talking point actually suggests that we will be better off if we overpay for these assets. I found it interesting that the new talking point appeared today in two, highly influential, guises.
The €250 million job subsidy scheme is open for applications from today until the 4th of September. I’m still not a big fan of this scheme, particularly given that it has to fit within overall budgetary parameters and thus necessitates €250 million of spending cuts and tax increases elsewhere. However, it is fair to say that some thought has gone into dealing with the deadweight loss element of the scheme.
Applicants for the subsidy will be scored out of 100 against the following three assessment areas: Credibility of restructuring plan (35 points), viability of the enterprise in the medium term (10 points) and the ratio of supported jobs to committed jobs (maximum score of 55 points).
This worst allowable score for this latter category is a score of 30 for a ratio of 1:1, meaning for each supported subsidised job the applicant would be required to commit to retaining another full time job for the duration of the subsidy (though how a struggling firm could really be made commit to this isn’t clear—what happens if they shut down?)
The best score for this category of 55 is for a ratio 1:10. If I understand this correctly, this means that the subsidy will not be allowed to apply to all employees in a firm and you will be more likely to get the subsidy if you only look for it to be applied to a small fraction of your employees.
In theory, this is good news if you’re worried about deadweight loss because the subsidy won’t end up being applied to all the employees of firms that are actually going to keep most of them on anyway. This element and the other two categories are also designed to avoid the jobs going to no-hope firms and pouring good state money after bad private money.
However, it’s pretty impossible to achieve both of these outcomes and as constructed, the scheme does seem likely to attract reasonably healthy firms, who may not really be planning to lay off many employees, to look for subsidies for a small fraction of their workers, knowing that this will give them a good score and make them more likely to obtain the grants. So one can still see plenty of potential for serious deadweight loss, which could blow up the actual cost of job saved well above the apparent level of €9,100 per employee.
The assessment process will involve Enterprise Ireland, IDA Ireland, Shannon Development and Údarás na Gaeltachta, and without doubt, will be a cheap and efficient process untinged by political interference or corruption related to existing relationships firms have with development agencies.
In considering how to value land under current economic circumstances answers may turn up in unexpected places. One of the most important state regulatory authorities, the Commission for Energy (CER), has taken the plunge and revised down their assumed value of land. In this case it is the site procurement cost for windmills. My colleague Laura Malaguzzi Valeri pointed me to page 41 of their document on Fixed Cost of a Best New Entrant Peaking Plant & Capacity Requirement for the Calendar Year 2010 where they say:
“Due to the significant movements in the economy over the last year, the value of land has reduced. An independent assessment was carried out on current land values, and the RAs are satisfied that the estimate for 2010 is an reasonable reflection of the current costs.”
As a result, they have revised downward the value which they assume by 63%.
Because wind producers are price takers on the competitive wholesale market this will not affect current electricity prices. Nonetheless, the fall in land prices should reduce the long-term cost of producing wind energy, with beneficial effects for consumers.
If NAMA want to read up on the details of this valuation it can be found at:
http://www.allislandproject.org/en/capacity-payments-consultation.aspx?article=f6ff1ea8-5f01-416d-a863-cb945a3d71d9
Brendan Keenan has an interesting article on NAMA in today’s Irish Independent: you can read it here.