Various articles on the Federal Reserve 5th District.Economic conditions ; Federal Reserve District, 5th

Betty Joyce Nash

David Van Den Berg

Renee Courtois

English

Research Papers in Economics

2 Region Focus •Winter 2009
UPFRONT
Economic News Across the Region
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While declining to provide specific ticket sales numbers, Bow Tie Chief Operating Officer
Joe Masher said the Richmond multiplex had a “phenomenal” opening weekend. In part, that’s
because people seem to like going to the movies during
recessions. For many, it’s seen as a relatively cheap form of
entertainment. 
According to Patrick Corcoran, the director of media
and research for the National Association of Theater
Owners, from Jan. 1 through March 2, 2009, national box
office receipts were 13.1 percent higher than the same
period in 2007, when the economy was still growing. 
And from the third week of September 2008, when the
stock market became volatile and the credit crisis a
national discussion, through the second week of
December 2008, receipts rose 15 percent over the same
period in 2007. 
Business is up at Regal Cinemas, according to Chad
Browning, marketing manager with Regal Entertainment
Group, based in Knoxville, Tenn. The chain owns 30 theaters in Virginia, 24 in North Carolina,
16 in South Carolina, and 15 in Maryland. “I think people just kind of want to escape from the
sluggish economy,” he said.
Movies are also making more money this year. Many moviegoers have found respite through
stories of a dim-witted mall security guard and of a father trying to rescue his kidnapped 
daughter. “Paul Blart: Mall Cop” and “Taken,” released in 2009, have each grossed more than
$100 million. “Gran Torino,” a drama starring Clint Eastwood, released in late 2008, has made
more than $100 million in 2009 alone, Corcoran said. From January through May of 2008, only
one film grossed more than $100 million. 
In choosing where to open theaters, Bow Tie looks for communities with active arts, 
medical, and educational communities. “Richmond was a perfect storm for all three,” Masher
said. Bow Tie’s Richmond multiplex is the company’s third in the Fifth District, joining two in
Annapolis, Md. 
Bow Tie isn’t the only company bringing a new theater to Richmond in 2009. Regal opened
the Westchester Commons Stadium 16 in suburban Midlothian this spring. That multiplex 
comes online just before studios start releasing their summer blockbuster films, including
“Harry Potter and the Half Blood Prince,” among others. “We’re hoping for big grosses out of
those films,” Browning said. 
While box office numbers are on the rise in 2009, DVD sales have fallen off, Corcoran said.
Those revenues had started to plateau before the economic slump. People have “very full
libraries” of DVDs and are no longer looking to add to them.
—DAVID VAN DEN BERG
From blockbusters
to classic films to
screenings of 
cult movies ...
you’ll see them 
all at Movieland. 
Bow Tie Cinemas opened a 17-screen movie theater in Richmond, Va., in
February. The multiplex, named Movieland at Boulevard Square, is the largest
the company has ever opened.
Silver Screen
Cinemas Prosper During Recession
RF_WINTER_2009  4/20/09  12:48 PM  Page 2Winter 2009 • Region Focus 3
Smoking Bans
Smoke-Free Mandates Come to Tobacco Country 
The only exceptions to Virginia’s ban will be private clubs as well as restaurants and bars that have separately
ventilated smoking rooms. Outdoor smoking on patios will be allowed. And employers won’t be allowed to
require their staff to work in smoking areas. 
Lately, smoking bans have tended to come with no exemptions, says Michael Pakko, an economist with the
Federal Reserve Bank of St. Louis. The exemptions should help reduce the losses that Virginia businesses will
experience from the ban, he says.
At press time, the North Carolina Legislature was also debating a smoking ban. The House has passed a bill
that bans smoking in restaurants, but allows it in private clubs and businesses that ban minors. A House com-
mittee had passed a more comprehensive smoking ban that prohibited smoking in restaurants, bars, and most
public places, according to the Asheville Citizen-Times. 
Virginia and North Carolina, where tobacco is a major part of the history and economy of each state, would
join Maryland and the District of Columbia in banning smoking in bars and restaurants around the Fifth District.
West Virginia and South Carolina do not have statewide bans, although certain cities and counties in South
Carolina ban smoking. The cities of Charleston, Columbia, and Greenville have bans. 
Critics of smoking bans suggest that restaurants and bars already have an incentive to cater to consumer
demand — including demand for smoke-free establishments. 
Also, smoking bans could have some unintended consequences. Economists Chad Cotti of the University of
Wisconsin-Oshkosh and Scott Adams of the University of Wisconsin-Milwaukee found a higher number of
fatal traffic accidents involving alcohol in locations where smoking is banned in bars compared to locations
where smoking in bars is allowed. That’s because the bans provide an incentive for smokers to drive longer dis-
tances to — and from — where they can smoke in bars. In a different paper, they also found smoking bans
reduce employment by a statistically significant amount at bars, but have a neutral effect on restaurant
employment, on average. States with a larger number of smokers see more negative effects, but as the number
of smokers continues to drop, these effects will too, Cotti says. 
Tax and price increases have played a major role already in reducing the number of smokers. Economists
traditionally view tax policy as a way to curb smoking or recover costs from externalities that smoking causes.
While there is disagreement about the magnitude of smoking’s health care costs, “that there are costs I think is
pretty clear,” says Frank Chaloupka, a University of Illinois-Chicago economist. While taxation is a “blunt instru-
ment,” he says, tax increases can have a significant impact on the smoking habits of young people, who tend to
be more responsive to price increases than older smokers. 
—DAVID VAN DEN BERG
Starting December 1, Virginia will ban smoking in both bars and restaurants. 
T
hese days the subject of bonuses to executives of troubled
firms incites strong reactions. But are there circumstances
in which they are justified?
Maybe so, according to Circuit City. The 60-year-old 
electronics retailer based in Richmond, Va., filed for Chapter 11
bankruptcy in November 2008 and announced its liquidation in
January 2009. Many were surprised when the company 
appealed to bankruptcy courts in February 2009 for more than
$4 million to provide additional pay to executives and staff
overseeing the liquidation process.
These funds are not bonuses, however, argues Bill Cimino,
Circuit City’s head of corporate communications. He says the
funds are being provided to incentivize executives and retain
critical nonexecutives throughout the liquidation process.
“They are primarily being used to maximize the value of the
‘estate’ for Circuit City’s unsecured creditors,” Cimino says. 
Unsecured creditors of a liquidating company can be 
the biggest losers from bankruptcy, since they are the last of the
Lights Out
Incentive and Retention Pay OK’d for Circuit City Employees
RF_WINTER_2009  4/20/09  12:48 PM  Page 3creditors to get paid
from the remaining
value of the com-
pany. The relation-
ship between the
payout to unsecured 
creditors and the
orderliness of the liq-
uidation process is
clear: The more effi-
cient the liquidation,
the greater the
remaining value of the estate. That means the
unsecured creditors are able to recoup more of
what they are owed by the company.
The Circuit City plan works like this: A
group of 14 top executives and officers will
receive roughly $2 million through the plan.
The pay will be awarded gradually, as execu-
tives meet a set of 20 goals relating to the
liquidation. The amount they receive will vary
according to how successfully the tasks or
goals are completed. As a result, the final
amount ultimately paid out may be less than
the $4 million approved for the overall reten-
tion and incentive plan.
Circuit City estimated that each of the 20
targets would increase the total value of the
estate by $250 million if completed at the max-
imum success level, while the corresponding
cost in executive pay would be less than 1 per-
cent of that amount. “The amount of revenue
they bring in determines how much is paid out
to them,” Cimino says.  
The company knew it would be a “hot
button” issue to allocate incentive pay to its
top executives when 34,000 other staff would
lose their jobs as a result of the liquidation. As
a result, it agreed to take chief executive 
officer James Marcum out of the incentive
package. 
The company also views stopping the drain
of essential nonexecutive employees as critical
to maximizing the revenue from liquidation. A
group of 137 employees at director-level and
below will receive up to $1.62 million in reten-
tion pay if they stay with the firm through
specified dates. This is in addition to a “discre-
tionary” pool of up to $750,000 to be
distributed to any of 250 employees (top-level
executives excluded) to stem any sudden
turnover or to hire anyone with needed skill
sets. It would also finance more mundane tasks
that are essential to winding down the compa-
ny’s operations.
“People don’t realize what has to happen
behind the scenes to make a liquidation hap-
pen,” says Scott Carpenter of Great American
Group, one of four companies collaborating in
Circuit City’s liquidation. “Despite the liqui-
dation, you have to keep systems going, 
lights on, and heat and water flowing, in addi-
tion to more obvious needs like payroll,” he
says. “Those people who stay on are a critical
function.”
After some negotiation, the retention and
incentive plan was approved by the company’s
unsecured creditors. Since they get only what’s
left of the estate after secured and preferential
creditors have exhausted their claims, they
have strong incentive to contest any expenses
that may not be offset by increasing the value
of the estate. “Ultimately,” Cimino says, “this
money belongs to the creditors. They believe
the retention and incentive plan is a good
investment to keep people motivated, and to
achieve the liquidation goals and thus maxi-
mize the value to them when the estate is
finally settled.” 
Critics of the plan have argued that the
dour job market is incentive enough for some-
one to stay with the company, but Carpenter
disagrees. “In this economy it may be hard to
get a new job, but the most competent people
typically won’t have any problem,” he says.
Talented employees who know the business are
precisely the ones needed most to stay on to
meet the goals of Circuit City’s liquidation
process, according to Carpenter. 
Although Circuit City’s nationwide retail
locations closed several weeks ahead of sched-
ule in March, it could take the company’s
corporate operations up to 18 months to com-
pletely close its doors. Cimino and Carpenter
say the court-approved retention and incentive
plans had nothing to do with retail stores clos-
ing early; it was purely a result of demand for
inventory during the company’s close-out
sales. The success of the remainder of the
wind-down process, however, will depend 
on remaining staff and executives.
—RENEE COURTOIS
4 Region Focus •  Winter 2009
Empty parking lots are
a common sight at the 
567 Circuit City retail 
locations that closed in
the first quarter of
2009 after the company
announced its 
liquidation in January. 
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RF_WINTER_2009  4/20/09  12:48 PM  Page 4A
n implosion took down the 11-story Union Carbide headquarters building near the
University of Charleston in South Charleston, W.Va., in March, with alumnus Chris
Belcher paying $5,207 for the privilege of activating the demolition on eBay. But Belcher
didn’t stop there. He donated the privilege to the university’s baseball program where
he and his brother played in the 1980s on scholarships. In turn, the team raffled off the
right to “push the button” at $10 per ticket, generating about $5,000 in sales.
“I’ve been contacting my clients and vendors — it’s been a full-time job on top of
my full-time job,” Belcher said. He is president and owner of Cincinnati, Ohio-based Pinnacle Environmental. 
The general fund will receive the original amount Belcher paid on eBay, but the raffle money will go to the base-
ball program. “Without those scholarships, neither one of us could have afforded to go there,” Belcher said. “When
I saw what it [the auction] was going to close for, I said, ‘I know we can raise more money than this.’”  
Dow Chemical, which bought Union Carbide in 2001, donated the 1948 structure to the university in 2006, but
the university would like to sell the 6.5-acre site. The university had planned to house classrooms, faculty offices,
and living quarters for pharmacy students in the building, but the cost of compliance with the Americans with
Disabilities Act, estimated to be as much as $10 million, was deemed too high.
The building formerly served as regional headquarters for Union Carbide and was considered a symbol of West
Virginia’s chemical industry. The land is priced at $3.5 million. The land is flat and easily accessible to the inter-
state, an attractive combination in the Mountain State. Two firms handled the $1.6 million demolition project.
—BETTY JOYCE NASH
Winter 2009 • Region Focus 5
The University of
Charleston 
auctioned the privi-
lege of setting off
the implosion that
demolished a 
building which Dow
Chemical donated to
the school in 2006.
The $5,207 will go 
to the university’s 
annual fund. 
The lot 
will be sold.
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uke Energy plans to test an energy efficiency pro-
gram on 100 of its Charlotte, N.C., customers by
early summer. It integrates electronic devices such as
digital meters and thermostats that can provide details
about electricity consumption. Automatic switching for
various appliances, heating, and air systems can save
energy and money as well as smooth electricity demand.
The goal is to reduce consumption without affecting
convenience or productivity.
The final program has yet to be determined, but
components are likely to include heating, ventilation,
and air-conditioning switches that could be pro-
grammed to operate for shorter periods of time. “If you
aggregate that across millions of customers, that’s a
huge amount of energy saved,” says spokesman Dave
Scanzoni. “Long term, where the industry is headed is
time-of-day rates, [where you’re] charged less if you use
electricity off-peak.”
Participants will receive $100 at the start of the pilot
and another $100 if they finish the program. That’s in
exchange for allowing the smart technology to be
installed, completing surveys, and offering feedback for
Duke Energy.
The plan was approved in March by the North
Carolina Utilities Commission. If it works, the system
may be expanded.  Duke Energy already has installed
100,000 digital meters across the five states (including
the Carolinas) where the firm operates, including
12,000 in Charlotte alone. 
In the Charlotte pilot program, residents can man-
age energy use online. Or the utility can manage it for
them, according to their “personal energy profile,”
which tracks the times of day that they run air condi-
tioners, heat pumps, water heaters, dryers, ranges,
ovens, pool pumps, lights, outlets — you name it. 
“Right now, electricity is one price, 24-7,” he says.
“There’s no incentive to use less or use it at different
times.” If consumer demand could be shifted, he notes,
the need to build more plants that handle electricity at
peak hours could be alleviated.
To boost development of smart grid technologies,
the American Recovery and Reinvestment Act of 2009,
better known as the stimulus bill, contains $4.5 billion
to upgrade the grid. Many times that amount will be
necessary to overhaul the nation’s transmission system.
Duke Energy may apply for those grants once the details
are finalized. Any grants would be in addition to its
commitment to spend $1 billion on smart grid efforts
over five years.  
Reduced energy demand is also a relatively inexpen-
sive way to reduce carbon emissions. Cutting carbon
will be essential for electricity producers if the nation
prices carbon through a tax or cap-and-trade program.
—BETTY JOYCE NASH
Smart Grid
Digital Devices Will Save Energy
eBang
University Auctions a Demolition Trigger 
RF_WINTER_2009  4/20/09  12:48 PM  Page 5

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