$1 Billion in Bonds for R&D Initiatives

Virginia Tech robotics competition team

Virginia Tech robotics competition team

by James A. Bacon

Governor Terry McAuliffe has unveiled a $2.43 billion bond package, about $1 billion of which will go to Virginia colleges and universities for technology initiatives.

“The bond package represents the largest research-oriented capital investment in the Commonwealth’s history as well as the largest state investment,” states the press release issued by the governor’s office. “The chief focus of this bond package will be strengthening research and workforce development in high-demand fields at Virginia’s four-year institutions of higher learning and community colleges.”

Stated McAuliffe in making the announcement at the Virginia Commonwealth University (VCU) Medical Center yesterday: “If we are going to build a new Virginia economy, we must make smart investments in research, higher education, veterans, public safety, tourism and environmental stewardship that will yield returns for decades to come.”

The proposed bond issue will allocate $100 million over two years in “competitive grants for research activities,” and $40 million over two years “in cash incentives for research and matching funds to secure federal grant funding.” Funds will be used to renovate research labs, purchase equipment and attract top talent to higher education institutions. The state will leverage the funds through public-private initiatives and by focusing on centers of excellence.

“The goal of the research component of this initiative is to put Virginia on the map as the best place in the nation for entrepreneurs to start their businesses and design the next generation of revolutionary products,” states the announcement.

Another $850 million will go to new buildings, labs, classroooms and renovations at VCU, VirginiaTech, Old Dominion University, the University of Virginia, Longwood University and several community colleges.

Bacon’s bottom line: The top priority of any bond package is to fit within the financial parameters — debt service accounting for no more than 5% of total revenue — required to maintain Virginia’s AAA credit rating. I presume that McAuliffe scaled the size of the $2.4 billion proposal to the bond-issuing capacity that will be freed up by retirement of old debt and the anticipated growth of state revenue projected over the next two years.

As for funding priorities, McAuliffe’s instincts are right — we need to invest in the industries of the future, not prop up the industries of the past. The assumption underlying his initiative is that pumping money into university buildings, labs and research programs will help build the industries of the future. Such a conclusion seems intuitively obvious but bears examination. As we move in for a closer look, questions arise:

(1) To what degree is R&D lab space and equipment a constraint on recruiting research scientists (and the grant money they bring with them) to Virginia universities? Is McAuliffe proposing the R&D equivalent of shell buildings used to entice manufacturers? Build it and they will come?

One could make the argument that the hard part in building an R&D program is recruiting star scientists, not building buildings and labs for them. Say Virginia Tech, UVa or VCU could land a research scientist who would bring $10 million in federal or industry research dollars with him. Surely it would be a relatively modest a challenge to find him (or her) lab space and equipment in short order. Might there be other ways to recruit star research scientists — to pay them more, for instance, as Texas has used a bond issue to do.

(2) To what extent will higher R&D spending at Virginia universities result in the local commercialization of technology, creation of opportunities for local entrepreneurs and local job creation? Tech, UVa and VCU all can point to anecdotal success stories, and each can point to research parks that have filled up with tenants. But add it all up, and what does it amount to? Do Blacksburg, Charlottesville and Richmond have the support resources — tech-savvy management, early-stage capital — required to leverage R&D into spin-off jobs in the local economy?

Northern Virginia has Virginia’s most advanced technology sector, the deepest technology management bench to recruit from, and the most advanced venture capital sector. If spinning off entrepreneurial opportunities is a key part of the mission, wouldn’t it make sense to build the R&D capacity of Northern Virginia’s largest institution of higher ed, George Mason University? GMU doesn’t even get broken out in the list of universities receiving funding support. What the heck is going on?

(3) Finally, as a practical matter: How would this money be spent? Would it sit in a slush fund like the Governor’s Opportunity Fund used to sweeten the pot for corporate recruitment deals? What restrictions would be put on its use?

The devil is in the details, and I’m sure the General Assembly will give McAuliffe’s plan a closer look. Hopefully, we’ll see a better articulated case for the R&D initiative than can be crammed into a press release.

There are currently no comments highlighted.

35 responses to “$1 Billion in Bonds for R&D Initiatives

  1. McAuliffe trying to buy votes downstate ahead of 2016. He figures that Northern Virginia is solid blue so why spend any money in NoVa? Sadly, the dimbulb “come latelys” who live around here are just sheep enough to vote Democratic no matter how badly the Democratic Party politicians treat them.

  2. I’d actually argue that Va needs to leveraging it’s existing Universities outside of NoVa.

    NoVa will always be filthy rich with govt largesse… and even Don agrees that RoVa needs to start pulling more economic weight.

    and let me make one political observation about NoVa

    NoVa IS BLUE but all the commuting sprawlers to Loudoun, Fredericksburg and Culpeper are GOP voters…

    why is that?

    • Adjusted for cost of living NoVa (inside the Beltway) is less affluent than the Richmond area (including the city of Richmond). So, here we go again. Another wealth transfer from the less affluent to the more affluent. Democratic politics at its best. Trust me – this is all about McAuliffe trying to buy votes in downstate Virginia.

  3. I was an Associate Professor in engineering for many years and a consultant to industry for many more years. The most productive research was being done in industry. Universities should stick to basic research — not applied research. All these funds will do is make college professors even richer.

    • Fred: basic or applied, which is it? The press release says, “The chief focus of this bond package will be strengthening research and workforce development in high-demand fields at Virginia’s four-year institutions of higher learning and community colleges.” This is jargon, but “workforce development” sounds more like ‘applied.’

      • I tend to agree with Acbar. The focus is workforce development – i.e. to train folks and incubate jobs for the 21st century economy – that are not govt jobs and not just NoVA and Hampton.

        take the budding startups we see at UVA, Tech and other Universities and amp it up.

        the ultimate goal is to start get non-govt economic development going in Va.

        I support it – and not opposed to alternative variants.. as long as we acknowledge that we need to move in that direction.

        • I’m inclined to agree with Fred, given his experience, but wonder to what extent the difficulties with applied research at universities could be overcome by successful partnerships with industry. I look to what North Carolina has done with the Research Triangle and it seems like there’s a level of competence at the state level in N.C. when it comes leveraging higher ed research into tech business formation. Yes- the Tar Heels are fortunate to have all their best schools in one region, unlike the situation in Virginia, but it seems like they’ve got this stuff figured out and aren’t just throwing research money at higher ed without a plan behind it. Hopefully the spending in Virginia is backed by oversight and a solid plan so it doesn’t become a pork fest. These higher institutions really excel at wasting money, not just in VA but everywhere it seems nowadays.

    • Applied was the go go fad a few years back, including at UVA set asides for public private ventures as I recall. I doubt that has changed.

    • Having taxpayers fund applied research, rather than basic, will create a new level of corruption and government favoritism. Within 10 years, the US DOJ will be investigating serious violations of the law.

  4. Agree with Fred.

  5. You bring up some interesting points.

    I might offer this as food for thought: yesterday 3 Notch’d Brewing in Charlottesville announced an expansion in Richmond. In the past five years, I have been amazed at the increased ties between Richmond and Charlottesville in terms of commuters, businesses, arts, etc. I am also interested in a recent proposal to look at Richmond and Hampton Roads as a combined MSA.

    Slowly, but surely, I think the Richmond region is starting to find its footing for the 21st century. It’s beginning to lose some of its provincialism and starting to become integrated with other parts of the state, nation, and globe. I might also add that high speed rail to DC is also starting to look more realistic for RVA.

    I think Richmond is poised to take some major economic and cultural steps forward in the next two decades as this integration takes place. State investments in that region are probably a judicious use of taxpayer dollars in terms of trying to create a growth area for Virginia (if that is a goal of the state’s political economy).

    The flat tire of the state remains…..South of 64 and west of Richmond. I was in Roanoke in early November. I walked the downtown area for a good hour and a half on a Wednesday afternoon. I could not believe how desolate the place is for a “city” of 100K. The issues there are structural and would need extensive state intervention to improve. It’s sad, but it’s reality. Perhaps a few new classrooms can help, but I’m afraid that it’s a band aid at best. Of course, I’ve been preaching that on here for years, but no one seems to care. Unless and until Virginia either bites the bullet and A.) makes enormous public investments in Southside/SW or B.) decides to have a “if you choose to live there, pay for it, we’re not going to keep sending NoVa tax dollars to subsidize 10% of the state’s population”, I don’t think a lot of Virginia’s structural issues will be solved.

    • Has not Roanoke been heavily involved in downtown urban renewal, the Roanoke Hotel project for example is complete? Has that overall effort lapsed?

      • Mr. Fawell,

        The City has certainly attempted urban renewal. But I’d leave it to you or anyone on the blog to visit on a weekday and compare it to other areas of Virginia. I was struck by just how empty the downtown area felt in the middle of a business day.

        I tend to compare Richmond and Roanoke. In 1995, Richmond was certainly “ahead” of Roanoke in terms of development, culture, etc. But I wouldn’t argue that it wasn’t miles ahead. Richmond still has some of the same features in 2015, but it has undergone a lot of change/development/etc. One cannot say that Roanoke has done the same…..Richmond in 2015 is miles ahead of Roanoke.

        • I lived in Roanoke 1980-84, and Roanokers enjoyed a great civic pride. We frequently compared ourselves to Richmond, and while we acknowledged that Richmond was bigger and had a larger business community, we felt like we played in the same league. I can’t imagine anyone thinking that now.

          Roanokers also compared themselves to Asheville, N.C., and Knoxville, TN. My sense is that those two communities have managed the transition to the 21st-century economy far better than Roanoke has. Of course, they were university towns. Roanoke’s main university is Virginia Tech — 30 to 45 minutes away. If only Virginia Tech had been closer, I think Roanoke would have fared pretty well.

          Roanoke’s decline fills me with great sadness because I truly loved the community. If there had been more job opportunities, I would have stayed.

          • VT is at a distance in Blacksburg; certainly there’s Roanoke College, and Hollins, both of which are nowhere near downtown, and Virginia Western CC.

            But if you mean higher education as big business, employing and housing thousands and sustaining the cultural life of the community, that’s Charlottesville or Richmond or Williamsburg or Harrisonburg but not Roanoke. Historically anyway, Roanoke was a transportation staging area for the westward migration before the Civil War, then after that war a major railroad hub — but never a manufacturing town like Lynchburg or Danville, never a center of State activity like Richmond, never a military employment center like Norfolk or Petersburg or Williamsburg, never a broad-based regional downtown shopping district like Richmond (once) was.

            CR’s description of deserted Roanoke reminds me of visiting Galax one afternoon this summer. Downtown Galax without furniture manufacturing to sustain its economy is a sad sight; only the pretty store fronts and annual music festival relieve the gloom. Given the N & W’s diminished stimulus of the Roanoke economy what could sustain Roanoke today?

          • Cville Resident

            Very accurate post. That’s how I remember it as well…in the early/mid 90s, while it wasn’t Richmond, it certainly felt like a true regional hub. Now? No one in Roanoke would seriously compare it with Richmond.

  6. urban renewal won’t help if the jobs go away and that’s the problem.

    Virginia has withered away…atrophied over the years and relied more and more on Federal spending for it’s economy.

    we are at what ? .3% GDP growth?

    if you subtract out the govt spending part of GDP – what does Va have?

    Fully one half of the Federal Govt spending now goes for “National Defense”.

    Don’t confuse that with DOD. The FBI, CIA, NSA, DOE, NASA, Coast Guard, TSA, etc, etc, etc… total to well over a trillion dollars out of a budget that is about 1.6Trillion in income taxes.

    And Virginia is one of the larger piglets sucking on that big hog.

    • Maybe we are one of the “larger piglets,” but how does Virginia rank today on the scale of federal taxes paid versus federal dollars spent in the State? I suspect, despite all that military and NoVa civilian employment, Virginia is not anywhere near the most federal-dependant State on that economic scale.

  7. how do you count Federal Taxes paid when they are paid by a Federal employee in NoVa or Hampton?

    😉

    States With the Most Government Employees

    4. Virginia ( behind Maryland, Hawaii and Alaska)

    > Pct. working for government: 22.8%
    > Median household income: $61,882 (7th highest)
    > Unemployment: 5.6% (12th lowest)

    In Virginia, more than 11% of all workers [statewide] were federal government employees, a figure that trails just three other states. In northern Virginia, many people commute into Washington D.C. to work for the federal government. The Pentagon is also located in Virginia, right outside of D.C., employing tens of thousands of uniformed and civilian workers. Areas outside the capital region also employ many government workers, including military bases around Virginia Beach.

    http://247wallst.com/special-report/2013/03/11/states-with-the-most-government-employees/3/

    the truth hurts here… right?

    it’s a half glass thing.. we do have a AAA rating and it’s not likely the Feds are going to move Washington HQs to somewhere else… so we’re good to go.

    on the other hand – we do have a crushing MedicAid burden that is largely RoVa which is one of the more anemic economic areas in the entire 50 states.. with dismal prospects for the future… not a place most employers want to be.

  8. Acbar,

    I think you ask good questions. What is it that we could do to drive Roanoke’s growth?

    I feel like we aren’t being serious about the state until we have the hard conversation about rural Virginia and its small cities. Do we want to make a serious effort to spur economic growth in those parts of the state? Obviously, whatever your ideology, you’d probably agree that we need to make more public investments (not the ridiculous “grants” for “economic development”) that would enable growth. Or is economic growth a goal for that region? I just don’t feel like we have a coherent policy about rural Virginia.

    • Trouble is, no one can agree upon a reasonable economic growth strategy for Virginia’s small cities and towns.

      Ten years ago or so, I produced a quarterly electronic newsletter for the Shenandoah Valley Partnership 9SVP), and I tried to leaven the news about manufacturing success stories with news about the phenomenal arts & culture and small business activity in the region. My thought was that the Shenandoah was a refuge for high-income, entrepreneurial types fleeing the out-of-control lifestyle of Northern Virginia. I said the SVP should be recruiting those people rather than chasing smokestacks. They canceled after a year. The board of the local EDA just didn’t get it.

      Recruiting Washington-region refugees definitely would work for the Shenandoah Valley. It wouldn’t work for other area. North Carolina mountain communities have become havens for retirees. Every region has different assets to build upon. But people have to get over the idea that foot-loose light manufacturers will bail them out.

  9. re: economic development, urban renewal and arts & crafts

    I think the govt involvement in economic development is problelmatical at best. Yes.. if a company is “interested” – the ED folks can get in that game and figure out what incentives might seal the deal and yes it can get into a competition about taxes and other imposed costs such as water and sewer, airports and industrial parks .

    but these are things for companies that already have plans to do something.

    how does the govt convince companies to move to an area if they were not interested in that area in the first place? That’s where you try to figure out what the area has and does not have – relative to what companies want.

    companies now days are not usually looking for hundreds or thousands of workers to man a plant although I think Volvo DID locate a plant near Roanoke so it’s not impossible.

    but I continue to differentiate between “net” jobs and “infill” jobs.

    businesses to sell goods and services to existing rooftops are not “net” jobs. No matter where you are, there will be a certain level of economic activity of the people living there buying needed goods and services like groceries and furnaces and kids shoes, etc.

    how much of that kind of activity is pretty much correlated with population and trying to attract more Family Dollar or Walmart does not increase the level of purchases of goods and services – it just splits the same pie more and/or drives the marginal competitors out of businesses – something you’ll see with the systematic destruction of Mom/Pop stores.

    I’d put arts and crafts in the same category unless it is a significant tourist industry… selling arts and crafts to fellow citizens in an area not growing in population is near the bottom of the discretionary income food chain.

    when a region or area has net jobs over and above what the existing resident citizens purchase in goods and services – you have net jobs and economic growth and expansion.

    it totally works in reverse When a big employer leaves – the economics reverse.

    and this is one reason why – even when the country is spending in deficit – local leaders, Congressmen, and Senators will fight to keep bases open that the Pentagon wants closed.

    so the long and short of it is that IT professionals in NoVa are not going to “flee” to Roanoke for a better quality of life – if there are no IT jobs there.

    How do you get IT jobs in Roanoke?

    what are the “investments” that Govt (in Roanoke) should spend tax money on to attract IT (or other employers) to that area and bring “net” jobs?

    I’m not discounting the fact that in a “connected” world, it might actually be possible for individuals with skills they can use anywhere there is good internet – to move there and perhaps that’s the world we now live in – not a big IT company but hundreds of individual IT workers.

    Why can’t Roanoke become the Bend, Ore , Austin Tx or Boise Id or Asheville, NC, Greenville, SC of the East attracting the young with active lifestyles?

  10. One of Virginia’s biggest problems is that most of its best universities are not located in its largest metro areas. Contrast UNC, NCSU and Duke in the Triangle of North Carolina. The RTP would not have been possible without the proximity of these universities to Greater Raleigh-Durham-Cary. Yes, the feds have replaced Chapel Hill with the larger city of Cary, NC.

    While it is a private school, Wake Forest moved from north of Raleigh to Winston-Salem in 1956, following the medical college that moved in 1941. While the folks in Blacksburg would scream, what if VA Tech were to migrate to Roanoke? I’m posing this as theoretical and not practical.

    • TMT,

      There is no doubt that the biggest handicap to Southwest Virginia economic development is with VT located in Blacksburg rather than Roanoke. I think the entire trajectory of that region would look much different if VT was in Roanoke and Roanoke became a major hub of economic development. It makes zero sense to have all the bones of a metro in Roanoke and to have a growth engine about 40-45 minutes away in Blacksburg. Zero. It is interesting to see that the VT-Carillion Med School was placed in Roanoke rather than Blacksburg.

      • what’s that John BOEHNER used to say : “If ands and buts were candy and nuts every day would be Christmas”!!!

        https://youtu.be/-J0bPLY8e1E

        ” The mission of these institutions as set forth in the 1862 Act is to focus on the teaching of practical agriculture, science, military science and engineering (though “without excluding … classical studies”), as a response to the industrial revolution and changing social class.[1][2] This mission was in contrast to the historic practice of higher education to focus on an abstract liberal arts curriculum.”

        Many land grant Universities, in fact, were conceived as institutions whose primary focus WAS agricultural and engineering. VDOT has a significant presence at VaTech. It has a significant Veterinary School also.

        The Virginia Extension Service with offices across Va handle a wide variety of non-urban issues such as wells and septic… 107 county and city offices, 11 agricultural research and Extension centers, and six 4-H educational centers.

        It’s college of Engineering has turned out a ton of professionals in the hard science fields…

        and actually if you look – even most colleges have traditionally NOT been located near urban areas…. and the initial concept was to actually not have colleges located near where students would be tempted to stray far from their learning duties. They were explicitly planned to be away from urban centers.

        so the concept of partnering and locating colleges with modern day commerce and technology and urban areas is new.

        Charlottesville and W&M as well as VMI and many others were also not located near existing urbanized areas – they were “country”.

        Finally – VaTech, UVA and others have put up both bricks and mortar and online satellite locations … and staff and resource them according to what is demanded.

        VaTech has it’s own mission(s) to pursue – and it’s probably not thinking of itself as a solution to Roanoke’s issues.

  11. @TMT – you should check out Bend, Ore, or Butte, Mont or Hood, Ore or a dozen other locations out west that are _not_ big Metro areas but are outdoor meccas that attract young folks and in turn high tech employers… some of those companies are actually owned by active young folks…

    Most folks may not realize it – but Blacksburg is central to many outdoor sports, whitewater, mountain biking, skiing, hiking, hang-gliding, etc.

    • Larry, I am a fan of rural development. My point is limited to the argument that, in today’s world, research universities can have a greater impact on private sector economic development when they are located in larger cities than when they are located in more remote towns.

      I don’t disagree with you that smaller communities can be attractive for entrepreneurs. I’m fine with that. But if Virginia were to start over in locating major state schools, it would be better to have them located in NoVA, Richmond, Hampton Roads & Roanoke. Likewise, transferring funding for basic research to George Mason, VCU and ODU would likely create more total economic value for Virginia than maintaining the status quo.

  12. @TMT – probably an arguable point but one might think in the age of internet and the knowledge economy that location is less a requirement not more…

    pointed out also that both Tech and UVA have deployed satellite sites to NoVa and Hampton… that have actual bricks/mortar and live instructors…

    basic research these days is done online – worldwide…

    applied research would , I would admit, need “more” site-specific stuff like labs and test beds, etc…

    • Larry, I agree location is less of an issue than it used to be. My law firm has one office in Tysons, but has employees across the nation who work from home. We are far from unique.

      But face-to-face is still important. I still go into the office two or three days a week. Based on my knowledge (dated) of basic research at Bell Labs, a lot is still done in a lab or common work area.

      • @TMT – one of the amusing things to me these days is how we argue contradictory points – the same folks – depending on the issue.

        For instance – all this talk about MOOG and the “knowledge economy” and rural internet, etc…

        and yet, at the same time – we argue that places like the location of Blacksburg is “wrong” for the 21st century.

        I mean – WTH !!!

        It just totally is at odds with the way that business and commerce work these days.

        If we are proposing to make Tech and UVA available to all high school students in Va regardless of where they live – why is that not something that would work for commerce and business also?

        how much of this is really self-imposed refusal to let go of obsolete ideas and practices?

        In fact – I’d further argue that places like Blacksburg should become their own MSAs … drawing business and commercial to THEIR location… and actually away from congested places like NoVa! Let rural Va become more economically capable to provide jobs for their own places .. opportunity for their own kids to get training and jobs without having to add to the gridlocked woes of NoVa!

        • Larry, my only point with respect to the location of Virginia’s major universities is that, for statewide economic development purposes, they would likely produce more if they were located in communities with larger population. I agree with your arguments that there are many good reasons for having colleges outside large metro areas. Like most things in life, there are tradeoffs.

          On another point, I think higher education is more than ripe for disruption through online classes. Will this replace all classroom and lab instruction? No, but there are many classes that can be taught outside a classroom. As I recall, my daughter had to take at least one online class to get her degree at NC State. And way back in 19XX, my Psychology class required a computer-based project with paper tapes and punch cards.

          • @TMT – what physical college things do you think benefit from being in urban areas rather than non-urban areas?

            One would think that the Universities that are already located in urban areas would essentially out-compete non-urban Universities and the non-urban ones would atrophy as the urban ones would simply outdraw the non-urban for business and commerce…

            so GMU should have just left UVA and Tech behind …

          • Larry, I have a friend who is on the GMU board of visitors. I’ve been told that GMU is far behind in the line for government funding for research. UVA and VT get funding that GMU doesn’t. That’s what I’ve told.

  13. Thought this was interesting – Texas sounds like Detroit!

    “3 Texas cities have heaviest taxpayer burdens in US”

    With billions of dollars in “hidden debt,” three Texas cities have among the heaviest taxpayer burdens in the United States.

    Dallas, Houston and San Antonio owe a combined $23 billion, according to Truth in Accounting, a think tank that rated government finances in the country’s biggest cities.

    The debt far surpasses the cities’ official figures, which TIA called outdated and incomplete. The Chicago-based group said municipalities move large chunks of debt off their books to meet balanced-budget requirements.

    “This hidden debt is a result of outdated accounting methods used by city government officials, allowing a vast amount of pension and retirees’ health care benefits to be excluded from the cities’ financial reporting,” TIA found.”

    http://watchdog.org/250562/city-tax-burdens/

  14. re: ” . I’ve been told that GMU is far behind in the line for government funding for research. UVA and VT get funding that GMU doesn’t. That’s what I’ve told.”

    @TMT – let me tweak you a teeny bit – .. what you’ve “been told” is anecdotal – not facts.

    right?

    so how about putting some meat on those alleged funding differences?

    but funding is driven by demand also. If GMU says they need more professors for computer science or drone technology and they have to turn away folks – then that’s what I mean by competition.

    If there is demand for something – the free market has no trouble offering …say Cybersecurity to folks with no govt funding needed.

    why can’t GMU do the same thing?

    I know that down our way – Germanna Community college is offering new courses all the time – INCLUDING one they just added on Drone technology – and they didn’t need more funding from the state to do that.

    GMU has a natural advantage on ALL higher ed – it’s CLOSER and many kids rather than paying room&board in Cville or Blacksburg could live at home and attend GMU.. if enough kids want to do that – why is it that GMU cannot offer courses that are in demand and pay the professors with tuition money?

Leave a Reply