Bacon's Rebellion

James A. Bacon



 

A State of Mind

 

A "yes" vote for the statewide, education-and-

parks bond referenda this fall would speed Virginia's transition to the Knowledge Economy.


 

For the first time in our credit-sated memories, “debt” has become a four-letter word. Having incinerated trillions of dollars of wealth, Enron, WorldCom and other ne'er-do-wells have discredited the notion that indebtedness can be reconciled with financial prudence. Given the parade of defaults and defalcations in the corporate world, Virginia voters might be forgiven if they do not warm to the proposal, proffered amidst the worst state budget crisis in a decade, to stoke up the Commonwealth’s debt by another billion dollars.

 

But I intend to vote “yes” this fall in favor of two sets of general obligation bonds: one that raises $900 million for higher education, and one that sets aside $119 million for parks and conservation. The bonds will make possible long-term investments in Virginia’s future that the state cannot responsibly do without. And despite short-term fiscal woes, Virginia is fully capable of taking on the added debt without endangering its coveted AAA bond rating.

 

In a nutshell, my argument for the college bonds is this: In a globally integrated economy, knowledge and the innovation that springs from it are Virginia’s only sustainable sources of competitive advantage. Colleges and universities are founts of knowledge and innovation. If we fail to invest in higher education, we consign ourselves to a future of mediocrity and economic stagnation. Slam dunk, end of argument.

 

The case for parks and conservation, though not quite as compelling, is still strong. For an unsentimental realist like myself, the park bonds aren’t about protecting the birds and the trees – they’re about enhancing Virginia’s quality of life. It makes no sense to invest in our educational system if we can’t make the state an attractive place to live for the scientists, engineers, professionals and other knowledge workers who emerge from that system. They value recreational amenities in a natural setting, and we should make them available.

 

To appreciate this argument, it helps to stand back a bit and look at the big picture. In an integrated global economy in which the manufacturing and back-office functions of U.S. corporations are rapidly migrating to China, India and other industrializing nations, how can Virginia compete? Our companies can do it by out-innovating their competitors: creating new products, applying advanced technologies, and deploying more sophisticated business practices. Our can employees do it by outfitting themselves with the skills companies need to make those things happen. Regions can do it by stimulating R&D, entrepreneurial activity and workforce development. That’s it. The only alternative is to compete on the basis of cost – a losing strategy when Third World nations will always have access to cheaper labor, cheaper real estate and, often, cheaper, government-subsidized capital.

 

How, then does Virginia nourish innovative companies and productive workers? Several elements are essential, but of those that can be influenced by government policy, two stand out: Stimulate research and development, and invest in human capital. Colleges and universities are the institutions where those things happen. Increasingly, R&D in the U.S. is being conducted in a university environment. And only colleges and universities are equipped to educate scientists, engineers, programmers and professionals in large numbers.

 

In a report released last week, the Milken Institute, a Los Angeles-based think tank, published a “State Scientific and Technology Index” that predicts how well the 50 states are positioned to prosper in the technology-intensive information age. The good news is that Virginia ranked 5th among all the states. The bad news – which the report did not state outright, but is evident to anyone who knows the Old Dominion -- is that most of Virginia’s information-technology assets reside in Northern Virginia. If Northern Virginia seceded, the Rest of Virginia might rank no better than Kansas or Missouri.

 

The Milken report identified 73 indicators that fell into five broad categories: R&D inputs, risk capital and infrastructure, human capital investment, technology and science workforce, and technology concentration and dynamism. According to authors Ross DeVol, Robb Koepp and Frank Fogelbach, these factors account for 75 percent of the variation in per capital income across the 50 states.

 

“The elements that make a state or regional economy vibrant and prosperous today are fundamentally different from those in the past,” the authors write. “Some states have been slow to recognize these changes or to make the required transformation to participate fully. States that don’t alter course quickly will leave their economies and citizens ill prepared and potentially devastated in the future.”

 

The higher education bonds, if approved by voters, will finance about 100 renovation and new-construction projects in museums, colleges, universities and community colleges across the state. James Madison University will get a new center for the arts. The University of Virginia will erect a building dedicated to materials-science engineering and nanotechnology. Old Dominion University will renovate its chemistry hall. Danville Community College will construct a new maintenance building.

 

Virginia’s universities are in no fiscal condition to undertake these projects on their own. The Virginia Business Higher Education Council contends that higher education is already under-funded to the tune of $200 million a year. Meanwhile, enrollments are soaring. Higher ed resources will be strained even more by the need for public colleges to accommodate an estimated 31,600 additional students by 2010.

 

Compared to other states, public universities in Virginia don’t get much help from state government, according to the Higher Education Council. When Virginia institutions are compared to their peers (as determined by the academic programs offered and research conducted), most rank near the bottom when measured by state support per student. For example, the University of Virginia belongs in a group of 15 public peer institutions; 13 received more state funding, only one received less.  

 

  Virginia Institution

Number of U.S.
Public Peer
Institutions
a

Virginia Institution's

Rank in State Support
per Student

George Mason

23

23

Old Dominion

24

21

UVa

15

14

VCU

20

13

Virginia Tech

21

16

William & Mary

9

7

Christopher Newport

21

15

UVA at Wise

7

2

James Madison

20

18

Longwood

16

11

Mary Washington

3

3

Norfolk State

24

11

Radford

24

22

VMI

7

-b

Virginia State

22

11

Community Colleges
- Average

20

17

a Number includes Virginia institution.
b Four of VMI's seven peer institutions are the
U.S. military academies that do not receive state appropriations.
Source:
Virginia Business Higher Education Council

 

Admittedly, these numbers may exaggerate the funding gap with other states. According to the Milken Institute report, Virginia ranked in the second quartile of all states when measured by state appropriations per capita for higher education. That’s nothing to brag about, but it’s hardly the portrait of parsimony painted by the Higher Education Council. If Virginia has an exceptional number of quality schools which measure themselves against prestigious peers, the funding per institution may be lower because the state is spreading its resources over more colleges -- not because the state is austere in its overall spending.

 

But there’s no denying the second-rate status of academic R&D in Virginia. Although Virginia Tech, UVa, Virginia Commonwealth University and other schools have a number of excellent programs, the total level of research is third rate. Literally. The Milken Institute places Virginia in the third quartile of states ranked by academic R&D per capita.

 

According to the 2002 edition of the “Top American Research Universities,” published by University of Florida-affiliated theCenter, Virginia’s R&D champion, Virginia Tech, is ranked only 49th nationally for total research. The University of Virginia ranked 56th. There is a world of difference between No. 1 and No. 49 – more than $700 million to be exact. The top-ranked research university in the country, Baltimore’s Johns Hopkins University, racked up $901 million in R&D in 2000 compared to Virginia Tech’s $193 million.

 

Virginia Tech has publicly proclaimed a goal of becoming a “top 30” research institution. Getting there won’t be easy. North Carolina State holds that position right now, with $278 million in R&D. That means Virginia Tech needs to generate an additional $85 million in R&D annually to catch up – assuming N.C. State stands still, which it won’t.

 

The higher ed bonds will provide Tech with $72 million in capital funding, including $40 million for a new biology building, vivarium and engineering facility. Tech will need to raise millions more in operating revenue to hire top-notch research faculty, graduate students and administrative support. The bond proceeds represent little more than a down payment for what the school needs to achieve its ambitions.

 

But at least it’s a start.

 

The park bonds, if approved, will be used to improve Virginia’s state parks and acquire nature preserves for the protection of rare and threatened elements of Virginia’s natural heritage. The plan calls for using $41 million to purchase land for three new state parks, 11 existing parks and 18 natural area preserves. The other $78 million will pay for construction and repairs of cabins, trails, campgrounds and shoreline subject to erosion.

 

Talk about bang for the buck! Despite ranking 49th in the country in spending per capita, Virginia’s state park system has been recognized as the best in the nation. In 2001, the National Sporting Goods Association's Sports Foundation Inc. gave Virginia's Department of Conservation and Recreation its gold medal. I’m not worried about these guys squandering the money we would entrust them.

 

Virginia is blessed with abundant natural beauty. I’ve personally enjoyed jogging and biking in the False Cape State Park, one of the most spectacular natural wetlands remaining on the East Coast. I’ve also marveled at the Breaks Interstate Park on the Kentucky border, site of the deepest canyon east of the Mississippi.

 

There are many sentimental reasons for upgrading our park system, but there are practical ones, too. In his analysis of the “creative class” -- the artists, professionals and technical gurus who drive the knowledge economy – economic developer Richard Florida noted that creative people value outdoor activities such as bicycling, jogging, kayaking and even extreme sports such as trail running and snowboarding. Such people are drawn to communities where outdoor activities are prevalent, “both because they enjoy these activities, and because their presence is seen as a signal that the place is amenable to the broader creative lifestyle.”

 

Members of Florida’s “creative class” are highly mobile. They choose to live in communities that offer the lifestyles and recreational opportunities they desire. As Virginia positions itself as a leader in the knowledge economy, it must invest in the amenities that creative people partake in, or risk seeing them move to communities more to their liking.

 

Make no mistake, the college and parks bonds are long-term investments in Virginia's competitiveness and quality of life. The bonds will provide little immediate stimulus to Virginia’s wheezing economy. Pam Currey, deputy secretary of finance, says she expects the bonds to be issued over a seven- to eight-year period as the money is needed to bring the parks and college projects online. It’s a great time to borrow, with municipal rates below 5.0 percent. The annual debt payment would peak around $87 million, about 0.7 percent of current General Fund revenues.

 

The $1 billion in bonds are well within the range of $1.26 billion that the state can issue biennially in tax-supported debt, according to the December 2001 Debt Capacity Advisory Committee. The long-term structure of the bonds is appropriate to the long-term life of the physical assets they’re paying for. Despite its short-term fiscal woes, Virginia is fully capable of taking on the added debt without endangering its coveted AAA bond rating.

 

Unfortunately, Voters may be in a querulous mood this fall. The state budget crisis seems to deteriorate weekly. Meanwhile, the regional sales tax referenda in Northern Virginia and Hampton Roads are engendering strong anti-tax movements in those regions. If large numbers of people in both those populous regions show up at the polls this November to vote against the tax increases, their ire may know no bounds That would be a shame because the colleges-and-parks bond proposals are vital for Virginia’s transformation to the Knowledge economy.

 

-- Sept. 23, 2002  

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Read the

 Milken Institute Report

 

You can access the Milken Institute's "State Scientific and Technology Index" online by clicking here. Or you can read my Virginia-centric synopsis of the report by clicking here.