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What's
Wrong With This Picture?
If
the budget-chastened state is supposed to focus on
"core" services, why are economic development
programs, which generate new tax revenue, getting
whacked?
With
the General Assembly now in session, the big topic in Richmond
continues to be how to fill the $2.1 billion gap between
spending and projected revenues.
As elected leaders address the budget, we often
hear talk about cutting state government to focus on
"essential services."
Of course, that begs the question. Exactly what
is an essential service?
Most
would agree that the
first tier of core government functions includes public
safety and transportation.
Funding for education and indigent health care
also would be at the top of many Virginians' list.
But what about the revenue side of the budget
equation? Shouldn't
increasing state revenue through job creation be
considered an essential service?
At
least one legislative leader thinks so. In an op-ed
piece this past week, newly elected Speaker of the
House, Del. William J. Howell, R-Fredericksburg,
mentioned job creation through economic development as
an essential state function.
Gov.
Mark R. Warner ran for office promising to promote
economic development, particularly in areas of high
unemployment. Since
taking office, he has certainly been visible in this
area, attending a wide range of economic development
announcements around the Commonwealth.
In the area of job creation, the number the
Governor announced in the State of the Commonwealth
address is well
below prior years, but it is hard to fault the
Administration for that in today's economic climate.
But how does the governor's budget square with
his rhetoric on economic development and job creation?
The short answer is not very well. The governor’s introduced budget bill, HB 1400,
imposes additional deep cuts in an area already reeling
from reductions implemented over the past two years.
The
leader of the Commonwealth’s economic development team
is the Secretary of Commerce and Trade. The secretary’s
office acts as a liaison among the different economic
development agencies and develops and implements
economic development policy on behalf of the governor.
HB 1400 reduces the secretary’s office in size from
seven to five positions and takes about $88,000 from the
current fiscal year and $107,000 next year.
The
flagship agency of the State’s economic development
program is the Virginia Economic Development Partnership
(VEDP). VEDP
markets the Commonwealth around the United States and internationally, works with prospects
to bring them to Virginia, assists Virginia
companies with exports and works with existing companies
on their growth. VEDP
has won numerous awards and has led the Commonwealth to
record-breaking years of economic development. In the
previous biennial budget, Chapter 1073, VEDP received
almost $22 million per year as its operating budget.
That has been reduced to $14.3 million the
current year and $16.9 million in fiscal 2004.
Some of the reduction is due to smaller pass-through
funding for specific programs, but the lower numbers
also reflect a dramatically reduced funding stream for
core VEDP operations.
On
the positive side, the Governor's Opportunity Fund, a
critical job-creating incentive which had been reduced
from $30 million to $20 million in the last budget of
the Gilmore Administration and another $2.5 million in
the first budget of the Warner Administration, is left
at $17.5 million in HB 1400 rather than being reduced
further.
The
Department of Business Assistance (DBA) is another vital
part of the state’s economic development team.
DBA implements the state’s most important
economic development tool, the workforce services
program. In
addition, DBA works with small business on a wide
variety of issues and assists companies with access to
capital. DBA’s
overall budget is reduced in HB 1400 from $16.5 million
to $13.7 million in the current year and $16.1 million
to $12.4 million next year.
In
Chapter 1073, DBA’s budget was about $22.5 million per
year. The largest
loser has been the workforce services program, which has
been reduced from $13.5 million per year in Chapter 1073
to $7.7 million per year in HB 1400.
Some of the decrease may be due to a slower
economy and lessened demand for services, but the
resources for Virginia to compete internationally with this incentive have been
dramatically curtailed.
Tourism
is a significant component of the Commonwealth’s
economic development strategy.
The tourism program is run by the Virginia
Tourism Authority (VTA), which works with the industry
and specific attractions to promote Virginia
as a tourism destination.
VTA is hit particularly hard in HB 1400, which
reduces funding from $15.6 million to $13.2 million in
the current year and from $14.4 million to $10.3 million
next year. In
Chapter 1073, VTA was funded at over $20 million per
year. This
dramatic reduction is achieved in part by cutting the
cooperative advertising program, in which the state
partners with private industry to promote
Virginia
as a tourist destination, from $4.5 million to $3.1
million in the current year and eliminating the program
in FY2003. Other
important tourism programs are either slashed or
eliminated.
This
summary addresses only some of the key reductions in HB
1400. I have not addressed cuts at resource-based
economic development agencies like the Department of
Agriculture and Consumer Services, or outright
elimination of key programs run by the Department of
Housing and Community Development.
These include the Industrial Site
Development Program and the Regional Competitiveness
Program, both of which focused on enhancing the
competitiveness of areas of high unemployment. Their
elimination seems to be at odds with the goal of
focusing economic development on those areas.
Investing
in programs that create jobs is one of the few areas
where the state spends money expecting to get a return
on its investment. Every
year, VEDP provides the money committees a report on the
efficacy of state incentives, and every year that report
demonstrates that incentives provide the Commonwealth
with a substantial return on investment.
A recent JLARC report also examined this issue
and concluded that the Commonwealth was getting a
substantial positive return on its dollars invested into
economic development.
By
way of comparison, the amount of money at issue here is
relatively small compared to other secretarial areas.
The entire Commerce and Trade general fund budget
is being reduced from $137 million to $114 million in
the next fiscal year. For
next year, the general fund budgets of the larger
Secretarial areas include Education at $5.4 billion,
Health and Human Services at $5.9 billion,
Public Safety at $1.3 billion.
Granted, any funds restored to economic
development must come from somewhere, but it is an
investment in hopefully avoiding this type of budget
situation in the future. As
the money committees begin their work this week on the
state budget, we should hope that they work on the
long-term revenue side of the budget.
By giving the Commonwealth a competitive economic
development program, all Virginians will benefit.
--
January
13, 2003
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