Category Archives: Economic development

Gas Pipeline Approvals Out of His Hands, Guv Says

the_macksterGovernor Terry McAuliffe says he can’t stop the planned Atlantic Coast Pipeline even if he wanted to — and he really doesn’t want to. Responding to a question on WTOP’s “Ask the Governor,” McAuliffe said he supports the project as a boon to manufacturing jobs and as an alternative to transporting natural gas over roads or rails, reports the Richmond Times-Dispatch.

Whether he likes it or not, McAuliffe said the matter is largely out of his hands. The Federal Energy Regulatory Commission (FERC) decides whether to approve or deny interstate gas pipelines. The state plays a secondary regulatory role, and state air and water permits are decided “statutorily.”

Said the governor: “I cannot deny an air and water permit as governor. I don’t have the authority. It’s done by statute. If you don’t like the regs and they get approved, then you need to talk to the legislature to change the law.”

Pipeline foes have pressed Virginia’s Department of Environmental Quality (DEQ) to take a more forceful stance in the regulation of pipeline construction over steep mountains and in karst areas with sinkholes, underground streams and other complex geological phenomena. They are particularly concerned that DEQ will issue ACP and the Mountain Valley Pipeline permits for blanket plans to prevent erosion and sedimentation while crossing rivers and streams instead of permits for plans that address the specific characteristics of each water body. Also, they worry that DEQ will allow pipeline contractors to dig trenches longer than the regulatory standard of 500 feet.

The pipeline companies say they have ample experience digging pipeline trenches in rough terrain in West Virginia, Pennsylvania and other states, and that any disturbance is temporary, occurring only while construction is underway.

— JAB

Confessions of a Buffalo Hunter

wingfieldby Greg Wingfield

Hello, my name is Greg and I was a Buffalo Hunter for more than 35 years.

In economic development parlance a “buffalo hunter” is a marketing professional who is only after the “big game” — the hundred-million-dollars-in- capital-investment/1,000-new-jobs economic development projects that are rare and far between.

Over 35 years I had my share of wins, but could my time and the funding provided have been better used in ways that generated more return on the resources provided?

For instance, could retention of existing business in the region been better focused and more resources provided? Probably, as traditionally only a small percentage of funds are devoted to “keeping the existing clients happy.”

Could new business formation been more fully explored and coordinated in the metro Richmond area? Absolutely. There were and still are several great accelerators, business incubators and venture capital entities concentrating on this effort, but most of the work is done in silos.

So, when did I see the light, find the new economic development “religion,” and start to propagate it? Sadly, late in my economic development career. It wasn’t until I retired and had the time to explore other economic development job and capital-investment options without the pressures of board oversight and investors to satisfy.

Let me be clear, an ideal economic development program needs to attract new business to a community. But like a three legged stool, it also needs to retain existing businesses and help create new business formation.

So where is my “burning bush?” I believe the greatest economic development value add is assisting the community’s existing businesses to export their goods and services beyond the U.S. borders.

When I was hired as a fellow in Virginia Commonwealth University’s Wilder School in the summer of 2015, my charge through the Center of Urban and Regional Analysis (CURA) was to work with all the partners, allies, local governments, chambers of commerce, state and federal agencies that had a stake in promoting exports, to create a Metropolitan Richmond Export Initiative (MREI).

The rationale was compelling. The share of foreign direct investment entering the U.S. was in steady decline, falling from 45% in 1984, to just 12% in 2012. Eighty-one percent of the potential demand for American products comes from outside the U.S. Finally, as a region, we were under performing compared to the national Metro export average.

CURA, working with the Brookings Global Cities Initiative, identified five other regions we benchmarked ourselves against. We received funding to begin the planning of the MREI through a grant from J P Morgan Chase (JPMC) in the summer of 2015. CURA then surveyed local businesses, interviewed local stakeholders, undertook focus groups in order to create a draft plan or “Straw Man” for all the stakeholders to critique and provide feedback on. Continue reading

Richmond’s Future as a Global Exporter

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Image credit: CURA

(This post is taken from the introduction to the Metro Richmond Exports Initiative report published earlier this month, written by John Accordino, Fabrizio Fasulo & Greg Wingfield under the auspices of the Virginia Commonwealth University’s VCU Center for Urban and Regional Analysis. — JAB)

To ensure Richmond’s future as an economically competitive and vibrant region with a high quality of life, we should consider the roles that the Richmond metropolitan statistical area (MSA) can play in the rapidly growing global economy.

Up to now, Richmond has tapped into the global economy mostly in two ways – as a source of immigrants who have invested their talents here; and as a source of foreign-owned companies that have invested capital here. We must continue to welcome immigrants and foreign capital, however the share of global investment entering the United States has been declining for 30 years and it will continue to do so.

If we are to thrive in the global economy, we must also take fuller advantage of the rapidly growing global demand for goods and services that our region produces or could produce. We must embrace exporting.

Global demand is skyrocketing, as the number of middle-class consumers in China, India, Brazil and other industrializing countries grow, while demand in “post-industrial” Canada, Europe and Japan remains strong. Between 2015 and 2020, for example, 81 percent of global demand for products and services of the sort that American firms produce or could produce will come from other countries, not the United States.

export_growth

Image credit: CURA

Exporting is good for companies and for the regions in which they are located. Companies that export enjoy higher productivity (revenues per employee) and they are therefore able to pay higher wages and retain talent more easily than their non-exporting counterparts. Exporters produce and patent more product innovations, they grow more quickly, and they have higher market value than their non-exporting counterparts. Moreover, businesses that diversify their portfolios by exporting do not experience the same cyclical fluctuations in revenues that challenge businesses dependent on just the domestic market. All of these benefits, in turn, strengthen the regional economies in which exporters are located.

Continue reading

Universities as Economic Engines

Source: "The Economic Impact of Universities: Evidence from Across the Globe"

Source: “The Economic Impact of Universities: Evidence from Across the Globe”

by James A. Bacon

The world’s first university was founded in 1088 in Bologna (in what is now Italy). The idea of bringing scholars together in a dedicated institution caught on. In time, universities were established throughout Europe, the United States and the rest of the world. Almost every country has a university today, with Bhutan in 2003 being the latest nation to open its first. The proliferation of universities has coincided with the accumulation of knowledge and growth of the global economy. Scholars (most of them employed by universities, as it happens) have debated the extent to which universities have contributed to that growth.

Drawing upon a 60-year database of nearly 15,000 universities in 1,500 regions across 78 countries, Anna Valero and John Van Reenen with the London School of Economics think they have an answer. “Doubling the number of universities per capita,” they say, “is associated with 4% higher future GDP per capital.”

Perhaps most significantly for readers of Bacon’s Rebellion, universities appear to have positive spillover effects to neighboring regions. In other words, the effect is felt locally and regionally, not just nationally.

Writing in “The Economic Impact of Universities: Evidence from Across the Globe,” Valero and Van Reenen posit several channels by which universities affect growth.

Perhaps most obvious and easy-to-measure impact is the demand created by students, staff and universities’ purchase of local goods and services. Like any other primary industry, universities provide a service (higher education) that pumps income into the region where it resides. The effect is especially positive when costs are financed through national governments from tax revenues raised mainly outside the region in which the university is located.

But there are other channels. Universities produce human capital, nd skilled workers tend to be more productive than unskilled workers. Universities also spur innovation. The innovation effect is both direct, as when university researchers themselves produce the innovations, and indirect, as graduates enter the workforce and innovate. A third channel is by fostering pro-growth institutions. “Universities,” write the authors, “[provide] a platform for democratic dialogue and sharing of ideas, through events, publications, or reports to policy makers.”

None of this is earth-shattering stuff, although the computation that a doubling of universities per capita results in a 4% increase in wealth is interesting. And there is ample room to refine the conclusions. The authors concede that their methodology does not adjust for the size or quality of universities. All other things being equal, one would expect that a large, prestigious university would have a larger positive impact on the regional economy than an obscure, als0-ran institution.

Bacon’s bottom line. But the study provides a useful reminder as Virginians think about what they expect from their public education system — especially the flagship institutions of the University of Virginia, the College of William & Mary, and Virginia Tech. On the one hand, we want to make high-quality higher education affordable and accessible to Virginians. On the other, we like it when universities function as engines of local and regional economic growth. Insofar as it takes money for universities to generate bigger payrolls, R&D contracts, business spin-offs and other economic benefits, institutions that most effectively extract revenue from whatever source, including their students, will tend to be more powerful economic engines.

The trade-off is most clearly evident at UVa where administrators devised a way to cobble together a $2.2 billion pool of capital capable of throwing off roughly $100 million a year in unrestricted funds. The Board of Visitors voted to dedicate that money to enhancing the prestige of the university, indirectly stimulating economic growth, rather than lowering tuition & fees in order to make a UVa education more affordable.

I have criticized the board’s decision; I think the university has lost its way by embracing the Ivy League high tuition/high aid financial model that exploits its student body, especially middle-class students who struggle to pay the massive bills but don’t quality for student aid. But I also acknowledge that the UVa approach does have the advantage of creating economic growth. If the university were a company that, to pick a fanciful example, developed and manufactured leading-edge smart phones, for which it charged ever-higher prices and plowed revenues back into growing its business operations, Virginians would applaud it as an economic champion.

The higher ed affordability crisis is very real. But so is the economic contribution of Virginia’s universities. We need to strike the right balance between the two.

This Is What a Fiscal Meltdown Looks Like, III: Eating the Seed Corn

petersburg_visitor_center

Petersburg Visitor Center

Poor Petersburg. Financial consultants are advising City Council to save $300,000 this year and $400,000 next year by shutting down three museums and two tourism centers as part of a draconian plan to slash a projected $12 million budget deficit and work down a $19 million backlog in unpaid bills. (Read the details in the Richmond Times-Dispatch.)

City Council has not voted on the measure, but it has little choice in the matter. Its budget predicament is so catastrophic that it has no choice but to suspend all but the most essential services. That means the city is undermining its own economy. Fewer tourist destinations = fewer tourists = less business and tax revenue.

Sad, really sad. Let Petersburg be an object lesson to all. Never, never, never let your city or county to get into the same situation.

— JAB

In Hampton Roads, Life Is Not a Gas

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Hampton Roads and other Tidewater communities see proposed natural gas pipelines in Virginia as a boon to economic development.

by James A. Bacon

While debate rages in western Virginia over the economic impact of natural gas pipelines on property values and local economies, we hardly hear a peep from the low country areas of Virginia and North Carolina that would benefit from an expanded supply of gas.

Elected officials claim, and economic developers confirm, that inadequate supplies of gas to Hampton Roads and outlying communities prevent them from competing for energy-intensive industrial customers, crimping efforts to grow their economies and create jobs.

“I’ve heard from cities and developers and builders. … We’ve got to get more capacity here,” says Sen. Bill DeSteph, R-Virginia Beach, chair of the Hampton Roads Caucus, who persuaded the region’s 33 state senators and delegates to sign a March letter supporting the proposed Atlantic Coast Pipeline (ACP).

Voices from Hampton Roads and places like Brunswick and Greensville counties, where new gas-fired power plants are being built, have been quiet during the pipeline controversy. The impact of pipeline construction is less tangible and immediate than it is for, say, landowners in the path of the ACP and the proposed Mountain Valley Pipeline. And the benefits are more theoretical — fresh gas supplies would put their communities in the running for manufacturing projects they can’t compete for now, but it’s not as if there’s a big job-creating project waiting in the wings. Natural gas proponents aren’t barraging the media with press releases, filing lawsuits or marching on the state capitol.

Still, economic developers and political leaders have quietly lined up behind pipeline development, especially the Atlantic Coast Pipeline. For DeSteph, the aha! moment occurred about two-and-a-half years ago when demand from a severe cold snap swamped the local gas distributor, Virginia National Gas. The utility had to tell some of its largest customers to curtail their use of the fuel, as called for under contract. “I was shocked that we shut down the gas supply,” says DeSteph. “In my opinion that’s something we should never do.”

While big industrial customers usually can manage such outages, supply curtailments send a signal that gas supplies are limited. No energy-intensive manufacturer would want to locate or expand in Hampton Roads when they could locate worry-free in other communities. Noting that the Norfolk Naval Station was one of the entities that curtailed its gas use, DeSteph even fears that the capped gas supply could undermine the region’s status as a military hub.

The decline in natural gas prices made possible by fracking and the exploitation of the Marcellus/Utica gas fields has driven the re-shoring of energy-intensive manufacturing back to the United States, says Rick Weddle, president of the Hampton Roads Economic Development Partnership. But the areas benefiting from the trend have been those with access to the abundant gas supplies. Hampton Roads isn’t in the running.

The Atlantic Coast Pipeline, designed to carry 1.5 billion cubic feet of gas per day, could change that. The pipeline would run from West Virginia through Virginia to North Carolina. A spur would split off from the main pipeline to deliver gas to Virginia Natural Gas, which has signed a 20-year customer agreement, and whose parent company AGL Resources is one of the partners in the project. The pipeline also would serve Piedmont Natural Gas serving the North Carolina market, which is a partner, too. (Dominion Resources, a sponsor of this blog, is the managing partner.)

A bigger supply of natural gas to the region would expand the prospects that Hampton Roads could compete for. “We would target new industries,” Weddle says.

The same logic applies to smaller communities in eastern Virginia and North Carolina, which also sit at the end of the existing pipeline distribution system.

The big five utilities in the industrial recruitment game are wastewater, electricity, fiber-optic cable and natural gas, says Christopher Chung, CEO of the Economic Development Partnership of North Carolina. “Most companies want gas, whether they’re using it for heating or as part of the manufacturing process. Not one hundred percent need it, but most do. It’s really hard for a community to make the case to recruit a manufacturer if it doesn’t have natural gas. Not impossible. But so many locations do have it that you’re at a major competitive disadvantage if you don’t.” Continue reading

Heart of Appalachia

If you want to see how the communities of far Southwest Virginia are trying to reinvent their economies as their mainstay coal industry swirls down the drain, check out the website produced by the Heart of Appalachian Tourism Authority. The two-person authority is promoting regional music, culture, crafts and, most of all, outdoor activities like fishing, ATV riding, hiking, and camping. The authority scored a small coup by snagging “Heart of Appalachia,” performed by Wise County singer-songwriter Kaitlyn Baker, for use in its marketing.

You have to credit the scrappy tourism team for drawing a pretty picture of Southwest Virginia, which has more than its share of poverty and mining-despoiled landscapes. But realistically speaking, one has to ask what kind of economic contribution tourism can make. I still remember the words of deceased Virginia Tourism director Patrick McMahon who sympathized with the effort to lure backpackers and kayakers to the Virginia mountains but noted that selling water bottles and granola bars didn’t generate much in the way of revenue.

Southwest Virginia does not have, and never will have, the marketing dollars or the destinations to compete with first-tier tourism attractions. The region should look to the mountain regions of North Carolina for a nearby example — and perhaps to Aspen, Colo., for a distant example — of how to create an outdoor-oriented lifestyle that will lure retirees and second home-owners. The real money would come from visitors who fall in love with the area, purchase real estate, remodel old homes, build new ones, and start lifestyle businesses.

Getting people to visit the region is the first step in making such a transition, so the tourism initiative is entirely appropriate. But the effort can’t stop there. Local leaders need a broader vision of how to convert visitors into residents, and residents into investors.

— JAB