Category Archives: Economic development

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Posted in 2012, Economic development, Transportation

Tagged James A. Bacon, U.S. 460

Does Vlad Have the Right Idea?

Posted on January 25, 2012 by Peter Galuszka| 10 Comments

By Peter Galuszka

As conservatives argue about cutting deficits and keeping low taxes for the rich both in Virginia and nationally, a bigger question is coming up: does Vladimir I. Lenin actually have the answer?

Sounds strange, I know, but not if you read Britain’s center-right weekly business newsweekly, The Economist. In a leader titled, “The Rise of State Capitalism,” they note that the success of state-private economies in China and Singapore, countries such as Brazil and South Africa are flirting with the idea of turning back some of their privatization work and going more with state-owned companies.

As the magazine states: “With the West in a funk and emerging markets flourishing, the Chinese no longer see state-directed firms as a way station on the way to liberal capitalism; rather, they see it as a sustainable model.”

Also underscoring the success of state-influenced economies is a recent and startling Brookings Institution report that rates 200 global urban areas for their economic performance. Shanghai leads the list, followed by cities in Saudi Arabia, Turkey, India and more in China. None is an example of traditional, U.S.-style market capitalism.

Indeed, you have to go pretty far down the list, to spot 19, to find the first U.S. city, which is Houston and that’s all petroleum money. Washington is No. 134. We don’t even get to the Old Dominion until No. 159 and Virginia Beach. Richmond is a stunningly bad No. 191, beating out only comatose Sacramento among U.S. cities.

The study should be a wakeup call to Baconauts and Boomergeddons everywhere that maybe they are barking up the wrong tree. Or maybe, even worse, they are completely clueless. At Mr. Jefferson’s Capitol, legislators are playing shell games with budgets to make Mickey D. McDonnell seem like a modern, Republican governor worthy of a vice presidential run. And, we’re screwing around with public private partnerships such as the massive U.S. 460-area highway to give private biz a cut and let them toll the crap out of the rest of us for years — all in the name of Margaret Thatcher and Ronald Reagan who left the scene more than 20 years ago.

While budget hawks complain about the big bad government and public spending on such things as social services and infrastructure, their beloved model is fading into the dust bin of history. I’m no China expert, but I, like everyone, was taken aback by the modern, efficient cities of Shanghai and
Beijing when I visited in October. Unlike the U.S., transportation was clean, efficient and hassle free.

Of course, The Economist must stay true to its OxBridge roots and come out warning that state capitalism with a big spoon of Asian Mandarin sauce might not be the best strategy for the West. But the trends are jolting and deserve a look.

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Posted in Budget, Demographics, Economic development, Economy, Finance, Infrastructure, Labor & workforce, Planning, Taxes, The Economy, Uncategorized

U.S. 460 Project as Economic Development Powerhouse

Posted on January 25, 2012 by James A. Bacon| 6 Comments

Click on map for more legible image.

by James A. Bacon

The McDonnell administration’s thinking behind the $1.6 billion reconstruction of U.S. 460 between Suffolk and Petersburg has come into clearer focus with the publication of an economic study by Chmura Economics & Analytics. The I-85 Connector, as the administration has dubbed the project, will have an annual estimated economic impact of $7.3 billion by 2020 and support 14,120 jobs in the U.S. 460 corridor and 11,255 jobs in Hampton Roads, concludes Chmura.

Over and above jobs created by construction and service businesses clustered around interchanges, the four-lane, Interstate-grade highway has three major strategic goals: (1) to accommodate the expected growth of the Port of Virginia upon completion of the Panama Canal widening project; (2) to extend the market reach of the Port of Virginia to North Carolina and beyond; and (3) to serve at least two industrial “mega sites.”

“The new highway will not only reduce citizen travel times, but it will help create much-needed jobs and economic development in some of Virginia’s communities that have been hardest hit by the economic recession, stated Gov. Bob McDonnell in a prepared statement yesterday.

“The Port of Virginia is one of the Commonwealth’s greatest economic assets,” he continued. “Over the coming years, the port is expecting to undergo tremendous growth, but it cannot achieve this growth without the infrastructure and support systems necessary for a thriving port. The proposed new Route 460- Interstate 85 Connector will help address these infrastructure concerns and, combined with the proposed Economic Development Zone, will provide an incentive to grow for the many different businesses and support facilities that will help create jobs for thousands of Virginians.”

The opening of a wider Panama Canal in 2014 is expected to transform the economics of East Coast ports. The Port of Virginia, one of the few ports with channels deep enough to accommodate the massive new vessels now under construction, is well positioned to gain market share. The primary constraints to growth are the rail and highway bottlenecks out of Hampton Roads. The state is addressing rail capacity through partnerships with Norfolk Southern and CSX, while the I-85 connector will provide a high-capacity link to Interstates 95 and 85 around Petersburg. So far, however, the McDonnell team has been sparse with details about the industrial development it hopes the project will stimulate.

The Chmura report, “Economic Impact of the U.S. Route 460 Corridor Improvement Project,” provides background on that subject that had not been disseminated widely before:

Plans are currently in place to develop two manufacturing mega sites in the Route 460 Corridor. Mega sites are certified manufacturing sites that are suitable for large scale economic development. These two planned mega sites are located in Sussex County near the town of Waverly and in Isle of Wight County near the town of Windsor. The Windsor mega site is over 1,860 acres, while the latest document indicates that the Sussex mega site is 610 acres. The combined size of the two mega sites will be around 2,500 acres.

Typically, writes Chmura, mega sites are used for large-scale manufacturing such as automobile assembly. Both sites are still in the development stage, however, and the targeted industries are unknown.

Based on comparisons with comparable industrial mega-sites, Chmura estimates that new manufacturing firms have the potential to directly generate about $4.4 billion in economic output in 2020, supporting 2,635 permanent jobs. In support of that goal, McDonnell has proposed an Interstate 85 Connector Economic Development and Promotion Zone “wherein companies shipping goods through the port or engaged in maritime commerce can operate income tax free for their first two years in operation.”

In addition, Chmura projects, increased port activities are estimated to create $1.4 billion in economic impact (measured in 2020 dollars) while supporting 4,730 jobs in the U.S. 460 Corridor. Of that amount $762.9 million will come from increased operational revenue of the Port of Virginia, which is expected to generate 2,906 direct jobs.

Other than the Chmura study, which was prepared for Deputy Secretary of Transportation David Tyeryar, the economics and finances of the project have yet to be subjected to close public scrutiny. A year-old Coalition for Smarter Growth brief took a critical look but was written before the economic-development dimensions of the project came into clear view. While the Chmura study does quantify the economic impact of the project, it does not purport to answer the question, “Is this a good investment of state dollars?”

The U.S. 460/I-85 Connector is the largest, most ambitious and most expensive economic-development initiative of the McDonnell administration, commanding a $500 million allocation of state dollars. Nothing else comes close. So far, it has received a sliver of the public attention it deserves. Let us hope that members of the General Assembly are asking the tough questions.

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Posted in 2012, Economic development, Transportation

Tagged James A. Bacon

IG of the Day: Has Virginia Lost Its Mojo?

Posted on January 20, 2012 by James A. Bacon| 8 Comments

Virginians engage in a lot of mutual back slapping. Yes, Republicans and Democrats agree, we’ve got one heckuva business climate. Thanks to our bipartisan, pro-business consensus, we’ve ranked No. 1 or No. 2 in the country practically since the dawn of time. Yessiree, we really are awesome.

Indeed, it’s a beautiful thing to be ranked No. 1 as the best place to do business. But there is a big piece missing from the story.

Virginia may rank as the top (or runner-up) state in various rankings, but we must ask ourselves, what are we ranking? For the most part, the “best state” surveys compare the relative attractiveness of states for corporate investment, whether manufacturing, back office or corporate headquarters. Corporate investment is an important source of economic dynamism, but it is only one source. Internally generated growth through start-ups and organic growth of existing industry is just as important, if not more.

Which brings me to the Information Graphic of the day. Throughout the past decade of scoring top honors in the Best Place to Do Business sweepstakes, how well have Virginia’s major metropolitan regions actually fared in key indicators such as job creation and, even more importantly, income growth? While we’re asking, how have we fared in comparison not only to other U.S. regions but to metropolises around the world?

This map from the Brookings Institution compares the growth performance of the largest U.S. metropolitan areas with 200 of the world’s largest metropolitan economies. (For background and details, see the Global MetroMonitor.) This particular view compares metro performance for 2010-2011. But the results aren’t much better for 2007-2010 or 1993-2007.

In a global context, Virginia’s three largest metro areas (Washington, Hampton Roads and Richmond) are the very opposite of hot stuff. And the 2000s were a decade of unprecedented growth in government spending. What happens when the federal gravy train runs off the rails?

My sense is that we are collectively way too complacent, too wedded to inefficient human settlement patterns, and too resistant to reforming under-performing institutions like education and health care. Someone or something needs to light a fire under our asses.

– JAB

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Posted in 2012, Economic development

Tagged James A. Bacon

Good Move on Uranium

Posted on January 20, 2012 by Peter Galuszka| 2 Comments

By Peter Galuszka

Gov. Robert F. McDonnell has punted on the uranium controversy and that’s a good thing, assuming the General Assembly doesn’t lift the mining ban anyway.

There are simply too many unknowns about mining the tract owned by Virginia Uranium near Chatham and the state has no knowledge or regulations about mining the highly toxic and radioactive substance.

What’s more, there are big questions about whether it is needed. Market prices are stable and while developing countries such as China and India plan many new nuclear power stations, advanced economies such as Germany are scaling them back after the Fukushima disaster in Japan last year.

McDonnell’s decision comes despite an onslaught of expensive and extensive flackery by the local people who own the farms where the uranium deposit is located and the Canadians who actually control the company. The Virginia Public Access Project reports that Virginia Uranium has paid out more than $150,000 to political candidates and has hired five powerhouse Richmond-based PR firms. It paid all expenses for a dozen legislators who unwisely made a trip to France to see an abandoned uranium mine and who were treated to the delights of Paris on the way.

Virginia Uranium says it’s just dandy that McDonnell recommends delaying lifting the moratorium and continues its campaign, including a full page ad in the Richmond newspaper with drawings showing just how safely the tailings from the mine project would be stored.

The problem is that the issue isn’t just going away. If it doesn’t, the state will have to cough up money as schools go without to come up with regs. Virginia Uranium shouldn’t pay for them — they’d be tainted. But why should the state be burdened when it has so many other things on its “to pay” list?

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Posted in Agriculture & forestry, Disaster planning, Economic development, Economy, Environment, Finance, Land use, Money in politics, Planning, Politics, Regulation, Uncategorized

Tagged goozeviews

Thumbsucking, Richmond-style

Posted on January 15, 2012 by Peter Galuszka| Comments Off

By Peter Galuszka

The incredible, shrinking Richmond Times-Dispatch offers a lot less to read these days. Under the leadership of Publisher Thomas A. Silvestri, many staffers have been fired to boost parent firm Media General’s top line. The effort hasn’t been entirely successful since its stock, once around $65 a share, is now a little better than $4 a share, admittedly better than the near buck a share low of a couple of years back that brought MEG close to delisting on the Big Board.

So, the TD tries to get around its dearth of real reporting by getting Richmond’s pooh-bahs to write tomes in the “Commentary” section about what a great job they are doing. These, coupled with Silvestri’s unfailingly sunny and typically mindless columns boosting the Confederate Capital, make for a more amusing section on Sunday mornings than the funny pages.

This Sunday’s section was kicked off by Eugene Trani, the fireball, former president of Virginia Commonwealth University. Trani is famous for growing VCU from a Tier Two commuter college to something aspiring to greatness. He bulldozed block after block of Richmond’s downtown to expand the university and make it more of an economic driver.

Now retired, Trani heads Richmond’s Future, which the TD describes as a “forward looking regional think tank.” That, in itself is an interesting choice of words. If it were “backward looking,” we’d be in more of a heap of trouble than we already are.

After a couple of years of heading Richmond’s Future, Trani has used the group’s mostly corporate funding to finance studies by a Federal Reserve economist and a VCU assistant professor. Together, these reports try to rate the Richmond SMSA, which Trani meticulously explains to the dullards among us, against 10 other SMSA around the country to see where it stands. Good and bad, it turns out. Second in per capita income and sixth in annual employment growth compared to places such as Jacksonville, Fla. and Salt Lake City.

Writing in the TD, Trani claims that it is important to know where Richmond stands against other similarly-sized city. I looked thoroughly through his article to find more of a “so what” but couldn’t find it.

And that is the problem. Richmond’s business elite has been staring at its navel for a long time. There has been study after study trying to “benchmark” the city. Consultant James A. Crupi, who does a lot of thumbsuckers for the Fortune 100, did a study in 1993 that found that Richmond is a “glass half-empty.” He returned in 2007, funded by Greater Richmond Chamber of Commerce money, to find that Richmond had somehow transformed itself into a “glass half full.” What that means, I have no idea.

There are other groups trying to get a real bullseye on Richmond. There’s something called the Capital Region Collaborative that promotes navel-gazing on a regional basis. Its ranks are fed from something called “Leadership Metro Richmond” which trains “leaders” to be big shots among the corporate salons and, of course, participate in and cheerlead Crupi and Trani style reports.

OK, fine. But so what? Trani says Richmond should boost its base in logistics. No brainer, there. Greatly expanded Ft. Lee is a dominant defense supply area and Richmond has a great central-location on the Mid-Atlantic coat. Too bad its tiny seaport was so badly managed that it has all but shut down. Richmond also should boost science and math studies, like every other burg in the U.S.

And, there’s something called the Commonwealth Center for Advanced Manufacturing, which is a multi-university and community college effort to take advantage of a new Rolls Royce plant east of Petersburg.

Small problem, there. The Rolls Royce plant was originally intended to build parts for engines for corporate jets. The 2008 global financial meltdown, and the bad judgment of big U.S. corporate titans to fly corporate jets to Washington to beg for Congressional bailouts, chilled that market.

Now, the big facility underway is looking for other markets. One hope had been making engines for the new F-35 joint strike fighter for the Air Force, Navy and Marines. That’s something anti-spending hawk U.S. Rep. Eric Cantor, a key player in the Richmond elite, pushed mightily although the Pentagon said it had another supplier and didn’t need more engines from Rolls. In any event, it won’t matter. Reacting to Republican anti-spending fanatics, President Obama is likely to cut back on the F-35 program.

These are small details, however. The reality is that no matter how much the Tranis and Crupis look into their crystal balls, Richmond’s economy is still pretty much dominated by electric utility Dominion, packaging maker MeadWestvaco and cigarette giant Altria, whose primary products are lethal and which moved its headquarters to Richmond after being pretty much thrown out of New York City. The region was badly hurt when mass retailer Circuit City self-destructed from bad management and chip maker Qimonda went under, with thousands of jobs, because of bad local markets.

Yet another firm went under, too, during the 2008-09 recession, mortgage lender LandAmerica. Interestingly, Trani was a director of the firm and, in that capacity, is a defendant in a lawsuit that alleges that he and others failed in their fiduciary duties because they took decisions that resulted in the collapse of the firm and major losses for investors.

The Richmond newspaper, naturally, doesn’t hit that one too hard. Instead, Trani, rather than a professional journalist on staff, will be writing a series of reports about his new think tank and where he thinks Greater Richmond rates and should be going in the Greater World.

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Posted in Budget, Demographics, Economic development, Economy, Education (higher ed), Energy, Land use, Money in politics, Planning, Politics, Regulation, Technology, The Economy, Transportation

Tagged goozeviews

McDonnell the Incrementalist Reformer

Posted on January 12, 2012 by James A. Bacon| 13 Comments

McDonnell: The man with the purposeful stride and incremental reforms.

by James A. Bacon

Gov. Bob McDonnell delivered a competent if uninspired State of the Commonwealth address yesterday, sounding the broad themes of restoring fiscal integrity to the state budget and harnessing the power of state government to create jobs. For the most part, his agenda reflects the conventional thinking that comes out of Virginia’s Republican Party these days. McDonnell’s proposals will bring incremental progress. The problem is, the times demand radical change.

Fiscal conservatism. The most encouraging aspect of McDonnell’s legislative agenda is its tight-fisted approach to the budget. In the most significant of his proposals, the governor proposes upping the two-year contribution to state pensions to $2.21 billion, including $876 million from the General Fund, more than doubling the employer contribution from the last budget. He’s putting the squeeze on local governments to make good on their obligations. And he will propose structural reforms to the pension plan that will call upon employees themselves to make some changes, as yet unspecified.

The governor also makes progress in backing the state out of the accelerated sales tax collections imposed on the retail industry by another $50 million a year, with the goal of ridding the despicable accounting gimmick entirely by the time he leaves office. He proposes doubling the Rainy Day Fund to more than $600 million by FY 2014, and he is asking lawmakers to set up a $50 million Federal Action Contingency Trust (FACT) Fund to handle impacts from future federal spending cuts. Apparently, this will be an economic development slush fund to be used to “help diversify our economy.”

McDonnell made conservative revenue assumptions, announced no new taxes, recommended no new long-term debt (even though the state has nearly $500 million in unused debt capacity,) and proposed only modest new spending initiatives.

The only fiscal negative — and it is a big one — is his insistence upon institutionalizing the use of General Fund revenues to cover transportation spending on the grounds that transportation is a “core function of government.” In doing so, he moves away from a user-pays system to a general subsidy system, which is the antithesis of fiscal conservatism. While previous governors had raided General Fund episodically, McDonnell’s proposal would enshrine the use of General Fund revenue for transportation as a permanent budgetary feature.

Higher ed. On the positive side, McDonnell proposes to “cement the direct nexus between higher education and job creation” by rewarding state colleges and universities for increasing the number of degrees, especially in science/technology/mathematics fields so vital for sustainable economic growth. Recognizing the growing problem of college drop-outs, he also insists colleges improve their graduation rates. On the negative side, he wants to increase the number of new degrees granted by 100,000 over the next 15 years — a totally arbitrary number that bears no connection to the number of young Virginians who are academically equipped from their high-school experience to do college-level work.

K-12. As McDonnell noted in his address, Virginia has increased total funding for public education by 41% over the past decade while enrollment increased only 6 percent. “We will seek more accountability, choice, rigor and innovation.” Repealing the King’s Dominion law is a no-brainer. Championing virtual schools is a good idea and shouldn’t generate too much controversy. But the governor grabbed the tiger by the tail when he proposed reforming the system for evaluating teachers and principals. No sooner had he announced his idea last week than reactionary “progressives” across the state attacked him for “blaming the teachers” for the woes of K-2 education. This, I predict, is where Democrats and liberals will draw the line in the sand. Teacher/principal evaluations unoubtedly will be the most contentious issue of the 2012 General Assembly session and a true test of McDonnell’s grit.

Odds and ends. The governor proposes a number of efficiency-in-government reforms which, though meritorious, are fiscally inconsequential. He has packaged some small-bore initiatives under the rubric of making Virginia “the energy capital of the east coast,” a silly and unattainable goal. He proposes modest funding increases for mental health, which probably needs it.

Road not taken. McDonnell continues to define Virginia’s transportation woes as an issue of insufficient funding. His solution: Find more money without raising taxes. He has missed the opportunity to enact fundamental reform: (1) aligning transportation planning with land use planning, (2) creating a user-pays system for financing transportation, and (3) developing a methodology for prioritizing projects on a Return on Investment basis (congestion mitigated, safety improved, economic value created). Virginia will spend more money on transportation. Whether the money will be well spent is another issue entirely.

Bed rest for health care. Health care is another missed opportunity. Last year McDonnell enacted a package of reforms “to improve the quality, cost effectiveness and program integrity of the Medicaid program” — which went largely unheralded in the press. This year, the state will focus on implementing those reforms. Fair enough. But the health care system is much bigger than Medicaid. The potential exists to transform the privately insured health care system, thanks to one of the few worthwhile changes enacted by Obamacare, by compiling more information about the cost and quality of medical procedures and make it available to practitioners and patients — precisely the kind of data required to create a functioning market in health care. Conservatives supposedly believe in market-based health care. Well, a prerequisite to a market-based health care is to create functioning markets, which requires putting basic information into the hands of consumers. If conservatives don’t act to fix runaway health care costs, liberals will.

Economic development opportunities lost. McDonnell recognizes the connection between education, human capital and job creation. He sees how a vibrant energy sector can create jobs. He believes that transportation infrastructure can facilitate commerce and trade. Give him points for that. But he misses the connection between quality of life and the recruitment/retention of highly talented individuals (the creative class) who contribute disproportionately to growth in a knowledge economy driven by productivity and innovation. While McDonnell pursues a deal-oriented approach to recruiting corporate investment, usually requiring state subsidies, he overlooks the potential to create the kinds of more livable, more sustainable communities that the “creatives” look for. Why wouldn’t conservatives champion a subsidy-free model of economic development?

Admittedly, McDonnell is hardly alone in his neglect of creative-class issues. Virginia is way behind the curve in making itself a magnet for the nation’s innovators. Just consider it another opportunity lost.

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Posted in 2012, Budget, Economic development, Education (higher ed), Education (K-12), Finance, Transportation

Resisting the Siren Call for Subsidies

Posted on January 9, 2012 by James A. Bacon| 13 Comments

An "all of the above" energy policy with no subsidies

by James A. Bacon

Last week Gov. Bob McDonnell rolled out the 2012 energy policy and budget initiatives that he hopes to shepherd through this year’s General Assembly. The proposed measures fall far short of the governor’s lofty rhetoric of making Virginia “the energy capital of the east coast.” But that, as I shall explain below, is probably a good thing.

The press release laying out the legislative package provides lengthy quotes from McDonnell, Lt. Governor Bill Bolling and senior legislators in support of a job-creating “all of the above” energy strategy. As the press release explains, “The governor is leading in the push to develop offshore energy, supporting expansion of renewables, and advocating on behalf of traditional fuels including coal, natural gas, oil and nuclear energy in order to secure an adequate supply of affordable, reliable energy for Virginia’s future.”

That makes total sense to me. Other than its significant coal production in far Southwest Virginia, the Old Dominion is a laggard in energy production — we are a net importer of electricity. Producing more energy is a good way to create jobs and bolster the tax base. Just one problem. There is little in the energy package that would actually boost energy production. Even if we assume that all nine measures are passed, Virginia won’t get any closer to becoming the “energy capital of the east coast,” a title that is far more likely to fall to West Virginia, Pennsylvania or some other state cashing in on the Marcellus Shale natural gas boom.

One measure would make it easier for utilities to develop the infrastructure to supply natural gas to economic development projects. A companion measure would make it easier for electric utilities to gain regulatory approval for 138kv transmission lines used for economic development projects. Both of these appear to be aimed more at facilitating job-creating economic development deals than boosting energy production, although the natural gas provision supposedly would increase the market for Virginia natural gas.

The package also contains two measures related to energy efficiency. One would promote “customer engagement tools” that would result in measurable and verifiable energy savings. The press release did not elaborate upon what kind of “tool” was being considered. Smart meters, perhaps? Another bill would allow biomass-fueled cogeneration projects to trade “renewable energy certificates” to the power company buying its electric power and credit them toward its mandated use of alternate fuels. Yet another measure would allow utilities to credit research on alternate energy toward their mandated use of renewable energy.

The governor also proposes:

Allocating $500,000 in FY 2013 to develop data regarding resource availability in the federally designated “wind energy area” off the Virginia coast.
Creating an Alternative Fuel Vehicle Conversion fund to help finance the conversion of the state fleet to alternative fuel vehicles.
Advancing mine safety by requiring mine operators to submit planned mining maps earlier in the regulatory process.
Allocating $300,000 yearly to strengthen the oil and natural-gas permitting process.

Conspicuously absent from the list was any mention of developing Virginia’s uranium reserves. Although mining a mother lode of uranium in Pittsylvania County undoubtedly would be an economic development boon for Southside Virginia, McDonnell was properly cautious in stating, after the release of a National Academy of Sciences report, that public safety should trump economic considerations.

Also absent was any nod toward embracing more energy-efficient human settlement patterns and transportation systems as a conservation strategy. But that hardly comes as a surprise. McDonnell has never evinced an awareness of the energy/land use connection. Former Gov. Tim Kaine is the only Virginia governor who ever has.

The hidden good news here is what McDonnell is not doing. He is not proposing to spend a lot of state tax dollars subsidizing the pet causes of energy interests. He is not trying to pick energy winners and closers.

I have lambasted President Obama for squandering billions of dollars on uneconomical alternate energy projects like Solyndra. It would be equally wasteful for McDonnell to try playing venture capitalist at the state level. Fortunately, he has enough sense not to. If we can just persuade him to drop the “energy capital of the East Coast” hype, Virginia would be even better off.

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Nothing Exciting in the McDonnell Jobs Bill

Posted on January 4, 2012 by James A. Bacon| 1 Comment

Gov. McDonnell announces his jobs agenda. Lt. Gov. Bill Bolling, the state's jobs czar, stands behind him.

by James A. Bacon

Gov. Bob McDonnell has released his legislative agenda for economic development, calling for a $36.8 million mix of initiatives over two years, including $10 million for life sciences, $4 million for Wallops Island, $4 million for advanced manufacturing and $4 million for non-course credits at community colleges, plus a grab bag of tax credits and program increases. (Read the press release here.)

Before I launch into an explanation of why I am so underwhelmed by this patchwork effort, let me offer a few modest words of encouragement. First, McDonnell’s heart is in the right place. He should make job recovery a top priority of his administration. Second, he has held the line on tax increases, which is critical for maintaining a positive business climate. Third, he has not proposed any major legislative initiatives (that I can think of) that will impose new regulatory burdens on business. Fourth, this announcement does not include his transportation or higher ed agenda, which I don’t necessarily endorse but both of which are clearly geared toward job creation. Fifth, in a totally hypocritical violation of my principle that government should not pick winners and losers, I support whatever it takes to develop Wallops Island into a major commercial space launch facility.

That said, it is difficult to imagine that breaking $36.8 million into 19 programmatic pieces and spreading around the crumbs over two years will make any material contribution to job creation. Moreover, there is no sign that McDonnell has conceptualized anything approaching a broad vision for economic development. His strategy amounts to parceling out more money to narrow-bore programs like the Motion Picture Opportunity Fund and the Virginia Winery Distribution Company without any thought to the bigger picture. Every traditional economic-development constituency gets a piece of the pie: tourism, industrial recruitment, agriculture and forestry, small business, community colleges, and the like.

What is the McDonnell planning missing?

Creative class. There is not so much as a glimmer of recognition that the driving force of economic development in a globally competitive, knowledge-intensive economy is what geographer Richard Florida refers to as the “creative class,” the 30% or so of the population that is engaged in scientific, artistic and entrepreneurial pursuits and complex problem solving. These people drive innovation and wealth creation. The surest path to creating more innovation, wealth and jobs is to do a better job of recruiting and retaining these creative people, which means building the kinds of communities where they like to live. But no program exists to advance this goal nor is there a bureaucratic constituency to lobby for it, therefore economic development policy in Virginia plods along oblivious.

Human settlement patterns. As I have argued ad nauseum, there are fiscally efficient human settlement patterns and there are fiscally inefficient human settlement patterns. There are types of communities where people (especially the creative class) pay a premium to live and communities where people choose to inhabit only when real estate prices are depressed. Admittedly, land use is a local prerogative. But the state does drive transportation and other investments that help shape land use. The McDonnell administration has given zero attention to the idea of creating more livable and sustainable communities.

Health care. Rising health care costs are bankrupting the nation, bankrupting state governments, bankrupting businesses and bankrupting individuals. Which is no surprise, considering that the U.S. health care system bears little resemblance to a market economy. Among the most obvious deficiencies, there is no price transparency in medical procedures. The absence of price signals distorts the market in ways too innumerable to describe here. As the administrator of Medicaid, a regulator and a major purchaser of employee health insurance, the state should take the lead to create the conditions for a market-driven health care system. If the McDonnell administration has taken any measures in this direction, I have yet to see it.

Education. Education is critical to building human capital. The Old Dominion’s educational system is inadequate to the task of elevating Virginia’s students to the next level of educational achievement. McDonnell has proffered some modest measures — more money for higher ed, more virtual learning — but they tinker on the margins. We need to dynamite the traditional educational system and build one anew.

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The Dangers of Creeping College Privatization

Posted on December 26, 2011 by Peter Galuszka| 14 Comments

By Peter Galuszka

Virginia residents have long enjoyed a special advantage with higher education. Tuition at some of the country’s best-rated public universities — the University of Virginia, the College of William and Mary and Virginia Tech — is relatively modest. The schools offer a great deal for parents and students compared with nationally ranked private colleges.

But this advantage is unraveling. The process began seven years ago, when the General Assembly agreed to a deal whereby it would pay not as much for top public universities. In exchange, the schools would get more autonomy, including more freedom to set their own tuitions, capital spending programs and curricula.

The result? A creeping privatization that threatens to undermine the very
advantages that make Virginia’s top public schools what they are.

To be sure, state education bureaucrats and legislators call it not “privatizing” but “restructuring.” This euphemism means the schools will
gradually demand tuition closer to what is charged at the top national, private institutions but won’t have to go through the hassle that true privatization would entail — such as the selling of public property and making good on repaying decades of public investment.

There is some logic to this approach: If Virginia’s elite public colleges
start approaching market rates for tuition, the thinking goes, state money could be freed up to spend on lesser institutions. More financial-aid money would become available. The state could use those resources to reach for its goal of 100,000 more students earning degrees. Since 2005, when the concept was formalized in General Assembly legislation, Virginia Commonwealth University added itself to the list of schools willing to trade funding for autonomy.

The same year that “restructuring” was approved, John T. Casteen II, then the president of U-Va., announced an ambitious campaign to raise $3 billion through fundraising. Most of that has been collected, although the effort to raise so much private money at a public school raised eyebrows. More recently, Taylor Reveley, president of William and Mary, proposed
bringing his school’s tuition levels to market rates, which, for a nationally rated private institution, would be about $45,000 a year for tuition, room and board. Out-of-state W&M students now pay $44,854 a year, while in-state students pay $22,024.

Reveley notes that Richmond provides only 13 percent of W&M’s funding,
which is way down from the 43 percent of 30 years ago. This trend has been even more pronounced at other elite Virginia public colleges. At the University of Virginia, the state pays less than 8 percent of what the school needs. At Tech, the process has been slower. In 2000, the state provided 58 percent of the school’s needs; today it’s 28 percent.

Reveley argues that if more in-state parents or students paid full freight,
then his school could offer more generous financial-aid packages to middle- and lower-income students. He also believes that as top schools become more self-sustaining, a second tier of Virginia schools could be given more state funding and raise their own academic standings. These would include Old Dominion, George Mason, James Madison, Radford, Longwood and the state’s community college system.

But there is cause to worry about this argument. At present, many complain that lower-income Virginians have been forced to compete with an increasing number of deep-pocketed out-of-staters, whose higher tuition helps to balance the schools’ books. As those schools look to capture more revenue via in-state tuition, they will face strong incentives to accept a greater portion of in-state students with the means to pay all or most of their own way. And even with increased aid, worthy but less affluent students will confront barriers. Some will simply opt for less expensive, less competitive schools; others will emerge from school more deeply in debt.

Such an uneven playing field is contrary to the spirit of a state-funded
higher education: Why should a kid from affluent Fairfax have a better chance at attending U-Va. or W&M than someone with the same grades and test scores from Big Stone Gap?

I’ve noticed this kind of elitism beginning to appear in “Virginia” magazine,
published by the school’s alumni association. Its pages are filled with four-color advertisements hawking multimillion estates mostly in blue-blood
horse country. The message that’s suggested? “If you can’t afford these kinds of properties, then maybe you don’t belong at Mr. Jefferson’s University.”

Privatization is thought of by Virginia conservatives and even some moderates as a panacea for addressing the state’s budget woes while adhering to the state’s dominant anti-tax ideology. Tax hawks, for instance, constantly dodge the need for higher taxes to pay for highways by tossing the problem over to public-private partnerships. But applying the same thinking to public higher education risks undermining the very purpose of such institutions — building the highly educated middle class needed to keep Virginia competitive nationally and globally.

A straight sell-off of state schools isn’t likely. What is possible, says
James Alessio, chief of higher education restructuring at the State Council for Higher Education, is a steady series of tuition hikes in the 5 to 7 percent range. “Within maybe 40 years, you’ll see tuition at the public schools go to $40,000 or $50,000,” he told me.

Once that happens, the stealthy, half-privatization of Virginia’s academic
jewels will be complete, and probably irreversible. One possible solution comes from the University of California at Berkeley, which announced this month that it will cap tuition at 15 percent of what “middle class” families make, defined as $80,000 to $140,000 a year.

Virginia could try something similar. Otherwise, on its current trajectory, the state is fast moving toward a two-tier public college system heavily based on income — the exact opposite of what public higher education is supposed to be.

First published in The Washington Post

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