Category Archives: Economic development

Explaining Fairfax County by Way of New York City

domestic_outmigration

Graphic credit: StatChat

by James A. Bacon

National population migration surveys invariably show Fairfax County to be a big loser. The county experienced a net domestic out-migration of 16,800 in 2015 and 46,500 since 2010. When viewed in isolation the numbers make Virginia’s largest locality look like a war zone — call it Little Aleppo. Yet somehow the population continues to increase, and somehow the county manages to support one of the highest per capita incomes of any jurisdiction in the United States.

Writing at the StatChat blog, Luke Juday explores the seeming contradiction by taking a look at New York City, which shows a similar profile of massive domestic out-migration and increasing population. By way of explanation, he points to two trends: foreign in-migration and natural increase. In New York, a wave of immigrants more than replaced the native-born Americans who were leaving. Furthermore, the demographic profile skews younger than for the nation — and people in their 20s and 30s have more children than people in their 50s and 60s.

New York is not turning into another Detroit as its native-born population moves away. Sky-high real estate prices may drive out the middle class, but unaffordable real estate is a sure sign of high demand. As Juday points out: “Its population continues to climb despite an astronomical cost of living that suggests even more people would live there if they could.”

That New York is a gateway for immigration is a secret to no one. But the idea that it is a young city is less widely recognized. Writes Juday:

New York is a young city compared to the nation as a whole. Like most cities, it has a disproportionate share of young adults in their 20’s and early 30’s. Young adults are important in demographics for two reasons. First is what they don’t do: die. A population of 20-somethings will have far fewer deaths in any given year than a population of 60-somethings. Second is what they do: have babies. Women between the ages of 20 and 35 are in their prime childbearing years. Unsurprisingly, places that have a lot of women in their prime childbearing years tend to have a lot of births as well.

The people moving to New York are younger than those who are leaving. Think college graduates seeking the bright-lights-big-city in Wall Street, Madison Avenue or Broadway while snow birds retire to Boca Raton. (The numbers also suggest that native-born households in the child-raising years, along with their children, also leave the city — presumably to a less hectic life outside the urban core.) The end result is a city with a high proportion of young, creative, entrepreneurially vital people in their 20s and 30s.

Unfortunately, Juday does not close the loop in his blog post. Is what’s happening in New York also happening in Fairfax County? Well, after accounting for foreign immigration, Fairfax County has actually experienced a net in-migration of 9,200 since 2010, so at least one of New York City’s demographic drivers is the same. Juday does not tell us whether Fairfax has a similar population profile heavily weighted by people in their 20s and 30s. But he promises to reveal more in a later post.

An Explanation, Please, for $2 Million Subsidy to Relocate Jobs from Roanoke to Norfolk

Shuttered: Norfolk Southern's regional office in Roanoke

Shuttered: Norfolk Southern’s regional office in Roanoke

About that $2 million subsidy from the Governors Opportunity Fund (GOF) to support the relocation of Norfolk Southern jobs from Roanoke to Norfolk… The Roanoke Times is asking whether it violates state law.

On the one hand, the newspaper reports, a 2006 law bars the use of GOF grants intended to underwrite the move of jobs from one Virginia community to another, as Norfolk Southern is doing in in the transfer of roughly 165 jobs from the shuttered regional headquarters office in Roanoke to the headquarters facility in Norfolk. On the other, the law provides an exception in rare instances justified by letter from the state Secretary of Commerce and Trade.

Arguably, there is an extenuating circumstance in the Norfolk Southern deal. The railroad company did consider relocating employees to Atlanta. State and local subsidies tipped the deal in favor of Norfolk. But, as of Friday, neither Senate Finance nor House Appropriations committees had received such an explanation from Commerce Secretary Maurice Jones.

Sen. Emmett W. Hanger Jr., R-Augusta, co-chairman of the Finance Committee, said, “I need an explanation of what went on, since I don’t have clarity. … The intent of the law is, of course, you shouldn’t [subsidize the relocation of jobs from one Virginia locality to another] except in rare circumstances. Then, in that rare circumstance, you need to justify it through appropriate channels to let people know what you did. It does seem like on the surface there, that they haven’t complied with that in a timely manner, and it may not be appropriate.”

Bacon’s bottom line: Here’s the key question for which the public has no answer: How seriously did Norfolk Southern contemplate moving the jobs to Atlanta? We can start by asking which business functions were being moved. Could those business functions have integrated into Norfolk Southern operations as efficiently in Atlanta as in Norfolk? How expensive was Atlanta office space compared to Norfolk office space? How did the workforce characteristics compare for purposes of recruiting? What other factors might have come into play? Virginia taxpayers need to know that the railroad company wasn’t, well, railroading the state into coughing up money unnecessarily.

I expect the McAuliffe administration to demonstrate that it has command of all the relevant facts and to be able to make a strong business case that the subsidies were necessary to keep the jobs. We have seen in the case of Lindenburg Industry LLC that the dispensation of GOF dollars has been loosey-goosey at times. The fact that the administration has provided no explanation for the Norfolk Southern deal does not inspire confidence.

What Charlottsville Needs Is… More Charlottesville

Boyd Tinsley, violinist and founding member of the Dave Matthews Band, will give a free concert.

Boyd Tinsley, violinist and founding member of the Dave Matthews Band, will give a free concert.

There is nothing else in Virginia like Charlottesville’s Tom Tom Founders Festival, which launched a week-long series of events yesterday. Food trucks, craft beer, music concerts, an art bus, murals, films in the park, street dancing, a capella performances, craft cocktail competitions, a chili showdown, crowdfunding pitch night, and celebrations of arts, innovation and entrepreneurship — it’s all packed into one week.

The festival, now in its fifth year, “converges hundreds of bands, start-ups, artists, and visionaries with the purpose of celebrating creative founding,” says the Tom Tom website. “It’s a real opportunity to launch ventures amidst ideas and parties in one of America’s most beautiful and historic small cities.”

Charting a future as an arts-infused, tech-savvy economy was the theme of the Founder’s Forum opening event. “Speakers highlighted the importance of creativity as a means to boost Charlottesville’s attractiveness to businesses through education and culture,” reports Charlottesville Today.

“We will not succeed, I think, by trying to become Boulder or Raleigh,” said Mayor Mike Signer. “We will succeed by … becoming more Charlottesville.”

Bacon’s bottom line: The festival sounds like so much fun I wish I could be there. I’m envious — I want one in Richmond! Any region that can tap into the energy at the intersection of the arts, technology and entrepreneurship will thrive in today’s economy.

When I graduated from the University of Virginia in 1975, my experience at the university was so positive that I wanted nothing more than to move back to Charlottesville. At the age of 30 I managed to do so, taking a job in corporate communications for AMVEST Corporation in an idyllic location five minutes from UVa in the Boar’s Head Inn complex. But I discovered to my dismay that unless a newcomer was connected to UVa or had the bucks to join the Farmington Country Club, Charlottesville was no city for young professionals. It wasn’t long before I moved to Richmond, which I found much more to my liking. But times have changed in the past 30 years. Charlottesville looks like the kind of city where young professionals can sink roots and prosper. I foresee a great future for the region.

— JAB

Yeah, It Makes Sense for Virginia to Invest in Cybersecurity

Mackster

The Mackster gives speech at Launch Lounge event in San Francisco in March 2016. Photo credit: Richmond Times-Dispatch.

by James A. Bacon

Normally, it’s a terrible idea for government to pick economic winners and losers. Politicians latch onto fads and enthusiasms arising from the private sector but allow wishful thinking to override investment discipline when it comes to allocating government capital.

Bacon’s dictum is that if “everyone” knows a sector is hot, and “everyone” is investing in it, unless you’re the smartest, best-informed guy in the room, you’re probably wasting your money.

Twenty years ago, economic developers were chasing the semiconductor and “high tech” sectors. Today, biotech and greentech are hot — and mayors and governors around the country are mal-investing hundreds of millions of dollars in those sectors in the vain hope of triggering riding the wave to economic prosperity. That’s why I cringe when I read about the City of Virginia Beach putting money into a “biomedical” office park, and I get the heebie-jeebies when the state backs Northern Virginia’s Center for Personalized Health.

I may live to regret saying so, but I think that Gov. Terry McAuliffe may be on to something with his cybersecurity initiative. His two-year budget for 2017-2018 steers $750,000 in extra funding to Virginia’s Center for Innovative Technology (CIT) to develop an “information sharing and analysis” capability to build upon CIT’s Mach37 cyber-accelerator located in the CIT building and CIT’s investments, typically about $50,000 a pop, in cyber-related start-ups. In the grand scheme of things, the money is pocket change. The real contribution that CIT provides is acting as a relationship and resource broker for aspiring entrepreneurs.

There are several reasons why I think the cyber-security initiative makes sense for Virginia.

First, business and government awareness of cyber threats has increased markedly in the past few years. The threat is real, and business and governmental organizations are spending more money to combat it.

Second, Virginia is a major player in the industry, second only to California in the number of cyber-security vendors. Companies with cyber-security capabilities have clustered in Northern Virginia to serve the Department of Defense, the Central Intelligence Agency, the Federal Bureau of Investigation and the National Security Agency, where security requirements are high. With a wealth of human capital — thousands of IT workers trained in information technology and cyber-security — the region generates lots of new security-related business ideas. The existence of an existing business cluster and innovation ecosystem makes it easier for entrepreneurs to recruit skilled employees and forge alliances and partnerships.

Third, cyber-security as an economic development ploy has not yet become a national craze. Stupid money hasn’t yet started flowing into the industry, creating a glut of too many dollars chasing too few deals. Inevitably, that will happen, and Virginia leaders need to be alert to it. But it doesn’t seem to be happening yet.

Fourth, Virginia is not throwing around a lot of money. The added sums are infinitesimal compared to what Virginia is spending on new STEM programs at Virginia universities, the Commonwealth Research Commercialization Fund, and the universities’s share of the recently approved 2.1 billion bond package. As noted above, Virginia’s main contribution to cybersecurity is identifying entrepreneurs with promising ideas and hooking them up with private-sector partners who can help them. That is a defensible, inexpensive, and value-added role for the state to play.

Finally, the potential return on public investment is high. ThreatQuotient, a Northern Virginia cybersecurity company that received $1.5 million in seed funding from local investors including CIT early last  year, raised $10.2 million in second-round financing in December, and won recognition in a cybersecurity industry conference in San Francisco as “startup company of the year.” ThreatQuotient now employs 50 people in Reston, according to the Richmond Times-Dispatch.  Reports Michael Martz:

CIT officials estimate the [Growth Accelerator Program seed] funds leverage every dollar invested by 18.5 times, using $17.9 million in equity investments to attract $331 million in private investment in companies with a total value of $798 million. They estimate those companies will create up to 9,000 jobs in Virginia over the next five years. The [state] budget allocated $3.1 million a year to the program and requires a return on investment of no less than 11 to 1.

It goes without saying that such claims should not be taken at face value. CIT, like every other public, private or quasi-public entity in the world, is putting the best face on its performance. Still, the investment returns would appear to be orders of magnitude greater than traditional economic-development tax incentives and real estate subsidies.

There appears to be one other thing the state can do to promote this burgeoning sector. As Martz observes, thousands of cyber-security jobs are going begging in Virginia. The industry has grown faster than the ability to train people to fill the jobs. “It’s an absolute fact for our industry that the demand for talent, especially technical talent, and the supply, there’s just a disconnect,” he quotes John Czupkak, who serves on the ThreatQuotient board of directors, as saying.

As I have long maintained, state and local government can best promote economic development by doing its core jobs well: Deliver the highest quality government services at the lowest possible cost. Virginia doesn’t need to incentivize or subsidize cybersecurity to make it successful. Virginia community colleges and universities need to turn out more graduates with the skills the industry needs.

Here, Piggy Piggy Piggy!

pork_barrel

Woo hoo! GO Virginia!

by James A. Bacon

Any time business leaders, university presidents and legislators agree on a great new spending initiative, I put my hand on my pants pocket to make sure my wallet is still there. When their brilliant idea slides through the General Assembly without a dissenting voice, or even a word of skepticism from the news media, I take out my wallet to make sure my cash hasn’t disappeared. The GO Virginia initiative — $36 million allocated over two years to incentivize regional cooperation in economic development — inspires that reaction.

I don’t adamantly oppose GO Virginia — I don’t know enough to form a strong opinion. What worries me is that the proposal has been subjected to so little critical analysis.

Thankfully, Attorney General Mark R. Herring issued a legal opinion yesterday finding that the Virginia Growth and Opportunity Act faces a “significant risk” of being found unconstitutional on the grounds that it violates the separation-of-powers doctrine by giving the General Assembly the power to appoint a majority of the board’s 22 members as well as a legislative veto over its grants. (See the Richmond Times-Dispatch reporting here.) Gov. Terry McAuliffe has until Sunday to amend or veto the legislation, which he originally supported.

It’s nice to see that someone has taken a serious look at the bill. Herring raises a critical point. If anyone needs an example of what can happen when legislators insert themselves into the executive function, one need look no further than the shenanigans of the Tobacco Indemnification and Community Revitalization Commission.

According to the GOVirginia website, the project was the brainchild of the Virginia Business Higher Education Council (VBHEC) and the Council on Virginia’s Future “to foster private-sector growth and job creation through state incentives for regional collaboration by business, education, and government.”

Why is the program needed? Backers argue the following:

Because Virginia is a large and diverse state, the opportunities for private-sector growth vary significantly from one part of our state to another, requiring collaborative innovation among employers, entrepreneurs, investors, researchers, educators, governments, and other leaders in each region. Too often this cooperation has been lacking, causing Virginia to lag behind other states.

State government can solve the problem:

The State can and must do more to encourage strategic, job-focused collaboration in each region. Significant state funds currently flow to localities, schools, and higher education institutions; the Commonwealth should use such resources to promote joint efforts on economic and workforce development and to encourage collaboration that can improve performance and reduce costs.

The original concept behind GOVirginia was to fund the program through “use of growth revenues, re-purposed dollars, and efficiency savings” — not new taxes, mandates or layers of government. Somewhere along the way, the initiative morphed into a program supported by $36 million in state funds over the two-year budget. The concept may well have morphed in other ways beyond its original formulation, although, judging from Travis Fain’s reporting for this Daily Press article, the legislative package of four bills has stayed fairly true to the original vision.

Here is how the money would be distributed:

The plan includes $5.5 million a year for the first two years to stand up the regional councils, vet project proposals and study various aspects of regional economies, particularly the gaps in education and skills training needed to support desired industries.

Beyond that, $15 million would be up for grabs, with regional councils competing to get the state board to fund their projects. The remaining $12.4 million would also go toward project-specific grants, but it would be broken down between the regions based on population.

Bacon’s bottom line: It’s a little late in the game, I’ll concede, but let’s get the conversation going. Is this a worthwhile expenditure of $18 million a year?

Let’s start by looking at the new overhead created: $11 million, or 30% of the funds allocated, would go to setting up the administrative structure for the program. That’s pretty much a waste. Don’t higher-ed institutions have mechanisms for discerning the job-training needs of local industry already? What can these new studies possibly add?

Then consider the how the money is distributed geographically. Funds will be distributed amongst a number of regional councils reflecting the diversity of the state’s economy. Let’s assume that roughly $15 million a year would be made available for actual grants. How would the sum be divvied up? By the merits of the projects? What if all the high-ROI projects were located in, say, Northern Virginia? Would the other councils feel short-changed? Conversely, what if the money were distributed evenly between regions, would some high-ROI projects be denied funding?

Next, consider the pork barrel aspects. Fain quotes House Majority Leader Kirk Cox, R-Colonial Heights, a local project – the Aviation Academy at Denbigh High School – as a good example of projects that would get funding.

The Newport News school system runs the school at the Newport News/ Williamsburg International Airport. It would get $100,000 a year under Gov. Terry McAuliffe’s proposed budget, but Del. David Yancey, R-Newport News, wants another $2 million next year and $1.5 million the year after that to expand the school.

Yancey will go before the House Appropriations Committee to ask for that funding, but with limited time during session to vet these proposals, Cox said he’d rather see projects like this bubble up through the regional councils.

Pork by any other name still smells like pork.

There is a vast gap between the airy and idealistic justification of GOVirginia and the ugly implementation guided by legislators toward their pet projects. If the Newport News project is a good example of what would get funding, I hate to see a bad example. I foresee GOVirginia funding projects that couldn’t raise the money from either the private sector or existing government programs, thus creating new programs of marginal value that will be dependent upon government for funding, and creating new constituents that lobby for government hand-outs year after year.

To some degree, I’m playing devil’s advocate — filling a role that no one else has seen fit to play. I’m open to arguments in favor of the program. But so far, I haven’t seen anything that persuades me and a lot to make me keep checking my wallet.

Virginia Beach on Another Wild Goose Chase

wild_goose_chase

by James A. Bacon

Virginia Beach City Council voted yesterday to give 155 acres to build a biomedical park, reports the Virginian-Pilot. The Virginia Beach Development Authority will oversee the design and promotion of the property.

Virginia Beach Mayor Will Sessoms justified the initiative to lure health care and biotech companies as a way to diversify the city’s economy away from the military and tourism sectors. “You’ve got to look around the country and see what is really growing. As you know, health care numbers continue to increase,” Sessoms said earlier. “We saw that as an opportunity.”

Economic Development Director Warren Harris said the city has identified some prospective tenants, including a regenerative medicine/cancer research firm and a stem cell research firm. MedImmune, a research and development arm of British drugmaker AstraZeneca, met with city officials last month and “left very impressed,” Harris said.

Bacon’s bottom line: This cannot end well. In its pursuit of “economic development” Sessoms seems to be chasing every shiny object that someone dangles in front of him. Last night City Council also voted to sign two agreements with the state that keeps on track plans to extend Norfolk’s light rail system into Virginia Beach on the promise of the most nebulous of benefits. The mayor also supports a mega-convention complex (committing the city more deeply to a tourism-oriented economic development policy). And he supported city subsidies to jump-start redevelopment of the old Cavalier Hotel into a resort complex (another tourism-oriented initiative). As if all these city-backed projects were not enough, now he wants a biotech park.

Well, get in line. Everybody sees high-tech medicine as the next big thing, and everyone wants a piece of it. Bacon’s Rebellion has highlighted the plans of Inova and George Mason University to build a Center for Personalized Health in Fairfax County, and the ambition of Virginia Tech and Carilion Clinic to build a biotech cluster around neuroscience in Roanoke. While both those initiatives face major challenges, they at least have resources that Virginia Beach doesn’t have. The Inova-GMU project is located in the Washington metropolitan area, one of the largest biotech clusters in the country, and Inova has publicly stated its willingess to put $200 million into the project. Meanwhile, Virginia Tech is the largest research university in the state, and it is partnering with western Virginia’s largest health care system.

There is no indication in the Virginian-Pilot reporting that Virginia Beach has forced an alliance with either the Eastern Virginia Medical School (EVMS) or the Sentara Health System. Despite the fact that the Virginia Beach site is not located anywhere near EVMS or Sentara General Hospital, the region’s flagship hospital, Harris sees the park focusing on diabetes, cardiovascular disease, neuroscience and traumatic brain injury. As for supporting assets, Harris cites a branch of Tidewater Community College and the Sentara Princess Anne Hospital, which opened in 2011. Virginia Beach also has donated $1 million to fund the initiative. Really? Is this serious?

The city has many assets. Biotech is not one of them. The chances of building a high-end biomedical cluster are just about nil. For biomedical projects lower down the value-added scale, a run-of-the-mill office park will likely do. If Virginia Beach wants economic development, maybe it should persuade Governor Terry McAuliffe to stop subsidizing the relocation of Virginia Beach businesses to Norfolk. In the meantime, the city should focus on providing core government services of the best possible quality at the lowest possible cost. It’s that simple.

Can Appalachian Cuisine Save Appalachia?

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Appalachian-style pork tenderloin. Photo credit: Washington Post

by James A. Bacon

As Baby Boomers hit retirement age with creaky joints and declining appetites for activities that involve running, leaping and moving at hurl-inducing velocities, they’re looking for something different in a vacation experience. As a rule, that means less adventure and more fine dining. My wife and I are exemplars of this trend, having just returned from three days of strolling through the historic district of Charleston, browsing art galleries and enjoying the city’s low country cuisine.

If you want to develop a tourism industry, you’d darn well better develop a first-class culinary experience to go along with it.

For a long time, that was a problem for much of Appalachia, which yearns for a source of economic activity to replace the decline of coal mining, tobacco cultivation and light manufacturing. There was only so much Appalachian communities could do to attract big-budget Boomers with hiking, kayaking and country music festivals when the most chi-chi restaurants in town were Olive Garden and Red Lobster.

But there may be hope. Foodies on the lookout for the next big thing in the culinary universe may find it in the valleys and hollows of central Appalachia, where a new generation of cooks is drawing upon the unique flavors of the mountain cooking tradition — from greasy beans, huckleberries and goosefoot to sour corn, kilt lettuce and apple butter.

According to Jane Black, writing in the Washington Post, “Southern and central Appalachia are acknowledged as the most biodiverse regions in North America.” Researchers have documented 1,412 distinctly named heirloom foods in the region, including more than 350 varieties of apples, 464 varieties of peas, and 31 kinds of corn. That’s a lot of different flavors.

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Travis Milton. Photo credit: Washington Post

Black profiles Travis Milton, who was born in Castlewood, Va., moved to Richmond and took a job at Comfort, a restaurant that showcases Southern cooking. The owner gave him the freedom to experiment. Writes Black: “He made Kentucky frogs’ legs and chicken wings glazed with Mountain Dew barbecue sauce. He also started making vinegars from all manner of things: turnip greens, honeydew melon, even Cheerwine, a North Carolina soda pop, which he in turn used to make cheeky vinegar pie.” Later this year, he will open Shovel and Pick, an Appalachian-themed restaurant, in Bristol, Tenn.

Last fall, scholars, chefs and activists hosted an Appalachian food summit in Abingdon, Va., to examine how the region’s food heritage can boost local economies. Milton, one of the chefs featured at the event, hopes to legitimize Appalachian food as a way to stimulate interest in artisinal Appalachian food products such as heirloom apples, cider and “Virginia-style” whiskey.

By itself, Appalachian cuisine can’t rescue the Appalachian economy. Consider it a necessary ingredient for developing viable tourism and artisinal-agricultural industries, which can help support the region. Baby Boomer travelers hunger for authentic cultural experiences in their travels. Combine the food with music, arts, crafts, hiking and biking trails, and beautiful landscapes, and you’ve got an economy that can support tens of thousands of people. Asheville, N.C., and Abingdon, Va., show how vibrant communities can thrive in the otherwise economically forlorn region.

Top-down economic development as propagated by the Virginia Tobacco Indemnification and Revitalization Commission hasn’t done much to help Virginia’s Appalachian counties other than prop up manufacturing industries that are likely to leave as soon as the subsidies cease. Bottom-up economic development, which builds upon the unique traditions and proclivities of the people, is far more likely to succeed.