Category Archives: Economic development

Reveling in Small Spaces

Charleston7

Charleston sidewalk scene: wide sidewalks, potted plants, and vine-covered buildings.

by James A. Bacon

One thing I look for in a city is the attention given to small spaces — the pocket parks, wide spots in the sidewalk, corridors between buildings and other features that lend texture and delight to an urban landscape. The antithesis is large parking lots, long buildings and the empty detritus of concrete that inhabitants long ago lost interest in.

The Bacon family is spending a short vacation in Charleston, S.C., a 300-year-old city with one of the nation’s largest historic districts, a great street grid, and an abundance of small spaces where Charlestonians have lavished love and care over the years. The city is most famous for the spectacular South of Broad neighborhood of handsome 18th- and 19th century buildings, a living architectural museum. But the city has a lot to offer North of Broad in a more conventional urban setting. The photos in this post come from a stroll around the block where our hotel, the Hampton Inn (comfortable but not exactly the most chi-chi address in town) is located.

Charleston4 I love the corridors between buildings where property owners treat what could be an ugly alleyway as a venue for creative landscaping. The corridor at left apparently leads to dwelling in the interior of the block, creating an inviting entrance for guests and a visual delight for passersby. Examples of these in Charleston are too numerous to document them all. This one is fairly typical.

 

Charleston1

Another ordinary street scene: I like the cloistered effect created by the row of trees on one side of the sidewalk and storefronts abutting the sidewalk on the other side. Also, the awnings create visual interest. Continue reading

SCHEV Approves First School of Neuroscience

neuroscienceThe State Council of Higher Education for Virginia (SCHEV) has approved the Virginia Tech School of Neuroscience, the first school of neuroscience in the country. The school will study disorders of the brain, such as Alzheimer’s disease and traumatic brain injury, and the mind itself, including decision-making, behavior and creativity, reports Virginia Business.

The school will have 15 faculty members and enroll 150 students. Neuroscience students will have the opportunity to become involved with biomedical neuroscience research in the recently launched Health Sciences and Technology Innovation District in Roanoke.

Bacon’s bottom line: Congrats, Virginia Tech. It’s good for Virginia universities to push into burgeoning fields of knowledge. And I like the economic development tie-in with Roanoke. At the same time, universities can’t be all things to all people. As universities expand into new fields, they should contract in older, less relevant fields experiencing shrinking class enrollment. Somehow, we never seem to read about universities pulling the plug on declining programs. Maybe it happens, but we don’t hear about it.

— JAB

Citizens Take on Crony Capitalism in VA Beach

cavalierby James A. Bacon

Arlington County had its $1 million bus stop scandal. The City of Richmond had its mayoral cronyism scandal. Now Virginia Beach has its Cavalier Hotel redevelopment scandal. The FBI has undertaken a criminal investigation of a vote by Councilman John Uhrin in favor of providing $18 million in city funds to subsidize redevelopment of the landmark Cavalier Hotel. Days later, his wife Catherine Sassone was hired to sell luxury properties associated with the project. Uhrin has said he did not know when he voted that his wife would be hired.

I have no idea if Uhrin is guilty of anything — I have not followed the controversy closely enough to have an informed opinion — but I do admire how Virginia Beach residents residents are responding to the revelations. A group of about 25 citizens who believe “the taxpayers of Virginia Beach have been pushed aside for too long” have banded together to dredge up public records, publish them online and expose the crony capitalism at the heart of Virginia Beach governmnet. The result is The Document Project:

When City Councilor John Uhrin arrived at City Hall on July 2, 2013, he did much more than just vote to give Cavalier Associates, LLC, the largest upfront taxpayer incentive in the city’s history. Uhrin’s vote unintentionally opened a window into the inner workings, backroom negotiations and financial wrangling that for a decade has become the shameful signature of Virginia Beach government.

And it’s all published here, for the first time. Courtesy of a federal subpoena, the FBI and Virginia’s weak, but still sufficient, public records laws.

Among the accusations:

  • Mayor Will Sessoms and former City Manager Jim Spore scheduled Cavalier meetings at the developer’s headquarters even after the mayor recused himself from voting because he had a conflict of interest.
  • A firm run by a member of the Cavalier Task Force, an independent body formed to protect the city’s interests, was working for the Cavalier developers without telling the public of his dual roles.
  • A city engineer describing a 968-foot roadway to be built with $2.5 million in public funds said the cost was so inflated that the developer could use “gold-leaf pavers” and still build the road for less.
  • During negotiations on city incentives, the city’s point man for the project, Barry Frankenfield, asked the developer if he might entertain a “pitch” from his son’s firm. Two months later Frankenfield wrote e-mails stating that the city could “edit out” and “tone down” critical comments made by its own engineers that questioned safety and financial aspects of the development.
  • The Cavalier’s developers applied for a tax break under the state’s GAP financing program. State regulations require all financing to be in place before approval. The developers did not have the financing in place when they applied, and in fact didn’t receive its $77 million loan from TowneBank until February 2016.

I have not examined the substance of the allegations. What I find encouraging, though, is the way citizens have taken matters in their own hands and done the hard work of sifting through a large body of public records to expose questionable ways of doing business.

Why is Hampton Roads among the worst for economic growth in the entire state of Virginia, when we have so much more to offer? Because we’ve long ago traded capitalism for cronyism. …

This website is here because the taxpayers of Virginia Beach have been pushed aside for too long as the same few developers and our elected officials make deals behind closed doors while saying, “trust us.”

Well, those days are over. And with Light Rail, the 15th Street Pier, the 27th Street boondoggle and so many more projects on the horizon, we’re just getting started.

Bravo. Virginia is sliding into a cesspool of corruption. The media is a largely defanged watchdog lacking the resources to conduct the investigative journalism that once was its hallmark. Citizens must take matters into their own hands.

Conservative, Yes. Sanctimonious, Probably. But Egomaniac? That’s a Bit Harsh.

by James A. Bacon

And now for another view…. John Fredericks, whose John Fredericks Show is heard in radio markets across Virginia, calls me a “sanctimonious conservative egomaniac” for asking questions about the use of the Governor’s Opportunity Fund to lure business investment to the City of Norfolk.

“It really irritates me,” said Fredericks on his show two days ago. “Any of these … 365 people in the Hampton Roads area that now have a job that didn’t have a full-time job, who can support their families, you know what, it’s a good deal for them, dude! … If you just got hired, and you got benefits, and you can now support your family, that’s a good thing. I’m for jobs. Period. … If you’re unemployed, and if Terry McAuliffe goes out and finds a business to hire you, he’s done a good thing.”

I’ve appeared on John’s show a couple of times, and I find him entertaining. (He refers to Governor Terry McAuliffe as “the Mackster,” which I do find amusing.) Indeed, because he is generally conservative in his views, I agree with a lot of what he says.

Believe it or not, John, I also agree that there are worse ways to spend government money than keeping jobs in Virginia. (If I have time this morning, I’ll post about some development expenditures in Virginia Beach that John might find questionable.) Job creation is the single best remedy for poverty and economic insecurity there is.

That said, given the resistance to paying higher taxes and the competing demands for state funds, Virginia has a finite amount of money that it can dedicate to economic development. We need to ensure that we spend these limited funds as cost effectively as possible. And when we spend money to shuffle jobs around the state — most of those “new” Norfolk jobs are coming from Roanoke and Virginia Beach — I don’t take it on McAuliffe’s say-so that we are getting the best deal possible, or for that matter that we’re getting jobs that we would have lost to other states. I’d like to see the proof.

Here’s what’s going on: Any time a corporation is ready to expand or relocate jobs, the top brass knows from experience that it has an opportunity to extract easy money from state and local governments by threatening to set up shop outside Virginia. They hire site-selection consultants to shop other locales and use that as leverage to extract subsidies and tax breaks. They almost always succeed in getting something. Once upon a time, the Governor’s Opportunity Fund was used to attract outside businesses to Virginia. Now it’s used extensively to keep Virginia businesses here.

Would Norfolk Southern and Movement Mortgage have made the decision to locate in Hampton Roads without the concessions? Economic developers don’t know, the governor doesn’t know, and the public doesn’t know. It’s a shake-down racket, and the only certain winners are the businesses in a position to negotiate special deals for themselves that other businesses don’t get.

The purpose of my original post, and this one, too, isn’t that McAuliffe should not have made the investment, it’s that we don’t know whether he made a good investment or not, and we will never know because there is insufficient transparency in the system. If corporations want to tap public funds, I argued, then they should waive any non-disclosure rights so citizens can evaluate the merits of the subsidy. Is that really so sanctimonious?

The Big Bet on Roanoke’s Biotech Cluster

Virginia Tech Carolion Research Institute and medical school. Photo credit: Roanoke Times

Virginia Tech Carolion Research Institute and medical school. Photo credit: Roanoke Times

by James A. Bacon

Just as Inova Health System and George Mason University are investing hundreds of millions to build a center of excellence around personalized medicine in Northern Virginia, Virginia Tech and Carilion Clinic are spending hundreds of millions to build a comparable center in Roanoke. While the dollars committed in Roanoke may be smaller, the enormity of the investment looms larger for western Virginia, where the regional economy has been hollowed out far worse than Northern Virginia’s and local leaders are even more desperate to find an economic sector that can thrive in the knowledge economy.

In a Saturday article, the Roanoke Times describes how Tech and Carilion are building upon the medical school and research institute they established eight years ago. Tech will move components of its biomedical engineering program and its nascent neuroscience discipline — 500 to 1,000 undergraduates, graduate students, faculty and scientists — to Carilion’s Riverside campus in Roanoke. The plan calls for 25 new research teams capable of attracting private investors, who in theory will spawn start-up companies and large-firm satellite offices. Tech has stated its intention to invest $100 million in health sciences and technology in the next eight years.

Meanwhile, Carilion has doubled its complement of physicians to 1,000, recruiting more specialists and subspecialists, to expand its clinical capabilities. Most recently, it opened an Institute for Orthopaedics and Neurosciences.

Just as Inova and GMU hope to establish a foot-hold in the area of personalized medicine, an emerging field in which treatments are tailored to the unique genetic make-up of patients, Virginia Tech and Carilion are aiming, as Thanassis Rikakis, the Virginia Tech provost overseeing the initiative, tells the Roanoke Times, to “[corner] the market on a big-data approach to personalized medicine in rural areas — something that could significantly change public health.”

Inova-GMU and Virginia Tech-Carilion enter a crowded field. It’s not as if they are the only academic-health system collaborations to have stumbled upon the idea of exploiting the fast-expanding fields of big data and personalized medicine. The Obama administration unveiled a precision medicine initiative in January 2015, backed by $215 million in federal funding, calling upon “academic medical centers, researchers, foundations, privacy experts, medical ethicists, and medical product innovators to lay the foundation” for the effort. Presumably, every other major medical research institute in the country is vying for a piece of the action.

Inova and GMU have an advantage in being located in the Washington metropolitan area, home to a significant biomedical industry cluster, which provides an advantage in recruiting from a large, highly skilled labor pool and an edge in recruiting world-class faculty. Recruiting talent to the smaller Roanoke-Blacksburg labor market might prove more difficult. On the other hand, Virginia Tech-Carilion have identified a niche — rural personalized medicine — that might enable it to complete effectively for a slice of the pie.

Another difference: The focus of the Inova-GMU initiative will be in the old Exxon-Mobil suburban headquarters office outside Tysons Corner and GMU’s Prince William County campus outside Manassas. Traffic congestion will present a huge quality-of-life issue for researchers and businesses choosing to locate there, which may be a factor behind Governor Terry McAuliffe’s $2 billion commitment to increase the capacity of Interstate 66 which connects both facilities.

By contrast, Virginia Tech and Carilion are pursuing an “innovation district.” The campus there is located on the fringe of downtown Roanoke. The idea is to create a cluster with urban amenities — walkability, access to transit, access to mixed-use office, housing and retail, where the medical school and educational facilities are connected to start-ups, business incubators and accelerators. Such an environment arguably would be more attractive to students and young professionals than traffic-clogged highways.

Another plus for Inova-GMU is the existence of a robust venture capital industry in the Washington metro region, which Southwest Virginia does not have. Moreover, Inova has pledged to commit $100 million to create a venture fund in support of its initiative; Carilion has not announced anything comparable. Carilion, which serves a large, rural population in western Virginia, is not as profitable as Inova, which supports a largely affluent, suburban market, nor does it generate excess profits of the same magnitude that it can steer into its biomedical initiative. Where Inova generates roughly $100 million a year over and over the 4% profit margin considered desirable for non-profit hospitals, Carilion generates less than $20 million a year over that benchmark.

Virginia Tech’s Rikakis acknowledges that the Tech-Carilion initiative cannot compete on the same basis as a University of Virginia or Duke University, which have much larger research programs with clinical service and research under the one roof. “Virginia Tech is not set up to do this. Taking it on would destroy us,” he says. But the UVa-Duke model is so 20th-century. He envisions Virginia Tech-Carilion instead as a node in a network of collaborations and partnerships.

The Roanoke initiative will be supported by $46.7 million in state bonds to be matched by $14 million from Tech, $5 million from Carilion, and $2 million in in-kind land contribution.

Bacon’s bottom line: Virginia Tech and Roanoke leaders have been talking for literally decades about combining the strengths of both regions. Creation of the medical school and research center was the first tangible example of such a collaboration. Now both partners are upping their commitment to a level that has the potential to create a critical mass that employs not only doctors and scientists but spins off new businesses and creates private-sector jobs.

I’ve lived long enough to see rah-rah projects soak up a lot of money before crashing and burning, and I think a commitment like this deserves close scrutiny. I would ask the same question of Carilion that I would of Inova: To what extent is Carilion funding its participation with monopoly profits extracted from its rural/small metro service area — in other words, are working- and midde-class patients subsidizing job creation for affluent doctors and scientists? How much will the Tech-Carilion initiative soak up in public money — bond proceeds for new buildings, state support of the medical school, routine economic-development incentives — along the way, and what are the odds of creating an economically sustainable research-business cluster?

At the same time, I would say this: If politics dictate that the Commonwealth lavish tens of millions of dollars on bolstering the economy of the Roanoke Valley, this might well be the best bet going.

Justified Incentives or Corporate Welfare? We Need More Transparency to Tell

money_bagsby James A. Bacon

Wow, big economic development news for the City of Norfolk! In the past week Governor Terry McAuliffe has announced two deals: Norfolk Southern will spend $8.2 million to accommodate 165 employees in its corporate headquarters, and Movement Mortgage will invest $2 million in a deal that will net 200 new jobs. Too bad citizens will never know if the public subsidies in support of those deals were justified.

The Norfolk Southern jobs are being relocated from Roanoke, where the railroad company continues to dismantle the remnants of its old Norfolk & Western Railway presence. The Movement Mortgage jobs are part of a larger relocation of the mortgage company’s operations center from Virginia Beach.

To facilitate the transfer of jobs from Roanoke to Norfolk, McAuliffe approved a $1.925 million grant from the Governor’s Opportunity Fund to “assist Norfolk with the project.” The nature of that assistance is not detailed in the press release, nor is any “assistance” that Norfolk is providing Norfolk Southern. The press release made no mention of Norfolk competing with any out-of-state jurisdictions for the investment, nor did it provide any other justification for the subsidy.

To facilitate the transfer of 550 existing jobs from Virginia Beach to Norfolk, as well as the addition of 200 new jobs, McAuliffe approved a $600,000 grant from the Governor’s Opportunity Fund to “assist Norfolk with the project,” plus employee training through Virginia Jobs Investment Program. The press release did not specify the nature of the assistance to Norfolk, although it did state that the city was in contention with Arizona, North Carolina and South Carolina for the project.

Bacon’s bottom line: There is no way to tell from the substance of these press releases whether the Commonwealth of Virginia, in facilitating the transfer of jobs from one Virginia locality to another, is engaging in corporate welfare or not. The press release announcing the Norfolk Southern deal provides no justification whatsoever for the nearly $2 million subsidy. The press release announcing the Movement Mortgage deal does mention competition from three other states, but there is no way for citizens to know how serious that competition was, nor whether the company was just playing one state off the other to get the sweetest subsidy it could for a decision to stay in Hampton Roads anyway. State and local officials will not comment because the details involve proprietary information and cannot be disclosed.

Here’s a suggestion: If corporations want to tap public funds, then they waive any non-disclosure rights so citizens can evaluate the merits of the subsidy. In some instances, the subsidies might be warranted in order to snag an investment Virginia would lose otherwise. In others, the public might be giving away money unnecessarily. In either case, citizens have a right to know. Lacking right to know, taxpayers are entitled to the presumption that they are being shaken down.

For another view: Meanwhile, spurred by the Norfolk Southern announcement, the Richmond Times-Dispatch makes a related point on how Virginia governors take credit for job creation when very little credit is due.

Buena Vista: the Canary in Virginia’s Fiscal Coal Mine

dead_canaryby James A. Bacon

The City of Buena Vista, which defaulted in 2014 on a $9.2 million bond issue to pay for a golf course that was supposed to spur growth in the city, has received some good news. It will be allowed to keep its city hall. For now. The office building, along with the police station and the golf course itself, stands as collateral on the debt.

Although ACA Financial Guaranty Corp., the bond insurer, still could take possession of city buildings, reports the Roanoke Times, it will not do so any time soon. “ACA is not currently interested in pursuing the option of foreclosing on the deeds of trust securing the bonds,” an attorney for the insurer wrote to the Buena Vista city manager.

The long-running controversy has harmed the ability of Buena Vista, a city of 6,500 in the Shenandoah Valley, to access credit markets. The Virginia Resources Authority recently rejected a request by the city for a loan to upgrade its public water system.

Maybe someone needs to call in Marc Edwards, the Virginia Tech professor who documented the lead poisoning in the water system of Flint, Mich., to make sure Buena Vista’s water is OK. I say that only partly tongue in cheek. The overlooked part of the Flint tragedy is the decades of fiscal mismanagement preceding the city’s takeover by state authorities that allowed the water system to deteriorate.

In Virginia, there is very much the idea that “it could never happen here.” But, in fact, it could, and Buena Vista is a case study. There are many other fiscally challenged cities, towns and counties in Virginia, where the old tobacco-textiles-furniture-and-coal economy has suffered comparable devastation to the Michigan automobile economy. Who knows what kind of hail-mary “investments” other local governments have pursued in desperate bids to revitalize local economies? Who knows the extent to which localities have deferred maintenance on their municipal water systems?

Buena Vista is so small that its plight has escaped the notice of the usual hand wringers, and I haven’t heard of any requests for bail-outs (although that’s not to say Buena Vista hasn’t been quietly looking for help.) At the national level, Puerto Rico is bordering on insolvency, and the entire state of Illinois is close behind. You can be assured that both will ask for help at some point to relieve them from the consequences of their bad decisions and dysfunctional political cultures.

Inevitably, Americans will face cruel choices — either bail out reckless and improvident governments or let their innocent citizens face more Flint-like calamities — and most likely Virginia will, too. To be sure, the Old Dominion’s finances are sounder than those of most states, but they aren’t as sound as we think, and not every jurisdiction has a AAA bond rating like Fairfax County, Henrico County of the City of Virginia Beach.