Category Archives: Economic development

Burbs Beware: Office Jobs Moving Back to D.C.

dc_office_spaceNot only are Millennials migrating to the Washington metropolitan region’s urban core, it seems that businesses are, too, in a reversal of the decades-long trend of businesses moving out of the central city to outlying counties.

Vacancy rates have risen in Washington, D.C., due to the contraction of legal services and government contracting tied to federal government spending. But according to commercial real estate firm JLL, private-sector tenants from Maryland and Washington accounted for 300,000 square feet of new leasing activity in the District. Reports Virginia Business magazine:

Doug Mueller, a senior vice president at JLL, noted that the migration is heavily populated by associations, technology companies and professional services firms. “The quality and location of office space with easy access to mass transit, abundant amenities and housing options also has a visible and tangible impact on attracting and retaining top talent,” he said in a statement.

According to JLL’s Office Insight report for the third quarter, since the start of 2014, a total of 21,200 private-sector office jobs have been added to the metro D.C. economy.

In an office market with tens of millions of square feet of space, 300,000 square feet is a rounding error. What’s significant is not the volume of space being occupied — although 21,200 office jobs is nothing to sneeze at — but the trend: jobs migrating back to the urban core. For decades, Virginia enjoyed a huge competitive advantage over the District with its dysfunctional government, poverty, crime and decaying neighborhoods. Now, despite bad schools, high taxes and expensive real estate, D.C. has something that educated Millennials and the businesses that employ them are looking for — walkable urbanism.

Next question: Is this trend unique in Virginia to the Washington metropolitan region or is it occurring in Hampton Roads, Richmond and the smaller metros as well?

– JAB

How to Revive a Lagging Regional Economy

Graphic credit: James V. Koch and Gary W. Wagner. Click to enlarge image.

Graphic credit: James V. Koch and Gary W. Wagner. Click to enlarge image.

by James A. Bacon

Dr. James V. Koch’s “The State of the Region: Hampton Roads 2014” report probably won’t get much attention outside of Hampton Roads, but it should. Not only is Hampton Roads the state’s second largest metropolitan economy, which means that its fortunes and misfortunes send large economic ripples across the state, but Koch’s observations about the region’s antiquated approach to economic development apply to many places in Virginia.

The message delivered by Koch and co-author Gary A. Wagner to an audience of more than 1,000 at the Norfolk Waterside Hotel was none too encouraging. After getting clobbered during the recession of 2007-2008, the Hampton Roads economy has been slow to bounce back. Employment growth has trailed state and national averages by a wide margin, as shown in the graph above. The stagnation in job growth can be explained in large measure by the impact of defense cutbacks on the region’s largest industry, the military. Comparing Department of Defense procurement awards 16 months pre- and post-sequestration (March 2013), Hampton Roads was down 24.4%. Moreover, sequestration will continue to squeeze as the military downshift continues and the Pentagon shifts its strategic focus to Asia.

“I think the Hampton Roads region is just starting to feel the effects of sequestration,” Wagner said in his presentation, according to an ODU recap.  “And as bad as things are (because of forecast freezes in DOD spending for the next two years) it could get worse. It’s a bumpy couple of years ahead for Hampton Roads.”

The Port of Virginia is a bright spot. After losing market share following the recession, the port reversed course and regained market share for three years running and now commands 17.2% of the East Coast market, a new peak. The expansion of the Panama Canal, which will encourage the use of more big ships, will confer a competitive advantage to the deep-channeled Virginia ports for a few years at least. But another traditional industry, tourism, remains stuck below its 2007 apex, as measured by hotel revenue. And housing prices have recovered less than a third of the value lost during the housing bust; the number of distressed homes, while improved,  remains historically high.

There are no “quick fixes” for what ails the Hampton Roads economy, Koch said. The region needs to adopt a long-term perspective.  “The bottom line is that economic development is a long-term process.” The region needs to invest more in projects with a long-term payoff like K-12 education, infrastructure and research and less in high-visibility projects like convention centers, hotels, arenas and entertainment centers. “We delude ourselves if we think we can short-cut [the economic-development] process by constructing flashy facilities that primarily redistribute income within our own region.”

The conventional wisdom on economic development “is no more,” he declared.  For decades, “economic development” in Hampton Roads, as across Virginia,  focused on attracting new firms and to do what it took — offering land, tax incentives, etc. — to attract them. But abundant research indicates that 80% to 85% of locational decisions are not influenced by such give-aways. “Incentives” amount to a wealth transfer to businesses that would have made the same decision anyway.

The hot idea in economic development today is growing businesses locally — economic “gardening,” to use a term coined by David Birch in the 1980s. Make life easier for small businesses by giving them access to high-speed Internet connections, providing cheap or temporary space, and connecting them to academic, financing, engineering and marketing resources. While most small businesses stay small, some become growth stars that account for immense investment and job creation.

Hampton Roads, always a laggard, recorded the lowest level of business start-ups among nine Virginia regions from 2010 to 2012. Rather than subsidizing selected businesses, Koch advocates an approach of identifying impediments to growth and helping firms overcome those impediments. “What would it take for one of our new, small microbreweries to grow and access new markets? For Liebherr to develop and implement a new cost-saving technology? For BAE Systems to become a major player in off-shore wind generation? Let’s find out! Let’s garden our regional economy.”

Among other ideas Koch explored: creating “innovation districts,” where knowledge-based start-ups are clustered geographically, often in proximity to a research university, where easy interaction stimulates innovation;  promoting university Research & Development at ODU, Eastern Virginia Medical College and the College of William & Mary; and supporting job and skill development programs and apprenticeships.

Bacon’s bottom line: Koch is spot-on about the need to think differently about economic development in Virginia. At the top of the list of bad public investments — let’s call a spade a spade… of stupid public investments — are glitzy convention centers, arenas and sports centers. For the most part, all they do is redistribute entertainment dollars within a region at great public cost. If a region is prosperous and a market exists, the private sector will build those facilities on its own. Second on the list of bad public investments are “incentives” for attracting new businesses. Most of that money is wasted. Better to invest in helping citizens gain the education and skills they need to compete in a knowledge-based economy.

Now, if only we could persuade Koch to apply his keen analytical insights to understanding the pervasive effect of human settlement patterns on a region’s economic competitiveness. Then we’d really be getting somewhere.

Petersburg’s Renaissance

PetersburgBy Peter Galuszka

Petersburg has been a special place for me.

Years ago, when I’d pass through, I always felt I were driving onto the set of a 1950s or 1960s movie set in the South such as “Cape Fear” starring Gregory Peck and Robert Mitchum. A somnambulant ease pervades the place as does the down-home friendliness you don’t get in pretentious Richmond 30 miles to the north up Interstate 95.

I got to know Petersburg a lot better when my two daughters went going to high school there at the Appomattox Regional Governors School for the Arts and Technology. Drawing from localities from Richmond to Isle of Wight and Franklin, the school body was bright, diverse and creative.

Driving my children if they missed the bus from Chesterfield was a pain but the effort was worth it since they had some fine teachers and avoided the White Toast trap of entitlement one gets into in more affluent suburban schools.

That’s when I was introduced to Petersburg’s nascent arts community. I went to plenty of “Fridays for the Arts” celebration and hung out at Sycamore Street with the kids.

Returning again recently, I found that the arts scene is really taking off. They  seem to be at a sustainable critical mass.

It is due primarily to the city’s policy of remaking itself by setting up an arts district that is nationally recognized as historic and offering tax credits and abatements for newcomers to renovate properties they buy from the city. The big expansion at the Fort Lee military base in 2005 really helped (although it’s due for a cut).

I wrote about it in a cover story in Style Weekly. The heroes and heroines are far-sighted city officials, arts willing to risk a lot remaking some truly historic buildings and the next wave, restaurants that aren’t owned by franchises, coming in.

Not everything is wonderful. Petersburg still has a weak public school system and a poverty rate of 28 percent, a point higher than Richmond’s. But it also doesn’t have the in-fighting among powerful interest groups that far bigger Richmond does. There’s no endless debate over building a baseball stadium in Shockoe Bottom (to line pockets of developers) or keeping it at the Boulevard.

There’s no high level brinksmanship about where to put a Children’s Hospital.

In Richmond, you see, ball fans and sick children are the last ones to be worried about. What matters is Mayor Dwight Jones, Bill Goodwin, Michael Rao, the Timmons Group and the editors of the Richmond Times Dispatch. They are important and you are not.

You don’t get that in Petersburg. The little city (population 32,000) that has a historical richness than rivals Richmond’s doesn’t think it is better than anyone else.

McAuliffe Dodges Mandatory Renewable Energy

coal plant burnsBy Peter Galuszka

It seems like two steps forward and one step back. That’s about the best I can come up with for Governor Terry McAuliffe’s new energy plan for Virginia.

On the two steps forward side, McAuliffe is pushing for more wind power and relaxing regulations to make it easier to back solar, such as allowing towns to create their own solar panel farms near their city limits.

The one step back is the usual commitment to energy sources of days before, such as a nuclear, offshore drilling for oil, coal and natural gas. That’s what former Governo Bob McDonnell wanted with his pipe dream of making Virginia “The Energy Capital of the East Coast.”

The biggest problem with the McAuliffe plan is that it dodges the issue of making Virginia’s Renewable Portfolio Standards (RPS) mandatory. I asked Brian Coy, his press spokesman about this, and he said that the governor sees that as something for the future.

Maybe better late than never, but the fact that Virginia has always bowed to the power of Big Energy and declined to make mandatory the conversion of a certain amount of electricity generation to renewable sources such as wind, solar, geothermal and hydroelectric.

Plain and simple, that is why Virginia gets an embarrassingly low six percent of its power from renewables and is far behind states like Maryland and North Carolina that have mandatory standards. One wonders why Virginia seems so exceptional. The only answer that I can come up with is that Old Energy firms such as utility Dominion and coal baron Alpha Natural Resources are huge contributors to political candidates of both stripes.

Dominion praised the governor’s efforts and the Sierra Club had lukewarm approval.

The problem with shifting to renewables is that not making it mandatory by law gives Big Fossil and Nuclear an immediate price advantage. Coal is deadly, messy and is a major contributor to climate change. A few years ago, there might have been a greater push towards wind and solar to replace it. But hydraulic fracking came along, bringing a big boost to natural gas from hard-to-reach geologic formations.

Thus, gas pushed out coal (although conservative Big Fossil types claim it is Barack Obama’s over-regulation but that just ain’t so) on economic terms. It has probably delayed advanced nuclear technology and most certainly has delayed solar and wind. They are expensive now but won’t be in the future, so fracked gas’s great advantages won’t last forever.

Don’t believe me? Check out historical data on gas prices.

McAuliffe, meanwhile, is pushing such dubious projects as a 550-mile-long gas pipeline running over the tops of pristine and sensitive mountaintops and through lots of small towns that don’t have big corporate clout to change pipeline routes.

One more step back.

Support Your Local Goat Herder

Goats at work. Photo credit: Goat Busters

Goats at work. Photo credit: Goat Busters

by James A. Bacon

A common reed plant, known by the scientific name of Phragmites australis, introduced into the United States in the 18th century from Europe, has invaded the eastern marshes of North America. Like many invasive species, Phragmites out-competes native marsh plants. When the reed establishes expansive mono-cultures, plant diversity declines precipitously. And when plant diversity declines, so does the diversity of insects and the rest of the food chain dependent upon the plants.

Over the past five years, land managers and private organizations have treated more than 80,000 hectares of marsh with herbicides at a cost of $4.6 million per year to control Phragmites. Mowing and burning the plant hasn’t proven economical, given high labor costs. And insect control often does greater damage to native strains than to the invasive plant.

In desperation, the marine science and conservation division of Duke University tested a new technique for controlling the plant: grazing goats. At a fresh water marsh in Beltsville, Md., the scientists penned goats in enclosures where they had little but Phragmites to eat. While the goats didn’t eradicate the plant pest, they substantially reduced its biomass — from 94% of ground cover to 21% on average — allowing native species a better chance of competing, investigators concluded.

Across the country, government authorities are discovering the virtues of goats for clearing unwanted brush, even tending lawns. The hardy ruminants have an appetite for plants that other animals shun.

There is a small but active goat industry in Virginia. The Virginia State Dairy Goat Association lists 33 members. Jack & Anita Mauldin’s Boer Goats page lists 34 goat farms. My impression is that most goat products fall into the organic or artisanal agriculture category — goat meat, goat cheese, goat milk, maybe some goat wool. But perhaps the most interesting enterprise is Goat Busters, based in Afton, which specializes in land clearing. As its website says, “Goat Busters is quite simply the most environmentally sensitive method to clear land or control invasive species vegetation ever, short of going out and hand-pulling each and every little weed.”

Bacon’s bottom line: Virginia government, businesses and property owners need to Get Goat. They should more aggressively explore the use of goats as a tool for clearing brush and controlling invasive species. Transporting the goats and setting up the pens is more labor intensive than attacking a patch of brush or Phragmites with a Bush Hog or a tankful of herbicides, but goats don’t compact the soil and they don’t leave behind chemical compounds laden with heavy metals. They do leave behind fertilizer, enriching the soil.

In economic development parlance, substituting locally raised goats for imported herbicides and rotary mowers is called “import substitution.” The practice keeps money in the region, supporting local enterprises and jobs. It’s hard to imagine the goat industry transforming the face of Virginia agriculture, but every little bit helps make our rural counties more economically viable.

The Other SOL Scandal

Source: VDOE SOL Assessment Build-a-Table

Source: VDOE SOL Assessment Build-a-Table

by James A. Bacon

The new, tougher Standards of Learning (SOL) test scores have Virginia’s political establishment in an uproar. Too many children are failing to achieve basic proficiency. Dozens of schools seem institutionally incapable of improvement. Entire school divisions resemble learning-free zones.

The overwhelming focus of public attention has been on the disappointing pass rates for basic proficiency. In just the latest example, Governor Terry McAuliffe vowed yesterday that all schools in Richmond, Petersburg and Norfolk will reach full accreditation before he leaves office, the Times-Dispatch reports today.

While the failure of thousands of Virginia kids to meet basic proficiency standards is alarming, the failure of even more kids to achieve “advanced” (college-track in upper grades), learning standards is every bit as panic-inducing. But no one seems to be paying attention.

If students fail to achieve proficiency in reading, writing, history, math and science, they will not qualify for the vast majority of jobs opening up in the knowledge economy. The numbers suggest that as many as one-fifth of Virginia kids will be consigned to the economic margins.  Likewise, the inability to achieve advanced, college-path standards, suggests that only one out of five Virginia public school students will be prepared for college. Not shown in the table above: Advanced scores for math and science are even lower on average. Virginia students are really unprepared for the so-called STEM subjects required for mastery of technology.

Bacon’s bottom line: We’re not doing ourselves any favors by focusing overwhelmingly on bringing the bottom performers up. We need to improve performance across the board.

Tobacco Commission Needs Huge Makeover

tobacco leafBy Peter Galuszka

One more glaring example of mass corruption in Virginia is the grandly named Virginia Tobacco Indemnification and Community Revitalization Commission formed 14 years ago to dole out Virginia’s share of a $206 billion settlement among 45 other states with cigarette makers.

I’ve been writing for years about how millions of dollars are doled out with little oversight to economic development projects supposedly helpful to the former tobacco-growing parts of the state from the bright leaf belt around Dinwiddie out west to the burley leaf land of the mountains.

There have been no-strings giveaways to absentee tobacco quota holders, a board member sent to prison for siphoning off grant money and the shenanigans of the extended Kilgore family which is very politically powerful in those parts. The commission even figured in the McDonnell corruption trial starring the former and now convicted governor and back-slapping witnesses for the prosecution, entrepreneur and tobacco-believer Jonnie R. Williams Sr.

I revisit the issue in Sunday’s Washington Post and I ask the obvious question of why no one seems to watching the commission. I raise broader ones, too, such as why the commission  serves only people in the tobacco belt. That doesn’t seem fair since the Attorney General’s office represented all of the state in the 1998 Master Settlement Agreement against four major tobacco firms. People in Hampton Roads, Arlington, Onancock and Winchester should be benefit but get nothing from the settlement. They didn’t  because tobacco road legislators pulled a fast one back in 1999 when they set things up.

There needs to be a thorough disassembling of the commission’s current governance structure with many more people far from Tobacco Road included. There’s far too much family and friend back-scratching as it is. It is like watching a vintage episode of the Andy Griffith show but it really isn’t funny.

(Hat tip to James A. Bacon Jr. who spotted the commission as a great story back in the year 2000 when he was publisher of Virginia Business).

So, please read on.

Genius-Free Virginia

geniuses

by James A. Bacon

Economic development has become a game not just of recruiting corporate capital but of developing, recruiting and retaining human capital. Much has been written about the desirability of recruiting members of the “creative class,” the entrepreneurs, scientists, artists and educators who contribute disproportionately to entrepreneurship and economic growth. But how about the super creatives — the 1%, so to speak, of creativity? No one has tracked them…. until now.

The MacArthur Foundation has released data showing the origins and present whereabouts of 897 exceptionally creative individuals in the arts, sciences, humanities and public policy sphere recognized by the Foundation and bestowed with a no-strings-attached $625,000 stipend. The data show two things: (1) MacArthur geniuses are born disproportionately in California and the Northeastern U.S., and (2) they gravitate in huge numbers to California and, to a lesser extent, a sub-set of Northeastern states: New York, New Jersey and Massachusetts.

creativity_on_moveIt is discouraging to see that Virginia is arid ground for producing geniuses. We’ve fallen a long way since the days of the Founding Fathers! Only three MacArthur fellows were born in the state. The silver lining is that the state has enjoyed a net gain of 10 MacArthur fellows due to in-migration. We may not be producing geniuses but at least we’re attracting them. Still, the number residing here still is meager compared to many other states.

The MacArthur Foundation provided little analysis of what accounts for the birthing and migration of geniuses. Perhaps the paucity of super-creative people in Virginia and the South generally reflects a lower quality education system. One wonders, for example, if Virginia’s emphasis on Standards of Learning — elevating the academic performance of the entire student body to minimum standards, which puts the focus on weaker students — will do much of anything to elevate the number of super-achievers.

One also might ask what factors impel geniuses to move. They are far more likely (79%) to move from their state of birth than the general population (30%) or the college-educated population (40%). More than one-fifth of MacArthur geniuses came to the United States from abroad. Scientific geniuses migrate to centers of research excellence. Artistic geniuses migrate to cultural centers. Geniuses in the humanities migrate to communities with top universities. That explains the concentrations in California, New York and, to a lesser extent, Boston, and the exodus of geniuses from Pennsylvania, which creates geniuses aplenty but has trouble hanging onto them.

The handful of geniuses who live in Virginia, I suspect, are found mostly in Northern Virginia, in the orbit of Washington, D.C. Who knows, there may be one or two in Charlottesville. (If someone has the time, they can peruse the list of MacArthur fellows here to see where Virginia’s geniuses are located.) Among the MacArthur Foundation’s main areas of focus, one is “public issues.” Presumably, many of grantees in this field are located in Washington, D.C. (home to 32 geniuses) and the outlying regions of Maryland (15 geniuses) and Virginia (13 geniuses).

What hasn’t been demonstrated is whether the geography of geniuses impacts the economy. Richard Florida demonstrated a clear connection between the creative class and economic prosperity but no one yet has shown a connection between concentrations of MacArthur fellows and economic vitality. Perhaps that’s because no one has studied the issue.

There’s also one other possibility: Maybe the types of people recognized for creative genius reflect the values and worldview of the civic elite in Chicago, where the MacArthur Foundation is located. Are any of MacArthur’s fellows champions of traditional values, fiscal conservatism and free markets favored by the genius-free heartland? It’s worth a study.

The Huge Controversy Over Gas Pipelines

atlantic coast pipeline demonstratorsBy Peter Galuszka

Just a few years ago, Gov. Terry McAuliffe seemed to be a reasonable advocate of a healthy mix of energy sources. He boosted renewables and opposed offshore oil and gas drilling. He was suspicious of dangerous, dirty coal.

Then he started to change. During the campaign last year, he suddenly found offshore drilling OK, which got the green community worried. But there’s no doubt about his shifts with his wholehearted approval of the 550-mile Atlantic Coast Pipeline proposed by Duke Energy, Piedmont Natural Gas and AGL Resources, along with Richmond-based Dominion, one of McAuliffe’s biggest campaign donors.

The $5 billion Atlantic Coast Pipeline is part of a new phenomenon – bringing natural gas from the booming Marcellus Shale fields of Pennsylvania, Ohio and northern West Virginia towards busy utility markets in the Upper South states of Virginia, North Carolina and parts ones even farther south. Utilities like gas because it is cheap, easy to use, releases about half the carbon dioxide as coal, which is notorious for labor fatalities, disease, injuries and global warming.

The Atlantic Coast Pipeline would originate at Clarksburg, W.Va. (one of my home towns) and shoot southeast over the Appalachians, reaching heights of 4,000 feet among rare mountain plants in the George Washington National Forest, and then scoot through Nelson, Buckingham Nottoway Counties to North Carolina. At the border, one leg would move east to Portsmouth and the Tidewater port complex perhaps for export (although no one has mentioned that yet). The main line would then jog into Carolina roughly following the path of Interstate 95.

It’s not the only pipeline McAuliffe likes. An even newer proposal is the Mountain Valley Pipeline that would originate in southern West Virginia and move south of Roanoke to Chatham County. It also faces strong local opposition.

atlantic_coast_pipeline mapThe proposals have blindsided many in the environmental community who have shifted some of their efforts from opposing coal and mountaintop removal to going after hydraulic fracking which uses chemicals under high pressure and horizontal drilling to get previously inaccessible gas from shale formations. The Marcellus formation in Pennsylvania, New York, Ohio and West Virginia, the birthplace of the American oil and gas industry, has been a treasure trove of new gas.

The fracked gas boom has been a huge benefit to the U.S. economy. It is making the country energy independent and has jump started older industries in steel, pipe making and the like. By replacing coal, it is making coal’s contribution to the national energy mix drop from about 50 percent to less than 40 percent and is cutting carbon dioxide emissions that help make for climate change.

That at least, is what the industry proponents will tell you and much of it is accurate. But there are big problems with natural gas (I’ll get to the pipelines later). Here’s Bill McKibben, a Middlebury College professor and nationally known environmentalist writing in Mother Jones:

Methane—CH4—is a rarer gas, but it’s even more effective at trapping heat. And methane is another word for natural gas. So: When you frack, some of that gas leaks out into the atmosphere. If enough of it leaks out before you can get it to a power plant and burn it, then it’s no better, in climate terms, than burning coal. If enough of it leaks, America’s substitution of gas for coal is in fact not slowing global warming.

Howarth’s (He is a biogeochemist) question, then, was: How much methane does escape? ‘It’s a hard physical task to keep it from leaking—that was my starting point,’ he says. ‘Gas is inherently slippery stuff. I’ve done a lot of gas chromatography over the years, where we compress hydrogen and other gases to run the equipment, and it’s just plain impossible to suppress all the leaks. And my wife, who was the supervisor of our little town here, figured out that 20 percent of the town’s water was leaking away through various holes. It turns out that’s true of most towns. That’s because fluids are hard to keep under control, and gases are leakier than water by a large margin.

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The Simple, Lovable Sidewalk

sidewalk By Peter Galuszka

Forever humble, the simple sidewalk is becoming an issue in land planning and transportation.

In densely-populated populated urban areas, sidewalks have been a staple of living since the time of the Ancient Greeks. They were classics in the familiar grid plans that marked most American towns in the 19th and early 20th centuries.

It all changed after World War II when thousands of veterans came home with access to cars and cheap mortgages and builders started constructing car-centric neighborhoods. The cookie-cutter plan included big subdivisions with only one or two access points, lots of cul de sacs and long streets and wound around until they emptied into the few access roads.

You couldn’t walk anywhere. The feeling was, with the complicity of such car-centric bodies as the Virginia Department of Transportation, that you didn’t need sidewalks because the kids could play in the cul de sacs and anyone could drive.

This started to change a decade or so ago as pe0ple wanted to walk more to the library, the store or to visit a neighbor. Suburban planners are taking this into consideration and are “encouraging” developers to put in sidewalks.

A couple problems here:

First, although the Tim Kaine administration changed VDOT policy to advocate more intersecting streets in new developments along with sidewalks, the policy has been watered down under pressure from the development industry.

The other problem is that while it is a simple matter to put sidewalks in new projects, retrofitting them in older ones is tough. It is expensive, there are rights of way issues and sometimes the terrain doesn’t lend itself to them. And, when sidewalks are put in, they merely connect with gigantic feeder roads where one might have to walk a half a mile to a stoplight just cross safely, as is the case in one instance in Chesterfield County.

For more, read my recent pieces in the Chesterfield Monthly and Henrico Monthly.