A Pyrrhic Victory: Henrico Keeps McKesson in Henrico

The old Circuit City building -- all full!
The old Circuit City building — all full!

by James A. Bacon

Henrico County has just scored an economic development coup — for the measly cost of $500,000, it has persuaded McKesson Medical-Surgical Inc., a major distributor of medical supplies, to occupy the remaining space at the old Circuit City headquarters building. The state will match the sum with another $500,000. Said county Supervisor David A. Kaechele: “It’s good news all around.”

Just one little problem: McKesson Medical-Surgical is already headquartered in Henrico County. The million dollars in government funds merely moves McKesson from one county location to another. It’s not as if Henrico is recruiting a new business enterprise to the region.

Gary McLaren, Henrico’s economic development director, justifies the incentive payment on the grounds that the company was looking at other locations in the Richmond region and potentially outside the region, according to the Times-Dispatch. The company, he says, had a site outside the state “under serious consideration.” The stakes were high: Over five years, the growing company plans to add 225 employees with compensation averaging more than $100,000 a year.

I suppose one could argue that $500,000 ($1 million, if you include the state funds) is cheap insurance against the risk of losing a major corporate citizen to another state. There is no way for us as taxpayers, however, to know how serious that threat was. Certainly, the cost to McKesson of relocating would be extremely expensive and disruptive — far more than $1 million. But if the competing jurisdiction was dangling incentives, too, it’s conceivable that Henrico’s subsidy was justified.

While recognizing the necessity of preserving the region’s business base — and McKesson is one of the larger, more successful companies headquartered in the Richmond region — corporate welfare rubs me the wrong way. McKesson doesn’t need this money to prosper. It’s taking the money because it can. No such consideration is given to citizens or small businesses.

Perhaps most frustrating is the way this transaction symbolizes the bankruptcy in thinking about economic development in Henrico — the way to keep business is to bribe companies to stay. Needless to say, only big, highly visible businesses need apply. Meanwhile, I hear rumbles of how the county is alienating other businesses by shaking them down over utility fees.

The biggest problem is the failure to comprehend how labor markets and the corporate site-location calculus are changing, and the failure to make the necessary adjustments. It takes more than a low property tax rate to entice business to stay in Henrico County. Increasingly, employers are looking for the kind of amenities typically found in traditional core cities — the experience commonly referred to as “walkable urbanism.” Henrico is creating scattered pockets of walkable urbanism but the initiative is coming almost entirely from developers. The county isn’t making the transition any easier. Our elected officials are providing no strategic vision. They’re simply responding to events as they occur and declaring a victory when a company like McKesson can be bribed to stay.

It won’t be much of a victory if every other major employer in the county has to be bribed the same way.

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4 responses to “A Pyrrhic Victory: Henrico Keeps McKesson in Henrico”

  1. Perhaps they should have applied for a grant from the Tobacco Commission, eh?

  2. so .. are you opposed to the premise of the Tobacco Fund to reward and incentivize economic development – to the tune of almost a billion dollars now?

    If you are opposed to it’s current use, what would you spend it on instead?

  3. “There is no way for us as taxpayers, however, to know how serious that threat was.”

    Isn’t that the RTD’s job? Theoretically speaking.

    1. I think any business that offers an area “net” jobs – over and above the ones that serve the existing roof-tops – is a “plus” worth doing what it takes to keep it.

      The money they put into the local economy if over and above the “recycling” economy.

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