A Tightly Focused Plan for Boosting Virginia’s Business-Climate Rankings

Virginia’s business climate rankings have recovered modestly in recently years, but they remain significantly lower than in its glory days and well behind the states with which the Old Dominion competes for major corporate investment. That harsh reality comes through loud and clear in a presentation made by Stephen Moret, president of the Virginia Economic Development Partnership (VEDP) at a Virginia Chamber of Commerce executive briefing on the business climate yesterday.

Virginia trails its competitors in the perception of relocation consultants on the cost of doing business, the corporate tax environment, business incentives, access to capital, and other key business-climate attributes.

But Moret, who was hired to reinvigorate Virginia’s economic development machinery, has a plan to bolster the state’s business climate. He is working on five targeted initiatives that he thinks can make a big difference.

Create a world-class, turnkey, customized workforce development and training incentive. Workforce typically tops the list of site-selection priorities. While Virginia has a highly regarded public system of higher education, the system does not work closely with economic developers on turnkey, customized workforce solutions for corporations interested in investing in Virginia.

Moret, who developed a highly touted program in Louisiana, said the General Assembly has funded a VEDP-community colleges collaboration to the tune of $2.5 million in Fiscal Year 2019. Once the team is assembled and ready for launch, VEDP will identify three to five pilot projects in preparation for a full launch. His ultimate goal: “Virginia will break into the top five of state workforce development programs in the country within three years, with a solid chance of top three within five years.”

Implement a robust, third-party marketing program. One reason that Virginia’s perception lags among CEOs and site consultants is that competing states market themselves more aggressively. Virginia now has a $1.7 million marketing budget for FY 2019 (and $2.7 million for FY 2020), still short of what is needed to implement a program designed for a budget of $10 million (similar to that of some competing states). But the funding should be sufficient, Moret said, to improve Virginia’s perception as a place to do business among key influencers.

Goals for the marketing campaign include pushing Virginia back into the Top 10 in business rankings, creating 100 additional leads per year, and bringing 5 to 7 additional projects and 1,200 jobs to Virginia per year. A fully funded marketing budget would accomplish commensurately more.

Secure transformational economic development projects that create positive national attention. A small number of high-impact economic development projects, such as Fortune 500 headquarters locations, major auto assembly facilities, and the like, attract outsize national media attention, and influence executive perceptions about business climate. Moret proposed “aggressively courting leading companies with a custom-fit, aggressive approach,” which includes developing “a list of potential custom incentives and investments by region and sector that could be deployed to attract transformational projects.”

The goal would be to snag two or three of these mega-projects per year, gradually covering every region of the Commonwealth, benefiting both urban and rural areas.

Enact targeted tax changes to reduce state/local tax burdens on new business investments and expansions. Virginia’s corporate tax system treats established businesses well but is punitive toward new capital-intensive manufacturing enterprises — indeed, the effective tax burden is the second highest in the country. The tax burden on new investment hurts Virginia’s business climate rankings — the Tax Foundation’s Location Matters scores are incorporated into several state business-climate rankings — and discourages new investment, especially the kind of transformational projects Moret seeks.

Moret’s presentation offered no details beyond suggesting that the tax burden needs to be lower. He proposed collaborating with key stakeholders such as the Virginia Association of Counties and Virginia Municipal League to develop specific proposals.

Assemble more shovel-ready sites. The ready availability of industrial sites served by with all necessary infrastructure often looms larger in corporate investment decisions than incentives. Georgia, Tennessee, and North Carolina often win over Virginia because they have invested in build-ready sites. The lack of prepared sites and buildings have cost Virginia nearly 50 projects and $6.5 billion in investment over the past five years.

Virginia has a “relatively robust portfolio” of project-ready sites less than 25 acres in size, according to Moret’s presentation. But the economic impact is small, so VEDP is focusing on building the portfolio of sites 25 acres or larger, the development costs of which are beyond the scope of any one locality to fund, and often beyond the capability of any one region.

There are currently no comments highlighted.

20 responses to “A Tightly Focused Plan for Boosting Virginia’s Business-Climate Rankings

  1. “Ideally collaborate with key stakeholders, including TAX, VACO, and VML, to develop proposals to reduce tax burdens on new investment while minimizing any negative impacts on local tax revenues.”

    Let me translate this snippet from Steve’s presentation: Give tax breaks to new employers but do nothing for the over-taxed existing employers, who of course in effect subsidize the newcomers competing for labor….they keep on keeping on with high local property taxes (real estate, business personal property, machinery and tools.)

    From his point of view, it’s the best he can get. The local governments go into hysterics over any effort to reform or constrain local business taxes. But they will make deals with new incoming taxpayers. The VA Association of Counties (VACO) and VML (Municipal League) are major impediments to Virginia’s economic competitiveness….

    Will spend some more time with this presentation before commenting further…but that hit me right between the eyes.

    • “The local governments go into hysterics over any effort to reform …” yes I notice anything like fixing car tax, they go berserk. Yet that is one thing making transplants want to leave Va. when they can.

    • “Let me translate this snippet from Steve’s presentation: Give tax breaks to new employers but do nothing for the over-taxed existing employers, who of course in effect subsidize the newcomers competing for labor….they keep on keeping on with high local property taxes (real estate, business personal property, machinery and tools.)”

      My main point regarding state/local tax policy was that Virginia’s relative state/local tax burdens for existing firms that aren’t expanding are substantially lower, on average, than those for existing firms that are expanding and firms establishing a presence in Virginia for the first time. I deliberately did not get into a broader discussion of tax policy because I knew Secretary Layne would be following me and would represent the administration’s perspective on that topic.

      The vast majority of businesses in Virginia are small firms that receive substantially all of their revenues from within the Commonwealth. In order to grow, they can either compete for market share with other local firms (a zero-sum game for Virginia as a whole) or they can all benefit from growth generated by expansions of traded-sector firms (e.g., HII or Micron) or from new traded-sector firms in Virginia (e.g., the Nestle U.S. HQ relocation). By “traded-sector firms,” I mean firms that receive most of their sales from out-of-state sources, thus increasing incomes, jobs, and wealth in the Commonwealth. I do think we need to give special consideration toward being competitive for traded-sector employers (including both existing and new firms) because they drive job creation, incomes, tax revenues, and wealth creation in Virginia. Many of the traded-sector firms are larger organizations (e.g., manufacturers) but others are small, entrepreneurial firms that also mostly have out-of-state customers.

      For the last few years, our growth rate has been slow enough that we’ve been experiencing domestic out-migration of talent (i.e., more folks moving from Virginia to other states than moving to Virginia from other states, often taking 16+ years of taxpayer-funded education with them). I think the overall labor market will be healthier for all employers if we can sustain healthy growth rates and consistently experience net domestic in-migration of talent.

      • First, Steve, I greatly appreciate you sharing this with Jim, so don’t let my quibbles discourage future openness! Second, I don’t think you’d challenge the point I was trying to make that in the best of all possible worlds, those high tax burdens would be addressed across the board and not just for those coming in new or greatly expanding. I think overall Virginia would be better off with a uniform and lower tax burden and in the long run there are problems with providing a bifurcated system that rewards the favored few. Virginia’s local business taxes, especially the property taxes, are a problem, which you seem to confirm (to my satsifaction.)

        • No offense taken. My broader point is that, because states often treat new investments differently than legacy investments from a tax perspective, a state can be relatively low tax for existing firms yet relatively high tax for expansions or new investments. Ideally we would have a growth-oriented tax structure that encourages expansions of existing firms and the establishment of new firms and new firm locations. I would envision that tax system treating both new firm locations and the expansions of existing firms the same. I do think there is a case to provide temporary tax benefits for traded-sector firms that are expanding an existing operation or establishing a new location, because those investment decisions often are made based in part on a 5-year (or somewhat longer) net present value calculation.

  2. I have yet to read Steve Moret’s executive briefing but will.

    Reading Jim’s post, my reaction was that Steve Moret’s job requires that one keep many matters, tactical and strategic, close to the vest, timing is often key.

    That being said, and acknowledging I know nothing of inside information, I believe that item #1 above is critical for success, and now ripe for solution with great untapped practical possibilities. This is the initiative called: Create a world-class, turnkey, customized workforce development and training incentive. I was extraordinarily impressed Speaker Cox’s speech, its tone, and substance, its solid understanding of challenges that must be met.

    In this regard, if the community college system can be retooled to work in tandem with business employers to develop and implement training and placement programs that meet the crying needs of high school kids and high school graduates in say lower 70% academic group (and others who need skills in the job market), than great progress and benefits or all sorts can occur.

    For example, today, there is far too much overlap in the courses offered by 4 year colleges and community colleges, while community colleges also fail many kids seeking training and skills not offered by 4 year colleges, or by community colleges. If that overlap and maladjustment can be remedied both community colleges and 4 year colleges will be far better off. And a far wider swath of young Virginians will get the training and education they really need to succeed and prosper.

    The same overlaps, shortfalls and gaps exist among the 41 institutions of higher learning in Virginia. How can that be addressed, for the benefit of all? Can the private and public colleges and universities work together better? And the public colleges and universities work together better? How can the state and business community better facilitate the process, so everyone gains, and survives.

    Also I have long wondered where Virginia would be today if the state had a far more effective, balanced, creative and nuanced land use, development, and transportation system. Imagine, for example, where Virginia would be today had Northern Virginia been planned and developed the right way.

    Imagine what gains Va. would make if it uses those lessons learned in N Va. to not only fix N. Va. over time, but also to greatly benefit regions like “the Inland Empire”, the I-81 corridor, and locales like Virginia’s Eastern Shore, both of which regions are now ripe for a renaissance, if given the chance.

    • Planned correctly. Amen.

      Despite all of the praise for Tysons, the increase in traffic exceeds the capacity of the primary roads such that McLean neighborhoods are overrun with cut-through traffic – people going to Maryland and trying to avoid the Beltway until Georgetown Pike. VDOT chief engineer Garrett Morris has said this is the worst traffic he has seen anywhere in the United States.

      The cut-through traffic is so bad that VDOT is considering closing the NB ramp to the Inner Loop at Georgetown Pike weekdays from 1 to 7 pm.

      This is a great incentive to live in Fairfax County. What is more — Amazon refused to consider Tysons as a location for HQ2. That speaks volumes.

      • re: Tyson’s congestion. I don’t know TMT. Is this unique to Tysons?

        We have a bunch down our way especially at peak commuter times. It’s to the point where if you’re not in that herd – you don’t go out on the roads during the commute hours unless you have no choice.

        I just think it’s the nature of development – they WANT the high traffic!

        I will say this – one of the most popular types of development down our way for folks moving out of NoVa but keeping their NoVa jobs is residential subdivisions with cul-de-sacs – not connecting roads.

        • It is different. “VDOT chief engineer Garrett Morris has said this is the worst traffic he has seen anywhere in the United States.” I heard the man say this twice at VDOT meetings in McLean.

          The cut-through traffic is so bad that VDOT is considering a 4-month trial to shut down an entrance ramp to the Beltway between 1 and 7 pm on weekdays.

          Fairfax County officials, including the one who is now the 11th District Congressman, promised Tysons would be development without a corresponding increase in traffic.

          I worked from home yesterday. VDOT is repaving the streets in my neighborhood including my street. I took a couple of breaks to watch the work. People kept trying to drive on the street while it was being repaved. These are commuters trying to interfere with road paving in order to avoid the Beltway entrances in Tysons.

          • Reed Fawell 3rd

            TMT –

            Of course, you and VDOT chief engineer Garrett Morris are right. Tyson’s Corner is unique. Why?

            Urban and suburban growth always ebbs and flows, it always has and it always will, and each ebb and each flow will have its own unique characteristics, and leave its own indelible marks.

            For example. the first great explosion of DC’s growth after the Civil War was during the Gilded Age built atop the Industrial Age that in turn put the Federal Government in DC on steroids. The physical aspect of this urban and suburban growth was in great part driven by the invention and transport application of the electric motor hi-tech and reinforced steel technology that complemented it.

            This combo of 19th century hi-tech drove electric elevators skyward on steel rails within tall apartment and office buildings, incl. skyscrapers, starting around 1880s. The electric motor and reinforced steel also drove Washington DC laterally across geographies impractical before, but practical now in trolleys on steel wheels up the steeply graded hills behind places like Georgetown, DC, Dupont Circle DC, and Rossyln, Va.. This fueled the revolutionary new downtown of Alexandria County (now in Arlington), and the revolutionary town in Chevy Chase, Md.

            This explosion of growth around Washington starting in late 19th century also announced and facilitated the return of a great portion of the peoples of the American South into the American family, the integration of a defeated society into the victorious one, (with all its loose ends), but reunited at last, a reunion that was solidified by the huge impacts of WWI and WWII.

            The Post WWII growth explosion around DC was driven by yet newer trans-formative technology, led by the auto, airplane, air-conditioning, and inter-state highways. All of these renovations inter-acting among themselves with dramatic results.

            Still Tyson’s Corner was and is unique. The reason it is unique rests on its unprecedented example of gross negligence of governance that quite literally bordered on the criminal, in my opinion. It started with the theft of an Interstate Highway. It compounded the crime by the gross overbuilding of regionally office and retail commercial spaces within a highly confined plot of ground, whose proponents advertised “fabulous and unlimited access,” a con job that was built on illusion. Even more remarkable was the abject failure and refusal to admit that fact much less fix the problem for decades until it was too late, after mass irrevocable damage.

            For example,

            Consider this, in 1982, one could drive from the intersection of Connecticut Avenue and I-495 in north Chevy Chase Md., around the Beltway in rush hour to Tyson’s Corner in about 22 minutes. In 1985, that same trip took anywhere from 35 minutes to one hour.

            Why?

            Despite now popular mythology, the driver behind the gridlock was the gross overbuilding of mass regional office and retail built in precisely the wrong location, the one place that could shut down or otherwise cripple an entire region, Nation’s Capital, and interstate traffic from Maine to Key West. This was Chinatown on steroids.

            Yes, Tyson’s Corner is truly unique. But its lesson, in their whole and in their parts, are universal. This includes the cumulative and cascading affect of bad traffic planning and management, and how it can ripple out into gridlock that shuts down or otherwise hobbles an entire region of one the most important cities in a nation.

          • Reed Fawell 3rd

            To see the big picture of why Tyson’s Corner was unique in plan and and so successful in its unrelenting damage to an entire region, one must step back to see the grand plan whose execution quite literary extended over four decades. Here are the basic parts of that plan.

            1. Expropriate the Beltway as Fairfax County’s main street.

            2. Build a massive commuter office and shopper city at the confluence of the Beltway, Rt123/Rt7, a new I-66 and Dulles toll road to supplement a network of existing secondary roads and intersections.

            3. Use this massive “instant development” to suck commercial businesses and work a day commuters out of all the surrounding jurisdictions, so as to turn those neighboring jurisdictions into bedroom communities that Fairfax would milk to feed its massive retail and office commuter city to be built initially at Tyson’s Corner, and then to double down on that effort, infilling Tyson’s Corner while also intensifying Fairfax’s strip of commercial development being built down the Toll Road to Dulles Airport.

            3. With this in basic outline in place and in operation by 1984, Tysons Corner and growing traffic down the length of the Dulles Toll Road had pretty much closed down the Beltway to serve “local rush hour traffic” that was growing by the year with no end in sight.

            This was the inflection point. The time to stop and reconsider.

            But now, instead of backing off and reconsidering a plan what was obviously hobbling, and beginning to put the region into gridlock, Fairfax County doubled down on the its bet. Fueled by the Reagan economy, and a public/private takeover of Dulles Airport, the boom along the toll Road and within Tyson’s Corner swung into high gear.

            Now this monster commuter city was sucking shoppers, and office workers, and new and existing businesses into Fairfax from all directions –

            1/ In Maryland from Potomac and Chevy Chase to Gaithersburg and Frederick Maryland out I-270,

            2/ Most all of Northwest Washington, DC,

            3/ All of Arlington County, Alexandria City, Falls Church, Langley, and Great Falls, in Virginia, as well as,

            4/ Prince William, Stafford and Loudoun Counties in Virginia,

            With the Dot Com boom of the 1990’s, the business interests in Fairfax doubled their bet yet again. After gaining control of the board of Dulles Airport, they successfully put in place a plan to double the capacity of Dulles Airport, and take control of the Dulles Toll Road and its revenues. This they had had largely accomplished by 2010, although the gridlock they had put in place throttled air passenger growth which has by and large remained stable since year 2000.

            Thus, by 2010, the entire transportation system of the region was in failure mode, as predicted but ignored in 2005. Still the business interests controlling Fairfax County, from Tyson’s Corner out the Toll Road to Dulles Airport were at work trying to build world class air cargo hub and distribution center at Dulles Airport and bust out of the cul de sac they had built for themselves around Airport, with a plan to be funded by commuter tolls to build a whole new network of toll roads through the historic lands of the Virginia Piedmont, to all points north, west and south.

            This plan included to I-66 to western, central and tidewater Virginia, and north across the Potomac River into Maryland, all facilitated with connector roads though the hunt County and historic lands of the Virginia Piedmont. This last phase of the plan is explained in a Bacon’s Rebellion Article found here:

            https://www.baconsrebellion.com/wp/a-mortgage-on-novas-future/

            Hopefully this last failed effort was the high water mark of irresponsible land use development in the Commonwealth.

  3. For context, my presentation to the Virginia Chamber group was intended to highlight just a handful of areas of current focus that would meaningfully improve our national business climate standing as well as economic growth across Virginia. For a more comprehensive understanding of our game plan for economic development in Virginia (including dozens of other complementary initiatives), see this web page and the related links at bottom: https://www.vedp.org/strategicplan. The content in the strategic plan related to strengthening Virginia’s human capital development engine aligns very well with recent comments about that topic by Speaker Cox and other leaders in the General Assembly.

    Regarding state/local tax policy, Virginia is one of a small number of states for which its state/local tax burdens for new investment (including expansions of existing firms as well as greenfield projects) ranks substantially worse than its state/local tax burdens for existing firms that aren’t expanding. The most obvious reason for this status is that Virginia has few statutory tax credits, incentives, or exemptions to encourage business investment and/or job creation, in comparison to competing states. For a more thorough look at this topic, check out the “Location Matters” report published periodically by the Tax Foundation and KPMG at https://taxfoundation.org/location-matters-2015/. That study is important because it considers not just tax types and rates but also by-right exemptions, credits, and apportionment methods that materially impact tax burdens. Tax rates alone don’t tell the whole story.

    Following its first publication a few years ago, the Tax Foundation/KPMG Location Matters report referenced above was incorporated into major business climate rankings, such as those published by CNBC and Forbes, contributing to a decline in Virginia’s ranking in each case.

    • Virginia taxes machinery on original cost. So a company building a new factory will be paying a higher tax on its gadgets than a company that bought its gadgets 10 or 20 years ago. The problem is the method of taxation and assessment (and the insanity of taxing tools at all) and the real solution is to look at those, not giving the new guy a tax break. But as noted, from your point of view, that’s the outcome you can get.

      Thanks for the references and I will go to them!

      • I’m with you to an extent. My thought on temporary tax breaks for new manufacturing investments is that those would apply to existing firms that are expanding as well as new firms or new firm locations (i.e., not just the new guy). There are some capital-intensive, high-wage projects (including expansions of existing manufacturing locations as well as greenfield manufacturing projects) we simply will not attract if we charge full freight on the front end. In those cases, it would be better to get a big chunk of something substantial versus all of nothing.

        It would be terrific to eliminate M&T taxes altogether from an economic development perspective, but for some localities that would be a substantial burden. Additionally, one of the things attracting companies to Virginia is our generally well-regarded public schools and infrastructure, both of which rely on adequate tax revenues.

    • Thanks, Steve, for the direction to https://www.vedp.org/strategicplan, and its links. I will read it all with great interest.

  4. I’m not so hot on the govt picking winners and losers that favor newer competitors over older ones but for newer technology business – there is no
    question that we are competing with other states and if we choose to not compete – we’re putting out a clear message in terms of a welcoming new business environment.

    I’m not in favor of taxing businesses as businesses in the first place. I’m fine with charging sales taxes on what they sell and I would also include services which we currently don’t do so perhaps a good trade is reduce taxes on businesses that employ workers and recover that loss of revenue through taxes on services.

    Unlike DJ Rippert – I think there is important value in Dillons Law in that it ought to have policies that prevent Va localities from cannibalizing zero-sum economic development from each other and incentivize them to think regionally and geography beyond.

    In some respects Mr. Moret had an easier task in Louisiana as it was not one of the more powerful economies in the nation and it’s schools far from wonderful. Virginia is up several notches on that ladder but we are fortunate to have someone of his caliber on board and hopefully he can convince our GA to also think more holistically about ED.

  5. In the 21st century economy taxing new or existing economic development at all and certainly not at the levels Virginia does now is really in anyone’s best interest.

    Taxing consumption is much more viable and egalitarian and does not unfairly penalize specific businesses and industries and appropriate in my mind because most taxes go to pay for services for people.

    I’d be curious what Mr. Moret’s viewpoint is with respect to New York’s “no taxes for 10 years” for any/all new startups? Does that help New Yorks “climate” ?

  6. Here is what was said about business development at the WVA Chamber of Commerce’s annual business summit at The Greenbrier resort … “If we are to recruit companies to work in West Virginia, to invest in West Virginia, we need to meet their needs. … The state needs to be mindful of wind and solar power’s increasing appeal to companies looking to invest in new places.” … Funny thing is … the speaker was Dominion’s WVA State Policy Director. This realization of a different future has reached WVA. Has it bypassed VA?

    Ceres has been a leader gathering many in the investment community and the Fortune 500 community to pledge to a clean future. “After President Trump announced his intent to withdraw from the landmark Paris Agreement, more than 2,700 U.S. states, cities, businesses, and universities organized themselves into an unprecedented coalition dedicated to continuing strong U.S. climate leadership.”

    The ‘We Mean Business’ coalition was formed to organize a critical mass of the business world to make progress on climate change. … the coalition is poised to be a dominant player in directing businesses toward taking stands on strategies and practices that define climate change as a business opportunity, not just an environmental disaster.

    These choices are good for business across the country …
    • The more than 3 gigawatts (GW) of corporate renewable energy deals completed in 2017
    • Google Goes 100% Renewable
    • a fleet of batteries collected into microgrids at 21 buildings across Southern California are capable of reducing building peak demand by 25 percent, and shaving about 10 percent from energy expenses and operating costs by up to 10 percent. Together, they’re capable of providing up to 10 megawatts of instantaneous load reduction for up to four hours at a time, to help utility Southern California Edison balance the grid.

    And internationally. …
    • In China, an entire province the size of Texas was powered on 100% renewable energy last year.
    • New Zealand recently released a plan to transition to 100% renewable energy by 2035.
    • Iceland is running on 100% renewable energy mostly through geothermal plants.
    • Norway produces 98% of its power needs through renewable energy.
    • Holland’s entire train system now runs on wind power,

    So talk about taxes and talk about planning … lots of good things there … BUT without a new direction in energy VA is not going anywhere. Dominion made special contracts with the IT companies who wouldn’t come here without the ability to run their businesses on clean, renewable energy, but real change won’t come without s basic change to VA’s energy structure. Otherwise we will keep building infrastructure we don’t need but will still have to pay for, like that 14% on billions of pipeline dollars.

    Maybe the Legislature likes the ‘window dressing’, but national/global corporations can see through it.

    • Careful, Jane:

      “… the coalition is poised to be a dominant player in directing businesses toward taking stands on strategies and practices that define climate change as a business opportunity, not just an environmental disaster.”

      Can you discern any big red flags waving in that prose? Especially when sung by a self admitted “crazy old radical green liberal” aka “Green Lady.”

      I see at least three. No, four.

  7. Not sure I understand what you are saying about Red Flags. You and I very often see different things in the same words.

    That Coalition has signed up 498 companies who are taking science-based climate action and 151 companies have approved science-based targets. The website has a table describing specific companies targets. They publish reports on corporate transparency regarding the sustainability of their company and a variety of ways to reach a better carbon footprint that is also financially a good thing. It’s all about the way forward. I call that leadership …addressing things in ways that touch the reader. That is why I don’t talk about Climate Change very often on Bacon’s, Green Lady that I am, who learned her liberal waays from some [ols who were ther3e or who learned from FDR’s kitchen cabinet.

Leave a Reply