Category Archives: Economic development

JLARC: Discount Incentive Benefits By 90%

Click for larger view. Source: Joint Legislative Audit and Review Commission.

Virginia’s legislative audit agency started its most recent analysis of Virginia’s economic development incentive grant programs with an assumption boosters would quickly dispute – that 90 percent of the economic activity they produce would have happened anyway.

With that assumption baked into the data, the Joint Legislative Audit and Review Commission found very small benefits for the various grants or tax incentives Virginia offers employers for new business locations or expansions.  This year’s summary looked at $1.8 billion spent on grants or foregone through tax exemptions over eight years.

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Amazon, Incentives and Alternate Opportunity Cost

Source: Mercatus Center

George Mason University’s Mercatus Center does not like the deals struck by Virginia and New York to split Amazon, Inc.’s $5 billion HQ2 project. In a new commentary, the market-oriented research center raises a valid consideration rarely mentioned by politicians touting favored government expenditures of any type: alternate opportunity cost. Money spent on “A” is money not spent on “B.” Continue reading

Fralin Donates $50 Million for Roanoke Research Center

Heywood Fralin

Heywood Fralin, his wife Cynthia, and the Horace Fralin Charitable Trust have announced a $50 million gift to Virginia Tech to attract top-ranked scientists to the university’s Roanoke medical research center. The gift is twice the size of the university’s previous single largest donation.

“I came up with the size based on what I felt I could do. I wanted to make a maximum gift that was a challenge to me and to the trust because I thought it was important to the community. And I thought it could benefit everyone, and it would have a lasting impact that would help to change the future of the Roanoke Valley and the surrounding area,” Fralin said in a Wednesday interview with the Roanoke Times. Continue reading

Amazon Deal Could Create 59,000 Virginia Jobs

Amazon, Inc.’s $2.5 billion investment in major new East Coast headquarters in Arlington/Alexandria will generate $14.2 billion in economic activity over the next 12 years, projects a new study by Richmond-based Chmura Economics & Analytics. While Amazon has committed to hiring 25,000 employees, indirect effects of the investment will create more than 59,000 jobs.

“The entire state of Virginia will benefit from Amazon’s decision to locate part of its second headquarters in Northern Virginia,” said Christine Chmura, the firm’s CEO and chief economist. The Richmond Times-Dispatch has the story here. Continue reading

Amazon’s New Home in NoVa Will Bolster Private Sector

An Amazon home-delivery drone. Private-sector applications of unmanned systems would fit nicely with Virginia’s economic development priorities.

In the lead-up to Amazon, Inc.’s announcement that it would split its massive HQ2 expansion between Northern Virginia and New York, there was considerable speculation that Northern Virginia had an edge among the 20 finalist regions due to its proximity to the federal government. The company was aggressively vying for federal government business, most visibly in cloud services, and Amazon, like other federal contractors, needed a Washington location in order be close to the world’s biggest customer of IT services.

But Amazon’s decision to locate in Arlington practically next door to the Pentagon is not a federal government play, says Stephen Moret, CEO of the Virginia Economic Development Partnership. Furthermore, Virginia is not shelling out an unprecedented $550 million in job-creation inducements by FY 2035 (plus up to $200 million more in later phases) to magnify Northern Virginia’s dependence upon federal government spending.

The Amazon expansion is driven mainly by private-sector initiatives, says Moret, and Virginia’s incentives package is “right in the bulls eye” of Virginia’s strategic goals of diversifying the economy away from the federal government and bolstering the region’s high-tech industry. “For us, this is principally a private-sector diversification opportunity,” he tells Bacon’s Rebellion. “In terms of the jobs we incentivize, no more than 10% can be associated with federal government contracts.”

That’s why the Amazon-Virginia Memorandum of Understanding requires “a certification as to whether more than 10% of the New Jobs at the Facility during the prior calendar year were primarily engaged in supporting Federal Government contracts, and, if so, the percentage of New Jobs so engaged.” If new jobs tied to federal work exceeds 10% in the new facility, they would not be eligible for state employment incentives.

The percentage of federal-related jobs was not a significant issue in negotiations between Amazon and Virginia, Moret says. VEDP included the language as a “safeguard” to advance Virginia’s diversification goal. “We just wanted to make sure that the opportunity we saw would be ensured by the incentive structure.”

Last June Amazon announced a decision to expand the presence of Amazon Web Services (AWS) in Virginia with a new East Coast campus in Herndon. The deal was expected to create 1,500 new jobs in the cloud computing field. The press release from the Governor’s Office described the business this way: “AWS offers over 90 fully featured services for compute, storage, networking, database, analytics, application services, deployment, management, developer, mobile, Internet of Things (IoT), Artificial Intelligence (AI), security, hybrid, and enterprise applications, from 42 Availability Zones (AZs) across 16 geographic regions in the U.S., Australia, Brazil, Canada, China, Germany, India, Ireland, Japan, Korea, Singapore, and the UK. ”

While AWS was pitching cloud services to Uncle Sam, the list of add-on software applications clearly was aimed at an audience beyond the federal government.

Known primarily as an e-commerce giant and, more recently, as a provider of cloud services, Amazon is expanding into many exciting fields, Moret says. In vying for HQ2, an even bigger investment, VEDP scrutinized the public job postings for Amazon’s Seattle headquarters and found the company was recruiting talent for fields from health care to big data analytics.

Amazon Business, launched in 2012, provides an Amazon.com shopping experience for business supplies. Amazon is expanding its array of consumer electronics products beyond the Kindle e-readers and Echo smart speaker into smartphones TV set-top devices and credit-card readers. The company is pushing into digital streaming of music and games, and with its Whole Foods acquisition is experimenting with the home delivery of groceries. Amazon wants to rationalize the logistics of the health care industry, peddle event tickets online, sell educational toys on a subscription basis, and penetrate the home Internet-of-Things market. (See a list of Amazon products and services here.)

Moret expects new private-sector initiatives will take root in Northern Virginia, enlarging the region’s innovation ecosystem, generating new Amazon business lines, and creating new opportunities for non-Amazon entrepreneurs. Ideally, the new ventures will play to Virginia’s strengths in areas such as unmanned systems, cloud computing, Artificial Intelligence and cyber-security.

Says Moret: “We saw these as big growth opportunities for Virginia.”

Amazon Deal Highlights Virginia’s Competitive Advantage Over Maryland

Many Virginians have qualms about the $550 million in job-creation incentives plus more than $1 billion in promised transportation and higher-ed investments it took to recruit a $2.5 billion Amazon facility to Northern Virginia. But things could be worse. Maryland offered an $8.5 billion package — and didn’t land the deal. The Washington Post is asking if the Old Line State, which pitched a Montgomery County location, has lost its economic-development mojo.

For the record, Maryland officials are putting on a positive face. They are delighted that Montgomery County was one of Amazon’s 20 finalists, and they say that the facility’s location in Arlington/Alexandria will send positive economic ripples throughout the Washington region.

But Montgomery County — the Fairfax of Maryland — has studiously refashioned itself over the past few decades as a walkable urban community with access to abundant mass transit, just the kind of urban fabric Amazon was looking for. The county has access to the same high-tech labor pool as Arlington and Alexandria, which snagged the deal. And the state offered $6 to $7 billion more in inducements than Virginia.

Anirban Basu, chairman of the Maryland Economic Development Commission, has been asking himself, “Why would Amazon turn away billions of dollars in subsidies to go across the river?”

Experts quoted by the WaPo pointed point to site-specific factors that favored Virginia. National Landing (the rebranded location in Crystal City and Potomac Yard that Amazon selected) is closer to downtown Washington, D.C., and so close to Reagan National Airport that Virginia has offered to build a walkway to link it to the Amazon office complex. National Landing has direct access to a Metro station, which the Commonwealth has offered to upgrade. And most of the property involved in Virginia’s bid is owned by a single developer, JBG Smith.

And who would believe this? Northern Virginia’s transportation infrastructure compares favorably to that of Maryland.

Northern Virginia’s transit and road networks also outpace the Maryland suburb’s. Virginia recently expanded its part of the Capital Beltway with tolled express lanes, and the second phase of Metro’s Silver Line, which will extend the subway to Dulles International Airport and into Loudoun County, is slated to open in 2020.

Finally, Basu cited Virginia’s “creative stroke of genius” in lining up $1.1 billion in higher-education support to build the computer-science talent pipeline. Virginia’s plan includes $250 million toward Virginia Tech building a $1 billion “Innovation Campus” near the future Amazon hub.

I would add another factor not mentioned in the WaPo article. Amazon has a history of working closely with Virginia officials and its largest utility, Dominion Energy, fostering development of Amazon’s cloud-services business in Northern Virginia. The company knows it can get things done in Virginia, whereas Maryland, where it has had little experience, is more of a cipher.

But Maryland’s competitiveness issue runs deeper. “One of the reasons Maryland created such a large incentive package for Amazon is because we know our business climate is not as competitive,” said Basu, whose Baltimore firm, the Sage Policy Group, conducted the state’s economic impact study of Amazon’s potential benefits but was not involved in the bid.

As the WaPo quotes regional economic analyst Stephen S. Fuller, 25 years ago economic activity in the Washington region was split equally among Northern Virginia, Washington and the Maryland suburbs. By last year, Northern Virginia’s share had grown to 48 percent, while the Maryland suburbs held about steady with 31 percent, and Washington had dropped to 21 percent.

Think about that. For all of Northern Virginia’s horrendous problems with traffic congestion, autocentric land uses, skilled labor shortages, lack of a top-tier research university, local-government unfunded pension liabilities, and some of the highest taxes in Virginia, it has been kicking Terrapin butt for two-and-a-half decades as measured by job creation. Writes the WaPo:

[Basu] has concluded that Amazon must have rejected the state’s “antiquated” regulations and higher taxes for corporations and top-earning residents. Amazon has said salaries at the new headquarters will average $150,000. Unlike in Virginia, Maryland jurisdictions impose a local income tax in addition to the state tax.

According to the Tax Foundation, Virginia is has a more favorable tax climate than Maryland almost across the board.

Personal income taxes
Virginia ranked 35th
Maryland ranked 45th

Corporate taxes
Virginia ranked 10th
Maryland ranked 22nd

Sales taxes
Virginia ranked 10th
Maryland ranked 18th

Property taxes
Virginia ranked 30th
Maryland ranked 42nd

Only in “unemployment insurance taxes” does Maryland compare favorably to Virginia, with a 28th ranking compared to Virginia’s 43rd.

Bottom line: Virginians get to keep more of their paychecks. When you’re  a company recruiting high-end business and technical talent, that counts for a lot.

Update: I have edited the original version of this story to distinguish between Virginia’s “incentives” paid directly to Amazon and state and local promises to invest in transportation and higher-ed.

Whatever happened to Terry McAuliffe’s GreenTech Automotive venture?

Photo credit: NewsAdvance

Seems like yesterday.  In late 2012 Terry McAuliffe was the only Democrat running for Virginia governor in the upcoming 2013 election.  One of his central campaign themes was that he was an entrepreneur who would bring jobs to Virginia.  He was also an investor and recently resigned Chairman of a venture called GreenTech, a would be manufacturing company that hoped to make energy efficient electric cars in the United States.  Prior to announcing his second campaign for governor Terry had been out trolling for government subsidies in return for bringing GreenTech’s manufacturing plant to some lucky American community.  During McAuliffe’s tenure as chairman, GreenTech had announced that it would locate in Tunica, Mississippi rather than Virginia.  Candidate McAuliffe was asked why he didn’t bring GreenTech to Virginia at a Dec 5, 2012 press conference.  He claimed that Virginia “decided not to bid” on the automobile plant.  The truth was more complicated resulting in a Politifact article citing McAuliffe’s claim as “false”.  It seemed that Virginia lost out on at least 1,500 GreenTech manufacturing jobs.  The relatively small flurry of controversy over GreenTech subsided, McAuliffe became governor and Mississippi gained thousands of jobs.  Or did they …

Virginia smells a rat.  The Virginia Economic Development Partnership (VEDP) did hold conversations with GreenTech about locating in Virginia during 2009.  GreenTech was scheduled to tour potential plant sites in Danville, Martinsville and Waverly on Oct 7th and 8th.  But then came GreenTech’s surprise announcement to locate in Mississippi on Oct 6.  Was the VEDP just a day late and a dollar short?  Not quite.  Virginia officials were not at all convinced of the overall GreenTech business model.  In a letter from the executive director of VEDP to Virginia’s Secretary of Commerce and Labor those concerns were spelled out.

Mississippi buys a rat.  Apparently, Mississippi saw no problems with a start-up car company building $15,500 to $18,000 electric mini-cars with a top speed of 45 mph for export to China.  Mississippi inked the deal and GreenTech opened a temporary location in Horn Lake, MS in July, 2012.  Bill Clinton and the governor of Mississippi joined Terry McAuliffe for an opening celebration at the site.  The good people of Tunica County (where 33% live below the poverty line) were well on their way to an economic miracle.  Or were they …

Failure to launch.  Virtually nothing came from the promised GreenTech deal.  GreenTech never ended any year with more than 100 employees.  In early 2017 GreenTech shut down its Mississippi operations.  Later that year Mississippi sued to get its money back.   Last February GreenTech filed for bankruptcy.

Peter the Great Pretty Good.  As GreenTech started to unravel ahead of the 2013 election erstwhile Bacon’s Rebellion columnist Peter Galuszka wrote an opinion piece declaring that Green Tech was a mess but not a scandal.  At the time Galuszka wrote that opinion piece GreenTech was still in business and employed about 80 people.  That would roughly mark the zenith of GreenTech’s operations.  Now that the company is dust in the wind lawsuits have been filed.  As Mr. McAuliffe is rumored to be considering a run for president GreenTech may yet graduate from mess to scandal.  It would be interesting to know how Terry McAuliffe fared from a personal financial perspective with GreenTech.  If he lost his own money maybe GreenTech is still just a mess.  However, if he made money on the failed deal it would be a scandal.

Caveat Virginia.  While VEDP’s BS detector seemed to work brilliantly in the GreenTech matter … that’s not always the case.  Bacon’s Rebellion readers should keep an eye out for an upcoming update to the Tranlin deal in Virginia.  It seems likely that the Tranlin deal is not going to end well for the Commonwealth.

— Don Rippert 

Where Will 30,000 More Tech Degrees Come From?

There are many moving parts to the Amazon, Inc., deal to invest $2.5 billion and hire 25,000 employees in Northern Virginia. In one of the most important deliverables, the Commonwealth has committed to increase the number of bachelor’s and master’s degrees in computer science and related fields by 25,000 to 35,000 over and above the already-ambitious baseline forecast over the next two decades.

Peter Blake, executive director of the State Council of Higher Education for Virginia (SCHEV), says the goal is achievable but it won’t be easy. The number of students graduating from Virginia high schools is not forecast to increase substantially in the near future. If the baseline student population isn’t increasing, where will the IT degree seekers come from?

He sees four places to find the students to earn those degrees.

  • More college-ready high school graduates. On average about 72% of Virginia high school graduates continue their education at college-level institutions. One way to increase the number of tech-degree seekers is to boost the percentage of high school graduates who pursue higher education.
  • Improved college retention. Only 70% of the students who enter college manage to earn a degree within six years. Virginia can bolster the talent pipeline by reducing the college dropout rate, thereby increasing the retention rate.
  • Improved “recovery” of college dropouts. Tens of thousands of Virginians have earned college credits but failed to earn degrees or credentials. Potentially, the higher-ed system can coax some of these college dropouts back into school to complete their degrees.
  • More out-of-state students. If all else fails, Virginia can increase admittance of out-of-state students into Virginia higher-ed institutions.

“We have to step up in each of those areas,” Blake says. “Business as usual won’t get us there.”

The deal makers negotiating the Amazon package anticipated some of these issues. The Governor’s website explains how it expects to build Virginia’s talent pipeline.

  • Bachelor’s degrees. To expand the number of bachelor’s degrees, the Commonwealth will establish a performance-based tech talent investment fund, with General Assembly approval. This fund will enable higher education institutions across Virginia to receive startup funds for faculty recruitment, state capital investment (where required), and enrollment funding to expand the number of bachelor’s degrees the institutions confer annually in computer science and closely related fields (e.g., computer engineering).
  • Master’s degrees. To expand the number of master’s degrees, the Commonwealth plans investments of up to $375 million for academic space and operational support over the next 20 years. These performance-based, master’s degree investments will be provided to George Mason University for its Arlington campus and Virginia Tech for a new campus expected to be located in Alexandria.  Those institutions must match the state commitment dollar-for-dollar.
  • K-12. Virginia will invest $25 million in the K-12 STEM and computer science experience for students and teachers over the next 20 years.

Blake offers no comment on whether those resources will be adequate. Legislators will have to decide whether they will be adequate. Here’s my concern: The General Assembly can set aside money to increase the institutional capacity to provide ~30,000 more advanced degrees, but that’s no guarantee that the so-called “talent pipeline” starting with K-12 schools can increase the supply of students with the aptitude and desire to earn those demanding technical degrees.

If Virginia can’t develop enough home-grown talent to fulfill the demand, Blake suggests, colleges and universities may have to consider recruiting out-of-state students more aggressively. In that case, legislators may have to re-consider the out-of-state enrollment caps it has placed on some institutions.

The good news, says Blake, is that SCHEV reports key metrics — number of degrees granted, college dropout rates, out-of-state students enrolled, and the like. Legislators will be able to see if Virginia stays on track to meet its 20-year targets, and they should have time to make any needed mid-course adjustments.

The Administration’s Defense of $550 Million in Amazon Employment Subsidies

Incentives language in Amazon RFP

Critics of Virginia’s deal with Amazon, Inc., have focused on the $550 million in job-creation subsidies as a grotesque example of corporate welfare, crony capitalism, or whatever you want to call it. I totally sympathize. The richest company in the world doesn’t need public subsidies. Moreover, given all the assets Virginia offered — a prime walkable-urbanism site in Washington’s metropolitan core, access to mass transit, one of the nation’s largest pools of high-tech labor, and a promise to invest billions building Virginia’s talent pipeline — some might think that Virginia didn’t need to give away so much money.

However, Stephen Moret, president of the Virginia Economic Development partnership and Virginia’s lead negotiator, argues that the subsidies were necessary to win the biggest economic-development deal in recent U.S. history. Amazon’s RFP made it as transparent as a Victoria’s Secret negligee that the company expected incentives to help it offset the up-front cost of its investment. States the RFP:

Incentives offered by the state/province and local communities to offset initial capital outlay and ongoing operational costs will be significant factors in the decision-making process. …

Identify incentive programs available for the Project at the state/province and local levels. And outline the type of incentive (i.e. land, site preparation, tax credits/exemptions, relocation grants, workforce grants, utility incentives/grants, permitting, and fee reductions) and the amount. The initial cost and ongoing cost of doing business are critical decision drivers.

Virginia’s goal in economic development projects like this is to reduce incentives to an absolute minimum — ideally zero, says Moret. But in this case, Virginia’s economic-development team knew it was competing with states who were willing to give away the store. New Jersey offered $5 billion to $7 billion in direct incentives.

It’s hard to gauge the competitiveness of other offers in Amazon’s site-location calculus, so state officials could do no more than make an educated guess as to how much Virginia needed to offer to snag the deal.

“You can never know the break point. The company always knows more than we do,” says Moret. “It’s hard to reverse-engineer their thinking.”

As a practical matter, Virginia had to put something on the table, Moret says. The state previously had agreed to provide $70 million to Micron Technology, Inc., to win a $3 billion, 1,100-employee expansion of its semiconductor facility in Manassas. “It would be hard to offer Amazon nothing after what we’ve done in the past.” On a dollars-per-job basis, Virginia’s incentives are less than what it provided other premier headquarters, such as Northrop Grumman, he adds. Given the state’s track record, to deny Amazon an incentive would have signaled that Virginia was not serious about the deal.

Another key point, says Moret, is that Virginia structured the deal to ensure that it is cash-flow positive for the state budget. Virginia makes the first incentive payment five years from now — long after Amazon begins hiring and generating tax revenue.

In past posts questioning the necessity of the subsidies, I have quoted Secretary of Finance Aubrey Layne as saying, “Incentives didn’t really drive the decision. At the end of the day, it was the workforce development and education pieces, which we already had decided were going to happen regardless.”

In an email, Layne provides context to that statement:

Even though [incentives] did not drive the deal, remember we wanted to have a real public/private partnership with Amazon. That requires “skin in the game” for both parties in order to show commitment to make the deal happen. We were very careful to make sure our direct incentives were payable only “after” Amazon incremental revenues are realized by the Commonwealth.  We can debate the level of incentives, but on a per job basis they are moderate when compared to previous incentives.

You are correct, only Amazon knows their ultimate importance in their decision.  I only know we are comfortable with how we structured our total incentive package. We believe it is good for Virginia and we have properly protected our taxpayers in relation to the upside benefits we expect for years to come.

How Walkable Urbanism and the Talent Pipeline Won the Amazon Deal

Conceptual rendering of Virginia Tech’s proposed $1 billion campus in Alexandria near the proposed Amazon campus.

More information is coming out about the wheeling and dealing behind Virginia’s incentive package that coaxed Amazon, Inc., to locate a $2.5 billion campus in Northern Virginia. It turns out that many of the key pieces in Virginia’s incentive package were initiatives that had been in the works for years. Virginia is putting resources into projects that, most likely, it would have funded eventually anyway.

Amazon wanted an urban location and it selected the Crystal City-Potomac Yard area of Arlington and Alexandria, currently being rebranded by the largest property owner, JBG Smith, as National Landing. A decade ago JBG Smith had commenced the yeoman’s work, with no immediate prospect of reward, of winning the local planning and regulatory approvals to re-develop the aging edge city into a walkable, high-density, mixed-use area — just the kind of urbanism Amazon was looking for.

Meanwhile, Virginia Tech had engaged in preliminary planning to build a major academic campus in Northern Virginia. The idea was mainly conceptual when Amazon announced his national HQ2 competition, but Tech had a scaffold upon which to build when the state began scrambling to put a deal together.

It helped that Commonwealth’s point man for selling Amazon, Stephen Moret, was not a conventional economic developer. The Virginia Economic Development Partnership president takes a broad, integrative approach to the profession that transcends the assembly of real estate deals. Having recently earned a Ph.D. from the University of Pennsylvania in higher education management and serving as a member of the State Council of Higher Education for Virginia, Moret is well versed in the critical need to build the talent pipeline. He is also conversant about the connections between land use, workforce, innovation districts and economic development.

I haven’t talked to Moret since the Amazon deal was closed. But I recall a conversation a year-and-a-half ago in which he casually blue-skyed an idea for promoting corporate investment in Southwest Virginia by creating a New Urbanism-style development zone around the campus of the University of Virginia-Wise. In that vision, the real estate was almost incidental. Moret’s idea was to create a knowledge-based community with access to UVa-Wise students and graduates that a corporate investor would find attractive.

It’s not a stretch to say that the Amazon project is the same idea writ large — very large. The $550 million in direct employment subsidies constitutes only a modest piece of the deal. What really sold Amazon on Northern Virginia was the prospect of setting its corporate facility (a) in a walkable urban community, (b) in close proximity to a technology-oriented university campus, (c) in order to create a dynamic innovation ecosystem with Amazon at the center, (d) in a metro area with one of the largest tech-savvy labor pools in the country.

Building the talent pipeline. Both the Roanoke Times and the Washington Post have published articles highlighting how the educational piece of the incentives package came together.

As the Roanoke Times writes, Virginia Tech’s proposal to build a $1 billion, one-million-square-foot campus near the Amazon facility was the cornerstone of the talent-recruitment piece of Virginia’s bid.

Virginia Tech had been planning some sort of campus near the nation’s capital since President Tim Sands arrived at the university four years ago. Tech didn’t have a location in mind or much more than a general sense of what the Innovation Campus could be.

“If the first time we had thought about it had been 14 months ago, this probably wouldn’t be what it is,” Sands said during the gauntlet of interviews after Tuesday’s announcement. “We were ready and the timing was perfect.”

Moret was unaware of Sands’ Northern Virginia ambitions when he first reached out to schedule a conference call with college and university leaders around the state last year.

He discussed the HQ2 bid with everyone and laid out early plans to roughly double the number of computer science graduates the state produced each year as part of the HQ2 bid.

He also asked if anyone was interested in the possibility of opening a campus near Amazon in the Washington, D.C., area.

“Virginia Tech reached out right away and said, ‘Hey, we’ve actually been working on this idea for a few years. And we’re prepared to put in a very large investment to make this happen,’” Moret recalled.

George Mason University also stepped up in a big way with plans to expand its Arlington campus. But the GMU campus will not be tightly integrated geographically with Amazon’s like Tech’s will be.

Crystal City rendering by Torti Gallas + Partners

Investing in walkable urbanism. Writing for the Congress for the New Urbanism’s Public Square Journal,  Robert Steuteville provides background on the urban planning piece of the deal.

Crystal City can be thought of as a large suburban retrofit—guided by a plan and form-based code that won a 2009 CNU Charter Award for Torti Gallas + Partners and Kimley-Horn and Associates. That plan and code, adopted by the county in 2010, entitled the new, higher-density development and put in place a framework to create a more walkable urban neighborhood over time.  …

The area was originally built without a master plan, and that changed with the recent master plan. “It’s high-rise suburban. It wants to be higher density, with a more urban mentality— away from cars and with retail on the street that is accessible to people,” says John Torti of Torti Gallas. “It has the potential of becoming a wonderful place.”

Steuteville’s article provides the following graphic comparing a mile-long segment of Rt. 1 as it looks now with the plan transform it into a more walkable, urban boulevard:

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The Political Calculations Behind the Amazon Package

Governor Ralph Northam touted the Amazon deal at a press conference last week.

Michael Martz has done an excellent job reporting on the political factors that shaped the incentive package that induced Amazon, Inc., to select Crystal City-Potomac Yard in Northern Virginia along with New York City to co-host its massive expansion. The article illuminates the critical role of the little-known Major Employment and Investment Project Approval Commission (MEI), in forging the incentives.

As its name suggests, the legislative commission provides oversight of incentives for economic-development projects, and its input was essential for a project that would require budget approval for an estimated $1.85 billion in state expenditures on direct incentives, transportation projects, and higher-ed funding.

While Stephen Moret, president of the Virginia Economic Development Partnership (VEDP) was the administration’s point man on the deal, it is apparent from Martz’ reporting that state Secretary of Finance Aubrey Layne was a key player in the negotiations. “VEDP’s role was to get the deal done,” Layne told the Times-Dispatch. “My role was to make sure we were partners and kept in communication with MEI and the money committees.

Crafting the Amazon deal required political calculations on how to sell the biggest incentive package in the history of Virginia to the General Assembly. One MEI member, House Finance Chairman Lee Ware, R-Powhatan, resigned from the commission in February in protest of the immense size of the incentives offered the e-commerce giant, the biggest company (by market value) on the planet. At least one other member, Del. Steven Landes, R-Augusta, remained undecided until negotiations coughed up $250 million in state funds toward creation of Virginia Tech’s proposed $1 billion Innovation Campus next to the Amazon campus.

Some of the key political considerations:

Cash flow positive. The $550 million in job-creation incentives for Amazon was structured so that state payments to Amazon will be delayed until after income- and sales-tax revenue from the new jobs roll into the state treasury. That way, the deal will be cash-flow positive for the state from year one.

Sustained Metro funding. Amazon was a significant factor in the General Assembly’s decision in the 2018 session to contribute $154 million a year as Virginia’s share for the recapitalization of the decrepit Washington Metro mass transit system. Access to mass transit was a key consideration for Amazon. Said Jason Miller, executive director of the Greater Washington Partnership: “It was a pretty clear signal that because of the importance of the system to both the economy and Amazon, the region can come together and tackle its most pressing issues.”

More STEM degrees. The General Assembly also committed $28 million this year to boost production of undergraduate degrees in computer science and other technical fields as well as $25 million to the CyberX cyber-security education initiative to strengthen Virginia’s technology talent pipeline. In Layne’s estimation the educational commitments may have been more important to Amazon than the direct incentives for job creation. “Incentives didn’t really drive the decision,” said Layne. “At the end of the day, it was the workforce development and education pieces, which we already had decided were going to happen regardless.”

NoVa transportation money only. The Commission made it clear that funds designated for transportation improvements around the Amazon site would not come from general transportation funds. Instead, the state will tap federal transportation dollars restricted to Northern Virginia and toll-concession revenues from the Interstate 95 express lanes. “It was not taking any money from anyone else in the commonwealth — that was key,” said Layne.

Affordable housing a local responsibility. The commission balked at a proposal to offer $100 million in state subsidies to maintain affordable housing in Northern Virginia. Both legislators and the administration agreed that housing was the proper role of local governments and private developers.

Splitsville. Amazon’s decision to split the HQ2 project — a total of $5 billion in investments and 50,000 jobs — between Northern Virginia and New York City actually made the deal more attractive for Virginia. Said House Appropriations Chairman Chris Jones, R-Suffolk: “We felt that it was a better fit for us because it was more digestible.”

Amazon Deal Sets a New Low

Posted on behalf of occasional contributor Les Schreiber:

It’s interesting to see the responses to the Amazon deal. Most of what you read in Virginia-based media is positive, but in New York not so much. Many who scream about the “nanny state” and too much welfare and government interference in the economy seem happy with a massive gift to one of the country’s most profitable companies. If Amazon wants to locate in Virginia, great, but handouts are not appropriate. I thought the Redskin training camp deal was bad enough, but this sets a new low.

Limits to Transparency in Amazon Deal

Passage contained in Freed tweet

The Commonwealth of Virginia has set new standards of transparency in disclosing the details of its agreement with Amazon, Inc., to build a massive new facility in Arlington and Alexandria with some $2.5 billion in public inducements. But there may be limits to that transparency.

Benjamin Freed, technology editor of State Scoop, tweeted yesterday that the Virginia-Amazon agreement grants Amazon a big exemption from the Freedom of Information Act. He cited the following passage:

The Company acknowledges that this Memorandum is a public record subject to disclosure under the Commonwealth’s public records laws, and that portions of certain materials, communications, data, and information related to this Memorandum may constitute public records subject to disclosure under the Commonwealth’s public records laws and agrees that [the Virginia Economic Development Partnership] and the Commonwealth will disclose this Memorandum. … (a) except as to the disclosure of this Memorandum, give the Company prior written notice sufficient (in no less than 2 business days) to allow the Company to seek a protective order or other appropriate remedy. …

Furthermore, VEDP and the Commonwealth will “(c) cooperate with the Company in responding to any such records request, and (d) limit disclosure, refuse to disclose, and redact and/or omit portions of materials to the maximum extent permitted by applicable law.”

“How is it justified that Richmond will be protecting a private company from governmental transparency?” asks Ken Stiles, who brought Freed’s tweet to my attention.

Good question. I can presume only that the exemption was granted to protect Amazon’s proprietary business information. Respecting the confidentiality of proprietary information is standard practice in the economic development profession. Without such guarantees, business enterprises might refuse to do business. In this instance, it appears that state officials actually extracted a concession from Amazon — the company must go to court within two days and file an injunction. In other words, the company must persuade a judge that it would suffer damage from the release of information.

My understanding is that proprietary data from companies involved in economic-development deals normally aren’t subject to FOIA at all, under any circumstances. The magnitude of the Amazon deal — some $2.5 billion in public funds — may warrant a different standard. I invite readers to weigh in on whether the concession written into the Virginia-Amazon agreement sufficiently protects the public interest.

Update: Megan Rhyne, executive director of the Virginia Coalition for Open Government, argues in The Virginia Mercury that the agreement represents a step backwards for transparency. The MOU not only protects Amazon’s proprietary information, but the two-day heads up to Amazon in FOIA filings represents a concession to Amazon, not a concession from Amazon.

Dissecting Virginia’s Amazon Deal

Source: PROJECT COOPER: BRIEFING FOR THE
HOUSE APPROPRIATIONS COMMITTEE

Virginia has committed to investing a sum unprecedented for an economic development deal in the Commonwealth — roughly $2.5 billion in state and local dollars to bring Amazon, Inc. to Northern Virginia. In a presentation to the House Appropriations Committee yesterday, Stephen Moret, CEO of the Virginia Economic Development Partnership (VEDP) provided a detailed account of the incentives. Now that the numbers are out, the public has an opportunity to review the deal. At Bacon’s Rebellion, we love critiquing things, so here goes…

Cash flow positive for the state. The first point to note is that, while Virginia is making a massive public investment to the project, it will be cash-flow positive for the Commonwealth from Year One. If Amazon pays its projected 2,500 employees an average of $150,000 a year — the target number to qualify for state subsidies — the company’s Virginia workforce will generate a lot of new income taxes and sales tax revenue. By Year Ten, added state revenue from direct, indirect and induced employment will amount to $209 million. The sum could grow to $364 million within 30 years. That compares to a General Fund revenue forecast of about $20 billion in Fiscal Year 2019.

As Steve Haner explained in the previous post, the deal will have a minimal impact on the current budget cycle, and future expenditures on higher education, transportation and direct subsidies to Amazon will be phased in over time. The project is designed to ensure that new General Fund revenues will exceed project-related outlays. In other words, according to Moret’s numbers, the state will make a “profit” on the deal from which the entire state benefits.

Investing in competitiveness. A second key point is that 60% of the incentives will be invested in infrastructure and educational programs that don’t go into Amazon’s pocket. I have a huge philosophical problem with the state giving $550 million in Phase One (and another $200 million in a potential Phase Two) to one of the world’s richest companies. Talk about welfare capitalism! But Amazon could have located in Dallas, Texas, or a handful of other cities, so it has the power to play off one location against another. I don’t like it, but that’s the way the world works. The question for Virginians is whether or not the state comes out ahead.

Critical to the deal, Virginia will invest heavily in building its tech talent pipeline. According to Moret’s presentation, the state envisions producing approximately 25,000-35,000 new degrees (over and above baseline levels) in computer science and related programs over the next 20 years. That’s more than Amazon will require. So, labor-starved tech companies other than Amazon will benefit from the investment.

In an earlier post, I had expressed concern that the state would be subsidizing Amazon’s employee recruitment efforts to the tune of $22,000 per employee, giving the company an immense advantage over other Northern Virginia companies competing for talent. In his presentation, Moret acknowledged that there would be “short-term pressure” on Northern Virginia job markets, but that NoVa executives were mostly positive about the deal. His presentation includes a sampling of reactions back in February:

“The economic lift that we get in Virginia, the branding part of it, would be a strong positive for our recruiting efforts. Clearly we will be competing for talent, but that’s fine,” said a Fortune 500 CEO. “I think it’s important for regions to have a diversity of employment options. The economic lift and intellectual lift for the region is a strong, strong positive. I would like to see us get selected.”

“It would be a double-edged sword. Great for the economy. Great for the brand,” said the CEO of a successful tech company. “Long-term it would be good, but it’s another competitor to deal with for talent. … It would give cachet to our area.”

Said the C-level exec of a Fortune 500 company: “In the short run, it will entail some competition for talent. But it’s very powerful for the region for the long term. We’ve made Virginia our hub. The fastest growing part of our ecosystem
is tech – we hire thousands of associates [every year]. We want to have an ecosystem where new tech grads stay here and where there is a desire of folks from around the country to move here.”

The workforce worries are real. But the Virginia’s higher-ed investments will expand the local talent pipeline, Moret argues, while the presence of Amazon will help give the Northern Virginia tech sector a more positive brand nationally, aiding recruitment from other labor markets.

Meanwhile, the state, Arlington County, and the City of Alexandria will spend hundreds of millions of dollars building out transportation infrastructure serving the Crystal City/Potomac Yard area. The transportation initiatives, designed to complement walkable urbanism in the region’s urban core, will accommodate business and residential growth for more than just Amazon. The Metro bus and rail system is operating at significantly below capacity, notes Moret. This deal could boost ridership and revenues for the troubled mass transit system.

Projected share of Amazon commuters by transportation mode.

As Arlington and Alexandria re-develop the region as a walkable mixed-use community, Arlington projects that 77% of Amazon’s workers will walk, bike, car-share or take mass transit to work. That number, if accurate, is phenomenal. By creating a new template for Crystal City/Potomac Yard, Amazon could catalyze the development of even more transportation-efficient walkable urbanism that can soak up a lot of future transportation demand. Continue reading

Unprecedented Details Available on Amazon Deal

The most unprecedented thing about the state and local incentive package for Amazon announced yesterday is its transparency.  Never has this much detailed information been provided to the general public immediately upon announcement, outside the protection of a non-disclosure agreement, and apparently the details will continue to flow.

Virginia Economic Development Partnership President Steve Moret had a long set of slides for the House Appropriations Committee meeting in Harrisonburg yesterday, and presumably will offer the same presentation to Senate Finance tomorrow in Williamsburg.  Please take some time to flip through it, along with the highlights on Governor Ralph Northam’s website.

No question, everybody involved knows there is a sales job ahead before the General Assembly votes on the elements it must approve.

The cash flow chart, reproduced above, shows the benefit of working with a company that is so wealthy, so confident of its economic future, that delayed gratification is fine.  Too often the C-Suite Occupants cannot wait beyond two or three quarters to collect the incentives, and really want them up front so the net present value of their own investment is reduced.

Secretary of Finance Aubrey Layne was quoted in the Richmond Times-Dispatch this morning saying there would be only a minor cost to the state in this current budget cycle, and the chart bears that out.  This is a deal for the long haul.  Which may add to the impression that Amazon really was coming to be close to the Capital Region all along and the incentives were not the driving force here.

Not that a company like Amazon in this corporate environment was going to come without incentives.  But the initial impression is New York had to fork over far more, an indication that location was the one truly in play for economic magnets.  For us the competition was Maryland.  The second location in New York also adds credence to earlier doubts that Virginia could really host and support the full proposed operation.

What the state and localities have promised to do for Amazon and its supply chain closely mirrors the specifications the company laid out in its request for proposals.  There are to be major investments in transportation assets, of obvious value to others in the region, and in higher education.  A similar, if smaller, investment in higher education was made to lure Rolls Royce to Petersburg, and while that plant has not met expectation, I suspect the high-value engineering programs created persist.

There is a somewhat symbolic promise of money to K-12 education, but that’s going to be the rub:   Can Virginia’s network of public and private K-12 schools produce the thousands of additional college-ready computer science applicants? Clearly Amazon is interested in building that supply chain locally, as well, and watch Maryland match Virginia’s efforts.   But right now more 7th and 8th graders need to buckle down in math.  Will the lure of working for Amazon focus them?

While the major cash incentive of $22,000 per job (and the company has said it might be hiring 37,850 eventually) is paid only after the jobs and tax flow are in place, it is still a massive precedent.  The next deal discussion will start there.  This package and the earlier Micron incentive package blow away previous examples, and while Virginia can continue to brag it is cautious, and the taxpayers have some protection, the word “conservative” is out of the discussion.

An interesting footnote in the outline of the proposed memorandum of understanding:  Jobs paying in excess of $850,000 will not count toward the promised average salary of $150,000.  Having negotiated deals on behalf of a shipyard paying hourly wages, that rarefied discussion is mind-bending to me.

Virginia is now right in there with everybody else, buying the business.  Yes, New York paid more and yes, many of the things being bought by Virginia taxpayers will have overall value to the region and the Commonwealth.  But the tail is wagging the dog.

Those who watch the business channels know that one of the lingering stories this week has been the slow death spiral of the Amazon of an earlier age, General Electric.  There are cycles to these things, and the excitement of the moment must be tempered with the truth that the disruptive innovation that built Amazon will take it down one day, or shatter it.  But if the 37,850 jobs, or even the 25,000, do not come to pass or do not linger, perhaps the roads and Metro enhancements and the higher education campus will.