Category Archives: Economic development

“Anchor Institutions” as Foundations of Rural Economic Health

Tom Barkin, president of the Federal Reserve Bank of Richmond

by James A. Bacon

A couple of days ago I lamented that the purveyors of the “conventional wisdom” at a recent Federal Reserve Bank of Richmond conference on rural development had little new or insightful to offer. I must offer a partial retraction. A friend has forwarded to me a speech by bank President Tom Barkin. While most of the points he made were familiar, some were new to me — and, hey, I figure if they’re new to me, someone who has been tracking rural development issues for some 30 years, they’re probably new to many others.

In that speech, “Moving the Needle in Rural Communities,” Barkin discusses the disappearance of “anchor institutions” in rural communities such as banks, hospitals and colleges. I’ve discussed the closure of rural hospitals on this blog, but always in the context of the rural health care crisis, never the rural economic crisis. I’ve also written about the travails of small, private liberal arts colleges, but, again, only in the context of higher education affordability, never the rural economic crisis. And, frankly, it never occurred to me to write about the disappearance of banks. However, the concept of anchor institutions seems to be a useful one for understanding rural economic health, and their continued erosion is a worrisome trend.

So, here’s what Barkin had to say: Continue reading

Why Are So Many Rural Virginians Stuck in Place?

Declining geographic mobility. Graph credit: McKinsey Global Institute

by James A. Bacon

A recurring question on this blog and elsewhere is why don’t more Americans (and rural Virginians) move to areas of greater economic opportunity? Why do they remain stuck in communities with high unemployment and low wages? Americans have always moved to economic opportunity in the past. What’s different now?

Those questions give rise to another set of questions. If people refuse to budge, should the rest of society take pity on them and subsidize their choice to stay put? As Don Rippert commented in a previous post, “The best thing the state can do is issue relocation vouchers to rural residents.”

The authors of a McKinsey Global Institute report, “The Future of Work in America,” tackles the geographic-mobility question. The biggest factor, they suggest, is the vast and growing gap in the cost of living between prospering cities and lagging communities. “Variations in the cost of living — and particularly in housing costs — are a clear contributing factor holding back geographic mobility in the United States. The cities offering the greatest job opportunity also happen to be expensive places to live.” Continue reading

Bacon Bits: Higher Ed Updates

Image credit: Virginia Tech

Billion dollar baby. You know Virginia Tech has made the big time when its projects hit the $1 billion mark. That’s how much Tech’s innovation campus in Alexandria, which is tied to Amazon’s HQ project, will ultimately cost. The first phase, a 300,000-square-foot academic building, will cost a mind-bending $275 million, reports the Washington Business Journal. (If it’s any consolation, that figure does include the cost of furniture.) Eventually, the campus will total 1 million square feet of space, including incubator space for new startups, offices for industry collaboration, and convening space for alumni events as well as ground-floor retail “knitting the campus into the fabric of Alexandria.”

VCU R&D Hits Record. Virginia Commonwealth University, Virginia’s third-ranked research university, raised a record $310 million in sponsored research funding in fiscal year 2019, reports Virginia Business. The number represents a 14.6% increase from the previous year. The top recipient was the Center for the Study of Tobacco Products, which will launch a five-year study predicting outcomes of government regulations of tobacco products, including e-cigarettes.

Enrollment up at UVa and W&M. Fall 2019 enrollment numbers are coming in for public universities, and the news is good — at least for the top-tier institutions, according to this Forbes magazine tally. Here in the Old Dominion, the University of Virginia reports a first-year class size of 3,920 students, an increase of 80. Despite aggressive tuition increases in recent years, the College of William & Mary reports anticipated enrollment holding steady around 1,540, down only six students from the previous year. So far, falling college enrollments have hit mainly community colleges and small liberal-arts institutions.

— JAB

The Geographic Impact of Automation

Projected job growth by 2030. (Darker colors indicate faster job growth). Source: McKinsey Global Institute. Click for larger image.

by James A. Bacon

A handful of megacities have captured a majority of U.S. job growth since the Great Recession and could win 60% of job growth through 2030, according to a July McKinsey Global Institute report. A middle tier of “stable” metropolitan areas and thriving niche cities will continue to see job growth, though at a more modest rate than the megacities, while the bottom tier of lagging metros and rural areas will see only marginal growth, if any.

The differential rates of job growth will be driven in part of the next wave of automation, which will displace many office-support, food-service, manufacturing, and customer-service jobs, while a dynamic economy creates more jobs in healthcare, STEM fields, business services, and work requiring personal interaction, says the report, “The Future of Work in America: People and Places, Today and Tomorrow.” “While there could be positive net job growth at the national level, new jobs may not appear in the same places. The challenge will be in addressing local mismatches and help workers gain new skills.”

If McKinsey’s “midpoint” job projections are close to the mark, the Washington metropolitan area will continue to dominate job growth in Virginia, while “stable” metros like Richmond and Hampton Roads will contribute to a lesser degree. The Shenandoah Valley and Roanoke-Lynchburg area will see marginal growth, and the rest of the state negative job growth.

These conclusions put a filigree on what everyone already knows about the challenges facing rural Virginia. What, then, is to be done? McKinsey offers some general strategies for adapting to our brave new world that sound remarkably similar to what I had to say in yesterday’s blog post about rural development. And I quote: Continue reading

Rural Development: the Conventional Wisdom Won’t Cut It

Shenandoah Valley: Not all rural areas are created equal

by James A. Bacon

Virginia’s rural communities face a hard slog maintaining their local economies in a globalizing world in which their traditional advantages, cheap land and labor, are no longer competitive. That slog looks even harder when leading thinkers are so bereft of fresh ideas. The utter failure to think beyond the conventional wisdom was on full display, as can be gleaned from this report by Virginia Business, at a conference hosted by the Federal Reserve Bank of Richmond about rural economic development in the Fifth District, which includes Virginia, West Virginia, Maryland and the Carolinas, 

There’s nothing wrong with the conventional wisdom as far as it goes. Yes, rural areas need to fine tune their workforce training programs. Yes, rural communities need better broadband access. Yes, rural areas need to retain local anchor institutions like hospitals, banks and colleges. Yes, above all, rural communities need to do a better job of retaining their college-educated youth. 

“Changing the prospects of a town, it seems to me, starts with aligning the mindsets of the people in that town,” said Richmond Fed President Thomas I. Barkin. “And a great metric is whether the kids who grow up and go to school there choose to come back.”

Yes, yes, yes — but how? Continue reading

UVa’s Booming R&D Program: What It Means

University of Virginia research funding. Source: UVa.

by James A. Bacon

One can debate how well the University of Virginia is serving the interests of students, families and the general citizenry through its aggressive increases in tuition, fees, and other costs of attendance. But there is no denying that Virginia’s No. 2 research university has been successful at attracting outside research dollars.

Sponsored research funding has increased from $311 million in 2014-15 to $412 million in in 2018-19 — a 32.5% increase, according to data recently released by the university.

“Our outstanding teams of faculty, staff and students across all the schools have propelled us over the $400 million mark in research funding,” said Executive Vice President and Provost Liz Magill. “Meanwhile, researchers … are targeting interdisciplinary approaches that improve the chances of receiving grants down the road.” Continue reading

Mayberry on Acid

By Peter Galuszka

In a bizarre case for a small Virginia locality, 14 former and current local leaders of Warren County and Front Royal — including the entire Board of Supervisors — have been charged with misdemeanors relating to a major embezzlement case that involves the local economic development authority.

The Sept. 24 charges by the State Police follow the indictment in May of Jennifer McDonald, the former head of the local EDA, on 28 felony charges related to embezzling funds in a deal involving a promised new data center and office park.

Although he was not charged, Sheriff Daniel T. McEathron killed himself with a self-inflicted gunshot wound a few days after McDonald was indicted. He had been involved with an $8 million scheme to build a regional law enforcement training center at the project.

This could be the largest-ever public fund embezzlement scheme involving a single locality in Virginia’s history. To be sure, the state recently has had its share of schemes and scams. They include a $1.4 million state grant to a bogus Chinese company in Lynchburg. The executive director of the Virginia Tobacco Region Revitalization Commission was caught siphoning away public funds some years ago. Continue reading

Repeat After Me: Development of Event Arenas Should Be Left to the Private Sector

Rendering of proposed Navy Hill redevelopment in Richmond

by James A. Bacon

The big economic-development controversy in the City of Richmond these days revolves around a $1.5 billion plan to redevelop Navy Hill, the name given a large tract of mostly city-owned land downtown now devoted largely to the aging Richmond Coliseum and surrounding parking lots. Everyone agrees that the land should be re-developed as a walkable mix of residential, commercial and retail. The key sticking point is on how to finance the public improvements — whether or not to create a Tax Increment Financing (TIF) district, and how far to extend the boundaries of that district in order to ensure investors that the bonds will be paid off.

The controversy has swirled around and around, but I have yet to see anyone focus on the most critical issue: Does the project need to spend $235 million to build a new arena?

To be sure, the old arena, the Richmond Coliseum, has been closed, is unsalvageable, and costs the city $1 million a year to maintain. It needs to be torn down to make way for something new. No one disagrees. The question is who should pay to replace it, and who should take the risk of business failure — city government or the private sector? Continue reading

Block.one Chooses Arlington for U.S. Headquarters

Blockchain CTO Dan Larimer

This may be the most fascinating Virginia business story of the year. Block.one, a leader in blockchain technology that originated in Blacksburg but is headquartered in Hong Kong, has announced that it will establish its U.S. headquarters in Arlington County. Virginia is providing a $600,000 grant from the Commonwealth Opportunity Fund to snag the $10 million investment.

Block.one employs more than 80 people in Blacksburg, and the town will “remain a significant innovation hub,” reports the Roanoke Times. The company is hiring people for 44 jobs in Blacksburg, and 21 in Arlington. Blockchain is known mainly as the technology that underpins digital currencies, although it has fast-growing applications in payments processing, logistics, and other fields.

The governor’s press release said that Block.one publishes the EOSIO blockchain software, “the fastest public blockchain protocol in the market. The free, open-source protocol is designed to be adapted and used by the developer community and companies to create a more secure and transparent digital infrastructure.” Continue reading

Rapid Workforce Deployment: Selling Speed

Mike Grundmann will lead Virginia’s rapid workforce solutions program. Photo credit: Virginia Business

by James A. Bacon

When Stephen Moret was hired to run the Virginia Economic Development Partnership (VEDP) two-and-a-half years ago, one of his main selling points was his accomplishment of creating Lousiana’s FastStart workforce solutions program and building it into the top-ranked workforce development program in the country. Now Moret is assembling a team to build what he calls a “world-class, turnkey, customized workforce recruitment and training incentive program” for Virginia.

Mike Grundmann, a veteran of Georgia’s highly regarded Quick Start program, has been hired as VEDP’s new senior vice president of workforce solutions. At Quick Start he oversaw development of more than 100 custom workforce solutions. By this time next year, Moret expects to have hired 12 full-time employees toward an eventual staff of 50, reports Virginia Business magazine.

Moret sees the workforce solutions program as a complement to Virginia’s community college system, which also collaborates with business to provide workforce training and credentials. The difference: “We’re also selling speed. Sometimes you’ll have a company say, ‘I’ve got a plant in Germany. I essentially want one just like that in the United States, and I want to have it up as quickly as possible.'” Continue reading

Why Is Expanding Broadband Still Such a Problem?

by Peter Galuszka

U.S. Rep. Abigail Spanberger (D-7th) has drawn lots of attention for her Rural Broadband Summit at Louisa County High School in Mineral on Aug. 17, which got plenty of comment from primarily rural residents unhappy that they can’t get access to quick, reliable Internet service.

Good for Spanberger, who beat Republican Dave Brat in last year’s hotly contested election. But this all brings questions: after so many years why are we still facing this?

I am now in my second decade of writing about the lack of broadband access in rural and inner city areas.

A piece I did for Chief Executive magazine about 10 years ago explored how mostly minority business owners in inner Philadelphia couldn’t afford broadband because the big providers, which would include Comcast and Verizon, cherry pick their locations. The firms wanted to boost margins so they pushed “triple play” (Internet, telephone and television) access in wealthier areas. Those not so privileged had to struggle with higher costs and access issues. “I don’t need 400 channels,” an inner city business owner told me. Continue reading

Bacon Bits: Mostly Good News for a Change

Energy efficiency done right. After investing $2 million over three years to update the energy and water infrastructure of Clark Hall, the University of Virginia calculates that it is saving $75o,ooo a year in electricity bills and $22,000 in water bills — a payback in less than three years. The university replaced 5,000 interior and exterior fixtures with LEDs, put into place an electronically controlled HVAC system, and installed low-flow toilets and faucet aerators, among other changes. Since 2010, Office of Sustainability projects have avoided $35 million in energy fees, reports the Cavalier Daily. Building automation kills two birds with one stone: It dampens runaway higher-ed costs, and it reduces energy consumption.

Wytheville as winner. The Brookings Institution has highlighted Wytheville, population 8,000, as a successful example of community development in a rural town. Step one: Invest in downtown place-making through streetscape renovations, improved sidewalks, lighting, and crosswalks. Step two: Create a self-sustaining entrepreneurial ecosystem. With a grant from the Virginia Department of Housing and Urban Development, Downtown Wytheville launched a competition to recruit local businesses and build partnerships with property owners. Inducements such as reduced rent, mentorships, and $75,000 in prize money were used to recruit the businesses downtown. As a result Wytheville has two (not one, but two) breweries, a Vietnamese bakery, and an art school id didn’t have before. In 2018, downtown received $800,000 in public investment and $5.7 in private investment. Continue reading

Blackface, Wayne Newton, and the Top State for Business

Congratulations, Virginia, you’ve clawed your way back to the top of the heap, proclaimed by CNBC to be the Top State for Business in 2019. The honor is well earned. As Wayne Newton said in a nine-minute CNBC piece: “Hi, I’m Wayne Newton, born and raised in Virginia. Now here’s why Virginia has been named the number one state for business…”

Wait… What? Wayne Newton? I thought he lived in Las Vegas. Come to think of it, aren’t those palm trees in the background?

The CNBC ranking — based on 60 metrics of competitiveness in workforce, education, economy, infrastructure, cost of doing business, and quality of life — is a useful exercise. (You can view the methodology here.) Virginia does excel in the quality of its workforce and education. With luck, the attention generated by the study will stimulate out-of-state companies to consider locating in the Old Dominion. But I’m not sure if the CNBC profile accompanying the annual report represents a net gain or net loss for the state’s reputation. Continue reading

Pollution Control Tax Break Not An Incentive

Industrial dust collector, 1450 cf per minute

Not every tax policy decision should be made or measured on whether it stimulates more economic activity and thus more taxable revenue for the government. There are things the government should not tax.

Yet, returning once again to the well-thumbed June report on manufacturing incentives produced by the Joint Legislative Audit and Review Commission, that economic value add test was applied to one of the oldest tax exemptions under the sales tax rules, an exemption for equipment purchased to comply with federal or state environmental laws.  Continue reading

Weldon Cooper Revisited

 

In a recent post of Steve’s, members of this blog got into an extended discussion of the methodology used by the Weldon Cooper Center at UVa. to evaluate the effect of tax incentives, specifically its projecting the “impact of raising income taxes by the amount exempted.”  As promised, I contacted a senior executive at Weldon Cooper whom I know and asked for some clarification.

His answer was fairly lengthy, so I will quote key portions and try to summarize his position:

“The answer to your question is that every dollar spent has an opportunity cost.  As you point out, one way the opportunity cost can be measured is the value of the best alternative way you could have spent the money.  Another way is the cost to the economy of extracting a marginal dollar from the economy with a tax instrument….Every tax has some cost in terms of consumption foregone.”

“One cost of a tax is that it might cause some firm or some person to choose to be elsewhere.  This is not a ‘conservative’ idea.  It is just a standard result of microeconomics.  But we must not lose sight of the fact that how the money is spent is important as well.  People and firms value public safety, education services, infrastructure, clean environment, good administration and all the rest.  These things are not free.”

He objected to the characterization in BR of the Weldon Cooper method as “dynamic scoring”, saying, “this is incorrect and is a politically charged assertion.  It doesn’t make us ‘conservative’ to account for opportunity cost and [the effect on the economy of extracting a marginal dollar with a tax instrument].”

In summary, he asserts that any fair analysis must take account of all the effects of government spending.  On the one hand, “every tax has some cost in terms of consumption forgone.”  On the other hand, taxes are used to provide services to citizens that can be best provided by government, rather than the market.

Hall-Sizemore take:  I was off-base in my earlier characterization of the Weldon Cooper approach  as being an “assumption that, were it not for the incentives, those revenues would not have been needed. Thus, there was a ‘tax increase’ needed to produce the revenues.”  It is, in reality, a way of measuring the opportunity cost in terms of the effect of the marginal cost of raising the funds.  It also is a way of consistently comparing different types of economic development incentives.

Actually, balancing of opportunity costs occurs annually in the budget process.  Both the Governor and the legislature do it.  Either the legislature or the executive could determine that the projected revenue was in excess of what was needed to provide a good mix of services in an efficient way and therefore propose reducing the tax rate, rather than expand services.  (Those issues dominated the discussion in last year’s session.)  More often, the opposite is the case—the “needs” and the “wants” of the agencies exceed the amount of projected revenue and the executive and legislature decide that the opportunity cost should be borne by the government.  Thus, the marginal cost to the economy of raising taxes takes precedence over the cost of foregoing expansion of existing services or initiating new ones.