Category Archives: Economic development

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.

Volvo: A Big Win for Western Virginia

The Volvo Group has announced that it will invest nearly $400 million to expand its Volvo Trucks North American New River Valley assembly operation in Pulaski County. The project is expected to create 777 new jobs within six years.

Plans call for a new 350,000-square-foot building that will house truck cab welding operations; expansion of the existing plant to upgrade plant operations and production flow; and equipment upgrades such as installation of state-of-the-art dynamometers for vehicle testing. Volvo, which manufactured 127,000 trucks worldwide last year, considered sites in multiple other states.

This is a huge win for Western Virginia, which has seen its manufacturing sector devastated by globalization and automation over the past three decades. The investment comes with a price for Virginia taxpayers, of course, but the subsidy seems modest compared to the magnitude of the project. Volvo will be eligible to receive $16.5 million over 10 years, contingent upon meeting investment and job-creation benefits. The subsidy amounts to only 4% of the capital investment, although, seen another way, it represents $21,200 per job.

The governor’s press release says nothing about the average pay scale of new jobs created, as it did with the Amazon deal, so that remains a mystery. Nor does the announcement, which alludes only to cab welding, painting, and dynamometers (devices for measuring torque) provide any hint of any higher value-added activities that will take place at the Pulaski County plant. Continue reading

Comrades: Check Out Virginia’s Planned Economy!

There are portions of the recent state audit report on economic incentives that would warm the hearts of retired Soviet planned economy apparatchiks, sitting around their dachas dreaming of the good old days.  Case in point:  The analysis concluding Virginia’s use of a single sales factor method to tax manufacturers is “moderately effective.”  Continue reading

JLARC: Semiconductor Grants Have Not Succeeded

Incentives “spending” reviewed in recent JLARC report. Click for larger view.

The recent report from the Joint Legislative Audit and Review Commission on economic incentives related to manufacturing (here) goes far beyond a discussion of data centers, and if the General Assembly accepts it as gospel some of the existing incentives might be in jeopardy.

Two programs aimed at environmental goals should be eliminated, the staff (and by its vote the full legislative panel) concluded:  The Green Jobs Creation Tax Credit and the Green Diesel Fuel Producers Tax Credit.  Neither is being used to any extent.  Continue reading

JLARC and the Virginia Cloud

Facebook data center in Henrico

Some years ago, the General Assembly made considerable use of the time between sessions. There were special study commissions that met fairly frequently, as well as meetings of subcommittees of standing committees. For various reasons, that does not happen much now. As a result, the legislature has struggle with tough issues, with little time for research and reflection, during the crowded regular sessions.

More and more, the Joint Legislative Audit and Review Commission (JLARC) is filling the void, providing the legislature with analyses and background on a number of thorny issues. This is a positive development.

Originally, the primary function of JLARC was to conduct regular, thorough analyses of agency operations. Gradually, that function has evolved to consist of (i) ongoing oversight over VITA, VRS, economic development incentives, Virginia529 (college savings plan), and Cardinal (the state’s new accounting system); (ii) several annual reports on state spending; and (iii) specific topics referred to it by the legislature or taken up on its own initiative.

This year the agency has one of its heaviest study loads ever. In addition to the ongoing oversight and state spending studies, the workload includes studies on community services board funding, implementation of STEP-VA (reform of the state’s behavioral health system),  the Office of the State Inspector General, VITA’s new infrastructure, Office of the Attorney General, gaming in the Commonwealth, Medicaid expansion, Workers’ compensation, and the Department of Game and Inland Fisheries. Continue reading

Bacon Bits: Two Reasons to Be Worried, and One Reason Not

Be afraid, very afraid. How frequent is cell phone use? According to a team of Old Dominion University researchers tallying seat belt use, some 4% of drivers they spot are on the phone or texting. So reports the Daily Press. Clearly, cell phone use is a problem. But I would argue that texting (which I never do) is far worse than yakking on the phone (which I do do… occasionally). Both may be a distraction, but the one requires drivers to take their eyes off the road, while the other doesn’t. If distractions are the issue, then the General Assembly should ban husbands and wives driving in the same car together. There’s nothing like a side-seat driver to grab one’s attention and increase the risk of accidents!

Virginia lost a big one. I have long hoped that the Wallops Space Flight facility might engender the rise of a space industry in Virginia. But the odds of the Old Dominion developing a critical mass in this industry of the future suffered a significant setback yesterday when Boeing announced that it would relocate the headquarters of its Space and Launch division from Arlington to Titusville, on Florida’s Space Coast. States the aerospace giant: “Looking to the future, this storied Florida space community will be the center of gravity for Boeing’s space programs as we continue to build our company’s leadership beyond gravity.”

Scary ignorance about coal ash. Coal ash is a potential hazard to human health, but the risks it poses are extremely low level. Unfortunately, an article in the Prince William Times, describing how Governor Ralph Northam signed a coal ash regulation bill into law, incorporates some of the hysterical rhetoric that has infiltrated our discourse. The article refers to the coal combustion residue as “toxic coal ash” and describes it as “composed of lead, mercury, cobalt, arsenic, hexavalent chromium and other heavy metals, many of which are carcinogens.” In truth, coal ash is comprised mainly of rock mixed with coal that is not removed in the coal cleaning process and does not combust in boilers used for electric generation. The ash does contain trace amounts of all the aforesaid metals, which can leach in minute quantities into ground water, but is toxic only when it rises above certain levels. If the ash itself were toxic, then the new law requiring utilities to recycle at least 25 percent of it into cinderblocks and pavers would the greatest folly indeed.

Danville’s Revival: Historic Architecture + Walkable Urbanism

The new Danville — more of this….

In Part II of his extended essay on the revitalization of downtown Danville, Va., The Atlantic magazine writer James Fallows dates the beginning of the city’s revival to the decision to demolish The Downtowner, a classic example of atrocious 60s-era architecture. In retrospect, it now obvious that the “modernist” architecture of the 50s and 6os was so hideous that it is not only not worth preserving, it is a blight. Or, as Fallows put it: “Most people believed that the old buildings had timeless-classic potential, and the Downtowner did not.”

… and less of this.

When the city took the wrecking ball to the Downtowner in 2012, only 400 or so people worked or lived in the downtown tobacco warehouse district now known as the River District. After several years the renovation and retrofit of old industrial buildings, the number now stands at 6,000.

Classic architecture (even if it is industrial architecture) + a traditional downtown street grid + views of the Dan River have proved to be a winning combination. Who ever would have thought that Danville would reinvent itself as a center of walkable urbanism? But it has, and therein lies its hope for sustainable economic growth. Continue reading

Bacon Bits: Keeping the Political Class on its Toes

Cranky strikes again. John Butcher does another deep dive into Richmond Public School statistics, comparing the capital city’s school system with the schools in peer cities of Norfolk, Hampton and Newport News. Richmond spends $2,887 more per student than the state average, and it spends $1,659 more on instructional expenses. Yet somehow, the district supports fewer instructional positions per 100 students and pays teachers and principals less. And, as Butcher has amply demonstrated before, disadvantaged and non-disadvantaged students in Richmond under-perform their disadvantaged and non-disadvantaged peers in other urban-core localities by wide margins.

How about the indignity of attending lousy schools? But never fear, Richmond school administrators are au current with the latest in politically correct virtue signaling. As reported by the Richmond Times-Dispatch, Richmond schools started requiring graduating students to wear gender-neutral gaps and gowns this year, ending a decades-long practice of having separate colors for men and women. Explained Superintendent Jason Kamras: “We want to make sure out transgender and nonbinary students don’t have to suffer the indignity of being forced to express their gender in a manner contrary to their identity.”

Big subsidies for big data. Virginia is home to 159 data centers that benefited from $417.5 million in sales-and-use tax exemptions from mid-2010 through mid-2017, according to estimates from a new Joint Legislative Audit and Review Commission report. JLARC deems the state subsidies to have been “relatively effective” and generate “moderate economic benefits.” It is reasonable for the state to continue the exemption, concluded JLARC. However, the tax break does not appear to have stimulated growth in distressed areas. Continue reading

The Deep State as Competitive Economic Advantage

Stephen Moret’s sales pitch to the Amazon in the HQ2 deal offered an analysis that was both acute and chilling — acute if you’re an economic developer seeking to promote Northern Virginia as a place for tech companies to do business, chilling if you are an American worried about the growing overlordship of the technocratic elite.

According to Luke Mullins’ Washingtonian article, “The Real Story of How Virginia Won Amazon’s HQ2,” Virginia’s proposal to Amazon highlighted Northern Virginia’s proximity to the Pentagon and other federal agencies. Writes Mullins:

By plopping HQ2 into Crystal City — right next door to the Pentagon — its employees could become part of the Washington community, attending backyard barbecues and school dance recitals with the very regulatory staffers and procurement officials whose decisions will determine the company’s future — as the very journalists and political strategists who might paint the firm as an Evil Empire. Continue reading

How Moret and Moretti Won the Amazon Deal

Enrico Moretti

Everybody who pays attention to economic development in Virginia knows by now who Stephen Moret is. He is the Louisianan, recruited to turn around the Virginia Economic Development Partnership and rethink the state’s economic development strategy, who landed the Amazon HQ2 deal. Few are familiar, however, with the theoritician behind the practitioner, a man with a near-identical last name — Enrico Moretti.

Bacon’s Rebellion readers learned of Moretti, a Berkeley University professor, when I reviewed his book, “The New Geography of Jobs,” back in 2012. Moretti’s analysis of the primacy of labor markets in the Knowledge Economy — metropolitan areas with deeper, richer labor markets enjoy a tremendous competitive advantage in competing for both corporate investment and skilled/educated workers — has informed my economic-development commentary ever since.

Well, it turns out that Moret is a big fan of Moretti. Indeed, when fashioning a new economic development strategy for Virginia, Moret engaged Moretti for input. That insight emerges from an excellent article in the Washingtonian by Luke Mullins, “The Real Story of how Amazon Won Amazon’s HQ2.” Mullins’ article provides the most incisive reporting on how Virginia won HQ2 that I have yet seen. Continue reading

Bacon Bits: Dulles and Danville

Unfriendly skies. Washington Dulles International Airport is the most expensive airport in the United States to fly from. In a survey of the 45 largest airports, Travel Pulse found that the average ticket cost $427.37. On the other hand, travelers do get a bit more for their money, such as free carry-ons and seat selection.

Question: Why is Dulles so expensive? Pricy airports tend to be hubs for traditional airlines like United and American, the survey author said. So, are the airlines the problem? Or has Dulles squandered money on ill-conceived capital projects — expanding to accommodate growth that never occurred? Our friend Reed Fawell might have something to say on that topic.

Danville’s revival. If you haven’t visited the City of Danville in the last 20 years, perhaps you should. My wife and I drove through downtown a few months ago and she was blown away by how vibrant it was. It turns out that James Fallows, a senior writer for The Atlantic, was similarly impressed. In a recent article he explains that the city maintained a viable economy into the 1970s and 1980s based on textiles and tobacco, did not experience the same hollowing out of its industrial infastructure, and saw no need to tear them down, as was the fashion in many other cities in the era of “urban renewal.” The textiles-and-tobacco economy collapsed in the 1990s, but the brick manufacturing structures were preserved.

Today, Danville has more “antique architecture” than downtown Charlotte or downtown Atlanta, even though those cities are vastly larger. The revival of former tobacco and textile buildings in Danville’s “River District” has created a unique environment of walkable urbanism that may seed the city’s renewable.