Category Archives: Economic development

Bristol’s Newest Savior: a Proposed Casino and Resort

Jim McGlothlin (right) talks about his proposed casino project. Photo credit: Bristol Herald Courier

The City of Bristol, having mortgaged its future with a failed mall development project, is betting on another big-ticket project: a proposed $150 million casino with accompanying hotels, conference center, retail, and restaurants built at the failed mall location. The backers assert that the Bristol Resort and Casino would create an estimated 2,000 jobs initially, growing to 5,000 eventually, and paying an average salary of $46,000. The project would generate $30 million annual tax revenue for the hard-pressed locality.

All the backers need is for the General Assembly to rescind its ban on casino gambling in Virginia.

Normally, I would be highly skeptical of a project like this. When developers spin a fantasy vision of jobs and tax revenues, there’s always a hook — all they need is a little support from government. Loans, subsidies, loan guarantees, whatever. But in this case, the Bristol casino backers are funding the project themselves. Continue reading

Virginia Back to No. 1, or Close to It

Image source: Business Facilities

Virginia’s economic growth rate may have lagged the national average last year (See Don Rippert’s post on the subject), but outside perceptions of Virginia have changed for the better. Virginia ranked 4th in Forbes magazine’s 2018 Best States for Business ranking and 4th in CNBC’s Best States for Business ranking. Most recently, on the strength of winning half of Amazon’s HQ2 project, the most highly touted economic development project in recent history, Business Facilities magazine anointed Virginia as 2018’s “state of the year.Continue reading

Who’s Got Broadband and Who Doesn’t?

Percentage of households with broadband by locality. Source: Virginia Public Access Project based on the 2013-2017 American Community Survey.

This map, published today by the Virginia Public Access Project, shows clearly the metropolitan/rural divide in access to broadband Internet access. Some rural areas obviously enjoy better broadband service than others. Look at the cluster of counties to the south and west of the Washington metropolitan area. Look at the cities and counties running down the I-81 corridor from Winchester to Blacksburg. Many are low-density localities, but somehow they have higher broadband penetration. Continue reading

More People Still Moving Out of Virginia than Moving In

Virginia is still leaking population through out-migration, according to the most recent United Van Lines national movers study, which tracks customers’ state-to-state migration patterns in 2018. The gap between those moving into the state and moving out was small — 48.4% inbound compared to 51.6% outbound, but it continues a discouraging trend of the past several years and seemingly cements the robust in-migration of previous decades.

Dig into the numbers, however, and there were some consolations.

Continue reading

Virginia Should Take Regional Approach to Building Offshore Wind Supply Chain

Where the action is in East Coast offshore wind. Source: BVG Associates. (Click for more legible image.)

To build an offshore wind supply chain with thousands of construction, manufacturing and maintenance jobs, Virginia should collaborate with Maryland, North Carolina, and South Carolina, concludes a report issued last week by BVG Associates for the state’s Department of Mines, Minerals and Energy.

Offshore wind development is advancing rapidly in the Northeastern states, and if Virginia wants to maximize the benefits of the emerging offshore wind industry, it needs to move quickly. “Virginia has great potential and many unique advantages to attract this investment, but it must act now if it is to be a leader in OSW,” states the study, The Virginia Advantage: The Roadmap for the Offshore Wind Supply Chain in Virginia. Continue reading

The Cloud Services Boom

Source: National Bureau of Economic Research

If it seems like the cloud-services industry is the hottest economic sector in Virginia — outside the new Amazon East Coast half headquarters — that’s probably because cloud services is one of the hottest economic sectors in the United States. This chart published by the National Bureau of Economic Research shows how cloud services expenditures have boomed in recent years.

The Washington region was the only metropolitan area in Virginia with the attributes that could compete for Amazon’s HQ2, but other parts of the commonwealth can vie for data centers, as Henrico County has shown with Facebook and Mecklenburg County with Microsoft. Unlike Amazon’s HQ2 facility in Arlington/Alexandria, which envisions hiring 25,000 workers over the next decade or two, data centers require only a few dozen employees, so they can locate in labor markets as small as rural Mecklenburg County.

As long as Virginia has abundant fiber-optic trunk line capacity with connections around the world, like the new trans-Atlantic cables to Virginia Beach, and as long as the state can provide abundant, competitively priced green energy, the sky’s the limit for more cloud-services investment.

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.

Continue reading

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.