Category Archives: Economic development

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:

Continue reading

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


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.

Caution Flag on Amazon Inducements

The Virginia response to the Amazon’s 1/2 HQ2 (half of the originally proposed second headquarters) announcement is not uniformly delirious. Here are a couple of responses landing in my in-box — one from the center-left Commonwealth Institute (CI) and the other from the center-right Mercatus Center that urge caution in approving $1.7 billion in subsidies and inducements.

Writes CI on its Half-Sheet blog:

It’s critical that elected leadership, media, and the rest of us take a careful look at the realistic benefits and drawbacks of the deal, including related public subsidies and the tradeoffs that come with adding thousands – or tens of thousands – of jobs. And regular folks deserve to know what’s in the deal when their public land or public tax dollars are on offer to private corporations. …

With the megadeal promising to add thousands, and eventually tens of thousands, of high wage jobs, it is likely to further exacerbate the housing shortages in the region. … Early details do not appear to show any required direct support by Amazon in the provision of affordable housing, instead relying on local governments to make some investments, although the projected additional housing units fall far short of the projected shortfall for the region. …

The new development will bring new long-term costs – more need for fire protection, more children needing a high-quality education, and more need for public roads and transportation. Avoiding deals that cost more than they will raise over the long term is critically important to make sure ordinary residents aren’t paying the price for subsidies to megacorporations.

Meanwhile, Mercatus questions whether Amazon really needed the inducements to reach its decision to locate in the Washington metropolitan area. A NoVa location, I might elaborate, provides access to one of the nation’s largest high-tech labor pools and to the federal government, which is an increasingly important customer for its cloud services enterprise. Writes Mercatus:

We find it implausible that Amazon’s corporate leaders didn’t already have a good idea of where they would locate HQ2 even before launching the competition between cities.  The research on corporate location decisions finds that subsidies rarely affect the final decision, lending weight to our skepticism. It also suggests that any relocation subsidies would simply be extra icing on the cake that Amazon had already picked.

The general conclusion of academic research suggests that targeted economic development subsidies don’t lead to broad-based economic growth or improvements in community welfare when measured against comparison cities. Why? First, when government officials grant targeted tax cuts, they distort the market-determined prices that lead to the most efficient use of resources. Second, nearly every kind of tax causes additional price distortions and corresponding “deadweight loss”—a pure loss of economic value. This means that keeping taxes high for some businesses to give a subsidy to favored corporation causes further harm to economic efficiency—a better approach for economic growth would be a broad-based tax cut.

I have raised many of these points on this blog — good to hear that other people share the concerns. Amazon is a once-in-a-generation economic opportunity for Virginia. There are many reasons to welcome the deal. But CI and Mercatus both raise legitimate issues. When more than $1.7 billion in public subsidies are at stake, Virginia needs to give the deal a thorough airing. I would agree with CI’s admonition:

Community members, press, and elected officials should be provided time to absorb these details – and receive more details if some needed information is not available – before Virginia or its localities commit public dollars to a deal.

Meanwhile, up in New York… From CNBC:

Democrats from New York’s Queens borough slammed Amazon’s plan for offices in the area, setting up a potential political fight with one of the world’s most powerful companies. The criticism came even as Virginia lawmakers largely welcomed the e-commerce company’s decision to open up another facility outside Washington, D.C.

Amazon couldn’t see that coming?

Nailed It (with the Help of $$2.5 Billion in Incentives)!

The suspense is over. Amazon, Inc., has officially announced that it will invest $2.5 billion to establish a new headquarters in Northern Virginia. The facility will be located in the Pentagon City and Crystal City area of Arlington County and the Potomac Yard in the City of Alexandria. In addition to the 22,000 jobs created directly by Amazon, the project is expected to generate an additional 22,000 direct and indirect jobs in Virginia.

“This is a big win for Virginia—I’m proud Amazon recognizes the tremendous assets the Commonwealth has to offer and plans to deepen its roots here,” said Governor Ralph Northam in a press release today. “Virginia put together a proposal for Amazon that we believe represents a new model of economic development for the 21st century, and I’m excited to say that our innovative approach was successful.”

Virginia offered a substantial incentive package to induce the commitment from the online-retailing and cloud-services giant, which received 238 proposals from across North America. Originally, the company said it would invest $5 billion in a single second headquarters, but in the end decided to split the project between Northern Virginia and Long Island.

Said Northam: “The majority of Virginia’s partnership proposal consists of investments in our education and transportation infrastructure that will bolster the features that make Virginia so attractive: a strong and talented workforce, a stable and competitive business climate, and a world-class higher education system.”

“Virginia’s biggest employment growth opportunity in the years ahead will be in tech—from artificial intelligence to cloud computing to cybersecurity, and everything in between,” said Stephen Moret, CEO of the Virginia Economic Development Partnership, which led the recruiting effort. “The tech-talent pipeline investments that Governor Northam and the General Assembly are launching will position communities across the Commonwealth for healthier, more diversified economic growth.”

As part of the Commonwealth’s long-term incentive agreement with Amazon for the creation of at least 25,000 jobs, Virginia will:

  • Provide post-performance incentives to Amazon that will be paid annually based on job creation and wage levels, with minimum average wages of at least $150,000. Subject to General Assembly approval, the company will be eligible to receive up to $22,000 per job or up to $550 million in incentives. Additional incentives would be available if Amazon creates more than 25,000 jobs; and
  • Invest up to $195 million of non-general fund money in transportation projects that will improve mobility in the region, including additional entrances to the Metro stations at Crystal City and Potomac Yard, improvements to Route 1, a connector bridge from Crystal City to Washington National Airport, and a transitway expansion supporting Pentagon City, Crystal City, and Potomac Yard. Additional funding would be available if Amazon creates more than 25,000 jobs.
  • In addition, Arlington County and Alexandria will fund another $570 million for transportation projects, including including rail connections, transit facilities, multi-modal streets, and corridor connectivity serving the site.

To support the growth of the technology sector across the Commonwealth, Virginia will:

  • Make performance-based investments in bachelor’s degree programs in computer science and related fields that will be distributed statewide based upon a negotiated agreement with each public university or community college that wishes to participate;
  • Make performance-based investments of up to $375 million over 20 years for new master’s degree programs in computer science and related fields at George Mason’s Arlington campus and for Virginia Tech to establish a new Innovation Campus in Alexandria, both of which are subject to a one-to-one match from the universities with philanthropic funds; and
  • Invest $50 million over 20 years in K-12 tech education and internship programming to connect higher ed students to tech jobs.

According to press reports, incentives will total about $2.5 billion.

Bacon’s bottom line: The announcement is exciting news for Virginia and should prove transformative to Northern Virginia’s economy. If inducements must be made, I would much rather see them in the form of infrastructure improvements, K-12 and higher-ed investments than in payments to Amazon.

As Reed Fawell has opined elsewhere on this blog, a corporate and public investment investment of this magnitude represents a once-in-a-lifetime opportunity to create a functional transportation system in Northern Virginia’s urban core. Will the transportation investments serve the region or just Amazon? The devil is in the details, but the potential benefits are enormous.

The one provision that triggers my gag reflex is the $550 million — up to $22,000 per job created — paid directly to Amazon. Where will those employees come from? How many will be recruited away from other Northern Virginia companies, accentuating shortages of critical skills in a tight labor market and reducing their competitiveness? While many will welcome the coming of Amazon, I would expect others to resent the hefty subsidy. I will be interested in hearing the justification for this particular element of the deal.

Note: I have updated the total figure for incentives to reflect reporting I did not have available when I initially filed this post.

Amazon HQ Speculation in Full Boil

JBG Smith stock price. Source: Yahoo Finance.

Northern Virginia is solidifying its position as the perceived front runner in the competition for Amazon’s massive HQ2 project, and Arlington’s Crystal City area looks like the front runner in Northern Virginia. The Washington Post reports that Amazon’s talks with the Seattle-based tech giant have been more detailed than discussions with other leading prospects.

“Crystal City, with easy transit access, proximity to Reagan National Airport, and ready-to-occupy office buildings, has been considered a strong contender,” writes the Post. Speculation has gotten so intense, according to stock analysts, that investors have added for or five points to the stock price of JBG Smith, owner of most Crystal City property.

I have to say, this is getting exciting. Amazon HQ2, which would entail investing $5 billion over the next 15 years and creating 50,000 jobs, would be a game changer for Northern Virginia. Not only would Amazon’s presence diversify NoVa’s economy away from the federal government, it would transform the region’s corporate culture from Beltway Bandit procurement to a more global, entrepreneurial approach. No region will supplant Silicon Valley as a technology hub, but the Washington region could become America’s undisputed No. 2.

If Amazon is looking at NoVa, thenwe should expect to hear something soon. The deal likely will be contingent upon tax breaks, higher-ed funding, and infrastructure commitments that require approval of the General Assembly. The legislature convenes Jan. 9. The Northam administration surely will have its legislative package lined up on Day One to provide ample time for public airing and debate.

Update: Amazon has decided to split HQ2 between two cities, the Wall Street Journal reports. Creating HQ2 and HQ3, with about 25,000 employees each, will ease the challenge of recruiting workforce, a source told the Journal. Moreover, the move will also ease potential issues with housing, transit and other areas where adding tens of thousands of workers could cause problems.

That’s all positive for Virginia, as far as I’m concerned. It doubles the odds of getting one of the two prizes, and the project will be easier to absorb from a growth-management perspective. I ave long feared that a 50,000-person facility would be indigestible, even for a metro region as big as Washington.

The big question now: Does Amazon get the same incentive package for a half-sized project as it would for the whole enchilada? Bezos better not get greedy. He’s already the world’s richest man. He could inspire quite a backlash if he demands too much.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Safety Training for Offshore Wind Workers?

Turbine construction off coast of England. Photo credit: Energy News Network

Who knows if and when Virginia will ever build a dynamic wind-power industry, but at least one aspiring entrepreneur wants to make Virginia Beach the location of the East Coast’s first safety training facility for wind industry workers.

Scott Chierepko, a retired Navy Seal, wants to break ground on a 25-acres facility complete with a massive indoor pool, the size of two Olympic pools, equipped with model wind towers equipped with blades and generating components, boats, cranes and catwalks, reports Energy News Network. The equipment will allow workers to gain expertise “moving from a small boat to a tower, escaping from a flipped supply vessel, practicing high-angle rescues and tool transfers, and rehearsing how to lower injured workers from high above.”

Trainees will also be able to learn how to evacuate from a submerged helicopter. A separate outside facility will be designed to teach them firefighting skills.

“It’s Hollywood in a box,” he says about the pool’s waves, water currents, rain, wind, light, fog, sound and other simulated atmospheric effects. “It’s a systems engineering challenge, but we’ll have the whole nine yards. We’ll be able to provide everything from a sunny day with flat seas to a night with four-foot waves.”

Meanwhile, Old Dominion University plans to offer students a certificate in offshore wind site assessment planning. Graduates would be eligible for jobs with the private companies that design site assessment plans and the state and federal agencies that review them.

“Eventually we will need welders and other shipyard trades, but right now the jobs are in planning,” says George Hagerman, senior project scientist with ODU’s Center for Coastal Physical Oceanography. “We have a real-world, locally relevant example to use throughout our certificate coursework.”

The Energy News Network article did not say where Chierepko’s BEI Maritime  hopes to raise the money for his training facility, so there is no way to evaluate, based on information in the article, what the odds are that he might succeed with his venture. An obvious question: What investor would want to plunk millions into a venture whose success would be contingent upon the emergence of a wind-power sector that, at this point, does not yet exist?

But the story does illustrate the kinds of service enterprises that might be spun off from an East Coast wind power industry should it come to fruition.

Data Centers as Cloud-Service Exporters

The ultra-high capacity undersea cables linking Virginia Beach to Brazil and Spain has benefited the economy not just of Virginia Beach and Hampton Roads but of Henrico County. Telxius, the operator of subsea cables terminating in Virginia Beach, has established a location in QTS Realty Trust’s data center in eastern Henrico. Reports Virginia Business magazine:

The cables, known as MAREA and BRUSA, are two of the highest-capacity, lowest latency subsea cables ever built. Low latency is especially important for streaming data.

MAREA, which connects Spain and Virginia Beach, is a joint project with Facebook and Microsoft. Telxius operates the cable for the companies. …

“What that means functionally for the traffic on those networks is you’ve now got the ability to interconnect with the 17 different carriers and network suppliers in that building, which means you can get to a lot of places all across North America right there at the Richmond data center,” Sean Baillie, executive vice president of sales and marketing for QTS, said in an interview.

It also will connect the subsea cables to QTS’ data center in Ashburn in Loudoun County, which is home to the largest concentration of data centers in the world.

Here’s what’s really cool: The overseas connections allow Virginia-based data centers to provide data storage and content distribution to European and Latin American customers, be they financial institutions, health-care providers, gaming companies or content providers. In essence, the underseas cables open up export markets for Virginia-based cloud services.

“What we in Richmond offer to all those potential buyers is the closest geographic access to those cables, which is the closest geographic access to Puerto Rico and Brazil and then to Bilbao, Spain, which is an entry point to all of Europe and beyond,” Baillie said. “There’s a ton of use cases for folks that want access to those cables.”

Data centers are the biggest economic-development play of the decade for Virginia. While Loudoun County is the national leader, benefits are spilling over into Prince William County, Henrico County, and Virginia Beach. Data centers may not be big job creators, but the jobs they support are highly paid. And they throw off large tax streams to local government, even if, like Henrico, they have slashed tax rates to induce data-center investment.

Ten years ago, no one saw this coming. Building a world-class data-center industry in Virginia wasn’t in anybody’s strategic plan. The boom just happened. Virginia was in the right place at the right time — a huge amount of fiber-optic capacity had been laid in Northern Virginia during the go-go 1990s era, providing massive under-utilized capacity — and the Old Dominion had a business climate that didn’t discourage investment. Loudoun saw the potential before anyone else and local government worked to create a positive tax and regulatory environment. The county jumped into the lead and the rest is history.

Virginia Needs to Up its Game When Talking about “Rural” Development

Governor Northam delivers conventional wisdom to rural economic development conference.

Despite the creation of 4,500 jobs in the “rural” portions of Virginia since he took office in January, Governor Ralph Northam told the Virginia Rural Summit yesterday that Virginia needs to do more to stimulate employment in rural areas.

Sounding familiar themes, Northam stressed STEM education, broadband access, and transportation. Twenty-first century jobs such as cyber-security and artificial intelligence require STEM education, the governor said, but young people don’t necessarily need to complete four-year college degrees. For some high-paying jobs, community college and certification programs may suffice. Rural Virginia also needs broadband access — within ten years, he said, as reported by the News Virginian. He also touted a recently unveiled, $2 billion plan to upgrade Interstate 81.

This is a familiar grab-bag of remedies, and it reflects the safe conventional wisdom on how to approach “rural” economic development. While improved broadband access indisputably would help “rural” economic competitiveness, it’s not clear at all that educating youth for “21st century jobs” or reducing congestion on I-81 will accomplish anything useful for “rural” communities. Northam’s address — like most of the discussion we hear — overlooks some unpleasant realities.

Let’s start by identifying what former blog contributor EM Risse refers to as a “core confusing word.” Near the top of the list of most obfuscating words used by planners and politicians is “rural.” It is impossible to have a rational discussion about “rural” development until we understand what we mean by “rural.”

As commonly used by the Governor and others, “rural” refers to most of Virginia outside of the three main Metropolitan Statistical Areas — Washington/Northern Virginia, Richmond, and Hampton Roads. Depending on context, it may or may not include smaller MSAs such as Roanoke, Charlottesville, Lynchburg, Winchester, Staunton/Waynesboro, Danville, Bristol, Blacksburg/Christiansburg, and Harrisonburg. The term probably includes small mill towns such as, say, Galax, Halifax, Pulaski, Rocky Mount, and the former coal camps of Virginia’s “rural” coal-producing counties. However, the only areas we can be absolutely certain the term “rural” encompasses are the vast tracts of sparsely populated farms and woodlands outside the MSAs.

The economic assets and challenges faced by smaller MSAs, mill towns, and farmland/woodlands are very different. Likewise, the realistic expectations we can set vary widely depending upon a community’s particular assets and liabilities. Some key points:

The agglomeration force. The “agglomeration” force in a predominantly knowledge-based economy is incredibly powerful. Knowledge-intensive companies, which include almost all technology companies, gravitate toward urban areas with large, deep labor pools. As is vividly on display in Amazon’s selection process for its massive second headquarters, technology employers also seek urban areas with the kind of amenities — primarily walkable urbanism — that will enable them to recruit from outside the region and then to retain their employees.

We can educate rural, small-town, and small-metro employees to participate in 21st-century knowledge-economy jobs, but they will find few employment opportunities outside the large MSAs. They will migrate to the large MSAs because that’s where the job opportunities are. Investing in educating “rural” young people for “21st century jobs,” whether in an expensive four-year college setting or a community-college setting, effectively subsidizes workforce development for the big, wealthy MSAs. If Virginia wants to create “rural” jobs, it needs to invest in occupations in which rural places and mill towns have a competitive advantage — which is not cyber-security and artificial intelligence.

Light manufacturing. Small-town Virginia continues to enjoy a competitive advantage in attracting light manufacturing, which requires cheap land, low taxes, and a supply of unskilled and semi-skilled labor. The problem is that manufacturing operations are subject to automation, which means that the yield in jobs from landing new manufacturing investment is smaller than in the past. As manufacturing gets more automated, we can expect fewer jobs but higher-skilled workforce needs from new projects. Manufacturing may be an area where an investment in community-college degrees and certifications may pay off — if the training is done in concert with the manufacturing companies to ensure that workers are learning relevant skills. How many manufacturing plants will need employees with certifications in cyber-security and AI, I have no idea. I’m guessing a few, but not many.

Transportation. The congestion on I-81 has virtually nothing to do with “rural” economic vitality. The highway links a string of small MSAs (Winchester, Harrisonburg, Staunton, Roanoke, Salem, Christiansburg, Bristol) and small towns. Just as big MSAs like Washington, Richmond and Hampton Roads have co-opted the Interstate highway system for local traffic, so have the small cities and towns along I-81.

I haven’t seen the plan for upgrading I-81, which has been described as involving widening and other improvements to be financed with some combination of gas tax, sales tax or tolls. But I feel confident about saying one thing: The improvements will be focused on increasing the capacity of the Interstate highway itself. It will not entail any changes to land use patterns or nearby non-Interstate transportation investments. Localities will continue to allow the clustering of development near I-81 intersections in a land-use pattern I call “rural sprawl.” Thus, they will perpetuate the use of the Interstate as a local transportation artery and accelerate the need for more improvements a couple of decades from now.

Rural/mill town/small MSA Virginia has two sustainable competitive economic advantages. One is a lower cost of living, which makes it potentially attractive to retirees who want to stretch fixed incomes. The other is raw physical beauty and access to recreational activities such as hiking, biking, canoeing, kayaking, sailing, ATV trails, and the like. Some communities also can build upon their local historical and cultural heritage. These assets can support retirement- and tourism-related industries. Whether such industries can support existing populations with decently paid jobs is problematic. Many rural/small town communities will have to learn how to deal gracefully with population decline.

Which brings me to a final point: How to deal gracefully with population decline. How do small and sparsely populated localities maintain a tolerable level of services and amenities when the population and tax base is shrinking? Not by subsidizing rural sprawl that drives up the cost of building and maintaining infrastructure. No one in Virginia is talking about this at all. But maybe, instead of squandering scarce resources on pipe dreams, “rural” Virginians and their political champions in Richmond should be giving this question more thought.

Taxes, Innovation and Virginia’s Lost Mojo

In 1940

In 1940, technological innovation in the United States was concentrated overwhelmingly in the Great Lakes states, the Northeast, and California. The powerful economic force known as agglomeration — in which geographic proximity boosts the productivity of inventors and researchers — acted to perpetuate those states’ lead. Yet over the following six decades, the propensity for innovation, as measured by patents per 10,000 state residents, diffused to Texas, the South Atlantic states (including Virginia), and the Rocky Mountain states. What drove that change?

One likely factor was tax rates — primarily for corporate income taxes, but for personal income taxes as well. And that should be a wake-up call to Virginia. The Old Dominion’s 6% top marginal tax rate for corporations gives the state a crummy 31st rank in the Tax Foundation’s business tax climate index, and its 5.75% top tax bracket contributes to the state’s 9th highest rank for state-and-local income taxes paid per year.

A new study by Ufuk Akcigit, a University of Chicago economics professor, and three colleagues has found that corporate and personal income tax rates have a profound effect over long periods of time on technological innovation. States their paper, “Taxation and Innovation in the 20th Century“:

Taxes affect the amount of innovation, the quality of innovation, and the location of inventive activity.

The effect of taxes on innovation is a consuming question in modern-day economics. Heavily dependent upon anecdotal evidence and incomplete data, the debate has been impossible to resolve decisively. However, Akcigit and his co-authors have set a new evidentiary standard by compiling three new datasets. First they constructed a database of inventors based on historical patent data since 1920, which allows them to track innovations over time, industry, and location. Secondly, they built a database of corporations’ R&D labs and research employment. Thirdly, they created a dataset of state-level corporate and personal income tax rates.

The authors find that personal and corporate income tax rates have “significant effects” at the state level on patents, citations (a measure of the significance of a given patent), the prevalence of inventors in a state, and the share of patents produced by firms compared to those produced by lone inventors.

Corporate inventors are the most “elastic” — economics speak for “sensitive” — to tax rates. Corporations tend to be unsentimental about where they invest. They have less loyalty to a given geographic area. They look to maximize their return on investment wherever they can find it. By contrast, individuals may have strong personal and sentimental attachments to a location. However, when inventors do choose to move, Akcigit has found, they are “significantly less likely” to move to states with higher taxes.

Though a significant factor in shaping the geographic distribution of innovation, taxes are not all-powerful. The authors readily acknowledge the influence of agglomeration effects. Within a given scientific or technological field, inventors like to stay close to the action — in other words, to locate near others in the same field. Often, agglomeration effects are stronger than tax rates.

Bacon’s bottom line: Let me offer a couple of refinements, and then a warning to Virginia.

The authors examine published corporate income tax rates. They do not take into account the impact of corporate tax giveaways — an essential strategy for some states (such as New York) to retain corporate activity and for other states (such as anyone trying to attract Amazon’s HQ2) to bribe corporate investors. Also, they don’t examine how the tax money is spent. In theory, highly skilled and educated inventors prefer to live and work in locations with superior amenities made possible with higher taxes. Finally, they neglect to examine university-generated R&D. It goes without saying that university R&D is tied to the geographic location of the institution (although research teams can be induced to move).

I would argue that powerful forces work to perpetuate the geographic status quo:

  • Agglomeration effects, in which inventors in industry clusters feed off one another. Silicon Valley is a classic example of how agglomeration effects outweigh the negative impact of high taxes and even higher real estate prices.
  • Government and cultural amenities, in which wealthy regions of the country spend more money on schools, higher-ed, and other amenities valued by the educated class, and where philanthropists have endowed local universities, medical centers, and arts & cultural institutions over the ages.
  • Tax-favored institutions, in which leading universities, disproportionately located in the Northeast, the Midwest and California, have accumulated massive tax-exempt endowments that allow them to underwrite the recruitment of world-class research faculty. Insofar as universities serve as anchors for innovation ecosystems, this tax advantage is crucial.

It is remarkable, given the extraordinary advantages of the incumbent innovation leaders, that research and innovation has migrated to other states at all. What allows these other states to compete? Lower corporate and individual taxes is one of the few public policy tools a poorer state can muster.

Once upon a time, Virginia was known as a low-tax, fast-growth state. That is no longer true. At best, we can claim to be a moderate-tax, moderate-growth state. We have neither the advantage of accumulated wealth in the form of world-class research universities, medical centers, foundations, museums, and cultural institutions nor the advantage of lower taxes that attract corporate investment. (Yeah, yeah, the University of Virginia is great, and so is the Virginia Museum, but overall Virginia is strictly second-tier.) Measured by economic performance, Virginia is in the muddled middle. Economic growth is plodding. For the first time in decades, more native-born Americans have been leaving the state than entering it. 

Is our tax policy to blame? Do our tax structures and budgetary priorities increasingly resemble those of the Midwestern and Northeastern states — without the inheritance of vast industrial-era wealth and philanthropy to underpin our economy? I suspect strongly that that’s the case.

To answer the question, it would help to have innovation data more recent than 2000. Economically speaking, Virginia was on a roll then. Today, the state is suffering economic malaise. I would not be surprised to find that our relative innovation standing has declined. Our governor and legislature propose lots of small-small remedies to jump-start the economy, but it’s hard to see how they will amount to much. Virginia’s relative decline warrants far more serious thought than it has received so far.

Oops, Where Did that $3-4 Million Deficit Come From?

The idea behind the Commonwealth Center for Advanced Manufacturing (CCAM) is fantastic: Create a facility where Virginia manufacturers and universities can collaborate on advanced-manufacturing research projects that all participants can share. Research staff for the Prince George County-based facility are expert in everything from “vertical diffusion furnaces” and “robot arm-based automation cells” to “thermal spray coating” and “corrosion crack healing,” and they conduct about $7 million a year in research.

Just one problem: The program is operating at an annual deficit of between $3 million and $4 million a year. Debts include $2 million in unpaid rent to the University of Virginia Foundation and a tapped-out bank credit line, according to the Richmond Times-Dispatch.

Said Secretary of Finance Aubrey Layne: “They’ve got to put together a business plan that makes some sense.”

The Center has procured state and federal funding commitments to build a $12.6 million Advanced Manufacturing Apprentice Academy next door. But state officials, reports the T-D, say they won’t release $9 million in bond money planned for construction of the academy without an answer to the center’s financial questions. Said Layne: “That is not going to happen until this issue is solved.”

Bacon’s bottom line: As I have ranted and raved and inveighed and fulminated, Virginians have no idea how many fiscal land mines are out there. Yes, the Commonwealth has a AAA bond rating (although we have skirted on the edge of a downgrade), but no one has tallied up the long-term commitments, unfunded long-term liabilities, maintenance backlogs, and fiscal tricks of all the local governments and independent authorities set up to serve the interests of the Commonwealth.

After the Petersburg fiscal meltdown, the General Assembly began monitoring the health of local governments, looking for early warning sides of impending financial apocalypse — a big step forward. But no one is tracking dozens of non-governmental entities. Only a couple of months ago, for instance, was the public made aware of a $3.5 billion unfunded pension liability at the Washington Metro mass transit system serving Northern Virginia. Now we learn that CCAM is running a big budget deficit and racking up long-term debt.

The federal government has accumulated a $21 trillion national debt, and soon will be adding to it at a rate of $1 trillion a year — during an economic boom. The Medicare trust fund is projected to run out in 2026. The Social Security trust fund is expected to run out in 2034. Uncle Sam will never collect a big chunk of the $1.3 trillion in student loan debt outstanding, and taxpayers will have to pick up the tab. Meanwhile, states like Illinois and New Jersey are one sharp recession away from fiscal collapse.

As Boomergeddon looms, Virginia traipses merrily along, most recently creating a new Medicaid-expansion entitlement, with no clear idea of its overall fiscal condition. Our lawmakers look no more than two years ahead — the time horizon dictated by the biennial state budget. Although they are attuned to the necessity of maintaining a AAA state bond rating, the credit-worthiness of state bonds is just one piece of the whole. The credit-worthiness of Virginia’s counties, cities and towns is another piece. The credit-worthiness of our state universities is yet another. The credit-worthiness of a plethora of independent authorities is still another. No one, to my knowledge, has analyzed all the pieces as a whole and stress-tested the system. Until we do, we’re flying blind. It is foolhardy to pretend otherwise.