Invest in Virginia Workers, Not Corporate Subsidies

Replace economic-development incentives with workforce training.
Replace economic-development incentives with workforce training. Photo credit: Richmond Times-Dispatch

(The Richmond Times-Dispatch published my op-ed this morning.)

The Virginia Economic Development Partnership (VEDP), once one of the most respected economic development teams in the country, has been taking it on the chin. A year ago, a Chinese company bilked the partnership for a $1.4 million incentive payment in a deal that never transpired. The scandal prompted the departure of VEDP’s CEO and sparked a legislative inquiry that unearthed “systemic deficiencies” in its management.

In December, Gov. Terry McAuliffe proposed reforms to improve oversight of incentives, which amounted to $384 million over the past decade. Among his recommendations: Create new divisions within VEDP, one to administer the incentive programs and another to audit VEDP activities and report the findings directly to its board of directors.

I have a simpler idea. Instead of adding new layers of bureaucracy, eliminate the incentives altogether and use the money for workforce training.

Virginians have long had a love-hate relationship with economic development incentives, viewing them as an ugly necessity for competing with other states, most of which offer subsidies and tax breaks to lure corporate investment. The Old Dominion was one of the first states to make incentives contingent upon the recipient meeting benchmarks for dollars invested and jobs created. If a company fails to keep its promises, the state will claw back its payments.

But there’s a bigger problem that tighter administration of state incentive programs cannot solve: There is no way to tell if subsidies and tax breaks actually work.

Site location in the United States has evolved into a racket. When a corporation decides to expand, it typically hires a site consultant to scout the ideal location. It is common practice to narrow down the choice to two or three localities in different states and then to set them bidding against one another to offer the sweetest incentive package.

So many states dangle subsidies, grants, tax breaks and other kinds of bribes that companies would be negligent to not try to extract the biggest, fattest concession possible.

The trouble is that economic developers are bidding in the dark. The VEDP can make educated guesses, but it has no way of knowing exactly how much money it will take to sway a particular corporation to invest in Virginia, no way of knowing whether it gave away too much, indeed no way of knowing if a company would have invested in Virginia without an incentive package at all.

As it happens, the timing is perfect to re-think incentives. The VEDP board has hired Steven Moret, Louisiana’s former economic development chief and a superstar in the field, to run the organization. Key to his success was FastStart, a program he built into one of the nation’s premier workforce development initiatives. Moret should be given the resources to replicate the program in Virginia.

Once upon a time, VEDP had a respectable job-training program, which it offered as a perk to companies investing in the state. But the Virginia Jobs Investment Program (VJAP) has undergone considerable restructuring and reorganization over the past 20 years, and not to its benefit.

Between 2010 and 2014 it shrank from 16 operational and support personnel to six. While Louisiana was building a best-in-class workforce development initiative, Virginia was dismantling its own.

In an era of abundant capital and near-zero interest rates, reputable corporations can easily and cheaply borrow the money they need to expand. A much tougher task is finding a skilled workforce.

Many communities are out of the running for a wide range of economic development projects because their workers lack industry-specific skills. In Martinsville, for instance, the 6.8 percent unemployment rate is higher than almost anywhere in the state, yet in November local companies were complaining that they were having difficulty filling some 1,325 job openings.

If local companies can’t find the workers they need, what chance does Martinsville have in attracting out-of-state industry?

Addressing the jobs-skills mismatch is arguably the greatest economic challenge facing Virginia today. If a corporation can’t find the workers it needs, it won’t consider a community no matter how big the incentives.

Virginia’s colleges, community colleges and universities can do most of the heavy lifting on education and training, but they are not equipped to provide a fast-response, turnkey workforce solution like Louisiana’s FastStart program.

While the General Assembly ponders how to reform VEDP, it also needs to re-think the state’s economic-development incentives: Virginia needs to emphasize workforce development over subsidies and tax breaks.

Given the state’s current budget constraints, the most logical pot of money to fund a program like FastStart is the Commonwealth’s Opportunity Development Fund. We can continue doling out payola to out-of-state corporations or we can invest in Virginia’s workers, likely with a better result. It’s not a difficult choice.

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4 responses to “Invest in Virginia Workers, Not Corporate Subsidies”

  1. LarrytheG Avatar

    38 million a year on average is not chump change but it’s not much in terms of workforce training. The community college system is budgeted at well over a billion:

    Virginia Community College System $1,732,774,313

    Different companies want/need different things. Some might well want workforce but if you watched the 60 minute segment with Mr. Moret, that’s exactly what he said and he told his bosses in Louisiana he would not do that jobs if they were going to have top-down rules.

    He explicitly said that each company was unique and had unique requirements and that was the magic sauce… he was flexible in meeting their needs.

    I have to question the entire premise of top-down restrictions … you pretty much would harm ingenuity and creativity in working to bring companies in.

    And yes… you’re going to have some failures.. just as some businesses end up failing… anyone who partners with those companies is at risk and in today’s uber-competitive business environment – the mortality rate is high.

    Fredericksburg has had some level of success in incentives.. almost all are contingent on performance.. and not paid up-front but rather through property/BPOL/other tax rebates.. when performance benchmarks are actually met.

    We keep going to this idea that we cannot trust the people that do the work – whether it’s economic development or higher education… local education… and end up with people outside the agency setting up work rules.. rather than administrative…

    the last people in the world that we want telling the economic development people doing is the yahoos in the Va General Assembly setting up one-size-fits-all rules for economic development.

  2. Peter Galuszka Avatar
    Peter Galuszka

    Sure, jobs training is critical, but ending all state incentives would put the state at a disadvantage as it competes with others going after the same corporate recruitment target.

    True, VEDP has been a mess but let’s take that back to George Allen who helped create it as a mostly autonomous agency with little oversight. I wasn’t living in Virginia then but I bet the writer was cheering him on.

    The problem, which does not fit the writer’s philosophy, is that the trouble with VEDP and incentives is too little government influence, not too much.

  3. LarrytheG Avatar

    What is workforce training tailored to a particular company if not a corporate subsidy also? Or how about highways like US58 or the Coalfields Expressway?

    How about tax credits for coal and other things?

    All of these things whether cash or in-kind if offered to a company as an incentive can all be called “subsidies”, “bribes” or “crony capitalism” , can’t they?

    I’m not arguing for or against them – only pointing that they all are really similar… in their purpose and intent…

    Peter is right – VDEP IS a mess but you we don’t just kill an agency because it is is a mess – no more than you’d shut down or def-fund VDOT for screwing up US460 or UVA for it’s perceived sins or for that matter.. Petersburg or now Chesterfield .. You fix them.

    VDEP needs some fixing.. but the idea that somehow cash incentives are different from in-kind (that also cost taxpayers cash) – probably misses the mark.

    the real question is – do you want to pay ANY incentives or not?


    This whole idea that is rampant these days of shutting down govt that “does not work” betrays the corrosive nature of our dialogue and politics… gone to extremes…

    Jobs are “gold” these days – the world has changed and for every lost job in a locality – that’s one more person that will be then subsidized by taxpayers so we have to adapt and deal with the realities that companies are going to go where they can – that best benefits them.

  4. Joshua Jansa agrees with you:

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