Questions about the Rolls Royce Deal

Once again, I am going to tick off my friends in the economic development community, few of whom appreciated my remarks about the Volkwagen deal (“A Bug in the Ointment“). After spending $6 million in state funds to secure the $100 million VW investment, Virginia now is committing $56.8 million to land a Rolls Royce aircraft engine factory in Prince George County. Judged by traditional economic development standards, this project is a big deal, but I’m asking, is this really how we ought to be investing our economic development dollars?

Rolls Royce will invest $100 million initially to establish an assembly and test facility for its civil aerospace operations. Over time, the company could invest up to $500 million on advanced manufacturing as future opportunities arise. The projects will create 500 jobs that are high paying by Prince George standards. Gov. Timothy M. Kaine describes the project as “transformational” — giving a huge boost to Virginia’s aerospace industry. Virginia competed against at least seven other states, as well as other locations from around the world, most of whom are undoubtedly green with envy.

As a bonus, this world-class project doesn’t suffer from the obvious flaws of the VW deal. Unlike Northern Virginia, which suffers chronic labor shortages, Prince George and surrounding localities (Petersburg and Hopewell, amongst others) have a little slack — not much, but a little — in their labor markets. Unemployment is running from 2.9 percent (Prince George) to 5.5 percent (Petersburg). Furthermore, the region doesn’t face the same strain on infrastructure and public services from out-of-control growth that Northern Virginia does.

Here’s my concern: $56.8 million is a lot of money. That translates into a subsidy of more than $100,000 per job. Jeff Schapiro with the Times-Dispatch breaks down where the money is coming from:

VEDP spokeswoman Christie Miller … said that state government economists believe that Virginia will break even on its investment in Rolls-Royce by 2015 and see a return of at least $70 million within 20 years of the project’s launch.

Virginia is providing a half-dozen incentives, the priciest of which is a $35 million performance grant, which must be approved by the 2008 General Assembly. Driven by such milestones as jobs and investment, the grants — payable by check — would begin in 2014.

That year, and again in 2015, Rolls-Royce would receive $5.5 million from the state treasury. Between 2016 and 2023, annual payments would be $3 million. … In negotiations with the company, Gov. Timothy M. Kaine pledged a total of $6 million from the so-called Governor’s Opportunity Fund. The figure — actually it is two grants, each $3 million — will help pay for roads, water and sewer service and utilities.

Prince George County, too, is sweetening the pot, providing five-year tax breaks on machinery, tools and the company’s business license. The locality will connect the factory’s utility service at a 50 percent discount and waive the fee for processing the rezoning of the plant site.

Virginia is throwing in an added $5 million in grants for spinoff development from the Rolls-Royce facility, payable in 2018 and 2019. And there’s $8.7 million in state funds to assist in employee training.

Folks, that is a whole lot of money. This smacks of industrial policy — the state picking economic winners and losers. No question, Rolls Royce has the potential to contribute a lot to Virginia’s economy. But if Virginia has the No. 1 business climate in the world, do we have to buy our investment like this?

Pivotal question one: What long-term strategic objectives does this investment advance? Does Virginia really aspire to build a world-class aerospace cluster?
Pivotal question two: What else could Virginia accomplish with $56.8 million? Is this really the optimum investment?

Just asking.

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24 responses to “Questions about the Rolls Royce Deal”

  1. Falstaff II Avatar
    Falstaff II

    Fortunately, much of the incentive is performance-based, but if a project like this goes south, it will have a much bigger negative impact than when the Eli Lilly plant in Prince William aborted. It didn’t take long for the Lilly site to find a new tenant, but that’s NVA for you.

    I don’t suppose the $56 million and change for this project was weighed against any other expenditure or “savings,” so perhaps that is why it’s hard to evaluate.

    1. idiocracy Avatar

      The Eli Lilly parcel in Prince William County remains vacant, nearly 20 years later.

      1. Nancy_Naive Avatar

        Are you lost in time? How is it that you came to an article dated 2007?

        The last thing I remember was reading posts on Operation Warp Speed…. SAY, you don’t think…

        1. idiocracy Avatar

          I did a Google search to see if there was anything on this blog about the spectacular failure of Eli Lilly, or Covance.

          Not surprisingly, there wasn’t, so I felt I needed to add something.

          BTW, Covance is who bought the parcel of land from Eli Lilly, and who also pulled out. The land is now owned by Amazon, who, if they ever do anything with the land, will probably build a data center that might employ what, 10 to 20 people?

          From 700 jobs to 55o jobs to maybe 10-20 jobs someday, if ever.

          1. Nancy_Naive Avatar

            Looks like a perfect parcel for a Dominion solar farm…

        2. idiocracy Avatar

          If the “best and highest” use for that parcel is a Dominion solar farm, than PWC is more of an economic basket case than I ever imagined.

  2. Anonymous Avatar

    Your unemployment stats give little insight to the economic state of affairs in the region south of Richmond. (Many people in the region are not in the labor force; these folks aren’t figured in unemployment stats. As a result, tax revenues are weak. And in turn teachers, police, and fire personnel are paid so little that the region suffers from extreme attrition problems (the RTD recently put numbers on this situation, either in relation to Col. Heights or Chesterfield).

    Thus, while folks in NoVA may or may not be doing cartwheels over RR coming to VA, I’d say that this together with Fort Lee’s doubling over the next 3-4 years should provide the economically depressed area south of the James a huge economic stimulus. That is, an entire region may come back to life.

    Also, the subsidy of $100,000 per job mentioned above is not per year; presumably, the RR plant alone will more than pay for this investment. But to the extent that it helps attract other high-tech employers to the region, there could be indirect corporate and income tax benefits that accrue over time.

  3. Larry Gross Avatar
    Larry Gross

    56 million IS a lot of money.

    It will give 2000 people 25K of unemployment assistance per year

    or it might keep 3000 folks in jail for a year….

    so… what would be a better way to produce effective results?

    not.. we ‘oughta’ try this or do that… what kinds of other economic development efforts would bring 500 jobs to this part of Virginia?

    ooooohhhh – here’ s a good one… what would a Gov. Gilmore do different from what a Gov Kiane would do?

  4. Reid Greenmun Avatar
    Reid Greenmun

    The flawed concept of using tax funds to bribe businesses to locate someplace is a fool’s game.

    “Economic Deevelopment” is a private sector matter, not a taxpayer subsidy responsibility.

    Government should be reducing government barriers to create an environment for business to succeed, but not wasting tax funds to bribe businesses to locate in their juristrictions.

    The whole institutionalized concept of taxpayer funded “Economic Deevlopment” Departments is a big waste of our tax funds.

  5. Anonymous Avatar

    NoVa already has the RR HQ up here so it’s not a big addition.

    From the WBJ it looks to be a jet engine facility for the JSF. I’m not sure how a manufacturing plant will attract other high tech business. Maybe a few roach coaches, but that’s about it.

    If the payback period and NPV for the state makes sense, taking into account things like unemployment or jail costs, then sure. It would be nice to see a breakdown of opportunity costs vs returns for the state.


  6. I am a life-long NoVA guy and I think this Rolls Royce deal is just great. It is one of the few times I completely and totally agree with the state government. The only way NoVA is going to cut its subsidy payment is to get the state government to spend money as an investment vs. “locality welfare”.

    Precision manufacturing is one area where the US can compete against anybody in the world. Aircraft engines, helicopters, power generation turbines….

    Many of these precision manufacturing jobs require skill but not advanced degrees. They are great for hard working and generally smart people who may have under-emphasized education earlier in their lives.

    Good for Gov. Kaine.

    Reed – The state is taking a fortune in taxes. I have come to the point of considering this a given. All I really want is for the money to be spent intelligently. In my opinion, getting precision manufacturing businesses to economically depressed areas is a good way to spend my money.

    Finally, from a technology viewpoint, Rolls Royce is a great company. Their work in fuel cell batteries is very much leading edge. I hope this all works out well and Rolls Royce expands their manufacturing footprint to include R&D in Virginia.

  7. Larry Gross Avatar
    Larry Gross

    so … is the Republican idea that government-sponsored ED is a wrong use of taxpayer dollars?

    Reid mentioned making sure the “environment” was conducive.

    Do we have the right environment?

    What should we be doing instead of what we are doing now?

    Are we… in competition with other States?

    If so.. do we rank ourselves in terms of competitiveness?

    I would, very much like to understand how Republicans view this issue… and especially so how they would differentiate themselves from Dems and Gov Kaine…

  8. The Real Sporer Avatar
    The Real Sporer

    Welfare, its not just for poor people anymore.

  9. Larry Gross Avatar
    Larry Gross

    Speaking of ED….

    Developer may take ethanol plant to South Carolina
    Now that the City Council has rejected an ethanol plant proposal, officials with International Bio Energy Virginia LLC said Wednesday they will try to build a similarly large plant in an industrial area near the Savannah River in South Carolina.

    Sidney M. Harrison, the firm’s managing partner, blamed the Chesapeake project’s failure on disinformation spread by nearby residents and consultants hired by the city of Portsmouth, which opposed the plant.

    “I feel sorry for Chesapeake,” Harrison said Wednesday afternoon. “This plant was a wonderful opportunity to create an image for Chesapeake and bring an incredible amount of business to the city.”

    Harrison’s company, based in Chester, outside Richmond, owns the 97-acre Chesapeake property . The tract, which the city has sought for years to be developed, is zoned for heavy industry. Harrison said he will explore options for developing or selling it .

    Even as they voted 7-2 to

    reject the controversial proposal around 3:30 a.m. Wednesday, City Council members cautioned that the property eventually will be developed – possibly without permission being required.

    For example, city documents show that a developer could build an array of things there without having to seek a conditional-use permit – a textile or grain mill or other such uses as dairy product processing, plastic products and kennels.

    Councilwoman Patricia Willis, one of two people who supported the ethanol plant, said Wednesday she thought it would have been a good option .

    “There’s no plant that’s going to be perfect,” Willis said. “They had double, triple, protections from sound and emissions.”

    The plant would have been one of the country’s biggest, producing more than 200 million gallons of ethanol each year.

    More than 100 people spoke about the plant Tuesday night and into Wednesday morning. The council’s vote followed more than five hours of public comment. While some council members were still exhausted from the late evening, they tried to reflect Wednesday on exactly why they couldn’t support the ethanol plant.

    Councilman C.E. “Cliff” Hayes Jr., who made the motion to deny the proposal, said he was moved by the testimony of residents of Portsmouth’s Cradock area and Chesapeake’s Brent­wood neighborhood .

    “Ninety-eight percent of the folks most impacted were against it,” Hayes said Wednesday. “I feel like we’re elected to represent the people.”

    Hayes also was put off by the project after a consultant failed to give him information about a computer modeling system that could have allowed the city to measure emissions and odor levels.

    And he said he was worried about creating a bad-smelling land­mark like International Paper’s Franklin Mill .

    “All I could think about is, five years from now, folks are riding down Interstate 464, and all they can smell is that smell of ethanol,” Hayes said.

    Hayes acknowledged that he received some e-mails Wednesday from members of the business community disappointed in his decision.

    Business leaders pleaded with the council Tuesday to approve a $400 million project that would bring as much as $4 million in annual tax revenue to Chesapeake.

    The council also heard from residents craving the plant’s 150 promised jobs.

    “Please don’t let this project slip through our hands,” said Chesapeake’s Rodney Wilkins, a former NOVA Chemicals worker who was hoping to get a job at the ethanol plant.

    Harrison said he intends to explore his options .

    “I am the property owner.

    I do have rights,” Harrison said. “I will not be trampled on down there.”

    He said it is too early to say what he’ll do on the land. “I planned on putting an ethanol plant there.”

    In impassioned speeches , residents of Cradock and Brentwood begged the council to turn down the ethanol plant because it would bring new air emissions and traffic.

    hmmm.. so why didn’t the state step in and try to help them find another location in Va?

    also..judging from the news reports, the land – zoned industrial – is not supported by the local citizens for industrial uses in general.

    I’m sure we could get the real scoop for Reid or Darrell.

  10. Jim Bacon Avatar

    Larry, regarding your comments of 9:45, I don’t think there are “Republican” and “Democratic” views of economic development. The strategy and tactics pursued by Gov. Kaine are fully within the bipartisan mainstream of the past four decades.

    Just wait and see: I’m confident that the Rs in the House of Delegates will happily pass the special appropriation for Rolls Royce.

  11. Reid Greenmun Avatar
    Reid Greenmun

    Jim, I agree that the “R”s in the General Assembly at this time will most likely agree to spending millions more of our tax dollars on more Corprate bribes – they have a long history of doing this.

    But, many governments had a long history of supporting slavery as a way to stimulate their local economies – that didn’t make their decisions right, just bad decisions that became an “accepted practice” over time.

    Some people were making a lot of money off slavery. They bought off the political process. Politicians looked the other way. Hey, it’s all good if your “friends” are making a few bucks, right?

    Once cheap slave labor was allowed then it spread because those businesses not using slave labor could not “compete” with those businesses that did use slave labor.

    Sound familiar?

    So-called “Economic Development” – a term now meaning screwing taxpayers to bribe businesses to locate into a town or state has become an “accepted practice” that forces other governments “to compete” by offer larger and larger bribes.

    And it just keeps spreading . . .

    Businesses are granted tax exemptions, they are offered cash, infrastructure improvements, they are offered public lands, they are offered access to bonds (public credit) using the citizen’s governments as the responsible party should the bond debt “servicing” fail to be paid on schedule.

    All of this Corporate Welfare supposedly leading to “lower taxes” – and “more tax revenues” for the local government the business is bribed to locate within.

    So often it is all B.S. – the return on investement to the taxpayers whose money was spent bribing businesses to locate within one city or another doesn’t result in any real lower taxes – and the growing “annual debt service” tab is used by local city budget makers to justify NOT lowering the local real estate tax RATES to offset skyrocketing increses in assessments. So the debt issued by IDAs and local government prevents lowering local property taxes on taxpayer’s homes.

    Frankly, it (“Economic Deevelopment”) is a massive scam being played on over-taxed taxpayers – and it is seldom exposed by any media for the massive fraud it really is.

    IDA are yet another all-appointed political subdivision created by a misguided General Assembly that appears to be hard at work creating unaccountable government wherever they can. Government debt and taxpayer funds being dolled out by non-government entities cretaed by the General Assembly that are run by people that taxpayers and voters have little or no control over – and usually no choice or meaningful “voice” in the decision-making process used by local governments to appoint the business “leaders” the local government is having “represent” the taxpayers.

  12. Darrell -- Chesapeake Avatar
    Darrell — Chesapeake

    The big problem with the ethanol plant was the amount of water needed. It would have required an expensive city paid water main installed from miles away. Then when drought hit, they get access while citizens would not.

    Now about the Elizabeth River area. This is a heavy industrial area, that is true. But council approved a new residential complex just down river from this proposed plant, across from a shipyard and oil storage area. The council that defeated this ethanol project were all in favor of the residential as well as a new biodiesel plant some quacks from California want to build. In other words, there is no logic to their actions.

    Either it’s industrial or residential, but not both. What many of us suspect is their skitzoid behavior is being driven by money or politcal favor. The ethanol plant became politcally inconvenient due to the citizen protest, thus it was disapproved. Smiling Earth and homes along a cess pool are ok.

  13. Larry Gross Avatar
    Larry Gross

    gee.. makes you wonder if they would have taken the RR deal either.

  14. Anonymous Avatar

    What can I tell you. My company pproached the stae for a $15 million dollar investemt in aerospace, tht would have created far more jobs, probably at a lower salary level, but one that could easily escalate.

    My company was not RR, and we had no where near the believability factor.

    But, our plan did not require or depend on any kind of Federal Government expenditure. If it worked, it worked. If it didn’t we shut down.


  15. Anonymous Avatar

    It is too bad the state would rather support an out of state, out of country entitity, than support an in-state company, founded by in-state citizens.


  16. Larry Gross Avatar
    Larry Gross

    In the ongoing Fredericksburg WaterPark case – there were two comments.

    “I’d rather had 75% of something rather than 100% of nothing”


    “we are not upside on this deal”

    explained further” .. the incentives did not exceed the taxes ultimately collected – and performance standards in the contract.

    If taxes did not pan out – the incentives are pulled back.

    so.. it comes back around to – would you get MORE taxes without the incentives if the company voluntarily decided to locate.

    Of course.. if they did not.. you’d be getting 100% of … nothing.

  17. Anonymous Avatar

    If you insist on zero discharge regulations, you also get 100% of nothing, because it it isn’t possible to have zero discharge.


  18. Danny L. Newton Avatar
    Danny L. Newton

    I have noticed that the state of Alabama has made enormous investments of capital in procuring mega sites, over 70 of them, to attract car manufacturer’s but according to the BEA their state ranking in per capita income and Gross State Product is stagnant. Mississippi got the last Toyota car plant earlier this year with an incentive package worth $298 million. Tennessee offered $400 million in incentives and Toyota left that on the table. A consultant for the city of Chattanooga warned the city that they needed to fix their schools to be competitive but instead, they opted for the cheaper route of buying a 1600 acre mega site and dangling it in front of the car companies. There was a little environmental clean-up to bring it into play that raised the per acre price to $16k.
    Car manufacturing is still on the increase, just not in Detroit, where car plants are at 25% capacity. Another interesting factoid was that the Americans build a car in 24 hours while their Japanese competitors can turn one out in 18 hours.
    The real loser in the quest for the next car factory was Tennessee. It now has 186.5 square miles of industrial property, most of it off the tax rolls ready for the next factory. That is enough space to move 20 percent of all American manufacturing to the state of Tennessee. The problem seems to be consultants going around the state claiming that there is not enough industrial space.

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