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?
Just asking.
