Map credit: InvestSWVA “Project Oasis” report
by James A. Bacon
I don’t know if the latest scheme cooked up by Southwest Virginia’s economic developers is crackpot or genius, but it certainly is intriguing. As the coal industry of the state’s coal counties continues to bleed out, regional leaders are looking for ways to diversify the economy. And they think they might have identified a unique resource in the region — geothermal cooling — that will make it attractive to data centers.
Data centers are energy hogs. Massive banks of servers generate a lot of heat, which takes a lot of energy to cool. As a consequence, electricity is one of the biggest cost components of every data center.
A data center in Pennsylvania uses an limestone cave, which has continually replenished supply of 52° water, to cool a data center. As it happens, Southwest Virginia has limestone caves. Moreover, the region is riddled with underground coal mines that have flooded with water. According to an InvestSWVA report, “Project Oasis: Market Analysis for Data Center Investment in Southwest Virginia,” using mine water for cooling could reduce the electricity required for cooling the data center by 90%. The annual savings would be more than $1 million annually. Continue reading
by James A. Bacon
Virginia’s coal tax credits are obsolete, cannot forestall the decline of coal mining in the state, and should be eliminated, finds the Joint Legislative Audit and Review Commission in a new report, “Infrastructure and Regional Incentives.”
The state provides two tax credits to encourage coal production: The Coalfield Employment Enhancement Tax Credit and the Virginia Coal Employment and Production Incentive Tax Credit. The two programs have saved coal companies and electricity generators $291.5 million in income taxes between FY 2010 and FY 2018, according to the report on the cost-effectiveness of economic development incentives. But the credits ranked at the bottom of JLARC’s list of incentives based on economic benefits per $1 million in spending.
The coalfield credit is not needed because Virginia’s remaining mines are competitive with mines in other states based on a labor productivity basis (tons per employee hour), JLARC contends. The credit targeting electricity generators is fast becoming irrelevant when the state is moving towards a 100% renewable electric grid and phasing out its remaining coal-fired power plants. Continue reading
A scene from Dollywood, near Knoxville, Tenn.
by James A. Bacon
John Accordino, a planning professor at Virginia Commonwealth University, has been giving extensive thought to a perennial problem, the nation’s urban-rural divide. As author of a newly published article and State and Local Government Review, he provides a broad overview of his thinking in a Richmond Times-Dispatch column.
Accordino sees the urban-rural divide — the divergence in incomes and job growth — as unhealthy for America’s economy, society and politics. And he thinks it is something that government intervention can address.
I know John, and I think he is a very thoughtful guy. And I agree that there may be a limited role for government. But I am skeptical that the federal and state governments can be very helpful. The solutions, such as they are, must come from the bottom-up — from rural communities and local governments themselves.
But before I get into that, let’s see what Accordino has to say. Continue reading
The Duncansville One-Room School Museum in Washington County.
by James A. Bacon
An enduring question in Virginia’s economic development community is how to revitalize the state’s rural counties. Traditional rural industries such as farming, mining, timbering, and light manufacturing are shrinking. Young people are leaving to seek better career opportunities elsewhere, and few people are moving in to replace them. A contracting workforce is not conducive to recruiting entrepreneurs and corporate investment.
Some commentators (I’m one of them) have suggested that rural counties build on their natural amenities such as bays, lakes, and mountains, to attract retirees and tourists. But not all counties are blessed with scenic beauty and recreational resources.
There is one policy lever that rural leaders do control, however, and that is K-12 education. Newly published research by Alexander Marré with the Richmond Federal Reserve Bank and Anil Rupasingha with the U.S. Department of Agriculture concludes that good schools encourage in-migration.
“Our results suggest that for the 2005–2009 time period, the quality of schools—as measured by the share of high school dropouts and nationally benchmarked mathematics and reading test scores—had a positive pull effect on migration to nonmetropolitan counties,” write the authors in an article published in the Journal of Regional Science. “Schools with better outcomes appear to draw in new in‐migrants, even after taking into account the fact that higher‐quality schools are more likely to be located in areas with higher median incomes.” Continue reading
Source: “Rural Population Loss and Strategies for Recovery,” Federal Reserve Bank of Richmond
In a recent article, the Federal Reserve Bank of Richmond highlighted strategies for bolstering the population of rural counties in the Fifth Federal Reserve District. Some ideas will prove familiar to readers of Bacon’s Rebellion, such as identifying amenities that will attract retirees and second-home buyers. But the article makes some suggestions we haven’t heard before.
Population growth, or at least population stability, is critical for the economic health of Virginia’s rural counties. A shrinking workforce makes it more difficult to attract outside employers, a shriveling population makes it harder to support health services and retail amenities, and a declining tax base undermines the ability to pay for government functions. Population stagnation and/or decline is a problem across the five states of the 5th district, and Virginia is no exception. (Virginia’s rural counties actually saw a small net in-migration, but that was more than offset by “natural” decrease of deaths exceeding births.)
To my mind, the most fascinating strategy is focusing on people’s personal ties to family, friends and communities. One study used 300 interviews in 21 towns at rural high school reunions to learn why some attended decided to return to the rural community where they grew up. Continue reading
Virginia broadband availability map. Source: Dominion Energy “Broadband Feasibility Report”
by James A. Bacon
Virginia’s investor-owned utilities, Dominion Energy and Appalachian Power Co., could become key players in the Northam administration’s push to extend broadband access to rural communities.
A State Corporation Commission ruling is expected today on an Apco proposal to extend “middle mile” broadband in partnership with Bluefield-based GigaBeam Networks, which will provide “last mile” connectivity to retail customers in Grayson County.
And last month, Dominion announced a partnership with Prince George Electric Cooperative’s RURALBAND subsidiary to provide Internet connectivity to 3,600 customers in Surry County. Dominion’s “middle-mile” service would link Prince George local network with high-capacity fiber-optic trunk lines.
The logic behind these partnerships is that, spurred by the Grid Transformation and Security Act of 2018, Dominion and Apco are already spending tens of millions of dollars to install broadband in their electric distribution systems. They can add enough additional capacity to serve nearby rural communities at marginal additional cost. Continue reading
by James A. Bacon
Solar energy is the cheapest source of electricity now available, solar advocates tell us, and that’s a big reason we should build more of it in Virginia. At the same time, says the solar lobby, the industry needs local-government tax breaks, in particular a state-mandated 80% exemption from local machine-and-tool taxes.
“If that tax incentive was not in place, you could not have the had the kind of development that was necessary,” David Murray, executive director of the Maryland-DC-Delaware-Virginia Energy Industry Association, tells the Register & Bee website at GoDanRiver.com.
So, which is it? Is solar the cheapest electricity source available, or the cheapest just when poor rural local governments are compelled by the state to grant massive tax breaks?
Pittsylvania County, the county adjacent to the City of Danville, has one solar farm in operation and has granted permitting for eight others. The county expects to benefit from two revenue streams: property taxes and machine & tool taxes. Under legislation in effect since 2016, small solar projects (less than 20 megawatts capacity) are entirely exempt from the M&T tax, while larger projects are 80% exempt. Moreover, under the State Corporation Commission depreciation schedule, utility-scale solar is taxed at 90% of value in the first five years but only 10% of value by year 25. Continue reading
by James A. Bacon
Last week Governor Ralph Northam announced $18.3 million in Virginia Telecommunication Initiative grants to support 12 projects across the state. Leveraging $35 million in local and private matching funds, the projects will connect about 36,000 households, including thousands of businesses and “community anchor” institutions — an average state subsidy of roughly $500 per household on average.
Promoting rural broadband is a rare example of widespread bipartisan agreement in Virginia. Rural areas and small towns need high-bandwidth Internet access to compete for talent and corporate investment. That said, low-density human settlement patterns are expensive to serve with broadband, and the state has limited funds, about $35 million a year, to devote to this purpose.
Not all government-funded projects are created equal. Among the 39 applications submitted, some offer a better Return on Investment (ROI) than others. What’s the story behind these 12 winners? The governor’s press release doesn’t provide information beyond the size of the awards. But a number of local news stories provide additional details. Continue reading
Photo credit: WDBJ 7
by Dick Hall-Sizemore
The voters in one of the most conservative and rural parts of the state recently acted contrary to stereotype and voted to raise their taxes. Furthermore, that action was made possible by legislation sponsored by their Republican delegate in the General Assembly
Halifax County has been wrestling for several years with the issue of replacing the county’s lone high school. The general consensus has been that something needed to be done, either renovation or replacement. The daunting question was the projected cost: $88 to $99 million, depending on the option chosen. The county already had committed (under court order) to incurring substantial debt to substantially renovate the courthouse. Therefore, it was felt that the current tax base could not support the debt needed for the high school project, without a substantial, and politically unlikely, increase in the tax rate. Continue reading
Beneficiaries… or victims… of a $15 minimum wage?
by Hans Bader
It doesn’t make sense to ban jobs that pay a living wage, just because an employer can’t afford to pay a still higher wage. But that is what a $15 minimum wage does in regions where living costs and wages are low. There are cheap regions to live in where $11 an hour supports a decent lifestyle. If someone can afford decent food, clothing, and housing on $11 an hour, and their employer can’t afford to pay them more than $12 an hour, it is pointless and cruel to ban their job just because it pays less than $15 per hour.
But that is what a $15 minimum wage does. It bans jobs that pay less than $15 per hour, regardless of whether an individual employer and worker have a good reason for a lower hourly wage.
Virginia is now poised to join seven other left-leaning states, such as New Jersey, in imposing a $15 minimum wage. The incoming majority leader of the state senate, Richard Saslaw, D-Springfield, has introduced a bill to increase the state’s minimum wage to $15 by 2025, and then adjust it for inflation in future years. Every Democrat in the state senate has already voted for a similar bill in the past, and Democrats took control of Virginia’s legislature this November. Continue reading
by James A. Bacon
Employment growth in Virginia’s Appalachian region since 2002 has been the weakest of all five states in the Central Appalachian region, according to data contained in a recent Appalachian Regional Commission (ARC) report, “Industrial Make-up of the Appalachian Region: Employment and Earnings, 2002-2017.”.
Making matters worse, job growth in Central Appalachia was the worst in all of Appalachia, which was half that of the United States as a whole.
The growth gap between Virginia on the one hand and Tennessee and North Carolina on the other has been particularly marked, the gap between Virginia on the one hand and West Virginia and Kentucky not quite as bad.
Earnings growth in Appalachia also has severely lagged that of the United States as a whole — 17.5% compared to 27.3%. Continue reading
by James A. Bacon
You most likely missed it because it has gotten next to zero publicity, but the Commonwealth does have an economic development strategy for rural Virginia.
In 2017, a group of rural development stakeholders come together to form a “Rural Think Tank” to identify policies the state should pursue to position smaller metros and rural areas for economic growth. After deliberating, the twelve think tank members came up with five strategic priorities, as described in the latest edition of the Virginia Economic Review, a publication of the Virginia Economic Development Partnership (VEDP). This second edition of the quarterly publication is devoted to “America’s Rural Growth Challenge.”
The priorities include:
Ubiquitous broadband access. Topping the list is ubiquitous broadband access, a priority embraced by the Northam administration that receives broad bipartisan support. The ability to plug into the Internet is a necessity not only for business growth but is essential to education, healthcare, social connectivity, and the quality of life. As the Virginia Economic Review quotes Didi Caldwell, past chair of the Site Selection Guild, put it, “Broadband is to the 21st century was electrification was to the 20th. Rural communities need it to thrive and survive.” Continue reading
Tom Barkin, president of the Federal Reserve Bank of Richmond
by James A. Bacon
A couple of days ago I lamented that the purveyors of the “conventional wisdom” at a recent Federal Reserve Bank of Richmond conference on rural development had little new or insightful to offer. I must offer a partial retraction. A friend has forwarded to me a speech by bank President Tom Barkin. While most of the points he made were familiar, some were new to me — and, hey, I figure if they’re new to me, someone who has been tracking rural development issues for some 30 years, they’re probably new to many others.
In that speech, “Moving the Needle in Rural Communities,” Barkin discusses the disappearance of “anchor institutions” in rural communities such as banks, hospitals and colleges. I’ve discussed the closure of rural hospitals on this blog, but always in the context of the rural health care crisis, never the rural economic crisis. I’ve also written about the travails of small, private liberal arts colleges, but, again, only in the context of higher education affordability, never the rural economic crisis. And, frankly, it never occurred to me to write about the disappearance of banks. However, the concept of anchor institutions seems to be a useful one for understanding rural economic health, and their continued erosion is a worrisome trend.
So, here’s what Barkin had to say: Continue reading
Declining geographic mobility. Graph credit: McKinsey Global Institute
by James A. Bacon
A recurring question on this blog and elsewhere is why don’t more Americans (and rural Virginians) move to areas of greater economic opportunity? Why do they remain stuck in communities with high unemployment and low wages? Americans have always moved to economic opportunity in the past. What’s different now?
Those questions give rise to another set of questions. If people refuse to budge, should the rest of society take pity on them and subsidize their choice to stay put? As Don Rippert commented in a previous post, “The best thing the state can do is issue relocation vouchers to rural residents.”
The authors of a McKinsey Global Institute report, “The Future of Work in America,” tackles the geographic-mobility question. The biggest factor, they suggest, is the vast and growing gap in the cost of living between prospering cities and lagging communities. “Variations in the cost of living — and particularly in housing costs — are a clear contributing factor holding back geographic mobility in the United States. The cities offering the greatest job opportunity also happen to be expensive places to live.” Continue reading
Projected job growth by 2030. (Darker colors indicate faster job growth). Source: McKinsey Global Institute. Click for larger image.
by James A. Bacon
A handful of megacities have captured a majority of U.S. job growth since the Great Recession and could win 60% of job growth through 2030, according to a July McKinsey Global Institute report. A middle tier of “stable” metropolitan areas and thriving niche cities will continue to see job growth, though at a more modest rate than the megacities, while the bottom tier of lagging metros and rural areas will see only marginal growth, if any.
The differential rates of job growth will be driven in part of the next wave of automation, which will displace many office-support, food-service, manufacturing, and customer-service jobs, while a dynamic economy creates more jobs in healthcare, STEM fields, business services, and work requiring personal interaction, says the report, “The Future of Work in America: People and Places, Today and Tomorrow.” “While there could be positive net job growth at the national level, new jobs may not appear in the same places. The challenge will be in addressing local mismatches and help workers gain new skills.”
If McKinsey’s “midpoint” job projections are close to the mark, the Washington metropolitan area will continue to dominate job growth in Virginia, while “stable” metros like Richmond and Hampton Roads will contribute to a lesser degree. The Shenandoah Valley and Roanoke-Lynchburg area will see marginal growth, and the rest of the state negative job growth.
These conclusions put a filigree on what everyone already knows about the challenges facing rural Virginia. What, then, is to be done? McKinsey offers some general strategies for adapting to our brave new world that sound remarkably similar to what I had to say in yesterday’s blog post about rural development. And I quote: Continue reading