Tag Archives: Rural development

Yet Another Path to Rural Broadband: Other Peoples’ Money

Posted on March 16, 2018 by | 4 comments

The Pamunkey Indian Tribe… soon delivering broadband Internet from a wireless tower near you.

Speaking of bringing broadband Internet to rural Virginia (see previous post)… PamunkeyNet, a business entity of the Pamunkey Indian Tribe, has received approval from the GO Virginia State Board to develop a plan to bring broadband to Gloucester, Mathews, Middlesex and other rural counties along the Chesapeake Bay.

The newly awarded federal designation of the Pumunkeys as an officially recognized Indian tribe is key to the venture. According to a GO-Virginia document, the project would unfold over three years. GO-Virginia, a state-funded economic development initiative, would provide backing for two years. The Pamunkey-owned project would:

  • Create a network of existing and new wireless towers throughout the Middle Peninsula and George Washington region that will have a high-performance backbone between towers and local access radios on each tower to provide affordable business, residential, and institutional broadband Internet service, and will provide Gigbit fiber services on the Pamunkey reservation.
  • Create a fiber-based Technology Corridor on Route 33 between Rappahannock Community College, the planned Telework Center, and the Middle Peninsula Regional Airport.
  • Design for linkage with Hampton Roads, specifically for VIMS and Rappahannock Community College, and anticipate the benefits of linkages to the south with transoceanic destinations from the MAREA landing point, as well as to the north at Ashburn.

Key to making this happen is Pamunkey access to federal funds — “the sole federally designated tribe in Virginia and a conduit to currently untapped federal resources.”

The project also would involve the Middle Peninsula Planning District Commission, the Rappahannock and Germanna community colleges, ten localities, and two electric co-ops.

Bacon’s bottom line: I’ve just finished reading Nassim Nicholas Taleb’s brilliant and confounding new book, “Skin in the Game: Hidden Asymmetries in Daily Life.” Taleb doesn’t have much use for movers, shakers, and pundits (which would include people like me) who don’t have “skin in the game,” that is, people who, if their analysis proves unfounded, walk away unscathed. One commonly encountered group of skinless gamers is people who play with taxpayers’ money.

If you had to make a prediction, which would you pick to have a greater chance of economic success (that is, recovering the funds invested): Gary Wood’s plan (described in the previous post) for the Central Virginia Electric Cooperative to deliver broadband to its 36,000 customers, or the Pamunkey plan to deliver broadband to a geographic area of comparable size?

I would lay my money on Wood. In a word, Wood has put his ass on the line, and he reports directly to a board of directors, whose members represent the interests of the customer-members of the co-op. If the venture fails, co-op members will take a bath, board members will catch endless flack from their friends and neighbors, and Wood’s career likely will be ruined. I would feel even better if he had some of his own money at stake, but there is a clear line of accountability, and the people involved have a lot to gain or lose. Without knowing Wood personally, I feel reasonably assured that he will do everything within his power to make the project a success.

Conversely, it doesn’t appear that anybody has skin in the game in the Pamunkey deal. There is no indication that the Pamunkeys are putting up any of their own money or that they’ll suffer any loss if the project bombs. Basically, a bunch of bureaucrats are playing with other peoples’ money, and if the project fizzles, there is no discernible impact on any of the participating organizations. Furthermore, participation is so broad and so diffused, there won’t be anyone to hold accountable. The Pamunkeys might tap enough state, federal, and local money to get the broadband service built. But would the project be economical, in the sense of earning back its cost of capital? Who cares? It’s other peoples’ money.

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Posted in Economic development, Telecommunications

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Another Path to Rural Broadband: Electric Co-ops

Posted on March 16, 2018 by | 10 comments

Service territories of Virginia electric utilities. The CVEC territory is shown in bright blue in the center of the state. (Click for larger image.)

The Central Virginia Electric Cooperative has been delivering electricity to the inhabitants of 14 Central Virginia localities for 80 years. Now it’s planning to provide high-bandwidth Internet connections. The company has announced a plan to invest $11o million to connect all 36,000 co-op members.

Co-op members will be able to purchase 100 megabits per second (mbps) access for $49.99 a month or 1 gigabit per second (gbps) for $79.99 a month, reports the Fluvanna Review.

Keeping the pricing reasonable was important to CVEC President Gary Wood. “I didn’t want this to become a premium service or a luxury service,” he says. Continues the Rivanna Review:

Wood said the project is anticipated to lose money for the first seven years and reach the break-even point in about 11. He admits that “give me $100 million and in seven years, I’ll start bringing you your profits,” hasn’t been the easiest argument to sell, but he believes it can be done with a combination of  loans, grants, state and federal funding and tax rebates.

CVEC is also asking for financial support from each of the counties in its service area.

For a for-profit business, eleven years would be a slow payback. But for an electric co-op, owned by its customers, that might seem like a reasonable proposition.

One objection, I would expect, would revolve around opportunity cost. By taking on a financial obligation of this size, the co-op might be limiting its ability to pursue other projects such as, say, grid modernization or solar energy. Another objection would be risk. What if rural residents aren’t willing to pay $50 to $80 per month for broadband access? Could disappointing revenues put the co-op in financial jeopardy?

But let’s face it, no one else is likely to want to deliver broadband to the rural residents of Central Virginia. This seems like a project that is custom-made for CVEC, and it could provide a model for other co-ops, who cover roughly a third of the geographic expanse of the state.

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Posted in Economic development, Telecommunications

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Tax Credits for Virginia Coal Mining?

Posted on March 1, 2018 by | 3 comments

Underground coal mining is a capital-intensive business. Do state tax credits really make a difference?

The House of Delegates has passed a bill sponsored by Del. Terry Kilgore, R-Scott, in the House and Sen. Ben Chafin, R-Russell, that would provide state tax credits for the production of metallurgical coal.

The legislation, which would offer $200,000 in tax credits next year and about $500,000 the year after, is more modest than previous efforts, which would have cost the state some $7.3 million in coal tax credits. But former Governor Terry McAuliffe vetoed those bills, and Kilgore is hoping that the scaled-back version will pass muster with Governor Ralph Northam.

“At some point and time, you’ve got to figure out how to move forward, and this is how we move forward this year,” Kilgore said, as reported by the Roanoke Times. Reinstating the credits would help protect the remaining coal jobs in Southwest Virginia’s struggling coalfields region, he added. 

Bacon’s bottom line: Coal production and coal employment have plummeted in Southwest Virginia over the past three decades, and the mountainous region has not found an industry to replace it. I’m not persuaded, however, that $200,000 or even $500,000 a year will make much difference. Virginia has been mining coal for more than a century, and the most accessible coal seams are played out. The remaining coal lies in seams that are either very thin and expensive to mine or deep underground and expensive to mine.

The state is blessed by one thing, however: the high quality of the coal. Virginia coal tends to have the characteristics that make it appropriate for conversion into coke, which is used in making steel. Metallurgical coal, which is currently enjoying an export boom, accounts for 60% to 70% of the coal coming from Southwest Virginia. Deep underground mines cost tens of millions of dollars to develop, and the big coal companies don’t make that kind of commitment unless they have long-term contracts that lock in the price. Compared to the cost of developing a new mine or keeping an existing one open, a half million dollar tax credit sounds like a drop in the bucket. I would like to see the evidence that the tax credit will encourage additional production.

Rather than doubling down on an inevitably declining coal industry — when the coal is gone, it’s gone and nothing can bring it back — I would urge Southwest Virginia’s legislators to consider applying their energy and creativity to diversifying the economy.

I know of two technologies being developed at Virginia Tech that could bring economic benefits to the region. One is a laser sensor that can be deployed in underground mines to detect methane, carbon monoxide, and carbon dioxide for the purpose of averting explosions like the one that killed 29 miners at the Upper Big Branch mine in West Virginia in 2010. That technology, if deployed, could create a significant business opportunity for a Southwest Virginia engineering firm.

Another technology would process gob piles — the mountains of waste resulting from the separation of coal from mineral rock. Gob piles contain considerable coal fines. Another Virginia Tech technology would capture those fines along with other potentially valuable minerals. That innovation holds out the potential for extracting wealth from the massive gob piles dotting the coalfields in Virginia, the Appalachian coalfields, and even the rest of the world.

Then there’s the idea of rebuilding the regional economy in part around outdoor tourism. A half million dollars a year arguably would do a lot more to jump-start positive change in that direction than it would to rejuvenate coal mining. The Bacon family is planning a vacation this fall to New England, and I’m especially looking forward to seeing if the small mountain towns of the People’s Republic of Vermont are bucking the trend of rural decline. I would be delighted if Mr. Kilgore and Mr. Chafin should decide to join us in looking for alternate models of economic development!

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Posted in Economic development, Energy, General Assembly, Taxes

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Can We Afford to Let Rural Hospitals Die?

Posted on January 27, 2018 by | 21 comments

Pioneer Community Hospital in Patrick county before it closed.

By Beth O’Connor

In the January 24th edition of Bacon’s Rebellion, author James A. Bacon poses the question; “Are Broke Rural Hospitals Worth Saving?” He acknowledges that many of Virginia’s rural hospitals are in trouble, but wonders if it makes financial sense to let them die.

The problem with his question is that he is only considering the issue in terms of healthcare dollars and outcomes. The reality is that a small rural hospital means much more to the local community and taxpayers than just a place to go when you have a heart attack.

The National Rural Health Association (NRHA) has published extensive information regarding the distress of rural hospitals and the importance of those facilities to small towns across the country. Since 2010, seventy-nine rural hospitals have closed. 673 additional facilities are vulnerable and could close, representing more than one-third of rural hospitals in the U.S. The rate of closures in rural areas is five times higher in 2016 compared to rates in 2010.

NRHA notes that losing access to healthcare is only one of the negative outcomes.  When a rural hospital closes, the rural economy suffers:

  • In rural America, the hospital is often one of the largest employers in the community. Healthcare in rural areas can represent up to 20 percent of the community’s employment and income.
  • The average critical access hospital — the hospital in Patrick County alluded to in Mr. Bacon’s column was a CAH facility — creates 170 jobs and generates $7.1 million in salaries, wages, and benefits annually.
  • The recession in rural America continues, with 90 percent of all job growth since 2008 occurring in metropolitan areas. If a hospital closes in a rural community, health providers relocate, and the town withers.
  • If a rural provider is forced to close, the community erodes.

That’s right, if a hospital dies the whole town dies. Patrick’s closure is recent, but a quick look at Lee County predicts the future for Patrick. Lee Regional Medical Center closed in 2013; it supported 190 full time equivalent positions.  These were not low-paying, entry-level jobs; these were doctors, nurses, anesthesiologists, therapists. The hospital had been the fourth largest employer in the county; it pumped $11.5 million in labor costs into the local economy every year.

Once those jobs left, other jobs followed. Local clinics as well as ancillary services such as food service and cleaning services struggle without a hospital serving as an anchor. After the hospital closed, the community’s only day care center closed too. Virginia’s elected officials have spent untold hours trying to lure businesses to the Commonwealth, but a town without a stable healthcare system will not land the next business enterprise.

Additionally, when a rural hospital closes the taxpayer suffers:

  • Rural hospitals provide cost-effective primary care. It is 2.5 percent less expensive to provide identical Medicare services in a rural setting than in an urban or suburban setting. The focus on primary care, as opposed to specialty care, saves Medicare $1.5 billion/year. Quality performance measurements in rural areas are on par with if not superior to urban facilities.
  • Critical Access Hospitals represent nearly 30 percent of acute care hospitals but receive less than 5 percent of total Federal Medicare payments.

A ‘bigger is better’ mindset suggests that sending patients to Martinsville or Roanoke would be more efficient and have better outcomes, but the data suggests otherwise.  The healthcare analytics group iVantage has documented that hospitals in rural areas have significantly higher ratings on Hospital Consumer Assessment of Healthcare Providers than those located in urban areas.  This includes:

  • Lower risk-adjusted rates of potential safety-related events.
  • Significantly lower adverse event rates than urban counterparts.
  • Significantly lower rates of post-op hip fracture, hemorrhage, & hematoma.

Mr. Bacon refers to Medicaid expansion as “blunderbuss legislation.” I call it a lifeline. Since 2010, seventy-nine hospitals in rural America have closed. Two-thirds of those were in states that have refused to expand Medicaid, including two in Virginia.

By not expanding Medicaid, Virginia loses $142 million in federal funding every month. Since 2014, the Commonwealth has forfeited over $10 billion in federal funds — our own tax dollars that should have been used to help uninsured adults, hospitals, and businesses.

Others may be content to allow their tax dollars to go to Washington, D.C. and stay there.  I am not.  Virginia taxes should be spent on Virginia people and Virginia healthcare providers.

Because the question is not, “Are Broke Rural Hospitals Worth Saving?”, the question is, “Can We Afford to Let Rural Hospitals Die?”

Beth O’Connor is executive director of the Virginia Rural Health Association.

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Posted in Economic development, Health Care

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Living with Slow Internet in a Broadband World

Posted on November 13, 2017 by | 7 comments

Ashley Fisher (left) and Vickie Barker run an independent insurance company in Halifax County. Their slow Internet connection, which frequently goes out, hampers customer service. (Photo credit: Roanoke Times)

If you don’t live in a small town or rural community, you probably don’t have a clue how difficult it is to participate in the 21st-century economy. But a Roanoke Times article paints a vivid picture of life in South Boston and Halifax County in Virginia’s Southside region.

Television producer Kevin Peade started his business when everything was on film and a remote location was not a handicap. But the rest of the world has moved to digital, and local broadband connections are so slow during the day, when others are online, that he literally works at night.

Brenda Short got rid of her computer years ago because there wasn’t any point in keeping it around anymore. If she absolutely, positively needs to access the Internet, she drives six miles to her office to get a connection.

A local church canceled its internet service when a pastor left, only to find out it couldn’t get back online later because the network was so overloaded that it wasn’t taking new customers.

Roanoke Times reporter Jacob Demmit compiles other examples of how a small town struggles when the rest of the world does business with a faster, high-broadband metabolism.

There’s a local DMV Select office that struggles with a connection so slow that it often can’t process credit cards. A farmer said he tried satellite internet for a while but ultimately decided he was paying too much for a connection that was hardly usable. One Halifax County resident runs an entire lumber business, including billing for international orders, from his cellphone.

Nationally, only four percent of urban dwellers lack access to a 25 Mbps connection, according to 2016 data from the FCC, the Roanoke Times says. In rural America, the number is 20 percent. But in the Halifax County community of Nathalie (population 183) it’s closer to half. Laying fiber optic cable doesn’t make economic sense in sparsely populated areas. But the improving economics of wireless provides reason for hope.

The county has engaged SCS Technologies, a local Internet Service Provider, to cobble together a network using the small amount of fiber in the ground with a series of antennas mounted on cell towers, water towers, church steeples and anything else tall enough to see above the trees. SCS plans to offer 10 MBS (megabytes per second) service – about five times the speed most people are getting — for $35 a month. Halifax County is contributing $103,000 for phase one of the project.

Meanwhile, Microsoft has selected Halifax County as the proving ground for a service built upon the unused frequencies between television channels known as TV white spaces. One white-spaces tower could in theory cover a 10-mile radius with up to 400 MPS connections. The technology giant, which is partnering with Salem-based B2X Online to provide the local service, hopes to connect 1,000 homes in Halifax and neighboring Charlotte counties by early next year. Microsoft’s goal is to reach 2 million people across the country by 2022, beginning with 12 test sites like Halifax.

Bacon’s bottom line: It’s hard to imagine rural communities pulling themselves out of their economic doldrums if they lack the high-speed broadband connections to communicate with the rest of the business world. It is tempting for local boards of supervisors to consider subsidizing broadband service under the theory that, like electricity, telephone, water and sewer, broadband is indispensable for modern life. On the other hand, new technologies and business models are emerging that could render any existing rural-broadband solution obsolete.

Should the  Halifax Board spend thousands of dollar subsidizing a broadband service that is marginally superior to copper-line connections when Microsoft might introduce a vastly superior service that could roll out county-wide within a couple of years? Tough question.

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Posted in Telecommunications

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Building an Economy on Outdoor Tourism

Posted on September 12, 2017 by | 2 comments

Horseback riding in Southwest Virginia. Photo credit: Rewire.

As Southwest Virginia struggles to adapt to the decline of the century-old coal industry, the region is taking a radical approach to economic development, reports Rewire. Writes the online Maryland publication: “Historically, natural resources in Appalachia have been mined, but southwest Virginia is trying to re-envision the hills, woods, and mountains of the state for outdoor tourism—and in the process, hold onto its younger residents.”

What is outdoor tourism? It covers the kind of activities one normally associates with the outdoors — hiking, biking, camping, fishing, kayaking, rock-climbing, horseback riding, and the like. But it also includes cultural assets such as the Crooked Road music trail and the Round the Mountain craft network.

No roller coasters or waterslide parks for Southwest Virginia. “We promote, preserve, and protect what’s unique to this region, so we haven’t invested in things that can be found in a variety of other locations,” says Jenna Wagner, marketing director of Friends of SWVA. “The Crooked Road, for example, is based on music that is specific to this region. We’re working to maintain that quality of [resources that are] really unique to the region that you can’t experience anywhere else.”

The initiative is yielding results — not transformative results, but perhaps something to build upon. Peter Hackbert, director of entrepreneurship for the public good at Berea College, has studied towns in Southwest Virginia such as Abingdon and Damascus (close to the coalfields but not in them). He interviewed 60 international travelers to the region from as far as Europe and Australia. “We saw people coming from out of state, enjoying themselves, and spending money.”

And the region seems to be doing a better job of hanging onto educated young people. According to the Friends of SWVA: “[T]he proportion of the SWVA population comprised of those 25-34 with a bachelor’s degree or higher was at 2.3% in 2000 and had increased to 3.04% by 2015. There is also a strong positive correlation between in the increase in travel expenditures and the rise in the young, educated population.”

Bacon’s bottom line: You can only make so much money and employ so many people off of bikers, back-backers and bluegrass concerts. The idea is to create amenities that people who live in Southwest Virginia can enjoy. Organizing fiddler concerts and developing access points along the Clinch River creates pride in community and provides recreational options that didn’t exist before. If such activities also help keep young people from moving out, that’s a big bonus. If out-of-town people decide to settle there, all the better. When the coal is all mined out, you build on what you’ve got — and Southwest Virginia has a distinctive, under-appreciated culture and a fantastic outdoors.

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What the Looming Higher-Ed Shakeout Means for Small College Towns

Posted on September 1, 2017 by | 8 comments

Sweet Briar College, affectionately known in my college days as “Sweets”

Two years after alumni rallied to save Sweet Briar College, raised millions of dollars and installed a new president, the small, liberal arts college north of Lynchburg still is in peril. The college admitted only 81 freshmen into its fall class — well below the 200 officials previously had estimated the institution needed to remain financially viable.

President Meredith Woo said spending came in significantly under budget last year, and the college can afford smaller class sizes. But the college is surviving on donor dollars, reports the Wall Street Journal.

Perhaps Sweet Briar will be able to reinvent itself as a smaller, niche institution. While few have come as close to the edge of disaster as Sweet Briar, dozens of other small liberal arts colleges are facing similar dilemmas.

According to the Journal, more than one-third of colleges with fewer than 3,000 full-time students had operating deficits in fiscal 2016, up from 20% in fiscal 2013. Likewise, finance chiefs of private, nonprofit colleges are increasingly pessimistic — only 51% indicated in a poll that their institutions will be financially or sustainable over the next five years, down from 65% the previous year.

Restructuring is rampant. Aquinas College in Nashville, Tenn., is dropping business and nursing programs, and eliminating residential living, to focus on training Catholic school teachers. Margrove College in Detroit is discontinuing undergraduate programs to concentrate on its graduate students. Wheelock University  in Boston has put its president’s house and a residence hall up for sale and has entered merger talks with Boston University.

Virginia has two dozen small, private, non-profit colleges, many located in small cities and towns. In many cases, they form the backbone of the local economy. As if rural/small town Virginia didn’t have enough other economic worries, non-metro Virginia could be experiencing the erosion of one of the few economic pillars it has left.

A handful of these institutions look rock solid — Washington & Lee University, the University of Richmond, and Liberty University have large and growing endowments, and have no trouble recruiting students. I don’t know enough about the others to draw any conclusions about their fiscal health, but it would behoove those interested in the well being of their communities to take a close look and make sure their local college isn’t about to become the next St. Paul’s College (now defunct) or Sweet Briar.

For readers’ edification, here are the private, non-profit schools in Virginia:

Appalachian School of Law — Grundy
Averett University — Danville
Bluefield College — Bluefield
Bridgewater College — Bridgewater
Christendom College — Front Royal
Eastern Mennonite University — Harrisonburg
Emory and Henry College — Damascus
Ferrum College — Ferrum
Hampden-Sydney College — Farmville
Hampton University — Hampton
Hollins University — Roanoke
Liberty University — Lynchburg
Lynchburg College — Lynchburg
Mary Baldwin University — Staunton
Marymount University — Arlington
Randolph-Macon College — Ashland
Randolph College — Lynchburg
Regent University — Virginia Beach
Roanoke College — Salem
Shenandoah University — Winchester
Sweet Briar College — Amherst
Union Presbyterian Seminary — Richmond
University of Richmond — Richmond
Virginia Union University — Richmond
Virginia Wesleyan University — Virginia Beach
Washington & Lee University — Lexington

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Posted in Economic development, Education (higher ed)

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Illuminating Rural Poverty in Virginia

Posted on August 9, 2017 by | 2 comments

Last week Augie Wallmeyer delivered a speech to the Virginia Historical Society on the “Extremes of Virginia.” If you haven’t read his book by the same title, listen to his speech. (Clicking on the image takes you to the Virginia Historical Society Facebook page, where the speech can be viewed.)

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A Town that Refuses to Die

Posted on August 8, 2017 by | 2 comments

The past twenty years have been unkind to Halifax County. The Southside Virginia locality has seen wave after wave of plant and business closures — some caused by the restructuring of the tobacco industry, others from globalization and the offshoring of traditional manufacturing industries. The dislocations have been so traumatic that Bloomberg writer Craig Torres used Halifax and the town of South Boston as a mini case study of the downside of the nation’s free trade orthodoxy.

Reflecting a common view, the Heritage Foundation wrote in 2000 that free trade would create “prosperity that benefits every citizen.” While it still is possible to argue that free trade has benefited Americans overall, the impact has been uneven. And hundreds of small-town communities across America like Halifax County were the losers. No wonder, suggests Torres, that Halifax County swung toward avowed protectionist Donald Trump.

Torres spends much of the article describing how economists have begun questioning free trade dogma. He also recounts how the Halifax-South Boston community has undertaken the hard work of reinventing itself, a process that, he says, “might be working.” The jobs gap has closed. Halifax now has 5.1% unemployment, down from nearly 13% — only a tad higher than the nationwide rate of 4.3%. (Torres doesn’t discuss how many people are under-employed or dropped out of the workforce.)

The Southern Virginia Higher Education Center provides a variety of degrees and certifications in partnership with Virginia colleges and universities.

Look at the chart above, taken from the Bloomberg article. The post-NAFTA era of the mid-1990s was devastating to employment in Halifax County. While the U.S. economy as a whole prospered during the Internet boom, unemployment in Halifax shot up to 14%. The county managed to recover to national unemployment levels but got hammered again when the 2001 recession overlapped with China’s entry into the World Trade Organization. But the delta this time between Halifax and U.S. unemployment was somewhat smaller than it had been five years previously. Halifax got slammed in the 2008 recession as well, but the unemployment delta shrank yet again. Today the employment gap has almost disappeared.

Is Halifax County the story of a mill town that has successfully reinvented itself? Writes Bloomberg:

Some manufacturers are still around, from sports-car maker TMI AutoTech Inc. to Swiss industrial giant ABB Ltd. Both received incentives after expanding investment and adding jobs, the county industrial development authority said. The companies’ long-term plans for the region might hinge on whether the local workforce has the right skills; so South Boston and the county turned two former tobacco warehouses into a higher education center, offering college courses and vocational training, from nursing to welding to IT. Technicians trained there are getting hired at Microsoft Corp.’s data center in a neighboring county.

Torres explores what the Halifax example portends for the free trade debate. But the story has implications for a parallel discussion here in Virginia — can Virginia’s mill towns be saved? Or is money spent on economic-development efforts throwing money down the drain?

The evidence of Halifax County is admittedly anecdotal, but it is encouraging. The old economy is gone. It’s hard to imagine that there is anything left for globalization to destroy. Halifax has undergone an economic transition more wrenching than anything that inhabitants of Virginia’s major metro areas could imagine. But the community has adapted. In my humble appraisal, the agglomeration economics of the Knowledge Economy still favor the nation’s big metros and work against communities like Halifax over the long run. But it’s too soon to write off Virginia’s mill towns.

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Posted in Economic development, Education (higher ed)

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Northam’s Affordable, Not-So-Ambitious Plan for Reviving Rural Virginia

Posted on July 20, 2017 by | 13 comments

Ralph Northam, Democratic Party candidate for governor, grew up on the Eastern Shore, so it’s not surprising that he has given considerable thought to the challenges of economic development in Virginia’s small towns and rural communities. Earlier this week, he unveiled his plan for economic growth in rural Virginia.

If you’re looking for a “Marshall Plan” to reinvigorate rural Virginia, this is not it. The plan is not ambitious, and there may not be enough in it to get rural Virginians especially excited about Northam’s candidacy. But it has this virtue: Proposals don’t require spending vast sums of money, so they are at least feasible from a budgetary perspective. This is a plan that Northam, if elected, has a realistic chance of implementing.

Personally, I distrust “Marshall Plan” approaches to chronic social and economic challenges. Instead, in our fiscally constrained era, I’m a fan of low-cost, low-risk initiatives that will likely yield a positive return on investment. In that spirit, I’ll start by illuminated the most promising ideas in the Northam plan and work my way down the list.

Virginia’s Rapid Readiness Program. Northam proposes a “rapid readiness program” similar to successful workforce training programs in Georgia and Louisiana. “We could get this program started here in Virginia with a ten million dollar investment, with funding tied to business participants, number of projects delivered, and individuals successful trained,” states his plan.

Assuming that Northam is drawing upon the thinking of Virginia Economic Development Partnership CEO Stephen Moret, who set up the Louisiana program, the program would function as a extension of Virginia’s economic development effort by offering a workforce-training solution as an incentive for corporations to invest in Virginia. The program would differ from existing educational/training offerings by creating a team capable of providing customized training within a time frame required by corporations to get their operations up and running.

While the rapid readiness program would be applied across the state, rural areas arguably would benefit the most because such training applies most frequently to light manufacturing projects that typically locate in smaller communities.

I’m not sure $10 million is sufficient to fund this program properly. Regardless, there is a readily available pot of money — Northam and Moret no doubt would disagree with me about this — and that is the Commonwealth Opportunity Fund, which the state dips into to provide “incentives” for economic development projects. But as Moret himself said in a presentation to the State Council of Higher Education for Virginia two days ago, workforce is one of the top three factors (and often the No. 1 factor) that corporations consider when deciding where to locate. Incentives are a secondary factor. Shifting money from incentives to workforce training looks like a no-brainer to me.

Expanding renewable energy. Expanding solar generation is viable rural economic development strategy. Solar farms may create few permanent jobs, but they do increase the tax base, and they often pay streams of royalties to landowners (depending on how particular deals are structured).

“In my home county of Accomack on the Eastern Shore,” says Northam, “the commonwealth’s largest solar farm is in the process of being built, which will ultimately power several data centers owned by Amazon.”

Northam says he is committed to working with Virginia’s electric utilities and the General Assembly to “remove barriers that stand in the way of developing and expanding clean energy efforts.” Note the phrase “remove barriers.” Northam is not asking for new subsidies or tax breaks. Solar doesn’t need subsidies; market forces increasingly favor solar. Rather, Northam wants to remove obstacles that inhibit businesses, entrepreneurs and homeowners from building rooftop solar and solar farms.

Utility-scale solar like the Amazon Web Services farms in Accomack need little help — Dominion Energy and Appalachian Power have ample incentive to deploy solar on a large scale. The barriers exist at two levels: local zoning codes and state regulatory policy. Local governments need to make their zoning codes more solar friendly. Meanwhile, state lawmakers need to craft “net metering” legislation that balances the interests of independent solar producers with those of electric utilities who maintain the electric power grid that everyone depends upon.

Broadband for all. Most people would accept the proposition that broadband Internet service is critical infrastructure for economic development today. The problem is that sparsely populated rural areas are not attractive markets to Virginia’s big broadband providers.

Northam points to a pilot project in Southside Virginia in which Virginia’s Tobacco Commission, Microsoft, and the Mid-Atlantic Broadband Company utilize unused portions of the television broadcast spectrum to push out high-quality wireless broadband. So far, more than 100 households have been connected, and the number could reach 1,000 by year’s end.

“Under this innovative public-private program, Virginia’s share of the cost is $500,000, leverage private investment for a total investment of $1 million,” states the Northam plan. “This commonwealth should look to replicate this successful program across rural Virginia.”

How so? He would pull together disparate broadband initiatives across the commonwealth under the direction of a cabinet official “who will be responsible for getting more people connected.” Northam also advocates legislation similar to that adopted in Minnesota that creates a clear set of metrics, including upload and download speeds, to evaluate broadband access. Whatever else you say about these proposals, it doesn’t sound like they will break the bank.

Expanding the University of Virginia-Wise. Northam proposes increasing the educational offerings of the University of Virginia-Wise to encompass high-need, high-growth disciplines such as cybersecurity, unmanned aerial systems, energy, and computer engineering and programs. Expanding UVa-Wise would cost about $15 million initially, Northam says, with a possibility of scaling up funding over time.

We have a unique opportunity … to transform UVA-Wise into an international destination for students and researchers. This will have a tremendous effect on the regional economy because when you can attract students and top talent from around the world for research and development, grants will follow. And with grants and applied research, business opportunities will soon follow. And structured correctly, these businesses will not only start up in Southwest Virginia, but they will remain and grow.

The idea of creating “innovation districts” around college campuses is a hot one right now, and anyone who has seen the Virginia Tech Corporate Research Center can readily understand the potential for economic development near college campuses. But Tech is the top research university in the state. Whether its success can be replicated on even a modest scale by a tiny, largely unknown newcomer is questionable. Tech has invested hundreds of millions, maybe billions, of dollars, over decades building academic programs, hiring star faculty, recruiting graduate students, and assembling the administrative infrastructure it takes to win research contracts.

Competing for research dollars is tough. Well established institutions such as Old Dominion University and the College of William & Mary have seen their research programs falter in recent years. It is a stretch to suggest that a $15 million investment in Wise would spark the miraculous transformation that Northam describes.

Startup tax plan. To help attract and retain new business in rural and economically depressed regions of Virginia, Northam proposes a “zero BPOL and merchant’s capital tax for new startup and small businesses .. for the first two years. This will drive economic activity and startups to rural areas, and result in no loss in existing revenue to local governments.” Once local businesses take root, they will start paying taxes — a win-win.

It’s good to see a Democratic Party candidate advocating tax cuts! But the proposal lacks crucial detail. BPOL and merchant’s capital taxes are local taxes. How does Northam propose eliminating those taxes for two years? Will the state just command localities to change their ordinances? Will the state reimburse them for lost revenue? Does he have the remotest idea of what the initiative would cost? Finally, while the BPOL and merchant’s capital taxes are near the top of the list of things that small businesses in Virginia hate, is there any body of evidence suggesting that a mere two-year reprieve will stimulate more startups?

There’s more to Northam’s plan, but the other proposals, which address workforce development, are statewide in nature and don’t address peculiarly rural issues. So, I won’t dwell on them here.

Perhaps the best thing that can be said about this plan is that Northam isn’t making extravagant promises that he can’t keep. These narrow-bore proposals won’t exactly spark a rural Renaissance, but for the most part, they seem politically and fiscally feasible.

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Posted in Economic development, Labor and Workforce, Taxes, Telecommunications

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Rural Virginians Will be Really Old by 2040

Posted on July 6, 2017 by | 5 comments

Image credit: StatChat. Click for more legible image.

Like every other state in the union, Virginia’s population is getting older. The trend is particularly pronounced in rural jurisdictions, as seen in these maps compiled by Shonel Sen with the Demographics Research Group at the University of Virginia and published in the StatChat blog.

Everyone seems so focused on immediate problems that localities have given little attention to what things will be like in 23 years when the 65+ demographic comprises more than 20% of the population across most of the state. Given the inability of most Baby Boomers to accumulate much wealth, how many of these elders be poor? Given the tendency of young people to move away, will the rural elderly have caretakers? Given the pressures on rural hospitals and the increasingly acute shortage of doctors, will the elderly have adequate access to health care?

I suppose it’s human nature to ignore distant problems until they become immediate problems, so I’m guessing nothing will be done until these issues reach crisis proportions. This is America. That’s how we roll.

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Posted in Demographics, Health Care

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Dominion Explores Pumped Storage in SW Virginia

Posted on June 27, 2017 by | 21 comments

Graphic credit: Dominion Energy

Much to my astonishment, Dominion Energy is taking a serious look at building a pumped-storage hydro-electric power plant in Virginia’s coalfields. I wrote about the idea back in February but it struck me as a long shot. So much for my superficial impression. It now transpires that Dominion is identifying potential sites in far Southwest Virginia and hopes to narrow the list later this year.

If Dominion decides to proceed, it will notify potentially affected landowners and set up meetings to gain public support, according to Dominion spokesman Greg Edwards. Though still in the early exploratory phase, Dominion describes the prospects as “very exciting.”

The potential impact is enormous. The pumped-storage power station would have a capacity of 1,000 megawatts, making it even bigger than Dominion’s coal- and wood-burning Virginia City Hybrid Energy Center, which cost $1.8 billion to build and generates $6 million a year in tax revenue for Wise County. “We’re talking about revenues way in excess of what Virginia City generates,” Edwards told the Coalfield Progress.

The idea behind pumped storage is to move water between reservoirs at different elevations. Dominion would let the gravity-fed water run turbines, as shown in the company-supplied graphic above, during periods of peak power demand when the cost of electricity is expensive, and then pump the water back to the upper basin when electricity is cheap. The concept is the same as Dominion’s pumped-storage dam in Bath County, the world’s largest.

Pumped storage will be increasingly attractive as eastern utilities increasingly rely upon wind and solar power, which are intermittent sources of electricity. A pumped storage facility could help even out fluctuations in electric production due to variations in wind and sunshine, or even shift power production from periods of peak solar output during the mid-day to peak demand in the late afternoon/early evening. The massive scale contemplated for the project — 1,000 megawatts, roughly equivalent to the capacity of a state-of-the-art gas-fired facility — suggests that Dominion could be considering the plant for load-shifting purposes. And that could be a game-changer.

Source: Dominion 2017 Integrated Resource Plan. Click for legible image.

Dominion’s Integrated Resource Plan foresees the need for a new nuclear power plant by 2030 (under the strictest CO2 regulatory regime), up to five new gas combustion turbines by 2032, and more than 5,000 megawatts of solar power by 2040. I am entering the realm of speculation here — none of this comes from Dominion — but the addition of a giant pumped-storage facility to Dominion’s generating fleet might enable the company to shift more aggressively to solar power and still maintain grid reliability. Potentially, depending upon transmission line limitations, pumped-storage could eliminate the projected need for four 240-megawatt combustion turbines. (How such a shift would impact the demand for natural gas supplied by the proposed Atlantic Coast Pipeline is a big unanswered question.)

The idea originated with coalfield legislators, not Dominion. Del. Terry Kilgore, R-Gate City, Del. Todd E. Pillion, R-Abingdon, and Sen. Ben Chafin-Lebanon, amended the state code to add pumped-storage hydroelectricity generation and storage to the list of projects which, if built in the Virginia coalfield counties, would be deemed “in the public interest.”

Learning of the proposal during the General Assembly session, Dominion quickly began exploring the idea. Early media reports emphasized the idea of using underground mines as a holding tank for the water, but Edwards told the Coalfield Progress, “We’re not wedded to underground.”

So far, Dominion’s investigations into potential sites have involved working with maps and satellite imagery. The company has looked at “literally hundreds” of possible locations. Even if Dominion finds a suitable site, however, it could take seven to ten years until a pumped-storage facility became operational.

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Posted in Economic development, Energy

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Coping Gracefully with Depopulation

Posted on June 25, 2017 by | 18 comments

Map credit: Virginia Department of Mines, Minerals and Energy

A Roanoke Times editorial asks a provocative question: “Should we just let Appalachia go?” Instead of trying to rebuild a new economy in far Southwest Virginia, should the commonwealth just allow the region to depopulate?

As the editorial points out, the Appalachian mountains and hollers were sparsely populated through the 18th and 19th centuries. Then, in the late 1800s there arose an industrial economy that ran on coal. “Coal happened. Railroads happened. People — many of them immigrants — poured into Appalachia. Roanoke was not the only boom town to spring up then. So did lots of other communities deeper in coal country.”

After an efflorescence during the last 70s/early 80s, coal went into decline. Mechanization eliminated jobs. Thicker, efficient-to-mine coal seams played out. Environmental regulations drove up the cost of mining and combusting coal. And natural gas began displacing coal in the utility market. As long as high-quality metallurgical coal used in steel making can be mined in Appalachia, mining will never totally disappear. But coal will be a shadow of the industry it once was.

Virginia’s coalfields have tried to diversity their economies, but they suffer enormous competitive disadvantages. They are geographically remote, far from large urban centers and interstate highways. They have a paucity of flat land suitable for industrial development. The workforce is poorly educated, substance abuse is widespread, and most ambitious young people who earn college degrees leave for better employment prospects elsewhere. And the quality of amenities and public services is low so that everyone who made significant wealth in coal mining moved out of the region. There is no moneyed business class to spark an entrepreneurial revitalization.

Some coal counties refuse to die. Wise County has been especially creative in trying to reinvent its economy around broadband, data centers and solar energy. Recent state legislation that would favor pumped storage as a complement to solar farms has Dominion Energy giving a serious look at the region. The economic impact of such a facility, if ever built, would exceed that of Dominion’s $1.8-billion Virginia City Hybrid Energy Center, which burns coal and biomass. But the economics of these dreams remain unproven.

“It’s hard to see what industries exist in which Appalachia has a comparative advantage as vast as it had in coal,” the Roanoke Times quotes economist Lyman Stone as writing. “I’m not saying none do or could ever exist; I’m just saying that if they can or do, they don’t seem extremely clear right now.”

In Stone’s estimation, without coal mining to prop up the economy, Appalachia’s population has a long way to fall. He writes: “We can’t let hopes blind us to realities. On some level, population must be associated with economic activity to support it. Coal mining is still declining, and when it’s completely gone, it’s not clear how much economic activity will remain, and therefore how much population can be sustained.”

Bacon’s bottom line: As much as I hate to acknowledge it, Stone’s prognosis is correct. The 21st century economy belongs primarily to populous urban areas. I wouldn’t discourage coalfield residents from trying to salvage their communities — indeed, I very much hope they succeed. But even if creative-thinking localities such as Wise succeed in diversifying their economies, data centers, solar farms and pumped-storage facilities employ very few workers beyond the construction phase. Such projects would bolster the local tax base, enabling counties to maintain basic services, so they are worth pursuing. But they won’t reverse the depopulation of the region.

The coalfield counties, like other remote, rural counties in Virginia, need to think how to decline gracefully. Hard-hit cities and towns in the Midwestern rust belt are learning how to cope with shrinking populations, and perhaps it’s possible to learn lessons from them. What rural counties do not need to do is invest scarce resources in desperate, long-shot bids to turn around their economies. The circumstances are dismal, but living in denial of economic reality will only make things worse.

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Fifteen Nucleii for the Rebirth of Southwest Virginia

Posted on May 11, 2017 by | 50 comments

Stephen Moret, CEO of the Virginia Economic Development Partnership. Photo credit: Roanoke Times

Southwest Virginia is on track to lose 1,000 residents each year for the next decade, Stephen Moret, chief of the Virginia Economic Development Partnership, told attendees of the Southwest Virginia Economic Forum in Wise, yesterday. The region needs to add 250 new jobs per year over and above the new jobs already coming just to stay stable.

Achieving a 1% annual growth rate will require adding three times the number of new jobs each year, he said, as reported by the Roanoke Times. “Yes, it’s a big challenge. Yes we’re up against a lot nationally, but this is something we can achieve if we’re focused enough, aggressive enough, committed enough.”

Moret proposed a six-point plan to jump-start the region’s economy. As summarized by the Times, he recommends:

  • Expanding computer science programs at higher education institutions.
  • Increasing workforce development training to match business needs.
  • Altering Virginia’s tax structure to reduce taxes on technologically advanced manufacturing businesses.
  • Offering higher incentives to companies willing to relocate or expand in rural Virginia.
  • Spending money to market rural Virginia — something the commonwealth doesn’t currently do.
  • Creating mixed-use developments attractive to young professionals as a way to improve quality of life factors.

You can download a copy of Moret’s presentation from Google Docs. The presentation begins his aspirational goals for Virginia and VEDP, then places Virginia’s rural development challenges in a national context, and ends with a few ideas to advance economic development in the coalfield region (i.e., far Southwest Va.)”

Bacon’s bottom line: These ideas all sound reasonable… but five of the six require more money, either directly through higher expenditures or indirectly through tax breaks. Unfortunately, there’s not a lot of extra cash floating around, either at the state level or the local or regional levels. Perhaps the Tobacco Region Revitalization Commission, which has an annual budget of about $30 million, is in a position to fund the workforce training initiatives, incentives and marketing programs. Perhaps the higher-ed sector can reallocate funds to expand computer science programs. But it won’t be easy finding the resources for new initiatives.

The most original idea — indeed it’s such a departure from the usual thinking about rural economic development that it slaps you like a mackerel across the face — is the recommendation to create mixed-use development attractive to young professionals. This notion has much to commend it, not the least of which it doesn’t require subsidies or tax breaks, and is fully within the power of local governments to implement, subject to market constraints.

I would like to expand upon the idea. By my count there are four cities — Bristol, Radford, Galax and Norton — in Southwest Virginia and more than 40 incorporated towns. The towns range in size from Blacksburg (population 44,200) to Clinchport (population 67) in Scott County — both the largest and the smallest in the Commonwealth. Many of these cities and towns have walkable Main Streets or downtown districts capable of supporting mixed use development.

Blacksburg is a unique case. Its vibrant downtown district is an extension of Virginia Tech, an economic powerhouse unmatched elsewhere in the region, and its success cannot be replicated. But I have frequently referred to the example of Abingdon, which I believe can serve as a template for communities not endowed with a major research university. Abingdon has built an attractive, walkable downtown around the nucleus of the historical Barter Theater, the Martha Washington Inn and a stock of historic brick buildings. The town has become not only a place where people want to visit but where people want to live.

Counties, cities and towns need to fundamentally shift their thinking — as embedded in zoning codes, comprehensive plans, and capital spending plans — from subsidizing rural sprawl to creating walkable urban nucleii. Capital spending plans should invest in expanding the grid street networks from their Main Street/downtown cores. And if they have any cash to spare, municipalities should invest in sidewalks and streetscapes (and, if demand exists, cycling lanes) with the goal of making streets more hospitable to pedestrians. But they need to do it right. Place making is a complex discipline, and investments should be guided by the principles of Smart Growth or New Urbanism. Finally, cities and towns need to get comfortable with the idea that mixing offices, retail and residential is a good thing — it’s what more and more people want.

The big challenge is overcoming stagnant or shrinking populations. It’s hard to justify investing in new buildings in walkable, mixed-use districts if there is little demand. That’s where a regional marketing plan could prove invaluable. But instead of spending marketing dollars on trying to attract light industry (as I presume Moret intends), or even young people, who will be a hard sell without abundant jobs, I would suggest spending it on attracting retirees looking for inexpensive places to spend their leisure years. Such a campaign should not aim at retirees generally but (a) emigres who may have sentimental or family attachments to the region, or (b) retirees seeking to live an active, outdoors lifestyle.

By my hasty, back-of-the-envelope calculation, Southwest Virginia has at least 15 communities of sufficient scale to create small, intimate, walkable places where people with significant disposable income might be willing to live. (My list is hardly definitive, and likely would need to be revised, but the guiding idea is sound.) These are the potential nucleii for rebirth. These are where the tobacco commission should be investing in broadband, where the state and counties should be funneling infrastructure dollars, and where institutional assets such as schools, colleges, museums, libraries, community centers should cluster.

Southwest Virginia needs to reinvent itself for the 21st century economy. Light industry, data centers, solar farms, call centers and back-office operations are all part of the equation. But creating places where people actually want to live is indispensable as well. Kudos to Moret for raising the issue.

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Nobody Cares about You, Southwest Virginia, and Maybe That’s a Good Thing

Posted on May 1, 2017 by | 16 comments

Downtown Abingdon, one of Virginia’s great walkable places.

The Roanoke Times tells a hard truth to the readers of Southwest Virginia: “Nobody cares about you.”

Democratic Governor Terry McAuliffe, says the Sunday editorial, has done nothing to help the counties of the far Southwest whose finances were devastated by the collapse of the coal industry. The Democratic Party in Virginia has “evolved into almost strictly a suburban-urban party that has no natural interest in anything west of the Blue Ridge.”

And the Republicans? After promising to help the coal industry, President Trump has proposed slashing funding for energy research and zeroing out a program that pays to convert old mines into industrial sites. Concludes the editorial:

What’s the takeaway from all this? We’re on our own. We cannot count on either Richmond or Washington to help us. Maybe from time to time one of them will come through with some unexpected grant to help with some piece of infrastructure and we should be grateful. On a day-to-day basis, though, it’s clear that both the state and federal governments have come to a bipartisan consensus: Southwest Virginia doesn’t matter to them.

What is the down-on-its-luck region supposed to do? Businesses need to get more engaged, says the Times. Local government needs to focus more on economic development. Voters need to be more demanding.

The Times is right. Other regions are indifferent to the fate of Southwest Virginia. They have their own problems and their own funding issues. Other regions insist that they’re getting a raw deal from the state. (Talk to a Northern Virginian some time. NoVa may be rich, but its citizens feel short-changed and aggrieved.) And every region pursues its own self interest. The bigger piggies muscle closer to the trough, leaving the weaker piggies behind. It’s Darwinism in a political setting.

Southwest Virginians would be well advised not to pin their hopes on the largess of others. What, then, can they do?

They could start by acknowledging some harsh realities. First, coal is never coming back. Natural gas, wind power and solar power are far cleaner and far cheaper. Economics will dictate than any new electric-generating capacity in the United States over the next decade will be either gas or renewable. Existing coal plants will serve out their economically useful lives, and then they will be phased out.

Second, manufacturing might rebound, but it will never provide the large-scale employment it did a generation ago. Some manufacturing operations may repatriate from overseas back to the U.S., and corporations will continue to invest in plant expansions. But robotics, artificial intelligence and other forms of automation mean that manufacturing processes will create require fewer and fewer jobs as time goes on. The return on investment on traditional economic development strategies — recruiting manufacturing investment — will continue to decline.

Third, the agglomeration economies of the Knowledge Economy will continue to favor metropolitan areas with large, diverse pools of skilled, educated labor over small, semi-skilled labor pools of rural communities. The Roanoke-Blacksburg area, with its access to Virginia Tech, its faculty, graduates and entrepreneurial spin-offs, conceivably can achieve economic escape velocity. But no other city or town in the region has that potential. Meanwhile, young people who succeed in obtaining a college education will continue to emigrate from the region — just like they’re doing in every other rural community across the country.

Making the challenge even more difficult, Southwest Virginia lacks an advantage possessed by other rural areas in Virginia such as the Shenandoah Valley, the northern Piedmont, and the Chesapeake Bay tidewater — proximity to large, affluent metropolitan areas. A location within easy driving distance of big metros will support an economy of resorts, vacation homes, retiree communities and weekend-getaway amenities for city dwellers.

What options does that leave Southwest Virginia? Not many. But the region is not destitute of assets. The Virginia Tobacco Region Revitalization Commission still has millions of dollars to dispense. The region just has to take care not to squander its limited resources on chimera like new Interstate highways, inter-city rail service, manufacturing subsidies, our outright follies such as government-supported golf courses, convention centers and other long-shot efforts to stimulate development.

I’ve written before about the Aspen model of economic development, built on active outdoor recreation — not just skiing but hiking, rafting, rock-climbing, mountain biking, kayaking, fishing, all-terrain riding, and so on — as well as a fabulous, walkable downtown. The walkable downtown is a critical element of Aspen’s success, and there is no reason that Virginia can’t replicate the formula in many of its small towns.

Call it the Abingdon model instead of the Aspen model. The town of Abingdon in Washington County is one of the most charming places in Virginia, and it is set in an area of great natural beauty. It has become destination that people are willing to travel hours to visit. Abingdon is proof that the strategy can work.

Wise County is another innovative community, exploiting its investment in broadband to recruit data centers. Data centers don’t support many jobs, but they do pay taxes that broaden the tax base. The county also is exploring opportunities to supply green energy to the data centers. Regional authorities should map the electric transmission grid, enact solar-friendly zoning ordinances and comprehensive plans, and encourage solar developers to consolidate properties capable of hosting utility-scale solar farms.

America is a big place, and while most rural areas (outside the fracking hotspots) are hurting. But some communities are faring better than others. Some are doing innovative things. Southwest Virginia can learn from the example of others. Perhaps it’s not a bad thing that no one else cares about the region. In the long run, dependence and handouts accomplish less than resilience and self reliance.

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