Virginia Small Business Rating: Fair to Middling

Ranking out of top 177 metros. For an explanation of metrics, see Reward Expert’s methodology here.

Yesterday I opined on the critical importance of tax rates in influencing the flow of corporate and human capital between the states (“Supply Siders Like Virginia’s Economic Outlook“). But I made the point that taxes are hardly the only factor driving economic growth. Another important variable is entrepreneurial vitality — the ability of states and metros to grow their own businesses. Strong entrepreneurial ecosystems have kept states like California and New York in the game despite atrocious tax policies that push businesses and high-income households out of their states.

Now comes a new of “Best and Worst Places to Start a Small Business,” published by Reward Expert, a company that creates reward packages for credit cards. Researchers used a bundle of 30 metrics including office space, demographics and diversity, education, income, transit, housing costs, and venture capital activity, among others for 177 metropolitan areas with populations greater than 250,000.

Under this methodology, the Denver, Colo., and Boston, Mass., metros scored No. 1 and No. 2, while Charleston, S.C., and the Tallahassee, Fla., regions scored the worst.

And Virginia metros? Overall, they put in a fair-to-middling performance. The Washington and Richmond metros ranked 21st and 22nd respectively, both respectable scores but not enough to blow anyone’s socks off. Roanoke was a pleasant surprise at 29th. Lynchburg scored in the top half. Virginia Beach-Norfolk was the only laggard, falling into the bottom half — but nowhere near the bottom.

Metropolitan rankings have become a dime a dozen now, and I haven’t analyzed Reward Expert’s methodology to see if it is better or worse than the others. (I do question how valuable the five-year startup survival rate is as a metric, for instance, for it seems to vary within such a narrow range. And Washington’s low score for educational attainment looks plain wrong.) Just consider the report as one more colorful fragment in the kaleidoscope of data we scrutinize to track our performance.

Combine this report on small business prospects with the “Rich States, Poor States,” which focuses more on factors influencing corporate investment and human capital flows between states, and the outlook is cautiously positive for Virginia. By no means can we consider ourselves an economic development powerhouse, as we were during the glory days of the 1980s and 1990s. And we’re still too dependent upon the vagaries of federal government spending. But our economic fundamentals look better that those of most states.

Update: WalletHub has come out with its own ranking of best cities for business startups. Bottom line: Virginia sucks. Out of 180 cities:

Richmond — 79th
Virginia Beach — 131st
Norfolk — 150th
Newport News — 160th
Chesapeake — 170th

Important difference between the two rankings: Reward Experts looks at Virginia metropolitan regions, WalletHub looks at Virginia “cities.”

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19 responses to “Virginia Small Business Rating: Fair to Middling

  1. Virginia’s economic development approach seems fundamentally flawed to me. Other states have economic development programs like the “Buffalo Billion” in New York. Companies get various tax breaks and benefits for adding desirable jobs in the Buffalo area. The state constantly monitors the progress of these efforts and demands paybacks or curtails benefits when the companies fail to deliver on their promises. These matters are constantly in the press.

    Where is the analysis of Virginia’s economic development efforts? One thing we know is that company specific tax breaks are unending and never reviewed. For example, the debacle around Orion Air was well documented on this very blog by Jim Bacon …

    https://www.baconsrebellion.com/another-reason-to-loathe-special-tax-breaks/

    The Imperial Clown Show in Richmond cooked up a squirrelly law to advantage one business air travel company without any similar benefit to Virginia based competitors of Orion Air. Orion’s CEO made significant campaign contributions to the bill’s sponsors and then Orion hired one of the sponsors as their director of community relations. You can’t make this stuff up!

    As Bacon wrote, “The project would create 51 new jobs within the next 12 months with an average salary of $81,569.” Did this happen? Beyond that, I understand that these tax breaks go on forever. So, in return for adding 51 jobs the company gets tax breaks forever? Really?

    Has anybody looked at whether the Tobacco Indemnification Fund money the clown show slopped around southwestern Virginia met expectations?

    Where is the accountability in Virginia? In New York the Buffalo Billion had its share of shenanigans. But those issues were played out in public. The progress of the companies using the money is a matter of public record. Clawback provisions are always in place for companies that fail to meet expectations. Benefits never go on forever. Where are these common sense rules in Virginia?

    Virginia really is America’s most corrupt state. The corruption may be legal but it’s corruption all the same.

  2. hmm… we got all these folks calling it the lame stream media, fake news, and worse and now we’re whining about their demise?

    gadzooks!

  3. http://jlarc.virginia.gov/pdfs/reports/Rpt500.pdf

    http://jlarc.virginia.gov/vedp-2016.asp

    I see in my mind’s eye Marty Feldman in Young Frankenstein. Werewolf? Werewolf? There wolf! Where are the reports, DJ? There are two of them linked above, both from JLARC. When the report on VEDP hit print it got substantial coverage and heads did roll. The other report is an annual summary and don’t ask me about those two shipbuilding related programs because I helped develop them both.

    Here is the annual report prepared by the VEDP on itself:

    http://www.apa.virginia.gov/reports/VirginiaEconomicDevelopmentPartnershipFinancialStatements2017.pdf

    I’ll put these out there and withhold further comment for a while. But there is plenty of data….

  4. Looking through the Virginia economic development news releases I see …

    Standard Calibrations … supposed to create 150 new jobs
    Humm Kombucha … supposed to create 50 new jobs
    Intertape Polymer Group (IPG) … supposed to create 15 jobs
    American Merchant, Inc … supposed to create 405 new jobs
    Facebook (data center) … supposed to employ 1,688 workers during construction
    Toray Plastics (America), Inc. … supposed to create 30 new jobs

    The list goes on and on and on.

    Where is the report card that shows each of these corporate welfare handouts along with their forecast benefits, actual benefits and cumulative costs in tax breaks, subsidies, etc?

    In the case of Orion Air the tax benefits are both significant and (as far as I know) ongoing. From Jim’s article …

    “The tax break was significant. According to an analysis by Judy Lin Bristow and Matthew C. Marshall with the Williams Mullen law firm, Virginia normally imposes a 2% tax on the lease, charter and retail sale of aircraft within the state. The tax, they write, is “a costly expense for businesses that maintain or relocate their aircraft fleets in Virginia. For example, relocating a $40 million aircraft to Virginia has meant a 2% or $800,000 tax. ”

    So, Orion dodges $800,000 in taxes for each $40m plane. For 3 1/2 years, ending on 12/31/2014. In return they generate 51 jobs with an average salary of $81,569. That’s $4.2m per year in salaries which, at 5% state income tax, puts $208,000 into the state coffers. Granted – there are other taxes the state collects besides income taxes but at $800,000 per plane (for 3 1/2 years) … how could this possibly have a positive net present value for the Commonwealth? And where is the report that shows the totality of what Orion Air has dodged in taxes vs the number of jobs created and the salaries of those jobs?

    In fact, what happened to Orion Air? I started to wonder what was going on when I realized their website was defunct. Apparently, they became known as Tempus Jets. Oddly, that website is now also defunct. As far as I can tell (and I’m not really sure at all) Orion became Tempus which was rolled up in a “business combination” into Tempus Applied Solutions Holdings, Inc. If so, Tempus Applied Solutions Holdings, Inc is not doing very well … http://bit.ly/2HtDuOw

    Are there any jobs from what was once Orion Air in Newport News anymore?

    Meanwhile, Sen John Miller, the politician who patroned the Orion Air deal and then went to work for Orion dies of a heart attack two years ago.

    • Not one of the great success stories, admittedly. But again, absent the incentive the plane(s) would not be in Virginia at all so the tax revenue would still have been zero. You don’t get a more mobile asset than an airplane!

  5. In the end – all of this is about bringing more jobs to the State and a job versus someone needed entitlements is deemed “worth” whatever various incentives might produce – especially if we are in competition with other states for those same jobs

    We can choose to not play that game – out of “principles” but that leaves us with more folks without jobs than might have been.

    One can argue this eight ways from Sunday but at the end of the day – even most critics believe there should be an agency whose mission is to try to bring more jobs to the state. As always.. the devil is in the details and “accountability” is as much a disagreement in principle with the methods and philosophies with regard to incentives – than other things.

    Like it or not – we ARE in competition with other states to get our share of jobs and we can choose to compete …or not… and I bet even critics will see the realities even if such incentives goes against their principles.

    Finally – the idea that we judge the success of such endeavors – after the fact seems churlish at best because such there is no real effective way to truly judge from the front side – what will be or not be successful and doing it after the fact would just have the effect of limiting what the economic development folks might do to bring jobs. Not advocating a wide open process with no accountability at all.. just saying that some of what I hear sounds more like disagreement with the CONCEPT of incentives and/or they MUST produce an ROI or else someone did something “wrong”.

    Economic Development has always been a bit of a crap shoot and failures are many and ugly.

  6. Jim started this discussion about small business formation and DJ and I took the detour into talking about the incentive programs for recruiting larger businesses. I may start another thread on that theme but what about small businesses? One of the problems is there is too much focus, IMHO, on those large projects and on individual recruitment efforts. There is not enough focus on the underlying economic conditions that are good for business in general.

    It is kind of the “tree falling in the forest” question. Unless the location or expansion decision produces a press release with the politician’s name prominent, does it really matter? I’m sure for every business getting the spotlight there are hundred making the same decisions – or deciding not to make investments or grow because the conditions are not great.

    Some companies can hire lobbyists or development specialists to go plead with the state or locality for grants or changes in the tax laws, others have to hope that the general business advocates (Chamber, National Federation of Independent Business, etc.) are working on the general business climate. But as the Chamber’s lobbyist I can tell you the large companies continued to dominate the discussion if they could.

    There are programs aimed at the smaller businesses, one of the most prominent being enterprise zones. You don’t see much discussion of that program in those reports. Everybody focuses on so-called buffalo hunting, the biggest baddest bison out there right now being HQ2 for Amazon.

  7. But don’t localities have a fairly wide latitude of things they can do for small business that the State does not have to do?

    The State is after larger prospects where issues beyond the localities ability are involved.

    We had a LIDL distribution center located in Spotsylvania. Both the locality and the state kicked in incentives…

    http://www.fredericksburg.com/business/local_business/lidl-breaks-ground-on-distribution-center-in-spotsylvania/article_4f2ac5f1-1375-5e65-8503-206c6c8a1c10.html

    200 jobs.. how many small businesses would it take to generate that many jobs?

    Don’t get me wrong – localities have the ability to do away with BPOL and fast track business applications.. reduce the permit costs…etc…

    Typically small business do not generate higher salary jobs… nor provide health insurance or 401Ks.

    • But then they grow. Short term thinking there, Larry.

      • A very small number “grow”.. more than half fail and many if not most of the others are basically local people performing local needs – rather than genuine wider-scope entrepreneurs.

        Yes.. one in a million jumps the shark but I just don’t any more “promise” at the small business level than at the larger business level – all things considered.

        Small businesses are somewhat organic… for local needs… dry cleaners, landscaping, contractors, repair services… etc… Bill Gates types are rare and I would assert that that kind of entrepreneurship has a much better chance in the urban areas with industries in those areas…

  8. There are different kinds of small businesses. One type — dry cleaning establishments, boutiques, mom-and-pop restaurants — provides local goods and services. The key is to develop businesses that trade outside the region. This type has the potential to grow in size, create lots of wealth, and hire lots employees.

  9. re: ” The key is to develop businesses that trade outside the region.”

    We agree! So you WOULD give incentives to those kind ?

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