Rural counties beginning to attract high-paying jobs
Former coal, tobacco and textile centers emerge as desirable sites for expansion

by Gary Kranz
for Virginia Business
March 2006

Northern Virginia’s robust economic engine continued to purr steadily in 2005, even as tectonic shifts occurred in the state’s less-populated regions. Russell County in Southwest Virginia best illustrates this transformation. Cradled in the coal-streaked Appalachian Mountains midway between Tennessee and West Virginia, this rural area enticed two technology conglomerates to invest in centers that will create hundreds of jobs.

In the county seat of Lebanon (population 3,300), CGI-AMS Inc. is breaking ground on a 53,000-square-foot facility — price tag: $6 million — to house software development and systems integration. CGI, whose U.S. headquarters is in Fairfax, provides sophisticated IT services to many federal defense and security agencies, and the new facility will play a leading role. Most important is that the company plans to hire up to 300 area residents as Java developers, software testers and business analysts, paying them median wages of $51,000 — more than double the regional average — but below what the company would pay workers in Northern Virginia.

Northrop Grumman Corp., a colossus that spans seven lines of business, also tabbed Lebanon for a new backup data center. The facility is needed to fulfill the company’s 10-year, $2 billion contract with Virginia to modernize and consolidate state IT systems. Northrop Grumman expects to hire about 430 people, with 90 percent of the new hires expected to come from Russell, Wise, Tazewell, Washington, Buchanan and Dickenson counties. The pay range for those positions also will eclipse the coalfield region’s $24,500 average salary.

Such high-paying jobs normally aren’t found in the commonwealth outside of technology-rich Northern Virginia. Therein lies one of the more notable developments in 2005: rural areas, with their light traffic, low cost of living and incentive packages, are finally beginning to taste the fruits of Virginia’s rapidly expanding economy. CGI will get $1.4 million in state grants to help with its location to Lebanon as well as state assistance with work force training.

A final tally of corporate investment in Virginia, along with the jobs it spawned in 2005, was not available at press time. However, partial figures show nearly 420 companies announced expansions or relocation plans here last year, generating an estimated 30,553 new jobs and totaling nearly $4 million in capital investment.

After years of failed or inadequate initiatives, politicians and business leaders may have finally hit on a strategy to narrow the gap between Virginia’s haves and have-nots, a strategy heavily pushed by former Gov. Mark R. Warner. Tobacco indemnities have fueled investments in high-speed broadband, while specialized training curricula at state colleges are delivering the tailored training businesses are demanding. “We’ve already heard from real estate developers that recognize the potential for growth here [in light of the CGI-Northrop Grumman announcements]. We hope other companies will begin to look at our area because of our lower prices for real estate and our great quality of life,” says Jonathan Belcher, deputy director of the Virginia Coalfields Economic Development Authority.

As one of his first acts as new executive director of the Virginia Economic Development Partnership, Jeffrey M. Anderson is hammering out a strategy to “market the heck” out of regions that once thrived on coal, tobacco and textiles. Central to his plan is identifying four “prototype” rural cities that could serve as magnets for intense economic recruitment, especially with more companies using “virtual” work forces to complete functions via the Internet. Anderson won’t disclose which cities are being considered except to note that localities will need massive broadband capacity, a decent inventory of commercial buildings and a pipeline of able workers. The first four cities could serve as a long-range blueprint for future endeavors targeting economically distressed regions. “This is a clear opportunity for Virginia. We need to do a baseline assessment of our rural towns, especially those that have the skill sets coming out of our colleges and universities,” says Anderson, a former executive with McLean-based consultancy BearingPoint.

Danville may provide a glimpse into Anderson’s grand plan. Once a poster child for Virginia’s economic disparity, Danville now sports an eclectic mix of industries ranging from nanotechnology, consumer services, specialty retailing and light manufacturing. Since 2004, nearly 2,500 new jobs have been created, with capital investment by private companies exceeding $100 million. Nearly 1,000 of those jobs were announced by companies in 2005. “We’ve been focused on diversifying our economy so it’s not overly dependent on tobacco and textiles,” says Ron Bunch, Danville’s economic development director.

A critical mass of experienced furniture laborers in Danville and surrounding areas helped persuade Red Lion, Pa.-based Yorktowne Cabinetry to open an assembly plant in Danville this year that will make semi-custom cabinets for upscale home builders. As many as 325 people will be hired as the plant ramps up, with the work force growing to 540 employees at full capacity. “We can teach people the finishing side of things. What we’re looking for are people who have good problem-solving and team-building skills,” says Dennis Scully, the cabinetmaker’s executive vice president.

Urban areas gain jobs, too
The job growth in rural regions in no way suggests that Northern Virginia is losing its luster as a job market, however. In fact, the largest single expenditure in Virginia last year occurred when semiconductor maker Micron Technologies decided to retrofit its Manassas plant to make 300-millimeter wafers. As part of a joint venture with Intel Corp., Boise, Idaho-based Micron will spend $1.2 billion and add 860 jobs in Virginia. Intel and Micron have formed a new company, IM Flash Technologies, which already possesses a $500 million contract to supply Apple Computer Inc. with enough chips to meet demand for its wildly popular iPod devices. Also planning expansion in Northern Virginia is large IT provider BAE Systems, which is adding 700 jobs to keep pace with growth in its federal contracting business.

Virginia’s surging economy produced job gains in virtually every region, including Hampton Roads. Longtime Virginia Beach manufacturer Stihl Inc., which makes handheld power tools, is spending $78 million to expand its manufacturing capacity. About 150 people will be hired for new jobs making metal guide bars for chainsaws. It marks the second major expansion in Virginia Beach in three years by Stihl. And just days before Christmas, Wolseley PLC, which bills itself as the world’s largest distributor of plumbing and heating products, settled on Newport News for its North American headquarters. The United Kingdom-based firm plans to create 400 jobs and invest $30 million.

The Richmond region also experienced economic development coups. Along with its Russell County facility, Northrop Grumman is adding a $35 million operations center in Chesterfield County as part of its state IT contract. Situated in Meadowville Technology Park, the project is expected to create about 630 jobs. The federal government’s new Medicare prescription drug benefit for seniors also is generating job growth. Pearson Government Solutions in Arlington is hiring up to 800 people for its new Chester call center, which assists seniors wishing to enroll in the program.

Perhaps the crowning achievement for Richmond leaders was the decision by Philip Morris USA to expand its presence. The world’s largest cigarette maker is constructing a massive $300 million research and development complex in the Virginia Biotechnology Research Park that will consume two city blocks. It’s anticipated the project will spur 500 new jobs, mostly high-level positions for research scientists and laboratory support staff. The average wage, according to the VEDP, would be around $77,500. Clinching the Philip Morris deal for Richmond — the company said it looked at several other sites in Virginia and in North Carolina — was a generous package of state financial incentives worth $26 million, including $18 million in grants and $8 million in tax breaks.

Keeping them coming
The state’s largesse toward Philip Morris points out an interesting dilemma for state economic development recruiters: How much money is too much? Getting Philip Morris to place its sprawling research center in Richmond consumed nearly half the $59 million total that Virginia made available to firms last year, including $33 million in cash grants and $26 million in various tax-credit programs. Actually, Virginia’s economic success in 2005 is solid considering it offers less money than many other states.

Lots less money. Virginia competes frequently for deals against Texas, Ohio, Florida, Maryland, Georgia, Pennsylvania, South Carolina and North Carolina. Of those states, only Florida and Maryland offered less money in 2005 than Virginia (Florida extended about $58 million, Maryland about $13 million). Nonetheless, Anderson says Virginia’s strong reliance on government contracts (and its proximity to the nation’s capital) offsets the higher incentives offered by neighboring states. “One question we ask of companies is: ‘Would you rather be three hours from your customers, or two time zones away from your customers?’” says Anderson.

Good point. As long as federal contracts continue to pour in, Virginia may not have too many worries. Should they begin drying up, state leaders may need to re-examine offering more competitive tax breaks and other blandishments to ensure Virginia remains a business destination. The challenge this year will be sustaining the momentum Virginia generated in 2005.