Overall, jobs and investment fell in 2009, but Virginia continues to draw corporate headquartersFebruary 26, 2010 5:59 AM
by Garry Kranz
Photo by Mark Rhodes
Persuading companies to relocate is never easy. The challenge for Virginia’s economic officials grew more complex in 2009 as the U.S. economy slid further into recession. Yet the state managed a couple of major victories. Two companies, Science Applications International Corp., or SAIC, and Hilton Worldwide, pulled up stakes from debt-ridden California and headed to Fairfax County.
Combined, those two corporate giants will produce nearly 1,600 jobs in Northern Virginia and a capital investment worth $42 million. And Virginia may not be through raiding California’s corporate cupboard. Northrop Grumman Corp., a global aerospace and defense company, plans to leave Los Angeles and set up headquarters somewhere in the Washington, D.C., area by 2011. A decision on whether Virginia, Maryland or the District of Columbia gets the plum is expected this month.
While Virginia remains a top-ranked destination for corporate America — it’s been recognized as the best state for business for four consecutive years by Forbes.com — corporate recruiters felt the sting of recession. The state announced fewer new economic projects in 2009, with job creation and capital investment declining from 2008 levels.
“The volume of new projects just dried up. You could almost peg it to the day it was announced that [investment bank] Lehman Brothers had failed. You could detect fear in the marketplace,” says Robert W. McClintock, the director of research at the Virginia Economic Development Partnership (VEDP), a state agency that recruits new business.
Looking back, Virginia announced 280 economic projects last year. They are expected to generate 17,017 jobs and $3.2 billion of capital spending during the next several years. In 2008, Virginia forecast nearly 22,000 new jobs on the strength of 351 projects and more than $5 billion in corporate investment.
Job creation is the No. 1 priority of newly elected Gov. Bob McDonnell. The first Republican to occupy the governor’s mansion since 2002 has proposed $50 million in new spending for jobs and economic development initiatives. He wants to beef up the Governor’s Opportunity Fund — the pot of incentive money used to clinch deals — adding an additional $12.1 million to the $23.6 million budgeted for the 2009-2010 biennium.
He’s also pushing for $2 million to open new economic development offices in high-growth markets such as China, India and the United Kingdom.
The governor has outlined specific trims and shifts in some funding to offset the $50 million, but his more daunting task is plugging a $4.2 billion hole in the state’s biennial budget.
Statewide, projected job growth continues to be fueled mostly by expansion of existing business operations. Such activity spawned 12,451 positions in 2009, or 73 percent of all new jobs, according to VEDP. In 2008, expansion accounted for nearly 17,000 new jobs, or 78 percent of the total job growth.
In fact, expansion saved Virginia from an otherwise gloomy 2009. Companies severely curtailed spending on new construction and focused instead on retrofitting existing facilities. Corporations announced plans to spend a combined $2.7 billion to upgrade Virginia plants — a whopping 83 percent of the state’s cumulative annual capital investment.
By contrast, new construction accounted for about 17 percent. (In 2008, Virginia’s corporate investment was more balanced: 56 percent stemmed from new construction, and 44 percent derived from expansion.)
Half of last year’s corporate investment occurred in Northern Virginia, the state’s job engine. Localities there welcomed more than 6,100 new jobs and nearly $1.65 billion of capital spending, according to annual figures provided by VEDP.
The region also expects to pick up another 6,200 jobs from companies that provide services. That includes 1,200 high-paying jobs during the next three years at SAIC, which is moving its corporate headquarters to Tyson’s Corner after decades in San Diego. About three-quarters of the jobs will be technical/scientific positions.
SAIC is a diversified technology services company that serves a slew of federal agencies. The company now employs about 12,000 people across Virginia and its presence here dates back more than 25 years. It plans to invest $25 million to refurbish and expand its Tysons Corner facilities to accommodate the new headquarters, says Arnold Punaro, the general manager for SAIC’s Virginia operations. In addition, the company expects to invest an unspecified amount to develop an adjacent 18-acre site for consolidating other operations in Northern Virginia.
Relocating corporate functions to Virginia made sense as SAIC dealt with a wave of retirements among its executive ranks, including CEO Ken Dahlberg, who retired in September and was replaced by Walter P. Havenstein. “A lot of our customers are here, and with our new CEO living in the area, it was a logical move,” Punaro says.
SAIC becomes the third major corporation in two years to flee sunny California for Virginia. Last February, Hilton Worldwide abandoned its longtime Beverly Hills headquarters for Fairfax County, with plans to create 300 jobs by 2012. The trend was set in 2008 when Computer Sciences Corp., an information-technology consulting firm, left El Segundo, Calif., in favor of Falls Church.
Punaro and others in Northern Virginia’s business community are keeping their fingers crossed on Northrop Grumman. “Northrop Grumman is a great company, and we’d be happy to help them move to Virginia,” says Punaro. “We’ve got a very nice campus [in Vienna] that we’ll make available to them at a bargain price.”
Besides Northern Virginia, other regions benefited from increased federal spending. The largest expansion involved one of Northrop Grumman’s business divisions, Northrop Grumman Shipbuilding in Newport News. Over the next several years, it plans to spend $230 million and add 1,000 jobs.
Another expansion came from the federal Base Realignment and Closure process begun in 2005. It involves shifting about 800 jobs at the Defense Intelligence Agency in Washington, D.C., to Rivanna Station in Albemarle County, home to the U.S. Army’s National Ground Intelligence Center. A new $67 million multiuse facility is going up to house the two intelligence agencies and will open later this year.
Virginia also added a research center when the Ignite Institute for personalized medicine chose Fairfax County as the site for a $200 million complex. The genetic research facility is a joint venture between Falls Church-based Inova Health System and a consortium of other hospitals. Ignite’s research is based on the application of personalized medicine, which uses a patient’s DNA profile to develop individualized medicines and therapeutic treatments. “Ignite will be used to bridge the gap between the research bench and the doctors’ bedside,” says Ignite COO Michelle Robinson.
Virginia was chosen over several other states, Robinson says, because of its proximity to universities and federal agencies. State incentives of $25 million helped, too, including potentially $22 million worth of grants tied to job creation, the acquisition of additional outside capital and high-value collaborative research projects. According to Robinson, Ignite will create 415 high-paying technical and research jobs within five years.
Other jobs creators include British auto insurer Admiral America. It chose Henrico County for its U. S. headquarters and plans to hire about 320 people within three years for its Elephant Insurance Co. King George County may also see new jobs if supermarket giant Harris Teeter follows thorough on plans to build a food distribution warehouse. The company is yet to close the deal on the land, instead seeking several extensions from the county as it continues to deliberate on the 500,000-square-foot center which, if built, would bring 335 jobs.
Jobs definitely are needed. Virginia’s unemployment rate hit 6.7 percent in December, nearly two full percentage points higher than the previous year, according to the federal Bureau of Labor Statistics.
Still unemployment here was lower than the U. S. average of 9.7 percent. As the VEDP’s McClintock observed, “We have a balanced portfolio of projects, and I think that helped us weather the storm.”
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