Corporations continue to expand in Virginia

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by Garry Kranz

Despite a tough economy, Virginia continued to attract corporate investment in 2007.  Plenty of existing companies expanded operations, and new recruits selected the Old Dominion because of its business-friendly climate and Mid-Atlantic location.

Yet, the corporate investment didn’t provide as many jobs as in recent years. Overall, for calendar year 2007, companies expanding or relocating in Virginia announced investments of $3.5 billion in land, equipment and facilities and a total of 16,609 new jobs. Compared to 2006, investment was up $1.4 billion; jobs were down by about 8,500 positions. “The reduction in overall announced employment … is in line with trends we are seeing nationally,” says Rob McClintock, director of research for the Virginia Economic Development Partnership, the state’s business-recruiting arm.

While the rate of U.S. job growth dropped from 1.8 percent in 2006 to 1.1 percent in 2007, Virginia saw a more modest decline from 1.7 percent to 1.5 percent. “The good news for Virginia is that the announcement activity is in line with VEDP’s declared target markets (advanced manufacturing, science and research, services and security and transportation and logistics) with more than 90 percent of those jobs falling within our targets,” notes McClintock. “These sectors are projected to have higher salary and better future performance outlooks than other industries …”

Some of the year’s biggest economic development deals included a $100 million North American headquarters relocation for Volkswagen of America Inc., and what could be as much as $500 million for a Rolls-Royce aircraft engine plant in Prince George County. Four of the top 10 investment deals (see charts on page 34) will put new data centers in Northern Virginia and the Shenandoah Valley, a trend that contributed to the bump in capital investment. 

Virginia’s proximity to major U.S. markets was pivotal to Volkswagen’s decision to relocate to Fairfax County from suburban Detroit — a net gain of 400 jobs. “Moving and streamlining our operations to Virginia gives us an opportunity to naturally transform the business so we can compete successfully in the U.S. market and better serve our customers,” says Volkswagen Group of America CEO Stefan Jacoby.

The jobs will be related to functions such as customer service, sales, product strategy, marketing, quality and service, and public relations, he says.  In particular, Jacoby liked the fact that Northern Virginia has one of the highest concentrations of Audi and Volkswagen owners in the U.S.  State incentives worth $6 million are earmarked for the Germany-based automaker.

Rolls-Royce will build an assembly-and-test facility on 300 acres of land at a 1,025-acre site in Prince George County. The state is expected to include $10.7 million in incentives for the plant in its 2008-10 budget, and the company could get more down the road — $35 million — if the plant meets performance goals. 

In landing Rolls-Royce, Virginia beat out seven other states as well as localities across the globe.  The deal is expected to help the state economy in many ways.  “It fills in a piece of our aerospace [sector] puzzle but also complements our advanced manufacturing cluster” in Central and Eastern Virginia, says Liz Povar, VEDP’s director of business development.

Aside from creating what could be more than 500 jobs, the deal dovetails with Virginia’s quest for more federal research dollars. The University of Virginia plans to construct the Commonwealth Center for Advanced Manufacturing adjacent to Rolls-Royce’s Prince George plant, focusing on advanced technologies used in high-precision manufacturing. Also, U.Va and Virginia Tech plan to jointly establish with Rolls-Royce a Center for Aerospace Propulsion Systems, with Virginia matching some of the funding.

The year 2007 also brought expansions in pharmaceuticals. For the second time in six months, Merck & Co. decided to expand its Elkton plant. It plans to invest $193 million to boost production of its medicines and vaccines, creating 70 jobs. Last December, New Jersey-based Merck announced a $57 million expansion at Elkton, which already employs more than 700 people and has a payroll of about $60 million. It’s one of seven Merck manufacturing plants in the U.S..

More good news for Virginia’s life sciences industry came in November when Covance Inc. decided to move its operations from Fairfax County to Prince William County, locating a new $175 million pharmaceutical research and development lab in a large space that had been vacated by Eli Lilly.

As states scramble to develop alternative energy resources, Virginia also saw activity in this sector.  For example, Synergy Biofuels LLC announced a $1 million bio-diesel fuel production company in Southwest Virginia’s Lee County that will create 30 jobs. 

Altogether, Virginia offered $60.4 million in incentives during fiscal 2007 to attract companies here, according to VEDP’s annual report, an increase from $46.3 million in 2006.

Still, Virginia is not considered a big incentive state.  Dennis Donovan, a site-selection consultant with Wadley-Donovan-Gutshaw Consulting in Bridgewater, N.J., says Virginia lags behind competitors like North Carolina, South Carolina and Tennessee. “I would like to see Virginia scrap the tax-credit program and add new incentives [geared toward] attracting high-value industries,” says Donovan, an unlikely prospect in the near future since the state faces a budget shortfall. 

VEDP estimates that during the last five years, for every dollar spent on economic development among its programs, the public return on investment was $8 in revenue. 

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