State beefs up incentives and tax breaks, but some areas still have high unemploymentJuly 29, 2011 6:00 AM
by Robert Burke
When Fairfax-based ICF International started looking for a place to build a new $15 million operations center that would bring more than 500 new jobs, Virginia responded with a hard sell. Two other states were in the running for the project, says Frank Abramcheck, ICF’s senior vice president, “but Virginia was the most aggressive ... I would literally get calls every day asking what [state officials] could do to make sure this deal landed in Virginia.”
The do-or-die efforts worked. In April, ICF announced it was going to Henry County, where unemployment frequently hits double digits. The city of Winchester nearly bagged the deal, Abramcheck says, but the Henry County offer was wrapped in local and state incentives. There was a $2.1 million contribution from the state’s Tobacco Indemnification and Community Revitalization Commission, which gives financial support to economic development efforts in the weak economies in Southern and Southwest Virginia. Plus, Mary Rae Carter, a deputy secretary of commerce and trade who focuses on rural economic development, “latched on to this deal, and it became a personal crusade,” he says.
Overall, Virginia is coming out of the recession fairly well. Unemployment hovers at around 6 percent — the sixth-lowest in the U.S. — and it’s down from 7.2 percent in early 2010. Back in February of that year, there were just over 300,000 people out of work in the Old Dominion; today that number has dwindled to about 250,000.
In June, CNBC named Virginia the “Top State for Business” in its annual rankings, giving it especially high marks for “business friendliness.” The challenge inside the state, though, is spreading some of the business wealth to those regions still getting pounded by high unemployment.
Southern Virginia desperately needs jobs. Henry County’s unemployment rate was 9.9 percent in May, the most recent data available from the Virginia Employment Commission, while Martinsville’s rate was 16.9 percent. That level of unemployment pain, though, is masked by the state’s overall healthy glow, with unemployment in Northern Virginia as low as 4 percent.
Since February 2010, shortly after Gov. Bob McDonnell took office, the state has added 67,400 jobs, according to figures from the office of Lt. Gov. Bill Bolling, Virginia’s point man on employment. That number, the governor’s office likes to point out, represents the 8th highest number of new jobs in the country, with only 5 percent of them government positions.
Bolling says the efforts of McDonnell’s administration deserve some credit for the improving trends, but not all of it. A lot of credit goes to Virginia’s location and the strong presence of government- and defense-related companies. For instance, Northern Virginia’s economy rests heavily on the federal government, while Hampton Roads has the military. “We’re obviously pleased with the progress that we’ve made over the first 17 months” of McDonnell’s term, says Bolling. Still, he expects Virginia is going to see “a stronger recovery quicker than a lot of states just because of who we are and where we are.”
The McDonnell administration has been successful in getting money to beef up the budgets of state economic development arms such as the Virginia Economic Development Partnership and the Department of Business Assistance. McDonnell won a $58 million economic development package in 2010 and got approval this year from the General Assembly for a $54 million economic development program. “It was pretty clear we had not invested in our economic infrastructure for quite some time,” Bolling says.
The McDonnell push also cut the threshold for businesses to receive the major business facility tax credit of $1,000 per employee. Companies can now claim that credit when they create 50 jobs; the previous threshold was 100. And, if the new jobs are in an area of high unemployment they can claim the credit after 25 jobs.
The administration also put more money into work-force training grants after learning that other states were offering more. North Carolina, for example, offered $2,000 per job while Virginia’s training grant was $500. In addition, it won $5 million for a new research and development tax credit and cranked up the Governor’s Opportunity Fund from $12.5 million in fiscal 2010 to $23.9 million in fiscal year 2011.
Through mid-June, the fund had given out $12.5 million to 31 announced projects around the state since the start of McDonnell’s term. That’s small potatoes when compared with a state like Texas, home of the country’s largest deal-closing fund. Since 2004, the Lone Star state has spent $435 million from its enterprise fund — an investment it says has brought $14.7 billion in capital investment and more than 58,000 new jobs. In terms of overall new jobs, Texas also is No. 1 among the states with a total of 205,400 nonfarm jobs from May 2010 - May 2011.
When it comes to tax incentives and grants, it’s difficult to say exactly how Virginia compares with other states. Each deal is different and some states don’t reveal details; the companies they’re wooing don’t, either. But Bolling is sensitive to the idea that the state is giving money to companies that are already successful, during a time when state programs are being cut. “There are a lot of people out there that think we throw incentive dollars at every project, and that is simply not the case,” he says.
According to data from his office, just 7.2 percent of the announced new projects in Virginia during McDonnell’s term have received such incentives. The rest “are businesses coming to Virginia for other reasons.”
Some of those reasons are enough to attract companies without extra subsidies, says Greg LeRoy of the Washington, D.C.-based group Good Jobs First, a policy group that focuses on how the use of economic development subsidies. “Usually by the time you get a knock on the door by a company or a consultant, they’ve already made their mind up” about where to locate, LeRoy says. So extra cash or tax incentives from local or state sources “are basically icing on the cake.”
States and localities might be at a disadvantage as they try to recruit companies, but they should not be offering special deals. Leroy says. “I think public officials should say, ‘We’re going to help you, we’re going to have great infrastructure, we’re going to have a fair tax structure, we’re going to have efficient government, but we’re not going to do corrosive deals that shift the burden to everybody else and undermine our efforts to give you great workers and a great quality of life.’”
Some of the incentive money comes with strings attached. Companies are expected to meet certain hiring or investment goals if they take the cash. If they don’t meet such goals, they are expected to pay the money back. Denver-based StarTek announced in April that it was closing its call center in Henry County, eliminating 631 jobs. Opened in 2004, the center was the county’s largest private employer. The announcement prompted the state to start seeking the return of the $225,000 performance grant that it gave StarTek when it opened a different call center, in Petersburg. That call center closed three years ago.
“If they have not performed, we will call back from them whatever performance grant they received,” says Liz Povar, director of business development for the VEDP. In the past five years, she says, the state has recovered more than $22 million from companies that didn’t meet their commitments. “We don’t enter into [agreements] lightly,” she says.
Recent trends in job growth statewide and across various sectors highlight the state’s steady but somewhat uneven recovery. The May unemployment figures — the most recent available — show unemployment a full percentage point below May 2010. The strongest sector is professional and business services, up 2.9 percent in the past year. The hospitality sector is down 5,500 jobs. Even the information sector is down from a year ago, losing 3,000 jobs in the year ending in May 2011.
The construction sector was one of the hardest hit during the recession, and it’s still sluggish, says Ann D. Lang, a senior economist at the Virginia Employment Commission. “That’s not surprising. Housing has just been weak,” she says. It gained 3,100 jobs between April and May as seasonal hiring began, but it’s still down slightly from a year ago. “It’s trying to level off, so that’s a good thing,” she says.
Meanwhile, ICF has begun construction on its 900,000-square-foot building, in the Patriot Centre Industrial Park in Henry County, near Martinsville. It’s hired the first 50 workers and they’re working in temporary offices nearby. The new facility is supposed to be occupied in December. ICF promised the state that it would hire 539 people over the next three years. Abramcheck says he hopes hiring will happen more quickly. “In our business, one contract win can do that,” he says.
The recruitment pitch he got from the state could be repeated, because ICF will build another operations center if it can fill this one. “My charter from my boss is to grow this as quick as possible,” he says. “Success is defined as filling Martinsville and having to go find a second location.”
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