New economic development leader says Virginia can again be a top-growth state
- February 28, 2017
Editor's note: This story has been updated.
If anything defines Stephen Moret, the new leader of Virginia’s Economic Development Partnership, it might be a penchant for analysis. Ask how Virginia and Louisiana compare when it comes to business climate rankings and Moret whips out his smartphone to show a chart with seven years of data from five national surveys.
His research shows Virginia’s slide in the rankings while Louisiana kept edging up. In fact, Louisiana, which typically lagged in the 40s in rankings, moved up an average of 26 spots while Moret served as a secretary of economic development under former Gov. Bobby Jindal from 2008 through 2015.
Moret also knows why states do better on certain surveys. If quality of life is weighted heavily, Louisiana — long plagued by pockets of poverty — will not do as well; whereas Virginia, with its stellar system of higher education, shines. The tables are turned, though, when state tax structures are in the mix. “Virginia has a less growth-oriented tax structure than many other states. In fact, it’s roughly the second- or third-highest tax state in the country for new capital-intensive manufacturing,” says Moret.
This data-driven approach is key to his management style. “Stephen believes in doing his research, following the data, zeroing in on strength and weaknesses and putting together a detailed plan,” says Stephen Waguespack, who served with Moret under Jindal. Waguespack, now president of the Louisiana Association of Business and Industry, was Jindal’s chief of staff. “Once he zeros in on a problem, he has a tenacious work ethic to get the job done.”
Tenacity will certainly be needed in Moret’s new post. He left his job as president and CEO of the Louisiana State University Foundation in late December, moving his wife and four children to Virginia to take over an agency in the middle of a political firestorm.
Once viewed as the premier economic development authority in the country, the Virginia Economic Development Partnership is on the brink of a major legislative overhaul following a black-eye report from the commonwealth’s watchdog agency. The Joint Legislative Audit and Review Commission (JLARC) portrayed the 100-employee economic development authority as dysfunctional and inefficient. Following an investigation, JLARC in November weighed in with 35 recommendations on how to fix VEDP.
During this year’s General Assembly session, legislators and the governor added their two cents with competing plans on reforming VEDP. What emerged is is a smaller board of directors — it shrank from 24 to 17 members — more legislative oversight and tighter control over state incentive dollars. “Given where we’re going with reforms, it’s clear to [Moret] that there were going to be some changes to the organization,” says Del. S. Chris Jones, R-Suffolk, the chairman of the House Appropriations Committee and a patron of one of the reform bills.
Jones says 44-year-old Moret is making a good impression. “The feedback I’m getting is good. They like his energy. He’s meeting with stakeholders across the commonwealth.”
Currently, VEDP’s board of directors hires and fires the CEO, and serves in a supervisory role over the organization. JLARC did not recommend a change in the board’s semi-autonomous governance structure. It is pushing for more controls, including an internal auditor and an incentives division, measures Moret supports.
He hopes, though, that the General Assembly won’t tamper with VEDP’s structure, one of the reasons he applied for the job in the first place. Unlike the situation in many states, VEDP doesn’t have a turnover in staff every time a new governor is elected. “One of the biggest strategic advantages that I didn’t have in Louisiana is that, because of this structure, we can recruit and retain talent,” he says.
When people aren’t worried about losing their jobs because of shifts in political winds, they can focus on their careers, bringing continuity and excellence to VEDP. Jones concurs and has pushed back against a reform measure by Gov. Terry McAuliffe to make the state’s secretary of commerce and trade the permanent chair of VEDP’s board. “It’s not a good idea,” says Jones. “Administrations come and go every four years.”
Moret read JLARC’s report before taking the job and wasn’t put off. Those are “administrative, operational issues,” he says, that will take his first year to implement. His goals for VEDP are more aspirational. “We’ve got to be great at getting our message across to the decision makers in corporate America …’’ he says.
Yet Moret will have to do that with fewer resources than he had in Louisiana. While that state’s workforce, 2 million workers, is about half the size of Virginia’s, Moret says it had an advertising budget of $6 million, about six times what Virginia spends. He also had a staff of 150 employees in Louisiana, 50 percent larger than VEDP’s, although Louisiana’s operation did not include an international trade unit.
In travels around state, Moret has been spelling out his goals and his game plan. “Economic development is a team sport,” he says. He plans to involve as many partners as possible including the newly formed GO Virginia, a regional economic development group; the Port of Virginia; the state’s tobacco region revitalization commission; and local economic officials.
A top priority is Virginia’s return as a top job-producing state. To get there, Moret says Virginia needs to cultivate closer relationships with top site selection consultants, develop more ready-to-go sites and focus on benchmarks. “One of the exercises we’re going to be going through is, for each function of VEDP, who are our top peers in the U.S.?”
He also envisions a more customized workforce training program for rural Virginia to ensure that it can share in job growth with the rest of the state. The turnkey program that Moret implemented in Louisiana, known as LED FastStart, has been recognized as one of the best in the nation.
Waguespack, who has known Moret since their college years at LSU, says he thrives on challenge. “The thought of going to a state like Virginia that has such a wealth of resources and assets, he couldn’t wait to be a part of that team and to figure out how to take it to the next level.”
Another draw for Moret was family. His mother, Phyllis Moret, who moved to Richmond eight years ago, is an assistant dean at the Virginia Commonwealth University School of Pharmacy. His wife’s family plans to live in Virginia for a part of the year, Moret says, and he also has a brother in Maryland.
Virginia Business interviewed Moret at his office at the James Center in downtown Richmond in late January. Here’s an edited transcript of the interview:
Virginia Business: In taking over as CEO at a time when VEDP is poised for a major overhaul, what do you see as the first order of the day?
Moret: As I look at the commonwealth of Virginia and the future of the economy here and VEDP, there are a few opportunities that come to the top of my mind as potential goals. The first one is helping position the commonwealth to again be one of the fastest-growing states in the South and in the U.S. That would be at least 20,000 to 25,000 additional jobs per year, over and above the baseline growth expectation.
Second, ensuring that every region participates in that growth in a meaningful way. I looked at the Census data for all the counties and independent cities in Virginia when I was interviewing for the position, and I noticed an interesting phenomenon. Northern Virginia was about one-third of our population and roughly two-thirds of the growth, but almost half of the counties and independent cities in Virginia actually shrank in absolute terms over the last five years. I don’t think that we can get every region growing with the same rapid clip, but, certainly, we don’t want to be in a position where we have some regions shrinking where others are growing.
Third, doing our part to enable Virginia to once again to be viewed as one of the very best states for business in the country. And to do that all in a very collaborative way. This is a very small organization. So we have to do our work leveraging the other organizations involved in economic development, from the local and regional organizations to the [Virginia Tobacco Region Revitalization Commission] and GO Virginia, to higher-education institutions, the Port of Virginia, our airports. We have to partner with them. And then, finally, to establish VEDP as the premier state economic development organization in the country.
VB: Do you find it confusing that there are so many different entities? There’s about 80 organizations in Virginia that in some way are involved with economic development.
Moret: There’s a few more, certainly, in Virginia but not a lot more … I do think that Virginia, in general, is a little more disjointed. There’s a little more of a split of entities that are involved. As an example, my first incentive package that I saw involved three different state agencies … I was very surprised to see in a simple incentive package three different organizations involved in almost precisely the same incentives that in Louisiana were all managed by a single organization.
VB: What about JLARC’s recommendations?
Moret: That is a very important issue and will be one of my top priorities for this first year. Another key focus in the first 90 days is kicking off a strategic planning process. The only reason that we’re not kicking it off already is that there is a lot of discussion in the General Assembly about possibly restructuring the board. We want to make sure that if the board is restructured that we’re kicking off that process with their full engagement and support. So we’re going to do a lot of preparatory work, and we’ll probably wait until the end of the General Assembly session to make sure we align with where the board wants to go.
VB: Do you agree with what is both a legislative and JLARC recommendation to create an incentives division within VEDP?
Moret: I think it makes a lot of sense.
VB: And you had something similar in Louisiana?
Moret: One key difference that gave my agency in Louisiana a little bit of an advantage over VEDP in this respect is that we managed most of the economic development incentives in the state. Virginia, in general, has fewer incentives than many other states. It’s actually a relatively light incentive state particularly compared to some of the competitors in the South. So there’s both fewer incentive programs, and then, in addition,VEDP is only managing a subset of those programs. We have folks who are doing lead generation and marketing. You have folks who are creating responses, very technical responses, to RFPs [request for proposals] from companies and site consultants … So incentives are a piece of the work of the agency, but it’s a relatively small part. The recommendation of a dedicated group doing that makes all the sense in the world. If something is really important to the organization, it needs to be somebody’s job.
It’s not just avoiding … the Lindenburg thing [a failed project in Appomattox County in which the state has been trying to recover $1.4 million in incentives]. That would be an example of the front-end part of the process. There will be a number of projects that either don’t happen because of market reasons or the fact that there is an underperformance situation in and of itself. That is an unavoidable outcome. What should be avoidable almost 100 percent of the time is a situation where a company underperforms and does not reimburse the commonwealth commensurate with whatever the underperformance was. Now if they’re at 90 percent [of performance goals] they shouldn’t have to pay back the whole thing, but there should be a pretty consistent correlation, and I think it’s important that we report performance of those companies publicly.
VB: While we’re on the topic, where does the Lindenburg Industry situation stand? Has Virginia been paid back the $1.4 million in upfront incentive money given to this company, which did not come through with a major factory?
Moret: I know that there have been a number of efforts to try to collect, but I’m not in a position today to really give you a robust answer on that.
VB: How much bigger was the incentive pot in Louisiana compared with Virginia?
Moret: Keep in mind it’s not just discretionary incentives. In fact, the primary difference between Virginia and many other states is the lack of statutory incentives. For example, one of the most common incentives utilized in many Southern states is a payroll incentive where the companies are encouraged — often they’re called quality jobs programs — to create jobs that would pay some level of compensation and offer full health-care benefits. The company might get 3 to 6 percent of the payroll back on an annual basis for five to 10 years.
I think it’s important to keep incentives in context. Virginia has led off mostly on having a great business climate, and I think that’s the right strategy. At the end of the day, what will ultimately impact our success more than anything is having a great environment in which businesses can do business, from the talent pipeline to public education and to infrastructure. Having said that, there are going to be scenarios, particularly when you think about rural Virginia, where there are other states that offer a relatively comparable business climate but have been more aggressive from an incentive perspective. I think that’s why you have seen some of those really marquee manufacturing projects over the last decade that have often gone to other Southern states like Alabama, Georgia or South Carolina.
In Louisiana, in the Quality of Jobs program alone, I’m pretty sure it would have been $40 million to $60 million a year or something in that range. The nice thing about that program is it’s paid after performance happens, so there’s no risk at all. If a company says they’re going to create 1,000 jobs, and they only create 500, they just get half of what was committed because it’s paid annually after their payroll is certified. Now there are situations where I think it’s valuable to have upfront dollars, particularly for large and well-capitalized companies competing with other states. But if you were to say, “What would I miss the most from an incentive perspective?” It would be having something like that, and that was not unique to Louisiana. Again, a number of states have both discretionary and statutory incentives. Having said that, we were in a very different competitive position. Louisiana has one of the highest poverty rates in the country. I don’t think that Virginia would need to match a state like Louisiana in incentives, but I do think as we think about the place that incentives play in the big picture of economic development in Virginia, the place that I’m most concerned about is rural Virginia. It would be helpful in those situations to be able to draw on that kind of thing.
VB: You mentioned the rankings earlier between Virginia and Louisiana. How do you plan to get Virginia back to the top?
Moret: Certainly, that’s going to be something that is going to consume me in this job. It’s not like [rankings] drive everything, but they do have an impact on the perception of states … We found that if you peel back the layers you can see that there are policy changes that you can make to improve the position. There are marketing things that can be done to make sure people are aware of the advantages of the state. One of the things that we did in Louisiana, that I certainly envision doing here, is a really aggressive effort to cultivate the top site selection consultants in the country. There are a very small number of people that drive roughly half of the major site location deals in the U.S. It’s less than 200 people.
It was not as critical nine years ago, when everybody’s got Virginia as No. 1, than it is today. You can say the same thing about marketing and advertising, where nine years ago maybe, it’s not as big of a deal to have a really tiny advertising budget. Today, it’s a much bigger deal … Louisiana has roughly six times the advertising budget in economic development. Our workforce development team was about seven times the size of what VEDP has.
We will do the very best we can with what we have. But I want to point out in cases where there’s a real competitive issue that impacts our success, I think that is incumbent upon me is to not only say, “How do we spend these resources that we have?” but to also point out — whether it’s tax policy or infrastructure or marketing — where other states are better positioned than Virginia and where we might want to consider changes to improve our competitive position.
VB: If you had a magic wand, what would be your ideal agency to do this job?
Moret: First of all, we want to be the premier state economic development agency in the country. My sense is that in the early days of VEDP it probably was. I can tell you that when I took over LED about 10 years ago, this was a place that we really admired. My guess is what happened over time was that Virginia had so much success, it was ranked so well, you had so much uplift from the federal-related jobs — direct and indirect — that maybe there was a little bit of complacency … But to get back to your point, to be one of the best, that means having an organization that is professional, fast, creative and innovative.
You know, the site selection game is mostly about site elimination. One of the great things about Virginia is we’ve got something for everybody because of the diversity from Southwest Virginia to Northern Virginia to Hampton Roads. I mean, literally, almost any kind of conceivable economic development project could work in the commonwealth of Virginia. We want to make sure that that consultant is thinking, “All right, I’m only going to deal with five or 10 states, and I’m always going to put Virginia on the list, because they show so well, they work so well with us, they always come up with something.”
In general, Virginia is doing a nice job of that. While the issues that JLARC identified are real, they were not focused so much on benchmarking VEDP against its peers. I mean they talked to some of the peers, but I’ll give you a couple of examples. Just two years ago there’s a group called Development Counsellors International, which is sort of a marketing group for states. One of the things they do every two years is survey site consultants, and they ask them a bunch of questions. One of which is, “Which states have the best state economic development agencies?” Well, two years ago, VEDP was either No. 4 or 5 or tied for number 4 or 5 in the country. [A ranking by] Pollina Corporate Real Estate had it a couple of years ago in the top three in the country. There’s a lot of good work that’s happening here … There’s some big problems, and we’re going to address those, but I also think we should recognize that we also have a lot to build on.