Full transcript of Virginia Business interview with Hugh Keogh

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Virginia Business: How long have you been president of the chamber?

Keogh:  I left state government in the spring of ’92 to take the chamber job and have been president of the Virginia Chamber of Commerce since June of 1992, so just about 18 years.

VB:  What have you seen has been the most dramatic change in the economy during that time?

Keogh:  Yes, that’s a very good question. I think the structural change has been the diminishment of manufacturing as a job generator in Virginia.  At the time I took this job, Virginia was beginning to lose manufacturing jobs but was very near the peak of 430,000 Virginians in manufacturing that it reached in about 1990.  And that began I would call, I think your adjective is right, I would call it a dramatic change over the last 15,18 years that now sees manufacturing at probably below 250,000 – a precipitous drop.

With that, however, concomitantly with that is an increase in service sector and business services jobs that really are attributable to the rise of the technology community over that same timeframe.  And that in turn has contributed to the diversity of the Virginia economy so that it is not reliant on any one sector, and that has contributed to our relatively low unemployment rate and less recessionary impact over the years.

Another factor not to be denied is the impact of the federal government on the Virginia economy.  There has been from time to time a tendency in Virginia to criticize and diminish the impact of the federal government.  And that may be true from a political standpoint, but certainly not from an economic standpoint.  And the defense establishment and the federal government generally have been a large generator of jobs and positive economic impact for Virginia, largely obviously in Northern Virginia but not exclusively in Northern Virginia.  And we owe a lot of our success economically to that proximity to the federal government.

VB:  What sort of change have you seen in the chamber during that time?

Keogh: As one of the leading voices of business for the commonwealth, the chamber has been a factor in maintaining Virginia’s competitiveness and improving the business climate of the commonwealth.  And that has changed in tenor because 30 years ago perhaps defending the right-to-work law was one of the chief tenets of the Virginia Chamber.  And we still defend that, but it’s less important today because the nature of the labor force in Virginia, as it has become more service oriented and more technologically oriented is less given to organized labor.  And that is not the sort of chief credo that it was many years ago.  And so the chamber has had to react to that.  And for that reason, we have tended to put new emphasis on tax policy, new emphasis on small business and entrepreneurship and job creation of that kind, as opposed to sort of the old-fashioned nature of industry development in the commonwealth.  And I think we’ve done a reasonably good job doing that adaptation over the years.

VB:  Now what do you see as the biggest threat to the growth of the economy?

Keogh: Right now I think there are two, and the first of these you have alluded to and that is transportation infrastructure and the fact that Virginia has had no significant increase in review for transportation infrastructure since 1986.  And I’ll add more detail to that.

But the second issue, which you’ve probably heard me talk about, Robert, is work-force development.  About 15 years ago, not long after I took this job, the chief determinant of where business would go and where business would stay began to be access to the good people, to the best and the brightest of the technically competent, technically skilled, computer literate and able work force.  In the earlier days, those location factors had been proximity to the interstates, cost of doing business, tax policy and so forth.  But that really did evolve starting in the early ‘90s, and today there is no doubt that the chief criterion for where business will locate and where it will remain is its ability to get the right people.  And so work-force development has jumped to the top of the pile. 

So we have an infrastructure concern with transportation, and we have a policy and adaptation concern with whether we’re generating the skilled people that business needs to be successful.  And it’s not just a Northern Virginia or an Eastern Virginia problem.  It’s a statewide concern.

So I think those are the chief threats.  And I think Virginia has got to respond to those or run the risk of losing its economic edge.

VB:  Virginia has been rated as the best state for business for four years straight.  Is that a deserved accolade?

Keogh:  Absolutely.  Absolutely it is.  If you measure Virginia’s policy impact on balance as a business-friendly location, it meets nearly every test.  And the ones that it doesn’t meet, the chief one that it doesn’t meet is that transportation infrastructure situation.  But from a balanced tax policy, a balanced regulatory policy, I think a chiefly accepted high quality of life, from a geographic location standpoint, the temperate nature of the climate, etc., it is a very appealing location for business.  And as long as we adapt properly to the needs for more transportation activity and workforce development, I think we’ll continue to be very well.

We’re not going to be number one forever.  Those ratings love change.  And it’s extraordinary that we’ve been number one four years in a row.  But as long as we remain in the top five or six, and there’s no reason to think we wouldn’t, I think Virginia will continue to be very competitive. 

And I might add to that, we operate both for existing industry and prospective industry in the most competitive region in the country for economic development activity.  The U.S. Southeast for probably four decades now has led the nation in job growth, and the states are mature, generally well-funded and receptive to economic development opportunities.  And that’s the environment Virginia has to operate in.  So we’ve got to be at the top of our game every day, every time out.  And the product that we put in the market place for the reasons I’ve already articulated is a very appealing product.  And we need to make sure we keep it that way.

VB: And have these kinds of accolades led to complacency, lulled us into complacency?

Keogh:  We have heard remarks, comments from General Assembly members, for example, that if we’re number one, why do we have to put new money into marketing, why do we have to sell Virginia, why do we have to invest in Virginia when we’re already number one?  And so from a policy standpoint, we have sensed some indications of complacency, and it’s a very good question.  I think those statements can be overridden by sensitivity to the competitiveness in the environment that we operate on that I’ve already mentioned. 

The Carolinas in particular, and to a growing extent Tennessee, are not only appealing but doing the right things in terms of making their states even more competitive.  And, again, Virginia has to face that and do well in that highly competitive environment.

So, there is some concern about complacency.  The flip side of that is are we taking proper advantage of it?  Number one state in the nation for four years in a row, are we putting the resources behind that accolade to sell it properly in the international market place?  And in fact, you used one of quotes in your January issue from our roundtable session when I said, “Isn’t it uniquely Virginian that we’re number one in the nation and aren’t telling anyone about it?”  And I’m happy that you used that because it makes the point that here we are tops but we really haven’t put the resources behind that to crow about that internationally.  So that is worth repeating.

And the other aspect of that is it affects the chamber directly in that you don’t have that pent-up demand for businesses to have access to a forum where they can express their concerns.  Things are very good here, and so from a membership standpoint, for ourselves and I assume for other business advocacy organizations, you don’t the sense of urgency to get on the soapbox and so forth because things are good here. 

My counterpart in West Virginia, and I’m a native West Virginian so I can talk about this honestly, but my counterpart in West Virginia has a very different situation.  The business climate is not nearly so favorable.  In fact, they’re toward the bottom, which affects their ability to create jobs, but it helps the ability of the West Virginia Chamber to attract members because those companies want somewhere to go to make their criticisms known.  So that’s an impact on the Virginia Chamber.

VB:  What is the membership level of the chamber now compared to when you started?

Keogh: We have about 900 full dues-paid members right now.  We’ve been probably at the peak in the range of 1,400.  So we have had a drop, although it has been flat in the last year.  And the revenues have not deteriorated to that level.  The revenues have been flat and even on a slight uptake in the last two years.  But the absolute number of members has gone down.

VB:  So about 900 now?

Keogh:  Right.

VB:  Of course, transportation.  What needs to be done to improve transportation?

Keogh:  Yes.  In my judgment, Virginia needs a dedicated stream of long-term, sustainable revenues exclusively for transportation infrastructure improvements.  I would suggest as a point of departure for that a nickel on the gas tax initially, phased into up to a dime additional per gallon on the gas tax over a five- or 10-year period.  Coupled with that, there needs to be aggressive use of public/private partnerships, some reinvestigation of tolling.  The other mechanisms that are being looked at in Northern Virginia – HOT lanes, congestion pricing and so forth – all of those things have to be in the mix.  And yet, it seems to me the user fee aspect of the gasoline tax makes it the most practical source of additional revenue, and – very importantly – it taps out-of-state travelers passing through Virginia.  It is not just a burden on residents of Virginia.  And I fully appreciate how difficult that is politically.  I don’t say that just whimsically.  I understand that, and I understand that Gov. McDonnell has made it very clear that he does not support any kind of a tax increase in the course of his administration.  So I don’t say that in a naïve sense, but I do … having thought about it long and hard for many years, really over a decade, I believe that the user fee aspect of the gas tax makes it the most feasible and representative of a source of long-term, sustainable revenues, and that it needs to be re-looked at by politicians from both sides of the aisle in both Houses. 

And I think an alternative to that could be a very modest tweaking of the statewide sales and use tax, maybe an additional half penny to that if they don’t want to do the gas tax, that would be exclusively for transportation infrastructure. 

But the fact is Virginia needs somewhere in the range of $1 billion a year for each of the next 20 years to catch up and restore its competitiveness, to create some new roads, but also to take care of the roads that they have.  And you can’t get that without some new source of revenue.  It has got to be found.  And I’m perfectly happy to see new creativity from policy makers that are smarter than I that can arrive at different sources, but there must be sources from wherever to get the money in the pot that you need to do this.  And you can’t just do it with wishful thinking.

Now I’ll just add to that, at the time of the ’08 special session, at the tail end of the latter part of the Kaine Administration, the dhamber headed an ad hoc coalition in support of transportation revenues.  And the product that came out of that coalition, which we announced the week before the special session, was a nickel on the gas tax or a half penny on the general sales tax statewide, and an additional half penny in the two effective regions – Northern Virginia and Hampton Roads.  And I’m still comfortable with that product as a point of departure for what we’re talking about.

And I think I have gotten in the interim, the last nearly two years now, I have gotten even more comfortable with some regionalization of the revenue sources because clearly Northern Virginia and Hampton Roads are the areas of greatest need.  And so I think creative thinkers need to reinvestigate how to generate regional sources of revenue as well.

And part of the problem, the image problem, perception problem is that the transportation crisis in Virginia is regional.  It’s not genuinely statewide, although we can point to the need on the 81 corridor.  We can point to some need on the 58 corridor and so forth.  But if I’m driving from my Midlothian home to Roanoke, and I decide to use 360/460 as opposed to the interstate, I don’t have to get more than 20 miles west of Midlothian on 360 that there is no transportation crisis.  There’s nobody on that road as I go out there toward Farmville.  And that’s part of the problem.  Folks that live in rural Virginia don’t have a problem and don’t perceive one other than maintenance – the bridges and the potholes and so forth. 

So it is regionalized, and I believe, having thought about that a lot, that the solution has to be regionalized as well.

VB:  Now you’ve been a close observer of Virginia politics and its governors for some time.  What is the most important thing that a governor can do to help business in the state?

Keogh:  Let me answer that in two ways – first from an economic development standpoint.  The governor of Virginia is the chief salesperson for the commonwealth.  And so he or she must be accessible and have a certain fire in the belly for the competitiveness of selling Virginia and closing the deal. 

And that requires the governor of Virginia to have economic development high on the priority list.  Maybe not to wake up thinking about it every day, but to wake up thinking about it on many days and to prioritize it so that he has made time available for that part of the governorship.

From the existing industry standpoint, and I think our governors as a broad group have not always paid enough attention to this, there has to be a mindset and an awareness that existing companies in Virginia are fueling the economy, and providing the jobs and the tax base that create that quality of life that we’re all so happy about and so proud of in Virginia.  And they shouldn’t take that for granted.  There is no trend and never has been in my 40 years of looking at it, of companies leaving Virginia because of dissatisfaction.  But companies perhaps have not expanded to the level they could, or have not always felt that warmth and welcoming spirit in Virginia that they need to feel from the administration as well as from other organizations like my own and the advocacy groups. 

And so a mindset that is keenly sensitive to the needs of the existing business base is very important for the governor to maintain and to sort of instill that culture throughout his administration and his team.

VB:  Now how do you rate McDonnell and Kaine in that regard?

Keogh: Well let’s do Gov. Kaine first.  Instinctively, in my judgment, Gov. Kaine was not especially business oriented.  Instinctively, and I use the adverb advisedly, Gov. Kaine woke up thinking more about pre-K education, environmental regulation, land preservation, and those aspects of governing as opposed to business development.  But he was a very quick learner.  He was a very articulate salesperson for Virginia.  And coincidently or purposefully, some of the biggest deals in Virginia economic history were closed during his time – the Rolls Royce deal, the Volkswagen headquarters, the IKEA, etc., etc.  the Areva project [with Northrop Grumman] in Newport News}, which is one of the most exciting to occur..

So he was a quick learner, and he sold Virginia very effectively.  Again, instinctively, it took some goading to sort of get him to that point in my judgment. 

Gov. McDonnell was elected governor because of his pro-business posture, unmistakably, unabashedly.  And having now observed his first session of the General Assembly, he has clearly put his money where his mouth is, that the jobs and opportunity package that he championed was largely approved.  I think 80 percent or plus of the bills that he put in were approved by the General Assembly.  And even in these very difficult times, Virginia is better postured today to compete than it was before that. 

So it’s very early in his time, but the early signs are very positive, and we can feel good about that.

Now, let me add this.  Going back to the ‘70s when I first joined the State of Virginia, I’ve traveled overseas with four governors from John Dalton to Chuck Robb to Gerry Baliles to Doug Wilder on business development missions.  And while very different from each other, all four of those governors sold Virginia effectively and took it very seriously.  And having said that,  I believe that almost every Virginia governor has learned to get comfortable with the economic development function and to be that chief salesperson for the commonwealth.  That is a mark of our success, I think, that our governors have understood the nature of the competition and have put their best foot forward for the commonwealth.

John Dalton many years ago, probably before you were working in Virginia was a diamond in the rough in the late ‘70s, early ‘80s timeframe before Robb was elected.  Low-key, not flashy, but took Virginia as a business location very, very seriously.  And I learned a lot from him.

VB:  What is the biggest concern of your current membership?

Keogh:  Yes, that’s a very timely question because every membership survey we do among both small and larger companies indicates that the rising cost of health care is the chief concern of our members.  And a shrinking number of those members is able to provide health-care coverage to its employees and their families.  So this current bru-ha-ha over health care is real.  And the nation needs to do something about it, but to do it in a constructive fashion in which health-care coverage is more affordable and more accessible, particularly to the small and medium businesses.

I think it’s inevitable that there will be a certain burden on the employer community to provide benefits.  And those benefits need to be priced at a level that doesn’t put the company out of work or cause them not to offer them in order to survive.  But that was the case two or three years ago even before Obama was elected, but it’s still the case today. That seems to be the chief concern … more than tax policy, more than labor or tech, although for the more sophisticated companies, that work-force issue is right up there with it.  That’s a good question.

VB:  Thanks.  What would you consider to be your greatest accomplishment as chamber president?

Keogh:  Well I don’t think there’s any one, but let me offer two or three things, four things maybe that we’ve done.  When I was very new, in my first two years, we assembled a statewide, business-oriented strategic planning effort which produced a piece called the Economic Vision for Virginia.  This was at the tail end of the Wilder Administration.  It was a very deep and very disruptive recession.  Business was not top of mind awareness both in political circles and other circles.  And the chamber sort of rallied a group of strategic thinkers to produce that piece.  In fact, I can find that for you if you want to take a look at that, because I consider it to be pretty timeless and still providing a certain blueprint for how Virginia could develop and evolve.

And after that, not necessarily because of that, but after that, George Allen was elected and brought a new whole sense of zest with the chamber’s support and business community support to the economic development equation and the existing business equation.  And that was a very exciting time.

A few years later, unrelated to that, we also housed and managed something called the Urban Partnership in which the business community teamed with local governments, urban governments, city governments to put together a coalition that focused the spotlight on the needs of our landlocked cities, particularly the Portsmouths, Petersburgs, Hopewells of the commonwealth that needed some help.  And out of that spun the Regional Competitiveness Act, which provided funding … I think at its peak $11 million a year … for grants to regional entities that were created to spur regional cooperation and help to alleviate some of the problems of the central cities.  Many of the projects that qualified for those grants were work-force development related.  We were a little bit ahead of the curve in that regard back in the last ‘90s.  We felt very good about that.

Thirdly, I would cite the Virginia Chamber’s support for the half penny general sales tax increase that occurred in 2004, which as in large measure attributed to Mark Warner.  The chamber board debated that position very intently, very intensively, and from every angle, and ultimately voted to support the half penny because they truly believed that Virginia needed more revenue for its core services.  And you may remember that transportation was not part of that equation.  It was subtracted out in order to get the compromise that was required. 

But the chamber supported the half penny.  The question was how could a mainstream, fiscally conservative business advocacy group support a tax increase?  And the reason was that the board genuinely in a heartfelt way believed that Virginia needed more revenues for its core services. 

And I’d say where would we be without it?  But it was a controversial position.  We were on the front page of The Washington Post the day after that position was announced for example. We lost some members because of it.  We made some enemies in the Virginia General Assembly.  Some buffoons still have it in their craw, I think, when they see us coming down the hall.  But it was the right thing to do.  And we feel good about that.

And then more recently, in a very controversial fashion, the chamber has opposed modernization of the unemployment situation and has urged lawmakers to reject the $125 million of stimulus money that the federal government would throw at us to expand the categories of those qualified for unemployment insurance, and keeping it more tightly defined so that after that one time jolt of money, the employer community would be left holding the bag to pay for it.  And we object to that.

And that has made us some enemies.  But the General Assembly has seen it our way two consecutive years.  I don’t know that that issue will be back next year.  But there has been one op-ed after another taking the opposite view, and yet we’ve been steadfast in that.  I feel good about that.  I think we’re on the right side of that very controversial issue.

So those are a few successes.  And then sort of overarching all of that, certainly not an exclusively Virginia Chamber deal, but we’re a player in it, is the Forbes ranking, to be the number one state in the nation for business four years in a row.  And governors tend to take credit for those things, but the General Assembly deserves a lot of credit for that, and clearly business advocacy groups deserve credit for that for staying in there year after year and keeping Virginia sensitive to free enterprise and sensitive to policies that will keep up competitive for business.

So I think those things would stand out.  I’m sure there have been other things, but ….  We helped to defeat the homestead amendment when Gov. Kaine had campaigned on the homestead amendment, which would have shifted $1 billion a year from the homeowner to business as a tax burden.  And we defeated that with some very detailed, heavy-duty lobbying at the General Assembly level.  And my recollection is we defeated it by one vote in the Senate, so it was very close.

VB:  Is there anything that you wanted to get done that you haven’t been able to finish?

Keogh:  Oh wow.  Hadn’t thought about that one.  Well, I’ve always regretted that the Virginia Chamber has not been able to identify a stable, non-dues revenue source of annual funding.  We rely heavily on dues here.  And as membership has waxed and waned, we have our fiscal challenges as any nonprofit does in this current time.  But I wish we had identified some sort of a non-dues revenue source of revenue.  And we’ve looked at many, many options there but have never really identified one that has sustained itself that would allow us to do some additional things. 

We would love to have an additional lobbyist here.  We would love to have an additional economist that could help to assess trends and activities in the marketplace and provide better information to our members.  And I think we have that responsibility but we’ve never had the largesse that would allow us to do that.  So there are some things of that nature.

And then this beautiful building requires care and maintenance.  And so we need a little additional revenue to help with that too as well. So those are some of the things.

From a policy standpoint, it’s the transportation thing that we’ve harped on but not accomplished.  Well there’s another one on the policy side that we haven’t talked about – gubernatorial succession.  As a, and I laugh about this, but it’s accurate, as a gubernatorial succession lobbyist, I’m a dismal failure because we’ve tried, I’ve tried for years to spark more interest in that.  And we have sparked some interest, but we’ve never really gotten very far along the road. 

I believe that in the 21st century, given the pace of information, the pace of activity, the need for strategic thinking, strategic budgeting, and a more long-term mindset, that Virginians should have the opportunity to elect their governor for consecutive terms, and if they don’t like the person, to toss them out after the first term.  But we’re the only state in the nation where the governor cannot succeed himself.  And it’s time to change that.  And we have not been successful in that, so certainly acknowledge that as a major failure, but I do it with tongue in cheek because we’ve done our best.

VB:  And what do you plan to do at retirement?

Keogh:  Well, I want to be a resource.  I may do something in the classroom.  I may do some economic development consulting.  But I don’t have any fire in my belly to manage something or to run something.  I’ve been doing that a long time – a quarter of a century, since I took the Forward Hampton Roads job and then the state job and the chamber.  And I’d like to be a resource a little more on my own pace, my own terms and be helpful to Virginians in one way or another.  But I think for the first few months, we won’t do much of anything.

VB:  Anything you want to add?

Keogh:  Well it has been a wonderful run.  I have great affection for Virginia as a business location.  I don’t think you’ll find anybody who has toiled more assiduously than I in improving Virginia as a product and selling it literally around the world.  I think the diversity of the Virginia economy is its hallmark, and we’re very proud of that and have had a role in that.  And those who come after me can feel very comfortable that they have a great product to deal with here, and businesses will continue to come here. 

But we do need to tweak infrastructure and a couple of public policy things to achieve our genuine potential.

The only other thing that we didn’t get into that I would want to add is the disparity issue because I’m very sensitive to the needs of Southwest Virginia and Southside Virginia.  And policymakers that come after me have got to come to grips with a better distribution of Virginia’s job creation capability and wealth to those parts of Virginia that are caught up in structural economic change.  And you probably heard me make that point in my LEAD Virginia presentation when you were in the class, because I make a big deal of that.  But it’s important.  I think Virginia is only as strong as its weakest link.  And the people in Western and Southern Virginia need more help than those in Eastern Virginia.

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