Should Virginia put more money into business incentives?

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Print this page Paula C. Squires

Compared to many states, Virginia doesn’t have a big pot of money for business incentives. Just more than $20 million was funneled into the state’s deal-closing fund, better known as The Governor’s Opportunity Fund, for fiscal years 2009 and 2010. That was $5 million more, or 33 percent, than the $15.1 million during the prior biennium.

Compared to Texas, though, $20 million is small potatoes.  The Lone Star State poured $200 million into its current two-year budget for the Texas Enterprise Fund. Meanwhile North Carolina, a state more similar in size to Virginia, set aside $20 million in 2008-09.

When corporations come calling, this money can provide the sweetener for a deal, because companies can use these funds for things like infrastructure or job training. In North Carolina’s case, the funds are all performance-based, with no dollars awarded up front. “We’re not Publishers Clearing House,” says Kathy Neal, a spokeswoman for North Carolina’s Department of Commerce.  In Virginia, funds are typically given up front. However, companies must sign a performance agreement, and if certain hiring and other thresholds aren’t met, they are required to repay the money. 

Despite our smaller pot of honey, Virginia seems to be getting a lot of buzz for its buck. Just last week executives from Northrop Grumman, one of the state’s largest employers,  and Paris-based Areava, — a world leader in the nuclear industry —  gathered in Newport News to turn the first shovel of dirt on a $363 million nuclear components plant that will employ 500 skilled manufacturing workers. Another recent catch: Hilton Hotels Corp. is relocating its corporate headquarters to Fairfax County, a move that will create 300 new jobs.

All told, according to state figures, Virginia has attracted $6.5 billion in investment and 30,856 new jobs since January 2008 during one of the worst economic downturns this country has seen since the Great Depression.

Plus, the state continues to win top rankings as a business destination.  Financial business channel CNBC selected Virginia as America’s Top State for Business in 2009 last week for the second time in three years.

CNBC applied 40 different measures of competitiveness across 10 categories.  The Old Dominion edged out Texas — the 2008 winner — by only four points.  Not bad considering Texas has 10 times as much money to close deals.

So, why raise the question at a time when the state needs money for so many other things?  In a word: jobs. Many people have lost jobs during this recession. If Virginia invests more money in economic development to create more jobs, some business and political leaders think that would be a good thing. In the governor’s race, both Democratic candidate R. Creigh Deeds and Republic rival Bob McDonnell want to double the Governor’s Opportunity Fund.

Virginia did lose a big deal recently.  It was in the running this spring for a $1 billion data center. California-based Apple was scouting sites in Virginia’s hard hit Southside, where unemployment rates are 20 percent in some areas. The 500,000-square-foot center would only create 50 jobs. But a data center typically awards local contracts for server maintenance. landscaping, and security. Altogether, including the center’s construction, Apple was expected to bring as many as 3,000 jobs.

In the end, North Carolina won the deal. And it didn’t dip into either of its two deal-closing funds. “There were no state incentive dollars in the Apple deal,” says Neal.  The deal breaker? A tax break.

North Carolina approved a modification in the state’s law by which capital-intensive businesses such as high-technology data centers calculate corporate income tax liability. To use the modified formula, though, there are strings: The average wage must exceed the wage standard of the county in which the company is locating, and the employer must provide workers with health insurance.

According to published reports, North Carolina’s state tax break in the Apple deal is equivalent to about $46 million.  Perhaps that’s the trend of the future. Rather than put more taxpayer dollars into business incentives, should Virginia beef up tax breaks for business expansion and retention?  Or simply rely on our other strengths — a central Mid-Atlantic location, deep-water port, international airport, reputable higher education system and skilled workers.

After all, we are America’s Best State for Business. Let us know your thoughts.


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