Category Archives: Economic development

Chesterfield Debates Matoaca Mega-Site

Image credit: Chesterfield Observer

In August Governor Terry McAuliffe joined legislators and local government officials to announce plans to build an industrial “mega-site” in the Matoaca area of Chesterfield County. The county anticipates spending $9 million for preliminary engineering and right-of-way-acquisition and $70 million on road improvements, according to the Progress-Index, and that’s just the expenditures noted in the 2018 budget. The county likely will spend tens of millions more providing utility connections.

A mega-site, county officials says, will put Chesterfield in the running for a large-scale industrial manufacturer like an auto assembly plant or aerospace company capable of investing a $1 billion and creating 5,000 jobs. But there are no guarantees. Indeed, the track record of Chesterfield’s previous mega-site, the Meadowville Technology Park, is decidedly mixed.

Jim McConnell and Peter Galuszka raise good questions about mega-sites in a well-researched article in the Chesterfield Observer.

Twenty years ago the county rolled the dice on Meadowville in the hope of landing a semiconductor manufacturing facility. Instead, the U.S. semiconductor boom fizzled, and the 2008 recession intervened, and county officials lowered their aspirations for the park. Meadowville wound up attracting two data centers, a couple of warehouse operations (including an Amazon facility), and a bottling plant. County officials call the park a “success story,” noting that it has attracted $570 million in private investment, produced a 3,000% increase in real estate assessment and collected $24.45 million for land sold to date, with 726 acres yet to be developed.

But not everyone is impressed. “Meadowville was never intended to be a bunch of warehouses,” the Observer quotes Meadowville neighbor Freddy Boisseau as saying. “It was supposed to be computers, biotech, research and development. But the county couldn’t get what they wanted there, so they started searching for what they could get.”

What’s missing is a proper accounting that would allow Chesterfield citizens to draw an informed conclusion about whether the investment in Meadowville was worth the risk taken. What was the total investment in roads, utilities, land acquisition, engineering and improvements? How much has the county recouped in land sales, how much does the increased tax assessment generate in additional tax revenue, and do those revenues cover the debt service? Does the park represent a net gain or a net drain to county finances?

But that is only the beginning of questions that citizens should insist upon answering. Chesterfield has maintained its AAA bond rating, so it can’t be said that Meadowville did any obvious harm. But to what extent did investing in Meadowville crowd out other uses of the county’s debt capacity? What other capital projects went unfunded? And what other transportation improvements could the Virginia Department of Transportation have funded? Maybe Meadowville turned out to be a great investment, maybe it didn’t. The fact is, nobody has done the analysis, and county officials now are asking citizens to take it on faith that the new Matoaca mega-site is worthwhile.

When you roll dice in Las Vegas, you know the odds. It strikes me that Chesterfield, which is hardly unique in this regard, is gambling without knowing the odds. The logic behind mega-sites is more akin to that of someone playing the mega-lottery: You can’t win if you don’t buy a ticket. That’s fine for a $1 lottery ticket, but it’s not OK for a $100 million industrial site.

“They’re asking us to accept a major highway, rail and an industrial site in our neighborhood without anything more than the possibility of getting a company that will bring thousands of good jobs,” said Mike Uzel, leader of a citizen group, Bermuda Advocates for Responsible Development, that opposes the megasite. “This boils down to, do you believe them or not?”

As President Reagan famously said, trust but verify. Chesterfield citizens should get all the facts about Meadowville so they can make a retrospective judgment, and they should get all the facts about Matoaca.

Virginia Gears up for Amazon HQ2 Pitch

Fort Monroe — hands down, the coolest location proposed for Amazon HQ2. No one else, not even Google or Apple, has an headquarters on their own private, friggin’ island! Good luck getting 50,000 people in and out, though.

The Amazon gold rush is heating up. Northern Virginia, Richmond and Hampton Roads are pitching the online retailing giant on multiple site in their regions for Amazon HQ2, a $5 billion, 50,000-employee second headquarters complex. Michael Martz with the Richmond Times-Dispatch has the scoop, citing “multiple” unidentified sources.

Northern Virginia, writes Martz, has identified four potential sites, including the state-owned Center of Innovative Technology property near Washington Dulles International Airport, the Potomac Yard along the Potomac River in Alexandria, and Arlington County properties in Rosslyn and Crystal City.

Hampton Roads is pushing three potential sites: Town Center in Virginia Beach, Harbour View in Suffolk, and Fort Monroe in Hampton.

The Richmond region is pitching three sites as well: Tree Hill Farm, a 500-acre property south of downtown, the Diamond baseball stadium and neighboring properties, and a 160-acre property in Chesterfield County.

The odds are long. Virginia’s metros are competing with dozens of cities/regions around the country. Of the three Virginia metros, Northern Virginia comes closest to matching the criteria established by Amazon, including one of the largest (though financially troubled) mass transit systems in the country and access to three international airports. The Washington region also has a massive, technologically literate labor pool. As an added bonus, Amazon CEO Jeff Bezos already has a mansion in Washington, D.C., owns the Washington Post, and would enjoy access to U.S. government leaders.

However, one informed economic-development source that I talked to recently reminded me that Amazon has encouraged Richmond and Hampton Roads to submit proposals. A major advantage of either metro, the source said, was massively lower costs than Northern Virginia — and Amazon is highly sensitive to costs. However, any number of other cities and regions around the country could claim to offer lower costs. It doesn’t strike me as much of a differentiating factor.

Speaking with another well-informed economic-development source, I raised the objection that metros the size of Richmond or Hampton Roads would have a difficult time building the infrastructure and otherwise adapting to such a massive growth stimulus, especially if Amazon demands significant subsidies or tax exemptions. This source was confident, however, that the 15-year time frame for the project would allow plenty of time. I’m not so sure. I expect Amazon wants to see assets on the ground now, not promises that something will get done. Given Virginia’s track record with big infrastructure projects, I wouldn’t bank on any promise.

But my sources know a lot more than I do, and if they think Virginia has a genuine shot at bagging Amazon, well, I say go for it. Who knows, maybe they have something up their proverbial sleeve they’re not willing to talk about.

Making the Link Between Higher-Ed and Economic Development

Anup Ghosh, founder of Invincea Labs, the kind of company Virginia business leaders would like to see more of emerging from state colleges and universities.Photo credit: Washington Post.

If there’s one thing that big business, colleges, universities, Republicans and Democrats agree upon, it’s that Virginia’s public system of higher education is essential for workforce development, social mobility, economic competitiveness, and building the economy of the future. The unanimity of opinion was on full display today at the 2017 Virginia Summit on Higher Education and Economic Competitiveness in Richmond.

A series of speakers including the Democratic and Republican candidates for governor hammered away at a common theme. Virginia’s economy has slowed, people are leaving the state for the first time since records were first kept in the 1940s, and the Old Dominion has declined in a number of best-state-for-business rankings. To revitalize the economy, Virginia needs to invest in its colleges, community colleges and universities to equip workers with 21st century skills and create innovation ecosystems capable of spinning university research into new businesses and jobs.

If those messages sound familiar, it’s because they largely coincide with the goals announced last week by Growth4Virginia, an initiative of the Virginia Business Higher Education Council, which put on the summit. The council, comprised of college presidents and prominent businessmen, has been working with the Virginia Chamber of Commerce to build public awareness of higher-ed’s contribution to the economy.

Beyond articulating four broad strategies — making Virginia the top state for talent, making Virginia a home for entrepreneurs and innovators, providing affordable access for all Virginians, and preparing Virginians for great jobs and great lives — the conference did not stake out any public policy positions. The event seemed more geared to raising consciousness that something needs to be done.

However, it was not apparent that the consensus strategies, hemmed in as they are by scarce state resources, will accomplish much. Two dissenting themes emerged in the panel discussions. First, Virginia can crank out more graduates, but there is no guarantee that the grads will stay here if they can’t find jobs. Second, Virginia can pour money into university research, but R&D activity won’t generate enterprises and jobs unless other elements of the innovation ecosystem are in place.

Peter Blake, executive director of the State Council of Higher Education for Virginia (SCHEV), set the scene by describing Virginia’s progress toward reaching the goals of the Virginia Plan for Higher Education. The most audacious goal is to make Virginia the “best educated state” in the country by 2030, leaping past Massachusetts, Colorado, Connecticut, Minnesota and Washington. As a practical matter, that means granting 1.5 million undergraduate degrees and workforce credentials between 2015 and 2030. Two years into the initiative, Blake said, Virginia is on track to its goal, having granted 265,000.

Boosting Virginia from the sixth best educated state to No. 1 “will not be a light lift,” Blake said. “It will require sustained attention.”

Neither Blake nor anyone else at the conference gave an estimate of how much it would cost to achieve that goal. But for the most part, Virginia’s business leaders at the conclave accepted the necessity of investing in the higher-ed system.

The Virginia Chamber of Commerce is focused on improving Virginia’s best-state-for-business rankings, and the quality of the workforce is one of the important metrics, said Dennis Treacy, chamber chairman. Particularly essential are the so-called STEM-H (science, technology, engineering, math and health) degrees.

Stephen Moret, president of the Virginia Economic Development Partnership, agreed that the quality of Virginia’s workforce is vital for recruiting out-of-state business. “Human capital is the single greatest driver of prosperity in the economy,” he said. “Incentives still matter, but what matters the most is human capital. If we win on human capital, we win, period.” As for the goal of becoming the best educated state, he said, “I love that goal.”

But he warned that there is a “relatively small correlation between degree production and degree attainment.” In other words, it’s one thing to grant the degrees, it’s another to find jobs for people with those degrees. The reason so many Virginians, half of whom have college degrees, left the state over the past three years is that they can’t find jobs here. Federal budget sequestration has crimped job creation in Northern Virginia, the commonwealth’s economic engine. Moret suggested that it might be prudent to focus resources on graduating students from disciplines for which there is a demonstrated shortage.

Making a similar point, John L. “Dubby” Wynne, former CEO of Landmark Communications in Norfolk, noted that Virginia has a 4.3 million-person workforce and has an acute shortage of employees with information technology skills. Yet Virginia’s higher ed system produces only 4,000 four-year degrees, two-year degrees, and certification credentials in computer science per year.

The other big sticking point was the goal of investing more in Virginia universities’ research capabilities. It is a truism that in a technology-driven economy, research universities are engines of economic growth. Look no further than Stanford, Berkeley and Silicon Valley or Harvard, MIT and Boston. But given the size of its economy and the high regard of its public universities, Virginia punches below its weight.

Virginia’s six research universities generate about $1.4 billion in research annually, said Angel Cabrera, president of George Mason University. That’s less than the University of Michigan alone. Virginia is attracting less than its fair share of federal research dollars. If the commonwealth wants to be a player in research, he said, “you have to make investments to get it.”

Cabrera gave examples of the kind of economic benefits that accrue from R&D activity. Annup Ghosh, founder of Invincea, which describes itself as a next-generation anti-virus company, sold the company earlier this year for $120 million. Ceres Nanosciences, which developed a highly accurate diagnostic test for Lyme disease, has raised millions of dollars in growth capital. Both came out of GMU.

However, GMU is embedded in a dense innovation ecosystem. Ghosh, for instance, had worked at DARPA, the Defense Advanced Research Projects Agency, which funded his research at GMU. He tapped the Center for Innovative Technology for funding, and he found other early-stage funding in Northern Virginia. Thanks to the region’s ties to the defense and intelligence agencies, entrepreneurs also can draw upon world-class technical and executive talent in cyber-security.

Other regions in Virginia don’t have such well-developed innovation ecosystems. With an eye to building innovation assets in Hampton Roads, Wynne conducted a gap analysis comparing Hampton Roads capabilities with best practices. The regional fell woefully short. The NASA Langley research facility and the Thomas Jefferson Lab conduct about $1 billion in research between them, but a scientist seeking to commercialize a technology would find few resources to help him, he said. Wynne said he is working on building a business accelerator and developing a source of seed funding.

Bacon’s bottom line: While strong colleges and universities are essential components of technology-driven economic development, they are not sufficient in and of themselves. It is possible for the commonwealth to invest too much in higher-ed, getting ahead of the demand for graduates and the ability to commercialize R&D. Investment in higher-ed has to be carefully calibrated with demand for particular skills and the slow and painstaking development of innovation ecosystems around research universities. If state leaders are not careful, they could wind up subsidizing at great expense the workforce of other states and building research capabilities that generate little economic spin-off.

Why Henrico Likes the Facebook Project

Gary McLaren, executive director of the Henrico County Economic Development Authority.

This afternoon I caught up with Gary McLaren, executive director of the Henrico County Economic Development Authority, who addressed the main questions I raised in the previous post. The Facebook data-center project, he says, is a great deal for Henrico County citizens and taxpayers.

Facebook will locate its $750 million data center in the White Oak Technology Park, in which the county had invested $40 million in the 1990s to induce semiconductor manufacturer Infineon Technologies AG to locate there. The plant, later part of Infineon spin-off Qimondo, was an excellent corporate citizen while it resided in Henrico, but it closed under competitive pressure of subsidized offshore chip plants.

The Infineon legacy bequeathed three important assets to the White Oak Park, says McLaren. First, thinking that the county might attract other semiconductor plants, the county had oversized its water and sewer lines. Thus, White Oak had 10 million gallons a day of excess water capacity and 13 million gallons of sewer capacity — more than enough to handle the estimated 3.5 million gallons-per-day needed to cool Facebook’s servers.

Second, the park was well supplied with fiber optic trunk lines. “We’re up to eight or nine fiber companies that have run fiber into the park,” McLaren says. Making the location even more attractive, he adds, is the laying of three separate transatlantic cable lines terminating in Virginia Beach. While he doesn’t know it for a fact, he is almost certain that Virginia Beach will link to the North American fiber grid through the Richmond region, making Henrico an ideal location for serving both North America and trans-Atlantic markets.

Third, the park is served by dual feed power. Dominion delivers electricity to the park via two transmission lines. If one line shuts down for whatever reason, the other will keep the park supplied with electricity. While designed to meet the specs of the semiconductor plant, the redundancy fits the needs of the data center industry as well. Says McLaren: “We  have a unique and robust technology park ready to go.”

Henrico County has a good number of data centers. McLaren won’t say exactly how many — some corporate entities would prefer to keep a low profile — but reports have reported the number as twenty. Well known data centers include QTS Data Centers, Peak 10, and Capital One. As the data-center industry explodes, Henrico wants a bigger piece of the pie.

Northern Virginia localities Loudoun County and Prince William County are widely recognized for their large clusters of data centers. Thanks to their proximity to MAE-East internet exchange points in Northern Virginia, the two jurisdictions got off to a strong head start in attracting server farms. To get a bigger share of the business, Henrico had to do something dramatic to increase its competitive posture, McLaren says, so it the tax rate on computers and computer-related equipment.

“We decided we could have a strong value proposition if we made ourselves more competitive” by cutting the tax rate, says McLaren. The thinking was: “Would we rather have 100% of nothing or X percent of something?”

Cutting the tax rate from created a windfall for the dozen or more existing data centers in Henrico County, McLaren concedes. But after the Facebook announcement, the net effect is positive. “I can tell you, with this announcement we are more than made whole.”

When asked for specific numbers, McLaren says he cannot provide them. A breakout of the net gains resulting from the tax break would list data centers and detail proprietary information such as how much they’re investing in real estate versus how much in computers and other capital equipment. In effect, Henrico citizens have to trust that their local government knows what it is doing.

A second inducement offered Facebook — an $863,000 credit on a water-sewer connection fee that normally would cost around $2 million — won’t cost county citizens anything, McLaren says. When the county built the water-sewer infrastructure for White Oak years ago, it gave the Economic Development Authority some credits it could dole out to major prospects to reduce their connection costs. “From time to time, we can use [the credits] as an incentive for companies. … We’ve used them for other companies that have come into the White Oak Tech Park.” Issuing the credits creates no new liability for the county or its taxpayers.

McLaren hopes the visibility of the Facebook deal puts Henrico in the running for more data centers. He is told by industry consultants that the good sites for data centers in Northern Virginia have been taken. While NoVa has many advantages, it’s getting more difficult to supply electricity to the region. Public opposition to Dominion Energy Virginia proposed Haymarket transmission line suggests that the easy-to-serve locations might be tapped out.

Henrico has one less visible advantage in its competition for data centers, McLaren says. The county is highly responsive to economic development prospects and can move quickly. Speed to market is critical to technology companies. Facebook, he says, told him yesterday, “that our willingness to fast track their project … made a big difference in their impression of Henrico County.”

Crunching Numbers on the Facebook Deal

Visualization of Facebook’s Henrico data center. Says CEO Mark Zuckerberg on Facebook: “We’re building out 11th data center in Henrico, Virginia. Like all our new data centers, it will be powered by 100% clean and renewable energy and will create thousands of jobs over the next few years. Our community is growing quickly and we’ll need this infrastructure to serve people all around the world.”

Facebook’s $1 billion announcement is a big deal for Henrico County and for Virginia. The social media giant will invest $750 million to build a data center complex in Henrico’s White Oak Technology Park, and Dominion Virginia Energy Virginia will spend roughly $250 million to supply the facility with “100 percent renewable energy.” It is not yet known precisely where the solar facilities will be located, but they will be in Virginia.

This is one of the biggest economic development deals in the state this year — a massive one by RoVa (Rest of Virginia) standards. As with all mega-projects, the big question is this: Did we give away the store? At first blush, it appears that state tax payer and rate payers will do fine. The impact on Henrico County citizens is murkier.

Drawing upon a U.S. Chamber of Commerce data center study, the McAuliffe administration estimates that construction of the 970,000-square-foot data center will employ up to 1,688 local workers, provide up to $77.7 million in wages for those workers, and produce $234.5 million output along the local economy’s supply chain during construction. Once in operation, the data center will inject $32.5 million annually into the economy.

You can read the congratulatory comments from various politicians and poobahs in the press release from the Governor’s Office. Remarkably, state and local officials managed to close the deal without any direct subsidies or tax breaks from the commonwealth, which is almost unprecedented in a project of this magnitude. Moreover, Facebook and Dominion Virginia Energy have crafted a special tariff to cover the cost of solar power which appears to protect rate payers. However, Henrico County made two major concessions, the justification for which are impossible to evaluate based on information made public so far.

The Facebook plant will consume an estimated 130 megawatts of electric power at full build-out, the equivalent of about 32,500 homes, and will require close to 3.5 million gallons per day for its cooling systems.

Henrico, which competed with Loudoun County and Prince William County, for the deal, had invested $40 million in infrastructure improvements at the White Oak Technology Park. The park offers high-seed fiber-optic cable from multiple providers, it can accommodate a high-capacity electric customer, and it can deliver up to 10 million gallons a day of water.

To sweeten the pot, Henrico County enacted a major tax break and gave Facebook an $850,000 sewer-connection credit on a fee that otherwise would have cost the company more than $2 million.

In April, the Board of Supervisors approved a cut in the business property tax rate on computer and related equipment for data centers from $3.50 per $100 of assessed value to $0.40 — an 88.6% reduction. It’s not clear how much that tax break is worth. The county has released no detailed numbers. But if one assumes that half of Facebook’s capital investment consists of computers and related equipment, about $500 million, then tax revenues would drop from $17.5 million to $2 million per year, making the tax break worth about $15 million a year. And that doesn’t include the loss in revenue from the roughly 20 other data centers located in the county that would benefit from the tax cut.

Whether the reduced tax rate is reasonable or not also depends on how the county financed those $40 million in improvements. Will the revenue stream from Facebook taxes cover the cost of paying down bonds or other financing mechanisms used to pay for the improvements? That data was not available from press reports or press releases.

Another big question mark involves how the special electricity tariff will be structured. To meet Facebook’s commitment to consume clean, renewable energy, Dominion plans to build solar facilities with a total capacity of 300 megawatts.

The proposed RF (Renewable Facility) tariff, which must be approved by the State Corporation Commission, will be structured so that only Facebook will pay the cost of solar generation, said Robert M. Blue, president and CEO of Dominion’s power delivery group. At present, solar is more expensive than other power sources. The rate structure, said Blue, “is designed to be neutral to our other customers.”

In summary, a quickie analysis suggests that the Facebook project is probably a good deal for Virginians — neither state taxpayers nor Dominion rate payers will be subsidizing the project. It’s less clear whether the project is a good deal for Henrico residents. It may be, but it may not be. The data needed to draw a conclusion has not been made public.

Update: The $40 million investment in the White Oak Technology Park dates back years to when the country geared up to serve the Infineon semiconductor plant (now closed). That investment was paid off within six or seven years, and the financing of the infrastructure was not an issue in the Facebook deal. I’ll have more to say in the next post.

San Jose Mayor Sam Liccardo: No Special Deals for Amazon

San Jose Mayor Sam Liccardo

San Jose, Calif., Mayor Sam Liccardo, a Democrat, wrote a column in the Wall Street Journal today explaining he will not offer subsidies or incentives to induce Amazon to locate its second headquarters in his city:

Why do public officials throw away taxpayer dollars in subsidies while trying to promote economic development? Perhaps because they can. The subsidy represents something tangible that officials can point to as the factor that “sealed the deal” to create more jobs.

The harder work of investing public dollars in schools, infrastructure and amenities takes years of concerted effort but has far greater payoff. A healthy  economic ecosystem that supports innovation and growth is what makes a community attractive to a company like Amazon. …

The key is to craft policies that apply to all fairly competing employers. Cutting special deals with individuals companies isn’t the right strategy.

Wise advice. Virginia localities vying for the Amazon project need to take a honest appraisal of themselves. If they can’t compete for the Amazon deal without giving away the store, (a) Amazon probably won’t be interested anyway (even if it encouraged them to submit a bid), and (b) they will regret it if by some miracle they actually win. For many, it doesn’t even make sense to compete. Packaging proposals costs resources (staff time, consultants) that could be better spent on second-tier projects — such as the $1 billion Facebook data center in Henrico County to be announced later today.

Bacon Bits: The Good, the Bad and the Ugly

Source: 2017-18 Global Competitiveness Report. (Click for more legible image.)

U.S. still globally competitive. The United States has climbed past Singapore  to become the world’s second most competitive economy — second only to Switzerland, according to the 2017-18 Global Competitiveness Report published by the World Economic Forum. U.S. strengths are its technological progress, capacity for innovation, and sophistication of its business enterprises — all private sector attributes, I might observe. The nation’s weaknesses are primary education, healthcare and “macroeconomic environment,” which reflects the sustainability of government finances. Tax rates are cited as the most problematic aspect of doing business in the U.S. The weaknesses, I might add, are all government failures.

Worst traffic jams in the country. The Washington metropolitan area has the sixth worst traffic congestion in the country, according to INRIX Roadway Analytics, but the single-worst traffic hot spot anywhere is a southbound stretch of Interstate 95 between Washington, D.C., and Fredericksburg, reports the Free Lance-Star. I totally believe it — and the northbound lanes aren’t much better.

Richmond still leads in dropouts. John Butcher at Cranky’s Blog takes a look at the Virginia Department of Education’s latest statistics on high school dropout rates. While Richmond with its predominantly African-American student population has the highest dropout rate in the state, 18.0%, the rate for overwhelmingly white Lee County in the heart of Appalachia is 17.9%. As usual, Butcher is unhappy with the way the state calculates its numbers.

Update: Wow, Cranky is on a tear. A new post, “Lies, Damn Lies and Graduation Rates,” shows how school districts can game the statistics on graduation rates to look good.

The Higher Ed Lobby Fires its Opening Salvo

Gil Minor

Virginia’s colleges, universities and their allies are rolling out a 100-day public relations blitz to promote “reform and reinvestment” in the commonwealth’s system of higher education. The program, GROWTH4VA, will make the connection between higher education and economic growth and opportunity.

Virginia’s public colleges, universities and community colleges contribute more than $36 billion to Virginia’s gross state product, and support more than 167,000 jobs, asserts an op-ed, published in the Richmond Times-Dispatch Sunday by G. Gilmer Minor III and Dennis H. Treacy. Each dollar spent on Virginia’s higher education system produces $21 in economic output and eventually returns $1.92 to the state treasure. The investment “more than pays for itself.”

Dennis Treacy

Minor, former chairman of Owens & Minor, stepped down as chairman of the State Council of Higher Education for Virginia (SCHEV) last month. Treacy, retired chief sustainability officer for Smithfield Food, is rector of the Virginia Tech Board of Visitors. Minor is chairman of the Virginia Business Higher Education Council (VBHEC), and Treacy serves on the board. The VBHEC, an organization of university presidents and C-suite business executives, functions as Virginia’s lobby for higher education. The argument that Minor and Treacy lay out in the op-ed mirrors the agenda published on the VHBEC website.

Virginia’s higher ed system is “the nation’s best,” they say. Virginia colleges and universities have increased enrollment in response to state goals to increase the number of degrees granted, and they have broadened the socio-economic base of students served. Students at Virginia’s public colleges complete their degrees at the second-highest rate in the country, even while commonwealth institutions “generally spend the same or less per student — and often much less — than what their peer institutions spend.”

Virginia ranks 44th in the nation in per-student state support, however, making it 7th lowest in the nation, while tuition levels are among the highest. While the authors did not explicitly call in the op-ed for more state funding for higher ed, which has declined on a per-student basis over the past decade, it is axiomatic in higher-ed circles that cuts in state support have forced colleges and universities to offset the revenue loss by raising tuition and have harmed their competitiveness.

Minor and Treacy write that over the next 100 days the business community will make the connection between a strong higher-ed sector and a strong economy. GROWTH4VA will elucidate four broad strategies:

  • making Virginia the top state for talent;
  • gaining recognition for Virginia as the home of innovators and entrepreneurs;
  • preparing Virginians for great jobs and great lives;
  • providing affordable access for all Virginians.

“We are confident that Virginia’s bipartisan leadership will be full partners in this effort, as they have been for the past decade,” write Minor and Treacy. “Together, we can make Virginia the best place in America to live, learn, work, raise a family, and start and grow a business. Most important, we can make it a thriving community and commonwealth of opportunity for all.”

Bacon’s bottom line: It will be interesting to see how GROWTH4VA makes its case, and what it asks for. Broadly speaking, there is a powerful connection between the strength of a state’s colleges and university and the vibrancy of its economy. But the exact nature of the relationship is murky. On the one hand, tens of thousands of jobs are going begging in Virginia because companies can’t find employees with the skills to fill them. On the other hand, tens, maybe hundreds, of thousands of Virginians are working in jobs that don’t require a college degree. Are Virginians under-educated, over-educated, or educated in the wrong disciplines? That’s a hard question to answer.

Also, it is conventional wisdom that strong research universities are indispensable participants in innovation ecosystems that convert research into growing businesses. By this logic, if Virginia wants to build a vital, entrepreneurial economy, it needs strong research universities. However, research universities vary widely in their ability to spin off local jobs and investment. Innovation ecosystems also require leading corporations, deep labor markets, angel investors, venture capitalists, nonprofit networking groups, and a wide array of business services. It is far from clear that Blacksburg and Charlottesville, home to Virginia’s two leading research universities, have the critical mass to assemble such ecosystems.

Finally, there is no ducking the issue of affordability. Clearly, there is a relationship between state support for higher education and tuition levels, although it is not as straightforward as many assume. In my observation, Virginia’s higher-ed leaders place all of the blame for skyrocketing tuition and student debt on cutbacks on state support without acknowledging how their own  contribute to the ever-inflating cost of attendance, which includes not only tuition but fees, room and board. Hopefully, a renewed debate over Virginia’s higher education system will bring greater transparency to university finances and a clearer understanding of where the money goes.

Is a Washington-Baltimore-Richmond Mega-Region in Our Future?

The Boston-Washington corridor

In 2008 economic geographer Richard Florida argued in his book, “Who’s Your City?”, that the economic units that matter in understanding economic growth and development aren’t nation states, or states, or even metropolitan statistical areas. They are mega-regions — conglomerations of metropolitan areas that are increasingly bound to one another through business interactions. By Florida’s reckoning, the mega-region biggest in the United States and the second largest in the world is the Boston-Washington corridor, which extends as far south as Richmond and Hampton Roads.

I long thought of the idea of a mega-region as a meaningless abstraction — an academic concoction rather than a reflection of economic reality. Metropolitan areas, which describe definable labor markets, are the primary units of economic development. But two news stories today have forced me to consider the possibility that MSAs are not immutable if the will exists to transcend them.

First, the Greater Washington Partnership, created last year, has issued a vision statement for “the Capital Region” encompassing the Baltimore, Washington, and Richmond metropolitan statistical regions. Admittedly, that’s a far cry from a megalopolis stretching all the way to New York and Boston, but it’s a bigger than anything that exists now in Virginia or Maryland. The economy of the Capital Region, proclaims the organization’s website, is the third-largest in the United States and seventh largest in the world.

States the website: “By acting together, and focusing on super-regional solutions, we can overcome jurisdictional impediments, achieve solutions at a scale that is equal to the problems we face, and deliver new sources and engines of growth to achieve economic well-being and prosperity.”

In the Richmond Times-Dispatch today, Michael Martz quotes Dominion CEO Thomas Farrell, one of 21 corporate CEOs on the partnership’s board, as saying,  “The Greater Washington Partnership can make an impact on such pressing issues as transportation and talent, if those issues are addressed regionally.”

The overarching goal of the CEOs is to attract talent and promote innovation. A law of knowledge-economy economics, known as the agglomeration effect, is that larger regions exert greater gravitational pull on talent and corporate investment than smaller regions. The implication: Washington, Baltimore and Richmond are all stronger if they function as a single big region rather than three smaller regions. The incredible power of the agglomeration effect drives the growth of mega-regions, and it is the primary justification for building ties between neighboring regions.

Now, it’s one thing to proclaim a common identity, and another to achieve it. One can easily envision Washington and Baltimore as a single MSA because the entire swath of land between the two core cities has been filled in and developed. As a result, the labor markets of the two regions overlap to a significant degree. The same cannot be said of Washington and Richmond. But ties between Richmond and Washington, though tenuous, are emerging.

That brings me to the second news item. The Stephen Fuller Institute has just published a study, “Migration in the Washington Region: Trends between 2000 and 2015 and Characteristics of Recent Migrants.” The Washington region has a problem. While its population continues to grow as a result of foreign immigration and a surplus of births over deaths, the region has been leaking native-born citizens.

Between 2000 and 2015, Washington has experienced a net domestic migration to the Baltimore area of 77,000, and to the Hagerstown-Martinsburg area of 35,000. The number three and four recipients of Washington out-migration were Winchester (16,000) and Richmond (14,000). Charlottesville (4,000) was 15th largest recipient of domestic out-migrants. While downstate Virginia’s ties to the Washington region aren’t as strong as Maryland’s, they are still substantial. (Interestingly, Hampton Roads shipped a net 14,000 population to Washington over the same period, a pattern no doubt influenced by military ties between the two regions.)

When Washingtonians leave the metro area, by and large, they aren’t moving to New York, Boston or Philadelphia. Some are moving to retirement areas in Florida or the Eastern Shore, and a few to Charlotte and Raleigh. But the overwhelming majority are settling nearby — in the Baltimore, Hagerstown, Winchester and Richmond regions.

In other words, while the business CEOs speak grandiosely about pulling the three regions together, they aren’t trying to make something out of nothing. Below the radar screen, thousands of households making decisions of where to live and work implicitly recognize a commonality not reflected in government statistics.

If the political class buys in to the idea of a Baltimore-Washington-Richmond mega-region, the single-most important thing it can do is to knit the regions together with better transportation infrastructure. Saying this goes against my grain because I am suspicious of infrastructure mega-projects of all kinds, which invariably turn out to be boondoggles. But adopting the view of economic strategist rather than fiscal scold, I would say that top priorities would be: fixing the Washington heavy rail system, creating a higher-speed rail system from Richmond to Washington, and completing the extension of the Interstate 95 tolled express lanes to south of Fredericksburg. If we want to make a mega-region a reality, then we must invest in transportation infrastructure that enables people to move easily between the component regions.

One more thing. If Virginians want to become part of an economically competitive mega-region, they need to cast aside traditional resentments between Northern Virginia and the Rest of Virginia, NoVa and RoVa. Legislators must transcend their parochialism and prioritize projects of regional value, even if it means deferring local needs, in the expectation of everyone gaining something greater in return.

McAuliffe Hires Consultants to Pursue Amazon Deal

Governor Terry McAuliffe has hired McKinsey & Co. to help Virginia localities build the best possible packages to recruit Amazon’s second headquarters, reports the Virginian-Pilot. The state plans to pay the consultant more than $1 million, while state regions will chip in hundreds of thousands of dollars more.

That information, which I haven’t seen reported anywhere else, comes from Virginia Beach Mayor Will Sessoms, who has committed Virginia Beach to the long-shot endeavor. The project, which could entail the investment of $5 billion and creation of 50,000 jobs, is attracting interest from metropolitan regions across North America. The deadline for submitting proposals is Oct. 19.

Sessoms said he expects economic developers in the Richmond and Northern Virginia regions also to avail themselves of the consulting services. Virginia regions will chip in $300,000 to $400,000 for the work product. Virginia Beach will pay $200,000 of the Hampton Roads region’s share. The City of Norfolk is participating as well.

Aside from available land, great parks and recreation, a strong arts scene, the ocean, solid schools, and a high quality of life, Sessoms said the city has something that most others don’t: access to transoceanic cables that will deliver faster Internet speeds. A new trans-Atlantic cable linking Virginia Beach to Spain will go live next year. Said Sessoms: “We have a cable that is going to allow people to communicate faster than anywhere else in the world.”