Replace economic-development incentives with workforce training. Photo credit: Richmond Times-Dispatch
(The Richmond Times-Dispatch published my op-ed this morning.)
The Virginia Economic Development Partnership (VEDP), once one of the most respected economic development teams in the country, has been taking it on the chin. A year ago, a Chinese company bilked the partnership for a $1.4 million incentive payment in a deal that never transpired. The scandal prompted the departure of VEDP’s CEO and sparked a legislative inquiry that unearthed “systemic deficiencies” in its management.
In December, Gov. Terry McAuliffe proposed reforms to improve oversight of incentives, which amounted to $384 million over the past decade. Among his recommendations: Create new divisions within VEDP, one to administer the incentive programs and another to audit VEDP activities and report the findings directly to its board of directors.
I have a simpler idea. Instead of adding new layers of bureaucracy, eliminate the incentives altogether and use the money for workforce training.
Virginians have long had a love-hate relationship with economic development incentives, viewing them as an ugly necessity for competing with other states, most of which offer subsidies and tax breaks to lure corporate investment. The Old Dominion was one of the first states to make incentives contingent upon the recipient meeting benchmarks for dollars invested and jobs created. If a company fails to keep its promises, the state will claw back its payments.
But there’s a bigger problem that tighter administration of state incentive programs cannot solve: There is no way to tell if subsidies and tax breaks actually work.
Site location in the United States has evolved into a racket. When a corporation decides to expand, it typically hires a site consultant to scout the ideal location. It is common practice to narrow down the choice to two or three localities in different states and then to set them bidding against one another to offer the sweetest incentive package.
So many states dangle subsidies, grants, tax breaks and other kinds of bribes that companies would be negligent to not try to extract the biggest, fattest concession possible.
The trouble is that economic developers are bidding in the dark. The VEDP can make educated guesses, but it has no way of knowing exactly how much money it will take to sway a particular corporation to invest in Virginia, no way of knowing whether it gave away too much, indeed no way of knowing if a company would have invested in Virginia without an incentive package at all.
As it happens, the timing is perfect to re-think incentives. The VEDP board has hired Steven Moret, Louisiana’s former economic development chief and a superstar in the field, to run the organization. Key to his success was FastStart, a program he built into one of the nation’s premier workforce development initiatives. Moret should be given the resources to replicate the program in Virginia.
Once upon a time, VEDP had a respectable job-training program, which it offered as a perk to companies investing in the state. But the Virginia Jobs Investment Program (VJAP) has undergone considerable restructuring and reorganization over the past 20 years, and not to its benefit.
Between 2010 and 2014 it shrank from 16 operational and support personnel to six. While Louisiana was building a best-in-class workforce development initiative, Virginia was dismantling its own.
In an era of abundant capital and near-zero interest rates, reputable corporations can easily and cheaply borrow the money they need to expand. A much tougher task is finding a skilled workforce.
Many communities are out of the running for a wide range of economic development projects because their workers lack industry-specific skills. In Martinsville, for instance, the 6.8 percent unemployment rate is higher than almost anywhere in the state, yet in November local companies were complaining that they were having difficulty filling some 1,325 job openings.
If local companies can’t find the workers they need, what chance does Martinsville have in attracting out-of-state industry?
Addressing the jobs-skills mismatch is arguably the greatest economic challenge facing Virginia today. If a corporation can’t find the workers it needs, it won’t consider a community no matter how big the incentives.
Virginia’s colleges, community colleges and universities can do most of the heavy lifting on education and training, but they are not equipped to provide a fast-response, turnkey workforce solution like Louisiana’s FastStart program.
While the General Assembly ponders how to reform VEDP, it also needs to re-think the state’s economic-development incentives: Virginia needs to emphasize workforce development over subsidies and tax breaks.
Given the state’s current budget constraints, the most logical pot of money to fund a program like FastStart is the Commonwealth’s Opportunity Development Fund. We can continue doling out payola to out-of-state corporations or we can invest in Virginia’s workers, likely with a better result. It’s not a difficult choice.