Bacon's Rebellion

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VEDP Chief Urges More Funds for Site Readiness

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James A. Bacon
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Click to enlarge image. Source: “Enhanced Sites Characterization: Go Virginia Board Presentation“

by James A. Bacon

The paucity of developable sites and buildings resulted in Virginia communities being eliminated from consideration for at least 65 projects totaling 19,000 jobs and $5 billion in capital investment over the past three years, according to Virginia Economic Development Partnership President Stephen Moret.

Of the 466 large suites available for development as factories, distribution centers, call centers and other job-producing businesses, only 30 are classified as Tier 4 or Tier 5, meaning they are ready to compete for big economic development projects, Moret told the Virginia Growth and Opportunity Board Monday. Only two sites — one in Hampton Roads and one in the Roanoke/New River Valley region — qualified for the highest level of readiness.

In Moret’s analysis, site development is one of the four drivers behind site location decisions, along with workforce characteristics, supportive business climate, and quality of life. Virginia has historically under-invested in site preparation compared to states with whom it competes for manufacturing and distribution/logistics investment. 

Moret’s findings come from what he believes to be the most comprehensive examination of a site portfolio in any state.

Moret classifies sites broadly as follows:

  • Raw land
  • Tier 1-2 — property controlled for marketing and development
  • Tier 3 — zoned industrial/commercial, due diligence completed
  • Tier 4-5 — “project ready”; infrastructure can be in place within 12-18 months

To achieve Virginia’s goal of becoming a Top 10 state for job growth, the Commonwealth needs to create between 260,000 and 460,000 jobs above baseline forecasts over the next 10 years, according to Moret’s presentation. Of those, between 38,000 and 66,000 must come from the manufacturing and distribution/logistics sectors. And to capture those jobs, Virginia will need between 160 and 200 additional project-read sites (above those available for baseline growth).

When VEDP began cataloging Virginia’s sites, basic information for many was severely lacking. Such basic data as water capacity, sewer capacity, power capacity, natural gas capacity, and rail capacity were unavailable. Now, after extensive research, VEDP can provide data on a wide variety of factors such as the estimated cost to develop the site to project-ready status, location competitiveness, and sector suitability.

Geographic breakdown of economic-development sites. Click for larger image.

On average the cost to make a site project ready is about $4.6 million, according to Moret’s presentation.

Numerous funding pools exist for making site improvements, but most have restrictions on the types of costs they can cover — utility right-of-way acquisition, power line extension, road and rail access, and region-specific projects, and so forth. There are two programs with programmatic flexibility — the Virginia Business Ready Sites Program and Go Virginia economic development grants.

Building an inventory of project-ready sites is one of Moret’s top priorities. The VEDP chief is asking for $15 million to bolster site readiness in the next two-year budget, reports the Richmond Times-Dispatch. The GO Virginia board unanimously adopted a policy to broaden the grants it administers to increase the number of sites ready for development in 12 to 18 months.

Bacon’s bottom line: Cynics might say that Moret joins a long line of special pleaders begging for more money in next year’s budget. There are several important differences between Moret’s request and others. First, he has thoroughly documented and analyzed the need for the funds. Second, there will be tangible, measurable results. Lawmakers will be able to ascertain whether or not the expenditures are having the desired effect. Third, the $15 million is trivial compared to sums allocated to projects as “incentives.” Fourth, by putting Virginians to work and boosting investment, the initiative will increase the tax base rather than constitute a never-ending drain on the budget.

If Moret could demonstrate that spending more on site readiness would allow the state to spend less on incentives, he would have a slam-dunk case.

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15 responses to “VEDP Chief Urges More Funds for Site Readiness”

  1. LarrytheG Avatar
    LarrytheG

    Important to distinguish between ready-for-use local/regional industrial parks and the kinds of sites that Moret is talking about which are very large acreage sites that may extend across jurisdictional boundaries and require substantial investment – for infrastructure with no guaranteed short-term return on investment.

    Most localities tend to wait for companies that are looking for such sites to make inquiry and then work a deal which requires them to commit to the infrastructure as a condition of going forward.

    For instance, in Spotsylvania, Dominion Raceway wanted to move from their location in Prince William to a site adjacent to I-95 but the interchange and related was not sufficient to handle the events so they basically swapped some other prioritized road projects for upgrading this one.

    Some localities may not have that option. some smaller, less fiscally able jurisdictions may not have any money and there are stories like Buena Vista where they gambled – and lost.

    However, would also point out that Virginia is divided up into multi-county/city “Planning Districts” where, in theory, there is opportunity to interface with the likes of Mr. Moret to advance their regions.

    So the question is – is a state level function like Mr. Moret is advocating a reasonable approach and how would you fund it and measure success or failure?

    The devil is in the details but I think Mr. Moret is on the right track and it once again proves that the State – has valuable roles to play for localities but they have to want to play.

    1. smoretva Avatar
      smoretva

      “Important to distinguish between ready-for-use local/regional industrial parks and the kinds of sites that Moret is talking about which are very large acreage sites that may extend across jurisdictional boundaries and require substantial investment – for infrastructure with no guaranteed short-term return on investment.

      Most localities tend to wait for companies that are looking for such sites to make inquiry and then work a deal which requires them to commit to the infrastructure as a condition of going forward.”

      A couple clarifications may be helpful here: (1) of the 466 characterized sites, 125 of them have 25-50 contiguous acres, so not all the identified development sites are large (and I’m pretty sure the vast majority reside in a single locality); (2) at this stage, we are not advocating for the state or localities to make infrastructure investments without a firm company project in hand — rather, we are suggesting that, for well-rated sites, the state and localities should complete soft costs (i.e., due diligence and detailed engineering/planning work) such that any necessary infrastructure could be in place within 12-18 months of a company location decision. So we are recommending to get more sites to Tier 4 but not necessarily Tier 5.

      Development timelines of 2-3 years or longer simply do not work for the vast majority of projects. With the approach outlined above and in the presentation, we can prepare 4-5 times the number of sites to be market competitive (for a given amount of $s) while minimizing the potential for a white elephant problem. Success would (or at least should) be viewed based on the total portfolio, recognizing that some sites would be deployed faster than others.

  2. Peter Galuszka Avatar
    Peter Galuszka

    Yeah, agree that pre-prepped sites are better than incentive goodies.

    1. djrippert Avatar
      djrippert

      Really? Build it and they will come? I don’t buy it. At least incentives apply to a specific opportunity with a specific company making specific employment promises.

      1. smoretva Avatar
        smoretva

        “Really? Build it and they will come? I don’t buy it. At least incentives apply to a specific opportunity with a specific company making specific employment promises.”

        A more accurate description of our strategy would be, “Plan it, and, if they come, build it.” Our primary recommendation is that, for well-rated sites, the state and localities should complete soft costs (i.e., due diligence and detailed engineering/planning work) such that any necessary infrastructure could be in place within 12-18 months of a company location decision. So we are recommending to get more sites to Tier 4 but not necessarily Tier 5. In the vast majority of cases, we envision significant hard costs only occurring once a solid company project has been secured.

  3. LarrytheG Avatar
    LarrytheG

    I like the way that VDOT has implemented Smart Scale and wonder if something like that can be done for Economic Development where there is a limited amount of money available and submitted projects are “scored”.

    That would likely bring out proposals and the State could (and should) take a hard look and support the ones that have the most promise.

    What Smart Scale has done is inform localities as to how well-conceived projects are and meet the critiera the State has established as necessary.

    Some objective and transparent process that guides localities and regions as to what “readiness” means and rewards those who proactively plan in such a way.

    The one big problem with Smart Scale is that they allow the locality to proffer their own money for a project, boosting it’s score, and that ends up favoring the richer localities over the poorer ones. That ought not be allowed for an economic development version of smart scale.

  4. Dick Hall-Sizemore Avatar
    Dick Hall-Sizemore

    Moret is to be commended on the development of a catalog of sites and their degree of availability. The request for an additional $15 million to develop sites is better than prior VEDP requests for more money for vague “economic development” activities. And the provision of a prepared site is preferable to providing incentives.

    I do have one major concern with Moret’s presentation. He focused on sites for big projects. That is all well and good, but will probably not benefit rural areas. We have discussed economic development strategies for rural areas a lot on this blog. I think there is some consensus that the most promising approach is to focus on small urban areas. In addition, relatively small projects, 25-100 jobs, are the ones most likely to locate in the state’s rural areas.

    To get a site up to Tier 5 in Moret’s catalog, the basic infrastructure, e.g. roads, water and sewer, gas, etc., have to be in place. That is an expensive proposition for most rural areas, especially for speculative sites. However, there may be a way to help reduce the cost for a single jurisdiction.

    With the GO Virginia legislation, the state has adopted a regional approach to economic development. This makes sense because the benefits of most economic development projects are not restricted to government boundaries. Workers frequently travel outside their county or city to their workplace.

    However, Virginia’s system of county/city separation ensures that the direct tax benefits of economic development remain with the jurisdiction in which the project is located. Consequently, there is little incentive for a local government to share the cost of developing a potential industrial site in an adjoining jurisdiction. If the tax revenue of a new factory, distribution center, data center, etc. could be shared by jurisdictions, that might be an incentive for jurisdictions to share the cost of developing and marketing a site located in a jurisdiction other than theirs.

    I do not know whether Virginia law authorizes jurisdictions to enter into revenue-sharing agreements with regard to economic development. If not, there is precedent in the law for such agreements in other areas. Section 15.2-3400 of the Code of Virginia authorizes localities to enter into voluntary agreements, including revenue and growth sharing, relative to annexation and boundary line changes. These provisions were part of the annexation package adopted in the late 1980’s. Before counties were later able to get the legislature to provide a semi-permanent moratorium on annexation by cities, several counties and cities entered into agreements in which the city waived its authority to annex in exchange for sharing the economic growth of the adjoining county. I am aware of at least two of these agreements: Spotsylvania/Fredericksburg and Albemarle/Charlottesville. It seems that this Code section could serve as a model for legislation authorizing localities to enter into voluntary agreements to share in the costs and the revenues of economic development.

    1. smoretva Avatar
      smoretva

      “I do have one major concern with Moret’s presentation. He focused on sites for big projects. That is all well and good, but will probably not benefit rural areas. We have discussed economic development strategies for rural areas a lot on this blog. I think there is some consensus that the most promising approach is to focus on small urban areas. In addition, relatively small projects, 25-100 jobs, are the ones most likely to locate in the state’s rural areas.”

      Most of the localities participating in this initiative are predominantly rural in character. 125 of the 466 characterized sites are in the 25-50 acre range, a size typically associated with manufacturing and distribution projects creating roughly 25-100 jobs.

      “To get a site up to Tier 5 in Moret’s catalog, the basic infrastructure, e.g. roads, water and sewer, gas, etc., have to be in place. That is an expensive proposition for most rural areas, especially for speculative sites.”

      We agree. In most cases, we won’t be recommending hard infrastructure investments until a company project is secured. Our focus is on investing in soft costs (i.e., due diligence and detailed planning) required to get more sites to Tier 4, which is a market-competitive level for most projects. At Tier 4, necessary infrastructure could be in place within 12-18 months.

      “However, Virginia’s system of county/city separation ensures that the direct tax benefits of economic development remain with the jurisdiction in which the project is located. Consequently, there is little incentive for a local government to share the cost of developing a potential industrial site in an adjoining jurisdiction. If the tax revenue of a new factory, distribution center, data center, etc. could be shared by jurisdictions, that might be an incentive for jurisdictions to share the cost of developing and marketing a site located in a jurisdiction other than theirs.”

      In the last few years, the General Assembly adopted the Collaborative Jobs Act, which allows multiple localities participating in an economic development project to share a portion of the new *state* income taxes resulting from that project for a number of years. It’s a promising, innovative concept that I expect will bear fruit in the future.

      “I do not know whether Virginia law authorizes jurisdictions to enter into revenue-sharing agreements with regard to economic development.”

      The Commonwealth does allow revenue sharing via RIFA agreements. I think this is the relevant Code section: https://law.lis.virginia.gov/authorities/virginia-regional-industrial-facilities-act/

  5. LarrytheG Avatar
    LarrytheG

    interesting article:

    ” FedEx Goes Deep Into Mississippi Delta to Find Workers
    To fill its vast workforce, delivery giant ferries 200 people four hours round trip to work the night shift at its Memphis hub

    FedEx has tapped deep into the Mississippi Delta to find workers for the largest facility in its world-wide supply chain. Lured by the chance to work for a global company and earn hourly wages starting at $13.26, some 200 workers gather in a Walmart parking lot in Cleveland, Miss., five nights a week to board buses bound for Memphis.

    “They’re important to the daily operation,” said Barb Wallander, a senior vice president of human resources at FedEx. “We depend on them.”

    https://www.wsj.com/articles/fedex-goes-deep-into-mississippi-delta-to-find-workers-11575714601

  6. djrippert Avatar
    djrippert

    The paucity of developable sites and buildings resulted in Virginia communities being eliminated from consideration for at least 65 projects totaling 19,000 jobs and $5 billion in capital investment over the past three years, according to Virginia Economic Development Partnership President Stephen Moret.

    Great. So, we spend this $15m and we’ll have 19,000 incremental jobs and $5b in new capital investment over the three years after this effort is completed? Want to bet?

    “Of the 466 large suites available for development as factories, distribution centers, call centers … ”

    As soon as I read about cll centers (or data centers for that matter) driving up employment opportunities I call BS. Data centers are a different but with regard to call centers …

    “Alexa! Can you tell me why betting on employment in call centers is a bad idea?”

    $15m isn’t the end of the world but how many jobs (by year) and how much capital investment (by year) will this generate? How with the results be captured and how will they be published? If we exceed expectations, how can we accelerate? If we under run expectations, how can we decelerate or stop?

    Managerial Finance 101.

    1. smoretva Avatar
      smoretva

      “Great. So, we spend this $15m and we’ll have 19,000 incremental jobs and $5b in new capital investment over the three years after this effort is completed? Want to bet?”

      My point was that we are losing lots of great projects because we don’t have prepared sites. It likely would take several times $15 million in site preparation investments to secure projects representing 19,000 jobs and $5 billion in capital investment, as those totals were associated with 65 lost projects (and thus 65 sites). We are proposing a plan that would result in roughly 160-200 Tier 4 sites over a decade. For context, 19,000 manufacturing jobs would result in roughly $100 million annually (order of magnitude estimate) in new state general fund revenue.

      “As soon as I read about cll centers (or data centers for that matter) driving up employment opportunities I call BS.”

      There is nothing in VEDP’s site development initiative associated with call centers. While data centers are a major focus for VEDP, the site development initiative also is not focused on data centers. Rather, it is about manufacturing projects and, to a lesser degree, regional (multi-state) distribution centers.

      “$15m isn’t the end of the world but how many jobs (by year) and how much capital investment (by year) will this generate? How with the results be captured and how will they be published? If we exceed expectations, how can we accelerate? If we under run expectations, how can we decelerate or stop?”

      If we just invest $15 million and stop there (which is not what we’re proposing), I would expect that investment to generate at least 7-10 new manufacturing projects creating roughly 2,000-3,000 jobs over several years. Capital investment would be much harder to estimate because there is such a large range, but most of the state’s revenue picture is about personal income tax revenues anyway. Those 2-3,000 jobs would generate recurring annual state general fund revenue (mostly income taxes) of roughly $10-15 million. Bear in mind there likely would be additional incentives, as well, so the payback would not be immediate. Overall this initiative is about securing more positive-ROI projects, not necessarily reducing the total incentive package of each project (although it might do that).

      Like all state-incentivized projects, results would be publicly reported. If expectations are exceeded, we would propose investing more. If the take-up rate is slower than expected, we would slow down. For context, competing states have invested 10-50x what Virginia has invested in prepared sites, so we have a long way to go before we would be concerned about over-investment in this area.

      1. Reed Fawell 3rd Avatar
        Reed Fawell 3rd

        In site development, the keys to exponential success, beyond location, are:

        1/ timing,
        2/ convenience,
        3/ effective risk abatement,
        4/quick pace of execution, and
        4/ powerful leverage.

        These five ingredients, when combined for cumulative affect, maximize return on investment as relatively small up front investments will spark long term generations of wealth in manifold ways that spread throughout communities, going wide, going deep, and going long term.

        So, if done right, Steve Moret’s proposals offer the likely prospect of enormous benefits all the way up the food chain for generations. It is state action at its finest.

        Moret and his team’s track record to date also lends credence to an already strong proposal.

        1. Reed Fawell 3rd Avatar
          Reed Fawell 3rd

          Moret’s proposal might be called an offshoot variation of highly successful Smart (Urban) growth. In both cases, the buyer, seller, and community, and region get a far more attractive product over a greater area(s), and a greatly enhanced potential for follow on products and mixed uses that in turn and combination can work to generate benefits far greater and more varied in wealth and kind at less risk. All get more certainty and opportunities in their lives, as well as higher financial and social rewards that compound. It is win win all around.

        2. Reed Fawell 3rd Avatar
          Reed Fawell 3rd

          I think it likely that Steve Moret, as likely too he must, understates the benefits that his site development scheme brings to local communities.

          So what benefit are understated or not given their full due?

          For one, consider the losses that likely will accrue should Moret’s team lose its ability to best complete in the site sale and development market: In the past, a community that stagnated was a community of people that died slowly.

          Today this is still true in some communities. But in many places today, people who reside there can lose their young, and their hope, far more quickly and in far more different kinds of ways, like the young and old who die in place more often now. Thus the rapidly spreading opioid crisis has quickly over taken whole towns, communities, and whole regions. Without good work, without vibrant families, without vibrant communities, the human spirit dies far quicker today. It’s less resilient. Often if its not listless, it works in self destructive ways. Then our losses are incalculable, irrevocable. No doubt, Moret’s plan, where successful, will be a great tonic and antidote, against these great losses that would otherwise likely occur now.

          Hence, his plan amounts to one of the best kinds of government program, the one that truly does bring incalculable good, if done right, and avoids great harm to real people and communities.

  7. Anonymous3444 Avatar
    Anonymous3444

    Without adding anything substantive here, I’d just like to thank Mr. Moret for stopping by to participate in the conversation. It’s nice to hear from a public servant who is ready, willing and able to explain and defend his ideas outside of controlled fora.

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