Bacon's Rebellion

Democracy Thrives in Sunlight

Another Data Point on the VW Deal

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by

James A. Bacon
in

In closing the Volkswagen USA deal, which will bring 400 jobs and a $100 million investment to Fairfax County, the Kaine administration committed $6 million in state funds to grease the skids — more than the state/regional funds invested in all other economic development projects across the state combined so far this year.

The VW subsidies include $1.5 million from the Governor’s Opportunity Fund to assist Fairfax County with the project and $4.5 million in funds from the Virginia Economic Development Incentive Grant (VEDIG).

That compares to $5.265 million for all other economic development projects across the state combined, including monies invested by the Virginia Tobacco Indemnification and Community Revitalization Commission. (I tallied these numbers from press releases posted at the Virginia Economic Development Partnership website.) The other, non-VW, economic development projects accounted for $724 million in total investment and 2,300 new jobs.

As I’ve always maintained, corporate recruitment is an effective economic development strategy in parts of the state where a significant percentage of the workforce is either unemployed or underemployed, and where job creation is not overwhelming the ability of state/local governments to provide roads, infrastructure and public services. But, as argued in “The Bug in the Ointment,” it makes less sense for the state to subsidize job creation in Northern Virginia, where infrastructure is overloaded.

I’m not blaming anyone in particular for this mismatch. Everyone is just doing their job. But that’s the problem: It’s time to re-think economic development priorities. Of all gubernatorial administrations in my memory, the Kaine administration is more acutely aware of the trade-offs between the traditional model of economic development and growth management issues. I’m surprised that the Governor signed off on the VW subsidy.

Update: As I go through the deals announced in 2006, I see that the state made significant investments in a number of downstate projects: $19 million for SRI Inc., in Rockingham County, $5.9 million for Swedwood North America in Danville, and $6.6 million for ABB in Halifax and Bland Counties. I mention this because it would be unfair to imply that the Kaine administration is neglecting the interests of downstate Virginia.

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22 responses to “Another Data Point on the VW Deal”

  1. Anonymous Avatar
    Anonymous

    Your update parafraph doesn’t seem to jibve with the previous $5.25 million number. Was that an error, corrected in the update?

    RH

  2. Groveton Avatar
    Groveton

    Many other localities in the United States have higher population densities than Fairfax County. I find it challenging to adhere to the philosophy that adding high paying jobs to the state should be avoided because the “infrastructure is overloaded”. If the infrastructure is overloaded, the state should address this issue rather than passing by job creation.

    I would certainly have preferred that VW locate their NA HQ in a location in Virginia where there is under-employment. However, even I assume Gov. Kaine and his people would have figured that out themselves. Therefore, I have to assume that VW wanted to be in Fairfax County and would not have accepted an alternate location in Virginia. Given that, the question is whether the 400 jobs at an average salary of $125,000 were worth $6M. I believe that any reasonable analysis would show that the 400 jobs are worth more than the $6M paid by the state. The taxes that will be collected from these people will do more good for Northern Virginia’s infrastructure than the additional costs associated with those jobs.

    However, since the state of Virginia maintains a secretive and completely opaque approach to government we’ll never really understand the financials of this deal. The fact that you had to go hunting through press releases to find the amount of corporate economic development spent in Virginia speaks volumes.

    Someday the taxpayer – voters of Virginia will revolt against the shadow governance of the state legislature. Unfortunately, I doubt that day will happen this November.

  3. Anonymous Avatar
    Anonymous

    Groveton, as usual, has posted a masterful comment.

    I wil only demure slightly.

    “If the infrastructure is overloaded, the state should address this issue rather than passing by job creation.”

    Larry is going to immediately object to this, saying, “Why is it the state’s problem?”

    My question refers to a previous study that suggests that the return on investment now is different than in the past. Where the previous ROI on roads was very high, the cost now mwans that it is low, at least for urban areas. Meanwhile, Winston and others suggest that the alternatives are also socially cost negative.

    Clearly, the infrastructure is overloaded. Millions of gallons of fuel wasted and thousands of dollars inwated time are testament.

    Now the question is whether the cost of fixing the infrastructure is worth the price, or whether it is “cheaper” to start over someplace else.

    Maybe next time we can profit from our earlier failures and invest enough up front, rather than wasting our efforts in a vain and inequitable attempt to stick it to the new guys.

    I have said before that I suspect there are regions where the mix of jobs, housing, and transport are optimized. I’m not blind to the idea that there may be some superdense structures that work.

    However, I also think that there is a huge cost difference between planning such structures in advance, and trying to retrofit them after the fact.

    I don’t think wwe are smart enough to plan them in advance.

    RH

  4. Jim Bacon Avatar
    Jim Bacon

    Ray, the updated paragraph refers to 2006 projects, while the original post referred only to 2007 projects. I don’t want to imply that the Kaine administration is short-changing downstate Virginia, as it might appear if you looked at 2007 numbers alone. If you include 2006 numbers, it’s clear that he’s been spreading the largesse around.

    My problem is with the idea of subsidizing anything in Northern Virginia at all. If you’re going to subsidize econmic development projects, develop a methodology that includes the net benefit to a region after taking into account the impact of providing new roads, infrastructure and public services for the people who move into the region to take those jobs.

    Groveton, you have missed my point entirely. I explicitly stated in my column that if VW USA wants to relocate to Northern Virginia, that’s just fine. It’s a free country! VW USA is bringing high-paying jobs. My problem is with the state’s decision to subsidize the relocation.

    I don’t believe in restricting growth. I just don’t believe in subsidizing it either, at least not in Northern Virginia. Instead, as you say, the NoVa region should be focusing on providing the needed infrastructure to accommodate growth…. But there’s the rub. Given the region’s dysfunctional human settlement patterns, providing that infrastructure is unaffordable. So, the NoVa region also needs to develop more efficient human settlement patterns. That means policies that don’t restrict the supply of housing, driving up the cost, and policies that don’t push housing into counties on the metropolitan fringe, forcing people to commute ever-lengthening distances.

  5. Larry Gross Avatar
    Larry Gross

    I don’t have a problem with the State accepting responsibility for _some_ of the infrastructure that directly relates to the State as a whole.

    For instance, I bet, even RH would object to the state using state tax revenues to build water/sewer or libraries or even fire/rescue stations.. throughout the state – and further than the state would decide priorities with the virtual certainty that some localities would get 20-year IOUs while others got immediate priority.

    So I support fully the idea that the state should be responsible for say.. interstates and the primary roads that connect Virginia.

    This IS important to the entire state and DOES have a direct effect on new businesses locating in the state.

    Where I think there is a problem is HOW a given locality or Region CHOOSES to handle growth that WILL require infrastructure.

    THAT local/regional infrastructure must be the fiscal responsibility of the locality and the region and if that responsibility is ignored than HOW growth is planned is affected because if the folks that approve it feel like that the state will pick up the infrastructure costs – no matter how stupidly or irresponsibly the development is designed – then we have a huge disconnect between the COSTS of infrastructure that result from different land-use decisions that propogate the need for the infrastructure.

    I’ll give one small example. You have a commercial strip – and each business wants it’s own curb-cut entrance along with a dedicated left turn lane to get into their business.

    Localities in the past very often would approve this – over VDOT objections – because that locality did not have to pay for the resulting traffic lights and road widenings to deal with the consequences of that really dumb way of development.

    And, in fact, the State and VDOT would often “reward” the locality by agreeing to build a very expensive by-pass to “fix” the problem.

    Of course, the locality would then turn around and utilize the bypass the same way that caused the need for it to start with.

    The locality that did this – did not care if the new bypass far, far exceeded their local gas tax revenues.. they would lobby VDOT to prioritize their need FIRST and delay other locality projects – which was inevitable because many of these projects would consume 10 or 20 years of revenues for a given locality.

    This is what I object to.

    And this is why I favor the locality bearing responsiblity for local infrastructure because it will insure that if dumb planning is done – that the consequences will fall directly on them – and their taxpayers – who will at some point – hold them directly accountable.

    To this point, localities have always blamed VDOT for the problems and now.. the message has morphed to the idea that the “State has abdicated their responsiblities”.

    No.. the State finally said that it will no longer rob locality Peter to pay locality Paul for local decisions that result in the need for local infrastructure.

    And that is why I favor a combination of proffers and local road referenda as well as water/sewer authorities and transportation tax districts, etc.

    somone tell me where I’ve gone wrong on this.

  6. Anonymous Avatar
    Anonymous

    If the goal is to develop more efficient human settlement patterns, then policies that don’t restrict the supply of housing, driving up the cost, and policies that don’t push housing into counties on the metropolitan fringe, should go in the same hopper with policies that spread jobs around to where people live.

    I don’t see how one set of policies is OK and another is not. It is social enineering either way.

    RH

  7. Anonymous Avatar
    Anonymous

    How do you reconcile policies that don’t push up the cost of housing with Larry’s comments?

    Larry, I don’t have a problem with reasonable building fees or proffers. I do have a problem when they are arbitrarily set all out of proportion to previous history, when the “proffers” become confiscatory, and the process of deciding them is a five year deal.

    I have a problem when the answer is that no proffer is large enough, and no plan is good enough.

  8. Larry Gross Avatar
    Larry Gross

    if you think the way that water/sewer is currently done in many areas with distinct boundary service areas and/or the way that gated communities and special tax districts, and CDAs function – then we would agree.

    I think proffer money should have major strings in terms of use and time frame – and if not mistaken there already are – for instance – one of the problems with both proffers and CDAs is how far from a development – they can be spent.

    So, you can have a new development – that is going to seriously impact an interchange ramp… 7 miles from the development but under current rules… upgrading the infrastructure around that ramp… with proffer/CDA money is limited.

    My main philosophy is to let localities and regions bear the direct responsibilities associated with growth and development decisions that result in infrastructure consequences.

    How this is done.. can and should have safeguards but I will say that most localities that I am familiar with – do not misuse this capability… the money gets spent on infrastructure.

    the problem we have – over and over, is decisions that have infrastructure consequences – and when the decision is approved for land-use, there is no equivalent fiscal decision on how to provide the infrastructure.

    The most common response is that the infrastructure is “planned” in the comp plan and is “on the VDOT list”.

    This is grossly irresponsible in my view.

  9. Jim Bacon Avatar
    Jim Bacon

    Ray, where did you get the idea I want to engage in “social engineering”? That is the antithesis of what I believe. I’ve NEVER, NEVER said or implied that. Show me where I have.

    If companies want to locate jobs on the metropolitan periphery, I don’t have a problem with that. I’ve expressed skepticism that many companies will want to do so unless they are providing goods and services to households living in bedroom communities). The logic of corporate location decisions is to locate closer to the urban core in order to be within commuting distance of the largest possible number of qualified employees — something that’s hard to achieve on the regional periphery.

    I’ve also suggested that regions should try to create communities with a balance of jobs, housing and amenities — but NOT through a process of social engineering. Balanced communities (in my vision — you’ll have to ask EMR about his) would be created by (a) redrawing municipal boundaries to reflect underlying economic and social realities, and (b) establishing a common vision for public, not-for-profit and private investment. A common “vision” — to act as a guide — not a mandate.

    Ray, please be more careful about the way you represent my arguments. A lot of readers are new to the blog, and they may take your misrepresentations as fact. That means I have to come behind you and clean up!

  10. Anonymous Avatar
    Anonymous

    JAB,
    What a pile of baloney! You are too a social engineer. I bet you and EMR have a secret plot to use eminent domain to condemn all homes on lots of one quarter acre or more. Then you are have the owners pushed by National Guardsmen at bayonet point into high density apartment buildings a few steps from Metro or bus stops to achieve your “human settlement pattern” and “infill” schemes.
    And to think that all the while you masquerade as a libertarian!

  11. Anonymous Avatar
    Anonymous

    I apologize again if I have mistated you.

    It’s a real conundrum. If we take away the policies that drive up the price of homes, there goes Larry’s proffers. So the question is whether the social benefit of having low cost housing is worth the social cost of generalized high taxes in order to pay for the required infrastructure.

    I don’t see how you get a “common vision” to work in a competitive, free market environment. A competitive advantage is necessarily divergent from the common goal. Even in a school of fish the apparently allellomimetic behavior is founded on rules of individual survival.

    If regions are going to try to create a certain balance, isn’t that social engineering? Won’t some kind of force or incentive have to be applied? When was the last time we saw a boundary redrawn, except to make it bigger?

    The logic of corporate location decisions used to be to locate closer to the urban core in order to be within commuting distance of the largest possible number of qualified employees, now it is a qustion of locating within commuting time to the greatest number of qualified employees.

    To get that balance we need to move people or jobs or both. How do we make that happen, or do we just wait?

  12. Jim Bacon Avatar
    Jim Bacon

    Ray, you asked, “To get that balance we need to move people or jobs or both. How do we make that happen, or do we just wait?”

    As long as everyone pays their full locational costs (businesses as well as households), we don’t need to “make that happen.” Businesses will make their own decisions of where to locate based on their own priorities. The marketplace will decide. No social engineering necessary.

    As you can tell by my VW commentary, however, I do have a problem with municipalities subsidizing corporations to locate one place instead of another.

  13. Jim Bacon Avatar
    Jim Bacon

    Anonymous 9:51: How did you know? Have you been hacking into our secret files? Shame on you!

  14. Larry Gross Avatar
    Larry Gross

    re: proffers and the cost of housing.

    this is really silly.

    would you claim that housing is being made “unaffordable” because water/sewer are an “unfair” add-on?

    Of course not.

    Would you claim that the cost of housing is made unaffordable because schools have to be built for the kids in those homes?

    Liveable homes are not empty shells on vacant lots without infrastructure.

    The “unaffordable” argument is a lot like arguing that cars are unaffordable… because they make you pay for the wheels, and tires and fuel.

    Houses cost …not only what it costs to build them – but what it costs to provide them with – things like water/sewer.

    Yeah.. it would be nice if houses only cost what it cost to construct the building and not the other required infrastructure ..

    How would you feel if you saw a house advertised as $350K and in small print it said “water/sewer not included”?

    … but this is a silly way to view the world in my opinion….

    get real… accept realities…and focus on the real problems…. not strawmen…

  15. Anonymous Avatar
    Anonymous

    It makes that particular house more expensive if you put the entire cost of infrastructure on that house, instead of paying for infrastructure, which serves everyone, out of the general fund.

    It makes that particular house more expensive if placing the full cost of infrastructure on it wasn’t the way it was done in the past.

    RH

  16. Anonymous Avatar
    Anonymous

    “As long as everyone pays their full locational costs (businesses as well as households), we don’t need to “make that happen.””

    Yes, but that isn’t the case. What do we do in the meantime? We watch 97 million gallons of fuel get exhausted into the air as waste, while we idle away our morning rush.

    I would argue that the businesses in Fairfax are not paying enough to provide the transportation they need to get their employees to work every day. They don’t have the Google mentality.

    Therefore, they are not paying their full locational costs. And they won’t unless someone makes them.

    The market will work eventually. It is getting harder and harder to attract employees to downtown locations, so we have Tysons and Reston.

    This year, Tractor Supply opened a new store in Marshall. I estimate that store saved me 400 miles this summer.

    I don’t know everyone in my office, by any stretch. But everyone I do know lives closer to that Tractor Supply than they do the office. For at least the people I know, that office is clearly not in the optimal location.

    Sure, there are a couple of cars in the lot from Maryland, but virtually everyone else comes from someplace west.

    So if more functional communities means ones where we commute less, then we need to get realistic about what is actually happening.

  17. Anonymous Avatar
    Anonymous

    Suppose I could demonstrate unequivocally that I could manage may own sewage for less than the cost of a sewer tap.

    Should I be allowed to?

    Would I be?

  18. Anonymous Avatar
    Anonymous

    Suppose we had data that showed conclusively that adding more jobs to a certain area would make the jobs / housing balance and the total miles commuted worse instead of better.

    As a matter of health and safety, would the community have the right to deny a permit for a work site?

    We could slap a proffer requirement or impact fee on them, in that location, to incentivise them to choose some other location, or to provide funds for better transportation.

    If I fine businesses that want to go to A so that they will prefer to go to B, how is that any different from B offering a subsidy?

    Isn’t is social engineering either way?

    In some places, as much as 30% of the cost of the house is tied up in various fees and requirements, along with deliberate bureaucratic delay. It is one thing if those requirements are for legitimate health and safety reasons. It is something else if it is just social engineering or snobbish exclusion.

    RH

  19. Larry Gross Avatar
    Larry Gross

    re: ..”full cost of infrastructure on it wasn’t the way it was done in the past.”

    the way it was done in the past IS THE REASON why we have problems NOW.

    aren’t you advocating essentially that .. we cannot change..even if we know that we are doing it wrongheaded?

    isn’t this the same argument about letting people continue to pollute because they should not have their “rights” restricted from what other people were allowed to do previously?

    Second point – proffers seldom, if ever, pay ALL of the required infrastructure costs. Look around at the places that charge proffers and every one of them will tell you that the proffers do not cover the full costs.

    re: “doing your own water/sewer”.

    You can… right now.. it’s called a drain field…

    and there ARE private sewage treatment plants also – and they are bonded – to insure that the plant mainenance and operation is continued per the permit.

    and.. you could also build a closed loop system… where there is no discharge into surface waters or aquifers.

    You can do this now.

    but you do have to be bonded and insured …to protect others – off of your property – from a failure that causes pollution that will flow off of your property.

    There is a reason why… developers do not want to build and operate a private plant – and what it boils down to .. is cost.

    Like I’ve said before – any developer is free to make any proposal – including changes in the Comp and Land-use Plans – and any locality is free to approve especially if there are no net impacts outside of the developed property.

    I would submit .. that.. “restrictions” come into play – when you want something – that probably does not belong to you in the first place.

    Undeveloped property owners are _not_ …. entitled … to publically-funded infrastructure – because they own undeveloped land.

    They are provided.. _some_ infrastructure.. at some cost… with some restrictions… in exchange for developing land – that will impose demands on infrastructure outside of their property boundaries.

  20. Larry Gross Avatar
    Larry Gross

    re:….”If I fine businesses that want to go to A so that they will prefer to go to B, how is that any different from B offering a subsidy?

    Isn’t is social engineering either way?

    You are not “fining” anyone and you’re not penalizing them and you are not “social engineering” them.

    By the way, zoning/land-use rules and policies without adequate justification have a legal description: “arbitrary and capricious”

    the simple concept is that for any given proposal in a given area – that the impacts of that facility should be .. adequately mitigated.

    Some facilities will have higher impacts than others and some sites (with existing development) will require more mitigation than others.

    A good example is what is known as “Traffic Generation”. Virtually every type of development activity has a known level of traffic that will be generated – per square foot.

    For instance, a hospital will generate different traffic levels than say.. a WalMart or a Office building … or a school.

    The reason why a “permit” is needed is to first.. determine the impacts and second to determine what scope and scale of infrastructure will have to be built to mitigate the increased traffic.

    This is a legitimate cost – allocated to the enterprise that wants to locate there – even government facilities.

    Like local schools.

    determine what level of traffic the school will generate – and then insure that the appropriate scope/scale of transportation infrastructure improvements are also built – as part of the total project.

    This process is not “fining” the school system nor penalizing the school system.. nor attempting to social engineer the school system.

    It simply is a process for determining impacts – and insuring that providing adequate infrastructure to mitigate the predicted impacts .. is, in fact, in the complete plans for the facility.

    and by the way.. any developer (or member of the public) is entitled to be provided with the infrastructure plans that will be paid for by proffers.

    You can rest assured that if there was fraud going on with respect to the use of proffer money – that developers would be on it like stink on a skunk….

  21. Anonymous Avatar
    Anonymous

    Larry, you are off on a tangent. I wasn’t talking about any of the usual permit processes. I was referring to the bait used to draw VW in, but I chose the wrong word when I said fine.

    The idea is still the same, however it is done. Suppose Fairfax had decided that their traffic situation was so bad they needed to limit new business development, and they increase the cost for VW and others to come. By whatever means. An economist would say that there is no difference between that and some other location offering a subsidy or payment to come.

    All I was pointing out is that a charge or fee is only a negative subsidy. If we think subsidies are wrong, then so are fines or fees.

    This is the basis of much of our disagreement. I think that subsidies are preferable, because then, those that wish to encourage a certain behavior by others (have work done on their behalf) will be the ones to pay for it, otherwise known as user pays.

    You think that a school or whatever is responsible for a discrete chunk of traffic, and I think that everyone uses the new infrastructure. So if we want new infrastructure, we should be the ones to pay for it.

    I think it is part of what Jim referred to as establishing a common set of goals or viewpoints.

    ———————————

    There might be other factors at play, and VW might decide to pay the cost and come anyway. Fairfax could then raise the price even more, or just say no, you can’t come.

    I think that would be called arbitrary and capricious. But, if you really want to see arbitrary and capricious, just try to get into land use court. You cannot do it until you have axhausted all availabe administrative remedies. Most people won’t live that long.

    There are plenty of arbitrary and capricious land use rules out there.

    The levels of traffic generation come from a handbook, that is widely criticized for being inaccurate, but lets assume it isn’t wrong by orders of magnitude. What is the point of establishing the impacts, when you know that you don’t plan to do anything substantive about them?

    OK, you require a turning lane or taffic light. Big deal.

    Yes, to the extent that permits ensure health and safety, fine. But let’s not kid ourselves here, permits are money collection devices and power mongering devices and political devices as much or more than they are safety and health devices.

    It is immoral and unethical to cynically invent a “justification” for some permit requirement when the real reason is to require a permit that will never be issued, and for which a real remedy through the courts is effectively denied.

    But, suppose you have a real and valid reason, and suppose it is serous enough to warrant a total denial. That denial is almost totally for the benefit of everyone other than the applicant, but it is the applicant who will bear all the costs and losses. Under the user pays doctrine, those costs should be shifted to the public which benefits, and the applicant should be subsidized or paid for adopting some other behavior on our behalf.

    Such a policy will ensure that we do not have cynical requirements, because we know that we will wind up paying for them. It will gurantee the lowest overall costs, and it will protect us from ourselves.

    RH

  22. Larry Gross Avatar
    Larry Gross

    …”I think that subsidies are preferable, because then, those that wish to encourage a certain behavior by others (have work done on their behalf) will be the ones to pay for it, otherwise known as user pays.”

    ….”You think that a school or whatever is responsible for a discrete chunk of traffic, and I think that everyone uses the new infrastructure. So if we want new infrastructure, we should be the ones to pay for it.”

    RH – I don’t “think” this. It is a proven fact. If a 500 unit development is built – you can bank on the fact that 5000 new auto trips a day will result.

    these numbers come from looking at the numbers from real live examples.

    If those 5000 new cars use the existing roads – they will overwhelm them – and yet you think that the existing folks who already live there should pay for the expansion… and if three more 500 unit developments went in..you’d advocate that existing residents pay for them also.

    and using your logic.. if the sewer line had to be replaced with a bigger line to handle the increased sewage from the new developments.. you’d have the existing residents pay for that also.. because the existing residents would be “using” the new (bigger) line…

    shared values.. you got it…

    my view: folks should pay their pro-rata share and NOT be subsidized.

    what in the heck would existing residents expect to get by subsidizing new residents anyhow?

    you say that it’s better to subsidize these folks so that it would “encourage” certain behaviors?

    please explain what behaviors you would be “encouraging” by having existing residents subsidize the infrastructure needed by new folks.

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