Bacon's Rebellion

Democracy Thrives in Sunlight

Why Virginia Is Number One

—

by

James A. Bacon
in

It’s no accident that Virginia ranked No. 1 in Forbes Magazine’s 2006 ranking of the business climates of the 50 states. We are blessed by geography — a central location on the Mid-Atlantic seaboard, and proximity to the federal feeding trough in Washington, D.C. — but the Commonwealth also has consistently pursued business-friendly policies over the decades. In this document, “Rating the States – a Closer Look,” the Senate Finance Committee takes a detailed look at why Virginia compares so favorably.

Among the factors subject to influence by public policy are these:

  • Tax burden. Absolute state/local tax burden is one of the lowest in the country; Virginia ranked 41st in 2006. Even more impressively, when ranked as a percentage of personal income, Virginia’s tax burden was the 49th lowest in the country. Virginia state/local taxes claimed 16.1 percent of personal income, versus a national average of 20.3 percent.
  • Labor costs. Virginia has a right-to-work law and low workers compensation costs.
  • Energy costs. Despite the fact that Virginia is not an energy-rich state, outside of the far Southwest coalfields, the average cost per unit of electricity for industrial customers was 4.04 cents in Virgina vs. 5.02 cents nationally.
  • Human capital. Virginia ranks 7th in the nation for percentage of population with a college degree. Additionally, the labor force is growing consistently more rapidly than the national averages. Despite the fact that 60 percent of all newcomers to Virginia come from outside the United States (can you believe that?), more than 70 percent have some college education or degrees.
  • Regulatory environment. Virginia’s environmental and workplace regulations rarely exceed federal regulations in severity. The U.S. Chamber of Commerce ranks Virginia among the top four states in the country as far as legal fairness.
  • Conservative government. Virginia is one of nine states in the country with a AAA bond rating. The Government Performance Project gave Virginia the second highest grades in the country, ranking behind only Utah, for how well the states manage their money, people, technology and infrastructure.
  • Quality of life. Virginia has less poverty and a significantly lower crime rate than the rest of the country. The number of Virginians with medical insurance is a little higher than the national averages.

The report wasn’t all rah-rah. It pointed out several weak spots in Virginia’s business climate — none of which will come as a surprise: increasing traffic congestion, unaffordable housing and regional decifiencies in educational attainment.

Overall, “Rating the States” is very thorough and well worth perusing.

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24 responses to “Why Virginia Is Number One”

  1. Toomanytaxes Avatar
    Toomanytaxes

    I’d say that another weak spot is the dependency of Virginia on federal money. We’re not likely to see the Navy pull up stakes from HR nor other agencies give up all contracting. But we have seen the high-water mark for defense and homeland security contracting for now.

    We’ve been growing state and local government based on the flow-through of these federal dollars. Many real estate investments have been predicated on growth in contracting. Is this another telecom bubble?

  2. Larry Gross Avatar
    Larry Gross

    on the briefing given to the Senate Retreat…

    page 29:

    Virginia’s Economic Challenge: Diversify..Integrate

    *State’s economy is a challenge … Theoverriding impact of Federal spending.

    * Huge dependence on Defense spending, especially Northern Virginia.

    * Problems of fast growing suburbs and the older small cities.

    http://tinyurl.com/yydgfq

    So the Senate guys DO HAVE this info.. they know that there is not only a dependence on Fed dollars but that NoVa is highly dependent…

    the rest of the slides are worth looking at also…

  3. Anonymous Avatar
    Anonymous

    I wonder if this news affects Jim’s opinion on whether we are a low tax state or whether the 04 increase was the disaster he predicted?

  4. Ray Hyde Avatar
    Ray Hyde

    Tax Burden: yes our taxes are low. But go take a drive on Maryland rural roads and compare the difference. The question isn’t whether your taxes are low so much as it is whether you are getting what you pay for. Where is the Metric on that?

    Labor costs: I’m not sure that I believe keeping labor costs low by giving employers the right to fire at will is necessarily the best answer.

    Energy Costs: I’m not sure that whether you have local energy supplies available is the real driving force here.

    Human Capital: Virginia is a great place to live, no wonder so many smart people have moved here. The question is can we retain what made us popular in the face of so much change. I don’t even feel like a Yankee any more.

    Regulatory environment: yes, the state environment is halfway reasonable. It is the local environment that makes no sense.

    I do think the state could do alot more to prevent insurance companies from ripping off its citizens. I had a beef with my insurance company once and Virginia didn’t seem to have a problem with their actions. Maryland was suing the same insurance company over the same issue.

    Conservative government: It is easy to keep a AAA bond rating if you are unwilling to borrow money for worthwhile projects.

    Quality of life: poverty and crime aren’t the only measures. What is the true measure of Gross State Hapiness? Sitting in traffic where no mass transit is available? Children who graduate and actually know enough to make a living?

    Sorry, as a scientist, I guess the standard response is “More study is needed.”

  5. Tobias Jodter Avatar
    Tobias Jodter

    Interesting that back in July I had a hard time convincing anyone that 29% of new immigrants to Virginia were direct foreign immigrants. Now we have the state putting the number at 60%?!

    There really needs to be some debate as to the real motivations behind these kinds of numbers – why, who is benefiting, what the real costs are. Is it really just to keep the commercial and residential construction industries growing exponentially? Is it really just to prop up SS?

  6. Ray Hyde Avatar
    Ray Hyde

    Why do we care where people come from, as long as they are good people?

  7. Jim Bacon Avatar
    Jim Bacon

    Anonymous 9:58, I’ve never suggested that Virginia wasn’t a low tax state. I just want to keep it that way. I never suggested that the 2004 tax increase would be a “disaster” — only that it was unnecessary and that passing it let lawmakers off the hook from making the deep structural reforms that Virginia needs to make compete in a global economy.

    I still maintain that the 2004 tax increase was unnecessary. The chronic budget surpluses we’ve generated since then prove that the underlying projections the the Warner administration used to justify the increase were wrong.

    On the positive side, I’ll concede that lawmakers have not used the surplus funds to ramp up ongoing spending programs and have instead sunk the money into one-time capital projects. So, at least we’re not setting ourselves up for the next tax increase. On the other hand, I don’t see the need to conduct a pay-as-you-go policy when you have a triple A bond rating. We can prudently take on more debt, and we could have borrowed money to clean up the Chesapeake Bay and restructure the mental health/retardation program.

  8. Ray Hyde Avatar
    Ray Hyde

    “lawmakers have not used the surplus funds to ramp up ongoing spending programs and have instead sunk the money into one-time capital projects. So, at least we’re not setting ourselves up for the next tax increase. On the other hand, I don’t see the need to conduct a pay-as-you-go policy when you have a triple A bond rating.”

    I agree.

    I’m not sure borrowing money to clean up the bay is a good idea. It seems to me that is qan ongoing project and not a one time event. Besides, it depends on too many other players besdes just Virginia.

    However, it might be true that some caital expenditures on sewage plants and the like are justified, and they would also help keep the Bay cleaner.

    I’d put keeping the Bay clean in the same category as land preservation: we are going to have to find a means to provide a continuing stream of funds. As one California politician put it, if we are going to save the farms, we need to help the farmers stay in business.

  9. Anonymous Avatar
    Anonymous

    There is an element of hyporcisy in this comment. While the writer touts all the “coneservative” traits that supposedly make Virginia great (low taxes, rapid anti-unionism, minimal if not lax environmental regulation), what really boosts the Commonwealth is the federal tax dollar. Va. is No. 2 after California in the defense industry and has billions of dollars in federally-funded jobs and contracts. Maybe the author should go back and read his John Maynard Keynes before pretending that Virginia is some kind of self-propelled economic dynamo. Without the good ole federal buck, it would be rather like Mississippi but with milder summers.

  10. Anonymous Avatar
    Anonymous

    Anon. 9:58 here. Sorry Jim Bacon, I meant Jim Bowden.

  11. Toomanytaxes Avatar
    Toomanytaxes

    Re 2004 state tax increase. One can argue that it was good for Virginia, but it was bad for residents of Fairfax County. One more trip to the cleaners to subsidize low property taxes throughout much of the rest of the state.

    Data from the Senate Finance Committee indicated that it would cost Fairfax County taxpayers a net $107 M in 2005 (c. $117 M in 2006), with our schools receiving a less than $14 M in new money. But the average Fairfax County voter doesn’t know or take the time to find out the facts. A number of GOP delegates voted “no” and a few Democratic ones held out for more money for schools. But, of course, the typical voter opposed that position. Thus, a good argument can be made that we got what we deserved.

  12. Larry Gross Avatar
    Larry Gross

    as touched on in a previous comment.. there is certain irony to Virginia being a “low tax” state because it has such a vibrant economy in NoVa and HR.. which are primarily due to …a strong Fed Presence.. which comes from VOILA Federal Taxes – which many feel are too high. So Va gets to be a “low tax” state because of the Fed Tax “bite” which most of us think is not “friendly”.

    … and I must be on the right track.. because some folks have expressed fears that since the Dems have gained control that Fed expenditures probably will drop… come again? I “thought” it was the elephant guys who were the small govt, low taxes wing of politics….

  13. Toomanytaxes Avatar
    Toomanytaxes

    Larry, let’s not go crazy. The GOP in Congress was dominated by so-called “big government conservatives” who earmarked federal funding for special interests. They deserved to lose the election.

    But I question whether the Democrats will actually do anything different except to change the beneficiaries of the earmarks. Jim Moran has already been talking about getting a big earmark for the Silver Line and neither Jack “Abscam” Murtha nor Steny Hoyer are pure vis a vis lobbyists. Nancy Pelosi has indciated that she will pour pork funds into the Bay Area. Public sector union featherbedding at the state and local level may also rise, as the Democrats pay off their union base, which is mainly government employee focused.

    I do firmly believe, however, that the Democratic Congress will slow substantially the growth in defense and homeland security contracts, many of which flow to NoVA and HR businesses.

    We need reform of the appropriations process, both in Washington and in Richmond. Any request for spending or an appropriations earmark should be required to be reduced to writing and posted on the Internet for all to see. Regardless of which Party is in power, we need to stop spending increases that exceed the rate of increase in personal income.

  14. Anonymous Avatar
    Anonymous

    “Why do we care where people come from, as long as they are good people?”

    Because most of the growth in population in the US is coming from recent immigrants and their offspring. In the late 60’s we were at 200 million. We just passed 300 million and will hit 400 million in the next 35 years if not sooner. It is pointless to talk about “sustainable” communities while promoting unsustainable population growth.

    And you can’t repeal people.

    Deena Flinchum

  15. Anonymous Avatar
    Anonymous

    Too many taxes: All budget amendments introduced in Richmond have a sponsor or co-sponsor for all to see. There is accountability.

  16. Anonymous Avatar
    Anonymous

    Further. What if we have an increase in school age kids and increase in the elderly, or an increase in transportation needs that exceeds the rate of increase in personal income? Too bad?

  17. Toomanytaxes Avatar
    Toomanytaxes

    9:36 – Of course, the amendment’s sponsor’s or co-sponsor’s name is published. What we need for real reform is to publish the name of the company, trade association or nonprofit and their lobbyists that are seeking the appropriation in order to obtain reform of the process. The requesting entity should be required to reduce its request to writing, which can then be posted to the Internet. Let’s make the appropriations process visible. Force lobbyists do all their work in sunlight.

    As far as increases in students, elderly, etc., it’s called better management, cutting out subsidies to businesses, and the like. For example, Fairfax County taxpayers have subsidized land development and zoning services by more than $43 M since 2003. We also pay advertising costs for the commercial real estate through the Economic Development Authority by $6.8 M each year. It’s also pretty clear that many expensive properties, both residential and commerical, are grossly underassessed in Fairfax County. Many tax dollars are left on the table.

    VDOT could adopt cost controls, and the CTB process could be reformed to eliminate the influence of lobbyists. We can adopt APFOs statewide and impse mandatory development impact fees to fund necessary infrastructure similar to what takes place throughout most of the rest of the U.S. Local governments can start exercizing their existing authority to reject zoning requests that are inconsistent with the public health, welfare and safety. Indeed, BoS can start downzoning when appropriate. Prince William County is considering a one-year moratorium on building new homes. If they do it right, it will prevail in court.

    This won’t fix everything, but we can do much to shift tax dollars to projects that benefit the public interest without continually spending more than we make.

  18. Larry Gross Avatar
    Larry Gross

    Constituencies lobby for legislation. They can and do include government-funded agencies, non-profits, churches, etc – beyond businesses… even individual citizens lobby. The Sierra Club lobbies.

    Having said that.. the current process stinks to high heaven.

    Virginia actually has decent disclosure on money but most folks are unaware and/or don’t know where to get the info.

    An EXCELLENT website is that of Virginia Public Access Project:

    The Virginia Public Access Project (VPAP) is a non-profit, non-partisan organization that demonstrates how computer technology can improve public understanding of the role of money in state politics.

    The Project was founded in 1997 to fill a critical hole in the state’s regulation of campaign contributions. For decades, Virginia candidates had been required to provide names and occupations of those who contribute of more than $100. But candidates disclosed on paper reports, making it difficult for the public and the press to comprehend the information contained in the avalanche of paperwork that flowed into the State Board of Elections.

    VPAP converted the paper documents into a computer database during the 1997 elections and, in the process, threw open information that heretofore had been shut away in state file cabinets.

    Since then, the Virginia General Assembly has enacted significant reforms that encourage — and in some cases require — candidates and political committees to disclose electronically. VPAP plays a supporting role in the State Board of Elections’ ongoing efforts to computerize campaign finance records.

    http://vpap.org/

    This can be a powerful tool for local elections.. when “following the money”

  19. Toomanytaxes Avatar
    Toomanytaxes

    Larry, my proposed reform is even more fundamental. I would like to see anyone who approaches a member of Congress or the General Assembly seeking an appropriation (or opposing one, for that matter) be required to summarize his/her/its request and arguments therefor, in writing; file it within a day with the appropriate location, which, in turn, must post in on the Internet. Everyone can see what is being requested and can respond. The media, including the blogosphere, can have access and can comment.

    This is NOT about limiting anyone’s access to government. But it puts the access in the public light.

    Years ago, a friend of mine and I battled for our clients before the FCC. We each set forth our respective cases. We also met separately with the FCC staff to make our case. But each meeting required a written summary of the discussion to be filed. When he met with the staff, I quickly learned what he had to say and then rebutted him. Etc. No one was in the dark. My client won on some issues; his won on others. The public won too, because there was visibility for the entire process.

    If it works with agencies, it would also work with the appropriations process. Would the lobbyists hate it? Darn right, they would. But so what!

  20. Anonymous Avatar
    Anonymous

    Virginia doesn’t deserve a Number One ranking for business climate.

    If the ranking properly factored in certain legal risks that Virginians (including individual businessmen) face, such as Virginia’s costly divorce laws, Virginia would rank lower, although still above average. By contrast, North Carolina would rank better, despite its higher taxes.

    Business-related lawsuits are just a small part of the state courts’ dockets.

    A businessman is much more likely to lose part of his business in a divorce case than a wrongful termination or personal injury suit. Nearly half of the Virginia Court of Appeals’ docket is family-law cases, and nearly half of all marriages in the state end in divorce.

    And Virginia courts are more willing than any other state court system in the South to redistribute wealth upon divorce from the more productive partner (e.g., a businessman) to the less productive partner.

    Take a closer look at Virginia divorce law and it becomes clear why. Virginia divorce law ranges from antique in some areas to unpredictably standardless in other areas, to biased in favor of the supposedly “needy” spouse in yet other areas, depending upon the subfield of divorce law you are talking about.

    The unpredictability in some areas of Virginia divorce law causes endless appeals, harming both husbands and wives.

    The bias in favor of the the supposedly needy spouse — usually the wife — results in increased litigation and perhaps an increase in the divorce rate itself.

    Take alimony law, for example. In Virginia, unlike most states, you can end up paying alimony for life based on just a year of marriage to someone after a no-fault divorce. (So held the Virginia Supreme Court in Bristow v. Bristow (1981)). That encourages more divorce actions, because it is already the wife who is more likely to seek a divorce than the husband to begin with (two-thirds of all divorces nationally are initiated by the wife, usually no-fault divorces).

    Liberal alimony reenforces that by encouraging the spouse seeking alimony to seek a divorce, knowing that the end of the marriage won’t mean the end of financial support, even if the marriage was brief, and was ended by the very spouse seeking alimony (and even if the spouse seeking alimony did nothing special, like contributing to the other spouse’s earning capacity, and even if the spouse forced to pay alimony did nothing wrong, like committing adultery or domestic violence).

    A businessman can lose far more money over a lifetime from a Virginia divorce than he would ever lose from an employee suing him for workers compensation, employment discrimination, or wrongful termination.

    When Virginia courts value businesses for purposes of property distribution upon divorce, they use a wide array of inconsistent methods that pose risks both to husbands and wives, both to the businessman and his/her spouse, and through the uncertainty they generate, result in needless litigation over matters that could otherwise be settled promptly.

    North Carolina divorce law is more sensible than Virginia law (and before the mid-1990s was much more sensible).

    Even Maryland is a hair better than Virginia, since its divorce law operates by clear rules, discouraging run-on litigation.

    If Virginia would fix some of the major defects in its divorce laws, such as its heavy redistributionist bias in alimony decisions, it would actually deserve the number 1 ranking it received for its business climate.

    Virginia needs to clarify that indefinite or lifetime alimony should be the exception rather than the rule, so as to reduce financial risks to businessman, and to discourage dependency and failure to seek gainful employment by their ex-spouses.

    In the 1990s, the Virginia legislature passed a law permitting alimony for a limited period of years, rather than for life, but the Virginia Court of Appeals, as it often does, has interpreted that statute (and the circumstances where a time limit on alimony is appropriate) so narrowly as to reduce it to little effect.

    (Note: the author of this comment is happily married, and has never been divorced).

  21. Ray Hyde Avatar
    Ray Hyde

    I don’t know about that. I knew a fellow in North Carolina whose wife divorced him. She got the house, the car, and the kids. She got half the car dealership, and half of his income from his half of the car dealership, she got a new car from the dealership every four years. And as a condition of visitation rights, he had to rent an apartment from her in the basement of the home.

    Although, I’d have to say he had it coming.

  22. Tobias Jodter Avatar
    Tobias Jodter

    At 10:57 PM, Ray Hyde said…
    Why do we care where people come from, as long as they are good people?

    Predictably you miss the point of my comment by assuming you know what I am thinking…

    My point is we are having a population explosion and increase in density in large part because of immigration from overseas – not just from relocation within the US. It’s the policy of encouraging tens of millions of people to immigrate to the US every decade that I am questioning.

  23. Matt (not the usual one) Avatar
    Matt (not the usual one)

    Once again, tens of millions?

    And if the immigration from overseas primarily consists of highly educated white collar workers who increase the competitiveness of the commonwealth as well as the nation, that is a problem?

    If you read up more on population trends, just ‘density’ or ‘absolute numbers’ are not the problem. Its just what the kind of growth that matters.

    Sweeden and Norway have shrinking populations. By youor logic, they should be trmendously happy about it. Somehow they dont seem to be so.

    I think I know what you are thinking, in spite of your trying to deny it. You should read up about the skiled foreign worker programs, look at the quotas and then look at the average prpofile and pay of those people coming in. There is a reason the govt encourages it.

    And assuming I am getting you wrong, can you elaborate on the ‘population explosion’ part and how it is a bad thing. While you are at it, maybe you can also touch upon how the hill of SE which are not necessarily seeing such an explosion are better off (last I heard their fiscal ‘conservatism’ was being subsidized by the taxes from NoVa).

  24. Anonymous Avatar
    Anonymous

    “And if the immigration from overseas primarily consists of highly educated white collar workers who increase the competitiveness of the commonwealth as well as the nation, that is a problem?”

    The single largest source of legal immigration to the US is family reunification, not high skills. This family reunification consists not only of immediate family (spouse and children), which usually join the immigrant fairly shortly, but also parents, adult children, brothers, and sisters, which are brought to the US over a period of time. Their skills do not play a factor in admission – they are realtives and that is that. In fact some aged parents are placed on SSI without having worked a day in the US. Other immigrants, many of whom are poorly skilled and have little education, have the same family reunification rights, as do illegal immigrants if they are granted amnesty, allowed to stay in the US , and put on a citizenship track.

    Needless to say, about the only people who are able to use family reunification (other than a small number of people who marry non-citizens) are fairly recent immigrants. No one else would have parents and syblings in their original country. I find it a little odd that people who have been in the US for a relatively short amount of time – and who may hold citizenship in their country of origin as well as the US – have more say about whom we allow into the US than people whose ancestors have fought and died in our wars, survived our tough economic times, paid taxes for generations, and who owe allegiance to the US alone. I see absolutely no reason why family reunification should extend beyond immediate family, nor do I see how it helps increase competitiveness. Add the fact that the US now allows dual citizenship and the fact that many recent immigrants see the US as a place to make money and retain citizenship rights in their original country and I think we have quite a bit to think about.

    Deena Flinchum

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