There’s an old military saying, often attributed to Gen. Omar Bradley: “Amateurs talk strategy. Professionals talk logistics.”
The same saying might apply to economic development, as well. Lots of people have theories about what a community’s strategy ought to be. Politicians certainly do. Even the occasional commentator has been known to opine on economic development strategy. Hmmm …
In a way, though, we’re all amateurs, talking about how we think things should be. Last week, I had a chance to hear a professional talk about how things really are. The occasion was a Virginia Association of Counties meeting in Roanoke where Jason El Koubi, president and CEO of the Virginia Economic Development Partnership, spoke.
He laid out some statistics about economic development that anyone concerned about their community’s economy should pay attention to. Some of these may reinforce some people’s world view; others won’t. What can I say? Reality is complicated.
El Koubi laid out seven trends that are shaping economic growth – and the implications of each:
1. Workers are harder to find, which sets off a chain reaction in the marketplace. (For background on why this is happening, see my previous column, “Why the worker shortage is here to stay.”) El Koubi said this will force companies to invest in automation. It will drive up wages and lead to increased demand for companies to accommodate remote work, because that may be the only way that some companies can find enough workers. He didn’t say this but I will: The more we see demand for remote work, the better that is for rural areas. It means some workers will be able to move to rural areas and still find work. It also means some people already living there will be able to find jobs they couldn’t find previously.
2. We’re seeing more big projects, defined as 1,000 jobs or more, which means we need sites big enough to handle them (and a laborshed with enough workers, since this trend runs smack into the first one). In 2020, the state was involved in courting six projects that could be considered a “megaproject” of 1,000 jobs or more. This year that figure has grown to 25. “We’re seeing a lot more big opportunities,” El Koubi said. “It really increases the importance of having mega sites.” That’s of particular importance to Pittsylvania County, home to the state’s biggest “mega site” – the 3,528-acre Southern Virginia Mega Site at Berry Hill. However, that leaves out much of Southwest Virginia, where the topography works against such big sites. Hold onto that thought about the Southern Virginia Mega Site; we’ll be coming back to that.
Meanwhile, El Koubi showed off some separate stats that examined the biggest barriers to economic development in Virginia. A 2020 survey of economic development offices in the state found that 52% said “sitebuilding availability” was their biggest obstacle. The other top challenges: money/revenue 30%, infrastructure capacity 24%, housing 23%, demographics 17%, other 9%, taxes and regulation 3%. Those numbers add up to more than 100% because people sometimes listed multiple things as their top obstacle. Am I the only one surprised that taxes and regulation came in so low? We often hear that cited as an obstacle to business growth, yet that’s not what economic development professionals are finding. It’s lack of land (or, more accurately, prepared land) – which will inform much of what will come.
3. Speed to market is “paramount” in site selection. This is why we don’t just need sites, we need prepared sites. This is a category where Virginia has lagged in recent years. I’ve trotted out these figures before but will do so again: Virginia’s been spending about $5 million a year to get sites prepared. But South Carolina has been spending $43 million, Ohio $50 million, Georgia $66 million. And they’re all dwarfed by North Carolina, which has been spending $80 million, although that figure rose to $338 million last year as the state spent extra on some specific sites. Kentucky last year spent $261 million for the same reason. That’s a trend that Ralph Northam attempted to correct in his final months as governor by proposing a major increase in state spending on site preparation – and which Gov. Glenn Youngkin endorsed in his first address to the General Assembly. The budget that Youngkin eventually signed calls for up to $159 million in funding for site preparation as Virginia tries to play catch-up here. Earlier this year, the Southern Virginia Mega Site lost out to Georgia on an 8,100-job electric vehicle battery plant for Hyundai. The reason? Georgia’s site was better prepared. “These guys are under tremendous pressure when they identify a business opportunity,” El Koubi told the meeting of county officials. All the time they’re waiting for a plant to get built, they’re not making money. The sooner it’s up and running, the sooner they’re cashing in. Whether mega sites or smaller sites, the big push right now is to get those sites graded and otherwise prepped for market. El Koubi said that 85% of Virginia’s sites of 100 acres or more are not considered “project-ready.” He said that every year the No. 1 reason why Virginia has missed out on economic development projects is the lack of prepared sites.
Here’s why this is so important: El Koubi said that since 2016, the lack of project-ready sites has potentially cost Virginia 52,000 direct jobs, 102,000-plus indirect jobs (once you factor in the ripple effect of money moving through the economy), $120 billion in investment and $381 million to $493 million in additional state revenues. (These are new, and bigger, numbers that what we’ve seen reported previously.) Whether you’re a Democrat who thinks we ought to be spending that additional revenue on certain things, or a Republican who thinks we ought to be cutting taxes, that’s a lot of revenue we’re missing out on. These numbers aren’t guesses, either. They’re based on actual projects that the state was involved in courting, and missed out on. El Koubi’s presentation walked through some of those. The state assigns military-style code names to each economic development project. So Project Aurora was an automotive company that would have created 6,500 jobs – went elsewhere. Project Settlement was a semiconductor company that would have created 5,600 jobs – went elsewhere. Project Darwin was another automotive company that would have created 5,200 jobs – went elsewhere. And so on down the line. Now, realistically, we wouldn’t have gotten all of these – some may have been looking at the same sites. Still, I’ll make this observation: If we’re talking big projects that need big sites, then we’re probably talking sites in rural areas, which means here are a lot of jobs that rural Virginia is missing out on. Think of just what one of those would have meant in either Southwest or Southside.
4. More companies are prioritizing renewable energy as part of their site selection process. We can argue the politics of green energy all we want; this is the business reality. El Koubi pointed out that Virginia has pursued an “all of the above” approach to energy. However, more companies are demanding renewables, so if we want to be competitive for those employers, then we need to provide them. Up until 2020, renewables weren’t considered a driver in corporate decisions. Last year, it was a factor for two companies that were looking at Virginia. So far this fiscal year, it’s a driver for eight. Those numbers might seem small but these aren’t. The average capital investment for companies listing renewables as a driver: $1.2 billion. The average employment for those companies: 921 jobs. There are trade-offs in everything and there are obviously some here. There’s a boom in solar farms across Southside but not everyone is happy about farmland and timberland being taken out of agricultural production for what feels to them like the industrialization of the countryside. One county supervisor from Dinwiddie County asked: What about counties that want to preserve farmland – are they going to be left behind in this new economy? There are no easy answers to that. Still, it’s important to remember it’s not just the stereotypical “tree-hugging dirt worshippers” in the environmental movement who are pushing renewables; it’s that most classically conservative of forces, the hidden hand of the marketplace.
To the extent that Virginia’s controversial Clean Economy Act has driven the development of more renewables, it’s also helping make the state more marketable to some potential employers. (Some also say it’s driven up the cost of electricity in the short-term; can’t dispute that – just pointing out that it’s helped drive a lot of solar development that wasn’t there previously, so if that’s what some companies are looking for, now we have it.)
5. Large office projects are declining “precipitously” as remote work becomes more common and some workers leave big metros for smaller communities. (The Census Bureau has some stats that document this migration; see my previous column that delves into those.) This has implications two ways: It’s obviously not good for landlords in bigger cities, but it “potentially generates some opportunities in lower-cost, mid-sized metros.” In other words, what’s bad for Loudoun County might be good for Lynchburg, and so forth.
6. The tech sector is the main driver of growth. El Koubi’s presentation talked about how tech jobs can also generate other jobs in the economy. Of course, the tech sector doesn’t seem to mean much for large swaths of rural Virginia, but it does mean a great deal to the New River Valley. Earlier this year, the Brookings Institution reported that the New River Valley has the nation’s third highest growth rate for tech jobs. This also underscores the message that Rep. Ro Khanna, D-California and the congressman from Silicon Valley, has been making: that the nation needs to “spread the digital wealth” beyond a relative handful of go-go tech hubs. He elaborated on this message when he spoke in Blacksburg in June as part of our Cardinal News Speaker Series. The second speaker in that series will be Jay Timmons, president of the National Association of Manufacturers, who will appear in Danville on Sept. 12. That event is free but seating is limited, so registration is required. Timmons will speak on the future of manufacturing, and I suspect he’ll say that much of advanced manufacturing really consists of tech jobs in a different form.
7. Electric vehicle manufacturing accounts for an increased share of large projects. Here’s where we start to tie a lot of these points together. El Koubi said that the growing interest in electric vehicles highlights the “growing importance of [a] robust manufacturing workforce.” It also underscores the need for more big “ready-to-go” sites – that Hyundai plant that passed on Southern Virginia for Savannah is but one example. We also know that there’s essentially a race going on right now as car makers try to position themselves for the electric vehicle market. They’re all busy building plants – either for assembly or for making batteries – and many of those are getting built in the Sunbelt. As I wrote in a previous column, the geography of the future economy is being drawn now. Now consider this: All that was before Congress passed, and President Joe Biden signed, the so-called Inflation Reduction Act. The bill may or may not reduce inflation but it does mandate that electric vehicle makers “re-shore” a lot of their supply chain, particularly for battery-making (and electric vehicles are basically big batteries on wheels). That means we’re probably going to see even more electric vehicle plants being built somewhere.
So what does rural Virginia need to do to be more competitive for some of these jobs? Some answers should be obvious by now: It needs more prepared sites, it needs a workforce, it needs renewable energy, it needs broadband. There’s one other thing it needs, though, that doesn’t get much attention: Its local governments need more people working on economic development.
Employers don’t just fall out of the sky. They are typically courted and wooed, and the state’s not set up to do all that. Perhaps the most astonishing map that El Koubi showed off was this one:
Look how many counties have “one or fewer” economic development specialists in their local governments. And look where they are – they are generally the counties that are most in need of new employers. El Koubi also showed off research that found – not surprisingly – that localities with more economic developers had more economic development. This, by the way, was a study confined to rural localities, so we’re comparing rural localities with each other, not with the urban crescent. Rural localities with two or more economic developers were almost twice as likely to score economic development “wins” than rural localities with fewer than two specialists.
These stats are new but I’ve heard this phenomenon cited before. When the Senate Finance Committee held a retreat in Roanoke last November, there was chatter that maybe the state should help fund economic development positions in some rural localities. I’d like to see more discussion of the pros and cons of that. The state essentially funds teachers; most rural localities get most of their school funding from the state through a complicated funding formula. Should the state have a similar funding formula (although perhaps less complicated) to help fund economic development officials in these counties that presently don’t have anyone? Put another way, is it in the state’s interest that so many counties have no one dedicated to economic development?
I’m reminded of the old Fram oil filter ad (or perhaps the song by the Squirrel Nut Zippers): “You can pay me now or you can pay me later.” The lack of economic development sets in motion consequences that often lead to the state paying for other things (such as paying more for the local school system, as the county’s “ability to pay” declines). This is one of those issues with interesting cross-pressures: Republicans are understandably loath to encourage more state spending, yet the localities with one or fewer economic developers are almost exclusively Republican-voting counties. Should the state change that? To go back to Bradley’s quote at the beginning: It doesn’t do much good to talk strategy if there’s no one to carry it out.