An aerial view. Courtesy of the Southern Virginia Mega Site.

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Now would be a good time to invest in bulldozers.

That’s my quick takeaway from Gov. Glenn Youngkin’s proposed amendments to the two-year state budget that he presented Thursday.

There are other headlines, to be sure. Youngkin is proposing a $230 million expansion of mental health services. He’s proposing a $20 million investment in child care services in Southwest Virginia and a swath of territory from Chesterfield County to Emporia. He’s proposed more money for flood relief in Buchanan County; see the story by Cardinal’s Markus Schmidt and Megan Schnabel about that. Not surprisingly for a Republican, he also wants tax cuts.

Here, though, is what catches my eye and ear: Youngkin wants to spend $450 million to get more tracts of land prepared for future economic development. This comes on top of $150 million that’s already in the current budget, for a total of $600 million over two years. Keep in mind that Virginia didn’t start its business-ready site development fund until 2015, and then the investment was $500,000 a year. By the end of Gov. Ralph Northam’s term, Virginia was spending $5 million a year – $10 million over two years – for site development. We talk about cars going from zero to 60; on site development the state is going from zero to 600, just with six more zeros tacked onto the end.

By my math, this would mean Virginia would spend more – far more – on site development than any of the states we consider our competitors. At a meeting of the Senate Finance Committee in November 2021, senators were told that South Carolina spends $43 million, Ohio $50 million, Georgia $66 million. But they’re all dwarfed by North Carolina, which senators were told spends $80 million a year. Toward the end of Northam’s administration, his economic development team warned that Virginia was being out-hustled. His final budget proposed increasing what Virginia spends, and now Youngkin wants to spend even more.

The focus has been on creating large-scale industrial sites, what are typically called “megasites.” Virginia presently has two sites with parcels of more than 1,000 acres: the 3,528-acre Southern Virginia Mega Site in Pittsylvania County where the largest parcel is listed at 2,102 acres and the 1,545-acre Mid-Atlantic Advanced Manufacturing Center in Greensville County where the largest parcel is 1,000 acres. There are two others where the total acreage tops 1,000 but the largest parcels available don’t. The White Oak Technology Park in Henrico County is 2,278 acres but the largest parcel available is 711 acres; Sussex County has the 1,130-acre Sussex County Megasite, with the largest parcel size put at 595 acres. The Virginia Economic Development Partnership lists those as the four biggest in the state.

By contrast, North Carolina has four sites of 1,000 acres or more and is now in the process of identifying locations for five more megasites. Georgia has three – this is after two were occupied by manufacturers related to the electric car industry – and has just purchased 1,100 acres for a fourth.

This is the economic landscape that Youngkin sees. In May, Virginia came up short in its quest for an 8,100-job Hyundai electric vehicle battery plant. It opted for Savannah, Georgia, over the Southern Virginia Mega Site. That’s the example that crystallizes the issue in this part of the state but Youngkin sees something else. In presenting his budget amendments to the General Assembly’s money committees Thursday, he cited these figures. “In the most recent fiscal year, there were over 7,000 economic development projects – projects that were announced across the country representing over 600,000 jobs and $400 billion in capital investment. Virginia’s share of that was 3.4% while North Carolina was nearly double that.” Youngkin also sees more people leaving the state than moving in; presumably there are greater economic attractions elsewhere.

From Youngkin’s point of view, Virginia needs more jobs and should do three things to create them: cut taxes, prepare more sites and develop a better-skilled workforce. Let’s look at these one at a time.

Taxes

Youngkin wants to cut the state business tax from 6% to 5% – “toward an ultimate goal of 4% by the end of our administration.” That, he said, would put the state’s tax rate lower than Tennessee, Georgia and Florida. “More importantly, by setting ourselves on a committed path to an even lower rate – as Democrat-led North Carolina was able to do – we’ll send a clear signal to businesses that we want your jobs and we’re going to drive the commonwealth’s economic engine even faster.” This would forgo $362 million in state revenue over the two-year budget.

Youngkin also wants to cut the individual income tax rate, lowering the top rate of 5.75% (which applies to anyone making $17,001 or more a year) to 5.5%. He also rolled out some other tax breaks he’d like to see. “The reality is if we don’t take advantage of our current financial position to make ourselves more economically competitive, we’ll only fall further behind these most competitive states,” he said. This would forgo $333 million over two years. In all, he’s proposing about $1 billion in tax cuts.

As for the revenue the state would forgo, “we can grow our way to lower tax rates,” Youngkin says. Meaning, he believes lower tax rates would generate more economic growth, which, in turn, would mean the state would collect more taxes, even with a lower rate. Not surprisingly, not everyone agrees. The Virginia Mercury quotes state Sen. Janet Howell, D-Fairfax County and chair of the Senate Finance Committee, calling the governor’s tax proposals “very controversial.” I suspect she’s understating things. Democrats see the governor willing to give up $1 billion that could be spent on useful things; Youngkin sees the potential to attract more businesses that would generate even more revenue to replace that and more.

Whether Youngkin is right on tax policy is one of those things economists love to argue about, but his name-checking of North Carolina is correct. The Tar Heel State’s governor is a Democrat (Roy Cooper), although Republicans control the legislature – and North Carolina has set in motion lowering its corporate income tax from 2.5% now to 2.25% in 2025 to 2% in 2026 to 1% in 2028 to zero in 2030. “We must start walking down that same path,” Youngkin said.

Youngkin’s view of Virginia economic history begins nine years ago. “If you look back on our competitor states, 2013 emerges as a pivotal year,” he said. That year, “our competitor states set themselves on a path to lower business or individual taxes or both. Virginia stood still. In fact, we started adding new taxes and fees.”

What he didn’t say – he didn’t need to – was that 2013 was the year Virginia elected the first of two straight Democratic governors.

Youngkin didn’t say this, but 2013 is also the year that Virginia started seeing more people move out of the state. Virginia is still gaining population, but only because births outnumber both deaths and that net out-migration. Birth rates are falling, though, and may not make up for the net out-migration forever. In other words, it’s not hard to imagine Virginia soon losing population. Those of us who live in Southwest and Southside Virginia already know the economic consequences of declining population – they’re not good. In a previous column, I reported on Census Bureau stats that show how even Northern Virginia, the state’s economic engine, is now starting to lose population. If that’s a brief blip that goes away, that may not matter in the long run. But if this is the start of a new trend, that is hugely consequential.

This net out-migration is something Youngkin has repeatedly talked about – he talked about it on the campaign trail, he’s talked about it in speeches since, he talked about it again in his budget presentation Thursday. He attributes this out-migration to higher taxes in Virginia. “These piled up on the backs of Virginians and people moved away,” he said. “People take into consideration what they pay in taxes when they decide where to live … and the vast majority of them are moving to states with lower or no state income tax. South Carolina, Georgia and North Carolina have all lowered their personal income tax rates. Tennessee has gone to zero while Texas and Florida were already there.”

This may be a simplistic reading of both tax policy and demography. It’s true that Tennessee has no income tax but it also has the nation’s second highest sales tax, at 7%. Only California, at 7.25%, is higher. Sales taxes are inherently regressive – those less well-off pay. So it’s not as if people in Tennessee are paying fewer taxes than those in Virginia, they’re just paying them in different ways. Feel free to have a jolly old time debating the merits or demerits of a progressive income tax versus a regressive sales tax. That said, the Tax Foundation (sometimes seen as a conservative outfit) does say that Virginia has the highest combined state and local tax burden of any state south of the Mason-Dixon Line, which raises a good debating point: Does Virginia’s overall rate of taxation drive some people out of state? Or does it provide sound investment in things that make the state attractive?

Youngkin obviously prefers the first question, so let’s look closer at the demography he’s citing. When Virginia’s net out-migration first began, the age cohort most likely to move out of state was those 60 and older – retirees turning into snowbirds. Maybe taxes had something to do that, but maybe just the general circle of life has something to do with that, too. Without some formal survey of those former Virginians, it’s impossible to say. More recently, though, we’ve seen every age cohort suffer net out-migration. (For more details, see my previous column on this topic.) Something is certainly driving that. Democrats may instinctively recoil from Youngkin’s insistence that we cut taxes – rather than invest that money in other things – but it would behoove all of us to better understand just why Virginia is seeing its net out-migration accelerate. If it really is taxes, we ought to know that for a fact, not just as a matter of ideological preference. If it’s something else, we ought to know that, too.

Site development

Youngkin’s numbers on site development are less debatable on ideological grounds. He ticked off these figures: Since 2017, North Carolina’s megasites have landed eight companies of at least 700 jobs. Toyota says it will create 2,100 jobs – at a median salary of $62,234 – at one site near Greensboro where the company plans to build batteries for electric vehicles. The state budget includes additional incentives if employment goes to 5,000. Georgia has landed five projects at its megasites over the past five years, Youngkin said, with that 8,100-job Hyundai plant being the one we know best. Just this month, South Carolina announced that a Japanese company will start building electric vehicle batteries at an 870-acre site near Florence, creating 1,100 jobs.

By contrast, Youngkin said, Virginia has won only one project on a site of 250 acres or more: Lego in Chesterfield County, with 1,760 jobs.

Youngkin’s solution: Virginia needs more big sites and we need to have them ready faster. As previously reported, one of things that tipped Hyundai toward Georgia over Pittsylvania County was that the Georgia site was closer to being construction-ready. “Speed to market” is the term that gets used.

“The opportunity cost of inaction is clear,” Youngkin said. “It’s time to stop playing small ball.” Youngkin clearly wants some home runs (and a big tenant at the Southern Virginia site might qualify as not just a home run but a grand slam). Realistically, these bigger sites are likely to be in rural areas simply because that’s where the land is. Also keep in mind it’s not the state that creates these sites: These are set up by local governments. Southern Virginia is a joint project of Pittsylvania County and Danville. (See the story by Cardinal’s Grace Mamon on its history.) So one question going forward is which local governments will we see taking the lead to put together big sites? I’ll also point out something else I’ve highlighted before: Notice how many of these big projects are related to electric vehicles. I don’t hear conservatives mocking electric vehicles the way some once did and no wonder: These companies are creating lots of jobs in conservative-voting parts of the country. (While I’m talking up other our work, I call your attention to my previous column: “The geography of the electric vehicle industry is being drawn now.”)

Workforce

Much of this has been covered before. Cardinal’s Markus Schmidt broke a story earlier about how Youngkin wants to consolidate the state’s 1,500 (!) workforce training programs. And Cardinal’s Susan Cameron reported earlier how Youngkin wants every high school student to graduate with a credential or an associate degree, a major expansion of the dual-enrollment programs that Ralph Berrier Jr. wrote about for Cardinal in this story. On Thursday, Youngkin said he would put $21 million toward this, although there were no details on how it would be spent other than that some would go toward the existing Fast Forward and G3 programs. As for his dual-enrollment plan, he said only that he hoped by the time he leaves office in January 2026 there’s a plan in place – so at the moment that seems more aspirational than actual policy. In a background briefing, Youngkin aides said that they wanted to identify “five or six” schools to pilot a universal dual-enrollment plan but that those schools haven’t been picked yet. Politically, those would need to be dispersed across the state so I’ll be curious to see what schools in Southwest and Southside wind up in the running.

Another line that got my attention: Youngkin said he would propose “over $11 million in regional accelerator projects in Hampton Roads, Southside, Central and Southwest Virginia.” In all, Youngkin said he would propose $60 million for various talent-related programs. Presumably some of that might be credentials for the heavy equipment operators who would be necessary to do all that site development.

Dwayne Yancey

Yancey is editor of Cardinal News. His opinions are his own. You can reach him at dwayne@cardinalnews.org.