Every so often the governor – any governor – will announce that a company will locate or expand somewhere and invest a certain amount of money to create a certain number of jobs.
We journalists dutifully report this and these headlines go into the historical record as evidence of what a great job that particular governor is doing at building our economy.
Now comes a little-noticed state report that says, um, most of those announcements simply aren’t true.
It’s not that governors or companies are lying. They all surely mean these things when they’re announced, but the catch is many of these job announcements are based on job growth over time, not necessarily on day one. Everybody – governors, companies, even journalists – like the fanciest number available. But most of these job announcements simply don’t pan out the way they’re expected. In fact, sometimes barely a quarter of them do.
This information comes from a December report by the state’s watchdog agency, the Joint Legislative Audit and Review Commission. The analysts at JLARC have been providing a buzzkill for decades – last year JLARC issued 13 different reports at the behest of the General Assembly. The report entitled “Economic Development Incentives 2022” was one of those and it ought to be required reading for all of us who deal with these periodic job announcements.
Much of the report deals with whether economic development incentives work – we’ll get to that, just hang on. There’s a lot of philosophical dispute over incentives. I haven’t met anybody, left or right, who likes them, but everyone acknowledges that if some other state is offering incentives, we can’t exactly say to a company, “We hear North Carolina’s a lovely place. Hope you’re wildly successful there; we’ll just sit here and hope for the best.”
We’ll get to the philosophy soon enough. Here’s the practicality – and the gut punch on page 23 of this 49-page report. How many of the jobs promised through these incentive programs actually materialize?
This report doesn’t say that. Instead, it looks at how many projects live up to their announced billing. That’s a somewhat different measure, of course, but still useful at measuring efficacy.
The report looked at 14 different incentive programs the state has and concluded that over 10 years – from fiscal year 2012 to fiscal year 2021 – only 26% of the 1,497 “completed” projects announced lived up to their job creation goals.
Projects came closer to meeting their announced capital investment goal – 65% did. But only 42% hit their announced wage goals.
Based on this history, every time a governor announces that company XYZ will create a certain number of jobs, we ought to cut that figure by three-quarters.
This isn’t the fault of a particular governor – this report spans three different ones, from both parties. Nor is it necessarily the fault of a company. Things change. We just need to understand that these job announcements are more aspirational than actual.
Of the 14 incentive programs studied, only two hit 100% of their targets. Both are in Hampton Roads: the Advanced Shipbuilding Training Facility Grant and the Port of Virginia Economic and Infrastructure Grant. Together they involved 21 of the 1,497 projects.
The most commonly used program is the Virginia Jobs Investment Program, with 560 projects – but only 22% of those hit their job targets and only 38% hit their wage targets.
All governors like to use the Commonwealth’s Opportunity Fund, formerly known as the Governor’s Opportunity Fund. Only 35% of those completed projects hit their job targets.
Of particular interest in much of Southwest and Southside Virginia is the Tobacco Region Opportunity Fund from the Tobacco Region Revitalization Commission, aka the Tobacco Commission. Only 31% of those completed projects hit their job targets.
That doesn’t necessarily mean this money was wasted. Many of these programs don’t pay out until certain targets are hit and/or have clawback provisions. Those around Roanoke are familiar with the saga of the Deschutes Brewery – the big public campaign to persuade the Oregon brewery to locate in Roanoke. The company bought the land but almost as soon as the deal was done the market changed and Deschutes never followed through with the brewery. The incentives were based on certain job targets, so never got paid out.
Now on to the rest of the report:
- How much we’re spending: “Virginia spent $3.2 billion on 87 economic development incentive programs over the past 10 fiscal years, for an average of $320 million per year,” the report says. That led to 70,000 jobs and $17 billion in capital investment – so if you’re doing the math, Virginia kicked in $3.2 billion and that turned into $17 billion. That seems a pretty fair rate of return (particularly if you’re holding one of those 70,000 jobs that got created).
- Where it’s being spent: Since Cardinal is a geographically based publication, that’s the lens through which I tend to view the world. What I notice here is that on a dollar basis, 51% of the state’s economic development incentives went to businesses in Northern Virginia. That sounds suspiciously to me like a case of the rich getting richer. Those figures are skewed, though, by the incentives for Amazon’s HQ2. That wasn’t the only thing in Arlington receiving incentives but it was sure the biggest one. In all, 42.1% of the state’s incentive dollars have gone to Arlington. If we take Arlington (and Amazon) out entirely, then the locality receiving the second biggest percentage of incentive dollars was Newport News, with 6.4%. In terms of number of awards, the biggest single number has gone to businesses around Richmond – 9.1%.
For what it’s worth, 18% of the state’s incentive dollars have gone to localities in Tobacco Commission territory across Southwest and Southside, so it seems hard to get too worked up over geographical disparities. The localities that probably lose out are rural counties that aren’t covered by the Tobacco Commission, which raises the question of whether there needs to be some special fund to cover economic development in those places.
Also of note, on a per-capita basis for specific awards, Arlington leads the state – again, Amazon skews things. But three of the top five are in Southside:
• Arlington County ($3,297) for the location of Amazon HQ2;
• Greensville County ($2,891) for development of the Mid-Atlantic Advanced Manufacturing Center;
• Brunswick County ($2,115) for the location of a Dominion Power gas power plant that received $30 million in financial assistance;
• Manassas ($1,746) for the Micron expansion;
• Sussex County ($1,210) for development of a Tobacco Commission-funded megasite.
I’d be one of the first to howl if I saw some geographic disparity but I’m not seeing it here.
If you want a policy argument, it might be here: 72% of the spending on incentives has been for tax incentives “such as sales and use tax exemptions ($1.6 billion), tax credits, and single sales apportionment for manufacturers and data centers ($560 million.)” The report goes on to say that “the remaining 28 percent was spent on grants ($905 million) and other incentives such as loans and gap financing programs ($36 million).”
So what? Here’s the so what: “Grant programs have substantially higher economic benefits than tax incentives, when benefits are assessed per $1 million spent. Tax credits, in particular, have the lowest economic benefits and are ineffective in generating economic benefits for the state compared to grants. However, Virginia has historically spent more on tax incentives than on grants.”
So nearly three-quarters of Virginia’s economic development incentives are spent on the least effective form. I also once again question those incentives for data centers – not because we don’t need data centers, but because they’re so concentrated in Northern Virginia, where they’ve become quite controversial in some localities (principally Prince William County). So, big picture, here’s a case where the state has tax incentives that are leading to a proliferation of data centers in a part of the state where they’re not always wanted, while other parts of the state (Southwest and Southside) are begging for data centers they don’t have. I’ve written before about how there are business and technical reasons why they’re in Northern Virginia and not Southwest and Southside, but that doesn’t make the irony any less.
Or, based on how this report says many job announcements don’t fully pan out, maybe the irony is three-quarters less.