The federal faucet is flowing.
That may discomfort conservatives who believe the government should be spending less money, yet, ironically, much of the funding I’m about to describe is destined to benefit conservative communities.
Two bills that passed Congress in 2022 — the all-Democratic Inflation Reduction Act and the more bipartisan CHIPS and Science Act — included specific measures to direct economic growth to underperforming rural areas. Politically, this is fascinating — Democratic-initiated bills that are intended to reward Republican-voting areas — although it’s the economics I’ll deal with today, not the politics.
- “Energy community” tax credits: The Inflation Reduction Act, also known as “the climate bill,” called on the government to identify communities formerly dependent on fossil fuel production and designate them as places where clean energy companies could qualify for tax credits. The goal is to encourage clean energy companies to locate in places where coal, oil and gas once reigned, as a way to replace the jobs being lost there. The Energy Department released the map of eligible communities in April. Not surprisingly, much of Southwest Virginia qualifies. More interestingly, so do parts of Henry County and Pittsylvania County, including the Southern Virginia Megasite. That might be an interesting lure for somebody. These tax credits don’t involve an outlay of tax dollars — instead it’s a case of the government not collecting tax dollars — but the next provisions do.
- Regional tech hubs: I’ve written multiple times about how the CHIPS bill calls on the Commerce Department to designate “at least 20” communities across the country as regional technology hubs that would be showered with federal research dollars. The goal is to spread the technology sector more broadly across the country. That doesn’t specifically reward rural areas, but the bill requires that some of the hubs be in small communities. In April, U.S. Sen. Mark Warner, D-Virginia and one of the authors of the CHIPS bill, told a group of business and government leaders in Blacksburg that Southwest Virginia would be in a strong position to win one of these hubs — if they could unit around a single bid. So far, they haven’t. It appears that Lynchburg, the New River Valley and coal country in Southwest are moving toward what might be three separate bids (or possibly two, if some of them merged their efforts).
- Regional Innovation Engines: Earlier this month, the National Science Foundation announced that Virginia Tech is one of 34 semifinalists for federal funding under a different section of the CHIPS bill. (See the story by Cardinal business reporter Matt Busse.) Those communities ultimately chosen will receive about $15 million over two years — and possibly up to $160 million over 10 years — to develop a particular economic project. The Virginia Tech proposal deals with freight transport, although the exact details remain confidential. All we know is that Tech is the only finalist pursuing a “logistics and supply chain” project. By contrast, three schools apiece are pursuing advanced manufacturing, advanced materials, aerospace, ocean-based “blue economy” and sustainable energy while four are pitching climate-related proposals and five are pushing health and wellness projects. While this program may not be specifically aimed at rural areas, the reality is that many of the schools in the semifinal round are not in major cities, be they Virginia Tech or North Dakota State University, which has an advanced agriculture proposal.
- The Recompete Pilot Program: This is the newest program to be rolled out. Under this program, the federal government will invest $200 million in the most “persistently distressed communities across the country.” While the tech hubs program is aimed at jumpstarting economies in places that already have a nascent technology sector, the Recompete program will focus on places that don’t have much going on economically, to see if a large-scale intervention can help.
This program has gotten little attention so far, although I did write about it last summer and had one local government in Southwest Virginia email me to ask for more information. At the time, there wasn’t any more information to relay. Now there is, and localities across Southwest Virginia, Southside Virginia, the Alleghany Highlands and the Northern Neck ought to have their grant-writers standing at the ready.
Before I get to the details, let’s deal with the most exciting part of this announcement: the map of eligible communities:
Now, before anyone gets too excited, let’s look at the broader context. Here’s the national map of who’s eligible:
Out of all these places, the Commerce Department will pick “at least 20” sites for an initial round of funding, with a total of $6 million to $12 million given out. Those sites will then be invited to apply for more funding, with the rest of the $200 million divided between four to eight places.
Full details on funding will be released in about a month, the department says, and the application window will be open about three months. Announcement of the phase one winners is expected “this winter,” the department says.
The fact sheet the Commerce Department released last week doesn’t say much else, but the text of the bill does. It spells out some of the things that federal funding might go for. Among them: “customized job training programs carried out by local community colleges,” programs to promote entrepreneurship, and infrastructure projects such as “land and site development.” Congressional bills aren’t much on poetry, but last year I interviewed Timothy Bartik, senior economist for the W.E. Upjohn Institute for Employment Research in Kalamazoo, Michigan. He’s the one who initially came up with this idea, which he spelled out in a paper in 2020. His basic idea: “Without policy intervention, distressed communities tend to stay distressed.” The goal here is to provide such a big infusion of resources that these communities can grow a new economy.
This seems a pretty rare opportunity, one that localities in Southwest and Southside ought to try to take advantage of. They also ought to think of this in conjunction with other opportunities, such as those energy community tax credits. Southwest, for instance, has set its sights on luring companies in the supply chain for the wind turbine industry. The tax credits would benefit those companies, the Recompete funding could be used for job training. That seems a pretty good incentive package. That’s just the most obvious of what might be a much longer list of possibilities.
Unlike the regional tech hubs proposal, there don’t seem to be as many rules, at least so far. The tech hubs program specifically wants to see a research university involved, for instance. It also wants to see a broad coalition of partners, but emphasizes that those partners must be real partners, not just names on a list for show. For the Recompete program, the Commerce Department wants to see applicants from a local government, a “public entity or nonprofit organization” working in cooperation with some local government, an “economic development district” or some coalition of all of the above.
My initial reading of this is that a single locality could apply, whereas the regional tech hubs program wants to see metropolitan areas or micropolitan areas. Of course, it’s probably better if similarly situated localities banded together to make a stronger bid.
So, who will they be?