HD58 - The Comprehensive Economic Development Strategic Plan

  • Published: 1994
  • Author: Secretary of Commerce and Trade
  • Enabling Authority: House Joint Resolution 389 (Regular Session, 1993)

Executive Summary:
Strategic plans by their very nature are not achieved, but are a series of goals to strive towards. They are continuously evolving standards of performance responding to changing economic and administrative conditions.

As this is presented, the Commonwealth faces not only a change of administration but also a significant shift in our historic economic base. In this context with the support of the full Secretariat and with the assistance of the General Assembly and our public/private sector partners, we have tried to determine the critical issues for Virginia as it approaches the second half of the last decade of the century. We then charted a strategic course to meet the challenges and capitalize on the opportunities.

This Executive Summary and introduction will outline the four components which went into the development of our strategic plan.

I. PROCESS FOR CONTINUOUS PLAN DEVELOPMENT AND IMPLEMENTATION

One might suspect that Virginia has suffered from a lack of clear process for strategic plan development and adaption. However, in developing this plan we have found the contrary to be true. A myriad of studies and a score of previous plans exist. Accordingly, this plan will incorporate the wealth of information offered by, among many other documents, the following:

• Virginia Economic Development Policy, Secretary of Economic Development, June 1992

• The Annual Report of Workforce Virginia 2000 Advocacy Council, 1993

• The Department of Planning and Budget's Study of Industrial Modernization, December 1993

• An Economic Vision For Virginia Created by the Virginia Chamber of Commerce, December 1993

• Governor's Commission On the Revitalization of Virginia's Urban Areas, October 1993

• House Document 37: Report of the Joint Sub-Committee to Study the Measures Necessary to Assure Virginia's Economic Recovery, 1992

• House Document 41: Report of the Commission on Population Growth and Development 1992

• House Document 45: Report of the A.L. Philpott Southside Economic Development Commission, 1992

• House Document 51: Final Report of the Commission Studying Local and State Infrastructure Needs and Revenue, 1992

• House Document 54: Interim Report of the Joint Subcommittee Studying the Incentives and Obstacles Facing Businesses When Making Location Decisions in Virginia, 1992

Plans and expert analysis exist, what has been lacking is a process by which plans may be adopted and implemented in accordance with their intent. Such a process must provide direct participation by industries and communities as well as agencies and departments. Accordingly, this strategic plan has been developed over 18 months with the full participation of all 14 agencies within this Secretariat. It has:

1. Established a process to include the leadership of industry, the General Assembly, and the Governor's Office and other elements of the executive branch in identifying the critical issues to be addressed in the strategic economic development plan;

2. Established a process to administer the plan through the Office of the Secretary of Commerce and Trade with support from the staff of various agencies and other Secretariats as needed;

3. Recommended the plan be reviewed at the beginning of each Governor's term, and at midterm to incorporate adjustments; and

4. Ensure that the process is continuous and flexible, and designed to reflect a consensus on critical economic development issues facing the Commonwealth. Periodic customer surveys and statewide public hearings should be conducted.

II. ADMINISTRATION PRIORITIES AND IMPROVEMENTS.

The agencies within this Secretariat have, in turn developed their individual strategic plans which have served as the building blocks for the Secretariat-wide strategic plan. In this process we identified our strategic priorities as well as means by which our administrative functions can be streamlined for enhanced customer satisfaction. Critical among these are the following:

1. Business Retention

Revise and improve business retention, attraction, and expansion programs. Historical priorities have placed site selection as the critical priority in an effort to attract new businesses to the Commonwealth. Our analysis shows that the greatest growth market within the Commonwealth of Virginia emanates from our existing business base and particularly our smaller businesses. Accordingly, emphasis on new technology, industry opportunities, alternative business strategy development by existing industry, expanded trade opportunities, and enhanced marketing capabilities have been placed as a top priority for all 14 agencies.

2. Cost of Regulations

Agencies have identified a need to develop a system to determine the burden of existing regulations on industry, particularly environmental regulations, and to revise regulations which are barriers to business growth and development.

3. The Cost of Antiquated Tax Codes

The agencies have identified the need to review the effect of the Business, Professional and Occupational License Tax (BPOL) and how the tax code inhibits the growth of the technology services and government contracting sectors of the economy.

4. Reduce Redundancy and Increase Interagency Customer Service

Implement a cross agency capability to identify complementary and overlapping programs, consolidate such programs where appropriate (as in the case of the extension services of the Department of Economic Development, the Center for Innovative Technology, and Virginia Polytechnic Institute), and make known to industry and consumers through one-stop shopping systems the various support programs available regardless of agencies in which they originate.

5. Total Quality Management Implementation

Continuously improve customer-oriented delivery systems for state services, coupled with a stronger outcome-based evaluation system for services rendered. This furthers the Secretariat-wide Total Quality Management program and includes a continuous improvement system for all program operations in all agencies.

6. Strengthen Public and Private Sector Partnerships

Develop stronger continuous working relationships with local economic development personnel, regional community organizations, and industry working groups to ensure their participation in the review of old, and development of new, state services.

7. Emphasize the Correlation Between Education and Economics

Review and revise existing education and training programs to provide for continuous, life-long learning with an increased emphasis on identifying and meeting the skill needs of industry.

III. ADVANCING THE PRIORITY TO THE COMMONWEALTH OF ITS ECONOMIC DEVELOPMENT EFFORTS

We have tried to distill from these efforts the critical themes, which appear repeatedly in public hearings, in individual interviews, and in study after study. They are the following:

1. Critical Defense Industries

No state has more interest in an effective defense conversion policy than Virginia. The Commonwealth ranks among the leaders nationally in defense spending per capita. Defense expenditures historically account for over ten percent of the state's economy. Defense expenditures totaled $17.3 billion in fiscal year 1992 - exceeding the entire budget of the Commonwealth by about three billion dollars. On the one hand, defense spending is pervasive, with over 3,000 defense prime contractors operating in Virginia in 1992 who received awards of $25,000 or more, and virtually every city and county having some defense presence. On the other hand, defense spending is concentrated, with the top 100 prime contractors accounting for 64 percent of total awards and 48 and 41 percent of total spending going to Northern Virginia and Hampton Roads, respectively. Two areas of the Virginia economy face great challenges and should receive focused attention. They are the maritime economy and the software engineering and systems economy.

a. The Maritime Initiative - This initiative and the telecommunications/software engineering initiative below should be high-profile state efforts in critical defense markets. Substantial effort on the part of the Commonwealth should continue to be focused on helping the maritime industry increase its competitiveness and transition to non-defense markets. The industry has three critical components, which are related, but not entirely integrated: the military shipbuilding and repair industry and related suppliers; the civilian shipbuilding and repair industry and related suppliers; the port and shipping infrastructure. Virginia alone cannot control the outcome of decisions related to investments in its shipping infrastructure. These are national issues which Virginia may influence but, in essence, the Commonwealth must support those federal initiatives most important to Virginia's industry. The Clinton administration has included support in the budget for the creation of a national maritime technology initiative and for rebuilding shipyard infrastructure.

The Commonwealth should be supporting multiple technology initiatives in both the maritime technology field and shipyard infrastructure efforts. In particular, the proposal of the South Tidewater Association of Ship Repairers (STASR) is designed to be part of the national maritime technology initiative and should be receiving substantial support. I am pleased to report our application to obtain Federal Funding Assistance to further this initiative was successful. This is the type of industry/state/federal partnership that the Secretary of Commerce and Trade, and the Center for Innovative Technology should continue to pursue aggressively. The Commonwealth should take the next step to build a national-caliber center in maritime technology, manufacturing, and training with strong federal support.

b. The Telecommunications Software Engineering Initiative - Virginia has a very strong industry base in the fields of software engineering, systems integration, and telecommunications. Most of this capability was developed through defense contracting and advanced because of our proximity to the regulators in Washington. We should be seeking to make Virginia a testbed for new technologies and to use initiatives to assist defense industries to transition to other markets, to attract new, related industries to the area, and to draw attention to our existing capabilities. There are three short- to mid-term initiatives in progress which reflect this approach and which should be pursued more actively: the Community Learning Information Network (CLIN); the development of a distributed work-force through telecommuting centers in Northern Virginia and elsewhere in the state; and the creation of the National Technology Center. Finally, the state needs to set the tone, both in terms of leadership and in terms of regulatory reform for an environment conducive to attract testbed activity to Virginia.

c. The Virginia Alliance for Manufacturing Competitiveness (VAMC) and the Peninsula Advanced Technology Center (PATC) - The VAMC is the state proposal to integrate the extension services of CIT, DED, and VPI to form a single service, as well as enhance the capabilities of the state to deliver its services to communities, industries, and individuals. To this end, we have made application to the Federal Technology Reinvestment Project (TRP). Such integration should occur regardless of whether Virginia wins federal Technology Reinvestment Project (TRP) funding or not. Similarly, the PATC should be supported as the prototype regional outreach effort addressing at the local level technology transfer and training needs of the community.

d. Norfolk Naval Aviation Depot - In the process of defense downsizing a number of Virginia facilities will be closed. NADEP is one of those. This facility, however, is a significant asset to the Commonwealth. It appears to be a facility that could do civilian airliner rehabilitation work such as that which was to be done at Dulles for United Airlines. Alternatively, the facility could serve as a rework center for a major defense aircraft contractor. CIT should be encouraged to support the development of transitional technologies if necessary to convert this facility to work on other airframes and engines in addition to military A-6s and F-14s.

2. Non-Defense Areas of Opportunity. The following areas continue to be areas of concern or areas of opportunity.

a. Venture Capital and Business Tax Issues - Substantial efforts should be made to increase the capital available for young and startup companies. A number of private-sector efforts in this area may mature in the next 3-6 months, but to date none is far enough along to say it will succeed. State efforts should be focused on attracting market capital and not substituting state agency judgment for that of financial institutions. Companies on which this program should focus are: (i) defense companies transitioning to new markets, (ii) small industry under the SBA standards (less than 500 people), which is the lion's share of Virginia industry; and (iii) manufacturing (including software design and development and service industries closely related to manufacturing industries). One reliable study suggests the Center for Innovative Technology should create a system for co-funding new technology ventures. Two other areas are worth close scrutiny: the creation of a new tax credit structured like the solar panel tax credit for specific industry sectors and the expansion of existing loan guarantee fund capabilities.

A general review of Virginia's business tax structure should be undertaken to ensure that it encourages rather than inhibits investment. The Business, Professional and Occupational Tax (BPOL) is a critical item for Northern Virginia legislators and industry. Practically, it would be impossible to roll back BPOL taxes in the short term, but the tax code should be reviewed in its entirety as it does not adequately address the needs of a major sector of our economy, namely, the government contracting service sector, particularly as it relates to technology and technology services. In addition, close scrutiny should be given to eliminating state taxation of the federal research and experimentation tax credit as well as long-term capital gains.

b. Transportation Initiative - The opportunities for Virginia in this area are primarily long range, but include substantial technology components and opportunities for defense firms. Efforts in the fields of intelligent vehicle highway systems, advanced traffic management systems, and pavement durability technologies will receive substantial federal support. The Commonwealth continues to have significant local transportation needs, regional and statewide needs, and national/international needs. These are not all achievable in the short term, but they should be pursued on a 10-15 year time line. There are substantial federal funds for high-speed rail or magnetic levitation transportation and the Washington-Richmond corridor has been designated a high-speed rail corridor.

c. Biotechnology is considered to be one of the market sectors which will grow the most in the next twenty-five years. Virginia can play a role in that development in three areas: (i) support for the development of the Biotechnology Research Park at Virginia Commonwealth University; (ii) support development of plant and animal biotechnology centered around Virginia Polytechnic Institute's nationally regarded leadership in this field; and (iii) development of standards for biotech based disease diagnostic and testing technologies.

d. CEBAF - This project would add two free electron lasers to the Continuous Electron Beam Accelerator Facility (CEBAF) light source located in Newport News for the use of industry. It is probably the best example of a federal laboratory identifying industry needs which can be met with the substantial infrastructure investment made in the facility. It will provide high-volume materials-processing capability for manufacturing advanced composite materials. Accordingly, the state is positioned to build off of the substantial industry interest in using the FEL's to attract additional companies to build research and development facilities at the light source site and manufacturing facilities in the region.

e. Virginia State University Center Initiative - Virginia State University has two areas in which it might win substantial funding for an industry-driven technology center. First is in the area of magnetism in which VSU has worked closely with CEBAF and Babcock & Wilcox through its co-op program over the last five or more years. B&W, along with a consortium of historically black universities, recently won a Technology Reinvestment Project grant from the federal government. The presence of both B&W and CEBAF in close proximity to VSU make this initiative one which could receive substantial long term federal support. Second, VSU is well positioned to create an environmental recycling center which would be primarily funded by federal dollars. The effort focuses on working with the Department of Defense to increase biodegradable characteristics in materials.

f. Wallops Island Launch Site - For some years now Virginia's objective has been to capture a significant portion of the development and launch business in the small satellite industry. Competition for launches is substantial and will become tougher. White Sands, New Mexico; Vandenburg, California; Cape Kennedy, Florida; and Poker Flats, Alaska are all competing launch sites. Currently, DED is exploring legislation creating a tax holiday for manufacturers of satellites and launch vehicles to be launched from Wallops. The Commonwealth faces a new challenge as federal budget reductions have threatened to close the Wallops facility. The Secretary of Commerce and Trade has been in communication with Virginia's Congressional delegation and strongly recommends a taskforce be set up by the next administration to review creation of a public-private partnership to create a Virginia Spacefort Authority to ensure Virginia is positioned to protect and utilize this asset.