RD1 - Report on Business Incentives: 1997-1999


Executive Summary:
In the 1999 Appropriations Act, the General Assembly requested the Secretary of Commerce and Trade to report to the Chairmen of the Senate Finance Committee and House Committees on Appropriations and Finance "on the use and efficacy of state incentives in creating investments and jobs in Virginia." (*1) In apparent recognition of the wide range of programs offered by the Commonwealth and its localities, the General Assembly asked that "for the purposes of this report, the incentives to be reviewed in the study are those incentives included in the Virginia Economic Development Partnership's publication, "Virginia Business Incentives 1997-98." Thus, incentives offered by local governments, legislative changes negotiated with new or existing industry, and various other means of recruitment and expansion are not listed herein. (*2) Moreover, the general pro-business environment of the Commonwealth is not analyzed in this report.

It should be noted at the outset that Governor Jim Gilmore is committed to expanding and sustaining economic development in the Commonwealth. As his Secretary of Commerce and Trade, I am pleased to report that we are having outstanding success in economic development this year. During the first quarter of fiscal year 2000, there have been 45 announcements of 6,357 jobs and $528.4 million in investment in the Commonwealth. In fiscal year 1999, 50,409 jobs and $3.6 billion in investments were announced in Virginia.

Despite this success, we must not rest on our accomplishments. Instead, we must ensure that we are obtaining the maximum return on our investment, both in the use of incentives and any other economic development measures. Moreover, we must be ever vigilant if we are to maintain our competitive edge. Our competitors, both in our region and across the nation and the world, are finding new ways to attract and retain business through fiscal and other policies.

This report, as requested, is a compilation of results from the last two fiscal years. These results demonstrate an effective record of economic development. This report is not, however, a report on "efficacy" in the broader sense of that term. Efficacy as defined herein refers to the investment and jobs created at the particular facility receiving an incentive. When we look at a potential economic development prospect, efficacy is generally more broadly defined to include multipliers, effects on the community and other industry attracted as a result of the new or expanded business. This broader measure of efficacy is something that we, as economic development policy makers, must be sure to keep in mind as we make economic development decisions. Moreover, we must ensure that the total governmental package is examined when we try to measure efficacy, rather than look at each separate program in a vacuum.

In May 1998, Governor Gilmore signed Executive Order 10(98) requiring the preparation of a strategic plan for economic development in the Commonwealth. (*3) Under my direction, this comprehensive economic development plan was completed with the assistance of a 155-member Governor's Advisory Committee. Members on the committee represented each of the economic sectors of the Commonwealth, as well as representatives of local governments, chambers of commerce, the United States military, economic development professionals, and key business persons from across Virginia. These individuals identified the current strengths that enhance the Commonwealth's economic environment as well as impediments to Virginia's prosperity into the next century.

"The Virginia Strategy: Prosperity into the New Century," provides an economic development framework for the Commonwealth to achieve 250,000 new jobs over the next four years through the implementation of six goals and twenty-six policy initiatives. The goals include: 1) Maintain and build upon Virginia's regional, national, and international competitiveness to create new economic and employment opportunities for all Virginians; 2) Provide work-force training programs to ensure that Virginia's quality work force remains prepared to meet the challenges of the twenty-first century; 3) Strengthen traditional economic sectors and existing businesses of Virginia and fully support emerging and developing sectors of the economy that are of critical importance to the Commonwealth's global competitiveness; 4) Concentrate economic development efforts on areas of greatest need to help reduce economic disparity and increase the prosperity of all Virginians; 5) Coordinate and integrate the economic development efforts of the public and private sectors to create new employment and investment opportunities; and 6) Build upon and strengthen Virginia's market position as a travel destination for national and international visitors.

With my oversight, Virginia is proceeding to implement this plan. In the area of business incentives, greater flexibility was achieved in the use of Governor's Opportunity Fund (GOF) through legislation passed during the 1999 General Assembly Session. This change allows more than one GOF grant per locality per fiscal year, and allows the Governor greater flexibility to accept fewer new jobs if the salary levels are significantly higher than the prevailing local average wage. In addition, the Virginia Investment Partnership (VIP), enacted at Governor Gilmore's request during the 1999 General Assembly Session, is directed solely to help support expansion by existing Virginia manufacturers. By encouraging investment in new technologies to improve the manufacturing process, the VIP will help Virginia businesses maintain and increase their international competitiveness. I have also directed the VEDP to manage Virginia's business incentives. The VEDP will track incentives granted to all existing and new Virginia companies and will study incentives and programs in other states. In the area of workforce development, during the past General Assembly session, and at Governor Gilmore's request, legislation was enacted establishing the Virginia Workforce Council. Under my supervision, that Council has been actively working on a strategic plan for workforce development: "The Virginia Workforce Strategy." There are many other examples of successful implementation of "the Virginia Strategy."
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(*1) Chapter 935 of the Acts of Assembly, at Item 89 B.
(*2) Recruitment is often the result of an entire package, which can include private activity bond allocation, utility rates, regulatory assistance, proposed legislative changes, assistance in accessing private capital, and assistance with pollution certifications and permitting.
(*3) Such a strategic plan is required to be completed during the first year of each new administration. Va. Code § 2.1-548.30.