This report examines 10 incentives Virginia provides to encourage workforce development and to support certain industries. Spending on these incentives averaged $18 million annually between FY14 and FY23 and totaled $177 million over this period. Most of the spending was for the Virginia Jobs Investment Program (VJIP), the Virginia Talent Accelerator Program, and the sales and use tax exemption for certain printed materials. The 10 workforce and industry incentives comprised about 4 percent of total spending on state economic development incentives between FY14 and FY23.

WHAT WE FOUND

VJIP is one of the state’s most widely used incentives, and projects met their job creation goals

VJIP is one of the state’s oldest economic development incentives and is designed to encourage job creation and employee training at new or expanding businesses. The program has the second highest number of recipients of Virginia’s incentive grants and is rated the most useful economic development incentive program by local economic developers. However, the number of annual awards and the average award per job have both declined. Declining award amounts per job could reduce the program’s attractiveness and its ability to sway business decisions, so the VJIP program has been reviewing its application scoring used to determine the award per job and anticipates increasing the amount.

VJIP projects have collectively met their job creation goals, and the program has moderate economic benefits. VJIP also fully or partially meets most (seven out of the nine) features of effective incentive design, but the program’s wage requirement is not aligned with the local prevailing average wage, and minimum requirements have no allowances for economically distressed areas.

Initial projects would have proceeded without the Virginia Talent Accelerator Program, but it is preferred by stakeholders and is generally well designed

The Virginia Talent Accelerator Program, created in 2019, is a “turnkey" workforce program designed to attract businesses to the state by providing customized recruitment and training services. Most of the initial program recipients indicated in a 2022 Weldon Cooper Center survey that their projects would have proceeded as planned without the Virginia Talent Accelerator Program. However, this may not be fully reflective of the program’s current impact because it is only based on survey results from initial projects and does not include more recent ones. Virginia Economic Development Partnership (VEDP) staff believe that a higher proportion of recent program participants would rate the program as having an impact on their firm’s location or expansion decisions, because the program is now more fully developed. They also indicate the program can be a differentiator or tipping point in a firm’s final decision.

Businesses and site selection consultants prefer this “turnkey" customized incentive over other workforce grants and tax incentives. Such customized programs may help ensure that businesses receiving other incentives, such as custom grants, are successful at meeting and maintaining job creation goals. The Virginia Talent Accelerator Program largely meets the criteria of effective incentive design, although it does not have a capital investment requirement. The program has low economic benefits and a moderate return in state revenue when the value of the program is assessed based on its costs, but these results are based on only two years of data and may not capture the full impacts of the program over a longer period.

Use of the worker training tax credit has been low, and it will expire in July 2025

The purpose of the Worker Training Tax Credit is to encourage businesses to train workers to improve productivity and retain employees. Only five businesses were awarded worker training tax credits between FY19 and FY23, and the total award amount was far below the overall annual cap for the credit. Several factors may lead to low utilization, including a low credit amount per job. The worker training tax credit is mostly used for registered apprenticeships, but it likely has a limited influence on apprenticeship rates. Labor demand, labor supply, and workforce or education policies tend to have more effect on a state’s apprenticeship rate. The tax credit has negligible economic benefits and expires on July 1, 2025.

Industry tax exemptions have negligible to low economic benefits but serve purposes other than economic development

Virginia provides sales and use tax exemptions for multiple industries, seven of which are evaluated in this report,

• certain printed material for out-of-state distribution exemption,

• contractor temporary storage exemption,

• controlled environment agriculture exemption,

• high-speed electrostatic duplicators exemption,

• out-of-state nuclear facility repair exemption,

• taxi parts and radios exemption, and

• the uniform rental and laundry business exemption.

Some of these exemptions benefit the industry directly and others are provided to industry customers.

The industry exemptions meet few criteria for effective incentive design and have negligible or low economic benefits. However, they were adopted for reasons other than just economic development, including preserving the competitiveness of an industry and advancing good tax policy principles, such as not taxing intermediate inputs. These purposes may warrant their retention even if the economic development benefits are minimal.

WHAT WE RECOMMEND

Legislative action

• Tie VJIP’s wage requirement to the prevailing local average wage.

• Reduce VJIP’s minimum eligibility requirements for projects in economically distressed areas.

• Review the industry exemptions to determine whether they are meeting worthwhile needs other than economic development.

Executive action

• Establish a minimum capital investment threshold for the Virginia Talent Accelerator Program.