Roanoke Times
Copyright (c) 1995, Landmark Communications, Inc.
DATE: FRIDAY, April 2, 1993 TAG: 9304020446
SECTION: EDITORIAL PAGE: A-11 EDITION: METRO
SOURCE: FRANK E. LONGAKER
DATELINE: LENGTH: Medium
ECONOMIC DEVELOPMENT
STATE SEN. Brandon Bell recently proposed that we consolidate all Roanoke Valley economic development agencies into one organization so we can "utilize resources more effectively."If spending $9,400 to create each job is utilizing resources effectively, he may have a point. I suggest otherwise.
He referred to similarly consolidated agencies in Southwest Virginia and the Alleghany Highlands. Although the Alleghany Highlands Authority has not yet been enacted, the Virginia Coalfield Economic Development Authority has been operational since 1988, and is considered the model for the proposed Alleghany authority and - judging by Bell's reference - a potential Roanoke Valley authority. Caution is suggested. The model has flaws.
The way the systems work is this: A separate legal authority is established and funded through mandated payments from the localities. The authority has its own staff and board of directors, some members of which are from local governments or jurisdictions, but not necessarily all.
A percentage of some revenue source (the coal and gas tax in the Coalfield Authority, and the machinery and tools tax in Alleghany) is taken from the local government and given to the authority. The authority uses the funds for its administration, and to make grants and loans to attract companies to the region.
The good part: The authority has a steady source of funds to make these loans and grants for the purpose of improving the area's economic situation.
The bad part: A separate bureaucracy is created, funded by forced payments from local governments. A portion of tax funds that any city, town or county raises would be unavailable to meet that locality's needs. Both the spending responsibility and the authority of elected officials are usurped.
Has this system worked in the area held up to us as a model?
Judge for yourself. The Coalfield Authority consists of seven counties and one city in Southwest Virginia. The authority cites the creation of 1,660 area jobs since 1988. This number has been proof of the authority's success, and the rationale for other regional organizations.
Looking closely at these numbers, however, suggests it's far too early to celebrate. Of the 1,660 reported jobs, fewer than 900 can be attributed to the Coalfield Authority. For example, recent contact with companies receiving monetary assistance from the authority reveals:
ASAA Technology opened in 1989 and has created only 150 of the 500 jobs originally claimed.
Donnkenny Inc. created 85 jobs of the 225 projected.
DeRoyal projected 75 but canceled after approval.
But the worst is Buchanan Bolt, which projected 55 jobs. In reality, Buchanan Bolt was a surrogate for Birmingham Bolt. It brought in 25 non-union jobs in an attempt to undercut union membership at the parent company. When the shenanigans were discovered, the loan was given back.
A tally of the other actual jobs indicates that fewer than 900 of the 1,660 claimed jobs were created. Meanwhile, the annual administrative cost of this authority is $375,000, in addition to the cumulative $2.6 million in grants and $4.4 million in loans - excluding the repayment of Buchanan Bolt.
That's $8.5 million, including four years of administrative costs. That amounts to an actual, out-of-pocket taxpayer cost of $9,400 per job.
And, in the overall picture, the Lebanon District of the Virginia Employment Commission, which covers most of the Coalfield Economic Development Authority area, reports a net loss of 250 jobs in the last 10 years.
Only local community and governmental leaders can determine whether the cost of this agency is worth the returns, or whether there might be a more efficient way to create the same number of jobs. Close scrutiny is always a good idea.
However, other communities, such as the Roanoke Valley, should not hastily abandon their own economic-development efforts for what may, or may not, be working in another region of the state. Certainly, we in the valley need more cooperation and coordination, as well as less duplication of effort. We also need to work together as a region and design enhanced incentives to attract companies.
But we definitely do not need more state-mandated bureaucracies to spend $9,400 per job.
Frank E. Longaker is president of National Business College, headquartered in Salem.