Roanoke Times
Copyright (c) 1995, Landmark Communications, Inc.
DATE: SUNDAY, October 8, 1995 TAG: 9510090071
SECTION: VIRGINIA PAGE: A-1 EDITION: METRO
SOURCE: DAVID M. POOLE STAFF WRITER
DATELINE: LENGTH: Long
Richard Giddes would have hit the road if he hadn't been close to retirement at a welding supply company in Tidewater. He would have joined several of his colleagues who were young enough to pick up stakes and leave the state in search of higher wages.
Giddes, now retired in Virginia Beach, wonders how working people can make it in a state that sells itself to businesses as a modest-wage mecca.
"They talk about a brain drain in Europe," he said. "We've got a brain drain right here in Virginia."
Anxiety about job security and slipping standards of living was a theme that ran through a series of discussions with residents that The Roanoke Times and its sister paper in Norfolk, The Virginian-Pilot, held around Virginia earlier this summer.
Their concerns were confirmed by a statewide poll conducted by Virginia Commonwealth University: Half of Virginians consider job creation a "critical" function of state government.
People's expectations are high at a time when the General Assembly has less and less control over the state's economic destiny. Policies in Richmond easily can be thrown off course by events in Moscow, Tokyo or Guadalajara.
Just ask the 250 shipyard workers who were thrown onto the street in Norfolk this summer when the Jonathan Corp. shut its gates. The company - like other defense-related companies in eastern Virginia - saw its naval repair orders fall after the demise of the Soviet empire.
Or ask the 1,000 assembly-line workers in Southwest Virginia whose jobs evaporated five years ago when AT&T Microelectronics packed its bags for Texas and Mexico. AT&T found it more profitable to export jobs to a developing nation that pays workers a fraction of American wages.
"There is a limited amount that government can do. The private sector creates jobs," says Gregory Wingfield, an economic developer who heads the Greater Richmond Partnership. Previously, he led Forward Hampton Roads, the economic development division of the Hampton Roads Chamber of Commerce, and worked under Govs. Robb and Baliles in the Virginia Department of Economic Development.
Yet, even in the global environment, state government makes its presence felt in Virginia's economy. "Government's role is to provide a legislative framework that allows a business-friendly environment to exist," Wingfield says.
Selling the state
Gov. George Allen has followed an aggressive jobs policy in his first two years. And in the process he has plunged Virginia deeper into a match game with other states in offering tax breaks and other financial incentives to industrial prospects. These multimillion-dollar giveaways helped lure computer giants Motorola and IBM/Toshiba to suburban Richmond and Manassas, respectively.
While the governor is the state's salesman, the General Assembly plays a critical role setting tax laws and establishing labor policies.
Preserving that favorable climate has broad support that cuts across party lines in the assembly. No one seriously suggests raiding corporate revenue, coddling organized labor, enriching injured workers or unleashing the dogs of environmental regulation.
"One of our selling points is stability of government," Wingfield says. "You can't tell much difference between parties."
Creating the right business climate creates a dilemma: The assembly must keep taxes low while generating revenue to pay for services - higher education, good public schools and transportation networks - that companies want.
"The states that continue to win are the ones that can balance the two out," says Daniel LeBlanc, president of the state AFL-CIO.
Some business leaders say Allen would have thrown this delicate balance out of whack earlier this year if he had succeeded in pushing a $2.1 billion tax cut through the General Assembly.
Business leaders - backed by three former Virginia governors - protested that the tax cuts would have drained resources from the state's colleges and universities.
Allen failed, and a few months later the importance of higher education to economic development was demonstrated when Motorola announced that it would build a semiconductor manufacturing plant near Richmond that could employ 5,000 people.
Part of that deal involved Virginia's commitment to start an engineering school at Virginia Commonwealth University that would specialize in computer chips.
Paying for jobs
Global competition is so intense that states have begun to outbid each other for jobs. It's no longer considered enough for states to widen roads, forgive taxes and train workers.
"These things have become so commonplace that they're not called `incentives' anymore," said Robert Vaughn, a staffer with the House Appropriations Committee.
Last year, the Allen administration thrust Virginia into the thick of the incentives race with a $156 million package for Disney's America. The General Assembly backed the deal, which later fell through after Disney canceled the controversial theme park in Northern Virginia.
Despite its unprecedented size, the Disney deal was basically a traditional package of money for roads and worker training.
In his latest deals, however, Allen has introduced a radically new type of incentive: direct cash payments.
The state will pay Motorola $12 million a year for five years if the company meets agreed-upon investment and employment targets at a semiconductor plant slated for Goochland County, just west of Richmond. Toshiba will get $7.6 million a year under a similar deal for a semiconductor plant in Manassas.
These so-called "performance grants" - which require General Assembly approval - are the most controversial form of incentives. Unlike traditional inducements such as highways and educational programs that benefit the entire community, cash incentives are tax dollars that flow directly into a company's bank account.
This major escalation has generated scant debate among lawmakers, who are awed by the prospect of 9,000 semiconductor jobs.
State Sen. Elliot Schewel, D-Lynchburg, says he liked the Motorola package because the money is tied to specific employment goals. "I hate to say this because I don't like to give [Allen] any kudos, but this is the right way to do it," Schewel said.
While careful not to criticize the high-profile deals struck by Allen, some Democrats warn the General Assembly should set guidelines before the incentives race spirals out of control.
"Basically," notes House Majority Leader Richard Cranwell of Roanoke County, "what you're asking states to do is to act as investment bankers. You can get yourself in a lot of trouble if you're not careful."
Experts warn that incentives can be a losing proposition. States bidding for companies often do not take into account the cost of services - streets, schools, utilities - that new companies create. Incentives that are not carefully targeted can end up rewarding companies such as Disney, which would have created low-wage, seasonal jobs. Giveaways also can prompt existing businesses to demand similar tax breaks.
"The game is not always voluntary and can become quite costly," William Scheweke of the North Carolina-based Corporation for Enterprise Development told the Senate Finance Committee in September.
Still, Virginia has little choice but to offer incentives as long as neighboring states up the ante. As the fall edition of Corporate Finance magazine put it: "As with any arms race, unilateral disarmament is impossible."
Virginia officials say the Motorola deal proves this point. The company had narrowed its choice between Goochland County and Raleigh, N.C. The Allen administration matched the handout offered by North Carolina. But North Carolina also is one place where incentives face the greatest challenge. Incentives offered in one county were ruled unconstitutional in August; the state Supreme Court will review the case.
Virginia officials say giveaways would have become an issue - and possibly threatened the deal - if the Allen administration had put nothing on the table.
"You can't go hog wild," says state Sen. Elmo Cross, D-Hanover County. "But you've got to be willing to at least offer something."
Keywords:
POLITICS
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