THE VIRGINIAN-PILOT
Copyright (c) 1995, Landmark Communications, Inc.
DATE: Sunday, August 6, 1995 TAG: 9508040683
SECTION: BUSINESS PAGE: D1 EDITION: FINAL
SOURCE: BY MYLENE MANGALINDAN, STAFF WRITER
LENGTH: Long : 131 lines
Hampton Roads cities are trying to make peace. They're considering a policy - sort of an economic development truce - that would limit incentives offered to attract new businesses. The proposal would reduce intraregional competition, put taxpayer funds to better use and help Hampton Roads cities collaborate to bring companies to the region, proponents say.
In the past, incentives ranged from publicly funded improvements in roads and utilities to free land and renovation of privately held buildings. Such offerings often cast Hampton Roads cities in a bidding war to see who would sweeten the pot, and sometimes the stakes in the economic development game get expensive.
Virginia Beach recently offered Avis Inc., the second largest U.S. car rental company, $340,000 in incentives as part of its deal to locate an administrative and operations center there.
And Norfolk lured TWA with an incentive package that included a prime location and $450,000 in infrastructure improvements from the governor's Opportunity Virginia fund.
Virginia does not allow its municipalities to rebate or lower taxes, and incentives have received much attention.
``This incentive thing is a very controversial situation,'' said Perry DePue, chairman of the Hampton Roads Mayors and Chairs Caucus, a group comprising city and county leaders of the 15 regional jurisdictions. ``It's become the modus operandi for economic development. You can't put the genie back in the bottle. Incentives are out there all the time. You can't really change that, but you can limit that by cutting down on the amount of cutthroat between neighbors.''
James Babcock, chairman of First Virginia Bank of Tidewater, originally suggested the policy in 1994 out of concern that cities needlessly raised their costs when they offered public monies to offset companies' relocation costs.
Ensuing competition among cities forced them to raise the ante of public-funded money and resulted in greater regional rifts, Babcock said.
He approached the Mayors and Chairs to consider the idea.
They compiled and proposed a policy that would establish nine guidelines for offering incentives.
``It's a set of rules that localities are agreeing to play by with regard to economic development efforts,'' DePue said. ``It's designed to head off conflicts between jurisdictions in the Tidewater area and to, hopefully, hold the cost of economic development down.''
Ironically, Virginia is considered one of the least aggressive states in the area of incentives, he said.
The Mayors and Chairs proposal includes ``common sense'' suggestions regarding conduct like establishing a policy for a municipality's publicly funded incentives and referring companies to neighboring cities if one can't provide what a company needs.
``In concept, it makes a lot of sense,'' said Matthew James, Portsmouth's economic development director. ``The overall intent of the policy is to level the playing field.''
Other points in the policy say:
l Incentives offered to companies outside the area will also be offered to local firms if the investment for an expansion is comparable in jobs and tax revenue. But cities will not subsidize routine growth.
l Cities will not try to steal companies from neighboring cities. If a company expresses interest in relocation to another Hampton Roads city, the development director from that city will ask the company for permission to inform the city where the firm is located. That could give the host city a chance to retain the company.
l Real estate brokers or other middle parties will not be authorized to tell prospects that publicly funded incentives are available. Cities and counties will also avoid a middle party negotiating incentives on their behalf unless they give permission in specific cases.
So far, the pact has been approved by all Hampton Roads municipalities except for Newport News, Portsmouth and Virginia Beach.
Newport News and Portsmouth's city councils have not met to consider the policy yet. Virginia Beach is concerned about the language used in the document, said Donald L. Maxwell, economic development director.
It will be discussed again at the next Mayors and Chairs meeting in September.
While many public officials agree with the concept, some are still skeptical it will work, especially given the history of internal fighting among Hampton Roads cities.
At a June 20 meeting, Chesapeake City Council members openly laughed at the mention of the word ``regionalism.''
They expressed skepticism that other cities like Virginia Beach would honor the good-faith policy in daily practice.
``Why should we be the first ones to sign it?'' asked Councilman John E. Allen, who said that some of the cities had already begun asking for changes in the agreement. ``We're going to go in there, and if we've signed it and none of them have, what then?''
Allen pointed out that the policy had no ``teeth'' as written and would be nearly impossible to enforce.
James City County's DePue agreed.
``There is no policeman on this one,'' he said. ``It's strictly a code of ethics, and it's not binding. It's only morally binding.''
Even if the cities collaborate, the reality is that the city where the company locates will receive the initial payback - tax revenues.
Spin-off businesses and revenue-sharing may take time to develop after a new company moves to the area. So it takes a leap of faith on leaders and citizens' part to passively watch a neighboring city win a new business, said Portsmouth's James.
At the same time, without this type of policy, ``you run the risk of losing the project to a whole region,'' James said. ``If it doesn't locate here, no one gets anything.''
Most public officials support the idea and say their cities already follow the tenets set forth in the policy.
Proponents say it will prevent a ``bidding war'' among cities where they ratchet up the incentives without considering the cost effectiveness of the offer.
York County offered incentives to lure away Newport News-based Ferguson Enterprises Inc. when it needed more space for expansion. Newport News was forced to counter York County's offer with its own proposal to retain the plumbing wholesaler as a corporate resident. Ferguson eventually decided to stay in Newport News and built its $5.5 million headquarters near the airport.
Many think this agreement will prevent similar situations and demands by existing businesses that want the same incentives offered to companies outside the area.
``To us, it's a very fair policy, one that helps all the jurisdictions with economic development and the region and prevents us from cutting each other's throats,'' said Jeff Mihelich, Poquoson planning director.
Others view the policy as a step toward attracting companies that appreciate regional cooperation.
``I think it's important because it serves as a springboard for the region to work as one marketing unit,'' said Robert Smithwick, Norfolk's development director.
- MEMO: Staff writer Francie Latour contributed to this report. by CNB