THE VIRGINIAN-PILOT
Copyright (c) 1995, Landmark Communications, Inc.
DATE: Sunday, October 8, 1995 TAG: 9510080132
SECTION: FRONT PAGE: A13 EDITION: FINAL
SERIES: ELECTION '95
THE CITIZENS' AGENDA
The Virginian-Pilot has asked people around the state what their major
concerns are leading up to the Nov. 7 election. This is one in a
series of in-depth reports on those concerns: Today's topic: Job
security.<
SOURCE: BY DAVID M. POOLE, STAFF WRITER
LENGTH: Long : 175 lines
ROLES AND RESPONSIBILITIES
Selling the State and Creating the Climate
Gov. George Allen has followed an aggressive jobs policy in his first two years, and in the process has plunged Virginia deeper into a match game with other states in offering tax breaks and other financial incentives to industrial prospects. These multi-million dollar giveaways helped lure computer giants Motorola and IBM/Toshiba.
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 said. ``. . .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,'' said Daniel G. 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 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.
AN EMERGING ISSUE
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 fell through after Disney canceled the controversial theme park.
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 the Richmond area. IBM/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 S. Schewel, D-Lynchburg, said 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,'' noted House Majority Leader C. 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. Giveways 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. The Allen administration matched the handout offered by North Carolina.
Don Johnson, a Motorola official who led the company's site search committee, said the decision came down to Virginia's business climate and the education opportunities at Virginia Commonwealth University's new engineering school. ``Incentives did not make the difference,'' Johnson said.
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,'' said state Sen. Elmo G. Cross Jr., D-Hanover County. ``But you've got to be willing to at least offer something.''
BACKGROUND AND PREVIEW
BPOL and Other Issues on the Margins Shape Debate
General Assembly debate usually takes place on the margins: Tinker with workers'-compensation benefits for a small class of retirees. Absolve companies that fess up to a limited type of pollution problem.
Earlier this year, however, the debate moved to a more central issue when Allen recommended phasing out a gross receipts tax that most localities impose on businesses.
Some Northern Virginia companies had been griping about the Business, Professional and Occupational levy, known as ``BPOL.'' Multi-national corporations that ring Washington complained they were being taxed on revenue generated outside Virginia. Regional companies groused that BPOL rules and administration differed in each locality. And small businesses claimed the tax was an administrative headache.
The Democrat-controlled General Assembly had assigned a panel to address these concerns. The idea was to rein in overly aggressive local tax officials, standardize the rules and exempt small businesses.
But no action was taken earlier this year after BPOL became a hostage of partisan warfare over Allen's plan to slice taxes by $2.1 billion over five years.
Allen argued that BPOL was a ``jobs killer'' and gave Virginia the reputation of being a high-tax state. Democrats countered Virginia has one of the lowest overall tax burdens in the nation. Democrats contended that Allen's plan to phase out BPOL and cut individual income taxes would cause painful cuts in education, law enforcement and services to the elderly.
Democrats - emboldened by a powerful coalition that included local governments and three former governors - dispatched Allen's BPOL plan in committee.
Beyond the BPOL matter, the General Assembly considers assorted measures on tax policy, wages, access to markets, skilled workforce, workers' compensation and environmental regulation that contribute to the business climate.
Proponents seek to make the climate even more favorable to business, while opponents say the state needs to maintain basic protections for injured workers and the environment. Many of these measures never make it out of committee. ILLUSTRATION: Graphics
ROBERT D. VOROS/Staff
VIRGINIA'S ANNUAL JOB GROWTH
SOURCE: House Appropriations Committee
Research by DAVID POOLE
graphic by ROBERT D. VOROS/Staff
INVESTING IN BUSINESS
SOURCE: Virginia Department of Economic Development; House
Appropriations Committee and Senate Finance Committee
INCUMBENTS' VOTES
SOURCE: Clerk of the House of Delegates; Virginia Foundation for
Research and Economic Education, Inc.
[For complete graphics, please see microfilm]
KEYWORDS: COMMUNITY CONVERSATION ELECTION VIRGINIA JOB
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