41virginiaseconomic.pdf

Virginia's

Economic

Incentives:

Missed

Opportunities

for

Sustainable

Growth

This article describes Virginia's current business incentive

programs

and

analyzes

whether

land usepatterns

and

long-term

development

effects are considered

when

providing grant

and

loan awards. Itfinds that Virginia does not consider the impact

of

its

economic

incentive

programs on

land usepatterns

and

sustainability. Furthermore, the information publicly

available

on

these

programs

does notcontain sufficient detail

on

the use

of

the

funds

toassess

their effect

on growth

and

land usepatterns.

The

article

recommends

that Virginia consider land use impacts in administering current

economic

incentive

programs

by

funding growth

in

locations that aredesigned to

maximize

benefits to the surrounding communities.

Linda

Breggin wrote a largerreport, "Virginia

Economic

Incentives: Missed Opportunitiesfor

Sustainable

Growth" on

which this articleis based,fortheEnvironmental

Law

Institutein 2001.

Linda K.

Breggin

INTRODUCTION

Thisreport

examines

several

major

economic

incentive

programs

and

fundsusedin

the

Commonwealth

ofVirginiatoattract

new

businesses

and

tosupporttheexpansion of

existingbusinesses. Virginiaoperates a

number

of

programs

thatprovideloans

and

grantsto

businessesfor

economic development and

job

creation purposes.

The

programs reviewed

in

thisreportprovidenearly

$30

millionperyearin

government

supporttobusinesses.

Althoughtheuseof

economic

incentive

programs

has increasedoverthelast

decade

in

Virginiaandinotherstates,surprisinglylittle

attentionhasbeen paidtotheeffectof such

programs

on

landuse. For

example,

theeffect

of

economic development

subsidies

on

urban

sprawlhasonlyoccasionally

been

addressedin

the

academic

literatureor

by

themedia.

'

ThisreportdescribesVirginia'scurrent businessincentive

programs

and

analyzes

whether

landuse patterns

and

long-term

devel-opment

effectsareconsidered

when

providing

grant

and

loanawards. Specifically,itexplores

the possiblelink

between

theprovisionof

government

supporttobusinesses

and

the

considerationoftheeffectsofthese subsidies

and

investments

on

landuse,urban

and

exurban development,

and

sustainabilityofthe

economic

andsocialinvestment.2

The

reportfindsthatVirginiadoesnot

considertheimpact ofits

economic

incentive

programs

on

landusepatterns

and

sustainability. Furthermore,theinformation publicly available

on

these

programs does

not containsufficient detail

on

theuseofthefunds

toassesstheireffect

on

growth and

landuse patterns.

Although

thisreportdoesnotattempt toevaluate theimpact ofthese

programs

on

growth

patterns to date,includingtheir

contri-LindaK.Breggin isaSenior Attorney with the

Environmental

Law

Institute. Theauthorgratefully

acknowledgesthefinancial supportofthe Virginia

EnvironmentalEndowment inpreparing this article.

Theauthor also recognizes the substantial

contributions

made

to this articlebyher

Environmental

Law

Institutecolleagues: Jim

Mc

Elfish. DirectoroftheSustainable Use ofLand

Program. MargaretFilbey, Research Fellow, and ElizabethSeeger, ResearchAssociate. Thisarticleis

summarizedwiththepermissionofthe

butiontosprawlin

some

partsofVirginia,it doesidentifythe additionalinformationthatis

needed

to

make

suchdeterminations.

Attentiontolanduse

and

sustainability effectsiscriticalforassuringthatthe

Common-wealth ofVirginiacarriesoutitsroleunder

Article

XI

oftheConstitutionof Virginiato balance

development and

conservationofthe environment,aswellas toassurethatState

financesare

expended

in

ways

thatprotect

Virginia'scomparative advantagesina

"new

economy"

environment.

Thomas

Jefferson

counseledthat

economic

prosperity

depended

on

a"due balance

between

agriculture,

manu-facture,

and commerce,"

whilealsowarningthat eachgenerationshouldnotthroughitschoices

encumber

theearthtothedetrimentoffuture

generations.3 Similarly,wise stewardshipofthe

Commonwealth's

resourcesshouldinclude

attention totheland use

and

sustainability effectsofsubsidies.

Encouragingsustainable

growth

canalso beapositivestepinretaining

and

attracting

businesses. Qualityoflife is

becoming

an

importantfactor insitelocation. Businesses understandthatsustainable

growth

canhelp

them

maintainthelong-term competitiveness

and

prosperityoftheirbusinesses

and

the

communities

in

which

theyarelocated. For

example,

many

corporationsrecognizethat

trafficcongestionisa serious

impediment

to

business. Accordingly, sustainable

growth

can

complement and even

foster

economic growth

goals.

The

report

recommends

thatVirginia

consider land useimpactsinadministering current

economic

incentive

programs

by

funding

growth

inlocationsthataredesignedto

maxi-mize

benefits to thesurroundingcommunities.

Virginiaofficialshaveavarietyofoptions availableto

them

fortakingland useimpacts intoaccountinallocatingfunds. Possible

approachesinclude giving preferenceto pro-posalsthattake sustainable landuse

and

development

intoaccount, requiringsustainable

landuse as

an element

oftheseprograms,

disclosingimpacts

and

potentialimpacts

and

advantages,

and

determiningthe

amount

of fundingbasedinpart

on

sustainable

develop-ment

criteria.

Furthermore,Virginiacould

make

a

substantialcontributiontoitscompetitiveness

and

tothecorporateperceptionofVirginia as a

cutting-edge

"new economy"

state

by

usinga publicprocesstoidentify

key

factorsfor the

management

of impacts

on

landuse.

The

public, thebusiness

community,

and

local

government

officialsshouldbe given

an

oppor-tunity tohelpselectthefactorsthat,inaddition

tostatewide

economic development

and

job growth,areconsideredinVirginia's

economic

incentiveprograms.

The

factorscould then be adoptedas partofincentive

program

guidelines or helpinformlegislativechangestothe pro-grams.

Lastly,thisreport

recommends

that

Virginiaestablish

new

programs

thatare specifi-cally

aimed

atfosteringsustainable

economic

development.

Such

programs

could provide

incentivesto

companies

tolocate in Virginia,

and

forVirginiabusinessestoexpand,ina

manner

thatisconsistentwithprinciplesof

sustainable

development

The

Commonwealth

ismissinga

signifi-cantopportunitytotakeintoaccount sustain-ablegrowthpatternsinitscurrent incentive

programs.

Some

orallofthefunds

awarded

throughthese

programs

could helpassurethat

theseinvestmentsarealsocontributingtothe sustainabilityofthe

Commonwealth's

communi-tiesanditsenvironment.

ECONOMIC

INCENTIVES

AND

GROWTH

CHALLENGE

Vir

ginia

and

the

Use

of

Economic

Incentive

Funds

Statesacross thecountry use

economic

businesses. Incentive

programs

vary

from

state tostate,but

over

thelast

decade

many

states

have

adoptedsuch

programs

in

an

effort to

compete

withotherstatesfor thejobs

and

revenuethatbusinesses provide. Incentive

programs

typicallyaredesignedtoreduce

specificbusinesscosts,

such

astaxes,costof

capital,land,facilityfinancing, training,

and

upfrontoperatingcosts.

These

subsidies are

providedtobusinessesina varietyof

ways,

depending

on

theprogram,

and

may

include

directcash payments,assistancewithrelocation orexpansioncosts,

income

taxcredits,or credits tothefirm'spayrolltax.

The amount

of funds dedicatedto

economic

incentive

pro-grams

varies

by

state.

A

recent report

esti-mated

that intheaggregate,state

governments

spentapproximately

$10-$

1 1billion in

1997

on

economic

incentiveefforts.4

The

VirginiaGeneral

Assembly

has

established

many

economic development

incentive

programs

overthelasttwentyyears. Thisreportonly focuses

on

those

programs

that provideloans

and

grantstobusinesses,although

thereareseveralother types,including

corpo-rate

income

tax incentives, industrial

develop-ment

bonds,

community

development

block

grants,infrastructureprograms,

and

enterprise

zone

designations. Intotal,theVirginia

eco-nomic

incentive

programs

examined

in this

reportprovidednearly

$30

milliontobusinesses

in 1999.

Virginia's earlygrant

and

loan incentive

programs

focused

on

small businesses

and

economically depressedareas.

For example,

the VirginiaSmall Business FinancingAuthority,

which

overseesseveralloan reserve

programs

forsmall businesses,

was

establishedin 1984.

Similarly,theVirginiaCoalfield

Economic

Development

Authority,

which

encourages

development

inthe coalfieldsregion,

was

establishedin1988.

A

new

typeof subsidy

program

was

initiated inthe 1

990s

withtheestablishmentof

the

Economic Development Contingency

Fund

and

theGovernor's

Development

Closing Fund.

These

Funds

were

then

combined

in

1

996

tocreate the

Governor's

Development

Opportunity Fund,a deal -closingfund usedto

attract

new

businesses. In 1999, the Virginia

InvestmentPartnershipGrant Fund,

which

provides incentives for existing businesses,

was

created. In2000,the

General

Assembly

created a

new

fund, theGovernor's

Economic

Development

Grant

Fund,

toprovidefundsto

localitiestoaddressinfrastructure stress

result-ing

from

State-sponsored

economic

develop-ment

projects.

Thus,inVirginia,

economic

incentivefunds

have

beenincreasinglyusedto attract

and

maintainbusinesses.

The

programs

appearto beviewed

by

many

inVirginia's

government

and

business sectors as acrucial toolfor

maintaining

economic

competitiveness with otherstates. This

view

achievedconsiderable

traction

when

in 1993the Virginia

Chamber

of

Commerce

requestedthattheNational

Asso-ciationofState

Development

Agencies

(NASDA)

assessVirginia'scompetitivenessfor

economic

growth.

The

NASDA

report

pro-videdthe

groundwork

for thesupport

and

establishmentofVirginia'scurrent

economic

development

programs.

The

numerous

respon-dentsinterviewedidentifieda

need

toaddress developmentincentivesforbusinessexpansion,

retention,

and

attraction ina

comprehensive

and

studied fashion,

and

alsoexpresseda

growing

sentimentthata

more

activist

economic

devel-opment

program

was

needed.5

Those

inter-viewed

stated thattheypreferred"a

more

aggressive Virginia

competing

forthe

invest-ments

being

made

by

firms outside thestate

and

for theexpansion ofindustrieswithinthestate."6

The

reportrecognizedthattheotherminimalist

states

were

abandoning

theold

ways

for

more

aggressive incentive

programs and

thatVirginia

was competing

notonly withsoutheasternbut

withmid-Atlantic

and

northeasternstatesthat

"boasta

wide

arrayofwellfundedincentive

of

programs

needed

to

be developed

inorder forVirginiato staycompetitive,8

and

indeed

they

were

inthenextseveralyears.

While

theuseof

economic

incentive

programs

has increased overthelast

decade

in

Virginia

and

inotherstatesacross the country,

surprisinglyUtileattentionhas

been

paidtothe effectof such

programs

on

landuse,including sprawl. Infact,the roleof

economic

develop-ment

subsidiesinfosteringurban sprawlhas

onlyrarely

been

addressedinthe

academic

literatureor

by

themedia.9

Virginia's

Growth

Challeng

es

Virginia, like

many

statesacross the country

and

intheSoutheast,iscurrentlyfacing

thechallengesthatincreased

growth

presents

formaintainingqualityoflife

and

forsustaining local

and

regional

economies.

Some

partsof

Virginiahavealready

begun

toexperiencethe

adverseeffectsof

development

patternsthat producetransportationgridlock, delay,lossof

open

space,

and

weakening

ofolderurban

centers.

These

concernsaresignificantasfirms

become

increasingly

mobile

and

seektooffer

highqualityoflifeto their

managers

and

em-ployees. Virginia'ssubstantiallandbase, transportationnetwork,

and

scenicbeauty

have

giventhe

Commonwealth

an advantageinthe

1990s over

some

ofitsotherstatecompetitors, butthisadvantageisnotassuredlong

term

without

more

concerntothelocationof

growth

andinvestment.

Ingeneral,theSoutheastisexperiencing

anexplosivepopulation

growth and

economic

development

boom. While

thenation as a

whole

lost

6%

ofits

farmland

between 1982

and

1997,theSoutheastlost

14%

- more

than

tenmillionacres.10 Virginiaisexperiencing sprawl

development

in

many

ofitshigh-growth

localities

-the

Piedmont, NorthernVirginia,

localitiesalong1-95

from

Washington,

D.C.

to the

Richmond

metropolitanarea

and

along1-64

from

the

Hampton

Roads

metropolitanareato

Charlottesville.'

' Virginia'spopulationhas

increased

by 900,000

injustthelastten years,

accordingto

newly

releasedcensusfigures

-

an

astounding

14%

increaseinpopulation.

'-In

many

communities

in Virginia,past

and

current patternsof

growth have

ledtosprawling residentialdevelopments,

which

produce

tangible

and

intangiblecosts.

The

most

obvious

costsare the coststolocal

governments

and

to

taxpayerstosupplypublicfacilities,suchas sewers, schools,

and

new

roads.13

Less

direct

costsinclude alowerqualityoflife,

economic

declinein citycenters,

damage

totherural

economy, and

environmentalharm.14

For

example,residents

may

spend

more

timein congestedtraffic,experienceanincreasing

number

of

"ozone

alert"days,

and

seetheir

propertytaxesrise.15 Furthermore,older

towns

andcities

may

finditdifficultto

compete

with nearbyareasfor

new

construction,

and

farm-land

and

forestland

may

be convertedto

low

densityresidentialdevelopments.16

Sprawl

can

alsoleadtoincreasedwater

and

airpollution

and

threats to wildlife habitat.17

Opinionpolls inVirginiahaveconsistently

shown

deep

concern aboutthe

consequences

ofcurrent

growth

patterns,

and

strongsupport forpreserving

open

space

and

farmland

and

revitalizing existingcommunities.18 Ina recent

poll.

70%

oftherespondents believedthat

traffic

problems

caused

by

rapid

development

shouldbealleviated

by managing

new

growth

sothatexistingroads

and

mass

transitcould

accommodate

transportationneeds.19

Like-wise,a majorityof respondentsbelievedthat the lossof

open

space

was

a

problem

the

Commonwealth

shouldtrytoprevent

and

was

not theinevitable resultof

market

forces.20 Perhaps

most

importantisthefactthat encouragingsustainable

growth

canalsobea

positive step in retaining

and

attracting

busi-nesses. Qualityoflifeis

becoming

an important

factor insitelocation. Businessesincreasingly

and

prosperityoftheirbusinesses

and

the

communities

in

which

theyarelocated.21

For

example,

many

corporationsrecognizethat

trafficcongestionisa serious

impediment

to

business. Accordingly,sustainable

growth

can

complement

and even

promote economic

growth

goals.

Over

thelastseveralyears,

community

groups,

members

oftheGeneral

Assembly

and

other public

and

privatesectorstakeholders

have

attempted with varying degreesofsuccess

toaddressVirginia's

growth

challenges.

For

example,

inthe

2000

General

Assembly

ses-sion,severalbills

were

aimed

ataddressing sprawl.22 In addition,boththe

House

and

the

Senatepresented resolutionscalling

on

the Joint

Subcommittee

StudyingtheFutureofVirginia's

Environment

to

recommend

legislationtoensure

thatstatespending

on

economic

development, infrastructure,

and

transportation

would

dis-courage

sprawl

and encourage

the

redevelop-ment

ofcentralcities

and

theprotectionofthe

Commonwealth's

rurallandscapes.23

These

resolutions

were

not

adopted

and

the

Commis-sion

was

insteadsimplydirectedtostudy

environmentalissues that

may

require legislative action.24

Virginia, like

many

states,isfacedwiththe challengeof

how

to

grow

and

foster

economic

developmentwhile simultaneously avoiding unsustainablelanduse. Thisreportsuggests

thata

key

stepinfacingthischallengeis for

Virginiaexplicitlytotakeintoaccountthe

growth

impactsofVirginia's

economic

incentive

programs

inallocatinggrants

and

loans.

Other

State

Approaches

to

Economic

Incentive

Programs

ELI

surveyedseveralotherstatesoften

regardedascompetitorswithVirginia,including

Maryland,

New

Jersey,Tennessee,

and North

Carolina,inordertodetermine whethertheir

state

economic

incentive

programs

take

sustain-able

growth

intoaccountasafactorin

allocat-ing funds. Severalofthesestatesarebeginning to

-

or

have

already

-

takenintoaccountthe effectsoftheirincentive

programs on

patterns

of

growth and

landuse.

These

state

approaches

arenotpresented

as

models

forVirginiato follow. Rather,they

areoutlinedtodemonstratethat

many

states,

including thosewith

which

Virginia

competes

to

attractbusinesses,arefacingsimilarchallenges

and

are tryingtoaddressthem.

The

examples

are alsoincludedto

show

the

wide

range of approachescurrently

used

and

to

emphasize

the

flexibilityVirginiahasindevelopingits

own

approachestointegratingland use consider-ationsintoits

economic development

programs.

Maryland's smart

growth

legislationallows thestateto directitsfundingtosupportlocally designated

growth

areas

and

toprotectrural

areas.

The

centerpiece ofthe

program

isthe

state's

1997

Priority

Funding

Areaslegislation,

which

limits

most

stateinfrastructurefunding

and economic development program monies

to

Smart

Growth

Areas

that local

governments

designateforgrowth.25

The

Maryland

legisla-tionspecificallyrestrictstheuse of

some

economic development

incentive

programs

exceptinpriorityfundingareas.26Additionally,

some

oftheregulationsimplementing Maryland'sother

economic development

incentiveprogramsspecificallycontainlimiting

provisionstoallow fundingonlyinpriority fundingareas.27

New

Jerseyhasalso

implemented

tools to

encourage

sustainable

growth

as partofits

economic development

incentiveprograms.

Businessesindesignatedareasarerequiredto

createa

fewer

number

of jobsinorderto

qualifyfor

some

programs

thanifthebusinesses

were

to

be

locatedelsewhere. For

example,

under

New

Jersey'sBusiness

Employment

Incentive

Program

(BEIP),businesses creating

atleasttwenty-five

new

jobsindesignated areas

may

beeligible toreceivea

BEIP

grant; however,businesses locatingelsewhere

must

create seventy-fivejobsbefore theyare eligible

CO CO

m

a

O

"0

o

o

33

O

33

CO

c

CO

>

CD I—

m

O

33

o

D

>

CU 33

m

D

9.

for

BEIP

grants.28

Second,

underthe

New

JerseyLocal

Development

Financing

Fund

Act, afundtoprovidefinancial assistance to local

commercial and

industrial projects,the"other"

criterionforrankingapplicationsfor financial

assistanceincludes

whether

the projectis

locatedinanarea targeted for

economic

development,the extentto

which

theproject

willcontributetothe

economic

revitalizationof

a municipality, thedegreeto

which

theproject

will

advance

stateor regional planning,

and

the

extentto

which

thelocationoftheprojectis

accessibletopublictransportation.29

These

toolsprovideabasis for differentiating

among

projectswithdifferentlocaleffects.

Tennessee

alsoattemptstoencourage

sustainablelanduse

and growth

as partofits

economic development

incentiveprograms.

Tennesseelegislationtiesthe grantingofcertain

economic development

incentivestothe

ap-provaloflocal

growth

plans.

The

legislation providesanadditionalfivepoints

on

a scaleof

100points,ora

comparable

percentage increase,

on

evaluationformsforcertaingrant

and

loan

programs

forcountiesand

municipali-tiesthat

have

an

approved growth

plan

by

July

1,

2001

.

30

The

legislationalso

makes

certain

economic development

incentivegrants

aimed

atlocal

governments

unavailabletocounties

and

municipalitiesthat

do

not

have

an

approved

growth

plan

by

July 1,

2001

,

31

North

Carolina

does

notyet

have

policies

inplacetoencouragesustainable

growth

as part

ofits

economic development

incentive

pro-grams.

However,

the

North

CarolinaQuality

Growth

Task

Force

was

establishedto

investi-gate

how

state

government programs and

investments influencethe qualityofgrowthin

North

Carolina.32

The

Task

Force's

1999

report

concluded

thatthestate

economic

development

incentive

programs

could

have

an

impact

on

sprawl.33

The

reportstated thatthe

Industrial

Development

Fund

"could

promote

sprawlifitprovidesfundingforextensionof

water,

sewer and

otherinfrastructure to

un-servedareas."34

To

encourage

more compact

development

and

more

efficientuseofexisting

infrastructure,the reportconcludedthat"the

program

couldplaceapriority

on

funding

locationswithinexistingurbanareasalready

served

by water and sewer and

other

infra-structureor areasdefinedin localland use plans, capital

improvement programs

or

growth

management

plans."35

_The

Task

Force

was

disbanded withthe creationoftheJoint

Legisla-tive

Commission on

FutureStrategiesfor

North

Carolina

and

itsconclusions

were

not pursued. Virginia varies considerably

from

the states

surveyed

interms ofitsapproachtoland use

planning

and

its

growth

prioritiesand,therefore,

theseotherstateapproaches

may

notprovide

models

forVirginiato follow.

However,

these

examples

demonstratethatotherstates

recog-nizethat

economic

incentive

programs

are

influencing

growth

patterns.

They

alsosuggest

thata varietyof approachesexisttoprovide

business incentiveswhilefosteringsustainable growth.

EXISTING VIRGINIA

INCENTIVE

FUNDS

Governor's

Development

Opportunity

Fund(GOF)

The

Governor's

Development

Opportu-nityFund, administered

by

theVirginia

Eco-nomic

Development

Partnership

(VEDP),

36 is

describedasa "deal-closingfund"to"securea locationorexpansionforVirginiainthefaceof competition

from

otherstatesor countries."37

Similarly,theFund's implementingstatute, enactedin

1996

by

the VirginiaGeneral

Assem-bly,providesthatthe

GOF

"istobe

used

by

the

Governor

to attract

economic development

prospects

and

securetheexpansionofexisting industryinthe

Commonwealth."

38

Funds

under

the

GOF

are

awarded

as

grantsor loansto political subdivisions,

which

in

loans areinterestfreeunless otherwise

deter-mined by

the

Governor and must

berepaidto

the general

fund

or Statetreasury.

The

grants or loans

must be approved by

the

Governor

in accordance with proceduresestablished

by

the

VEDP

and approved by

the Comptroller.39

Funds

may

be used

fora

wide

varietyof

purposesincluding,but notlimitedto:public

and

privateutilityexpansionorcapacity

devel-opment on

and

offsite;road,rail,orother

transportationaccess costs

beyond

thefunding capabilityofexistingprograms;siteacquisition;

grading, drainage, paving,and anyotheractivity

requiredtoprepareasiteforconstruction;

and

anythingelsepermitted

by

law."40

Criteria

for

Awarding

Grants

The

statutedescribesthe

two

basiccriteria

that

must

be

met

inorderforthegovernorto

award

a granttoalocality.41

The

firstcriterion

isthata

minimum

privateinvestmentof $ 10

million

must

bemet.

A

smallerprivate

invest-ment

of $5millionisrequiredinlocalitieswitha

population

between 50,000 and

100,000.42

A

minimum

privateinvestment of $2.5 millionis

requiredinlocalitieswithapopulationof

50,000

orless.

The

secondcriterionisthata

minimum

number

ofjobs

must

be

created. Projects

generally

must

createa

minimum

of100jobs.

Only 50

jobsarerequiredinlocalitieswitha

population

between 50,000 and

100,000

and

25 jobsin localitieswitha populationof

50,000

orless.

The

statute

was amended

in 1

999

to

allowa grant

award

when

only halfthe

number

of required jobsarecreatediftheaverage

wage

ofthe

new

jobsisatleasttwicetheprevailing

wage

for that localityorregion.41

According

totheguidelinesdevelopedfor

the

program by

VEDP,

grant

amounts

are

determined

by

considering

employment,

invest-ment,area

unemployment,

community

fiscal

stress,44

community

commitment,

andindustry or

company

growth

potential.45 Inthose cases

where

the projectinvolvesjobpreservation,

"jobssaved"willbe usedtohelpdeterminethe

amount

ofthegrant;however,the projectstill

must

meet

the

minimum

jobcreation

require-ments

46Additionally,grants willonlybe

awarded

for"projectsthat

would

bring

addi-tional

income

intothe

Commonwealth."

47

The

guidelinesalso

impose

requirements

on

thelocalitiesreceivingthe grants. Localities

arerequired,ata

minimum,

to

match

the

amount

requested

from

thefund withlocalfunds

on

a dollar-for dollarbasis.

Matches

may

come

from

local enterprise

zone

incentivesifthe locality

makes

actualexpenditures withinfive

yearstobenefit thespecific project. Fora

locality toreceive

more

than

two

grantsina

fiscalyear,it

must

show

that

unemployment

rates,povertylevels,or otheracceptableindicia offiscalstressor

need

are significantlyhigher

thanthe stateaverages. Forathird

GOF

grant,

alocality

may

demonstrateexceptional

need

usingotheracceptablefactorsbesides

tradi-tionalfiscal stress.48 In addition,

communities

are

expected

toenterinto

performance

agree-ments

with

companies

upon

receiptofagrantto

ensurethatthejob

and

investmentlevelsagreed

to

by

companies

aremet, or the

communities

willbe heldresponsibleforreturningthegrants

tothe

Commonwealth.

49 Iffundsare

made

available forsite

development and

a party other thantheindustry creatingthe

employment

also

benefits

from

the grant, the locality

must

dem-onstrate

how

thatfinancialbenefitwillbe passedalongtotheindustry.50 Finally,ifthe

fundsarerequestedfora relocationofa business

from one

Virginialocality to another,

the

community

from which

thebusinessis

moving

must

benotified

by

the

community

applyingfor the funds.51

Reporting

Requirements

and

Results

The

Governor

isrequiredtoprovide

periodic reportstothe legislature(withinthirty days of

each

six

month

periodending June

30

CO CO

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m

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>

CD

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m

and

December

30).

These

reportsarerequired

toinclude the

name

ofthe

company

and

the typeofbusinessin

which

itengages,the

loca-tion(city,county or town) oftheproject,the

amount

ofthegrantor loan

made

from

thefund

and

thepurposefor

which

itwill

be

used, the

number

of jobs createdorprojectedto

be

created,the

amount

ofthe

company's

invest-ment

intheproject,

and

thetimetableforthe

completion ofthe project

and

jobscreated.52

The

governor hasfiled 14semi-annualor

quarterly reportssince

September

1993,

when

thefund

was

known

asthe

Economic

Develop-ment Contingency

Fund,andthegovernor's

Development

Closing Fund. Fiscalyear

1997

was

thefirstyearin

which

reports

were

filed

underthe

name

Governor's

Development

OpportunityFund.

The

reportsprovide

information

on

the

program

ingeneral as well as

on

individualprojects. Overall,the reports

containalloftheinformation required

by

the statuteexceptforthe timetable for the

comple-tionoftheproject

and

thejobscreated.

For

theprojectsthat

have been announced,

the reportstotheGeneral

Assembly

also includea

profile,ananalysis

and recommendation

by

VEDP,

and

ascoringsheet.

The

profile,

analysis

and recommendation and

scoring sheet

areallconfidential

and

thus not availabletothe

public. Furtherinformation

on

how

the

Fund

operatesisalsoprovidedinthe

Report

tothe

Chairmen

ofthe

House

Committees

on

Appro-priations

and Finance and

theSenateFinance

Committee.

53

An

analysisofthereports

from

the

Gover-nortotheGeneral

Assembly

suggeststhat33.7 percentofthebusinessesreceiving

GOF

grants

between

1

997

and

2000

planned

touse

some

orallofthefundsforsitepreparation. In the

same

period oftime, 22.1percentof businesses

planned

on

using

GOF

money

for infrastructure (whichincludestraffic

and

road

improvement,

parking,

and

utilityextension), 17.3 percent

planned

on

applying

GOF

funds

toward

siteor landacquisition, 16.3 percent

toward

site

development,

13.5percent

toward

site

im-provement,

4.9percent

toward

locating

prop-erty,2.9percent

toward

training

and

1.0 percent

toward

expansion. In addition, 15.4

percentofthebusinesses receivinga

GOF

grant

planned

on

applyingthefundstootheracti vities, suchas

new

equipment,loan financing,

and

equipment

relocation.

The

lettersprovide

no

furtherexplanationofthesedescriptionsnor

do

theyprovidespecificinformationsuchasland

acreageorexactlocationoftheproject.

Inadditionto thesemi-annual

and

quar-terlyreports,theannualreports

begun

in

1997

provide information

on

how

the

Fund

has

been

used. Since 1997, theGeneral

Assembly

has appropriatedapproximately

$15,000,000

per

yeartothe

program.

Also

since 1997,

88

grants

have been awarded from

the

GOF.

In

thistimeperiod,grants

awarded

totaled

$42,392,000

and were

creditedwith 33,8 19

new

jobs with$2,854,998,000ofrelated privateinvestment.54

The

1997-1999

reportconcludesthatthe

efficacyperdollarofstate

GOF

incentive

increased

from

FY

1998

to

FY

1999

and

that

the

performance

measure

forjobcreationusing

the

GOF

compared

"favorably"withthe nationalrange of $2,000-$5,000 ofstate investment per

new

jobcreated.55

The

report

attributesthisinpart to the"aggressivenessof

recruitment

and

expansionefforts."56 In

FY

2000,the dollarper jobratioincreased

from

$1,1

90

in

FY

1999

to$1,327, nearly

$200

more

per

job

compared

tothe

FY

1999

figure.57

Virginia

Investment

Partnership

(VIP)

Grant

Fund

The

VIP

Grant Program,established

by

theVirginiaGeneral

Assembly

in1999, pro-videsan investmentgrantincentive for existing

Virginia businesses.

The

program

establishes theVirginiaInvestmentPartnershipGrant Fund,

Grant

Subfund" and

the"Investment

Perfor-mance

Grant Subfund."

The

InvestmentPerformance Grant

Subfund

providesgrantsof

up

to

$25

millionto

Virginiamanufacturersthat

make

acapitalized investment58ofat least

$25

milliontoincrease the productivity ofaVirginiamanufacturing

facilityortoutilizea

more

advanced

technology.

Such

manufacturersare eligible toreceivean investmentperformancegrantin fiveinstallments beginninginthe sixthyearafterthe capital investmentiscomplete.59 Manufacturersare noteligibleiftheyparticipate in

any

otherstate productiongrantprograms.

Although

no

minimum

jobcreationisrequiredforthe

Invest-ment

Performance

Grant,manufacturersarenot

eligibleiftheinvestmentresultsin

any

net

reductionin

employment

within

one

yearafter

thecapitalinvestment has

been completed

and

verified.60

The amount

oftheInvestment

Perfor-mance

Grantisdetermined

by

theSecretaryof

Commerce

and

Trade,pursuanttothe

recom-mendation

of

VEDP

andcontingent

upon

the

Governor'sapproval.61 Guidelinesissued

by

the

VEDP

setouttheapplicationprocess

and

how

VEDP

willusethedata required

from

applicantstodeterminethenetpresentvalueto

the

Commonwealth

overa20-year periodof

thedirectinvestment.62

The

negotiated

amount

oftheinvestmentgrantisbased

on

the

calcula-tionsofthe

added

revenue,or"relativevalue,"

tothe

Commonwealth.

63

Individual grantsto

any

eligiblemanufacturer

may

notexceed $3

millionortenpercentofthe

amount

appropri-ated

by

theGeneral

Assembly

intheyearthat

theterms ofa grantaredetermined.

Further-more,theaggregate

amount

ofgrants

from

the Investment Performance Grant

Fund

inany year

may

notexceed

$6

million.64

To

qualifyfora grant

from

the

Major

Eligible

Employer

Subfund,businesses

must

make

a

minimum

capitalinvestment65of $ 100

million

and

createatleast1,000

new

full-time

jobs.66

Under

anApril

2000

amendment

tothe

law,non-manufacturers,inadditionto

manufac-turers,

can

now

qualifyforsuchgrants.

Major

eligible

employers

are eligible for

up

to

$25

million

from

thesubfund,payableoveraperiod

ofnotlessthanfiveyears

and

not

more

than

sevenyearsbeginninginthesixthyearafteran

applicationisapproved.67

The

statutealso

providesfor the

Commonwealth

toenterinto

memoranda

ofunderstandingwith

major

eligible

employers

thatsetforthterms

and

conditionsof

the

payment

ofgrants.

The

House

Appropria-tions

Committee

and

theSenateFinance

Committee

must

be giventheopportunityto

review

any

memorandum

of understandingprior toadoption.68

While

boththe

Major

Eligible

Employer

Subfund and

theInvestment

Perfor-mance

Grant

capthegrantsat

$25

million,the

application processunderthe

Major

Eligible

Employer

Subfund

is

much

simpler

and

the

grantisnotbased

on

the"relativevalue"tothe

Commonwealth.

The

statuteprovidesfor

VEDP

to

estab-lishguidelinesthat

must be approved

by

the

House

Appropriations

and

SenateFinance

Committees,

butthatarenotably

exempt

from

therequirements oftheAdministrative Process

Act, Article2,section 9-6.14:7.1 etseq.6y

The

guidelines

were

issued

on

July 18,2000.

While

thereis

no

statutoryor regulatoryrestriction

on

how

VIP

funds

may

beused,accordingtothe guidelines,the visionisthattheybe usedto

increaseproductioncapacity,utilize

state-of-the-arttechnology,

and

modernize assembly

processes.70

Nothing

inthestatuteprevents theiruseforlandacquisition.

The

statuterequires reportstothe

House

Appropriationsand Senate Finance

Commit-teeswithinthirtydays ofeach calendarquarter. Reports

must

includethe

name

ofthe eligible

manufacturer,theproductitmanufactures,the

localityofthemanufacturingfacility,the

amount

ofthegrant,the

number

of

new

jobscreated,

the

amount

ofcapitalinvestment

and

the

timetableforcompletionoftheinvestment

and

new

jobscreated.71

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In

March

and

April2000,thefirstfour

VIP

grants

were

announced.

A

totalof

$1,800,000

was awarded

tocreate

524

new

jobs

and

topreserve

400

jobsinfourdifferent

counties.72

The

exactuse ofthesegrants

was

not disclosed

and

was

simplylistedas "expan-sion"

Virginia

Small

Business

Financing

Author-ity

fVSBFA)

Economic

Development

Programs

The

VSBFA

administers several

economic

development

programs.

The

VSBFA

was

establishedin 1984 undertheVirginiaSmall Business FinancingAct.73

The

provisionsofthe

Administrative Process

Act

do

notapplyto

VSBFA.

74

The

purpose

ofthe

VSBFA

isto

providefinancial assistance tosmall businesses

throughloans,guarantees, insurance

and

other

assistance.

Although

VSBFA

administers

numerous

small businessassistanceprograms,

includingan Environmental

Compliance

Assis-tance

Fund

and

anIndustrial

Development

Bond

Program,thisreportonlyfocuses

on

the grant

and

loan

programs

itadministersfor purposes ofsupporting Virginiabusinesses

and

attracting

new

businesses.

75 Virginia Capital

Access

Program

(VCAP)

VCAP

providesaccesstocapital for

Virginia businesses

by

encouraging banksto

make

loansthatthey

would

nototherwise

make

due

toaborrower'sprofile.

The program

establishesa loanlossreserveat

each

partici-patingbank,

which

isfunded

by

enrollment

premiums

paid

by

the

borrower

and

VSBFA.

To

take partintheprogram,abusiness

must

file

aloan applicationwith a

bank

participating in theprogram. Ifthefinancingrequestdoesnot

meet

thebank'snormalunderwritingguidelines,

the

bank

willdetermineifthe

proposed

loan transaction

would

beacceptableiftheloan

were

enrolledin

VCAP.

76 Ifthe

bank

approves

financingforenrollmentin

VCAP,

the

bank

then

determinesthe

premium amount

to

be

paid

by

the

borrower

based

on

thebank'sperceiv

ed

levelofrisk.

Premiums

usuallyrange

between

three

and

sevenpercentoftheloan

amount

and

arenon-refundable.

VSBFA

then

matches

the

premium

amount and

both

premiums

are

contributedtoaloanlossreserve

fund

estab-lished forthebenefitofthebank.77 In the

2000

Session, theGeneral

Assembly

increased the

maximum

amount

offundsthat

can

be

used

to

match

any

loan

from

7percentto 14 percent of

theprincipal

amount

oftheloan.78 Ifthe

borrower

defaults

on

the loan, the

bank

can

utilizefundsinthereservetooffset losses.79

Funds

borrowed under

the

program

can

be

used

for

working

capital,expansion,

equip-ment

and most

business needs.80

Land

acquisi-tionisnot prohibited

under

theprogram.

Both

for-profits

and

non-profitsthatareauthorizedto conductbusinessinVirginia areeligible.

Loans

are

capped

at

$250,000

per borrower.81

According

toinformationprovided

by

VSBFA,

in

FY

1999, the

program

helped

fund

26

projectswithatotalof

$806,337 and

created

82

jobs.

The

average

loan

was

$31,012. In

FY

2000,the

program

assisted

72

businesseswithatotalof

$3,128,388 and

created

79

jobs.

The

average

loanin

2000 was

$43,449.82

Loan

Guaranty

Program

The Loan

Guaranty

Program

assistssmall

businessesinobtainingshorttermfinancing

needed

to

improve and

expand

theiroperations,

therebycreating

new

jobopportunities.

The

Guaranty

Program

benefits the participating

bank

by

reducingcredit

and exposure

risk.

The

businessbenefits

by

receiving financingit

would

nototherwise beabletoobtain.

No

specific

authorityto

make

loanstolenders

who

make

loansto eligiblesmall businesses.83

Businesses applydirectly toa

bank

for

financing.

The

bank

thendeterminesifa

government

guaranteeisneeded. Ifso,the

bank and

theapplicantfilloutapplications

and

provide

accompanying

materials. Applications

are

reviewed by

VSBFA

staff

and

recommen-dations are

made

tothe

Board

ofDirectorsfor

considerationattheir

monthly

boardmeetings.84

Although

thereis

no

specificjobcreation

requirement,

VSBFA

considersthe

economic

impact

and

jobcreation

from

thefinancing,in

additiontoassessing the

company's

abilityto repaytheloan.85

The

maximum

guaranteeunderthe

pro-gram

is

$300,000

or

75

percentoftheloan

amount, whichever

isless.86 Businesses

operat-inginVirginiathat

meet

atleast

one

ofthe

criteriafora "small business" areeligible.

Criteriainclude:$ 10million orlessinannual revenues over

each

ofthelastthree years;a net

worth

of

$2

millionorless;or

fewer

than

250

employees.87

Fees

forthis

program

includean

applicationfee,

which

varies

from

$100

to

$250

dollars

depending

on

the

amount

ofthe

loan request,

and

an annual guaranteefeeof1.5

percentoftheguarantee

amount.

88

Loans

can

be used

forlinesofcredit to

finance inventory

and

accountsreceivable

and

forshort-termcreditloanstofinance

permanent

working

capitalor fixed asset purchases,such

asofficeequipment.89

The

acquisitionofreal propertyisnot prohibited.

The

program

cannot be

used

torefinance or restructure

bank

debt, eliminate abank'srequirementfor collateralor

the principal'spersonal guaranty, orto

compen-sateforafundamentalbusinessweakness.90

According

todataprovided

by

VSBFA,

in

FY

1999,the

program

providedfour busi-nesseswithloansaveraging

$562,500

and

helpedcreate

140

jobs.

The

totalloan

amount

for thistime period

was

$2,250,000. In

FY

2000,the

program

provided 13loans, totaling

$3,755,000 and

averaging $288,846,

and

helpedcreate

110

jobs91

Economic

Development

Revolving

Loan

Fund

The

Economic

Development

Revolving

Loan Fund

isdesignedtofillthefinancinggap

between

privatedebtfinancing

and

private

equity.92

Funds

areprovidedforfixedasset

financingto

new

and

expandingindustriesthat

are creating

new

jobs

and

savingatriskjobsin Virginia.93

The Economic

Revolving

Loan Fund

isregulated

and

partiallyfunded

by

theU.S.

Commerce

Department's

Economic

Develop-ment

Administration

(EDA).

To

qualifyfor assistance,anapplicant

must

create orsave

one permanent

full-timejob

within

two

yearsoftheloanclosingforeach

$10,000 borrowed;

provideatleast 10 percent

oftheprojectcosts ascashequity;

and

provide

afirstlien

on

theassetspurchased withtheloan

proceeds.94Allmanufacturing

companies

or otherindustries

which

derive

50

percentor

more

oftheirsalesoutside Virginia areeligible.

Localindustrial

development

authorities arealso

eligibletoreceivefinancingtopurchasefixed

assets tobeleasedtoqualifiedcompanies.

Companies

must meet one

ofthecriteriaofa

"small business."95

The

maximum

loan

amount

foreachprojectis$1 milliondollars.

The

maximum

amount

offinancingavailableisthe lesserof

40

percent ofthetotal project costsor

$10,000

per

job

to

be

createdorretained.96

Applicationsarereviewed

by

VSBFA

staff

and

recommendations

are

made

tothe

Board

of

Directorsatthenext

monthly

meeting. Credit decisions are

based on

the

company's

credit

worthiness,ability torepaytheloan,

and

the collateralofferedtosecurethe loan.97

Loan

fundscan be usedforacquiring land

and

buildings,constructingorimproving

facili-ties,

and

purchasingmachinery

and

equipment.

Loans

cannotbe usedforsubsidizing abusiness

thatisabletoobtain financingfortheprojectat

reasonableterms

from

conventionalsources.

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refinancing orrestructuring existing

bank

debt,

relocatinga businessactivity

from one

Virginia

jurisdiction toanother,

compensating

fora

fundamental business weakness,orfor

provid-ing

working

capital.98

According

toinformation provided

by

VSBFA,

in

FY

1999,the

program

funded

elevenprojectswithatotalof $5,381,200.

The

average loan

was

$489,200 and

the

program

created 1,057jobs. In

FY

2000.the

program

assistedseven businesses withan averageloan

of

$474,97

1

and

atotal

of $3,324,800 and

created

599

jobs."

Governor's

Economic

Development Grant

Fund

The

Governor's

Economic

Development

Grant

Fund

isa

new

fund

created

by

the

2000

General

Assembly

to

be used

by

the

Governor

in

making

grantsto localities in

which

a State-sponsored

economic development

project

was

completed

on

orafterJuly 1,

1995

and

resulted

inademonstratedstress

on

local infrastruc-ture.100 State-sponsored

economic

develop-ment

projectsaremanufacturingfacilitiesor

other job-creating

economic development

projectsfor

which

the

Commonwealth

devel-oped and

submittedaformal proposalthat

includedanincentive

package

toa business locatingor

expanding

inaneligiblelocality.101

The Fund

essentiallyprovidesincentivesto

localitiestoattractbusinesses

by

assisting localitieswiththecostsassociatedwithlocal

infrastructureneeds.

No

grants

had been

awarded

asof

December

1,2000.

The

Secretaryof

Commerce

and

Trade, contingent

upon

theGovernor'sapproval,

determinesthe

amount

ofthe grantstobe

distributed tolocalities.

The amount

ofa grant

may

not

exceed

tenpercentofthe

amount

appropriated

by

theGeneral

Assembly

tothe fundforthefiscalyear. Localities

may

not receive

more

than$3millioninaggregate

grants.

The amount

ofgrantsin

any

fiscalyear

cannotexceed $ 10million,

and

the

Commonwealth's

annualobligationforsuch

grantscannotexceed

$

1millionannuallyper

locality.102

Economic Development

Grancsto eligiblelocalities

must

beoffset

by

grantsor loans

awarded from

theGovernor's

Develop-ment

OpportunityFund.103

Actions oftheSecretaryrelating to the

allocation

and awarding

ofgrantsare

exempt

from

therequirements oftheAdministrative

ProcessAct. Section9-6. 14:7.1 etseq.104

The

Secretaryof

Commerce

and Trade

isrequired

todevelop anapplicationprocess

and

guide-linesfordeterminingthe

amount

of

any

grant

which

aneligiblelocality

may

receive.

The

guidelinesarealso

exempt from

the

require-ments

oftheAdministrative ProcessAct,but

must be reviewed

beforeissuance

by

the

SenateFinance

and

House

Appropriations Committees.105Initialguidelines

were

submitted

by

theSecretary

on

November

1,2000.but

had

not

been

finalized asofJanuary 2001.

The

Virginia Coalfield

Economic

Develop-ment

Authority

fVCEDA)

The

purpose ofthe

VCEDA

isto

enhance

the

economic

baseofcertaincounties

and

acity

inthe coalfieldsregionofVirginia.

The

counties

are

Buchanan.

Dickenson,Lee. Russell,Scott,

Tazewell,

and

Wise

counties,

and

thecityisthe

Cityof Norton.

The

VCEDA

was

established

in1988.based

on

thefinding

by

theGeneral

Assembly

that:"[t]he

Economy

of Southwest

Virginiahas notkept

pace

withthatoftherest

ofthe

Commonwealth"

and

the

economic

problems

are

"due

inlargepart toitspresent

inabilitytodiversify."106

The

program

provideslow-interest loans

and

grantsto

new

or

expanding

private, for-profitbusinesses

and

to industrial

development

authorities.

According

tothestatute,financial

supportfor industrial

development

authorities

and

privateenterprises

may

be

used

fora

wide

purchase ofrealestate;gradingofsites;water, sewer,naturalgas

and

electricalline

replace-ment

andextensions; construction,

rehabilita-tion,orexpansion ofbuildings;constructionof parkingfacilities;accessroadconstruction

and

streetimprovements;

and

suchother

improve-ments

astheAuthority

deems

necessaryto

accomplishitspurpose."107

However,

by

policy,theAuthoritylimitstheuseoffunds

by

privateenterprises toonlyland,building

pur-chaseor construction,

and

equipment, but

allowsthe industrial

development

authorities to

financethe listedrange ofuses.108

New

and expanding

industries thatare

basicemployers

and

willbring

new

income

to

the seven-county,one-city servicearea are

eligiblefor assistance. Priorityisgiventoloans

and

grantsrequiring

$

10,000orlessfor

each

new

basicjobcreated,

and

theaverage

mini-mum

hourly

wage

should equalor

exceed one

and

one-halftimes the currentfederal

minimum

wage

atthetimethe

job

was

created. Projects

providingatleast

25

jobs within12

months

of

initiationaregivenpriority.I09

Working

capital

and

refinancingloans are

ineligibleunderthe

VCEDA.

'

l0

Projectsthat provide "support

employment"

arealsonot

eligibleforfunding.Therefore,facilities

which

primarily serve thelocal

economy,

suchasretail

and

wholesaletrade,contract construction,

insurance,real estate,

and

medicalservices businessesare ineligible.''

' Coal

mining

pro-ductionprojects

and

projectsinvolvingthe relocationofjobs

from one

countytoanother

withinthe

VCEDA's

service areaare ineligible forsupport.112

VCEDA

is

funded by 25

percentofthe

gross receiptsofthe

Coal

and

Gas

Road

Improvement

Fund"

?

ineachparticipating jurisdiction,halfof

one

percentofgrossreceipts

ofthe naturalgas severancetaxleviedafter

June

30, 1990,

and

state,coal

and

private sourcesoffunding.114 In 1997, the

VCEDA

fund balance

was

$12,500,000,

and

the loans

and

grantsgiventotaled$3,000.000.ll5 In

1998, the

fund

balance

was

$14,300,00

and

theloans

and

grantsgiventotaled

$3.400,000.I16 In 1999,the

fund

balance

was

$15,400,00

and

theloans

and

grantsgiven

totaled$2,800,000."7

The

Authorityis

governed by

a

Board

made

up

of 16

members

who

serve four-year terms.

The

Board

isrequiredtosubmit annual reportsoftheAuthority'sactivitiesattheclose

ofthecalendaryeartotheGeneral

Assembly,

theboards ofsupervisorsofthesevencoalfield counties,

and

the

Norton

City Council.

The

reportsarerequiredtoincludeacomplete

operating

and

financialstatement."8

According

toa

VCEDA

analysisofits

program

from 1988

through 1998, 56.0

percentof

VCEDA's

approved

fundinginthe ten-yearperiod

went

to

new

industry. Existing industry received 12.5percentofthefunding.

From

1988

through 1998, 10.9percent

went

to

infrastructure, 10.4percent

went

to shell

buildings,9.0percent

went

toassistwith

property acquisition,

and

0.9percent

was

approved

for studies.

Buchanan

County

received a majorityofthe

approved

funding,

with 40.5 percent ofthefunding

between

1988

and

1998.'19

FINDINGS

AND RECOMMENDATIONS

Findings

Virginia's

Economic

Incentive

Programs

Do

Not

Consider Sustainable

Land

Use

Virginia's

economic

incentiveprograms arenotrequiredtotakeintoaccounttheir effects

on

patternsof growth. Rather,the

programs

focus

on

jobcreation, capital

invest-ment by

the grant

and

loanrecipientsand,in

general,

on

increasedlongterm revenueforthe

Commonwealth.

120

While

these

economic

incentive

programs

promote

animportant

economic development

agenda,they also

may

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influencegrowthpatterns in

many

Virginia

communities

by

subsidizinglandacquisition,

constructing

new

infrastructure,

and

establishing businesssiteswithout regardtoother Virginia goalsincludingefficientlanduse,housing,

and

qualityoflife.

While

giving

no

attention tolanduse

and

otherspillover effectsofbusiness

development

andlocation

was

typicalof

economic

develop-ment

strategies

used

by

many

statesinthe

1980s

and

1990s,this

approach

neglects

key

issuesrelevant

now.

Businessattraction

and

retention strategies

depend

more

heavily

now

on

qualityoflifeissuesthanthey

once

did. Furthermore,transportation issuesmatter over thelong

term

asbusinesses

compete

for

em-ployees

and

attemptto

grow

while maintaining supplychains

and customer

networks.

Statesthatneglect these issues

do

soat the riskof diminishingthelong-termvalueof theirinvestments. Greenfieldsiteslocated outsideof

towns

-

relyingwholly

on

automobile transportationwithsurfaceparking,

and

without attention tosurrounding landuses

-

runtherisk

of lackingsufficientamenitiesinthelong runto retain

employees

and

managers. Furthermore,

greenfield locationsforbusinesses

may

also

suffer

from

transportation

problems

as adjacent usesproliferate

and

secondary roadsare

affected.

At

the

same

time,

development

at suchsites

may

contributetothe lackofvitality

of

town commercial

centers, tothelackof

occupancy

and

investmentinlocalhousing

stockinthose centers

by

potential

employees,

and

tothe

decay

oflocaltaxbases.

Thisstudydoesnot affirmatively findthat Virginia's

economic

incentive

programs

are producingharm,orthatthey are

doing

more

harm

thangood. Indeed,thedatathat

would

be

needed

for

such

a detailed

assessment

are

notreadily available.

But

thisstudy

does

find

thatVirginia'sextensive

and

highlyinfluential

economic

incentive

programs

arebeing

admin-isteredwithout

regard

totheseimportant

development

factors

-

factors thatshould be

on

thescreenof everypublicofficial.

The

resultis

missedopportunity.

More

Data Are

Needed

to

Administer

Economic

Incentive

Programs

for

Sustainability

Virginia's

economic

incentive

programs

arerequiredtoprovidedatatotheGeneral

Assembly

abouttheuseofstatefunds.

Most

of

therequiredinformationhas

been

provided

on

a

timelybasis.

The

providedinformationdoes

not,however,contain

enough

detail

on

theuse ofthefundstoassesstheireffect

on

growth and

landusepatterns. In addition, thereis

no

assessment ofthedata

under

Virginia's

state-wide

goalstoprotectthe

environment

as

anticipatedunderArticleXI,Section 1 ofthe

VirginiaConstitution.121

The

formatsusedtopresentinformation

abouttheimplementation ofthe

economic

incentive

programs

also

do

nothelp those

wishingto

gauge

thebroadereffectsofthe

programs,ortoassesslocalimpactsof

sup-portedprojects. Rather,

most

informationis

eitherlimitedtopress release materialsabout

individualprojects,orispresentedin

aggre-gatedfinancial reports.

For

example,itis

difficulttoobtaininformationabout

how

grants

and

loans areused withrespecttoparticular

facilities

and

theiririfrastructure,

and whether

theirusesare affectinglanduse patternsin Virginia. Itisimpossibletodetermine

from

the

documents

availablethepreciselocationof

many

ofthegrantrecipients'facilities

(beyond

the identityofthecountyorcity

where

the

facilityisorwillbelocated),

and whether

any

projected

new

construction

and

expansionis

takingplace nearexisting infrastructure,

town

centers,housing, or transportation corridors or

on

ruralroadsfar

from most

housing,retail,

sewer

and

waterservice,

and

otherfeatures.

The

necessary data

would

notbedifficult

toobtain

and

compile,

were

theGeneral

the extentthat

economic

incentive

programs

do

notalready

do

so,application

and

proposal

packages

couldbe redesignedspecifically to

seekthisinformation

from

applicants

and

their

communities.

Even

thedetailedinformationthatis

currentlycollectedcouldbe organizedina

manner

that

would

make

itpossibletoassess

the effectofVirginia's

economic development

programs

on

land use

and

sustainablegrowth.

For

example,

Geographic

Information

Systems

couldbe usedincombination withthesiteplan

information required

from

applicantsto

produce

alternativeprojectionsof

growth

patterns.

The

datacould

be

usedtoidentifythelocationof likelyhousingincreases

and

toassistin

deter-mining

necessaryancillarydevelopment. This

typeof compilation

would

requirefurther

work

by

the

Commonwealth's

economic

develop-ment

agencies,butchiefly inpresenting

informa-tionalreadyavailableinadifferentform.

Recommendations

Consider

Growth

Impacts

in

Administering

Existing

Economic

Incentive

Programs

Current

economic

incentive

programs

shouldtakeintoaccount landuseimpactsin allocatingtheseimportantfunds. Thiscouldbe

done

inseveralways:( 1)

by

giving preference

toproposalsthattake sustainablelanduse

and

development

intoaccount,(2)

by

requiring

sustainableland use asan element ofthese

programs,(3)

by

disclosingimpacts

and

potentialimpacts

and

advantages,or(4)

by

determiningthe

amount

of funding basedinpart

on

sustainable

development

criteria.

Considering suchfactors asthe effectof

grants

and

other subsidies

on

infrastructure

needs,landuse,

and

othergrowth-related

impactsdoesnot

mean

thattheprograms'

economic development

goalsneedtobe

compromised.

Infact,healthy

economic

development

overthelong runcould be

fos-tered

by

more

thoughtfulallocationof

economic

incentivefundstoproduce

economic growth

in

locationsthataredesignedto

maximize

benefits

tothesurroundingcommunities.

Inaddition,current

modes

of business

location

and expansion

can cause adverse effects

on

adjacentjurisdictions

even

while

benefitingthe targetcommunity. Similarly,a project

may

be

quitebeneficialinstatewide

termsforjobcreation,but

impose

localburdens

on

housing,schools,

and

localservices.

Under

currentgrant

and

loanfund

programs

thereis

no

requirementthattheseeffectsbe assessedor

providedfor,withtheexceptionofthe

Governor's

Economic

Development

Grant

Fund,

which

provides anafter-the-fact

remedy

for

some

communities.

Furthermore,takingsustainabilityinto accountinallocating

economic

incentivefunds

does

not

mean

thatthese

programs

would

be

limitedtosupportingdevelopment onlyinurban

portionsof metropolitanareas.

Economic

incentive

programs

areimportantinsustaining

Virginia'ssmall

towns and

rural

economies

as

well. InSouthsideVirginiaandthe coalfield

counties,forexample,

economic

incentivesare crucial to

economic

growth. Butthejob

growth

shouldalsohelpmaintainthe localtaxbase,the

existing infrastructure (including schools,fire

and

policeservices),

and

the agricultural

and

forestbase ofthearea. Supporting business parks

on

miscellaneousparcelsof landis

generallyfar lessdesirable thanrestoring

employment

on

local

main

streets

and

on

larger

parcelsadjacentto

towns where

thespillover benefitscan

be

maximized.

Itispossiblefor Virginia's

economic

incentive

programs

tofoster

business locations

and

expansionsthatare within

town

centersorthatareinselectedparts ofruralareas suitableforsustainable

develop-ment

Adopt

Sustainable

Criteria

The

followingapproaches

may

be

usedto

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