A roadmap of how one governor used economic development to create a new Virginia economy: Part two has been added to your bookmarks.
A roadmap of how one governor used economic development to create a new Virginia economy: Part two
Credits & Incentives talk with Deloitte
“Credits & Incentives talk with Deloitte,” is a monthly column by Kevin Potter of Deloitte Tax LLP, featured in the Journal of Multistate Taxation and Incentives, a Thomson Reuters publication. September’s “Credits & Incentives talk with Deloitte” explores the indirect, big–picture incentives intended to provide staying power to Governor McAuliffe's New Virginia Economy strategic plan.
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- Excerpts from this month's issue
- Tax credits and incentives
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Indirect, big-picture incentives
When Governor Terence McAuliffe took office in January 2014, Virginia faced economic development challenges. As the top recipient of US Department of Defense contracts, the Commonwealth's economy is one of the hardest hit by the federal government's spending cuts to military and domestic programs. In addition, industries of the past have declined across the state, with many citizens facing possible unemployment and lacking the skills that modern businesses need.
What makes the situation in Virginia stand out is its governor's proactive, long-term strategy to turn the state into a global leader in economic development.
"The opportunity before us today is to use Virginia's tremendous assets to diversify our economy so we are growing in a more sustainable way," said Governor McAuliffe. "Working with the public and private sector to build a new Virginia economy-that is the job I'm trying to get done."
His hands-on approach starts with his personal involvement in major decisions impacting businesses, and continues as he works on the frontlines, recruiting companies into the state. His experience-including any successes and failures-may provide valuable insights from which other states facing similar economic development challenges can learn.
August's edition of "Credits and Incentives talk with Deloitte" covered the first part of Governor McAuliffe's New Virginia Economy strategic plan: various direct financial incentives that are enticing businesses to relocate to and reinvest in Virginia. September's issue switch gears and discusses the indirect, big-picture incentives intended to provide staying power to the governor's plan, looks at a real-world example of how the plan has succeeded in bringing jobs and tax dollars back to Virginia, and touches on some of the all-too-familiar challenges that lie ahead.
Excerpts from this month's issue
Investments in indirect incentives
The New Virginia Economy strategic plan has solicited feedback from local and regional economic development organizations, chambers of commerce, business leaders, and educational institutions to develop a four-year strategic plan. Here are three important components of the New Virginia Economy that extend well beyond traditional tax incentive and grant programs.
Diversify and grow strategic industry sectors
The US Department of Defense is the largest employer in Virginia. But with fewer dollars being spent on defense programs, the governor's office understands the importance of diversification and private-sector-led growth. The governor's team has identified the following sectors as having the strongest growth potential:
- Advanced manufacturing
- Information technology
- Life sciences and medical technologies
- Professional and business services
- Global exporting in agriculture and forestry1
Within each of these potential high-growth sectors, Governor McAuliffe and his team strive to attract new companies and expand investment by companies already located in Virginia. Industry roundtables, business expos, and Virginia-brand marketing campaigns are some of the ways the governor plans to communicate his commitment to each of these industries.
Governor McAuliffe is also focused on promoting innovation and entrepreneurship, not just attracting and retaining Fortune 500 companies. For example, the Virginia Innovation Network for Entrepreneurs is designed to connect startups to the financial, legal, consulting, resource-sharing, and mentoring services they need to grow. Free patent clinics are also a proposed offering through Virginia law schools, as well as legislation to provide capital gains tax exemptions for technology startups and to expand angel investor and research and development tax credits.2
Equip Virginia's workforce with in-demand skills to meet business needs
The governor encourages Virginians to pursue post-secondary education in order to attract companies in many of the high-growth sectors targeted by the New Virginia Economy strategic plan. Virginia currently has 575,000 students enrolled in more than 100 in-state higher education institutions3 and boasts at least one community college within 30 miles of almost every resident.4
Additional state funding for job training and education programs will help business by creating highly skilled workers capable of performing rewarding jobs that will improve their living standards. For example, the governor wants to strengthen the Virginia Jobs Investment Program, which provides free recruitment services and training assistance and offers direct funding to companies that create new jobs or upgrade the skills of their existing workforce.
Governor McAuliffe also plans to offer financial aid to students who take noncredit instruction that leads to an industry certification or license in a high-growth industry. Five hundred thousand business-driven certifications and licenses are proposed to be added by 2030, as well as the expansion of the state's registered apprenticeship, post-graduation internship, and alumni repatriation programs.5
Another win-win opportunity in Virginia is its pool of highly skilled, disciplined veteran workers. Virginia is currently home to about 800,000 veterans, and Gov. McAuliffe wants to lead the most veteran-friendly state in the union. He supports the Virginia Values Veterans (V3) initiative. Launched in June 2012, V3 trains and certifies employers on how to attract and retain veterans. To date, the program has generated more than 3,000 new jobs for veterans. Most of these employers are small businesses with fewer than 1,000 employees.
As a specialist in multistate tax issues who works with companies focused on veteran hiring and securing credits for such hiring, I've seen first-hand how the V3 program has resulted in many companies hiring veterans. In addition to the V3 program, the Northern Virginia Technology Council has also hosted a series of webcasts focused on helping companies improve their veteran hiring. These webcasts cover such topics as training on the business case, acquisition methods and approaches, and career-planning advice.
Enhance the economic development infrastructure
Virginia already possesses world class transportation assets, including 14 commercial airports, six major interstates, an extensive railroad system, and a high-tech port-the deepest on the eastern seaboard-capable of handling Post Panamax vessels. Its centralized location puts Virginia within a two-day drive to approximately 70 percent of the US population and over 307,000 manufacturing companies.6 However, there's more to infrastructure than transportation assets. Gov. McAuliffe also plans to expand Virginia's communication and energy capabilities.
Quick, reliable, and affordable Internet access is essential for all businesses, but coverage is sporadic across Virginia. In the most rural parts of the state, only about 25 percent of the population has high-speed or broadband coverage.7 The governor plans to use state-owned real estate to provide aid to local governments to increase connectivity. He has also proposed limited tax incentives and low-cost financing as ways to offset the costs of private sector investment in enhancing communications infrastructure.
Equally important to economic development is widespread access to low-cost, reliable energy sources. By providing a diverse menu of energy options, Virginia won't be over-reliant on any single source. The creation of a $5 billion natural gas pipeline is in the works, which will expand access to traditionally underserved and restricted market areas, such as the central and coastal parts of the state.
In addition, Gov. McAuliffe has established the Virginia Solar Energy Development Authority, modeled after the Virginia Offshore Wind Development Authority. Both of these programs accelerate development of innovative, renewable energy alternatives. Other programs seek to reduce greenhouse gas emissions and energy consumption. The governor's administration aims to reduce its electricity consumption by 15 percent and encourages local municipalities to follow suit under the Energy Performance Contracting (EPC) initiative.8