The Wall Street Journal
By: Jennifer Levitz
December 21, 2010
RICHMOND, Va.--Virginia is aggressively doling out cash and business incentives to lure job-creating investments to the state, even as it slashes spending to close a yawning budget gap.
The effort is part of a $57 million economic-development package the Virginia General Assembly passed earlier this year at the behest of Republican Gov. Robert McDonnell, who on Friday requested an additional $54 million for the program.
The jobs push is responsible for more than 215 deals so far this year, including $22.9 million in incentives for 20 major projects, up from $15 million spent on 13 big deals last year, according to the office of Lt. Gov. Bill Bolling, who is overseeing the effort.
Mr. McDonnell tapped Mr. Bolling, a Republican, to be the state's "chief job creation officer" earlier this year, after campaigning on the slogan "Bob's for Jobs."
As Virginia ramped up spending on business development, lawmakers closed a $4.2 billion budget deficit largely through spending cuts, including $1.2 billion slashed from public education, and putting off $600 million in contributions to the pension fund for state employees.
Virginia's move to increase economic-development spending amid cutbacks elsewhere illustrates the pressures on states to generate jobs as the economy continues to sputter.
There are signs the effort is helping. Virginia's unemployment rate fell to 6.8% in October from 7.2% in February, and the state netted 55,000 new jobs during that span, the third-best job-creation rate of any state, according to the U.S. Bureau of Labor Statistics. Virginia ranked 35th on that scale in 2009.
Virginia's proximity to the nation's capitol in Washington also brings employment benefits. Roughly 2,600 of the 55,000 new jobs were on the federal payroll, according to BLS. Even with the recent employment growth, joblessness in some rural corners of Virginia remains as high as 18%.
Some critics say the jobs push has been too costly. "I am a champion of what the government can do to encourage job growth," said Stewart Roberson, superintendent of Hanover County schools, outside Richmond. "But from my perspective, what's best for the long view is a system that insulates core services as much as possible from the ravages of the economy."
Half of Mr. Roberson's funding comes from the state, and the other half is supported by local property taxes. After both sources were cut by 12% this year, he slashed 225 jobs, increased class sizes and directed schools to turn down thermostats.
Edwin Burton, an economics professor at the University of Virginia and a trustee of the state employee pension fund, criticized cuts to the fund. "The fund is underfunded. Borrowing from it just made it more seriously underfunded," he said.
Mr. Bolling, the lieutenant governor, said in an interview that more cuts to state services are likely as money is redeployed to economic development. "We are not going to be able to address any of these other needs until we get the economy going," he said, adding that money will be directed to core services as the state sees more revenue from economic development.
On Friday, citing an uptick in state tax revenue, Mr. McDonnell proposed amending the current budget to put more money toward higher education and transportation as well as job creation--even as he suggested an additional $191 million in cuts to the budget. The General Assembly would have to approve any amendments.
The jobs program has benefited companies like Northrop Grumman Corp., which got $13 million from Virginia for agreeing in April to move its corporate headquarters from Los Angeles to northern Virginia, which will create 300 jobs. Microsoft Corp. received $2.1 million in August for a planned new data center in Mecklenburg, Va., that will create 50 jobs.
Polymer Group Inc., a North Carolina manufacturer of materials for hygiene products, recently broke ground on an expansion at its Waynesboro, Va., plant. Virginia gave the company $1.5 million, while Waynesboro offered up land, six years of tax breaks and $550,000 in cash. Ian Mills, the plant manager, said the expansion created 44 jobs paying roughly $17 an hour--and he has 10 applications for each opening.
Critics say incentive payments often go to companies that would have invested in the state anyhow. Mr. Bolling's team counters that helping an existing Virginia company expand gives the operation more reason to stay in the state.
Mr. Bolling may be the only lieutenant governor currently playing such a prominent economic-development role, said Julia Hurst, executive director of the National Lieutenant Governors Association. Lieutenant governors typically focus more on such things as promoting tourism and reducing red tape for businesses, Ms. Hurst said.
The effort may be politically risky for Mr. Bolling, who plans to run for governor in 2013. Departing Ohio Lt. Gov. Lee Fisher, a Democrat, took on a similar role after he assumed office in 2007, only to see his state's joblessness soar during the recession. He was dubbed "Ohio's failed jobs czar" by Republicans and lost his bid for a U.S. Senate seat in November.
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