Mining Coal Country for Tech Workers
Economics, Politics Send Contractors Into Southwest Virginia

By Ellen McCarthy
Washington Post Staff Writer
Monday, January 2, 2006

LEBANON, Va. -- In this town of 3,300 people, cow pastures encase the local high school, churches outnumber nightclubs 14 to zero and the unemployment rate is almost twice as high as the rest of the state.

This is where government contractors CGI-AMS Inc. and Northrop Grumman Corp. will in the next few months start building multimillion-dollar technology centers and hire hundreds of software engineers at salaries far above the region's average, bringing a taste of Washington's lucrative tech sector to a coal country enclave.

How the companies came to build here is a tale of the economic factors shaping Northern Virginia -- towering home prices and nightmare commutes that are making it hard to hire new workers at reasonable wages. But it's also a tale of Virginia politics and the potential boost that outgoing Gov. Mark R. Warner's ambitions for this part of the state could give a presidential bid.

Along with cutting their costs, the companies saw in the coalfields of Southwest Virginia a way to improve their chances of winning state contracts, and -- in the case of CGI-AMS -- a way to turn the promise of jobs into millions of dollars in government concessions.

"This is the day Southwest Virginia is transformed," Warner told the senior class at Lebanon High School in late October as he announced CGI-AMS's plans to hire 300 software engineers from the region. "These are serious high-tech jobs that any city in Northern Virginia would die to get."

In fact, the tech companies that line the overflowing roads of Northern Virginia have thousands of open jobs they can't fill. The job market in Washington is so tight, companies regularly pay bonuses and inflated salaries to recruit employees with technical skills, even though the work required to develop new software programs has become increasingly routine. Banks and insurance firms long ago cut their software development costs by shipping the work to India and China, but legal restrictions and the politics of government procurement have prevented federal contractors from following suit.

So they are looking at rural America instead -- to places where rents are cheap, traffic is light and, instead of companies being forced to offer bonuses or poach employees from a competitor, résumés pour in by the dozen.

The area turns out plenty of résumés that the companies want to see. Local officials drafted a study to show that 4,566 computer science degrees were awarded in the past five years by colleges within 100 miles of Lebanon, including Virginia Tech, Radford University and James Madison University. Area community colleges promised to tailor their courses to fit CGI-AMS's needs, and the county said it would build a new $5 million, 53,000-square-foot facility where the company could do relatively basic software development and troubleshooting.

The company was in the running at the time for a $270 million state contract it eventually won. Donna S. Morea, president of CGI-AMS, said the contract had no bearing on the decision to locate in Lebanon. A $4.5 million incentive package put together by local and state officials, however, was taken into consideration, she said.

Along with the two recent announcements in Lebanon, McLean-based BearingPoint Inc. announced in March that it was opening a 250-person software development shop in an old mall in Hattiesburg, Miss. In November 2004, Science Applications International Corp. (SAIC), taking a cue from defense contractors that locate facilities in the back yards of influential politicians, opened its newest technology center in Somerset, Ky., home of Rep. Harold "Hal" Rogers (R), who controls some of the purse strings for homeland security spending.

The contractors' move to rural America echoes a strategy that commercial tech companies made in the early 1990s. Some of them moved basic software coding jobs to small towns before they began sending such jobs overseas.

Though executive and sales offices are likely to remain in Washington and on-site systems integrators will need to stay near the agencies they work with, the move of software developers and some other more routine jobs "will be a growing pattern," said Anirban Basu, an economist and chief executive of the Sage Policy Group. "The Washington-area cost structure is pushing jobs out of the region."

"This company could take our talents and our knowledge and do something with it," said Chastity Brown, 26, a computer enthusiast from Lebanon who waited in line for nearly an hour to meet a CGI-AMS recruiter at a job fair in November. "This is the way our generation can actually find jobs here."

Executives at government contracting companies say that the boost these jobs can give rural communities is significant but that the driving factor for them is money, not altruism. Most companies expect to save 30 to 40 percent on projects done through a process dubbed "onshore outsourcing," or "farmshoring." The average salary for the 300 people CGI-AMS expects to hire in Lebanon, for instance, will be $50,000 -- far above the town's $27,606 average annual wage but about half the salary an advanced software developer in Northern Virginia might earn.

"We have the opportunity to tap into a talented workforce, a high quality of life . . . and set up a center that will deliver as well as any we have in the U.S., and at a lower cost," Morea said.

It's also a way for Democrat Warner to fulfill the promise he made as a gubernatorial candidate four years ago -- that rural Virginia wouldn't be left behind as the state's Washington suburbs thrive. "I'm a huge believer that if all the good technology jobs are in Northern Virginia, the state's not going to prosper anywhere," said Warner, who is considering a run for president in 2008.

As the state sought bidders for a $2 billion technology contract, officials made clear that only companies willing to do business in rural Virginia would be considered. In its winning bid, Northrop promised to set up a $22 million technology center in Lebanon and hire 430 employees.

Lebanon was well-positioned to compete for the jobs. The region's congressional delegate had helped Russell County, where Lebanon is located, obtain $1.65 million in federal grants that, along with funds from the state's tobacco commission, was used to install fiber-optic cable necessary for tech companies to operate. A dozen officials from the region, including U.S. Rep. Rick Boucher (D) and Nelson A. "Tony" Dodi, who serves as the high school principal and the town mayor, worked to develop economic incentive packages for tech companies willing to come to Lebanon.

CGI-AMS, the offshoot of a Canadian company's 2004 acquisition of Fairfax-based American Management Systems Inc., began its search for a rural expansion site about a year ago. The company, which does work for federal agencies and state and local governments, considered locations in 10 states, including Alabama and Utah.

Like Northrop Grumman, CGI-AMS first considered Southwest Virginia because it was vying for the $2 billion state technology contract. The firm was cut from that competition but kept Lebanon on its list of potential sites because the area had the criteria it was looking for: an available workforce, adequate technical infrastructure and a low cost of doing business.

Lebanon is the biggest town in Russell County, a farming and coal-mining community tucked into the Appalachian Mountains. Modest homes dot the swirling country roads here, and teenagers drive 20 miles on Saturday nights to get to the closest movie theater. Kentucky and Tennessee are neighbors, and the technology hub of Northern Virginia is a world away.

The unemployment rate in the county topped 20 percent in the 1980s, when miners and tobacco farmers came on hard times. In the past decade, the jobless rate dipped into the single digits as some manufacturers and call centers moved into town. The median income remains far below the national average.

In July 2004, local officials, including Mayor Dodi and Jim Gillespie, the county's administrator, and members of Warner's administration began a lengthy wooing process to convince CGI-AMS that Lebanon was the right place for their new software center.

The county's economic development team viewed it as a way to bring back what some call their "exiled children" -- young adults who grew up in Lebanon, went away to college and never came home because there were too few good jobs.

"For years we've been losing our brightest and best," said Phillip P. Puckett (D), the state senator who represents Russell County.

In an October ceremony where the high school band played and fried apple pies were carted in by the dozen, CGI-AMS executives announced their new tech facility would be in Lebanon. Warner described it as "the biggest announcement in my tenure as governor."

Two weeks later, the band played again as Northrop Grumman said it would build a 130,000-square-foot data center next to CGI-AMS's site.

In the month that followed CGI-AMS's announcement, more than 600 rsums poured in to the firm's recruiters. Just 15 minutes into the company's official job fair last month, the line of hopeful candidates stretched out the door of a local community college. The company pledged it would hire 90 percent of the new employees locally. About 550 people showed up that day.

For all of Warner's optimism, the long-term impact on Southwest Virginia is uncertain. Stephan J. Goetz, a Pennsylvania State University economist who studies rural areas, said an immediate boost is likely as construction workers move in to build new homes and restaurants pop up to serve residents with more disposable income. Speculation about when a Starbucks will appear is rampant on the streets of Lebanon.

But the change will last, Goetz said, only if other companies and subcontractors settle around the two companies and stay there for years to come.

"Whenever you have a stable source of income, that can really be a boon," Goetz said. "Things like this can really change the face of a community."

But the companies have to stay. In 2001, a call center for Travelocity moved to nearby Clintwood, but three years later it pulled out, leaving 275 people jobless.

Michael Kiser, 18, a senior at Lebanon High School, is hoping the technology centers will help change Lebanon.

"Before this, I always thought I'd have to move away," said Kiser, who wants to be an engineer. "But I'd love to come back here. . . . I want my kids to have the same experience I had."