The Thanksgiving holiday over, Virginia Gov. Terry McAuliffe’s (D) emails touting economic development deals are staring to appear again in my inbox. The most recent: Suffolk-based Grandwatt inks deals to sell generators to companies in Chile and Costa Rica.
The deal was made possible, the release says, because of Grandwatt’s “participation in the Virginia Economic Development Partnership’s (VEDP) international trade programs.”
Good for Grandwatt. Expanding international sales is a good thing for the company and its workers and their families.
If VEDP sounds familiar, that is because the agency was the object of a recent report by the Joint Legislative Audit and Review Commission.And that report’s conclusions were brutal.
Auditors said the agency “lacks many of the fundamental components of organizational management needed to operate efficiently and effectively and to coordinate well with external entities,” including, “effective accountability mechanisms, useful performance measures, reliable data upon which to evaluate performance, and effective coordination with external partners.”
“Without these elements,” auditors said, “VEDP risks wasting limited resources and failing to meet its statutory requirements.”
That wasn’t all.
VEDP’s lax procedures, controls and oversight have “exposed the state to avoidable risk of fraud and financial loss, and has increased the potential that state grant funding is not efficiently allocated.”
The one bright spot is the export program companies such as Grandwatt have used to help sell their products abroad. Auditors said these efforts “are held in high regard by stakeholders and staff at VEDP-equivalent organizations in other states, and have demonstrated positive results.”
Virginia legislators are promising changes to VEDP, including spinning off the international trade portion of the organization into a separate entity.
What they will not do is question why the state is in the corporate welfare business at all.
Ask any Virginia elected official and he will tell you that while incentives used to lure businesses to the state may be unsavory, they are a fact of economic life. If Virginia governments — state and local — do not play the incentive game, companies will go elsewhere, taking jobs and tax revenue with them.
In 2011, then-Lt. Gov. Bill Bolling defended in the Richmond Times-Dispatch the practice of using taxpayer dollars to woo private companies to the state.
Bolling called it “investing in Virginia’s future” and dismissed the idea that incentives were either handouts to industry. He cited a deal with General Electric that “will be adding 200 new jobs in Henrico County, with an average salary of $100,000, which will contribute greatly to the local and state economy.”
The funny thing about deals like this is that they often mask other news that’s not nearly as cheery.
In 2010, General Electric closed its last domestic factory making incandescent light bulbs. That factory was located in Winchester. Two hundred employees lost their jobs.
This isn’t to pick on Bolling, a good man who dedicated himself to the economic development task put before him.
The point is that state and local governments using scare tax dollars to entice private companies to their neighborhoods to conduct business the companies already plan to do is poor public policy.
Worse, as the JLARC audit of Virginia’s flagship economic development agency shows, such programs can put government funds at risk of fraud, or loss.
Rather than tinker with VEDP, or hope its new chief executive will fix it, Virginia’s political class ought to eliminate it. That would mean leaving the economic development casino and its promise of big payouts. But it would also put the state to work doing the things that really do spur economic development, such as improvements to education and transportation and regulatory and tax reform.
None of those is very sexy, and they make for lousy press releases. But they make a more permanent difference in Virginia’s economic future.