Can McDonnell’s Proposals Revive Job Creation?

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His slogan touted "Bob for jobs," and he promised to be Virginia's "jobs governor."

Gov. Bob McDonnell rode into office with jobs creation as his No. 1 theme. It wasn't just a campaign gimmick, he said last week.

"I know that's what I said I'd do and that's why people hired me," he said at a pre-inaugural stop in Norfolk. "So that's the thing I better get started on on Day One."

McDonnell, who was sworn in Saturday, proposed a melange of specific tools and broad themes to expand the state's job base.

Notwithstanding the state's $4.2 billion shortfall, he vowed to double the Governor's Opportunity Fund - a source of grants to entice businesses to move to the state - to $20 million a year. As of 2005, a similar fund in North Carolina was three times as large, McDonnell said. "No wonder we're getting beat," he said last week.

McDonnell, a Republican, also promised to expand Virginia's $1,000-a-job business tax credit. Now it kicks in when a company creates 100 jobs. He wants the trigger to be 50 new jobs.

Other pledges include reduced regulation for businesses, increased grants for tourism, and a one-stop process for businesses to get all needed permits within 48 hours.

He also spread the responsibility for building jobs. McDonnell designated Lt. Gov. Bill Bolling the state's job creation officer and said his first executive order would be to appoint a job-creation task force.

Virginia already is seen as a business-friendly state, partly because of strong right-to-work laws and relatively light regulation. Last year it was ranked the best state for business by Forbes.com and CNBC. That's why McDonnell needs to keep pushing for jobs, says Thomas Farrell II, chairman and CEO of Dominion Resources Inc.

"We have a very well-regarded state in the business community," Farrell said. "But you can't stand still on that, because other states are after that."

Many business advocates are encouraged by McDonnell's thrust. "I'm very pleased to see this emphasis on job creation and economic development," said Clayton Roberts, president of Virginia Free, a nonpartisan business coalition based in Richmond. "I think that, given the budget constraints, this may be one area where he can really seek to accomplish meaningful results."

Some academics and economists, though, question whether pumping up the Opportunity Fund - or anything a governor does - will make much difference.

"A lot of companies that you offer this to and take it will relocate to your state anyway," said Tim Bartik, senior economist for the W.E. Upjohn Institute for Employment Research in Kalamazoo, Mich. "People are making decisions that don't have much to do with state policy."

Others say providing strong transportation and education systems - Virginia has won plaudits for the latter, barbs for the former - is equally important in influencing companies.

McDonnell hasn't specified a target for new jobs. Bolling said success would be reflected, in part, by the state's employment rate in four years. Virginia's jobless rate is 6.4 percent, compared with 10 percent nationally.

"We understand that the economic recovery is going to be driven primarily at the national level," Bolling said. "There's not a lot we can do in Virginia to drive that. What we can do is position Virginia now to take advantage of that future economic recovery once it starts to happen."

Development officials and economists tend to take opposite sides on the value of incentive grants.

"In these economic times, incentives are very, very important for businesses," said Steven Wright, Chesapeake's economic development director. "They're always looking to reduce their bottom line."

Darryl Gosnell, president and CEO of the Hampton Roads Economic Development Alliance, which works with local governments to attract businesses, pointed to a case last year when Hampton Roads lost a potential employer because the state couldn't provide enough money.

The firm - which Gosnell would not name, but said was in the distribution business - chose South Carolina because it offered at least $20 million more, he said. "Our competitors have much better-funded incentive packages. They're absolutely critical. Like them or hate them, they're a fact of life."

Yet Bartik isn't the only skeptical economist. Terry Rephann at the University of Virginia called the grants "largely wasteful expenditures." Peter McHenry of the College of William and Mary said, "They tend to be expensive for the effects they have."

Michael Cassidy, executive director of the Commonwealth Institute for Fiscal Analysis, a nonprofit think tank in Richmond, also questioned the impact of the tax-credit proposal. "Fifty jobs is still a very high threshold," he said. "Small businesses are not likely to see a lot of benefit from that."

What else can McDonnell do to generate jobs?

For starters, don't cut funding for the state's economic-development arm, the Virginia Economic Development Partnership, said Dorcas Helfant-Browning, a local real estate executive who is chairwoman of the Virginia Chamber of Commerce. The state agency is "sorely underfunded and largely unable to tout our superior position," wrote chamber leaders, including Helfant-Browning and Farrell, in a letter to McDonnell last month.

The chamber's No. 1 suggestion: Fix the state's transportation logjams. "The ability to move goods and people is integral to Virginia's continued economic competitiveness," the letter said.

McDonnell has vowed to push through a transportation plan, relying on the sale of state liquor stores, public-private partnerships and revenue from offshore oil drilling.

Maintaining strong work force training programs, primarily through two- and four-year colleges, also is crucial, observers said. When he was governor, Democratic U.S. Sen. Mark Warner said, the proximity to community colleges and university research programs helped clinch deals with some companies.

Canon Virginia Inc. in 2008 announced a $640 million expansion of its Newport News plant. It already has added 520 of a promised 1,000 extra jobs, spokeswoman Rhonda Bunn said. Under Democratic Gov. Timothy M. Kaine, Virginia provided Canon more than $21 million in grants.

The money, Bunn said in an e-mail, was "one of the considerations," but "not the key factor," in Canon's decision to expand locally. In a statement, Canon Virginia's chairman, Takayoshi Hanagata, cited Virginia's "favorable business climate, available and skilled talent and the resources to continue developing our workforce."

How much can governors really accomplish?

Bartik, the Michigan economist, said reports of their influence are greatly exaggerated. "A lot of what goes on in a state has to do with the particular fortunes of different companies in the state and what kind of industry they're in," he said.

However, Gosnell said, "Many times in this process, when a company is down to two or three states, there's an important role for the governor," whether meeting executives in Richmond or traveling to their headquarters.

Warner agreed. "There's nothing like personal contact," said Warner, who counted 121,938 jobs created under his watch. "I always thought the governor's job was chief economic development officer."

Former Republican Gov. George Allen said: "You've got to be like a hungry hunter and looking for where there are opportunities.... It can't be a willy-nilly approach. Certain economic sectors are going to fit in better in Virginia than others."

Warner said he was aided by his business background ("I can talk balance sheets"), but all Virginia governors are hampered by their one-term limit. He recalled a story from former Democratic Gov. Gerald Baliles.

At meetings of Southern governors and Japanese executives, Baliles "would be learning and remembering their first names, and Jim Hunt (the governor of North Carolina) would be asking about their kids and grandchildren because he'd been going there for so long."

McDonnell said he's already gotten to work. Before taking office, he made a pitch to the top executive at Northrop Grumman Corp., which recently announced it would move its corporate base from Los Angeles to the District of Columbia, Maryland or Virginia.

McDonnell said he touted Virginia as "the most business-friendly state in America" and himself as "a strong pro-business governor."

Plus, the company already has a shipyard in Newport News and its information-technology headquarters in Northern Virginia.

"It makes sense to have the rest of the company here," McDonnell said.

SOURCE: Virginia Pilot