Many people are beginning to wrap their minds around the House Republicans’ proposed destination-based cash-flow tax and what it means for tax reform. Most people are still looking into the tax’s impacts on trade and how...
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State Review Calls Virginia’s Economic Development Program Inefficient and Mismanaged
Two years ago, Virginia officials posed for photographs with representatives of Lindenburg Industry, a Chinese-owned company with an ambitious plan to invest $113 million and employ 349 workers at an idled manufacturing plant in the town of Appomattox. The Virginia Economic Development Partnership (VEDP) boasted that Virginia had “successfully competed against North Carolina for the project,” which was “a direct result of the Governor’s meeting with company officials in Beijing.” The state provided $1.4 million in Governor’s Opportunity Fund incentives to entice the company to Virginia, with an additional $1.7 million pledged to help renovate the facility. It was a big win for the state, and a rebuttal to the notion that Virginia was falling behind North Carolina in recruiting business to the state.
The only problem was that Lindenburg Industry didn’t really exist. And Virginia didn’t so much compete with North Carolina but fail to replicate the vetting the firm received there. After months of governmental frustration with a lack of activity at the site, a Roanoke Times investigation revealed that the company’s website lifted text and photographs from other sites, that an American address listed on documentation did not exist, that the company’s Chinese address was not even requested until shortly before the deal was closed, and that North Carolina had turned the company away after making routine inquiries.
In January, state lawmakers demanded a review of the VEDP’s handling of the deal. Today, the Joint Legislative Audit and Review Commission released a scathing 111-page report outlining systemic failures at Virginia’s economic development agency. Of note:
- Almost half of incentivized projects failed to meet contractual requirements for at least one of the three performance categories (jobs created, capital investment made, and average wages paid), and in many cases the state did not even make an effort to recoup grant money from businesses that failed to meet the requirements (“VEDP staff’s reasoning behind not seeking repayment in certain cases does not appear to be legally permissible”).
- Staffers were not held accountable for their performance, with many leaving early or taking unauthorized leave, and apathy taking hold in the agency. (“For example, when a staff member was asked whether their most recent performance evaluation was a fair reflection of their performance, the staff member said, ‘You know what? I don’t care.’ Another staff member responded, ‘Positive results at VEDP do not matter.’ A management consultant that reviewed VEDP in 2016 also found that ‘most [staff] agree that there is little accountability.’”)
- Three months after a structural reorganization, job expectations had not been communicated to any staffers despite many serving in new roles or in newly created divisions. (“Regarding the new job expectations, one staff member said, ‘I still haven’t received my new position description. What am I going to do? I’m going to go back, sit at my desk, and eat popcorn.’”)
- The VEDP’s primary metrics “do not provide an accurate or comprehensive picture of VEDP’s performance or its effectiveness at executing its statutory responsibilities” and “reveal little about the extent of VEDP’s involvement in a project, the quality of its assistance, and whether the project ever materialized,” according to the JLARC report. Critically, VEDP’s metrics rely on expected jobs and investment rather than actual jobs and investment.
- Prior to January 2016, after the Lindeburg Industry scandal, VEDP had no documented policies and procedures for conducting due diligence before paying out a grant, determining the size of a grant, collecting performance data from grant recipients, verifying whether companies were meeting requirements, or enforcing clawback provisions.
“VEDP’s unstructured approach to administering incentive grants leaves the state vulnerable to fraud and poor use of limited resources,” according to JLARC. But of course, every state offers some array of economic development incentives, and each one is vulnerable in its own way. In addition to pre-existing concerns about whether tax incentives and other economic development incentives provide a return on investment, states must also be cognizant of the degree to which mismanagement of administration and oversight can undercut their aims.
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