Long history precedes battle over direction of state economic development agency

Gregory H. Wingfield saw the signs of trouble ahead for the Virginia Economic Development Partnership about five years ago, when the regional economic development agency he led gradually stopped relying on the state to identify promising business prospects for localities in the Richmond area.

Wingfield, who was president and CEO of the Greater Richmond Partnership for 21 years before retiring in mid-2015, said the state authority, known as VEDP, wasn’t targeting the industries the region wanted to attract.

“It got to the point we really didn’t feel comfortable with VEDP because of their lack of focus on the industry targets we wanted to bring in,” recalled Wingfield, now a senior fellow at the L. Douglas Wilder School of Government and Public Affairs at Virginia Commonwealth University. “We stopped going on some marketing trips with them.”

The disconnection between the VEDP and its regional and local partners across the state also caught the attention of state legislators, culminating two months ago in a withering report by the General Assembly’s watchdog agency, the Joint Legislative Audit and Review Commission. That report is front and center in an escalating political debate over how to reform Virginia’s high-dollar economic development initiatives during the legislative session that began last week.

“I don’t think any of us anticipated that it would be as bad as it was,” said Del. Kathy J. Byron, R-Bedford, who sponsored the resolution the assembly adopted last year to direct JLARC to conduct a comprehensive study of the partnership.

Byron introduced the resolution almost two months before the assembly convened and The Roanoke Times published a report on a $1.4 million state grant by VEDP to Lindenburg Industry LLC, a Chinese company that the JLARC report described as “illegitimate,” for a manufacturing operation in Appomattox County that never was built. “Lindenburg just really confirmed a lot of my fears,” she said.

The report has set in motion competing proposals by Gov. Terry McAuliffe and Republican legislators to reform the partnership, established as a quasi-independent authority in 1995 under then-Gov. George Allen, a pro-business Republican. The partnership is budgeted to receive $27 million in taxpayer money from the state general fund this fiscal year, although Republican legislators threaten to withhold $1.5 million of the appropriation, as the JLARC report suggested.

The legislation to be proposed by the governor and legislators will address shared concerns, such as creating divisions in the partnership to manage incentive grants and an internal auditor to report directly to its board. The most damning findings of the report involve incentives to attract new businesses to Virginia — $384 million in the last 10 years alone.

“VEDP’s approach to administering incentive grants has been highly unstructured and has left the state exposed to avoidable risk of fraud and poor use of limited resources,” the report states.

A debate over the direction of Virginia’s economic development program — and the use of financial incentives to recruit new businesses — already has emerged as a hot issue in the gubernatorial campaign.

Ed Gillespie, the Republican front-runner, has tried to pin the partnership’s problems squarely on McAuliffe, a Democrat who vigorously promotes economic development, and Lt. Gov. Ralph S. Northam, the Democratic front-runner and a member of the VEDP board of directors.

McAuliffe fired back in his speech to a joint session of the General Assembly last week. “Reforming VEDP should not be a partisan issue,” he said. “Its problems have persisted over the terms of five previous governors and 21 General Assembly sessions.”

However, Gillespie has reached beyond partisan targets to attack the state’s reliance on financial incentives to woo big economic prospects, as McAuliffe’s Republican predecessor, Gov. Bob McDonnell, did in 2010 by giving up to $12 million to Northrop Grumman to move its corporate headquarters from Los Angeles to Northern Virginia.

“For too long, our economic development policies have centered on corporate whale hunting, trying to take our tax dollars to lure a Fortune 500 company to move a headquarters here or open a plant here,” Gillespie said in a campaign stop Saturday in Henrico County.

The political rhetoric has overshadowed what has been a concerted effort behind the scenes by the McAuliffe administration and senior Republican legislators to find common ground on what is likely to be the first, but not last, round of reforms to the partnership.

“I believe we can come together on a solution,” said Secretary of Commerce and Trade Todd P. Haymore, who previously served as secretary of agriculture and forestry under both McAuliffe and McDonnell.

“This is about good governance and making sure we are spending taxpayer dollars as wisely as possible and with the best amount of accountability as possible,” Haymore said in an interview.

Republican leaders agree, to a point. “This is not a turf issue — it’s an issue of governance,” said House Appropriations Chairman S. Chris Jones, R-Suffolk, who will introduce legislation by the end of this week to address some of the three dozen recommendations made in the JLARC report.

But Jones and other legislative leaders are not willing to support reforms McAuliffe proposed that would make Haymore, or his successors as secretary of commerce and trade, the de facto chairman of the VEDP board of directors, or give the governor effective control of the board. They won’t even concede that VEDP, established as an authority, is an executive branch agency.

“I think it’s always been an independent agency,” said Sen. Frank M. Ruff Jr., R-Mecklenburg, who is working with Del. John M. O’Bannon III, R-Henrico, to develop legislation in the Senate that he expects to be “identical, or very similar” to the House bill.

The VEDP board bore much of the brunt of the JLARC report’s criticisms of the partnership for lacking an economic development strategy or marketing plan, or even accountability of employees to work the hours for which they were paid. “They thought they were advisory, not supervisory,” Jones said.

While legislators acknowledge that many of the problems JLARC identified are not new, they point out that the governor now has 12 appointments to an 18-member board, as well as six ex-officio members, including Northam.

“You have an obligation to roll your sleeves up, get involved, ask questions, and hold those who work for you accountable,” Jones said.

The House approach will be to put representatives of the Appropriations Committee and Senate Finance Committee on the VEDP board. “You’ve got to have somebody who’ll watch the henhouse,” said Appropriations Director Robert P. Vaughn, who sits, with Senate Finance Director Betsey Daley, on a number of economic development, capital outlay and revenue boards to provide legislative oversight.

The legislation is likely to scale back the number of directors on the board, while demanding expertise in relevant fields and setting expectations for the partnership’s performance.

“I think we probably all agree the board is too big and not focused on the economy as we know it today,” Ruff said.

McAuliffe shares the legislature’s goals in reforming the partnership, but also wants to protect his prerogative over an executive branch agency, Haymore said. “The governor clearly believes there needs to be more accountability to the executive branch because we work with VEDP on a daily basis.”

The governor and House Republicans also want to delay the scheduled spinoff of the partnership’s international trade division into a separate corporation to allow a newly constituted board and its new president and CEO, Stephen Moret, the opportunity to establish a strategic plan that aligns the agency’s missions, including trade.

“With all they have up in the air, it just seems prudent to not be moving forward at this point,” said Del. R. Steven Landes, R-Augusta, who sponsored legislation adopted last year to create the Virginia International Trade Corp., effective April 1.

Haymore, who questioned the proposed spinoff last year as agriculture secretary, supports what he calls “a pause” that would delay establishment of the separate trade corporation until July 1, 2018. The chairmen of the assembly’s money committees formally requested the delay late last year.

However, the Virginia Manufacturers Association strongly opposes the proposed delay. Its president and CEO, Brett A. Vassey, called it “the kiss of death for the program.”

“We did not want trade to get caught up in a two- to three-year restructuring, which is what’s going to happen,” Vassey said.

McAuliffe and the assembly engaged in a similar battle of prerogatives last year over a new economic development initiative they both supported — GO Virginia, a state entity that would dispense grants for initiatives developed by regional councils to promote economic development.

Ultimately, they reached a compromise over who controlled representation on the GO Virginia board, but legislators already have vowed to restore much, if not all, of the $15 million that McAuliffe proposed to strip from the budget for the initiative last month to help fill a projected $1.26 billion revenue shortfall.

“I’ve had some initial conversations with the governor,” Jones said.

“The question is not how much they got cut,” he said. “The question is how much do they need to do the job at hand.”

When corporate leaders were rolling out the GO Virginia proposal a year and a half ago, they approached the VEDP, then led by Martin J. Briley, about collaboration between the two entities. “It was coolly received,” said Christopher D. Lloyd, a Richmond lobbyist who helped draft companion bills for GO Virginia, as well as the legislation that created VEDP in 1995.

Briley, hired as president and CEO in 2011 under the McDonnell administration, left abruptly in March as the board began to reassert its oversight role and restructure the organization. It hired Moret, former secretary of economic development in Louisiana, last month.

The McAuliffe administration and Republican leaders believe GO Virginia and VEDP should work together to address an overriding concern of the JLARC report about lack of coordination between the state agency and its regional and local counterparts across the state.

“To me, GO Virginia is first and foremost to help a region build an infrastructure to help (the) region attract new business and industry, or help existing business and industry grow,” Haymore said. “GO Virginia should become a very important component of VEDP’s efforts.”

Jones, a former Suffolk mayor, agrees. “Why GO Virginia has so much promise, at the end of the day, is to have local governments work together and have all boats rise with the incoming tide,” he said.

In contrast, VEDP has for a long time been a boat without clear direction, said VCU’s Wingfield. “It just drifted.”