FAIRMONT — West Virginia is the place to do business. That’s the message lawmakers have been keen to spread as the state pursues policies and initiatives designed to encourage businesses to come to the Mountain State.
Collectively, the effort is called Choose West Virginia. Mitch Carmichael, secretary of the Department of Economic Development, described the initiative as an all encompassing effort that ranges across different activities, from legislative changes, judicial reforms, regulatory and education reforms in the pursuit of creating an environment that recruits business to West Virginia. The initiative also has a sales arm which markets the advantages of West Virginia to national and international companies.
And it appears to be working. LG Electronics announced a $700 million investment into the state at the start of the month. However, despite the success the initiative has had in bringing business to the state, one question remains. What is the best way to translate that success into real world gains for average West Virginians?
“A number of these announcements have happened in border counties, and they’re only in a handful of counties in the state,” Sean O’Leary, senior policy analyst for the Charleston-based West Virginia Center on Budget and Policy, said. “For most of the people, that means any economic growth they generate is not going to be broadly shared throughout the state. It’s gonna be concentrated in a small area, and shared with Ohio, shared with Maryland, shared with Pennsylvania.”
In other words, O’Leary argued, for the typical West Virginian, it’s not going to mean a whole lot. In a factsheet published by the Center on Jan. 9, O’Leary looked at employment growth throughout the state as it recovered from the pandemic. Although total employment has mostly returned to pre-pandemic levels, there is great variation throughout the state.
Most of the growth is happening in a handful of counties, while 18 counties are still below their pre-pandemic levels. Conversely, Cabell, Hampshire and Jefferson counties have gained 1,000 employees compared to their pre-pandemic amounts. Two of those counties account for more than double the state’s net employment growth.
Gains from places where economic development announcements were made will be concentrated in small areas or shared with border states, the report concludes.
In the realm of taxes, O’Leary is leery of tax cuts as a way to spur business development.
“When we give them these huge tax incentives, we’re kind of rewarding them for behavior they were going to do anyway,” O’Leary said.
He said companies are already looking for flat land and access to infrastructure and rivers, which is what they found in the areas where business development announcements were made.
Still, companies are coming to the state and investing. However, West Virginia University Economist John Deskins cautioned that the state needs to invest in human capital, meaning spending money to ensure people are educated and healthy enough to form a strong workforce, or else companies that move here might find the Choose WV marketing to be empty.
“If an employer comes here and finds out that, ‘oh we considered West Virginia but had a hard time with drug testing,’ that’s going to be an impediment to economic development,” Deskins said. “It’s going to be a deterrent to attracting businesses to the state.”
Which returns the conversation to taxes, since without tax revenue, governments can’t spend on things like health care or education, which are crucial elements to maintaining a strong workforce. It’s the reason why O’Leary is skeptical of continued tax cuts, despite the rationale that an income tax cut might attract more people to the state to replace the residents who have left.
He said tax cuts miss the real reason people move, which has to do more with personal reasons than economic incentives. Furthermore, the history of large tax cuts in the state don’t paint a rosy picture for public investment.
“Ten years ago, we enacted major, major cuts to the corporate income tax,” O’Leary said. “They cost up to $500 million per year. Those were largely paid for when we got lucky and natural gas prices went up. The severance tax covered up some of that loss, but we cut higher education every year. And when we finally had a stable budget, we did not put any of that money back into higher education.”
Tuition increases due to slashed funding for higher education led to increased student loan debt, which in turn led to the highest rate of student loan debt default in the country, he said. Furthermore, the corporate tax cut didn’t lead to explosive job growth, in fact the state had the worst job growth rate in the country.
Although the state income tax rate cut is too new to say for sure, O’Leary doesn’t expect the outcome to be any different.
Deskins said finding the balance between pro-business policies and public investment is the central debate between policymakers.
“We don’t want to overburden businesses or residents, because if the tax burden is too high that too will deter people from the state,” he said. “So, really they have to find this appropriate balance between low taxes and sufficient investment in things like education and improving health and things like public infrastructure as well.”
Sam Workman, director of the WVU Institute for Policy Research and Public Affairs, agrees on one point in particular. It’s too early to tell what impact these policies will have on economic development. After all, there’s more at play than just blind business development.
The governor’s office is also trying to transition the state to a more modern economy. The transition needs time to develop to see what exactly it will mean for the average resident here.
“If your economy is rapidly transitioning, and in some cases causing communities to completely collapse in on themselves, there are lots of fires to put out at one time,” Workman said. “You have to understand that all of this is occurring in that larger transition, that I think we are only now beginning to understand how these policies may influence our sort of economic future fortunes in the state.”
Workman added that political party philosophies also mean different avenues will be pursued as far as policymaking goes. Republicans typically favor business before human capital.
Carmichael pointed to the plan to make the community and technical college system tuition free as an acknowledgement of the need to invest in human capital. Ultimately, the role of government is to take the least amount from the taxpayer at a rate that will still allow it to provide the most efficient services possible.
He argued that there are sufficient funds to meet those goals at the current level.
Carmichael also responded to criticism that the development was confined to border counties. He pointed out that the state’s natural geography plays a role in determining what decisions a company makes as to where it will conduct its business. Since West Virginia is a small state with easy access to neighboring states, it makes border counties more attractive. Also, border counties make up 33 or 34 of the state’s 55 total counties. The presence of major rail and river highway transit also concentrates companies into specific areas in order to take advantage of those systems.
“Just as a rising tide lifts all ships, when we’re growing economically, if you carry that out to its logical conclusion, you would say, ‘how in the world are people supposed to have jobs and opportunity if we don’t have businesses that will hire them,’” Carmichael said.
He argued that without those opportunities, there is no way to provide a better life for citizens.
Furthermore, this is an opportunity to bring the state into competition in the 21st century, he added. The state’s traditional economy has been rooted in heavy metals, mining, and other forms of physical labor. To bring the state into the future requires embracing the innovation economy and bringing business that specializes in those fields.
Carmichael argues that by diversifying the state’s economy, it will ensure more people have an opportunity to excel.
Still, O’Leary sounded a note of caution. He used the income tax cut as an example of something that was sold as being of benefit to everyone. However, he noted that the average resident only receives $80 in return each year, while the wealthiest 20% received several thousand in savings. He sees a similar pattern play out when he looks at the Choose WV initiative.
“It’s not reaching the state as a whole,” he said. “And for the typical West Virginian who’s looking at their paycheck and seeing an extra $3 a week, that’s not really going to cut it when it comes to improving their lives. We could invest in childcare, higher education, paid sick days and other ways to invest in the labor force. Make it a friendlier place to work, instead of a friendlier place to pay taxes.”