New legislation that took effect January 1, 2016, contains restraints on the ability of a Commonwealth's Development Opportunity Fund (COF) applicant (and its officers, directors and owners) to make political contributions to the Governor and his political action committees. VEDP must make procedural changes to the COF grant to conform to the new statute. Last year, you may recall the General Assembly passed several pieces of legislation generally regarded as ethics reform measures. We appreciate the spirit and intent of such legislation. However, there are consequences, undoubtedly unintended, with regard to some new requirements of COF applicants. We have heard from many in the economic development community and our business clientele that procedural changes resulting from this legislation will have a stifling influence on our business deal flow. The Governor’s Office has given VEDP authorization to pursue legislation to delete the new COF statute. Senator Tommy Norment has introduced a bill (SB750) that puts the onus on the Governor and his political action committees to report donations made by COF recipients. We would support your advocacy for this legislation and ask that you contact Senator Norment to express your support.
VEDP recently initiated performance agreement claw-back measures, demanding Lindenburg Industries return $1.4 million the company received from the Commonwealth’s Opportunity Fund. Performing due diligence is a key step in the evaluation and qualification of prospective economic development projects. The challenge is to strike the right balance to properly qualify, and to do so in a reasonable time frame that does not impede the market’s perception of Virginia’s responsiveness and competitiveness. VEDP has over two decades of experience in administering Virginia’s discretionary incentives for businesses. It has produced a solid track record of performance. In 2014, the Pew Charitable Trusts and the Center for Regional Economic Competitiveness (CREC) selected the Virginia Economic Development Partnership to participate in a collaborative exercise with five other states to help develop national best practices for administration of incentive projects. Virginia was selected based on its solid track record and reputation for stellar performance.
Unfortunately, VEDP’s standard vetting process was not followed with the Lindenburg project, which resulted in relying on false information to incorrectly recommend approval of a COF grant. Corrective action has been taken. Effective immediately, tighter due diligence procedures for COF grants are in place, including accelerating the best practices assessment work with Pew Charitable Trusts, a formalized credit review committee, a standardized due diligence process with a risk assessment report, and post-announcement early warning measures.
The COF is a powerful and strategic job-generating tool for the Commonwealth of Virginia, returning more than $9 in new state revenue for every $1 of incentive provided. Since 1992, VEDP has utilized COF grants to secure 629 economic development projects for Virginia. Seventy-seven percent of these projects performed successfully, producing thousands of new jobs and billions in new capital investment across the Commonwealth. One-hundred and forty-three total projects did not meet the performance measures, of which:
- 42 were canceled prior to receiving any COF monies
- 26 fully repaid COF monies received for nonperformance
- 50 returned a portion of COF monies received for partial performance; repayments were based on the number of jobs and capital investment the companies created
- 25 failed, resulting in unrecoverable money
Virginia continues to face enormous domestic and international competition for new economic opportunities. Our track record, marketing team and strategy are sound. With enhanced due diligence procedures in place, VEDP is prepared to aggressively and responsibly pursue all economic development opportunities for the Commonwealth.