Monday, October 18, 2010

Despite new buildings, no quick fix for Lebanon's economic malaise

By Debra Mccown
Published: October 17, 2010

LEBANON, Va. – With two gleaming office buildings on a hill above Main Street, there’s no question that CGI and Northrop Grumman have changed the landscape since announcing their arrival here five years ago.

But no one’s calling them the saviors of Russell County anymore.

“Yes, they have afforded many economic development opportunities and advantages for Russell County,” County Administrator Jim Gillespie said. “If the question is, did they bring an overnight sensation and a great influx of population or commercial development – we are still working on that.”

When the announcement came down that the two high-tech giants would employ hundreds at facilities here, county leaders rode a wave of excitement that went all the way to the governor’s office.

U.S. Sen. Mark Warner, D-Va., who announced the projects while serving as governor in 2005, remains enthusiastic about the potential impact their arrival here will have on the region’s economy.

But five years later, the sweeping change everyone envisioned has settled into a slow, progressive pace.

As many of the houses built for the companies’ employees sit empty, unsold and unfinished, and anticipated small business development has yet to take off, county leaders are pushing their grandiose predictions into the future while taking stock of the progress that has been made.

Success and failure

So far, in the two years since they began operating, the companies have paid more than $217,000 in property taxes, according to county records. While that doesn’t come close to the $8.8 million in public funds spent on incentives for developing the site, it’s significant in a county with a nonschool budget of just less than $26 million a year.

Gillespie said sales tax revenue generated when employees spend money in Lebanon, such as at the nearby Walmart shopping center, also is significant.

But at the same time, much of the development that was supposed to piggyback on the high-tech companies’ arrival, such as new housing and small business opportunities, hasn’t come as promised.

At GardenSide Village, a housing development built within sight of Northrop Grumman and CGI, only half of the units have sold. Some have been rented, while others sit unfinished and unoccupied.

“We’re still hopeful, but probably what we were led to believe as far as what people would be wanting and what they do are probably two different things,” said Mike Fletcher, managing partner of the development. “We’ve probably overbuilt because of that.”

Fletcher said he believed the claims five years ago that, with an influx of workers from Northern Virginia, large homes in a development like his would be in demand.

“We didn’t get the people that we thought we were going to get,” Fletcher said. “I think what you have is a lot of kids straight out of college who can’t really afford to buy anything; they rented apartments in Abingdon.”

The widely circulated predictions about housing came from a study done by a consultant, said Larry Carr, executive director of the Cumberland Plateau Co., which does economic development work for the Cumberland Plateau Planning District.

“We thought over time that more of them would tend to come into the Russell County area to live rather than travel the longer distance,” Carr said. “It may have happened if the housing bubble hadn’t burst on us.”

Carr points to the national economy, and its slide into recession two years ago, as the primary reason many of the optimistic projections made five years ago haven’t materialized.

His predecessor, Andrew Chafin, wrote a book in 2007 – a little more than a year before the Great Recession hit – about Russell County’s successful economic development model, in attracting not only the two information technology giants but also Lear, Alcoa and AT&T to Lebanon.

Although Alcoa has since closed its doors and the Lear facility, now owned by IAC, is in the process of closing, Carr said the book, “Rumble in Russell,” is still true, reflecting the county’s unlikely ability to attract four Fortune 500 companies to a town of just 3,500 people.

Chafin referred comments to Carr, who said CGI and Northrop Grumman have definitely had an impact on the county’s economy.

“I know that Lear and Alcoa closing has hurt, but just think what would’ve happened if you hadn’t had Northrop Grumman and CGI, because there’s about 500 and some jobs there,” Carr said.

Jonathan Belcher, executive director of the Virginia Coalfield Economic Development Authority, which helped to fund the project, said the money paid to workers in those jobs more than justifies the investment made by state, local and regional agencies five years ago.

“Both CGI and Northrop Grumman have had a major impact on the economy of the region,” Belcher said, citing a recent consultant’s study naming those companies, a strong energy industry and a power plant under construction in nearby St. Paul as key reasons why the economy here has done fairly well in the recession.

“Those are the kind of jobs that we want to encourage in the region, and I think it’s been worth it from the standpoint of all the jobs that they brought, but also just overall image for the region,” Belcher said. “Since they located here, it’s really helped us to be able to brand the region as Virginia’s e-region.”

Before the recession, there was a call for small businesses to start up, with the promise that they’d thrive on the influx of new customers with disposable income. But a call to the Russell County Chamber of Commerce revealed that only a car rental place, an auto parts franchise, a winery and a payday lender have opened in the county since CGI and Northrop Grumman opened their Lebanon facilities.

At least two small businesses, a coffee shop and a bakery, opened in an effort to cater to high-tech employees, but neither was able to stay in business for long.

“There’s nothing that really stands out in my mind that would be a direct link to those businesses [CGI and Northrop Grumman] that’s been able to survive,” said Linda Tate, executive director of the chamber.

“I think everyone who has started a business in the last five years has had a great business plan and a great idea. ... I don’t know what the factors were, but they did not survive.”

A few weeks before one of them, Morning Star Bakery, closed, owner Donna Watson said the main factor was a lack of customers.

“I thought they were all going to live here and they would support this place and it would start to grow. I can’t see that it has,” she said. “You could talk to some people in the politics of it that might think differently, but … as far as growth, I don’t see any growth in town.”

A proven model

At CGI and Northrop Grumman, success is measured not by the community impact but by the bottom line. And so far, they say they’re doing well.

“Five years later, we look at it as very successful,” said Cheryl Janey, vice president of communications for Northrop Grumman’s information systems sector.

Now with about 170 employees in Lebanon, Northrop Grumman is bringing some of its own work here in addition to contract work, she said, and the facility is taking on a more prominent role within the company.

She said the local work force has exceeded expectations and the lower cost of doing business in a rural area helped the company stay competitive without compromising service or sending the work offshore.

Northrop Grumman also has gotten involved in the community, sponsoring blood drives and providing grants to local schools, she said, because the company plans to stay here a long time.

“The success in Lebanon in part led to us replicating the model in other parts of the country,” she said. “It was an experiment at the time, and it was an experiment that went wonderfully.”

At CGI, which tests and develops software, the story is similar: This was an experimental model that’s since been proven and duplicated, said Lyn Tatum, spokeswoman at the company’s Lebanon facility.

“This was the first onshore rural development center that we’ve done at CGI,” Tatum said, adding that the broadband and work-force training infrastructure available were key factors in bringing the company to Lebanon.

“It costs more money to do business in the big cities,” she said. “We want to be here.”

Now with 380 employees and plans to bring more on board, the company has outgrown its building and is renting additional office space at the Russell County Governmental Center down the hill.

Tatum said two-thirds or more of the employees are from the surrounding region of Southwest Virginia and Northeast Tennessee, and many of the others are recent college graduates from across the country.

She said the average employee’s salary is about $51,000 a year. According to U.S. Census data, that’s about $20,000 a year higher than the median household income in Russell County.

Tatum is a kind of poster child for a story that CGI and economic developers like to tell as a sign of their success – the local people who are able to stay in Southwest Virginia or move back home because of the new job opportunities.

“I think the impact has probably been tremendous, just for the fact that I’m able to come back to my hometown and really have a wonderful quality of life,” said Tatum, who was born and raised in Lebanon.

Here, her two children can see their grandparents on a daily basis, she said. And to her, the value of that is “priceless.”

Growth potential

Five years later, Warner still recalls the announcement that the two IT companies would locate here as a key moment in his term as governor.

“I just always remember, at the high school where we made the announcement, some kid came up to me and said, ‘Now I can come back home and raise my family here,’ ” Warner said during a recent visit to Lebanon. “That was the best day I had as a governor.”

He said the facilities here are still “a great success story,” because of the way they’ve impacted individual lives and because they’ve proved a concept about work in the IT field that will help the region build its future.

“It doesn’t have to be Northern Virginia,” Warner said of high-tech industries. “This could be here.”

Tony Dodi, who serves as mayor of Lebanon, principal of Lebanon High School and a member of the Russell County Industrial Development Authority, said that proof will have a real impact in the long run, not just on his town and county but on the entire region.

“People know where we are,” Dodi said, explaining that other computer-based technology companies, though maybe not in Lebanon, have since located in Southwest Virginia. “It’s finally got us to realize we are competing in a global economy.”

Belcher, at the Coalfield Economic Development Authority, said more companies will come to the region once the recession ends – and the IT cluster they create will support the kind of housing and amenities envisioned five years ago.

“I’m still optimistic that it will happen,” he said. “I just think it will take longer than our original projections were.”

Carr, at the Planning District, said the kind of growth everyone is hoping for is probably two or three years away – but, when the economy picks back up, it will come.

To Gillespie, the county administrator, the presence of CGI and Northrop Grumman is a reaffirmation of something those in Southwest Virginia already knew: Economic development here is not limited to a single town or county, but is necessarily regional in scope.

“We saw that we could not be an island, that we were part of a region,” Gillespie said, explaining that the companies draw employees from – and infuse money into – all of the counties surrounding Russell.

“Northrop Grumman and CGI is an excellent example of how a regional work force and a regional marketing effort can benefit Southwest Virginia,” Gillespie said.

“The anticipation that this would cause an overnight boom certainly has not been realized, and the reason for that is it is a regional approach.”

This regional approach, he said, will be key to Southwest Virginia’s economic future, because each company that comes to the region will impact the whole region.

A single place might not become a sudden boomtown, he said, but right now Southwest Virginia is building a foundation. And he said that little by little, brick by brick, the region as a whole will develop its 21st-century economy. | (276) 791-0701

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