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81–936 2013

BEYOND THE BELTWAY: SUCCESSFUL STATE 

STRATEGIES FOR SMALL BUSINESS GROWTH 

HEARING 

BEFORE THE

COMMITTEE ON SMALL BUSINESS 

UNITED STATES 

HOUSE OF REPRESENTATIVES 

ONE HUNDRED THIRTEENTH CONGRESS 

FIRST SESSION 

HEARING HELD 

JULY 10, 2013 

Small Business Committee Document Number 113–029 

Available via the GPO Website: www.fdsys.gov 

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Congress.#13
(II) 

HOUSE COMMITTEE ON SMALL BUSINESS 

SAM GRAVES, Missouri, Chairman 

STEVE CHABOT, Ohio 

STEVE KING, Iowa 

MIKE COFFMAN, Colorado 

BLAINE LUETKEMER, Missouri 

MICK MULVANEY, South Carolina 

SCOTT TIPTON, Colorado 

JAIME HERRERA BEUTLER, Washington 

RICHARD HANNA, New York 

TIM HUELSKAMP, Kansas 

DAVID SCHWEIKERT, Arizona 

KERRY BENTIVOLIO, Michigan 

CHRIS COLLINS, New York 

TOM RICE, South Carolina 

NYDIA VELA ́ ZQUEZ, New York, Ranking Member 

KURT SCHRADER, Oregon 

YVETTE CLARKE, New York 

JUDY CHU, California 

JANICE HAHN, California 

DONALD PAYNE, JR., New Jersey 

GRACE MENG, New York 

BRAD SCHNEIDER, Illinois 

RON BARBER, Arizona 

ANN McLANE KUSTER, New Hampshire 

PATRICK MURPHY, Florida 

LORI SALLEY, Staff Director 

PAUL SASS, Deputy Staff Director 

BARRY PINELES, Chief Counsel 

MICHAEL DAY, Minority Staff Director 

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C O N T E N T S 

OPENING STATEMENTS 

Page 

Hon. Sam Graves ..................................................................................................... 1 

Hon. Nydia Vela ́zquez ............................................................................................. 13 

WITNESSES 

Mr. Pat Costello, Commissioner, Office of Economic Development, State of 

South Dakota, Pierre, SD .................................................................................... 3 

Mr. Nick Jordan, Secretary, Department of Revenue, State of Kansas, Topeka, KS ................................................................................................................ 5 

Mr. Aaron Demerson, Executive Director, Office of Economic Development 

and Tourism, State of Texas, Austin, TX ........................................................... 7 

Hon. Jim Cheng, Secretary of Commerce and Trade, Commonwealth of Virginia, Richmond, VA, testifying on behalf of Hon. Robert McDonnell, Governor, Commonwealth of Virginia, Richmond, VA ............................................ 10 

APPENDIX 

Prepared Statements: 

Mr. Pat Costello, Commissioner, Office of Economic Development, State 

of South Dakota, Pierre, SD ......................................................................... 24 

Mr. Nick Jordan, Secretary, Department of Revenue, State of Kansas, 

Topeka, KS .................................................................................................... 29 

Mr. Aaron Demerson, Executive Director, Office of Economic Development and Tourism, State of Texas, Austin, TX .......................................... 32 

Hon. Jim Cheng, Secretary of Commerce and Trade, Commonwealth of 

Virginia, Richmond, VA, testifying on behalf of Hon. Robert McDonnell, 

Governor, Commonwealth of Virginia, Richmond, VA .............................. 40 

Questions for the Record: 

None. 

Answers for the Record: 

None. 

Additional Material for the Record: 

Governor’s Commission on Economic Development & Job Creation ............ 47 

Governor’s Commission on Higher Education Reform, Innovation and 

Investment ..................................................................................................... 87 

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BEYOND THE BELTWAY: SUCCESSFUL STATE 

STRATEGIES FOR SMALL BUSINESS GROWTH 

WEDNESDAY, JULY 10, 2013 

HOUSE OF REPRESENTATIVES, COMMITTEE ON SMALL BUSINESS, Washington, DC. 

The Committee met, pursuant to call, at 1:00 p.m., in Room 

2360, Rayburn House Office Building. Hon. Sam Graves [chairman 

of the Committee] presiding. 

Present: Representatives Graves, Chabot, Luetkemeyer, 

Mulvaney, Tipton, Herrera Beutler, Hanna, Huelskamp, Rice, 

Vela ́zquez, Schrader, Hahn, Payne, and Meng. 

Chairman GRAVES. We will go ahead and call this hearing to 

order. Ranking Member Vela ́zquez will be just a little bit delayed. 

She had a meeting at the White House that she had to attend, so 

she will be back in just a little bit. But we will go ahead and start 

the hearing. We do have a series of votes that will be coming up, 

so we are going to try to move through as quickly as we can. 

But I want to thank all of our witnesses for being here today as 

we examine several innovative ways that states are attracting, retaining, and growing businesses, and I appreciate again all of you 

coming in. Some of you come from a good distance. 

There is competition raging in our country, and it is not competition with the results published on the sports page. It is competition 

that is being played out on the front page and on the business 

page. States are in a fiercey competition to create friendly environments to attract new businesses, to keep the businesses they have, 

and grow them to both to boost the economy and create jobs. 

Each year, several trade associations, news media outlets, and 

think tanks attempt to rate each state to determine which are the 

best ones for businesses. Just this week, CNBC released their 2013 

rankings for America’s Top States for Businesses. Forbes Magazine 

and Thumbtack.com, along with the Kauffman Foundation release 

similar lists each year. 

While the methodologies for each of these surveys and studies 

slightly differs, they all judge states on criteria such as the cost of 

doing business, regulatory and tax regimes, and access to capital. 

And the states we have represented at our hearing today consistently perform in the top 15 of these surveys, proving to be the 

cream of the crop when it comes to working for greater business 

development. 

Although growth has been exceptionally weak following the recession nationally, the states represented here have bucked that 

trend and outpaced the national averages, some by significant marSBREP-219 with DISTILLER

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gins. States like Virginia, Texas, Kansas, and South Dakota have 

significantly lower unemployment than the national average, and 

states like Texas, Utah, and Florida, have outpaced the national 

gross domestic product average of 2.5 percent in 2012. Simply put, 

some states are making excellent headway at attracting businesses 

to their states and growing the economies accordingly. 

These states are not just courting businesses from other states 

but also enticing companies with facilities overseas to come back to 

America. These states are proving that with lower taxes, smarter 

and less burdensome regulatory regimes, and access to affordable 

energy, the United States can and will continue to be a place where 

things are built and entrepreneurs can innovate and thrive. 

Again, I want to thank all of our witnesses for being here today. 

Again, Ranking Member Vela ́zquez will not be able to give her 

opening statement but she will submit it for the record. 

And with that, what I will do is turn to Congresswoman Noem 

from South Dakota to introduce our first witness. And welcome, by 

the way, to the Committee. 

Ms. NOEM. Thank you. It is nice to be here, and I appreciate 

the chairman allowing me the opportunity and the privilege of introducing a special guest that we have here from South Dakota 

today. I am proud and honored to have the opportunity to introduce all of you to Pat Costello. I have known Pat for many years, 

and continue to be impressed by his leadership for our state of 

South Dakota and his desire to grow and to sustain a healthy economy for us back home, but also for our country. 

As the commissioner of the South Dakota Governor’s Office of 

Economic Development, Mr. Costello is a leader in bringing high 

quality jobs to our state and high performing employees as well to 

South Dakota. While we work in Washington to support policies 

that encourage job growth and innovation, Mr. Costello is doing the 

same thing back in South Dakota. We are fortunate that in South 

Dakota our economy has remained strong. We continue to have relatively low unemployment, less than half of the national average. 

Numerous rankings have shown that South Dakota is one of the 

best states in the country to do business and continues to give individuals a great quality of life. In fact, the Small Business Survival 

Index has rated South Dakota’s business climate as number one in 

the country for new businesses and startups. Mr. Costello knows 

this firsthand. Since moving to South Dakota, he has operated several small businesses in Sioux Falls, which is our largest city. Before his appointment to Commissioner, Mr. Costello proudly served 

on our city council for the city of Sioux Falls from 2006 to 2010. 

He was also chairman for the year of 2009 through 2010. Beyond 

creating jobs and fathering economic development within our 

state’s borders, Mr. Costello also finds time to give back to causes 

that matter the most to him. He currently sits on the board of directors for the Children’s Care Hospital, which is a wonderful facility that cares a lot about children and their families and school, 

and is a member of the Rotary Club. Pat knows what it takes to 

get the job done, and in South Dakota, we feel very lucky to have 

him. 

I am very fortunate to be here. It is great to have him. I know 

that you will enjoy hearing his testimony today, and I would like 

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to thank him for taking the time to travel all the way to D.C. It 

is quite a trip. I know it pretty well. And to discuss the importance 

of small business and the growth opportunities we have for our 

country. 

So with that I will yield back, Mr. Chairman. 

Chairman GRAVES. Go ahead. 

STATEMENTS OF PAT COSTELLO, COMMISSIONER, SOUTH DAKOTA GOVERNOR’S OFFICE OF ECONOMIC DEVELOPMENT; 

NICK JORDAN, SECRETARY, KANSAS DEPARTMENT OF REVENUE; AARON DEMERSON, EXECUTIVE DIRECTOR, OFFICE 

OF ECONOMIC DEVELOPMENT AND TOURISM; JIM CHENG, 

SECRETARY OF COMMERCE AND TRADE, COMMONWEALTH 

OF VIRGINIA. 

STATEMENT OF PAT COSTELLO 

Mr. COSTELLO. Thank you very much. 

You know, it is always a pleasure to talk about the great state 

of South Dakota. Again, my name is Pat Costello, and I serve as 

the commissioner of the Governor’s Office of Economic Development. 

I have been in that role for about two and a half years, and I 

have been in small business in South Dakota for about 20 years. 

I would like to take a few minutes and share with you a little 

bit about our state, and why it is a great place to do business and 

what we, as public servants, are doing to ensure that we remain 

a good place to do business. 

First and foremost, is our tax climate. It is unmatched by any 

other state in the nation. Only in South Dakota do businesses enjoy 

the benefits of no corporate income tax, no personal income tax, no 

business inventory tax, no personal property tax, and no inheritance tax. 

This structure leaves money where it belongs—in the pockets of 

our businesses, creating a more favorable environment for longterm business growth. As we like to say in South Dakota, ‘‘Profit 

is not a dirty word.’’ 

I was asked today to testify on why South Dakota is a great 

place to do business. Well, a big part of that is our fiscal responsibility and common sense. 

When it comes to fiscal responsibility, you would be hard pressed 

to find a state that would rank higher than South Dakota. For the 

last 123 years, we have consistently balanced our budget. 

Two years ago, like most of the country, we were faced with some 

serious budget issues. We buckled down, made the cuts that were 

necessary, and today we are in a better financial situation than 

most other states in the country. 

If we want serious, financially-sound companies operating in 

South Dakota, we need to set the example at the state level. 

I have already mentioned our favorable tax climate, but I also 

want to talk about our favorable regulations and the consistency of 

our business leaders. 

When I started in our office, I read something in one of our promotional brochures, ‘‘In South Dakota, our business climate does 

not change with the political winds.’’ That statement was written 

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back in the 1980s when Citibank moved some of its credit card operations to South Dakota when the state legislature allowed expansion in compliance with the old Federal Bank Holding Act. 

Today, the financial services industry is thriving in South Dakota. As a matter of fact, in 2012, South Dakota’s total bank assets 

topped $2.6 trillion, which totaled 18 percent of the country’s bank 

assets and landed our state as the number one ranking according 

to the Federal Deposit Insurance Corporation. 

So forward-thinking leaders back in the 1980s, followed by forward-thinking leaders in the next 30 years, have kept South Dakota a leader in economic development with reasonable regulation 

and low taxation. When our governor, Governor Dennis Daugaard 

was elected, one of the first things he did was direct all state agencies to identify unnecessary laws and regulations and get rid of 

them. In two years, executive agencies under Governor Daugaard 

have found 374 rules (72,990 words) and 919 sections of codified 

law (75,266 words) to be repealed, and the process is less than half 

done. 

That is just good business. And corporate leaders quickly took 

note that this Midwest state was serious about maintaining the 

type of business climate needed for companies to grow and prosper. 

Another way South Dakota is able to continue to attract national 

and international companies like Bel Brands and Marmen Energy, 

is by playing to our strengths. With a population of 830,000, we are 

one of the least populated states in the country. But in business 

that can be a good thing. Our small size affords businesses looking 

to expand in or relocate to South Dakota direct access to government leaders. 

When Governor Daugaard was campaigning, he promised to be 

the state’s number one salesperson for economic development, and 

there is no question that he has fulfilled that campaign promise. 

During the last three months alone, Governor Daugaard has met 

with nearly 70 business leaders and site selectors from across the 

country to encourage them to continue to grow their businesses in 

or locate them to South Dakota. That kind of personal attention 

gets noticed. 

Another thing that gets noticed is our collaborative efforts for the 

people of South Dakota. Our business development team serves as 

the liaison with these business leaders and site selectors on a multitude of issues from financing to permitting. As every business 

leader knows, navigating the permitting process can be time consuming and frustrating. In South Dakota, we believe in working 

with businesses not only to make it happen but to make it happen 

faster. As an example, we recently had one company that was able 

to receive an air quality permit from our Department of Environment and natural Resources from start to finish in just 30 days, 

and we did it without cutting corners. We believe the state should 

be an advocate, not a roadblock to doing business. 

Another way we attract business is by keeping our cost of living 

low, because in the business world a low cost of living equals a low 

cost of doing business. According to a June 2013 study by the U.S. 

Commerce Department, South Dakotans pay 87 percent of the national average for goods and services. Additionally, the U.S. Commerce Department just reevaluated the numbers for personal inSBREP-219 with DISTILLER

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come and South Dakota’s growth was a whopping 10.4 percent— 

more than any other state in 2012. 

Of course, I would be remiss if I did not take the opportunity to 

let others tell what they think South Dakota is doing right as well. 

The Small Business and Entrepreneur Council evaluated 46 different economic factors and ranked South Dakota number one for 

our business policies and entrepreneurial friendliness. We are also 

in their top spot for small business survival. Our low debt and lack 

of unfunded pension liabilities and expensive state-funded programs lands us in the top of Barron’s Best Run States in America. 

Our state ranks in the top for low tax burden, best business climate, and one of the highest average credit rankings. And of 

course, there is yesterday’s CNBC ranking that puts South Dakota 

as the best run state to do business. 

Thank you again for the opportunity to be here and to testify 

about this important topic, and I look forward to your questions. 

Chairman GRAVES. I will next yield to Mr. Huelskamp for the 

next introduction. 

Mr. HUELSKAMP. Thank you, Mr. Chairman. 

It is my pleasure to introduce my friend and former colleague, 

Nick Jordan, to my current colleagues. Nick and I served together 

in the State Senate for 12 of his 13 years, and prior to that, Nick 

spent much of his adult life promoting a positive pro-growth business environment in Kansas. He served as the founding president 

in the Overland Park Convention Visitors Bureau. And while in the 

Senate, I know personally Nick worked to promote issues that were 

important to small businesses, especially. In 2010, incoming governor Sam Brownback tapped Nick to serve in his cabinet as the 

revenue secretary. In that role, Secretary Jordan helped shepherd 

a tax reform package through the legislature and onto the governor’s desk that will reduce income taxes, especially for small 

businesses, which make up about 97 percent of all Kansas businesses, and it will and is already promoting economic growth. 

In addition to promoting small business issues, Secretary Jordan 

and his wife, Linda, co-own a small business with their daughter 

Shelly, which is located in Shawnee, Kansas, where the Jordans 

have lived for more than 30 years. He remains active in his church 

and community, serving on the Board of Directors of Shawnee 

Community Services. 

Secretary Jordan, thank you for being here today to share your 

testimony on some pretty exciting news from Kansas. Thank you 

for joining us. 

STATEMENT OF NICK JORDAN 

Mr. JORDAN. Chairman Graves and Committee members, thank 

you for inviting us in today and allowing Kansas to tell our story. 

I am going to focus a little bit on tax policy, although we have had 

an office of repeal or the governor has done some pretty dramatic 

things with budget and regulations in the state of Kansas, but 

probably now the most notoriety we are getting is on the tax policy 

that we have done in Kansas since Governor Brownback came into 

office. 

The topic is very important to us. Small business, in particular, 

the vast majority, as Congressman Huelskamp said, of our private 

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sector employers are small businesses—77 percent have less than 

100 employees; 98 percent of them have less than 100 employees. 

This means for Kansas families to flourish economically in the 21st 

century we must have flourishing small businesses. 

With that in mind, Governor Sam Brownback has placed the utmost importance on pro-growth tax reform at the state level. We 

started with the clear-eye understanding that the taxes at the federal, state, and local levels are a complicated hodge-podge coupled 

together over many decades, so to help small business it is important to reduce the burden of complying with this onerous system 

while also reducing the overall tax burden. 

So since 2011, Governor Brownback and the Kansas legislature 

have teamed up to make the state’s tax code fairer, simpler, and 

flatter for families and small businesses. This approach broadens 

the base and lowers tax rates for the benefit of the maximum number of Kansans. The result has been historic and innovative tax relief focused on providing a shot of adrenaline into the heart of the 

Kansas economy. 

What makes Kansas’s approach unique is how we are strategically accelerating tax relief to benefit small businesses. While individual income tax rates have been reduced 14 to 24 percent this 

year starting January 1st of all Kansas taxpayers, they will by 

2018 realize another 23 percent reduction in tax rates in the state 

of Kansas. So we have got a long-range plan on the individual, but 

what really is exciting is we have even gone further to boost small 

businesses. Starting this year, Kansas began exempting nonwage 

business income from state income tax. This is the type of income 

earned by a majority of small Kansas businesses which typically 

are structured as LLCs, sole proprietorships, and S-corps, commonly referred to as pass-through entities since the taxes for those 

business incomes are filed on individual income tax returns rather 

than corporate tax returns. By eliminating the state income tax for 

small businesses, we are sending the message that every business, 

every innovation, and every entrepreneur matters when it comes to 

creating jobs in Kansas. This is in addition to programs that we 

have to assist bioscience, tech, Main Street businesses, and entrepreneurs. 

We are encouraging small businesses to grow in other ways as 

well. For example, our tax policy encourages private sector investment by allowing companies to immediately expense their purchases of equipment software as a state deduction. The small businesses capture the full tax value of the money related to their investments, and by that they are keeping tens of millions of dollars 

each year which could be reinvested into businesses, and we are 

seeing a tremendous increase in the use of those deductions by 

small businesses in our returns this past year. 

Additional tax relief is being targeted to rural communities to 

simulate small business startups in every corner of Kansas, not 

just in our urban centers. This is a pretty striking number I think. 

By keeping an additional $4.1 billion in the pockets of Kansas citizens and businesses over the next six years, we hope to experience 

growth rates similar to the nine states where zero personal income 

tax would significantly outperform states that have the highest 

personal income tax rates. 

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Recently, the tax foundation released a paper titled ‘‘What is the 

evidence on taxes and growth?’’ The special report found that data 

consistently point to significant negative effects of taxes on economic growth, even after controlling for various other factors, such 

as government spending, business cycle conditions, and monetary 

policy. Every study in the last 15 years finds a negative effect of 

taxes on growth. If we intend to increase employment, we should 

lower taxes on workers and businesses that hire them. Therefore, 

in Kansas, we have been changing the dynamic that has led to an 

average economic result so more families can achieve a meaningful 

increase in income and opportunity and small businesses can invest in growth and new jobs. Models being recognized by our neighboring states, including the chairman’s home state of Missouri, certainly is taking notice of what Kansas is up to, and we hope others 

in the regions will join us so that the Midwest becomes a lot more 

attractive a place to do small business. 

If I can, I will quote your Speaker of the House, Mr. Chairman, 

in the Missouri House of Representatives, Tim Jones. He recently 

wrote in The Kansas City Star, ‘‘Kansas lawmakers have accomplished major tax reform and have managed to get the state economy back on track. These improvements are great for Kansans and 

challenge neighboring states to compete for business and job 

growth.’’ On the other hand, Missouri’s unemployment rate has 

plateaued at 6.6 percent. Perhaps most troubling for Missouri is 

the Kauffman Foundation you mentioned a moment ago small business climate ranking which gives Missouri a C and Kansas an A. 

Speaker Jones concluded Kansas has proven the competitive economic policies promote a business friendly environment attracting 

new companies, and with these new companies more jobs. The facts 

are right in front of us. 

And I might make one little editorial comment if I can because 

the question I am asked most is what is happening to your revenue 

since you made all these cuts. We are six months into this new policy and our revenues are up across the board. We are above estimates and we are above actuals from last year. So the growth is 

in the short-term, at least at this point, paying off for us. 

Thank you, Mr. Chairman. 

Chairman GRAVES. Thank you, Secretary Jordan. 

Our next witness is Aaron Demerson, who is the executive director of the Office of Economic Development and Tourism in the Office of Texas Governor, Rick Berry. The Office of Economic Development and Tourism is responsible for making the state of Texas 

a premier destination for business and travel. Prior to serving as 

executive director, Aaron was the district director of Texas Business Development responsible for domestic business expansion and 

recruitment, research, and international business recruitment. 

Aaron received a B.A. from Texas A&M and a banking diploma 

from the American Institute of Banking. 

Thank you for being with us today, and I appreciate you coming 

in. 

STATEMENT OF AARON DEMERSON 

Mr. DEMERSON. Thank you, Mr. Chairman. 

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Chairman Graves, Ranking Member Vela ́zquez, and members of 

the Committee, my name is Aaron Demerson and I have the pleasure of serving as the executive director of Economic Development 

and Tourism Division for the Office of the Governor in the great 

state of Texas. 

Thank you for the work your Committee continues to do for 

small businesses and for the invitation to participate on this panel. 

It is indeed a privilege and a pleasure to do so. 

Over the course of the past two years and throughout the years, 

this Committee has heard from some of the most notable representatives associated with small business. That is as it should be and 

not surprising given the importance of small businesses to the U.S. 

economy, and in my case, the Texas economy. 

As we speak here today, somewhere in Texas, someone is coming 

up with the next big idea, a better way of doing business, a better 

way of doing something that has never been done before. 

Fostering these types of innovations is vital to keeping Texas at 

the forefront of the national economy and when these innovators 

are ready to go to market, our hope is that the efforts of this committee, in collaboration with the efforts at the state-level, will 

make it easy for them to succeed and thrive. 

We all know that big companies tend to draw the biggest headlines, and they do, in fact, have a very important role to play, but 

we also know the drivers of job creation in Texas and our nation 

are the small business men and women. These are bold entrepreneurs who take real risk pursuing their dreams of owning their 

own business. As a matter of fact, these represent the true vibrancy of the Texas economy and their contribution to the positive 

economic climate is a large part of what has helped attract employers of all sizes to the Lone Star state. 

The Committee is seeking information on why certain states are 

attractive to businesses. We have found the continued 

attractiveness to Texas over the years is based on a number of reasons, with a major portion of this success associated with the leadership and emphasis placed on job creation that has been championed by Governor Perry and our collective statewide elected delegation. 

We know that our second to none business-friendly climate has 

continued to help us attract new employees and create jobs. In this 

past legislative session (just as we have done in the past) we took 

the necessary steps to preserve the business climate that has made 

all of that possible. 

In some cases, these businesses were fleeing over-taxation and 

over-regulation in other states as they sought to expand or relocate 

to a place where they are free to succeed. It is our thought that 

we can expect more of them heading our way as long as we remain 

committed to the principles that have helped make us the best 

state in the country to do business. 

One of the most important steps for attracting business to Texas 

is centered on keeping our taxes low because dollars do far more 

to create jobs and prosperity when kept in the business owner’s 

hands. 

To that end, we have continued to enact legislation that has a 

positive impact on small business. This year we were able to make 

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permanent the small business tax relief that was passed in 2009, 

which makes permanent the $1 million small business tax exemption. This important bill provides significant tax relief to over 

140,000 Texas small businesses. 

We have worked hard also to keep a fair and predictable regulatory climate so that a company will know what to expect six 

months down the line. The CEOs and CFOs understand this and 

continue to find it a very attractive alternative when considering 

expansion and/or relocation. 

We also have been at the forefront of the legal system to make 

it even harder to file frivolous lawsuits in Texas and approve ‘‘loser 

pay’’ legislation which requires those who file a frivolous lawsuit 

and lose to pay the potential court costs and legal expenses of those 

they sued. 

For us in Texas, economic development begins at the local level, 

and it is important that we have effective relationships at the local 

level to take advantage of the small business opportunities. To say 

that our communities are very aggressive and serious about small 

business and job creation is an understatement. We recently passed 

legislation creating a small business advisory committee that will 

help us align even closer with the communities on small business 

initiatives and issues. 

In Texas, as depicted in the handouts that I have passed to you, 

we have a state-by-state comparison document and a ‘‘brag’’ document as well. As Governor Perry quite often says, ‘‘In Texas, it 

ain’t braggin’ if it’s true.’’ The fact of the matter is our unemployment rate has consistently been lower than the national average, 

and we have continued to lead the nation in job creation over the 

years. And we also have the nation’s best business climate and continue to be the number one export 11 years running and continue 

to have the highest number of expansion and relocation projects. 

All of this creates a great deal of attention and continues to be of 

great interest to a number of small business owners in the United 

States and internationally looking to expand or relocate their business. 

It did not happen by accident; it happened because over the last 

decade, Texas leaders have made principled, thoughtful decisions 

by not over-taxing, over-regulating, or over-litigating our citizens. 

In Texas, we have an obligation, responsibility, and goal to taxpayers to take the necessary steps to make government more efficient and streamlined while reducing spending without raising 

taxes. 

And lastly, only by keeping our families and small businesses 

strong can we continue the type of prosperity we have enjoyed in 

Texas over this past decade. So how do we continue to create new 

opportunities for Texas families and small businesses? We do this 

in Texas by continuing to apply a laser-like focus on small business 

retention and recruitment while showcasing the best of what Texas 

has to offer. In addition, we will continue to ensure for small businesses a climate at the state level that is conducive to making a 

profit, creating jobs, and enjoying success. 

Our hope, Mr. Chairman and Committee members, is that the 

same or similar approach is viewed at the federal level. I sincerely 

appreciate the opportunity, I welcome you to visit our great state, 

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and look forward to the discussion and answering any questions 

that you might have. Thank you. 

Chairman GRAVES. Our next witness is Mr. Jim Cheng, who is 

the Secretary of Commerce and Trade for the Commonwealth of 

Virginia. In this capacity, he manages the jobs and opportunity 

agenda for Virginia and oversees 13 state agencies focused on promoting the growth of Virginia’s business community and attracting 

new investment into Virginia’s economy. Secretary Cheng holds a 

B.S. in computer science from Old Dominion University, an MBA 

from Colgate Darden Graduate School of Business at the University of Virginia, and a J.D. from Georgetown University Law Center. Thank you for being with us. I appreciate you coming in. 

STATEMENT OF JIM CHENG 

Mr. CHENG. Thank you, Mr. Chairman. 

Chairman Graves, Ranking Member Vela ́zquez, and other distinguished members of the Committee, again, I am Jim Cheng, secretary of Commerce and Trade for Virginia. 

Let me begin by conveying Governor Bob McDonald’s regrets 

that he could not be here today to testify before you, but also on 

behalf of the governor and the Commonwealth, I thank you for allowing me to testify today instead. 

Small businesses are the backbone of our economy. Across Virginia and throughout the United States, small businesses are creating jobs and opportunity. In Virginia, we have been focused on 

job creation and economic development with special attention to 

the important role of small businesses in our economy. Last year, 

the governor announced 2012 as the ‘‘Year of the Entrepreneur.’’ 

Throughout the year, among other things, the governor held 

monthly office hours to small business owners, conferences and 

roundtables across the state, and featured profiles in entrepreneurship. And we continued our efforts at job creation in 2013 through 

efforts like our Rural Jobs Council. The council’s recommendations 

made it clear that there are new challenges facing small businesses 

in today’s global economy. They recommended that we invest in 

workforce development, infrastructure, and broadband. The council 

also recommended that we create a Governor’s School for Entrepreneurship to encourage middle school students to consider entrepreneurship as an option. 

In Virginia, we continue to focus on things that matter to entrepreneurs—access to capital, workforce development, and predictable and accountable government. 

Virginia’s small businesses need to know that they will have 

ready access to capital. In 2012, we enacted a bipartisan solution 

to encourage long-term investments in Virginia’s small businesses. 

The Virginia Small Business Investment Grant encourages private 

investment by providing a grant equal to 10 percent of a qualified 

investment for an eligible investor. 

We have also invested in our Virginia Small Business Financing 

Authority. The authority aids Virginia’s financial institutions in offering business loans that they may not be able to offer without the 

authority’s assistance. 

Agriculture and forestry continues to be Virginia’s largest industries, generating a combined $79 billion annually and creating 

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more than 500,000 jobs across the state, mostly by small businesses. So we passed legislation to establish the governor’s agricultural and forestry industry’s development fund, targeting those industries that have been largely overlooked in the state’s traditional 

economic incentive programs. 

Of great importance to the Commonwealth and the nation is our 

ability to compete in technology innovation. With high-tech, highgrowth startups creating more than 30 percent of all new jobs, our 

administration has invested in an environment that encourages the 

formation and growth of these companies. We created incentives to 

recruit and attract angel and venture-capital investment, and since 

2010, our C stage investment programs have created over 75 new 

high-tech companies that have attracted private capital at a rate 

of $17 for every $1 of public funds invested. 

A key to entrepreneurial growth at the local level is to support 

regional capacity building. We launched a grant program called 

‘‘Building Collaborative Communities.’’ The program promotes regional economic collaboration in economically distressed areas to 

stimulate job creation, economic development, and build community 

capacity and leadership. 

One of the most important issues for a small business is workforce development and quality of education. Small businesses 

thrive because of their ability to recruit, train, and retain qualified 

employees. In our past legislative sessions, the governor has passed 

numerous innovative and bold K-12 and higher ed reforms that will 

keep Virginia’s workforce at world-class levels. 

Small businesses need predictability and efficiency. Last year, 

the governor launched a regulatory reform initiative to reduce the 

number of burdensome regulations placed on small businesses. We 

asked industry and small business for ideas, and specific sections 

of code that were overly burdensome. As a result, since September 

2012, 562 sections of the Code of Virginia have been identified, and 

157 sections have already been repealed. 

But ultimately, it is not what the federal or state government 

can do for small business that matters, but how government can 

ensure it does not erect unnecessary barriers to job creation. We 

must ensure an environment conducive to economic vitality and 

guard against extinguishing the entrepreneurial spirit with overly 

burdensome laws and regulations. 

Our work has gotten results. When the governor took office, unemployment in Virginia stood at 7.3 percent, but now it stands at 

5.3 percent, our lowest unemployment rate in over four years. 

Since the beginning of our administration, Virginia has added 

171,000 net new jobs, 153,000 of which are from the private sector. 

And the number of unemployed Virginians had decreased by a total 

of 80,000 or about 36 percent. And simply put, more Virginians are 

working today. 

So thank you again for inviting us to speak, and I look forward 

to your questions. 

Chairman GRAVES. Thank you very much. Thank you to all of 

you. 

I am going to turn to Mr. Huelskamp to start questions. I have 

got to tell you it is exciting to hear the success that your states are 

having. And obviously, I have watched what Kansas is doing, just 

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right across the border, and seeing businesses leave the state of 

Missouri for Kansas, unfortunately. But regardless, with that I am 

going to turn to Mr. Huelskamp for first questions. 

Mr. HUELSKAMP. Thank you, Mr. Chairman. It really is a 

shame that those businesses are moving to Kansas. We will follow 

up with that. 

But a question for Secretary Jordan, if I might. With a pretty 

big, massive comprehensive tax reform package, it did a lot on the 

individual side but not much, if anything on the corporate side. 

Can you give me directions of what happens at the state level when 

you are trying to do comprehensive tax reform and what happens 

with those players? And I think it would be of great interest. 

Mr. JORDAN. The Congressman knows when I was in the Senate I wrote a lot of economic development incentive programs, and 

we had a lot of discussions about that while we were serving together. 

We, like all states, have a significant package of incentives and 

tax credits to offer to C corps to come to our state and are probably 

as competitive as any state, obviously, in those packages. 

We actually, the governor’s desire was to lower corporate income 

tax to zero. And when we started having those meetings, we actually found that some of our C corps, some of our corporations would 

rather be incentive and tax credit members, rather than a zero tax 

credit at this time, and we had a hard time doing it. So we actually 

did not lower the corporate income tax rating—Kansas, at this 

time. We would still like to work on that. We would still like to 

work with the corporate community to make that happen. Right 

now, 59.6 percent of our C corps pay no income tax in Kansas because of the incentive and tax credit programs. 

And again, my statistics, when 98 percent of your businesses are 

100 employees or less, 77 percent of them are 10 employees or less, 

and by all statistics, whether some say two-thirds of your job creation comes out of small business, some say 75 percent come out 

of small business, we decided to swing very quickly over to the 

small business, who many times cannot take advantage of the incentive and tax credit programs because the thresholds are so high 

it is hard for them to take advantage of. So we swung and decided 

we would work what we can to help small business grow in the 

state of Kansas. 

Mr. HUELSKAMP. Thank you, Mr. Secretary. 

Question for Secretary Cheng, as well. What do you hear from 

small businesses in particular as their biggest complaint about the 

federal government and federal policies and regulations? If you can 

give us a little insight there. 

Mr. CHENG. Mr. Congressman, I think the main thing they say 

is there is too much—too much of everything. Too much regulation, 

too many things coming down the line, and the uncertainty. Being 

from Virginia, we have a very large military presence, very large 

U.S. government, civil service sector two, so worries of sequestration and what follows are very concerning. So we hear that, especially from our small business community who are the most affected by little shifts in policies and spending. So all the regulation, 

perhaps even uncertainty in health care, taxation, and government 

spending all are a big part of it. So if they knew what was coming 

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down the line, they could adjust. But since they do not know, they 

are all very worried. 

Mr. HUELSKAMP. The gentlemen from Texas and South Dakota, any comment? 

Mr. DEMERSON. I would echo the comments. Uncertainty is 

huge. That is why in Texas we have made that a focal point to 

make sure that things are not changing but that certain efforts at 

the federal level have a certain impact on the small businesses in 

Texas. 

Mr. COSTELLO. Yeah. I would agree. I think in the business 

world people just want to understand what the rules of the game 

are, but when the rules keep changing it is challenging for them. 

So to know that the regulatory process is going to be consistent, 

the tax policy was going to be consistent, that there was a fiscal 

balanced budget from a federal level would be very helpful. All 

those things weigh into it. 

Mr. HUELSKAMP. All right. Well, I appreciate that. I yield 

back. Thank you, Mr. Chairman. 

Chairman GRAVES. Ranking Member Vela ́zquez. 

Ms. VELA ́ ZQUEZ. Thank you, Mr. Chairman. I am sorry that I 

was late but I was at the White House meeting with the president. 

Secretary Cheng, I am so glad to hear that unemployment rate 

is so low in Virginia; right? 

Mr. CHENG. Yes, ma’am. 

Ms. VELA ́ ZQUEZ. Yes. And I guess that in some ways a lot of 

that has to do with the federal government presence in Virginia, 

whether it is federal spending or federal contractors because you 

have one of the highest numbers of federal contractors in the nation. 

My question to you is, regulations of course, heavily impact small 

businesses, but I would like to hear have you done any—and I will 

ask the question to any of the other members of the panel—have 

you done any type of analysis in terms of regulations that are duplicative—federal regulations as well as at the state level? Have 

you ever done analysis that lead to recommendations either to the 

state where you come from or the federal government? 

Mr. CHENG. Yes, ma’am. If I just can give you a quick answer, 

the answer is yes. We have set up commissions to look at the federal regulations that we think may be burdensome or maybe affected by certain changes. I do not have all that information now 

but we certainly can get more information for you. And yes, Virginia is very fortunate to have the federal spending, but then 

again, we have a lot of federal spending contract wise, but in terms 

of other types—— 

Ms. VELA ́ ZQUEZ. But my question is have you ever done any 

analysis in terms of state regulations that are duplicative with federal regulations? 

Mr. CHENG. Oh, duplicating—— 

Ms. VELA ́ ZQUEZ. What federal regulations are in place? 

Mr. CHENG. I will have to look at that. 

Ms. VELA ́ ZQUEZ. Because that will be a great way to help us. 

Mr. CHENG. Yes, ma’am. 

Ms. VELA ́ ZQUEZ. Or for the state government to say that it 

does not make sense; that if we have them on the books in terms 

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of federal regulations, why have the same type of regulation at the 

state level? 

Mr. CHENG. I will check on that. 

Ms. VELA ́ ZQUEZ. You have over 2,000 civilian defense workers 

in Virginia—— 

Mr. CHENG. Yes, we do. 

Ms. VELA ́ ZQUEZ.—that are going to be and are impacted by the 

sequester. 

Mr. CHENG. Yes. 

Ms. VELA ́ ZQUEZ. What impact will this have on the state of the 

economy, particularly in Northern Virginia where so many of these 

jobs are located? 

Mr. CHENG. Well, ma’am, I believe that that is the question 

that needs to be answered. So far, our unemployment rate has held 

steady and actually, as you mentioned, it has come down. But now 

with some furloughs coming up that may affect us. And we are 

hanging on and waiting. So far our budgets have been fine, but we 

believe that there will have to be some effect. And of course, the 

long-term effect is we understand there must be changes in spending habits of the federal government, and we are prepared for 

those. Our companies, I think, are just waiting for the direction on 

which way to go. 

Ms. VELA ́ ZQUEZ. Recently, Jonathan Greenert, the chief of 

Naval Operations, addressed Hampton Roads business leaders and 

told them that he is preparing for 2014 to be much like this year. 

That means cuts in military operations, ship construction, and 

more civilian furloughs. What impact will these cuts have on Virginia if they are sustained over the next few years? 

Mr. CHENG. Ma’am, if I can answer that, I think there are a 

couple of thoughts there. One is the original sequester was very, 

very, I guess, stilted and a lot of our people told us that they could 

not make any judgment calls. I think there have been some 

changes to make to make it a little better so they can prioritize. 

I think that is a big plus. But I think our concern is mostly for the 

small businesses that we are talking about today because we believe they will be the first ones impacted on any cutbacks. 

Ms. VELA ́ ZQUEZ. Sure. Uncertainty. Right? They will not be 

able to plan. 

Mr. CHENG. Absolutely. 

Ms. VELA ́ ZQUEZ. There will be 72,000 civilians that will have 

less money to spend as consumers. 

Mr. CHENG. Absolutely. Right. And it all will have a big effect. 

We do not know what it is. 

Ms. VELA ́ ZQUEZ. So it is our job in Washington for the good of 

the economy to address the issue of sequestration. 

Mr. CHENG. Absolutely. 

Ms. VELA ́ ZQUEZ. Mr. Jordan, like many other states, Kansas 

has been forced to make some difficult spending decisions while 

also ensuring that you raise revenue. How is Kansas balancing the 

need for revenue to fund things like education and childcare with 

the goal of tax simplicity? 

Mr. JORDAN. As I mentioned earlier, our revenues are up under 

this new tax policy. And actually, when the governor first took office we were left with I think it was literally $800 in the bank, a 

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$500 million hole in our budget, and within one year we turned 

that around to a $500 million surplus in our budget by efficiencies. 

All agencies are looking at efficiencies, better ways of operating, 

and we found several savings in doing so and have been able to 

save quite a bit of money in that. The governor said time and time 

again I am going to fund the core responsibilities of government, 

and I have been in the Senate elected position and those debates 

will always be are you funding it enough or are you not funding 

it enough or what kind of funding should we have in there. 

The governor’s budget this year proposed funding for education. 

He particularly fought for higher education in his budget. Along 

with the tax plan, we had a plan that funded what he wanted to 

fund. Obviously, went through the legislative session. They made 

some additional cuts but that was not the governor’s desire in his 

budget. 

Ms. VELA ́ ZQUEZ. I just want to hear your angel investor tax 

credit—— 

Mr. JORDAN. Yes. 

Ms. VELA ́ ZQUEZ.—it really meant to bring investors—— 

Mr. JORDAN. Right. 

Ms. VELA ́ ZQUEZ.—to invest in local businesses. Has this credit 

been affected? 

Mr. JORDAN. It has been very effective. We have really enjoyed 

a lot. I actually helped co-author a bioscience initiative in Kansas 

that raised it to the number five in the nation in biotechnology. 

And the venture angel investor tax credit was a part of that process and really helped us bring the biosciences up in Kansas and 

startups in bioscience, working with our researchers at our universities. It has been an extremely successful program. I cannot give 

you numbers off the top of my head but we have kept that tax credit, want to keep that tax credit, and that tax credit has brought a 

lot of new money. We are obviously not a big venture capital state. 

We are becoming more and more venture capital because of the bioscience growth and some of our tech growth. Google has made a big 

investment in Kansas in some of their high speed cable. So in all 

ways it has been a very good program, very good tax credit for us. 

Ms. VELA ́ ZQUEZ. Thank you. 

Mr. Demerson, Texas is now a majority-minority state for the 

first time in its history. What sort of policies does it have to promote minority business development? 

Mr. DEMERSON. In terms of minority business development, 

the number of the state agencies in Texas, whenever you are looking at doing business with the state, their goal is set within some 

of those agencies. And so we are going out statewide, promoting the 

benefits of doing business in Texas and those hub or minorityowned businesses are a part of any of those activities that are taking place at the state level. So we have always been doing that in 

the past and will continue to do even more in the future. 

Ms. VELA ́ ZQUEZ. Do you have any metrics to compare to? The 

last five years? 

Mr. JORDAN. Yes. Each of the agencies actually have their own 

set of goals and metrics in-house, and so from the Governor’s Office 

standpoint, I do not have the overall view, but each agency, if you 

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are dealing with TxDOT, Department of Transportation, or any of 

the other agencies, they all have those goals and metrics. 

Ms. VELA ́ ZQUEZ. Do you have any oversight to make sure that 

those state agencies are doing what they are supposed to be doing? 

Mr. JORDAN. I think from the governor’s standpoint, being the 

leader of that state, he has oversight over all of those activities and 

has done a phenomenal job of reaching out to make sure that those 

things are in place. 

Ms. VELA ́ ZQUEZ. Okay. Thank you, Mr. Chairman. 

Chairman GRAVES. Mr. Tipton. 

Mr. TIPTON. Thank you, Mr. Chairman. I apologize for being 

late. I was not invited to the White House. I am shocked. 

I appreciate you gentlemen taking the time to be able to be here. 

It is great to be able to hear some of these stories of success, the 

entrepreneurship. I did have a couple of questions. 

Mr. Jordan, very interesting story where you had $800 did you 

say in the bank and $500 million surplus now? 

Mr. JORDAN. Right. 

Mr. TIPTON. And you were able to achieve this you noted by actually letting American people keep more of their money and actually reinvest those dollars rather than handing it over to government. But you also noted that you created some efficiencies. 

Mr. JORDAN. Yes. 

Mr. TIPTON. Do you think that that is a tale that when we look 

at, say, sequestration, do you think it is palatable for the federal 

government to reduce the rate of increase by two percent? 

Mr. JORDAN. From our experience, yes. We found a lot of efficiencies in the state of Kansas. The governor has worked hard and 

is looking at better ways of doing things. Yes. We have certainly, 

I think, are proof you can do that. You can go into agencies. You 

can work with state agencies and find a lot of efficiencies and savings in those agencies. 

The governor has been real big. We have a statute that requires 

a 7.5 percent ending balance and I think Congressman Huelskamp 

would agree with me. I do not quite remember the last time we had 

a 7.5 percent ending balance in Kansas except for when Governor 

Brownback came in and required us to have a 7.5 percent ending 

balance. So in that turnaround to a $500 million surplus, we also 

got the state back on a good footing with a good ending balance 

every year on our budget going forward. 

Mr. TIPTON. Secretary Cheng, we were talking a little bit about 

sequestration. Is it pretty much your sense as well that it ought 

to be the responsibility of the federal government maybe to do what 

the state of Virginia has done—actually show some responsibility 

and innovation not to grow government but to reduce its size and 

empower the American people with their own dollars? 

Mr. CHENG. Yes, sir. I think that that is something our governor would absolutely commend. It is something that we have 

worked very hard about. We came in three and a half years ago 

with a huge deficit, and for the past—and I do not know if it is 

public soon, but we are hoping that we will have four straight 

years of positive remaining balances in our budget. And that comes 

from cutting back things that we have to cut back. 

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Mr. TIPTON. I would like to maybe get all of our panel’s comment on this. I think one of the great challenges that we face—I 

am a small businessman coming out of the state of Colorado. A lot 

of our big worries really are not so much about what is coming out 

of the state of Washington, D.C. with ‘‘one size fits all’’ regulatory 

pattern. I believe we have the statistics out of this Committee that 

we are spending $10,685 per employee in just compliance—following rules and regulations. This is not even taking into account 

yet the full impact of the Affordable Care Act and how devastating 

that is going to be to job creation and health care ultimately in this 

country. 

Is it your sense that some of those regulations are left best to the 

state given the differences between Virginia, South Dakota, Texas, 

and Kansas? Let us make some of those rules to be able to fit our 

own particular needs for our own geography and our own people? 

Mr. DEMERSON. From the Texas standpoint, we look at it quite 

simply as you do not have what you do not have. If you do not have 

it, you do not spend it. It is a simple equation there. We were fortunate and blessed with a $12 billion budget surplus in the state and 

we were able to do some things with that this past legislative session that were moving us further down the line. So we take pride 

in doing what we need to do at the state level, making sure that 

there is an impact, and then we are looking forward to that on the 

federal side to match wherever we can to make sure that we are 

moving forward. 

Mr. TIPTON. Great. And Mr. Costello, with South Dakota, you 

talked about a strong banking community there. Are your small 

businesses given the regulations that we are seeing out of DoddFrank, the threat of further regulations out of Basel III. Are your 

small community banks really worried about their ability to be able 

to deliver loans to their customers? 

Mr. COSTELLO. I think we do hear from our small bankers that 

the increasing regulatory environment is very challenging for them. 

In South Dakota, we have got the largest bank assets of any 

state—$2.6 trillion. I think a lot of that has to do with the reasonable regulations that we offer in the state of South Dakota and the 

competent people that we have in our division of banking. We hear 

from banks that have moved their charters to the state that they 

are comfortable with our regulators and that they are very knowledgeable, and so I think that is important for them to be comfortable. And of course, our tax structure as well. No corporate income tax in our fee structure for banks as well as very attractive. 

Mr. TIPTON. Okay, thanks. I yield back, Mr. Chairman. 

Chairman GRAVES. Ms. Hahn. 

Ms. HAHN. Thank you, Mr. Chairman. 

Mr. Demerson, I was going through the brag sheet that you provided and I am not sure that I agree that if it is true it is not bragging. Ask any grandmother. 

And the 2012 CNBC ranking of America’s top states for business 

caught my attention. And for the honor of the great state of California, I cannot resist pointing out that in the CNBC survey that 

ranked Texas best for business, did still rate the quality of life in 

California a full 15 places ahead of Texas. 

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Okay, so with the dig aside, I actually want to focus on another 

category of the CNBC ranking, Texas ranks first overall. The only 

individual category measured that Texas ranks first in is infrastructure and transportation. Texas has held onto that first place 

ranking in infrastructure in the 2013 rankings as well. 

I wanted you to maybe expand and tell this Committee what you 

think the importance of world-class infrastructure is to the success 

and health of small businesses. 

Mr. DEMERSON. It has been something that has been very important to the state from a logistics standpoint to have the infrastructure in place. I am going to read over an infrastructure fast 

facts sheet that we have here. So in Texas, two logistics complexes—Fort Worth Alliance and San Antonio’s port. Serious logistics complexes that are driving business to our state. Forty-seven 

freight railroads, 624 miles of coastline, number one install of wind 

capacity, 26 commercial airports, 10 interstate highways, 16 porto-calls, and 4.8 million barrels of oil that is coming in. The infrastructure has been in place and now even to this day we are in a 

special session in Texas with our legislative session. They are addressing transportation needs even to this day where we are looking at what does the future hold for us and how we are going to 

impact that. All of that has an important impact on small businesses. If we get the logistics right, then they are in a position to 

grow even more so. The Panama Canal expansions, all those things 

that are there, we are trying to position ourselves in Texas to be 

in a position to take advantage of those opportunities and small 

businesses benefit if we make the right decisions in our state in regards to that. 

Ms. HAHN. Thank you. I am glad you said that. And I hope Congress hears that and I hope we really do invest in the infrastructure in this country, particularly our ports. And I was interested 

in Governor McDonald’s written testimony when he pointed out the 

importance of helping small businesses find new markets across 

the seas. 

And one of the things I have done back here with my good friend, 

Ted Poe, from Texas—we both attended the same university in Abilene—we founded the Ports Caucus back here because we would 

love to raise the level of awareness of our colleagues in the importance of the ports. 

So Secretary Cheng, if you could follow up on what he said. I 

think one of the biggest growth possibilities for small businesses is 

exporting. And I think if we could really teach, train, educate, help, 

handhold small businesses to understand that their goods and 

services actually are very valuable and are marketable overseas, 

but only if our ports have been maintained and dredged and improved and modernized to really help this aspect. 

Secretary Cheng, could you just expand on what you see as the 

importance of exporting and how ports could play a role in that for 

small businesses? 

Mr. CHENG. Yes, Congresswoman. Ports are very, very important. The governor has made at least eight trips in his three and 

a half years as governor overseas to Asia, to Europe, all over the 

world, and one of the first things that we talk about is logistics in 

ports and access. And with the widening of the Panama Canal comSBREP-219 with DISTILLER

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ing up in 2015, it will be even more important for the Asian countries to be able to access the East Coast of the United States and 

all our East Coast ports, and of course, the West Coast ports will 

benefit from all that additional commerce. 

And if I can just add also about exporting. We have a program 

in Virginia called the VLET program. It is the Virginia’s Leaders 

in Export Trade. And what that is is a two-year program that we 

bring in qualified businesses, mostly small- and medium-size, that 

are ready to export. We put them through a two-year program. It 

is rigorous. It is not every day but it is rigorous, and they teach 

them everything from banking to lines of credit to how to market 

and how to approach companies overseas, and they end with a delegation overseas to a suitable place. And a lot of great stories have 

come out of that. It is an award-winning program and I hope that 

it could be a benefit to some others, too. 

Ms. HAHN. Thank you. I appreciate that. And our ports in LALong Beach, we have a program called Trade Connect, and we are 

working, particularly with minority- and women-owned businesses. 

And again, if the small businesses can understand that it actually 

is viable, it is doable, and it could really be the difference in them 

really growing and being successful, I think that is where I would 

love to see us all focus. 

I yield back the time that I do not have anymore. 

Chairman GRAVES. Mr. Luetkemeyer. 

Mr. LUETKEMEYER. Thank you, Mr. Chair. 

I certainly enjoy the conversation this afternoon. You gentlemen 

have really brought a breath of fresh air to the discussion of small 

business and the impact that state government can have. 

So my question I guess is twofold. I would like to ask each one 

of you what is the number one thing—if you had one thing to point 

out, one reform—I mean, you guys have got a regular package of 

things that each of you have talked about which is great, but if you 

had to talk about one thing that state government can do to improve small business and the small business environment in your 

state, and one thing that the federal government could do to improve the small business environment in your state, I would sure 

appreciate it. I will start with Mr. Costello. 

Mr. COSTELLO. Thank you, Mr. Chair and Congressman. 

I think from a state perspective the one Achilles heel and challenge that we have is workforce. We are a small state, 830,000 people and for large corporations that are looking to locate into the 

state, sometimes that is a challenge. Our unemployment is four 

percent, and we try to focus more on the number of jobs we have 

in South Dakota, and we now have exceeded the number of jobs in 

the previous peak back in 2008 before the recession. So the economy is very strong. Unemployment is low. Our number of jobs is 

high. Our employed people are high. So that is the challenge from 

a state level is the workforce capacity—building that workforce capacity. 

On the federal level, I think what we hear from small business 

is just a desire to have some sort of fiscal policy. I think our business community has lost faith in the federal government and its 

ability to control spending, its ability to manage the affairs and 

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regulatory environment, and I think a more stable federal environment would be very helpful for small business. 

Mr. LUETKEMEYER. Secretary Jordan. 

Mr. JORDAN. Thank you, Mr. Congressman. 

I think one of the things we heard over and over from small business was capital flow. And that is why we have really focused on 

tax policy at this point. Coming out of a recession, a lot of small 

businesses were really struggling and the capital flow was not 

there to be able to grow the business, to make the investments, to 

hire the people, and so tax policy is important both at the federal 

and state level for small business. So I would echo the workforce 

development. 

I think one of our challenges is entrepreneurship in rural Kansas—how do we get more people involved in entrepreneurship? 

When we first came in in this administration we had 22 counties 

that had double-digit population decline in Kansas, and we sat 

down and tried to figure out—if I can promote another program we 

have—we sit down to try to figure out how to reverse that trend 

and we came up with what we call rural opportunity zones. And 

what that meant is if you moved to Kansas from out-of-state to one 

of those counties, it is now up to 73 counties, by the way. The legislature has taken it and expanded it. If you move into one of those 

countries from out-of-state, you get five years no income tax. That 

has been pretty successful. We just had our first round of tax returns to kind of know where we are at on that. 

But the part that has really been exciting is we offered students 

graduating from college—whether it was instate or out-of-state—if 

you moved to one of those counties, we would pay up to $15,000 

of your student loans over a five-year period. We have had over 800 

students apply for that. Now, you would say, okay, great, all the 

Kansas students and Missouri students and everybody—it has 

come from 32 states. And the top three degrees are law, engineering, and health care degrees. So they are professional young people 

looking back into rural areas. 

So when we talk about workforce development, we have been 

concerned about the rural areas and the entrepreneurship there 

and the businesses growing in the rural areas as well as our areas 

that are successful. 

Mr. LUETKEMEYER. Okay. Mr. Demerson? 

Mr. DEMERSON. At the state level I think what we can do is 

continue to educate. I think we have some fine examples in Texas. 

If you look at UTSA, they have a small business development center that is doing some phenomenal things on the statewide level 

that they have even gone international, and so I think duplicating 

a lot of those efforts and/or sharing those successes statewide is 

what we are going to look at trying to accomplish at the state level. 

From the federal standpoint, it goes back to what has been mentioned time and time out—just the uncertainty, you know, regulations. Those type of issues are out there and we hear those concerns. And so I think if that is addressed or as that is being addressed you have things that are taking place at the state level, 

things that are taking place at the federal level, and it will give 

small businesses more opportunities to succeed at that point. 

Mr. LUETKEMEYER. Secretary Cheng. 

SBREP-219 with DISTILLER

21 

Mr. CHENG. Yes. Well, I think my colleagues here have made 

some really great points, and I echo all of them. If I can add on 

to one thing on the federal side, obviously we talked about predictability, stability, and regulations as very important. But one thing 

about workforce I think is that we get funding for workforce from 

so many different sources it is difficult for a state to grasp it and 

get a hold of it. So somehow a little clarity because there is a lot 

of workforce money out there, but who we control it, as Virginia, 

we try to do our best and we have a great workforce, but we could 

do better. And part of it is how we handle it with the federal funds 

coming in. 

For small business, from a state point of view, what we could be 

doing better, and perhaps other states, too, is getting our large cities with the venture capital, angel capital, and sources of funding 

closer to the rural parts of our state because I heard some mention 

of rural before. That is also a concern in Virginia and I am sure 

many other states, too. 

Thank you, again. 

Mr. LUETKEMEYER. Very good. I yield back. Thank you, Mr. 

Chairman. 

Chairman GRAVES. Ms. Meng. 

Ms. MENG. Thank you, Mr. Chairman. Thank you, Ranking 

Member. And thank you to our witnesses for being here today. 

I want to follow up on a little bit of what Congresswoman Hahn 

started a conversation about in terms of infrastructure and how the 

federal government could be more helpful. I represent a pretty 

urban area in Queens, New York City, as so does Ranking Member 

Vela ́zquez. And just trying to see how the federal government can 

be more helpful in terms of infrastructure in relation to mass transit, whether it is trains, subways, or buses, perhaps more relevant 

in some of your areas. 

Mr. CHENG. Well, Congresswoman, transportation is something 

I have been trying to avoid all my career. Sorry about that. I just 

had to say that. 

Infrastructure is so very important, and the funding is so complex. I could not begin to discuss it, but I will say that I have gone 

on all the trips with our governor and he is our best salesperson 

overseas to talk about bringing in business to Virginia, whether it 

be exports or direct investment or all this. What usually we hear 

the most of are what are your logistics—your airports, your roads, 

your ports are so important to us and they are our number one 

sales point. Our location and how convenient it is for our rail system, for our roads to get cargo from our ports to wherever in the 

country or across the Atlantic or through the Pacific. So we absolutely rely on our infrastructure. In fact, the CNBC rankings talk 

about infrastructure all the time, and I think it is a very good 

point. And our governor saw that along with all the other feedback 

he has gotten and he worked hard to come up in a bipartisan manner, with a legislator come up with a new transportation bill that 

many of you all will see in the Committee in the Virginia area that 

I know will benefit the whole region and bring more businesses and 

attract more relocations and opportunities. 

SBREP-219 with DISTILLER

22 

Mr. DEMERSON. I think from our standpoint you hear the ports 

talking about dredging opportunities. They are all talking about 

that and the need for those type of activities to take place. 

In Texas, I have a document here, ‘‘Texas, by Air, Land, and 

Sea.’’ We are very proud of the infrastructure that we have in place 

but we are not complacent with it, and so we want to do even more 

so and that is being addressed right now. Texas is a state that you 

are driving 3, 6, 9, 13 hours and you are still in Texas. And so we 

need to make sure that we are on top of it in terms of the logistics 

opportunities, and we have been fortunate to do that but we are 

not resting on our laurels. We want to do more at the federal level. 

Wherever you guys can be impactful to the state or the communities, it is going to aid in our small businesses in our state. 

Mr. JORDAN. Infrastructure is important. I think we have the 

third or fourth largest number of highway miles in the country in 

Kansas believe it or not, and so the legislature has always been 

fairly good about funding our infrastructure program in Kansas. 

About every five to six years the legislature appropriates billions 

of dollars to make sure that infrastructure is kept up, but I would 

say the federal and state partnership is extremely important to get 

that done. 

We have a huge intermodal facility being constructed by Burlington Northern. It is going to be very important to us in shifting 

products around the country. Wichita, by the way, is one of the top 

exporting cities in the country. Of course, the aviation industry is 

there but a lot of entrepreneurs are there. So it is very important 

to us and that partnership is important to us, but we try to pull 

our load. 

Ms. VELA ́ ZQUEZ. Would the gentle lady yield for a second? 

Ms. MENG. Yes. Yes. 

Ms. VELA ́ ZQUEZ. So I guess, Mr. Demerson and Jordan, you 

recognize the importance for the U.S. Congress to reauthorize legislation such as the highway bill and water—water and resources— 

because that will provide resources that you need in order to keep 

transportation and infrastructure to the level that would allow for 

the states to continue to grow; do you not? Thank you. 

Mr. COSTELLO. I would just like to add, too. 

Ms. VELA ́ ZQUEZ. Yes. 

Mr. COSTELLO. You know, businesses are not going to expand 

or are not going to grow without adequate infrastructure. I think 

that is just the fundamental premise of it. South Dakota, for us, 

our challenges are roads and rail. Some air travel, but water as 

well. We are an agricultural state. Our products have to travel by 

rail to get to a port to get exported. So to continue to invest in 

those infrastructures is just fundamental. 

Ms. VELA ́ ZQUEZ. Mr. Chairman, please let the record show that 

all the witnesses here support the reauthorization of the highway 

bill and WRDA. 

Chairman GRAVES. We would love to get the Senate to comply. 

Mr. Rice, real quick. 

Mr. RICE. Quickly, I really appreciate your being here and I 

have enjoyed hearing your success stories. They all center on a 

business friendly environment, lower taxes, lower regulation, good 

logistics. 

SBREP-219 with DISTILLER

23 

Let us say that you were the highest taxed state in the country. 

Would that help or hurt your competitiveness? Because that is 

where we are as a country. 

Mr. JORDAN. I do not know which one but I have spent the last 

two years learning economics from a lot of economists. And I think 

if you look at the tax foundation, your question is what high tax 

are you talking about. 

Mr. RICE. You were the highest. Let us say you were the highest. 

Mr. JORDAN. Income? Sales? Property? 

Mr. RICE. Income. 

Mr. JORDAN. Income tax, I think it hurts your growth. I think 

more and more studies are showing income tax hinders your 

growth the most of all taxes. And so that would be the answer here 

is income taxes is significant. 

Mr. RICE. And let us say that the cost of the regulatory burden 

in your state was the highest among the 50, would that help or 

hurt your competitiveness? Because that is where we are as a 

country. And let us say that our infrastructure was crumbling relative to the other 50 and you had very little investment because 

that is where we are as a country. Would that help or hurt your 

competitiveness? 

Mr. JORDAN. It definitely would hurt our competitiveness. 

Mr. RICE. Shame on us because that is exactly where I spent the 

last two days going around this capital with a Harvard professor, 

Michael Porter, who is an export in international competitiveness, 

and we have a lot of work to do. Thank you very much. 

Chairman GRAVES. Thank you all very much. And please, Secretary Jordan, tell Governor Brownback hello, and Mr. Demerson, 

please tell Governor Perry hello. Both are very good friends of 

mine. 

With that, again, I want to thank all of our witnesses for making 

the trip here to the Committee. The United States is experiencing 

a very weak economy and economists are predicting that it is going 

to continue that way throughout 2013. 

With that, I do not want to keep you all through an hour’s worth 

of votes, but I do appreciate the bright, encouraging, and optimistic 

view that you all have and what your states are doing is very, very 

impressive. 

And with that I would ask unanimous consent that all members 

have five legislative days to submit statements and supporting materials for the record. Without objection, so ordered. And with that 

the hearing is adjourned. 

[Whereupon, at 2:07 p.m., the Committee was adjourned.] 

SBREP-219 with DISTILLER

24 

A P P E N D I X 

Written Testimony 

Of 

J. Pat Costello 

Commissioner, South Dakota Governor’s Office of Economic 

Development 

Before the U.S. House of Representatives Committee on 

Small Business 

July 10, 2013 

Thank you for the opportunity to be here today. It’s always a 

pleasure to talk about the State of South Dakota. My name is Pat 

Costello and I am the commissioner of the Governor’s Office of Economic Development. 

I’ve had the privilege of serving as the Commissioner for the last 

two and a half years, in addition to being a small business owner 

in South Dakota myself for more than 20 years. 

I’d like to take the next few minutes to share with you a little 

bit about our state, why it’s a great place to do business and what 

we—as public servants—are doing to ensure that we remain the 

top place to do business. 

First and foremost, our tax climate is unmatched by any other 

state in the nation. Only in South Dakota do businesses enjoy the 

benefits of no corporate income tax, no personal income tax, no 

business inventory tax, no personal property tax and no inheritance tax. 

This structure leaves the money where it belongs—in the pockets 

of our businesses, creating a more favorable environment for longterm business growth. As we like to say in South Dakota, ‘‘Profit 

is not a dirty word.’’ 

I was asked today to testify on why South Dakota is a great 

place to do business. Well, a big part of that is our fiscal responsibility and common sense. 

When it comes to fiscal responsibility, you’d be hard pressed to 

find a state that would rank higher than South Dakota. For the 

last 123 years, we have consistently balanced our budget. 

Two years ago, like most of the country, we were faced with serious budget issues. We buckled down, made the cuts that needed to 

be made, and today, we are in a better financial situation than 

most other states in the country. 

SBREP-219 with DISTILLER

25 

If we want serious, financially sound companies operating in 

South Dakota, we need to set the example at the state level. 

I’ve already mentioned our favorable tax climate, but I also want 

to talk about our favorable regulations and the consistency of our 

business leaders. 

When I started in our office, I read something in one of our promotional pieces that said, ‘‘In South Dakota, our business climate 

doesn’t change with the political winds.’’ 

That statement was written back in the 1980s when Citibank 

moved some of its credit card operations to South Dakota when the 

state legislature allowed expansion in compliance with the old Federal Bank Holding Act. 

Today, the financial services industry is still thriving in South 

Dakota. 

As a matter of fact in 2012, South Dakota’s total bank assets 

topped $2.6 trillion, which totaled 18 percent of the country’s bank 

assets and landed our state the #1 ranking according to the Federal Deposit Insurance Corp. 

So forward-thinking leaders in the 1980s, followed by forwardthinking leaders for the next 30 years, have kept South Dakota a 

leader in economic development with reasonable regulation and low 

taxation. 

When our Governor—Dennis Daugaard—was elected, one of the 

first things he did was direct all state agencies to identify any unnecessary laws and regulations and get rid of them. 

In two years, executive agencies under Governor Daugaard have 

found 374 rules (72,990 words) and 919 sections of codified law 

(75,266 words) to be repealed, and the process is less than half 

done. 

That’s just good business. And corporate leaders quickly took 

note that this Midwest state was serious about maintaining the 

type of business climate needed for companies to grow and prosper. 

Another way South Dakota is able to continue to attract national 

and international companies like Bel Brands and Marmen Energy, 

is by playing on our strengths. 

With a population of 830,000, we are one of the least populated 

states in the country. 

But in business, that can be a good thing. 

Our small size affords businesses looking to expand in or relocate 

to South Dakota direct access to government leaders. 

When Governor Daugaard was campaigning, he promised to be 

the state’s #1 salesman for economic development. There is no 

question he has fulfilled that campaign promise and then some. 

During the last three months alone, Governor Daugaard met 

with nearly 70 business leaders and site selectors from across the 

country to encourage them to continue to grow their businesses in 

or to locate them to South Dakota. 

That kind of personal attention gets noticed. 

SBREP-219 with DISTILLER

26 

Another thing that gets noticed is the collaborative efforts of the 

people of South Dakota. 

Our business development team serves as the liaison with these 

business leaders and site selectors on a multitude of issues from financing to permitting. 

As every business leader knows, navigating the permitting process can be time consuming and frustrating. 

In South Dakota, we believe in working with the business to not 

only make it happen, but to make it happen faster. As an example, 

we recently had one company that was able to receive its air quality control permit from our Department of Environment and Natural Resources from start to finish in just 30 days. 

And we did it without cutting any corners. We believe the state 

should be an advocate, not a road block, to doing business. 

Another way we attract businesses is by keeping our cost of living down. Because in the business world a low cost of living equals 

a low cost of business. 

According to a June 2013 study by the US Commerce Department, South Dakotans pay 87 percent of the national average for 

goods and services. Additionally, the US Commerce Department 

just re-evaluated its numbers for Real Personal Income, and South 

Dakota’s growth was a whopping 10.4 percent—more than any 

other state in 2012. 

Of course I would be remiss if I didn’t take the opportunity to 

let others tell what they think South Dakota is doing right. 

The Small Business and Entrepreneurship Council evaluated 46 

different economic factors and ranked South Dakota number one 

for our business policies and entrepreneurial friendliness. We’re 

also in their top spot for small business survival. (2012) 

Our low debt and lack of unfunded pension liabilities and expensive state-funded programs lands us on the top of Barron’s Best 

Run States in America. (2012) 

Our state ranks in the top for lowest tax burdens (Tax Foundation, 2012), best business climate (US Chamber of Commerce, 

2013) and one of the highest average credit ranking 

(CardRating.com, 2012). 

And of course, there is yesterday’s CNBC ranking that put South 

Dakota as the Best State to do Business. 

Thank you again for the opportunity to be here today and testify 

on this important topic. I look forward to your questions. 

SBREP-219 with DISTILLER


Insert offset folio 27 here 81936.001SBREP-219 with DISTILLER

South Dakota Rankings 2012 - 2013 

US of Innovation: Ranking the States for Innovation 

Percent growth in Entrepreneurial Activity 201 0-2011 

Enterprising States - Business Climate 

6 measures: small business lending, !egal environment, state & 

local tax burden, business tax climate, U.S. Business Policy Index, 

cost of living 

Tax Freedom Day 

It provides taxpayers with a barometer that measures the total tax 

burden over time and by state 

Business Tax Index 2013: State Tax Systems for 

Entrepreneurship & Small Business 

16 different tax meaSures including income, property, 

death/inheritance, unemployment, and various consumption-based 

taxes, including state gas and diesel levies. 

BHI Competitiveness Index 

Index based on a broad set of 42 indicators/B subindexes: govt & 

fiscal policy, security, infrastructure, human resources, technology. 

business incubation, openness, and environmental policy. 

Freedom in the 50 States 

An index of personal and economic freedom 

Volunteering Rate Volunteering in America 

Best States for Business and Careers· Business Costs 

Annual ranking based on 6 categories", business costs, labor 

supply, regulatory environment, economic climate, grmvth 

prospects, & quality of life 

U,S. Business Policy Index 2012: Policy Environments 

for Entrepreneurship & Small Business 

46 different policy measurements mcluding Income, property, 

death/inhentance. unemployment, various consumption-based 

taxes, health care regulation, etc 

Best & Worst Run States in America 

Review of financial health, standard of livmg and government 

services 

Page 1 

6 

2 

4 

2 

5 

7 

2013 Fast Company magazine May

2013 US Chamber of Commerce Foundation Apr

2013 Tax Foundation Apr

2013 Small Business & Entrepreneurship Council Apr

2013 Beacon Hill Institute for Public Policy Research Apr

2012 Mercatus Center, George Mason University Ma

2012 Corporation for National & Community Service Oec

2012 Forbes Magazine Oec

2012 Small Business & Entrepreneurship Council Oec

2012 24/7 Wall SI. Nov

Insert offset folio 28 here 81936.002SBREP-219 with DISTILLER

South Dakota Rankings 2012 - 2013 

State-Local Tax Burdens 2 FY2010 Tax Foundation Oct-12 

Taxes paid by residents divided by their income 

Best States to Retire 9 2012 MoneyRates.com Oct-12 

Analysis of 5 economic and lifestyle factors in regard to favorable 

state conditions for retirees 

State Business Tax Climate Index 2 FY2013 Tax Foundation Oct-12 

The State Tax Business Climate Index is a measure of how each 

state's tax laws affect economic performance 

Best Corporate Business Climate 7 2012 Pollina Corporate Real Estate Aug-12 

States were evaluated by factors related to labor, taxes, incentives, 

and economic development agency factors to determine the top 

pro-business states 

Best Places to Live in the Future 9 2012 Gallup Aug-12 

Measure that looks at combined debt and unfunded pension 

liabilities relative to GOP by State. 

Best Run States 2012 Barron's Aug-12 

Measure that looks at combined debt and unfunded pension 

liabilities relative to GOP by State. 

10 States Where Youth Rules 2 2012 MoneyRales.com Aug-12 

Analysis of 9 economic and lifestyle factors in regard to favorable 

state conditions for young people 

Top States for Credit 3 2012 CardRatings,com Aug-12 

This ranking considered five factors average credit score, 

foreclosure rates, credit card delinquency rates, unemployment 

rates, bankruptcy rates 

Page 2 
29 

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OHicenftheSecretal), 

915SWHarnsonSI 

ropeka, I\..S 66612-1588 

phone 785-296-3041 

fax 785-368-8392 

v..v.,v., ksre~enue nrg 

Nick Jordan, Secretary Sam Brownback, Governor 

U.S. House of Representatives Committee on Small Business 

Testimony of Revenue Secretary Nick Jordan: Beyond the Beltway 

July 10, 2013 
30 

Chairman Graves, thank you for inviting me to address your 

committee on the very important work we are doing in Kansas to 

create an environment for small business success. 

This is a topic very dear to us in my state because the vast majority of private sector employers there are small businesses—77 

percent have fewer than 10 employees, and 98 percent have fewer 

than 100 employees. 

This means for Kansas families to flourish economically in the 

21st century, we must have flourishing small businesses. 

With that in mind, Gov. Sam Brownback has placed the utmost 

importance on pro-growth tax reform at the state level. 

We started with a clear-eyed understanding that taxes at the 

federal, state, and local levels are a complicated hodge-podge cobbled together over many decades. To help small businesses, it’s important to reduce the burden of complying with this onerous system, while also reducing the overall tax burden. 

So, since 2011, Gov. Brownback and the Kansas Legislature have 

teamed up to make the state’s tax code fairer, flatter, and simpler 

for families and small businesses. This approach broadens the base 

and lowers tax rates for the benefit of the maximum number of 

Kansans. 

The result has been historic and innovative tax relief—focused on 

providing a shot of adrenaline into the heart of the Kansas economy. 

What makes Kansas’ approach unique is how we are strategically accelerating tax relief to benefit small businesses. 

While individual income tax rates have been reduced 14 to 24 

percent for all Kansas taxpayers, we have gone even further to 

boost small businesses, because those businesses are the engine of 

job creation for our Kansas families. Once the plan is fully implemented in 2018, Kansas taxpayers will save an additional 23 percent on average. 

Starting this year, Kansas began exempting non-wage 

business income from state income tax. This is the type of income earned by the majority of small Kansas businesses, which 

typically are structured as LLCs, sole proprietorships, or S-corps, 

commonly referred to as ‘‘flow-throughs’’ since the taxes for this 

business income are filed on individual income tax returns rather 

than corporate tax returns. 

By eliminating the state income tax for many small businesses, 

we are sending the message that every business, every innovation, 

and every entrepreneur matters when it comes to creating jobs in 

Kansas. 

This is in addition to programs such as the Kansas Bioscience 

Authority, NetWork Kansas and the state’s Angel Investor credit 

which also help foster entrepreneurship. 

We are encouraging small businesses to grow in other ways as 

well. For example, our tax policy encourages private sector 

investment by allowing companies to immediately ‘‘expense’’ 

SBREP-219 with DISTILLER

31 

purchases of equipment and software as a state tax deduction. 

As small businesses capture the full tax value of the money related 

to their investments, they are keeping tens of millions of dollars 

each year, which can be reinvested in the businesses. 

Additional tax relief is being targeted to rural communities to stimulate small business startups in every corner of Kansas, not just our urban centers. 

Specifically, Kansas is providing a full state income tax rebate to 

new residents who move from out-of-state into rural opportunity 

zones. 

By keeping an additional $4.1 billion in the pockets of Kansas 

citizens and businesses over the next six years, we hope to experience growth rates similar to the nine states with zero personal income tax, which significantly outperform states with the highest 

personal income tax rates. 

Recently the Tax Foundation released a paper titled, What Is the 

Evidence on Taxes and Growth? The special report found that data 

‘‘consistently point to significant negative effects of taxes on economic growth even after controlling for various other factors such 

as government spending, business cycle conditions, and monetary 

policy ... Every study in the last 15 years finds a negative effect 

of taxes of growth ... If we intend to increase employment, we 

should lower taxes on workers and businesses that hire them.’’ 

Therefore, in Kansas, we have been changing the dynamic that 

has led to average economic results—so more families can achieve 

a meaningful increase in income and opportunity, and small businesses can invest in growth and new jobs. 

This is a model being recognized by our neighboring states, including Chairman Graves’s home state of Missouri, and we hope 

others in the region will join us in reducing taxes on small businesses and making the heartland of America the fastest growing 

region in the nation. 

As Missouri Speaker of the House Tim Jones recently wrote in 

The Kansas City Star: 

‘‘Kansas lawmakers have accomplished major tax reform and 

have managed to get the state economy back on track. These improvements are great for Kansans and challenge neighboring states 

to compete for business and job growth ... 

‘‘On the other hand, Missouri’s unemployment rate has plateaued 

at 6.6 percent. Perhaps most troubling for Missouri is the 

Kauffman Foundation’s small business climate ranking, which 

gives Missouri a C and Kansas an A ...’’ 

Speaker Jones concluded, ‘‘Kansas has proven that competitive 

economic policies promote a business-friendly environment, attracting new companies and, with those new companies, more jobs ... 

The facts are right in front of us.’’ 

SBREP-219 with DISTILLER

32 

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]{J(,K l'l\\{l{\ 

(;0\ ER~OR 

OJ<I'IC1~ or Ttll: GU\ hR'\,tJR 

E co:\. (j ,\1 leD E \' L L () P ,\1 I",:\. r & T 0 L It I S ,\1 

United States House of Representatives 

Committee on Small Business 

Hearing 

Beyond the Beltway: Successful State Strategies for Small Business Growth 

July 10,2013 

Aaron S. Demerson 

Executive Director 

Office of the Governor - Texas 

Economic Development & Tourism 

2361 Rayburn House Office Building 

Washington, DC 20515-6315 
33 

Chairman Graves, Ranking Member Velazquez and members of 

the committee my name is Aaron Demerson and I have the pleasure of serving as the Executive Director of the Economic Development & Tourism Division for the Governor’s Office in the great 

State of Texas. 

Thank you for the work your committee continues to do for small 

businesses and for the invitation to participate on this panel as it 

is indeed an appreciated privilege to do so. 

Over the course of the past two days and throughout the years 

this committee has heard from some of the most notable representatives associated with small business. 

That’s as it should be and not surprising given the importance 

of small businesses to the US economy and in my case the Texas 

economy. 

Small business owners are making a real difference in countless 

lives, for countless families in Texas....from the Panhandle to the 

Gulf coast. 

And as we speak here today someone, somewhere in Texas is 

coming up with the next big idea, a better way of doing something, 

or doing something that’s never been done before. 

Fostering these types of innovations is vital to keeping Texas at 

the forefront of the national economy and when these innovators 

are ready to go to market, our hope is the efforts of this committee 

in collaboration with the efforts at the state-level will make it easier for them to succeed and thrive. 

We all know the big companies tend to draw the biggest headlines and they do, in fact, have a very important role to play. 

But we also know the drivers of job creation in Texas and our 

nation are our small business men and women. As we like to say, 

‘‘Small business is big business in Texas.’’ 98.7 percent of Texas 

employers are small businesses—these are bold entrepreneurs who 

take real risks pursuing their dreams of owning their own businesses. As the SBA recently profiled, Texan small businesses under 

500 people were responsible for all of the state’s net new jobs over 

the last five years. Consequently, the over 2.3 million Texas small 

business owners represent the true vibrancy of the Texas economy 

with the nearly 4.1 million jobs they create. And their contribution 

to the positive economic climate is a large part of what has helped 

us attract employers of all sizes to the Lone Star State. 

The committee is seeking information on why certain states are 

attractive to businesses. We have found the continued 

attractiveness to Texas over the years is based on a number of reasons, with a major portion of this success associated with the leadership and emphasis placed on job creation that has been championed by Governor Rick Perry and our collective statewide elected 

delegation. 

We know that our second to none business-friendly climate/ 

environment has continued to help us attract new employers and 

create jobs. And this past legislative session (just as we have done 

SBREP-219 with DISTILLER

34 

in the past) we took the necessary steps to preserve the business 

climate that’s made all that possible. 

In some cases these businesses were fleeing over-taxation and 

over-regulation in other states as they sought to expand our relocate to a place where they’re free to succeed. 

And it is our thought that we can expect more of them heading 

our way as long as we remain committed to the principles that 

have helped make us the best state in the country to do business. 

One of the most important steps for attracting business to Texas 

is centered on keeping our taxes low because dollars do far more 

to create jobs and prosperity when kept in the business owner’s 

hands. 

We have worked hard to keep a fair and predictable regulatory climate so that a company will know what to expect a 

quarter, six months or a year down the line. The CEO’s and CFO’s 

understand this and continue to fid it a very attractive alternative 

when considering expansion and/or relocation. 

To that end, we have continued to enact legislation that has a 

positive impact on small business. This year we were able to make 

permanent the small business tax relief that was passed in 

2009. 

The recently signed HB500 offers over $700 million in business 

tax relief and makes permanent the $1 million small business tax 

exemption. This important bill provides significant tax relief to 

over 140,000 Texas small businesses by establishing that any business making below $1 million in revenues will always be free of 

any franchise tax obligation whatsoever, thereby leaving more dollars in their pockets to invest in new hires and new equipment. Additionally, the bill reduces the margin tax rate on nearly 800,000 

businesses in Texas, bringing meaningful tax relief to the heart 

and backbone of the mighty Texas economic engine. 

We have also been able to further enhance our legal system 

to make it even harder to file frivolous lawsuits in Texas and approved ‘‘loser pay’’ legislation which requires those who file a frivolous lawsuit and lose to pay the court costs and legal expenses of 

those they sued. 

For us in Texas economic development begins at the local level 

and when you represent a state that has 254 counties and when 

driving for three, six, or even 14 hours you are still in that state 

it becomes very important that you have effective relationships at 

the local level to take advantage of the small business opportunities. To say that our communities are very aggressive and serious 

about small business and job creation is an understatement. Legislation was recently passed that will establish a new small business advisory committee that will allow us to align even closer 

with the communities on small business initiatives and issues. We 

also are close to completing our marketing plan for attracting more 

small business to our state. 

...and lastly in Texas as depicted in the attached state by state 

comparison document and our ‘‘brag’’ sheet (the Governor states 

SBREP-219 with DISTILLER

35 

that in Texas—it ain’t braggin’ if it’s true) our unemployment rate 

has consistently been lower than the national average and we have 

continued to lead the nation in job creation over the years. We also 

continue to have the nation’s best business climate, continue to be 

the number one exporter 11 years running and continue to have 

the highest number of expansion and relocation projects.....all of 

this creates a great deal of attention and continues to be of great 

interest to a number of small business owners in the United States 

looking to expand or relocate their business. 

It didn’t happen by accident....it happened because, over the last 

decade, Texas leaders have made principled, thoughtful decisions 

by not over-taxing, over-regulation or over-litigating our citizens. 

In Texas we have an obligation, responsibility, and goal to the 

taxpayers to take the necessary steps to make government more efficient and streamlined while reducing spending without raising 

taxes. 

Our statewide elected officials continue to act on the tough decisions necessary as they recently thoughtfully made their way 

through the budget-writing process this session which should result 

in additional jobs and opportunity thus leaving Texas even more 

competitive than ever. 

And that same process and challenge associated with tough decisions is taking place at small businesses and around kitchen tables 

all across our state and nation. 

Small business owners have continued to find new ways to tighten their belts, separating wants from needs and making responsible decisions to live within their means. 

Only by keeping our families and small businesses strong can we 

continue the type of prosperity we’ve enjoyed in Texas over this 

past decade. 

So how do we continue to create new opportunities for Texas 

families and small businesses? 

We do this by continuing to apply a laser-like focus on small 

business retention and recruitment while showcasing the best of 

what Texas has to offer. In addition we will continue to ensure for 

small businesses a climate at the state-level that is conducive to 

making a profit, creating jobs and enjoying success. 

Our hope is that the same or a similar approach is viewed at the 

federal level. 

I sincerely appreciate the opportunity, welcome you to visit our 

great state, and look forward to the discussion and answering any 

questions you might have. 

SBREP-219 with DISTILLER

36 

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Bouncing Back from Recession 

Texas has over half a million more jobs today than it did before the recession (January 2008 vs, March 2013). 

Most other states are still climbing out of a deep hole. 

Texas 

+552,900 Jobs 

Texas Job Growth Sets the Pace 

New York 

+74,300 Jobs 

Illinois 

SOlJrce;U.S BIJreolJo/LoborStatistics 

Over the past 12 months, Texas employment grew the fastest of the 10 largest states (March 2012 to March 2013) 

• 

New York +1.0% 

Michigan +0.8% 

illinois +0.6% 

I Ohio +0.1% 

I Pennsylvania *0.1% 

l1li California +2.0% 

Georgia +1.9% 

Florida +1.9% 

North Carolina +1.9% 

wwwTexasWldeOpenForBusmess com 

Texas +3.1% 

Source: U 5. BureouofLobor5tatistic~ 
37 

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Unemployment Rates in the Biggest States 

In March 2013, Texas had the lowest unemployment rate among the ten largest states. 

Source: u.s. Bureau of LaborS tat is tics 

Job Growth in Private-Sector Industries 

Over the past three years (March 2010 to March 2013t Texas led the nation in total job gains in each of the 

following industry sectors: 

finance 

#1 Texas 

#2 California 

#3 Florida 

Energy 

#1 Texas 

#2 North Dakota 

#3 Oklahoma 

- <!Ii 

Health Care 

#1 Texas 

#2 California 

#3 New York 

Construction 

#1 Texas 

#2 California 

#3 New York 

Source: u.s. Bl1reauofLaborStotistics 

'" Fot more mforma:t'fi!jtj on dellng bustf}tllss In Texasj VISit 0$ onhl1e at 

Wl:~Otl~ f:. Ihi~H'lh ww:wJre}(a~)N'loeC)QenRor$ustne:s'S {Corn 1 Sf, @[exasJJne: D!Texas:WJde()~n 
38 

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Texas Metros lead Nation in Job Growth Rate 

Ranking the nation's 50 largest metropolitan areas by job growth rate, Texas' major cities dominate the top of the 

Jist (March 2003 to Much 2013). 

1 Austin, Texas +30.0% +194,700 Jobs 

1. Houston, Texas +21.1% +493,400 Jobs 

3 Raleigh, North Carolina +2L4% 

2 Salt Lake City, Utah +19.0% 

5 San Antonio, Texas +18.0% +135,300 lobs 

6 Dailas/Fort Worth, Texas +15.1% +418,700 Jobs 

Housing Construction Booms in Texas 

1n 2012, Texas the leading state for residential construction activity with more building permits Issued than in 

No.2 F!orida and No, 3. California combined. 

Texas 

Washington Virginia 

US (ensusBvrNi\I 
39 

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"Texas is a state where a dream can be put ta wark." - Governor Rick Perry 

CNBC "Best State 

for Business" 

"America's Top State 

for Business 2012" 

"2012 State of the Year" 

FORTUNE Forbes acorn 

MAGAZINE 

"A Top State for 

Fortune SOO HQs" 

"2012 Governor's Cup Winner & 

Most Com petitive State Winner" 

Texas dominates "Best 

Cities for Good Jobs" 

Texas dominates CNNMoney's list of 8 best places to launch a small business list, Austin 

topped the list, followed by Houston (#3), 5an Antonio (#5), and Dallas-Fort Worth (#7), 

CNNMoney.com, June 2013 

Texas received Area Development's "2013 Gold Shovel Award," Since 2006, the magazine has 

awarded shovels to states for creating significant project investments and high-value jobs. 

Texas has won a shovel award each year, including five silver and the three gold. 

Area Development, June 2013 

Chief Executive Magazine named Texas as the "Best State for Business" for the 

9th consecutive year. Texas received high marks for its business-friendly tax 

and regulatory environment, as well as its highly regarded workforce. 

Chief Executive Magazine, May 2013 

Texas is home to 52 Fortune 500 companies including all six of 

the Oil & Gas Equipment, Services Companies; seven ofthe eight 

Pipeline Companies; and seven of the 12 Petroleum Companies. 

Fortune, May 2013 

Texas wins the Most Competitive State title and is two-thirds of the way to sweeping 

Site Selection's annual state rankings after winning the Governor's Cup in March. 

Site Selection, May 2013 

Texas led the nation in 2012 with new wind capacity. 

Texas' 12,214 MW capacity is higher than the total U,S. capacity in 2006. 

AWEA.org, April 2013 

TexasWideOpenForBusiness.com 
40 

Testimony Before The 

HOUSE COMMITTEE ON SMALL BUSINESS 

Regarding 

‘‘Beyond the Beltway: Successful State Strategies for Small 

Business Growth’’ 

July 10, 2013 

Submitted by: Honorable Robert F. McDonnell 

Governor of the Commonwealth of Virginia 

Chairman Graves, Ranking Member Velazquez and other distinguished members of the Committee on Small Business, on behalf 

of the Commonwealth of Virginia, I thank you for inviting me to 

offer testimony today at this important hearing. 

Small businesses are the backbone of our economy. Across Virginia and throughout the United States small businesses are creating jobs and opportunity. The Small Business Administration estimates that small businesses represent 97.8 percent of all employers in Virginia. Approximately 70 percent of all new jobs created 

are from small business. The work of a small business owner is not 

easy. Increased regulation, taxes and other burdens have made it 

more difficult for small businesses to thrive. Small businesses are 

critical to ensuring economic prosperity throughout the United 

States. 

In Virginia, we’ve been intensely focused on job creation and economic development with special attention to the important role of 

small business in our economy. Last year I announced 2012 as 

‘‘The Year of the Entrepreneur in Virginia.’ We highlighted Virginia’s colleges and universities activities that encourage young 

Virginians to pursue entrepreneurship as a career option. Throughout the year I held monthly office hours with small business owners, roundtables across the state and featured profiles on entrepreneurship. 

One thing is clear, small businesses need flexibility and predictability from government. In Richmond, we are working to do our 

part. 

Fostering an entrepreneurial environment is a team sport in Virginia. In my administration, commerce and trade, administration, 

agriculture and forestry, technology and veterans affairs work together to create a strong, welcoming economic environment for 

small business. 

During one of my ‘Year of the Entrepreneur’ office hours, I met 

NFIB member Timothy Heydon of Shenandoah Growers, located 

just outside of Harrisonburg, Virginia. Shenandoah Growers was 

founded over two decades ago by entrepreneur farmers with a 

dream of bringing fresh culinary herbs to homes throughout the 

country. Shenandoah Growers has today become a leading provider 

SBREP-219 with DISTILLER

41 

of fresh herbs in the United States, specializing in supplying the 

retail grocer. 

I recently asked Tim to serve on my Rural Jobs Council. Through 

his work and the leadership of my Chief Jobs Creation Officer, Lt. 

Governor Bill Bolling, the Council put forward recommendations 

that make it clear that entrepreneurs need leaders to be mindful 

of the unique challenges facing small businesses in today’s global 

economy. The Council recommended that we invest in infrastructure and broadband as well as targeted workforce development efforts. The Council also recommended that we create a Governor’s 

School for Entrepreneurship to encourage middle school students to 

consider entrepreneurship as a career option. 

In Virginia, we continue to focus on things that matter to entrepreneurs—access to capital, workforce development and a predictable and accountable government. 

Access to Capital 

Virginia’s small businesses need to know that when the time is 

right to grow their business, the capital they need will be readily 

accessible. In 2012, we worked with members of the Virginia General Assembly and stakeholders to enact a bi-partisan solution that 

will encourage long-term investments in Virginia’s small businesses. The Virginia Small Business Investment Grant helps encourage private investment for two years by providing a grant 

equal to 10 percent of a qualified investment for an eligible investor. 

We’ve also invested in the Virginia Small Business Financing 

Authority. The VSBFA aids Virginia’s financial institutions to offer 

business loans that they might not be able to offer without the 

authority’s assistance. 

One of the most burdensome taxes in Virginia is the Business 

Professional and Occupational License (BPOL) tax. We passed legislation to allow localities to exempt from the BPOL tax if they lose 

money and are unprofitable during the taxable year. We also provided localities a choice in how to impose the BPOL tax. Commonsense tax policy is key to attracting small businesses. 

Agriculture and forestry continues to be Virginia’s largest industries, generating a combined $79 billion annually and creating 

more than 500,000 jobs across the state, most of these agriculture 

and forestry operations are small businesses. During the 2012 General Assembly session, we introduced legislation to establish a new 

economic development tool targeted for agriculture and forestry industries, which had been largely overlooked in the state’s traditional economic incentive programs. Created as the Governor’s Agriculture and Forestry Industries Development Fund (AFID), the 

legislation passed and was funded with unanimous support from 

the Virginia General Assembly. 

The AFID provides incentive grants for projects that utilize Virginia grown products in value-added or processing facilities. These 

agriculture and forestry value-added or processing facilities can 

have tremendous impacts on the regions in which they locate. 

SBREP-219 with DISTILLER

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Areas where these facilities typically locate are rural with higher 

unemployment. Agriculture and forestry are already economic drivers in the area, so facilities of this kind can build on the region’s 

existing strength. The value-added and processing facilities have a 

greater economic ripple effect as a result of growers in the region 

having a new market in which to sell products. Although the program is new and only about a $1 million has been allocated thus 

far in economic development and planning grants, we believe that 

we’ll farm revenue increase as a result of these facilities, jobs being 

created on the farm and in the facility, greater opportunities to increase farm profitability and more farmland preserved, and more 

economic benefits for the region as a whole as a result of revenue 

generated on the farms and at the facility. 

We have also opened up nine agriculture and forestry trade offices in Asia, Europe and other regions, resulting in record exports 

in each of the past two years and on the way to a third. 

Of great importance to the Commonwealth and the Nation is our 

ability to compete in technology innovation. With greater than thirty percent of new job creation originating with high growth technology start-up companies, our administration has invested in ensuring that Virginia delivers the economic environment necessary 

to start and grow successful high technology companies. 

We created targeted incentives to recruit and attract angel and 

venture investment. 

• The Angel Investment Tax Credit encourages early-stage 

investment in technology, biotechnology and energy startups. 

While Virginia is one of 20 or so states that have an angel 

credit, ours is among the most competitive with a 50 percent 

leverage of the first $50,000 an investor puts into a qualified 

Virginia technology startup. 

• Another success story is the Capital Gains Tax Exemption, 

Entrepreneurs and investors who make qualified investments 

in early-stage technology, biotechnology and energy startups in 

Virginia, through June 30, 2015, will be exempt from paying 

state income tax on their long-term capital gains throughout 

the life of the investment. If and when investments in these 

qualified companies are successful over the life of a company, 

any long-term capital gains attributable to the investment will 

be exempt from Virginia’s income tax, facilitating a growth in 

the growing share facility market. 

• We created a very competitive Virginia market for data 

centers that turned into real jobs and revenue for Virginians. 

I signed legislation to expand Virginia’s current data center 

sales tax exemption to also include data center tenants. 

• We created the Commonwealth Research Commercialization Fund (CRCF) is aimed at advancing science- and technology-based research, development, and commercialization to 

drive economic growth in Virginia. The CRCF will encourage 

emerging ideas and turn them into real world solutions and 

jobs for Virginians. 

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• The Center for Innovative Technology GAP Funds have 

underwritten critical and immediate first financing for tech 

startups with high potential for achieving rapid growth and 

generating significant economic return. The GAP Fund’s targeted areas include software, telecommunications, semiconductors, media and entertainment, e-commerce, networking and 

equipment, electronics/instrumentation, industrial/energy, computers and peripherals, biomedical and life science applications. 

During the past three and a half years, our seed stage investment programs will have created over 75 new high technology companies that have attracted private capital at a rate of $17 dollars 

for every $1 of public funds invested. Successful start-ups like 

Invincea whose cyber security software will be deployed on every 

Dell computer help ensure the competitiveness of the Commonwealth and the Nation. 

This type of innovative, market facing approach to economic development makes Virginia appealing to entrepreneurs. 

Regional Capacity Building 

A key strategy to support entrepreneurial growth at the local 

level is to support regional capacity building. We launched a new 

grant program called ‘‘Building Collaborative Communities.’’ The 

effort is designed to assist regions in creating and sustaining new 

economic opportunities across Virginia. The program promotes regional economic collaborations in economically-distressed areas to 

stimulate job creation, economic development and build community 

capacity and leadership. 

Regional economic development leadership is key. An excellent 

example is the Southwest Virginia Blueprint for Entrepreneurial 

Growth and Economic Prosperity, a community-based initiative designed to promote entrepreneurial activity in the region. The Blueprint was developed to inspire collective action, impact policy, foster regional networks, build on the region’s assets and to seek new 

investment. 

Workforce Development 

One of the most important issues to small and growing business 

is workforce development and the quality of education. Small businesses thrive because of their ability to recruit, train and retain 

qualified employees. From a small manufacture that is able to partner with a local community college to a ensure qualified pipeline 

of workers to a tech start-up that works to commercialize and license technology from one of the Virginia’s public institutions of 

higher education, human capital matters. 

The Virginia Higher Education Opportunity Act of 2011, known 

as the ‘‘Top Jobs Act,’’ adopted unanimously by the 2011 General 

Assembly demands more access at lower costs to Virginia’s universities. To reforms make clear link between higher education and 

job creation. 

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44 

• Provides a roadmap for achieving an additional 100,000 

undergraduate (associate and bachelor’s) degrees for Virginians 

over the next 15 years by (1) increasing enrollment of Virginia 

students, (2) improving graduation and retention rates, and (3) 

incentivizing higher education to lower tuition increases. 

• Focuses additional degree attainment in high-demand, 

high-income fields (e.g., STEM, healthcare) that are keys to top 

jobs in the 21st Century economy. Incentivizes public-private 

collaboration on STEM-related and other commercially viable 

research. 

• Higher education’s return on investment is proven. The 

Weldon Cooper Center’s study for the Virginia Business Higher 

Education Council shows that every 1 dollar currently invested 

in Virginia’s public higher education system yields 13 dollars 

in increased economic output. College graduates on average 

earn twice as much as those without college degrees. 

• Provides for sustained reform-based investment and innovation in delivery of higher education services, as well as extending college degree opportunities to more citizens in creative, cost-effective ways. Institutions’ must generate six-year 

plans to address strategies and use of incentives for: 

Æ Year round use of physical facilities and instructional 

resources 

Æ Technology-enhanced instruction and resource-sharing 

across the higher ed system 

Æ Innovative and economic degree paths 

Æ Ongoing restructuring and managerial reforms 

• Reverses the dramatic funding reduction cycle to higher 

education through a new comprehensive funding model framework with four components: basic operations and instruction; 

enrollment growth funding; need-based financial aid (for lowand middle-income families); and financial incentives to promote innovation and increased research and development; 

• Creates a collaborative Higher Education Advisory Committee consisting of executive and legislative branch representatives and representatives of higher education institutions to 

develop performance criteria for incentives, institution-specific 

base funding policies, economic opportunity metrics for degree 

programs, opportunities for additional, cost-saving managerial 

autonomy and efficiency reforms, and other key policies. 

• Provides enrollment-based funding to increase access for 

qualified Virginia students at public and private colleges and 

universities. 

• Enhances long-term affordability through a three-prong 

strategy; (1) puts in place a model for stable and predictable 

state funding support, relieving the upward pressure on tuition; (2) provides for development of need-based financial aid 

options aimed at middle-income as well as low-income families. 

The workforce development pipeline starts in K-12. Virginia is 

competing internationally for job creating businesses. I have put 

SBREP-219 with DISTILLER

45 

forward necessary reforms to ensure our K-12 system is preparing 

the next generation of small business owners and entrepreneurs. 

This year, we passed bold and innovative education legislation 

that ensures that every child has great teachers, that sets clear 

and high standards for our schools, and that establishes a roadmap 

to provide choice, accountability and opportunity for every student 

in Virginia. We passed the Opportunity Educational Institution to 

turn around chronically underperforming schools. The Teach for 

America Act, which passed unanimously in both chambers, will 

give difficult to staff schools another tool with which to bring in talented and motivated teachers. Virginia will soon increase accountability and transparency with A–F school grading, giving parents 

and families another tool to advocate for and achieve better schools 

for their communities. With passage of the Educator Fairness Act, 

we have reformed the teacher contract and grievance system to ensure that our children have the best possible educators. 

Government Reform 

Small businesses need predictability and efficiency. Last year, we 

launched a regulatory reform initiative to reduce the number of 

burdensome regulations placed on small businesses. Since September 2012, 562 sections in the VAC have been identified: and 

157 sections have already been repealed. We asked industry and 

small business for ideas and specific sections of the code that were 

overly burdensome. 

Virginia also offers small business owners a ‘Business One Stop’ 

for business formation. Rather than seeking permits and formation 

documents from a handful of agencies, we offer a streamlined one 

stop shop. 

We worked with the legislature this year to merge small business 

agencies into one to focus on small business. As of January 2014, 

Virginia will have one small business agency—the Department of 

Small Business and Supplier Diversity. The new streamlined agency will be laser focused on small business and economic development. 

The most important thing government can do is listen to industry needs and be responsive. Last year for example, we heard from 

Virginia’s craft beer industry that they needed a legislative fix to 

allow retail sales of beer and sampling on the premises of Virginia 

breweries. We worked with stakeholders and made the case for legislation. Senate Bill 604 passed and as result we’ve seen more jobs 

and increased interest in Virginia as a tourism and craft beer destination. This legislation directly resulted in a major west coast 

brewery deciding to locate its east coast brewery in Virginia. In 

fact, Hardywood Brewery in Richmond launched ‘Session Beer 604,’ 

brewed to commemorate the signing of SB604 into law. 

We have put a special focus on developing new businesses where 

we have unique strengths. Virginia’s wine, film production and 

tourism industries are among those with new targeted tax incentives and offices to promote development. All have grown at a rapid 

pace. 

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46 

In Virginia we are working to keep taxes low, and regulation and 

litigation to a minimum in order to allow our entrepreneurs and 

job creators to grow their businesses and create the private sector 

jobs our economy needs. 

Ultimately, it is not what the federal or state government can do 

for small business that matters, but how government can ensure it 

does not erect unnecessary barriers to job creation. We must ensure an environment conducive to economic vitality and guard 

against extinguishing the entrepreneurial spirit with overly burdensome laws and regulations. 

Our work has gotten results. When we took office, unemployment 

in Virginia stood at 7.3%. Now, it stands at 5.3%, our lowest unemployment rate in over 4 years. Virginia also has the lowest unemployment rate in the Southeast, the second-lowest rate east of the 

Mississippi River, and an unemployment rate that is more than a 

full point lower than any of our neighboring states. Since the beginning of our administration, Virginia has added 171,000 net new 

jobs, 153,000 of which are in the private sector, and the number 

of unemployed Virginians has decreased by a total of 80, 164, or 

36%. Simply put: More Virginians are working today. 

Thank you and I look forward to your questions. 

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Final Report - October 16,2010 

Introduction 

On January 16th 2010, immediately after his inauguration, Governor Bob McDonnell 

signed Executive Order One, creating the Governor's Economic Development and Job Creation 

Commission. He charged the Commission Co-Chairs, Lieutenant Governor Bill Bolling and 

Senior Economic Advisor Bob Sledd, and the Commission members with developing innovative 

and achievable policy recommendations to further develop an environment for job creation and 

economic growth in Virginia. 

To accomplish its mission, the 64 members of the Commission were organized into eight 

subgroups focused on key industry sectors and elements of economic development in Virginia: 

J. Business Recruitment and Development 

2. Economically Distressed Areas 

3. Energy 

4. Manufacturing 

5. Small Business 

6. Technology 

7. Tourism 

8. Workforce Development 

The subgroups were assigned Commission staff and given the support of agency 

representatives pertinent to the subject matter of the subgroup. 

Over the last five months, the Commission members have worked tirelessly with agency 

representatives and stakeholders from across the Commonwealth to analyze Virginia's economic 

development programs and agencies, assess competitive initiatives in other states and consider 

existing tax and regulatory impediments to job creation. 

The Commission subgroups used volumes of research, hours of discussion and their vast 

personal expertise to develop a series of comprehensive recommendations to strengthen key 

strategic industries in Virginia, better position the private sector and entrepreneurs to grow their 

business and create new jobs and make Virginia a more competitive national and international 

business destination. The complete reports of the Commission subgroups. including significant 

additional detail on all of the recommendations, are available on the Jobs Commission websitewww.ltgov.virginia.gov/initiatives/jcc. 

1 I 
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The final report of the Commission attempts to prioritize and condense the subgroup 

recommendations around a set of common themes to address deficiencies in Virginia's economic 

development systems and position Virginia to hetter create jobs and provide greater prosperity 

for Virginians. 

Analysis 

While Virginia is consistently ranked as the most business friendly state in America, the 

Commission subgroups identified through research, personal experience and discussion with 

agency representatives and other stakeholders several general areas where Virginia's economic 

development systems, programs and infrastructure are insufficient to meet current and future 

needs of business. Some of these common deficiencies include: 

• Virginia's innovation economy lacks appropriate coordination with higher education 

institutions and infrastructure needed to capitalize and eommcrcialize on future emerging 

technologies and industries. 

• Key sectors such as small business, tourism and biotechnology, among others, have 

historically lacked thc attention, resources and tools commensurate with their return on 

investment, value to Virginia's economy and capacity to create jobs. 

• Virginia must more effectively align higher education, workforce development and 

incentive programs with strategic regional and statewide priorities and assets. 

• Virginia's workforce development system lacks the coordination and leadership to 

adequately provide the workforce needed to support new and existing businesses and be 

prepared for the jobs of the future. 

• Budget reductions during previous Administrations have negatively affected Virginia's 

existing economic development programs, incentives and marketing initiatives. 

• Virginia's tax structure affects some businesses unevenly and unfairly, stifles capital 

investment and perpetuates competitive disadvantages in key industries. 

The Commission report contains 50 specific recommendations to address these and other 

challenges. The proposals promote greater coordination and efficiencies in our economic 

development systems, investment in proven job crcating programs and establishment of 

innovative new incentives to grow existing business and industry. These recommendations will 

position Virginia to remain competitive nationally and internationally in the emerging, evolving 

21't century economy. 

The recommendations are grouped into seven themes to address the opportunities 

identified by the Commission. 

I. Growing Virginia's Innovation Economy 

2. Transforming Academic Institutions into Economic Engines 

21" 
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3. Business Growth and Development 

4. Training Workers for Virginia Businesses 

5. Coordinated, Efficient and Effective Economic Development Strategies 

6. Promoting the Virginia Brand 

7. Virginia's Business Tax Policy 

Some of the Commission recommendations are achievable through administrative or 

legislative action, while others represcnt long-term goals of the subgroups that will require 

additional refinement, discussion and development with affected stakeholders and legislators and 

consideration of budgetary impact. 

Governor McDonnell and the Commission leadership understand by increasing revenue 

growth through economic growth, this leads to additional resources for education, health care, 

transportation, public safety and other essential programs. Increased funding for economic 

developmcnt programs with proven return on investment will ultimately generate more revenue 

to pay for the other core services of state government. 

This final report is a comprehensive roadmap for enhancing economic development. 

creating jobs and strengthening Virginia's position as the best placc for business in America. 

From the devclopment of emerging industries and collaboration with higher education to 

expanding existing industries and building a highly-skilled workforce to more effective and 

responsive systems and superior marketing, the Commission has presented a detailed blueprint to 

best position Virginia business and industry to create jobs and economic opportunity for all 

Virginians. 

3 I : 
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Growing Virginia's Innovation Economy 

Virginia is non-competitive in the development and commercialization of evolving and 

emerging technologies that are the cornerstone of a 21 st century innovation economy. In 2006, 

Virginia ranked last among our peer competitor states for per capita patents awarded. As the 

2007 SRI International Report recognized, "Virginia possesses important assets and initiatives 

related to innovation, but the Commonwealth has not reached its potential." 

Additionally, Virginia lacks the necessary infrastructure and collaboration between 

research universities and industry to maximize and capitalize on ideas and concepts put forward 

by emerging technology entrepreneurs. 

Virginia's existing environment is prohibitive to the development of emerging and 

innovative companies. Ilowever, Virginia does possess the assets business climate, higher 

education assets, existing industry and entrepreneurial spirit to position itself as a leader in the 

innovation economy. 

For the next Apple, Google or Facebook to start in Virginia instead of California or 

Massachusetts, Virginia needs to establish a structure to increase collaboration and coordination 

between industry, higher education and emerging technology entrepreneurs. 

Several states currently offer innovative solutions to this problem by leveraging private 

sector participation and revenue streams separated from the general appropriations process. In 

order for Virginia to become competitive and eventually a leader in the innovation economy, we 

must create a structure to provide capital and knowledge centers for the development and 

commercialization of advanced technology companies in the Commonwealth. 

To grow Virginia's innovation economy, the Commission recommends the following: 

I. Emerging Technology Fund 

2. Venture Virginia 

3. Advanced Technology Convertible Loan Fund 

4. Refundable Research and Development Tax Credit 

Emerging Teehnologies Fund 

While the Commission does not believe the role of government is to select winners and 

losers in the marketplace, government can serve as a catalyst for leveraging the entrepreneur, 

Virginia's higher education research assets and private-sector funding through a program such as 

an emerging technologies fund (similar to a program in Texas). This would provide a structure 

and funding to encourage evolving technologies that create industries ofthe future. 

Such a fund would address research commercialization awards to grow new businesses 

and existing businesses and accelerate entrance of new products and services to the marketplace; 

provide institutions of higher education and companies engaged in research a source of matching 

4/ 
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funds for outside funding; and provide research superiority acquisition grants to create an 

eminent scholars program. 

An emerging technology fund would help fill an imperative strategic gap in Virginia's 

current array of business incentives. By encouraging research-based technologies, Virginia can 

support existing and new small, medium and large businesses. The Fund would be governed by 

a board oftechnology experts and potentially be divided into three areas: 

• Research Commercialization A wards - grow new small businesses/existing businesses; 

accelerate entrance of new products/services to the workplace; 

• Research Award Matching - provide institutions of higher education/companies engaged 

in research a source of matching funds for outside funding opportunities; and 

• Research Superiority Acquisition Grants - provide source of funds for bringing the best 

and brightest researchers. 

An emerging technology fund will provide a comprehensive structure to foster the 

development and commercialization of the best emerging technology companies through capital, 

collaboration and industry expertise and be a signal to the national innovation, knowledge-based 

economy that Virginia is the best place to start their next business. 

While the Commission envisions an emerging technology fund as an umbrella approach 

to developing Virginia's innovation economy, the Commission subgroups also recommended 

other initiatives that could be complementary to or included in this fund. 

Venture Virginia 

In order to compete in today's economy, it has become increasingly important to find 

innovative ways to lure capital investment dollars. A Venture Virginia program would incentivize 

high wage job creation and public-private partnerships to catalyze entrepreneurial investment in 

high growth, advanced technology industries in the Commonwealth. These high-growth, 21 sl 

century companics pay higher wages and havc larger multiplier ratios than traditional businesses 

in Virginia. 

Consistent with the approach taken by InvestMaryland, a Venture Virginia program would 

offer tax credits to insurancc companies that expedite payment of their state taxes. For every $1 

of tax credits to insurance companies offcred by thc Commonwealth, insurance providers that 

pay taxes to the state can receive an up-front discount on the credit for invcsting in the program. 

The concept is similar to the Small Business Investment Credit offered by Delcgate Merricks 

during the 2010 Session of the General Assembly. This program would get capital flowing to 

high growth, high wage, advanced technology firms now when they need it the most. 

Other approaches to fund the Venture Virginia Program might include the above and some 

combination of: (I) extending the above-described tax credit to corporations outside of the 

insurance industry; (2) extending a tax credit to high net worth individuals seeking participation 

in a diversified portfolio of early stage investments by a combination of return and tax incentive; 
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and (3) matching funds from state loans which are repaid with interest, similar to the Enterprise 

Capital Funds program in the UK. 

The funds raised by the Venture Virginia program would be targeted at programs that 

commercialize qualified advanced technologies in Virginia. The funds raised would be used for 

technology-based economic development initiatives that encourage investment in seed-stage 

technology and life sciences companies. 

Venture Virginia will provide an influx of capital and deal flow today when the economy 

needs it the most. This program will generate state and local taxes, attract out of state venture 

capital funds and create high-paying, full time jobs with no immediate fiscal impact to the state. 

Advanced Technology Convertible Loan Fund 

Based on a successful North Carolina program, this program would provide additional 

investment capacity to the CIT GAP Fund, an initiative that makes seed-stage equity investments 

in Virginia-based technology and life science companies with a high potential for achieving 

rapid growth and generating significant economic return. This program would loan up to $500k 

paid out over 12-18 months based upon developmental milestones of qualified, advanced 

technology companies. 

Refundable Research and Development Tax Credit 

Virginia is one of only twelve states that do not offer a Research and Development 

(R&D) tax credit. Small research-intensive advanced technology companies often take ten or 

more years to get a product to market. Tax credits are extremely helpful to provide capital, 

especially if they arc refundable or transferable. 

The Commission proposes a Virginia R&D Refundable Tax Credit, equal to 1-6% of the 

federal credit, scaled based upon the R&D investment, with a special 6% credit for qualified 

advanced technology start-ups and early-stage firms. A special incentive (and additional 6-10%) 

could be added if the research is perfonned by a Virginia university. for qualified start-ups and 

early-stage firms with 50 or fewer employees, the state will refund in cash 65% of the value 0 f 

R&D credits that cannot be used for lack of tax liability. in lieu of a carry-forward option. 

The R&D Tax Credit will end Virginia's competitive disadvantage by adding this 

important incentive tool for advanced technology firms and provide needed capital for 

technologies invented at Virginia universities that would otherwise never be commercialized, 

create jobs or add to the tax base. 

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Transforming Academic Institutions into Economic Engines 

While Virginia has one of the best higher education systems in America, our colleges and 

universities' economic development potential is severely underutilized. The Commission 

believes that our universities' research and development capabilities and collaboration with the 

private sector are deficient and recognizes the need to make fundamental changes in how we 

disseminate information with our institutions of higher education excellence. 

While the Commission's recommendations to grow Virginia's innovation economy are 

an important part of utilizing higher education for economic development, it is only one part of 

the role our academic institutions can play to help create jobs and grow Virginia's economy. 

In order to remain competitive in the high growth industries oftoday's market, Virginia 

must maximize the existing assets of our higher education system. With improved collaboration 

between the business community and the research and development initiatives of universities, 

Virginia can provide a nurturing environment for new and existing businesses and a workforce 

ready to meet the demands of evolving industries. 

There is currently no method to comprehensively identify and tie the pockets of 

excellence in our higher education system to business outcomes. Lack of catalyzed coordination 

among the universities is lost opportunity. Virginia has the potential to cultivate a reputation for 

creative and distributed innovation leading to job creation and new capital investments 

benefitting all regions ofthe Commonwealth. 

To transform academic institutions into economic engines, the Commission recommends 

a series of proposals including: 

l. Centers of Excellence 

2. Energy Based Research 

3. Energy Education and Energy Degrees 

4. Agriculture Research 

5. Agriculture and Veterinary Graduates 

Expand Initiatives Such as Industry "Centers of Excellence" 

The Commission recommends establishing research-based collaborations or "Centers of 

Excellence" between private industry and our research universities as an effective way to boost 

Virginia's economic development performance. 

An example of such a center, the Commonwealth Center for Advanced Manufacturing 

(CCAM), represents a model for devising additional centers that align with our target markets 

and leverage our universities' expertise into these areas. The model has been proven 

internationally and other states are developing similar approaches to help them compete in the 

innovation economy. 

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The key is having private industry in a leadership role to help establish and validate 

targeted markets and direct research efforts in a manner most likely to have commercialization 

and resulting job creation benefits. Building on inherent strengths within Virginia, the energy 

and information technology markets are highlighted as natural targets for additional centers of 

excellence. 

Energy-Based Research Coordination 

Virginia's natural resources together with the strategic leadership by provided by 

Governor McDonnell have positioned Virginia to be the "Energy Capital of the East Coast." 

However, increased coordination between higher education, the Commonwealth and industry is 

needed to maximize that potential. 

The five energy centers being established by the Virginia Tobacco Commission provide 

an opportunity to create a synergy in this area and to better handle intellectual property issues for 

higher education. This is an opportunity to increase energy entrepreneurship and put Virginia on 

the map as an innovative technology economy. In addition, an emerging technologies fund, as 

previously recommended, will provide strategic and flexible incentive opportunities as it relates 

to quickly evolving, energy technologies. 

The Commission recommends maximizing the investment in clean energy research and 

development in the following ways: 1) Universities Clean Energy Development and Economic 

Stimulus Foundation; 2) establishing the Virginia Energy Initiative to bring together research 

capabilities of our major research universities under one canopy to help focus efforts on 

developing encrgy technologies and energy jobs for the 21 5t century and; 3) supporting the work 

of the Virginia Coastal Energy Research Consortium (VCERC) and the Virginia Offshore Wind 

Development Authority's efforts to grow Virginia's offshore wind development and supply 

chain industries. 

Energy Education and Energy Degrees 

While higher education can playa greater role in energy research, our four-year colleges 

and universities and community colleges should bolster and expand their energy-related degree 

programs. 

Between the possible expansions of Dominion's North Anna nuclear power station, 

potential uranium mining in Pittsylvania County and the existing nuclear work of Babcock & 

Wilcox, AREV A and Northrop Grumman, nuclear resources are positioned to be an increasingly 

significant energy resource for Virginia. 

To prepare for the high-skill, high-paid nuclear jobs, the Commission recommends 

expanding university programs in areas such as nuclear power, energy engineering and 

environmental management, including nuclear engineering and nuclear technician programs. 

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While Virginia Tech, the University of Virginia and Virginia Commonwealth University have 

begun to move in this direction, this area is a void in the workforce. 

Additionally, community colleges should expand jobs training in high growth areas such 

as energy auditing and efficiency, utility and related trade activities and renewable system 

operation and maintenance. 

Agriculture Research 

Agriculture is the #1 industry in Virginia employing over 500,000 people and a key 

economic development driver in many economically distressed communities in Virginia. The 

Commission recommends investing in agriculture and forestry research and outreach to ensure 

the economic viability and growth of the agribusiness industry. 

At Virginia's two land grant universities, Virginia Tech and Virginia State University, 

focused research is conducted on improving human and animal health and nutrition, enhancing 

the quality of the environment, reducing the effects of major infectious diseases, developing 

value-added products, building viable communities, and preventing chronic diseases such as 

obesity, heart disease, and diabetes. Through the Virginia Cooperative Extension, this knowledge 

is put into the hands of fanncrs, foresters, and agribusiness men and women to advance 

economic development. 

Agriculture and Veterinary Medicine Programs 

Virginia must ensure higher education opportunities for agriculture, forestry and 

veterinary medicine students by finding solutions for accepting more students with an interest in 

those fields to Virginia Tech and Virginia State University. Virginia is losing its own students to 

other states who have larger programs and accept more students. Taxpayers have invested in 

their K-12 education and a solution needs to be found to ensure these students remain in the 

Commonwealth to further their agriculture and veterinary education. 

Virginia must also actively support the recruitment and retention of large animal 

veterinarians in Virginia. A moderate to severe shortage of food animal veterinarians both in the 

private and public sector over the next 20 years has been predicted, especially in the Southern 

and far Southwest areas of the Commonwealth. 

Potential solutions may include support for fedcrallcgislation addressing the issue, 

growing the Virginia-Maryland Regional College of Veterinary Medicine, access to Industrial 

Development Authority funds for establishment of veterinary practices in rural areas and 

inclusion as an area supported by the Tobacco Commission. 

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Business Growth and Development 

Developing emerging technologies and an innovation economy are crucial to the future 

economic prosperity of Virginia. However. to remain competitive and create jobs and 

opportunity for Virginians today, we must invest in and develop key existing industries and 

economic development infrastructure to recruit new business to Virginia. 

Some key industries have historically lacked the attention, resources and tools 

commensurate with their return on investment, value to Virginia's economy and capacity to 

create jobs. To help these existing industries grow and provide an attractive environment for 

new businesses to locate in Virginia, we must maximize and further develop our existing assets 

and resources. 

The Commission offers the following recommendations to assist business development in 

certain strategic sectors of Virginia's economy: 

I. Technology 

a) Incubator and Commercialization Centers 

b) Advanced Technology Relocation Fund 

c) Biotechnology Wetlab Facility Construction 

2. Small Business 

a) Small Business Investment Tax Credit 

b) Virginia Small Business Financing Authority 

3. Tourism 

a) Tourism Development Grant Program 

b) Tourism Development Micro Loan Fund 

c) Motion Picture Grant and Tax Credits 

d) Winery Development Tax Credit 

4. Revitalization and Redevelopment 

a) Virginia Main Street Program 

b) Brownfield Redevelopment 

c) Industrial Site Revitalization 

5. Port of Virginia Tax Credit 

Technology 

Technology Incubators and Commercialization Centers 

Knowledge-based businesses are often founded by scientists, engineers and other 

technology-oriented individuals who may have had little or no experience in starting a business 

or in dealing with business challenges. According to the National Business Incubation 

Association (NBIA). businesses started in organized incubators utilizing industry best practices 

have a much higher success and survival rate. 

• 87% of companies started in an incubator program are still in business after 5 years. 

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• Companies started outside of organized incubators have a 30% failure rate after 2 

ycars and over 50% in 5 years. 

• 90% of companies startcd in incubator programs tend to remain in the community. 

Knowledge-based companies often face unique challenges including protecting their 

intellectual property, regulatory hurdles, dependency on non-traditional sources of capital, and 

exit strategies such as licensing or joint ventures with very large multi-national companies. 

However, these companies tend to a high rate of job creation many with high avcrage wages. 

A technology incubator or commercialization ccnter would partner with local 

governments, commercial real estate owners, vendors, suppliers and others who sce and support 

the economic development benefits and the long term potential for return on investment. The 

Commonwealth would typically support salaries and operating costs of the incubator with a high 

degree of leverage from the other sources, both direct and indirect, in order to construct a 

program that meets industry best practices. 

Incubator programs would be targeted for areas of the state where the potential to create 

and expand knowledge-based companies and jobs in targeted high technology sectors has the 

greatest potential for success. This type of program would be developed using proven standards 

and metrics and through partnerships and affiliated agreements and would result in a 5:1 return 

on state investment. Incubators would likely result in new technology companies, each bringing 

highly skilled. high paying and sustainable jobs. 

Advanced Technology Relocation Fund 

As previously mentioned, Virginia has few incentive tools that specifically target small 

and mid-sized successful, high growth, high wage technology companies. The Advanced 

Technology Relocation Fund would provide an effective vehicle that could be marketed to attract 

innovation economy companies from Maryland, North Carolina, Pennsylvania and othcr states. 

The Fund would develop a targeted relocation strategy for small, high-growth, advanced 

technology companies and appropriate funds to off-set equipment and employee relocation costs. 

Because of the size and cost of equipment in biotechnology and other advanced technology 

industries, a small company cannot afford to move or purchase new equipment to relocate in 

Virginia despite the more favorable tax and regulatory environment in the Commonwealth. 

The Fund would providc discretionary grant awards for relocation of high wage 

executives or equipment and furnishings from old location to new location and expenses incurred 

in exiting old business location and establishing the new office location in Virginia. Recipients 

would be rcquired to headquarters to the state and commit to remaining in Virginia for a predetermined term. 

Through a minimal investment in the Relocation Fund, Virginia could aUract out-of-state 

advanced technology companies, create high-paying and sustainable jobs and quickly realize a 

significant return on investment through payroll, corporate income and sales taxes. 

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Biotechnology Wctlab Facility Construction and Loan Guarantee Fund 

Biotechnology research and production facilities are highly specialized with an extreme 

cost differential over normal office and light industrial facilities. Most biotechnology companies 

are still small (early to mid-stage) with high research and development costs and signiticant 

capital needs. A lack of available facilities that can be outfitted to meet the needs and to finance 

the improvements of biotech companies is an impediment to the growing life sciences industry in 

Virginia. 

While the investment made by Governor McDonnell and the General Assembly in 2010 

into the biotechnology industry was a positive first step, Virginia needs to create a program to 

construct wet laboratory shell facilities in various regions of the Commonwealth where 

opportunity exists to attract life science and biotechnology companies from out-ot~state and 

retain growing in-state companies who require specialized laboratory research space. 

The Commission recommends establishing a fund to assist with the development of2-3 

biotechnology shell facilities. These facilities would be designed to accommodate wet lab users 

or be used for annual lease payments in a PPEA proposal for a specific project with high chanees 

of success. In addition, the program can be structured so that onee the facilities are built and 

fully leased they could be sold to real estate investors with the proceeds being earmarked to a 

revolving fund to build new facilities over time. 

By expanding Virginia's inventory of wet labs and biotechnology research and 

production facilities, Virginia will create new biotech industry jobs in Virginia by alleviating 

shortage of wet lab space for biotech companies in the Commonwealth, attracting companies by 

having facilities in place versus showing prospects raw undeveloped land and competing with 

peer states currently implementing various loan and lease guarantee or grant programs. 

Small Business 

In the current economic environment, small businesses have found access to financing 

more difficult to obtain than in any other time in recent history. Credit and equity investment are 

vital to small businesses to support new business growth, encourage expansion of existing 

businesses and create jobs in Virginia. 

The reasons behind the difficulty in small businesses accessing credit and equity are 

varied. Some businesses say that access to credit and equity have tightened, while some lenders 

and investors say demand has decreased as businesses have become more cautious. Some equity 

providers feel there are fewer viable business plans that can gencrate the returns necessary to 

justify the investment risk. Others blame the federal financial regulatory environment and 

believe that tougher regulatory standards have made banks less interested in taking risk because 

of the increased capitalization required by a downgraded loan. 

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To address small businesses capital challenges, the Commission recommends 

establishment of a Small Business Investment Tax Credit and additional support for the Virginia 

Small Business Financing Authority. 

Small Business Investment Tax Credit 

During the 2010 General Assembly session, Delegate Don Merricks introduced the 

Virginia Small Business Investment Credit (VSBIC). The VSBlC would have provided for the 

creation of private investment funds to be invested in small businesses located in Virginia. 

Private capital would be raised from outside entities (insurance companies) to be invcsted in 

qualified companies in accordance with certain guidelines. This program is similar to the 

Venture Virginia recommendation earlier in this report. 

Delayed tax credits from the state would then be issued to the outside entities for their 

investment in these private investment firms. Private investment managers are required to invest 

the capital in Virginia businesses quickly to get the capital working within the economy before 

the tax credits become due. 

To qualify to access the capital a company must have headquarters in Virginia, employ 

fewer than 100 people and agree to remain in Virginia for a predetermined period of time after 

investment. 

Similar programs are in place in 9 other states: AL, CO, FL. LA, MO. NY, TN. TX and 

WI. plus DC. These programs have resulted in over $2.2 billion in capital for small businesses 

and created over 21,000 jobs. 

Enhanced Funding for Virginia Small Business Financing Authority 

Additional utilization, funding and flexibility for the Virginia Small Business Financing 

Authority (VSFBA) and its multiple loans and financing tools will help Virginia entrepreneurs 

attract more banking partners. make more direct loans and meet a variety of small business credit 

needs. 

VSFBA utilizes several tools and programs to help small businesses with financing. The 

Loan Guaranty. Virginia Capital Access and Tobacco Capital Access programs are designed to 

assist banks and credit unions in extending working capital lines of credit and refinancing needs 

in a non-bureaucratic and etlicient method. The Economic Development Loan Fund is a direct 

loan program that provides gap funding between private debt financing and private equity. 

VSFBA has also proven to be an etlicient and effective lise of state funds. Based on 

direct and indirect job creation from projects financed by the VSFBA, the Commonwealth has 

historically received a $5.81 return on investment alier the first year for every state dollar loaned. 

In addition. through the revolving loan and program requirements. VSFBA has leveraged private 

credit and equity dollars at a ratio of29: I for every state dollar invested. 

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For example, a one-time $5 million appropriation would allow VBSFA to assist more 

than 200 additional small businesses and generate $35 million in private equity and credit in the 

first year the loans are made. 

Tourism 

Tourism Development Grant Program 

Tourism is big business in Virginia. In 2008, 60 million visitors came to Virginia. 

generating $\9.2 billion in economic impact, supporting 210,000 jobs and providing $\.28 

billion in state and local taxes. Virginia currently ranks 8th in domestic visitation spending and 

14th in international visitation. The return on investment for tourism is immediate and proven. 

For every $1 spent on tourism marketing, the Commonwealth receives $5 in additional state and 

local tax revenue. Every $90,000 in tourist spending creates I ncw job. 

To create the complete tourism experience, product development is essential. However, 

in many parts of Virginia, tourism product is aging or lacking and there is little hope of 

significant tourism development in the near future. For example, comprehensive research 

conducted by the Tourism Subgroup confirmed that Virginia Beach needs a large entertainment 

venue, Norfolk needs a convention hotel and Patrick County needs small to midsize lodging. 

However. these and other needed projects around the state are stagnant due to thc lack of 

available credit and othcr adverse market conditions that discourage investment. 

Virginia offers an array of incentive and development programs for many industries, but 

few programs exist to support tourism business development. The Commission believes there is 

an appropriate role for the state, in partnership with local governments, to assist with tourismrelated development projects. The creation of a Tourism Development Grant Program (TDGP) 

would stimulate the construction, tourism and banking industries, position our marketing 

campaigns to capitalize on economic recovery and provide for a standardized process for future 

tourism and non-state agency funding requests. 

The TDGP provides a vehicle to fill gap financing needs for certain locality endorsed 

tourism development projects that fulfill a predetermined tourism product need. 

The TDGP would combine aspects of sevcral existing programs to create a revenue 

stream from the retention of I % of state and local tax revenucs generated by the project and a 

matching developer contribution. The retention of state and local taxes and the developer's 

contribution are limited only to the footprint of the project and do not affect or impact any other 

facilities, businesses or taxpayers in the locality. 

The revenue stream would fund grants to repay a private gap loan as contractually agreed 

to by the developer and locality. If the loan is retired prior to the agreed upon period, the 

property is sold or the project is refinanced, the developer contribution will no longer apply and 

all state and local tax revenue generated by the project will return to their respective general 

funds. 

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The TDGP will allow major projects, like an entertainment center in Virginia Beach, and 

smaller projects, as bed and breakfast in a wine region, that will create jobs, grow the economy, 

strengthen the complete tourism experience and generate millions in state and loeal tax revenue 

that otherwise would not exist. 

Benefits: 

• This program does not raise taxes, use existing General Fund revenues or divert resources 

from other programs. 

• There is no financial risk exposure to state and does not affect bond rating or debt 

capacity. 

• Requirement of locality sponsorship and endorsement mitigates political issucs. 

• Serves as an immediate job creator for construction and tourism industries. 

• Crcates an "open for business" message to help attract national development interest. 

• This program is a hybrid of existing programs alrcady approved or offered by state. 

• Benefits all localities in Commonwealth: large and small, urban and rural. 

Tourism Development Revolving Micro Loan Fund 

While all localities and projects will have the opportunity to access and utilize the 

Tourism Development Grant Program, the Commission recognizes that the TDGP may not be an 

ideal fit for all tourism development projects. The committee recommends the creation of a 

Tourism Development Revolving Micro Loan Fund dcsigned to provide direct loans and/or loan 

guarantees to small tourism development projects. The Loan Fund would be capitalized with a 

one-time General Fund appropriation and would provide low-interest small and micro-loans in 

the range of $25,000 to $500,000. Interest would be paid to the Loan Fund, which would grow 

over time. 

Governor's Motion Picture Opportunity Fund and Tax Credits 

A vibrant film production industry can be a powerful catalyst for tourism, economic 

development and job creation. In addition to national and international exposure, a 2005 VCU 

study concluded that every dollar invested in Virginia's film incentive program returns an 

average of 14 dollars in economic impact to Virginia. 

Film production is driven by incentives and in recent ycars our competitor states have 

adopted significantly larger programs than Virginia, For example, while Virginia has $4.5 

million in tax credits and grants, Georgia and North Carolina have unlimited tax credits, 

Pennsylvania has $42 million, Tennessec has $20 million and West Virginia has $10 million all 

per year. 

Because of this competitive deficiency, Virginia has lost at least 12 major films to other 

states with a total economic impact of$367 million since 2006. Additionally, from 2007 to 2009 

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Virginia lost more than 2,000 film industry jobs, a 43% decrease, while national film 

employment increased by 4%. 

For Virginia to continue to attract tilm production, create film industry jobs and increase 

economic impact and state and local tax revenue, the Commission recommends an increased 

investment in film incentive grants and/or tax credits to build on recent investments and 

successes and make Virginia more competitive with other states' programs. 

Winery Development Tax Credits 

Virginia is the 5th largest producer of wine in America and sales increased by 13% in the 

last fiscal year. According to figures from the most recent economic impact study, the Virginia 

wine industry employs approximately 3,000 people and contributes almost $350 million to the 

Virginia economy on an annual basis. The study retlected the impact of 120 wineries in 2005; 

today, there are nearly 180 licensed wineries in Virginia. 

The average price per ton of Virginia fruit is over $1500, nearly three times the cost of a 

ton of fruit grown in California. The average cost for installing an acre of vines is over $15,000 

in Virginia. In addition, Virginia vineyards and wineries must import at great cost all of the 

rootstock, barrels, glassware and other implements required for wine production. These factors 

stifle winery development and increase per bottle cost, adding to a market perception that the 

cost of Virginia wine is out-of-step with its quality. 

To lessen this burden and further capitalize on momentum in the industry, Virginia 

should establish a 25% tax credit program to incentivize winery and vineyard establishment or 

expansion. The tax credits should be salable or otherwise transferable and would be applied 

against Virginia state incomc tax. 

For instance, Virginia averages 8 to 10 new wineries and independent vineyards per year. 

The average cost of installing a vineyard is $15,000 per acre and the minimum planting should 

be five acres. If Virginia provides a 25% tax credit for the total cost of vineyard planting per 

year, the tax credits could be capped at $187,500 per year. 

Revitalization and Redevelopment 

To promote revitalization and economic development in distressed areas of Virginia, the 

Commonwealth should provide financial and tax incentivcs to enhance the economic feasibility 

of reusing vacant, abandoned and derelict structures. These structures include factories, 

warehouses, strip malls, stores, businesses and other blighted properties in commercial districts 

located in both rural and urban areas of the Commonwealth. 

The erosion of the traditional economic base in economically distressed areas of Virginia 

has left behind many abandoned and derelict commercial, industrial and neighborhood 

properties. Distressed areas, both small towns and inner cities, have been impacted by the 

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closure of manufacturing, textile, tobacco and furniture plants, These properties serve not only as 

reminder of the loss oftormer economic vibrancy, but as a barrier to future economic growth, 

Without public intervention, the private sector will continue to be hesitant to take the 

risks associated with redeveloping these blighted properties, The scale of the interventions 

required to reverse years of decline is often beyond the fiscal capacity of the distressed areas or 

the potential new tenants, 

Virginia Main Street Program 

The Virginia Main Street program promotes economic and physical revitalization of 

historic downtowns and neighborhood commercial districts, The Main Street program utilizes a 

comprehensivc, incremcntal approach to revitalization built around a community's unique 

heritage and attributes. 

Using local resourees and initiatives, Main Street helps communities develop their own 

strategies to stimulate long term economic growth and pride in the traditional community center 

and downtown area. The Main Street Program has a proven track record of economic 

development and a demonstrated return on investment. 

Jobs created expanded or retained 

Small businesses created, expanded or retained 

Private investment 

14,386 

4,926 

$638 million 

Current state funding is used to provide communities and businesses in Main Strect 

localities access to design assistance and other professional serviccs. Additional funding and 

resources should be allocated to expand and enhance the Virginia Main Street program to include 

additional communities in economically distressed areas and to consider services beyond the 

immediate Main Street area within those communities. 

Brownfield Cleanup and Redevelopment 

Brownfields are often a major impediment to redevelopment in distressed areas, 

especially older cities. The term brownfield means the expansion, redevelopment or reuse of any 

property that may be complicated by the presence or potential presence of a hazardous substance, 

pollutant or contaminant. To begin addressing this issue, the General Assembly adopted the 

Virginia Brownfield Restoration and Land Renewal Act in 2002. 

This legislation was designed to better facilitate the cleanup and redevelopment of 

brownfield sites. However, no funding has been allocated for these efforts. If funded, it could be 

used to assess the environmental liabilities of brownfield sites, promote the restoration and 

redevelopment of brownfield sites and address environmental problems or obstacles to reuse so 

that these sites can be cffectively marketed to new economic development prospccts. 

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Since August 2003, 60 sites have already utilized the Act for redevelopment. These 

projects represent more than $700 million in created value, along with hundreds of jobs created 

or saved. With funding for site assessment and/or remediation, many more sites would come 

into playas developers leverage the funding. 

Significant results have been achieved from a similar combined liability reduction and 

assessment program in Pennsylvania. The Commonwealth should provide matching grants to 

localities to perform Phase I environmental studies. These studies would provide prospective 

private sector developers with specific information regarding environmental liability and risk 

thereby helping to address the unknown cost of redevelopment. 

Industrial Site Revitalization 

Many distressed communities throughout Virginia continue to be negatively impacted by 

the closure of manufacturing, textile, tobacco and furniture plants. These buildings and 

structures are often vacated leaving a negative economic and aesthetic impact on communities. 

Virginia should consider providing direct financial or tax incentives to encourage investment in 

revitalizing these vacated structures. This program could be modeled after the North Carolina 

State Mill Rehabilitation Tax Credit. 

The North Carolina Mill Rehabilitation Tax Credit is considered a major economic 

development initiative that enhances the economic reuse feasibility of many former industrial 

sites. The North Carolina program provides incentives for restoring and reusing large vacant 

industrial, agricultural and utility buildings. State tax credits are available for the rehabilitation 

of income and non-income producing historic mill properties. 

A recent report published by Preservation North Carolina reveals that rehabilitation and 

reuse of historic mills and buildings bring substantial benefits to North Carolina communities. 

Virginia should consider establishing a similar program to provide incentives to revitalize vacant 

industrial buildings. Funding could be routed through the existing Derelict Structures Fund or 

through the creation of a stand-alone tax credit. Properties idcntified would need to be part of a 

broader community revitalization strategy and selected based on the committed private sector 

investment. 

Virginia Port Tax Credit 

The Port of Virginia is a major economic engine for the Commonwealth and a key factor 

in attracting businesses to Virginia. Of the new manufacturing and warehouse distribution 

project announcements in fiscal year 2009-20 I 0, 22% are confirmed users of the Port of 

Virginia. The Commonwealth should pursue incentives to increase the use of the Port of 

Virginia by Virginia manufacturers. 

South Carolina currently has a successful tax credit program in place to incentivize 

manufacturers to locate to or expand within the state and use the Port of Charleston. Virginia 

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must remain competitive with its neighboring ports in order for the manufacturing industry to 

continue to thrive in the Commonwealth. 

The Commission recommends a Virginia Port Income Tax Credit for utilizing Virginia 

Ports for export and import of materials and finished goods relative to the Virginia based 

manufacturing operations. 

A Virginia Port Tax Credit will provide Virginia-based manufacturers a competitive 

shipping cost advantage relative to peer competitors in other states. Virginia ports apply a 

standard tariff irrespective of base of operations. As an example, this standard system charges a 

Pennsylvania manufacturer the same rates as a Virginia manufacturer. Incentivizing Virginiabased manufacturers to do business with the Port of Virginia will lower costs, make Virginia 

more competitive and help create new manufacturing jobs. 

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Training Workers for Virginia Businesses 

While this report has offered significant and impOltant recommendations to grow 

Virginia's innovation economy, transform academic institutions into economic engines and 

enhance business growth and development in Virginia, none of these initiatives will be 

successful without a competent, qualified and trained workforce to support these new businesses 

and new jobs. 

For existing businesses to expand and new businesses to locate in Virginia, they must be 

able to find the skilled workers to meet their company's needs. Virginia must be able to deliver 

a prepared workforce that can adapt to the changing economy. The economic prosperity of 

Virginia depends on a responsive workforce that has specialized and advanced training, cuttingedge skill sets and higher levels of education. 

Secondary and post-secondary graduates need to have a combination of hard skills 

including the theory and applied technology, and soft skills, including the ability to effectively 

read, write, compute and communicate, to become trainable employees for specific jobs and retrainable as those positions change. 

Currently, Virginia has many of the appropriate tools to build a quality workforce. 

However, the state lacks leadership, coordination and accountability in its workforce 

development infrastructure. There are many agencies and groups involved in workforce 

development and the Commission recognizes the need for streamlining and collaboration 

between them for Virginia's workforce system to be successful. The Commission also 

recognizes the need for performance measures on the system as a whole to determine 

effectiveness. 

To train workers for Virginia businesses, the Commission offers the following 

recommendations: 

I. Align workforce development with economic development strategies 

2. Alignjob demand and workforce development efforts 

3. Greater use of Career Pathways Programs, including apprenticeship, on-the-job 

training and other "Earn While You Learn" models 

4. Establishment of a senior administration leadership position 

5. Improved policy development and performance reporting 

6. Expanded teaching of economics in high school 

7. Expedite veterans and military into healthcare and technology workforce 

8. Fully fund commitment to non-credit courses at community collegcs 

Align Workforce Development with Economic Development Strategies 

A state coordinated career pathways system will provide businesses with assurance that 

the workforce delivery system will meet both their immediate start-up and long-term needs. The 

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Commission recommends that curriculum at the community colleges and four-year institutions 

be aligned with statewide and regional economic development strategies. 

In addition, the Commission recommends that there be a sole entity charged with 

working with existing and new businesses to appropriately direct them to existing programs in 

order to fully leverage state, federal, and local investments in workforce training programs and to 

ensure that such programs are focused on the needs of business. 

Greater Alignment Between Job Demand and Workforce Development Efforts 

The rapidly evolving global economy of the 21 S( century is driven by the increasing pace 

of techno logy and innovation. Being competitive depends predominantly on the capacity to 

generate and apply knowledge, which is determined by the quantity and quality ofthe available 

workforce. 

To meet this challenge, Virginia's workforce development and delivery system must 

accurately identify current needs and forecast future demands based on business requirements 

and data-based modeling. The system must ensure that corresponding skills training is readily 

available and easily accessible through the community college system, educational and training 

providers and One-Stop Career Centers. 

The Commission recommends purchasing, creating or expanding an information 

technology solution, similar to the existing Wizard program, which will provide user-friendly 

and up-to-date information to students and job seekers on the programs and technologies 

currently utilized by employers both in their region and across Virginia. To match the evolving 

and growing needs of business. Virginia must help align job-seekers with the occupations and 

sectors in the greatest demand. 

Expanded Career Pathways Programs, Including Apprenticeship, On-The-Job Training, 

and Other "Earn While You Learn" Models 

Given the accelerating integration of advanced technologies in both products and 

processes and the associated rapid growth in skills requirements in today's workplace, employers 

need educators to provide them with individuals who are trainable for a multitude of positions 

during their careers. 

The Commission recommends the continued implementation of the state's Career 

Pathways System in all of the Commonwealth's educational programs through the following 

actions: 

• Support, promote and more widely implement programs that prepare students for higher 

academic success. 

• Encourage greater collaboration between secondary and post-secondary institutions and 

employers including the registered apprenticeship program and "Earn While You Learn" 

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programs. 

Continued promotion of dual enrollment classes that allow students to enroll in collegelevel courses for credit while still in high school. 

As Virginia places a greater emphasis on Science, Technology, Engineering and Math 

(STEM) education and STEM-related careers, we will have qualified educators to teach science, 

technology, engineering and mathematical related classes. The Commission supports the 

increased efforts by colleges, universities and local school divisions to train more teachers to 

enter Career and Technical Education (CTE) and STEM programs. 

Senior Level Leadership Role 

Greater coordination among education, workforce development, businesses and economic 

development in Virginia is fundamentally an issue of executive level leadership. Some 

suggestions to address this challenge include creation of a Secretary of Workforce Development, 

while others have suggested that the management and coordination of workforce programs 

should be in one secretariat - either Education or Commerce and Trade. 

The issue of senior level leadership to carry out the responsibilities of the Chief 

Workforce Development Officer is crucial to the streamlining. prioritization and organization of 

Virginia'S workforce delivery system. Existing gaps in Virginia's workforce development 

include: 

• The system is complex and involves many players, and not all stakeholders have been 

engaged in a meaningful way. 

• The roles, responsibilities and expected interactions between the various players 

sometimes overlap and conflict, which is understandable and sometimes healthy; 

however, not all components of the system work together resulting in duplication of 

effort and perpetuation of organizational silos. 

• Not enough employers understand the services offered by the system and in many cases, 

employers are still not actively engaged. 

• There are potential inefficiencies associated with the lack of integrated technologies, 

duplication of activities and the overhead associated with a fragmented system. 

The Commission recommends designation of a senior-level official to carry out the 

responsibilities assigned to the Chief Workforce Development Officer and for coordinating the 

state's workforce development and skills training initiatives in support of the Commonwealth's 

economic development activities. 

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Poliey Development and Performance Reporting 

The Virginia Workforce Council (VWC) is a 29 member business-led board that acts as 

the principal advisor to the Governor and provides strategic leadership to the state regarding the 

workforce development system and its efforts to create a strong workforce aligned with 

employer needs. The VWC is also charged with serving as the State Board for the federal 

Workforce Investment Act (WIA) and setting policy and standards for the local Workforce 

Investment Boards (WIBs) and One-Stop Career Centers. 

Although the VWC has made considerable progress during the past several years to 

identify gaps in Virginia's workforce development and delivery system. challenges remain 

including the need for a quantitative view of the whole system at the state or regional level to 

facilitate performance accountability. 

The Governor and the VWC should establish measurcs to evaluatc the effectiveness of 

the local workforce investment boards and conduct annual evaluations of the effectiveness of 

each local workforce investment board. These evaluations should consider items such as (i) 

employment; (ii) employment retention; (iii) competency-based and industry-certified skills 

certification; (iv) Career Readiness Certificate achievement; (v) integration with secondary 

education institutions' Work Readiness Skills programs; (vi) integration with the Virginia 

Community College Middle College program; and (vii) Science Technology Engineering and 

Mathematics (STEM) educational opportunities for women, minorities and youth. 

Economics in High School 

The Commission joins the Virginia Council on Economic Education (VCEE) in 

supporting the statewide network of college and university based Centers for Economic 

Education. The Centers for Economic Education provide K-12 educators with local resources 

and facilitate ongoing collaborative efforts to help them prepare for teaching economic courses 

as a condition for graduation for all high school students. 

Retired Military and Healthcare Workforce 

Virginia's significant military presence creates a pipeline of skilled and trained veterans 

and former military personnel in the workforce after their service is completed. These 

individuals often have significant experience in high demand fields such as healthcare. 

machinery and technology. 

Virginia should recognize the existing credentials of highly trained and experienced 

former military health professionals, machinists and other skilled trades and allow substitution of 

certain military training and service for formal education, certification or clinical experience 

requirements. Additionally, Virginia should identifY opportunities to more effectively recruit 

and more seamlessly integrate former military personnel into our skilled workforce. 

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Additionally, the Commission leadership recommends the following initiatives to help 

address the growing demands on the health care workforce: 

• Improve opportunities for "dual enrollment". 

• Allow students to matriculate into a health science program at the start of each 

semester rather than once a year. 

• Improve awareness of heath career training and re-training through high schools, 

community colleges and higher education. 

• Standardization of college-based curriculum and course numbers. 

Non-Credit Funding 

State law charges the Virginia Community College System as the state agency with 

primary responsibility for coordinating workforce training at the postsecondary education to 

associate degree level. The community college system is also responsible for ensuring that all 

training and educational resources are being fully utilized to prepare the state's workforce. 

Consideration should be given to phasing in state support of non credit skills development 

courses at the 30% level as envisioned in the Appropriation Act. Currently, non credit skills 

development courses are only being funded at the 5% level. 

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Coordinated, Efficient and Effective Economic Development Strategies 

While the Commission has offered comprehensive strategies to grow Virginia's 

innovation economy, improve business development and recruitment, increase collaboration 

between higher education and industry and enhance our workforce delivery system, the 

Commission recognizes several areas where the state's economic development organizations and 

related processes could work better and more efficiently. including: 

o Fulfillment of current programs and promises 

o Reform. reorganization or streamlining of processes 

o Better collaboration and cooperation 

Businesses, especially small businesses, need to be focused on growing their company 

and creating jobs, not regulatory red tape and burdensome bureaucracy. By making some 

processes easier and more streamlined, the business community can thrive and grow, spurring 

economic growth and job creation. In addition, the state must fund its current programs in order 

to maintain credibility and continue to assist businesses with financing needs. 

The Commission offers the following recommendations to keep existing program 

commitments, streamline economic development systems and make state government more 

responsive and user-friendly for businesses: 

I. Enterprise Zone Program 

2. Agriculture Enterprise Zone Program 

3. Regional economic development collaboration 

4. Definition of economically distresscd areas 

5. Incentive reform 

6. Increased flexibility of Governor's Opportunity Fund 

7. Regulatory permitting 

8. Regulatory notification 

9. Sports Advisory Commission 

Fully Fund Virginia's Enterprise Zone Program 

In recent years the Virginia Enterprise Zone Program has not been able to fully meet 

qualified businesses' grant application amounts. In fiscal year 20 I 0, Enterprise Zone grants 

were prorated at 62 cents on the dollar. Essentially, this means that a company that anticipates 

receiving $200.000 after making a significant multi-million dollar real property investment in an 

Enterprise Zone would receive only $124,000. Virginia must fulfill delivery of promised 

incentives to companies which have delivered on jobs and investments. Failure to fully meet 

incentive obligations carries negative consequenccs for Virginia'S business climate. 

Enterprisc Zones are a significant tool in economic development arsenals across the 

nation. More than 38 states have an enterprise zone program. including some of Virginia's 

competitors: Maryland, North Carolina and South Carolina. Although the Enterprise Zone 

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concept and incentives vary from state-to-state, the ex istence of one in a locality is often used by 

business location consultants as a screening criterion in site selection. In Virginia, the program 

is targeted toward distressed localities, as defined by high unemployment, a high percentage of 

students receiving free and reduced lunches and low household income. 

Currently, there are 57 Enterprise Zones designated across the state. For the 2010 

Qualification Year, 214 zone investors received $10.6 million in real propelty investment grants 

from the Enterprise Zone program. Private investment in qualified real property investments in 

Enterprise Zones totaled more than $500 million. Forty-one businesses received $1.2 million in 

Job Creation grants which created 923 net new, full-time jobs. 

Fully funding the Enterprise Zone program will restore credibility and enable the 

Commonwealth to honor its full commitments to companies locating in these distressed areas of 

Virginia. 

Re-Establish and Fund a Virginia Agriculture Enterprise Zone Program 

The total economic impact of agribusiness (agriculture and forestry-related) industries in 

Virginia is $79 billion, including a value-added impact of$37 billion, which constitutes 

approximately 9.9% of Virginia's gross domestic product (GOP). The total employment impact 

exceeds 500,000 jobs, which is over 10% ofthe state's workforce. In order to sustain and grow 

this sector of Virginia's economy, the Commission recommends re-establishing and funding a 

Virginia Agriculture Enterprise Zone Program to incentivize job creation and economic 

development in the agribusiness industry, 

The Virginia Agriculture Enterprise Zone Act was originally passed by the 2005 General 

Assembly to attract, promote, retain and encourage the expansion of agricultural and farm 

businesses involved in the growth, production, processing, manufacturing, distribution, 

wholesale and retail sales of agricultural and food products in designated areas in the 

Commonwealth. Unfortunately, funding has not been provided to implement the program. 

An Agriculture Enterprise Zone Program would allow a "qualified agricultural 

businesses" and "qualified farm businesses" located within agricultural enterprise zones to apply 

to the Virginia Department of Agriculture and Consumer Services (VDACS) for assistance in 

developing business plans and grant funding for implementation of those business plans. 

Improving Economic Development Efforts Through Regional Collaboration 

The Commonwealth could improve economic development efforts through regional 

collaboration and cooperation. While the state should not mandate regionalism, it should have 

targeted incentives that encourage local economic development offices to cooperate within 

regions. By collaborating, duplication of services is eliminated, cost for services is shared and 

messages in the marketplace have a larger voice. 

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• The state incentive programs should encourage regional cooperation in economic 

development. For example, eligibility criteria could be lowered or bonus points awarded 

for incentives to assist economic development projects where tangible regional 

cooperation exists, or where the project aligns with a regional target sector. 

• Realignment of existing state resources could be the financial carrot to address workforce 

issues. Stronger state guidance of federal dollars currently flowing through the 

Workforce Investment Act program could be one such example to address workforce 

training systems. 

• Leveraging partnerships with local and regional entities such as the Virginia Tobacco 

Commission, regional non-profit Foundations, or other federal programs, such as those of 

the Economic Development Administration, could be improved at relatively little cost to 

the Commonwealth. 

• Increased local marketing partnerships with agencies such as VTC or VDACS could 

leverage more visibility in sectors of strategic regional importance. 

• Partnerships with strategic businesses could be formed, where the marketing outcome of 

the company aligns with the marketing outcome of the region. For example, connecting 

selected companies in the advanced manufacturing sector with those regions for which 

advanced manufacturing is a target sector, and sharing the cost of a special media 

outreach, could result in more effective positioning of the region. 

Competitive and Strategic Incentives for Business Expansion and Recruitment 

Virginia needs competitive and strategic incentives that support existing business 

expansions as well as new business locations in the Commonwealth. While traditional programs, 

like the Governor's Opportunity Fund (GOF), Virginia Jobs Investment Program (VJIP) and the 

Enterprise Zone Program have served Virginia well over the past decade, our competition is 

continuously improving and enhancing their offerings as well. Virginia needs to remain 

innovative and creative in its use of incentives and allow greater flexibility in the program 

designs to be able to address changes in the marketplace. Such flexibility and enhancements 

could include: 

• Phasing out of certain existing by-right alternative energy tax credit programs in return 

for more targeted, negotiated grant programs that align with Virginia's competitive 

advantages. 

• Reduce or eliminate the arbitrary eligibility standards used for programs such as the 

Governor's Opportunity Fund. Projects should benefit from the program, regardless of 

size, if they can demonstrate that they produce a positive return on the state's investment. 

Further, restrictions on how the GOF monies can be used by an eligible company should 

be removed. At the same time, Virginia must put into place strict requirements for the 

repayment of incentive funds for companies and projects that do not meet their job 

creation and capital investment commitments. 

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Consistent Definition of Economically Distressed Areas 

To effectively target state resources for community and economic development, 

Virginia must have a standard definition of economically distressed areas. Although some 

similarities exist, the definition of economically distressed in Virginia varies by state agency, 

program and funding source. The Commonwealth must provide consistent and uniform guidance 

to state agencies to define and identify economically distressed localities. 

Federal, state and local agencies target programs to economically distressed areas and 

adopt various methods, data points and criteria to determine distressed. There is a broad range of 

indicators for determining economic distrcss, including: unemployment, income, population, 

outmigration, housing conditions and educational attainment. Currently, agencies select from 

these and other indicators to determine its definition of distressed. 

After a review of definitions utilized by other states and agencies, the standard definition 

of "economically distressed" in Virginia should use the core criteria of average unemployment 

rates, median adjusted gross income, persons in poverty and fiscal stress of locality. 

The Commission recommends establishing a working group to analyze the data 

associated with the criteria listed above to accurately define economically distressed in thc 

Commonwealth. This initiative should be led by the Secretary of Commerce and Trade with 

input from appropriate stakeholders. The proposed definition should focus primarily on 

utilization by community and economic development programs in Virginia. 

Environmental and Regnlatory Permit Reform 

Many manufacturers have indicated that the lengthy and complicated process to receive 

necessary permits is becoming a greater economic and compliance challenge. 

For example, a recent competitivc business expansion project was put in jeopardy when 

the company was told it would take 6-8 weeks to have a permit issued by the Virginia 

Department of Environmental Quality (DEQ). The situation was brought to the attention of 

DEQ leadership and was quickly rectified. In fact, the company received the necessary permits 

48 hours later and has since announced their expansion in the Commonwealth. 

DEQ recently directed the chief deputy to serve as a business community liaison and 

provide assistance with job creating projects. This position works closely with the Virginia 

Economic Development Partnership, the Chief Jobs Creation Otlice and the Secretary of 

Commerce and Trade. The chief deputy meets with all economic development prospects to 

deliver the message that the department is opcn and easy to work with and to offer them a point 

of contact to assure them that they will reccive prompt response. 

In order to develop a simpler, more etlicient permitting process, the Commission 

recommends the following: 

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• Develop more general permits and customized permit applications and post these 

customized applications on DEQ's website in a user friendly manner. 

• Utilize the Lean process (EPA business model that focuses on elimination of waste and 

redundancy) for a review of DEQ's air permitting program with the goal of improving 

efficiency and timeliness. 

Undertake a stakeholder process to find ways to reduce the time it takes to get to final 

approval. As the Commission has heard through testimony, delays often occur because of 

incomplete applications. One recommendation is to encourage a pre-application meeting 

so applicants know what is necessary to complete the application correctly the first time. 

• Encouraging the Chief Deputy of DEQ, in their role as business community liaison, to 

implement practices beneficial to manufacturers looking to expand their operations or 

relocate their business to Virginia. Continuity in this position is vital to help 

manufacturers through an often difficult process that can be prohibitive to job creation 

and investment. 

Regulatory Notifications 

Small business owners often struggle to learn and keep up to date on ever-changing state 

laws, rules and regulations that govern their business. The creation of small business specific 

advisories or notifications to announce when state laws or regulations change would prove 

beneficial to small business owners, allowing them to spend more time focused on creating jobs 

and running a successful business. 

For example, Illinois has recently passed the Small Business Advisory Act. This act 

requires every State agency to make available on the internet a small business advisory page. In 

addition there is a notification system put in place to inform the small business community of 

each new rule or change in requirements affecting small businesses. 

This could be a perfect tool to have on the Business One Stop website. An alert system 

could be created where those small businesses and individuals could enroll to be notified when a 

regulatory change is made affecting small businesses. The Commission recommends Virginia 

incorporate a similar program and notification system in our Business One Stop program to make 

it easier for small businesses to be aware of regulatory changes. 

Sports Advisory Council 

The Commission recommends a continued study and consideration of ways to expand 

and maximize Virginia's sports marketing initiatives, including additional uses for existing 

sports venues such as Martinsville Speedway, recruitment of additional sporting events and 

franchises to Virginia and the creation of a Sports or Motor Sports Advisory Council. 

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Promoting the Virginia Brand 

Virginia has consistently been ranked by Forbes, CNBC, Pollina and others as the No.1 

or No.2 state in America for business. In 2009, the "Virginia is for Lovers" slogan was both 

inducted into the National Advertising Walk of Fame for Iconic Slogan and recognized by 

Forbes.com as one of the top tcn marketing campaigns of all time. 

While independent third-party validation of our competitive business climate and tourism 

message resonates, without a coordinated and substantial voice in the marketplace the validations 

havc limited effect. 

Shifting federal policies can create an overlaying context of loss of competitiveness for 

the states, making it even more important for the promotion of Virginia's economic assets to be 

reinforced in our domestic and international marketing. Communication about Virginia assets 

higher education, workforce, transportation and fair taxation policies build on our most 

important message of the stable business climate. Our message will resonate well if it is visible 

and differentiated from others. 

A lack of coordinated marketing across all industries and agencies of government became 

apparent over the course of the Commission's work. Virginia must properly and consistently 

market its assets in order to see the maximum return on investment. By successfully marketing 

the qualities and programs Virginia already possesses, our message will broadcast loud and clear: 

Virginia is the best state to do business, vacation, get an education and raise a family. 

The Commission offers the following recommendations to address marketing 

deficiencies in state agencies and key industries and maximize the impact of the Virginia brand 

domestically and internationally: 

1. Chief Marketing Officer 

2. Domestic and International Business Marketing 

3. Small Business Information Services 

4. Dedicated Tourism Marketing Funding 

5. Wine Region Wayfinding 

6. Virginia Grown Products 

7. Declaration of Innovation 

Chief Marketing Officer 

Virginia lacks consistent branding throughout the Commonwealth. All state agencies 

have varying messages, imagery and logos. Virginia does not effectively capitalize on the iconic 

"Virginia is for Lovers" brand or potential marketing collaboration among state agencies for cost 

savings, efficiencies and a stronger brand. 

The Commission recommends the creation of a Chief Marketing Officer (CMO) for the 

Commonwealth. The Chief Marketing Officer is responsible for ensuring coordination and 

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consistency of state marketing activity. This is accomplished by providing direct support to state 

government organizations and offering marketing specific resources and tools to enable state 

programs to successfully meet their marketing and outreach objectives. State marketing activity 

is also guided by marketing policies, standards. and guidelines developed by the CMO that 

support the goals of efficiency, economies of scale and consistency. 

State marketing investments should be designed to build equity in the "Virginia is for 

Lovers" brand, an iconic brand that has received national recognition for over 40 years. A 

comprehensive brand platform will enable the Commonwealth to easily, cost effectively and 

comprehensively address a number of recommendations of key deliverables to support sales and 

marketing efforts throughout the state. This will create efficiencies and eliminate redundancies 

within all state agencies' marketing and promotional efforts and bUdgets. while presenting a 

cohesive brand that builds upon each agency's independent efforts. 

The Commission believes the cstablishment of a CMO will enable the state to quickly 

move forward with consolidated and focused spending to achieve the greatest results and align 

dollars to support individual market initiatives. 

Competitively Promote Virginia's Inherent Attributes Domestically and Internationally 

The Commission recommends a strategic marketing plan, tied to a measurable results 

matrix delivering a return on investment, bc the contcxt in which VEDP's marketing and 

operational budget are increased so Virginia's inherent attributes are marketed effectively both 

domestically and internationally. The marketing plan should build on VEDP's current plan, but 

should be supported by sustained and long-term funding. Since 2002, funding for outreach 

marketing (statTand programs) at VEDP has decreased signiticantly; the real value of the loss of 

this support means that Virginia has fallen even further behind its competitors. 

Steps were made in the first year of the McDonnell Administration to begin rcbuilding 

domcstic and international marketing. including allocating funds toward establishing a presence 

in China, India and additional prcsence in Europe. The Commission supports continuing the 

momentum these initial steps will create. 

Small Business Information Services 

The Department of Business Assistance (DBA) is designed to be the Commonwealth's 

primary agency to assist smaller businesses with financing, business information and workforce 

nceds. 

The DBA budget has decreased by 56% from 2002-20 I 0 and has experienced a 51 % staff 

reduction (34 FTE) from 2006-2010. With limited resources the agency is doing its best to 

administcr and market thcir popular business information and support programs, including 

Entrepreneur Express and Growing Your Business, but more assistancc is necessary to increase 

awareness and delivery of the programs to support more small businesses. 

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It should not go unnoticed that the current budget for DBA has been increased 

significantly by Governor McDonnell and the General Assembly, which is a positive step 

forward to bolster Virginia's services for small businesses. 

The Commission recommends the following to expand Virginia's services to and 

marketing for small businesses: 

• Consider realignment ofthe Small Business Development Centers (SBDCs) with DBA to 

expand and more effectively coordinate and deliver the services offered by the state. 

• Expand media advertising and marketing related expenses and restore cuts to DBA's 

general funds lor fiscal year 2012. 

• Enhance the Virginia Business One Stop website into a First and Only Stop for Virginia's 

Small Businesses by increasing the information. resources and assistance available to 

entrepreneurs to ensure that there is truly only one stop required to get a business up and 

running with minimal delay. This recommendation is also being advanced by the 

Government Reform Commission. 

• Promote Virginia as the "Best State in America to Open a Small Business." While much 

attention is given to the opening or relocation of Fortune 500 companies in Virginia, little 

is said about the many thriving Virginia small businesses. Because 98% of all businesses 

in Virginia are small businesses and 75% of new job growth in the Commonwealth 

comes from small businesses, Virginia should more aggressively market and celebrate 

our small business entrepreneurs and their successes. 

Dedicated Funding Source for Virginia Tourism Corporation (VTC) 

Tourism is big business in Virginia. Sixty million visitors from the US travel to Virginia 

annually creating a $19 billion economic impact. supporting more than 200,000 jobs and 

providing nearly $1.3 billion in taxes. Tourism is also small business. More than 93% of the 

industry is made up of small businesses. 

Furthermore, 63% of the businesses in the VTC database have marketing budgets of less 

than $25,000 annually. The state's investment in tourism marketing is critical to the vitality of 

the industry and the benctits it provides to its citizens. A recent study conducted by SIR of the 

tourism industry needs in the state indicate 66% cite marketing support from government as 

essential for the industry to be more competitive and lucrative. 

Because VTC"s marketing budget is based on a general fund appropriation and tied to the 

political process, tourism marketing effectiveness has been hampered by erratic appropriations. 

Successful marketing campaigns build upon themselves year over year, which makes the existing 

volatile funding structure exceptionally inefficient and costly. Additionally, VTC"s current 

appropriation is insufficient to reach crucial out-ot~state markets. 

The Commission recommends establishing a formula funding mechanism for the VTC 

based on a percentage of state tax revenue generated from tourism-related taxes. Over the last 10 

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years, VTC's annual Generall'und appropriation has averaged 1.33% of total state tourismrelated taxes as defined by the U.S. Travel Association. 

An increase of the industry's 10 year average from 1.33% to 1.6% will keep Virginia in 

line with competitor states with similar tourism initiatives, allow VTC to expand their award 

winning marketing campaign to the lucrative, high return markets of Philadelphia and New York 

and fulfill Governor McDonnell's mandate to double the tourism budget to $30 million during 

his administration. 

With VTC's current budget of $14.5 million, Virginia realizes a $518 million economic 

impact, supporting 5,600 jobs and generating $34.6 million in taxes. If the formula funding was 

implemented and reached Governor McDonnell's goal of a $30 million annual appropriation, 

Virginia will realize an annual economic impact of $1 billion, generating $70 million in state and 

local taxes and supporting 11,500 jobs. 

Wayfinding Winery Sign age Program 

Highway and road signage is critical to the development of wineries and the wine 

industry. Because many wineries are on rural roads and off major thoroughfares, directional 

wayfinding gateway signage is necessary to increase awareness of wineries and the Virginia 

wine industry and to get visitors into the wineries and tasting rooms. However, under current 

regulations, gateway signage is not permitted at the entrance to Virginia's viticulture areas and 

the cost and requirements of the Tourist Oriented Directional Signage program keep it from fully 

meeting the needs of the wine industry. 

VDOT currently has two pilot implementations of the wayfinding signage program in the 

Historic Triangle and Stafford County. This program incorporates gateway signage welcoming 

visitors to a region and supplemental signage connecting tourist destinations to the gateway 

signage. VDOT staff has indicated that without increased staff resources, the wayfinding 

program will not be available on a statewide level for at least another two years. 

The Commission recommends that VDOT be provided the resources needed to expand 

the pilot wayfinding program on a statewide level. This will address the wineries' frequent 

requests for both gateway signage and integrated, recognizable directional signage to tourist 

locations. 

Marketing Virginia Grown Products 

Agribusiness is the # I industry in Virginia providing is $79 billion in economic impact, 

including a value-added impact of $37 billion, which constitutes approximately 9.9% of 

Virginia's gross domestic product (GDP). The total employment impact exceeds 500,000 jobs, 

which is over 10% of the state's workforce. 

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The Commonwealth can bettcr market Virginia's agriculture and forestry industries by 

serving Virginia grown and produced products at all state sponsored events and by adcquately 

funding cxisting promotional programs in VDACS. 

Every job created in agriculture and forestry related industries results in another 1.5 jobs 

in the Virginia economy. Every dollar generated in value-added results in another $1.75 valueadded in the Virginia economy. During FY 2009-20 I 0 VDACS' business development and 

recruitment activities resulted in economic development projects that contributed $66 million in 

capital investment and included the creation or retention of hundreds of full time. part-time and 

seasonal jobs in Virginia's agricultural and forestry sectors. 

VDACS also manages the "Virginia Finest" and "Virginia Grown" programs to help 

consumers and retailers know they're buying the very best the state has to offer. These programs 

are used by several thousand farms and value-added food and beveragc producers. As an 

example of the economic activity generated by these programs, consumers can locate Virginia 

Grown agricultural products, farms, farmers' markets, Community Supported Agriculture 

locations and value-added food and beverage products using an agency managed search cngine. 

The website receives approximately 24,000 unique web hits per month from customers looking 

for locally grown farm products. 

To improve promotion and marketing of Virginia agriculture, the Commission 

recommends: 

• Serving Virginia agriculture products at all state sponsored events. 

• Expansion of international marketing of Virginia agriculture and forest products through 

new marketing offices in China, India and Europe, including agriculture and forest 

products in all Governor's international trade missions and better identifying, applying 

for, and utilizing available federal grant funding for marketing and selling products 

internationally. 

• Providing additional support for VDACS' "Virginia Grown" and "Virginia's Finest" 

marketing programs along with efforts to identify and expand into emerging markets. 

• Enhancing agri-tourism promotions for the many diverse agriculture industry evcnts, 

activities and products. 

A Declaration of Innovation 

Many key stakeholders in thc state and national tcchnology community are unaware of 

the incentives available in Virginia. For example, the Angel Investor Tax Credit was announced 

earlier this year, yet many angel investors, company CEOs and legal and tax advisors who serve 

early stage companies are not aware of it. 

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To realize the potential ROI of greater investment and jobs creation, the Commonwealth 

needs a marketing plan to reach early stage company investors, and key intluencers sueh as startup company exeeutives, legal and accounting professionals who are key team players in 

company fonnation and growth, 

A "Declaration of Innovation" will include proclamations and promotions on Virginia's 

commitment to the innovation economy and emerging technologies including being "Open for 

Research and Development" and "Open for Technology Company Formation", 

At the announcement and signing of the "Declaration of Innovation", the Governor can 

be joined by CEOs and entrepreneurs of innovative technology companies from early stage to 

established companies, and particularly larger companies that have announced recent R&D and 

new technologies. 

The Declaration could also include announcements of innovation prizes including 

public/private partnerships to offer a prize in the fonn of start-up capital or scholarship for a 

young person who invents an innovative technology product that solves problems. 

While not as glamorous as other state's hundred-million dollar funding announcements, 

this action recognizes the eurrent budgetary challenges facing state government and utilizes 

existing and proven resources to deliver low-cost, high-value solutions to ensure that Virginia 

establishes an efficient operating model that produces a national reputation for facilitating 

innovation. 

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Virginia's Business Tax Policy 

Economic development is dynamic and ever-changing and the competition between 

regions, states and countries for new jobs and investment is intense. As a result, Virginia must 

continuously examine government policies, particularly our tax policies, to ensure that Virginia 

maintains its competitive standing. 

The Commission subgroups examined several areas of tax policy, including the corporate 

income tax, machinery & tools tax, business, professional and occupational licensing (BPOL) tax 

and the accelerated single sales factor transition. For each policy, several factors were 

considered, including purpose, fiscal impact to the state and local governments, fairness on 

specific industries, competitiveness with surrounding states and potential impact on economic 

growth and job creation. 

As can be expected with tax policy issues, after lengthy discussion and consideration the 

subgroups found in some instances that arriving at consensus was difficult and additional 

research and data was needed. 

The Commission offered the following analysis and recommendations on certain business 

related tax issues: 

I. Corporate income tax 

2. Machinery & Tools tax 

3. Accelerated single sales factor 

4. BPOL tax 

5. Comprehensive comparative study of total tax burden on certain industries 

Corporate Income Tax/Aligning Taxation with Long-Term Growth Sectors 

Virginia is fortunate to have long enjoyed a stable tax environment and relatively low tax 

rates - in fact, our corporate income tax rate has remained flat at 6% since 1972. Both of these 

factors have been essential to the Commonwealth's ranking as one of the best places to do 

business. Yet those rankings are ever changing and actions being taken in other states and 

overseas can crode Virginia's historical position and leave the state at a competitive 

disadvantage. 

While not the sole factor in determining corporate locations, tax policies are instrumental 

in corporation decisions as to where to invest scarce capital or in determining where 

entrepreneurs start their new businesses. Capital is mobile and flows to where the returns are the 

greatest. 

There is a concern that the structure of Virginia's tax system can potentially act as a 

disincentive to further investment and job creation in the Commonwealth, particularly in light of 

actions bcing taken by competitors to streamline and harmonize tax policies. Our state corporate 

tax rate, combined with the federal corporate tax rate, is among the highest in the world, thus 

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discouraging investment here as opposed to overseas, where companies may also realize other 

cost efficiencies such as labor costs, transportation or access to raw materials. At the same time, 

the Commission realizes and appreciates that each ofthesc taxes provides a vital funding stream 

to support programs at the state and local level. However, studies have suggested lowering the 

corporate income tax could have a positive impact on job creation and investment in Virginia. 

At the direction of the General Assembly, the loint Legislative Audit and Review 

Commission (JLARC) is examining Virginia's corporate income tax and the impact a reduction 

of the tax could have on economic development activities. The study results will not be 

available until November 2010, after the completion of the Governor's Commission on 

Economic Development and Job Creation. 

The Commission also cautions against a reduction in the corporate income tax that would 

simultaneously be paired with the creation of new taxes, or changes to existing taxes, that could 

serve as a disincentive to job creation and investmcnt. Such actions could diminish the impact of 

the change. Further, Virginia must continue to closely monitor the activities of other 

jurisdictions as they contemplate similar policies to ensure Virginia'S competitive edge. 

In the absence of the study results, the Commission is challenged in making a definitive 

recommendation on what should bc done about Virginia's corporate income tax rate and did not 

come to a consensus recommendation. Nevertheless, the Subgroup offers the following guidance 

for consideration by Governor McDonnell as those results become clearer: 

A reduction in the corporatc income tax rate should be considered so long as the 

reduction can be specifically linked to new job creation and new investments by 

employers in the Commonwealth. Such a decision could be made following the 

completion of an independent, dynamic modeling analysis of the likely impact of a 

change in the corporate tax rate. 

• The revenue the Commonwealth receives from the corporate income tax, even ifthe level 

stays at the current rate, should be dedicated to economic development-related activities, 

including, but not limited to marketing, incentives, and higher education research and 

development efforts. 

Machinery & Tools Tax 

Several of Virginia's competitive states have repealed their machinery and tools (M&T) 

tax, including Alabama, Kentucky, North Carolina, South Carolina and Georgia. While Virginia 

has taken recent legislative actions to assist manufacturers, including the development of a megasite fund and maintaining Ch. 199 exemptions, Virginia must offer manufacturers a competitive 

tax environment which will result in job creation and larger capital investment. 

The M& T tax was identified in 2005 as a $200 million disparity on manufacturers as 

compared to the effective tax rate of all other industries in Virginia. Ultimately, the 

Commission's goal is to create a low cost solution that cOlTects these imbalances and increases 

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the capital investments, competitiveness and job creation in the manufacturing industry in 

Virginia. 

The Commonwealth has clearly stated that manufacturing facilities are an economic 

priority. Unfortunately, the more manufacturers invest in new technologies and equipment, the 

more taxes they end up paying. The future success of the manufacturing industry will be based 

upon higher wages, higher skills. greater global competition and greater investments in new 

technology. 

Additional Recommendations Regarding the Machinery & Tools Tax 

The Commission does not take lightly the fiscal impact that elimination of the M&T Tax 

would have on local governments. Estimates have placed that fiscal impact at $200 million. At a 

time when revenues across all levels of government are unpredictable, the Commission 

understands that repeal could create a financial hardship for many local governments. 

While the Commission believes a repeal of the M&T Tax is in the best interest for both 

manufacturers and the Commonwealth, they would like to offer additional recommendations 

relating to the M&T Tax to be enacted immediately while the Machinery and Tools Tax is 

phased out over a longer period of time and replacement sources of revenue are identified. 

All new investments in M&T are not taxable for the first three tax years of use after the 

purchase, transfer or restart date. This policy would motivate industry to purchase new 

equipment and tools, transfer machinery and tools from out-of-state to Virginia and/or 

restart idled machinery and tools. 

• All in-service M&T over 10 years old would be assessed at a maximum value of I % of 

the original cost until idled or disposed of (local rates and taxing methodology must 

remain constant until all existing taxable assets have aged to the I % level). All 

machinery and tools, whether idled or not prior to reaching 10 years, would qualify once 

its age exceeds 10 years. Machinery and tools taxable under this provision would qualify 

regardless of prior ownership. 

While less appealing to the industry than a repeal ofM&T, this approach would allow 

Virginia to position itself as attractive for manufacturers considering Virginia as compared to the 

West Coast, Northeast, and Southern locations such as Alabama, Georgia, Kentucky, North 

Carolina, South Carolina and Tennessee. 

Accelerated Single Sales Factor 

Beginning in 2011, Virginia will allow manufacturers to transition to a single sales factor. 

The single sales factor is to be fully phased in by 2014. Manufacturers who elect to use the 

single sales factor will be locked into a three-year irrevocable election and are required to certify 

that their average weekly wages for full-time employees are greater than the lower of the state or 

local average weekly wages in their industry. 

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Using a single sales factor is beneficial to companies with material amounts of capital 

and labor in a state. The sales percentage is usually significantly smaller than the property and 

payroll percentages for manufacturers who ship out of state. 

Transitioning to the single sales factor from 2011 to 2014 is expected to save 

manufacturers a total $55.7M in state income tax over a 4 year period. Immediate 

implementation would increase the savings by an additional $64.3M. When fully implemented, 

the single sales factor is expected to result in an annual tax savings of $30M. 

BPOLTax 

The BPOL tax has a long history in the Commonwealth of Virginia. License taxes were 

one of the primary methods for obtaining revenues at the adoption of the federal constitution. 

Due to Virginia's share in the costs for the War of 1812, license tax rates were increased, and the 

types of businesses subject to taxation were expanded. By 1850, the policy of levying a license 

tax on practically all well-established businesses and professionals was adopted. While BPOL 

was initially a flat-fee that varied by type of business, the system was changed in the 20th 

century to taxes that are based on the gross receipts of businesses. In 1996, BPOL tax was 

significantly amended to help ensure more uniform local administration. 

Because the BPOL tax is based on gross receipts, many small business owners believe it 

is unfair not to consider the burden on businesses when the tax is a derivative of total profits. 

For example, the BPOL tax is biased against new businesses, which typically experience losses 

in their early years. 

The Commission heard from numerous small business owners whose companies lost 

money in a fiscal year but were still required to pay a BPOL tax. One such testimony was from a 

small businessman whose company lost $75,000 last year and still paid almost $5,000 in BPOL 

taxes. 

Additionally, because BPOL taxes are administered by localities, inconsistent rules and 

lack of best practices exist from Jurisdiction to Jurisdiction that create significant administrative 

challenges business owners and franchisers. 

A general improvement would be to make BPOL taxes more consistent and uniformly 

applied across localities. For example, a similar system to sales tax structures would allow the 

state to collect BPOL tax revenue and return them to localities. This approach can potentially 

reduce competition between Virginia jurisdictions for economic development expansion 

opportunities. Similarly, businesses with multiple locations across the state may prefer a 

centralized location for tax matters rather than interacting with multiple local governments. 

Any changes to the current BPOL system should address the inherent issue of taxing 

gross receipts regardless of business profitability while maintaining the revenues for local 

governments' operations. The Commission understands that repealing BPOL taxes without 

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finding additional revenue sources would be difficult in the current budgetary environment and 

does not take lightly the static fiscal impact that elimination would have on local governments. 

Therefore, the Commission rccommends that the Department of Taxation collect for two 

years the necessary information to determine the fiscal impact if Virginia taxed small businesses 

on their relative profitably as opposed to gross receipts. 

Once the Department of Taxation has collected the proper data and is able to provide an 

accurate fiscal impact of reforming BPOL from a gross receipt to a net profit tax, the 

Commission recommends that Virginia moves BPOL from thc current formula of gross sales to a 

net profit model that is fair and truly represents a company's success. 

Comprehensive Tax Study of Targeted Industry 

Through the discussions of tax policy affecting certain industries, there was significant 

consideration of how a tax compared to that specific tax in other states. localities or industries. 

However, there was little discussion ofthc overall tax burden on specific industries in Virginia 

compared to those industries in other states. 

The Commission leadership recommends conducting a comprehensive study of the 

overall tax burden on specific targeted industries such as manufacturing and technology in 

Virginia compared to our competitor states. The study will not only consider corporate income, 

M&T and BPOL taxes, but the total lax burden including property tax, sales tax, income tax and 

others. This will provide a more thorough analysis of which taxes are competitively detrimental 

to Virginia businesses and prohibitive to job creation and expanding industry. 
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GOVERNOR'S COMMISSION 

RF~}1-'OR~I, 

INN ()Vf\rrI ()N 

IN'TEST~IENT 

Preparing for the Top Jobs of the 21 5t Century 

Interim Report of the Governor's Commission on 

Higher Education Reform, Innovation and Investment 

Chairman Thomas F. Farrell, II 

Vice Chairman The Honorable M. Kirkland Cox 

December 20,2010 
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TABLE OF CONTENTS 

TAB 1: INTRODUCTION AND EXECUTIVE SUMMARY ........................................................ 2 

TAB 2: SUMMARY OF RECOMMENDATIONS ...................................................................... 5 

THE COMMISSION'S WORK .................................•...•.....••..........................•.•........•.....••..... 8 

WHERE THINGS Now STAND ..•....•...............................•.....•....••................................•.... 12 

TAB 3: THE COMMISSION'S INTERIM RECOMMENDATIONS .......................................... 18 

ECONOMIC OPPORTUNITY .............................................................•................................ 18 

REFORM-BASED INVESTMENT .....•...........................•.........•............................................ 43 

AFFORDABLE ACCESS .................................................................................................... 57 

THE COMMISSION'S NEXT STEPS .............................•............................................•......... 65 

TAB 4: ATTACHMENTS .................................................................................................... 67 

ATTACHMENT A EXECUTIVE ORDER No. 9 ................................................................. 67 

ATTACHMENT B - DEGREE ATTAINMENT, FINANCIAL AID AND WORKFORCE TRAINING 

INTERIM COMMITTEE REPORT .............................•.......................................................... 71 

ATTACHMENT C - INNOVA nON AND COST CONTAINMENT 

INTERIM COMMITTEE REPORT ...................................••..•....••.......................................... 73 

ATTACHMENT D - REGIONAL STRATEGIES/PARTNERSHIPS FOR RESEARCH AND 

ECONOMIC DEVELOPMENT INTERIM COMMITTEE REPORT ............................................. 76 

ATTACHMENT E HIGHER EDUCATION COMMISSION MEMBERS ................................... 79 
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INTRODUCTION AND EXECUTIVE SUMMARY 

On March 26, 2010, Governor Bob McDonnell signed Executive Order Number Nine, 1 

establishing the Governor's Commission on Higher Education Reform, Innovation and 

Investment, and charging it with setting forth "a comprehensive strategy for increased 

educational attainment, skills development, and lifelong learning that will equip 

Virginians to succeed at the highest levels of global economic competition." 

Today we complete the first phase of our work by issuing this Interim Report 

recommending passage of landmark higher education legislation in the 20 II session of 

the Virginia General Assembly. We propose that the Commonwealth articulate a clear 

and achievable vision of national and international leadership in college degree 

attainment and personal income and, through legislation, put Virginia on a sustainable 

path of higher education innovation, investment and reform that will make that vision 

real. 

Our Commission's work is ongoing, and while the legislation we propose will not 

complete the development ofthis strategic vision and program, it will set the course and 

commence it. To develop the full plan and detailed policies, there must be a positive, 

bipartisan spirit of executive and legislative branch cooperation, active collaboration and 

trust between and among the Commonwealth and its public and private institutions of 

higher education, and a dynamic, jobs-focused partnership in every region of Virginia 

that unites the efforts of the business and professional community and our colleges, 

universities, and community colleges. 

Our Commission proposes a name for this comprehensive, forward-focused effort: 

"Preparingfor the Top Jobs of the 2]S' Century: The Virginia Higher Education 

Opportunity Act of2011." We recommend that the "Top Jobs" or "TJ2I" legislation 

embrace three core elements: 

I A copy of Executive Order Number Nine, as revised on July 9, 2010, is Attachment A. 

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I. Economic Opportunity: 

Recognizing the well-documented link between educational achievement and earning 

power, we propose a series of measures that will help foster economic growth in the 

Commonwealth and prepare Virginians for the best jobs and incomes in the 

knowledge-based economy. The most relevant indicators of our progress-as well as 

our competitive standing globally-are college degree attainment and personal 

income growth, and so it is to tangible improvement according to those key measures 

that our proposals are directed. 

2. Reform-Based Investment: 

Moving beyond the tiresome debate about reform versus investment, our proposals 

recognize the vital need for both. We do not propose quick fixes or a massive 

infusion of cash. Not only are those things unavailable in the present economy, but 

even if within our grasp they would not reflect the sound public policy taxpayers have 

a right to expect. To achieve our shared vision, Virginia must implement a program 

of sustained investment that will preserve and extend excellence in our higher 

education system while at the same time instituting reforms and innovations that will 

extend quality degree opportunities to more Virginians in creative, cost-effective 

ways. 

3. Affordable Access: 

Ultimately, this educational and economic endeavor must work for the students it 

seeks to serve and serve the Virginians who seek to work. Our proposals are thus 

directed toward ensuring that all deserving and committed Virginia students have 

access to an excellent education throughout our broad and diverse higher education 

system. The proposals likewise will help ensure that a college degree remains within 

reach for young people of limited or ordinary means and accessible to people already 

engaged in the workforce. 

In remarks delivered at George Mason University before his election, Governor 

McDonnell candidly observed: 

Many people my age and older worry that the next generation of 

Virginians may be the first not to enjoy greater economic opportunities 

than their parents-that the American Dream may be dimming for our 

children and grandchildren, and that other nations may pass us by in 

innovation and competitiveness .... [W]hile that may be unduly 

pessimistic, we certainly cannot afford to be blindly optimistic. The hard 

reality is this: The 21 SI_century economy requires increasingly high skill 

and knowledge levels. Too few Virginians are going to college and 

getting that preparation. And ollr present state policies are doing far too 

little about it. 

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The Governor's diagnosis appears to reflect an increasingly broad consensus for decisive 

action, and we applaud him and the Commonwealth's bipartisan legislative leadershipmany of whom are members of the Commission or have been consulted during our 

deliberations-for recognizing the pressing need for change. Because of our excellent 

system of higher education, the Commonwealth has a solid platform from which to 

achieve leadership in the knowledge-based economy. It is our privilege as Commission 

members to assist in giving content to this commitment and fashioning policy 

recommendations to help achieve it. 

For ease of reference, our interim recommendations are listed below in summary fashion. 

The body of our report then follows, with the following parts: a description of the 

Commission's work to date; a review of where things currently stand with respect to 

higher education in Virginia; a detailed discussion of our interim recommendations; and a 

concluding section on next steps. 

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SUMMARY OF RECOMMENDATIONS 

0) ECONOMIC OPPORTUNITY 

(a) 100,000 More Degrees 

)0- Adopt the McDonnelllNational Center for Higher Education Management 

Systems ("NCHEMS',) 100,000-degree goal for additional college degree 

attainment as a state policy priority. 

)0- Enroll more Virginia student,~ at tile state's public and private colleges by 

stabilizing base funding, rewarding enrollment growth, and establishing 

institution-specific Virginia-student enrollment targets. 

)0- Encourage and facilitate degree completion by more Virginians with partial 

college credit. 

)0- Establi.~h targeted policies and incentives to promote improved retention and 

graduation rates throughout the Virginia higher education system. 

(b) STEM and Other High-Demand Degrees 

)0- Establish a set of "economic opportunity metrics" that will enable everyone in 

the higher education enterprise, including students and parents, to understand 

the economic impact and earning potential of particular degree programs at 

particular institutions. 

)0- Establish a public-private collaborative effort that engages the business, nonprofits, higher education and K-I2 communities in the development and 

implementation of a comprehensive plan to increase science, technology, 

engineering, math, ("STEM',) and high demand degree attainment in Virginia. 

(c) Research and Development ("R&D) Initiative 

)0- Develop a statewide ,~trategic roadmap tllat catalogs all R&D assets and 

activities, particularly those related to federally funded research, and aligns 

Virginia's economic development initiatives with additional R&D investments. 

)0- Establish an emerging technologies fund as a vellicle for strengthening R&Drelated programs, including recruitment of eminent faculty, acquisition of 

research-related equipment, intellectual property commercialization and seedstage funding. 

)0- Create a new state income tax credit to promote private investment in R&D 

activities. 

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(2) REFORM-BASED INVESTMENT 

(a) Year-Round Utilization 

» Engage each public higher education institution in the expedited development 

of a plan for optimal year-round utilization of its physical and instructional 

assets. 

(b) Technology-Enhanced Instruction 

» Provide infrastructure and incentives for institutions to participate in "Virtual 

Departments" that leverage instructional resources across the Virginia higher 

education system. 

» Promote innovative course redesign initiatives that enhance instructional 

quality and reduce cost by incorporating new technologie,\' into courses 

provided at Virginia colleges and universities. 

» Enhance the availability, quality and affordability of online course offerings, 

especially for non-traditional students with partial college credit. 

» Encourage expanded use of electronic textbooks and other online curriculum. 

(c) Degree Path Initiatives 

» Increase the statewide availability of dual enrollment and advanced placement 

options that can help reduce the time required to complete college study. 

» Enhance incentives and aggressively promote options for obtaining a 

bachelor's degree by enrolling first in a community college and then completing 

study at afour-year institution. 

» Establish economic incentives for timely and expedited completion of 

bachelor's degree programs. 

Y Develop a comprehensive college readiness plan that phases out reliance on 

developmental (remedial) programs at the college level by accomplishing 

necessary diagnostic and remedial action at the high school level. 

(d) Restructuring Refinements 

~ Establish an effective consultative process for the development, refinement and 

endorsement of institutional performance plans with appropriate participation 

by executive, legislative, and institutional repre,~entatives. 

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);> Revise performance metrics and corresponding incentives to make the 

incentives more robust and tailored to specific outcomes on state policy 

priorities, especially those related to economic impact and innovation. 

);> Form an executive-legislative-institutional working group to identify additional 

ways to reduce costs and enhance efficiency by increasing managerial 

autonomy with accountability at the institutional level. 

(e) Community College Reengineering 

);> Support progress on the Virginia Community College System ("VCCS'J 

Reengineering Task Force's ten major strategies for reform and innovation. 

(3) AFFORDABLE ACCESS 

(a) Codified Funding Model 

);> Codify in the Top Jobs legislation afunding model that supports sustained 

long-term effort to achieve the priority policy goals outlined in this report 

related to economic opportunity, reform-based investment, and affordable 

access. 

(b) Stable and Predictable Ba,~e Funding 

);> Provide stable and predictable base funding for each institution using objective 

peer-based methodology that reduces the influence of ad hoc considerations, 

such as lobbying. 

);> Enroll more Virginia students at the state's public and private colleges by 

stabilizing base funding, rewarding enrollment growth, and establishing 

institution-specific Virginia-student enrollment targets. 

);> As state support increases over time, reduce reliance on tuition and fees to 

support institutional operations and instruction. 

);> As growth revenues become available, deposit funds in a higher education 

reserve ("rainy day fund'J so that state investmentin the Top Jobs priorities 

can be sustained over time and sudden surges in tuition can be avoided during 

future economic downturns. 

(c) Per-Student Funding 

);> Restore and enhance funding of the tuition assistance grants (TA G) for 

students attending Virginia's independent colleges. 

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~ Make a 'promise' to every Virginia student that a significant increment oJstate 

funding will follow the student to the public or private (not-for-profit) Virginia 

college of his or her choice. 

(d) Need-Based Financial Aid 

~ Provide additional need-basedfinancial aid-including grants and low-interest 

loam', iffeasible-to enhance college affordability for low- and middle-income 

students and their families. 

(e) Incentives (or Economic Impact and Innovation 

~ Provide performance-ba.5ed incentive funding tied to key policy outcomes 

related to economic impact and innovation. 

THE COMMISSION'S WORK 

The Commission's charge reflects the Governor's conviction that providing Virginians 

with affordable access to an excellent college education-especially in high-demand, 

high-impact disciplines-is vital for the Commonwealth's economic resurgence and for 

personal opportunity in the 21 51 Century economy. 

In his Inaugural Address, the Governor declared: 

As we confront the worst economy in generations, the creation of new job 

opportunities for all our citizens is the obligation of our time. so all 

Virginians who seek a good job can find meaningful work and the dignity 

that comes with it , ... That is why. even in these tough times. we will have 

the foresight to invest today in ideas and economic policies that increase 

economic prosperity tomorrow .... 

Access to a quality education is the foundation of future opportunity .... 

New opportunities in science, technology, engineering, math and 

healthcare must be created .... And let us recognize now that a high school 

degree is no longer the finish line. We must create affordable new 

pathways to earning a college degree and make a commitment to confer 

100,000 additional degrees over the next 15 years. We must make our 

community colleges national leaders in workforce development and career 

training. 

These are the investments that will pay individual and societal dividends 

for many years to come. 

In the Executive Order creating this Commission, Governor McDonnell elaborated on the 

present state of higher education and the challenge before us: 

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The current period of economic challenge facing our 

Commonwealth and Nation comes during an era of rapid technological 

advancement and intensifying international competition, requiring an 

increasingly knowledgeable workforce and engaged citizenry. There is a 

well-documented correlation between the degree or certificate a person 

gains and the income he or she earns-between a state's educational 

attainment and its per capita income. Higher education is among the state 

programs generating the highest return in terms of job creation, economic 

growth, and ultimately tax revenues. 

With great national universities, a higher education system 

distinguished by both its quality and diversity, and a vibrant knowledgebased economy, Virginia has a unique opportunity to show the way to a 

new era of American leadership in advanced education, ground-breaking 

research, and economic growth. Our country's security, our state's 

prosperity, and our citizens' opportunity all depend on a sustained 

commitment to higher education excellence and access. 

During the first decade ofthis century, Virginia's state support for 

public colleges and universities was cut nearly in half on a per-student, 

constant-dollar basis. The result was an unprecedented cost shift to 

students and their families and a potential threat to quality and access. 

Tuition has nearly doubled in the past decade. Colleges and universities 

must continue to find ways to reduce operating costs and focus on the 

disciplines that lead to the high-paying jobs of the future. Greater 

efficiencies and more productivity in the state system must be found. 

There is a pressing need for the Commonwealth to establish a 

long-term policy of reform, innovation and investment that will ensure 

instructional excellence, create affordable pathways to college degree 

attainment for many thousands more Virginians, prepare our citizens for 

employment in the high-income, high-demand fields of the new economy, 

foster socio-economically important research and development, and ensure 

affordable access to appropriate post-secondary education, training, and 

re-training for all Virginians. 

In keeping with the Governor's directive, our Commission has focused on-··and 

continues to address-the following priorities: 

• Preserving and enhancing the instructional excellence of Virginia's 

leading universities and of the higher education system as a whole; 

Increasing significantly the percentage of college-age Virginians enrolling 

in institutions of higher education and attaining degrees; 

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• Attracting and preparing young people for the STEM (science, 

technology, engineering, and math) areas and other disciplines (e.g., 

healthcarc and advanced manufacturing) where skill shortages now exist 

and/or unmet demand is anticipated; 

• Forging effective public-private partnerships and regional strategies for 

business recruitment, workforce preparation, and university-based 

research; 

• Making Virginia a national leader in providing higher education 

opportunities to military personnel and veterans; 

• Crafting a sustainable higher education funding model that will 

systematically move Virginia toward higher levels of educational 

attainment and economic competitiveness over the next decade-and-a-half; 

• Developing innovative ways to deliver quality instruction, cost-saving 

reform strategies, and affordable new pathways to degree attainment for 

capable Virginians regardless of income or background; 

• Evaluating strategies to reduce costs through additional college placement 

testing and accelerated degree completion; and 

• Creating effective workforce development programs through expanded 

use of the Virginia Community College System in coordination with the 

Governor's Commission on Economic Development and Job Creation. 

The Commission's work is being accomplished primarily through its three standing 

committees, whose scopes of work and interim reports are attached to this report.2 The 

major recommendations of these committees that bear on the Commission's legislative 

proposals for the 2011 session are set out in the Recommendations section below. 

In the course of developing interim recommendations, the committees have held 

numerous meetings, received an impressive variety of presentations, and examined many 

relevant studies and reports. Much good work also has been accomplished through 

dialogue among Commission members and staff, representatives of the business and 

higher education communities, various think-tanks and policy experts, legislative 

members and staff, the Governor's Policy Office, and the Office of the Secretary of 

Education. The Governor himself has been actively engaged in many of these 

discussions and has met three times with the full Commission. 

2 The interim report ofthe Degree Attainment, Financial Aid and Workforce Training Committee is 

Attachment B. The interim report of the Innovation and Cost Containment Committee is Attachment C. 

The interim report of the Regional Strategies/Partnerships for Research and Economic Development is 

Attachment D. 

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The Commission has received crucial assistance from a number of quarters. In 

developing the proposed funding model, the Commission has been aided by 

representatives and staff of the Finance secretariat, State Council of Higher Education for 

Virginia (SCHEV), Department of Education, Department of Budget and Planning, 

Senate Finance Committee, House Appropriations Committee, institutions of higher 

education, Virginia Community College System, Virginia Business Higher Education 

Council (VBHEC) and others. SCHEV], VBHEC4 , VCCS, and the Center for 

Innovative Technology have been especially helpful in augmenting the staff resources of 

the Office of the Secretary of Education and the Governor's Policy Office. In addition, a 

wide range of other organizations, including the National Center for Higher Education 

Management Systems (NCHEMS), the Council of Independent Colleges in Virginia, and 

the Council on Virginia's Future have contributed materially to the Commission's work. 

Finally, the Commission and its staff have been mindful of the work of another key panel 

created by the Governor, the Commission on Economic Development and Job Creation 

co-chaired by Lieutenant Governor Bill Bolling and Senior Economic Advisor Bob 

Sledd. We have closely coordinated our activities with members and staff of that 

commission. Its Final Report, issued on October 16, 20 10, includes a number of 

recommendations that are also reflected in this report, especially in the economically vital 

area of university-based research and development activities. To take full advantage of 

the extensive work and findings by the Governor's Commission on Economic 

Development and Job Creation, our Commission has elected to defer until the second 

year of our work the exceedingly important task of developing detailed recommendations 

related to regional strategies and public-private paI1nerships for economic development, 

business recruitment and workforce training. 

J SCHEY personnel have served as staff to the Commission's committees and have assisted in preparing 

the committee reports. SCHEY staff members also have worked closely with the Commission in supplying 

pertinent background information and data that is included in this Interim Report. 

4 YBHEC is a private, not-far-profit organization whose "Grow By Degrees" program seeks to advance 

higher education reform and investment measures that are generally consistent with many of the 

Commission's initiatives. YBHEC's chairman, W. Heywood Fralin, a member of the Commission, has 

made the "Grow By Degrees" team available to assist the members and staff of the Commission as needed. 

II 
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WHERE THINGS Now STAND 

With 15 public four-year institutions, one public two-year college, a community college 

system with 40 campuses, 27 independent not-for-profit colleges, and a rich and growing 

array of degree-granting programs by for-profit private providers, Virginia's higher 

education system is among the nation's most diverse and accessible. Various colleges 

and universities in the Commonwealth routinely receive accolades from national 

organizations and publications that rank higher education institutions based on quality, 

value and performance. The accolades are welcome indeed, not only because they attest 

to an educational ideal that has been nurtured from colonial to modem times, but because 

they have the very practical effect of attracting new business investment, top jobs, and 

some of the nation's best and brightest minds to the Commonwealth. 

Such accolades, however, may also produce a numbing self-satisfaction and cause 

Virginians to indulge the facile assumption that we will continue to enjoy the many 

benefits of a top-performing higher education system no matter how aggressively we 

reduce its pu blic resources, how fast we drive up the cost to students, or how far other 

states and countries outpace us in embracing opportunities associated with new 

technologies and new models of service delivery. A dramatic wake-up call is needed. 

Countless studies, including the recent comprehensive analysis by the Weldon Cooper 

Center for Public Service at the University of Virginia, 5 have documented the direct 

correlation between educational attainment and economic prosperity-between an 

individual's academic credentials and his or her earning power in the marketplace. It is 

unsurprising, therefore, that the documented return on investment in higher education is 

significantly greater than for most, if not all, other governmental programs. 

Despite the enormously positive economic impact of college and universities, two 

recessions during the past decade--{)ne of which has no rival since the Great 

Depression-have caused the Commonwealth to retrench severely in its commitment to 

higher education. Per-student funding at four-year public institutions of higher education 

declined by 40 percent on a constant-dollar basis between 2000 and 2010, while at twoyear institutions the reduction was 30 percent over the same period. Additional 

reductions have becn adopted for the 20 10-2012 biennium, and the situation will become 

more acute with the elimination of federal funding under the American Recovery and 

Reinvestment Act (commonly referred to as "federal stimulus funding"). 

Recognizing the severe impact of these steep reductions, Governor McDonnell and the 

General Assembly declined to make additional reductions to higher education while 

closing the $4 billion budget shortfall that confronted the 2010 legislative session. That 

action was important symbolically as well as substantively, because it heralded a turning 

point in the Commonwealth. In meeting with the Commission on October 12, the 

'Rephann, T. J., Knapp, J. L., & Shobe, W.M. (2009, October). Study olthe Economic Impact ofUrginia 

Public Higher Education. Charlottesville, VA: University of Virginia Weldon Cooper Center for Public 

Service. 

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Governor expressed his determination to reverse the recent pattern of disinvestment in 

higher education as funds become available. 

This shift in priorities is urgently needed. Even with the past decade's economic 

exigencies, the opportunity existed to maintain a commitment to higher education 

commensurate with its importance to the Virginia economy. Instead, higher education 

funding declined sharply as a percentage of total general fund spending in the 

Commonwealth. As Governor McDonnell has pointed out, if state support for higher 

education since 2000 had merely matched the growth in spending in the rest of the 

general fund budget-if it had only kept pace with average spending on all other general 

fund programs-then the Commonwealth currently would be spending $300 million 

more annually on higher education. With total spending on higher education representing 

only 10 percent of the general fund budget in 2011-2012, it is apparent that even a 

relatively modest adjustment in priorities, if sustained over time, can have far-reaching 

effects. 

Demographic trends plainly compounded the difficulties of the past decade. Fueled by a 

balloon in the number of college-age Virginians, the state's four-year colleges and 

universities increased enrollment by 24 percent between 2000 and 2010. In contrast to 

longstanding funding policies that routinely allocated additional state resources to 

institutions that enrolled more in-state students, institutions that chose to help the 

Commonwealth meet the surging demand for college enrollment in recent years did so 

against a backdrop of declining state support. As the economy has remained stagnant for 

a prolonged period, many displaced or under-employed workers have returned to school 

to upgrade their educational credentials, resulting in even higher demand on state 

institutions, especially the Commonwcalth's community colleges. Today, the community 

college system is serving 22,000 or 13.2 percent more students than it was just two years 

ago. 6 

Because a college degree is often the Iynchpin in gaining a good job, it is especially 

unfortunate that Virginia's dccade-Iong decline in support for higher education reached 

its nadir during a time of severe economic stress on Virginians and their families. While 

the institutions of higher education absorbed a portion of the decade's state funding 

reductions through various cost-cutting strategies, the largest portion was passed along to 

students and their families in the form of tuition and fee increases. As a result, Virginia 

can no longer be considered a low-tuition state; we currently rank among the top ten 

states in tuition and fee charges for public colleges and universities. Student loan debt 

also has increased sharply-and with potentially dire consequences, since the prospect of 

easy repayment through rapid growth in income has dimmed dramatically. 

Both access and affordability have suffered in this environment. Out-of-state students 

now pay on average 151 percent of the cost of their education at Virginia's public 

institutions, and the institutions rely heavily on those non-Virginia resident tuition and 

fee payments to hold down costs for Virginia students. While it is a positive sign that the 

Commonwealth's institutions continue to be a magnet [or highly capable students from 

"The Case/or Change. (2010). Retrieved from http://rethink.vccs.edu/casc-for-changc/. 

13 
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around the country, undue reliance on out-of-state tuition as a major funding source 

inevitably limits access for Virginia students. Moreover, cven out-of-state tuition is 

subject to marketplace realities, and the ability to generate increased revenue by hiking 

the price tag for students from outside the Commonwealth appears largely to have been 

exhausted. 

As a result of all these factors, the six-year strategic plans of Virginia's four-year public 

institutions now contemplate only modest undergraduate enrollment increasescollectively in the three percent range-for the foreseeable future. In a word, the system 

appears to have reached, and perhaps exceeded, its limits. This has caused many 

knowledgeable members of the higher education and business communities to express 

profound alarm about the potential degradation of overall instructional quality and to urge 

a renewed commitment to stable and predictable state support combined with forwardlooking innovation. 

Severe financial challenges also confront Virginia's independent colleges and 

universities, which currently enroll roughly a fourth of all in-state undergraduate students 

in the Commonwealth. Since 1972, Virginia has provided vital financial support to the 

not-for-profit independent colleges through the Tuition Assistance Grant (TAG) Program. 

In 2007-2008, the per-student grant was approximately $3,200, but state budget cuts have 

reduced the TAG awards by about 19 percent-to approximately $2,600 per studentduring a time when both the private institutions and their tuition-paying customers face 

unprecedented economic pressures. 

Virginians seem to understand that the status quo is neither acceptable nor sustainable. 

According to extensive public opinion research conducted for the Virginia Business 

Higher Education Council, three-quarters of Virginians believe that a bachelor's or 

associates degree is essential for success in today's economy. Yet, currently only about 

35 percent of college-age Virginians are enrolled in college, and only about 42 percent of 

working-age Virginians have a two- or four-year college degree. The gap between the 

expectations of the people of Virginia and the reality on the ground is striking. 

In reality, the prognosis appears even worse. When Governor McDonnell echoed the 

concern of many Virginians that their children and grandchildren might not enjoy the 

same opportunities as their own generation and those before, he was expressing 

anecdotally a highly disturbing reality that also can be demonstrated statistically. The 

United States is one of only two countries in which the college degree attainment of the 

younger working-age cohort-ages 25-34-is actually lower than those in the group aged 

45-64. The negative implications for America's competitiveness, and for individual 

opportunity and fulfillment, could hardly be clearer. 

Perhaps the biggest threat to America's long-term economic prosperity and 

competitiveness lies in our failure to maintain our historic advantage in the vital STEM 

areas. In a follow-up to its urgent 2005 report entitled Rising Above the Gathering Storm, 

a National Academy of Sciences panel recently painted a dire picture, reporting that 

America's education system had made little progress in science and math instruction 

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while much of the world had made dramatic gains. 7 Another panel, a bipartisan federal 

commission chaired by two former United States senators,S reached similar findings 

earlier in the decade: 

Second only to a weapon of mass destruction detonating in an American 

city, we can think of nothing more dangerous than a failure to manage 

properly science, technology and education for the common good over the 

next quarter century .... The harsh fact is that the U.S. need for the 

highest quality human capital in science, mathematics and engineering is 

not being met .... This is an ironic predicament, since America's strength 

has always been tied to the entrepreneurial energies of its people. 

America remains today the model of creativity and experimentation, and 

its success has inspired other nations to recognize the true sources of 

power and wealth in science, technology, and higher education .... In a 

knowledge-based future, only an America that remains at the cutting edge 

of science and technology will sustain its current world leadership .... 

[O]nly a well-trained and educated population can thrive economically, 

and from national prosperity provide the foundation for national cohesion. 

The United States now ranks 29th out of 109 countries in the percentage of 24-year-olds 

with math and science degrees. Among the American states, Virginia is comparatively 

strong in STEM education, ranking 9th nationally in the percentage of degree awards in 

STEM disciplines from public universities. But the percentagc of college degrees in 

STEM arc as has been declining in Virginia in recent years despite expert predictions that 

by 2016 almost three-fourths ofthe fastest growing jobs in the United States will be in 

the STEM fields. To meet anticlpated demand, according to one respected economist's 

presentation to the Commission, Virginia will need to prepare 100,000 additional 

workers with STEM degrees over the next decade. 

The necd to dramatically increase college degree attainmcnt in the Commonwealth, with 

a focus in the critical STEM area and high-demand disciplines such as healthcare, has 

been noted by an impressive array of respected leaders, organizations, and study panels. 

The Council on Virginia's Future, chaired earlier by Govcrnor Kaine and now by 

Governor McDonnell, has made college degree attainment its top priority. Two years 

ago, the Virginia Business Higher Education Council launched its "Grow By Degrees" 

campaign and coalition, with additional STEM degrees and innovative instructional 

strategies among its top policy priorities. Reflecting a degree of bipartisan consensus 

seldom sccn in the Commonwealth, Governor McDonnell, both of Virginia's United 

1 Members of the 2005 "Rising Above the Gathering Storm" Committee. (2010). Rising Above the 

Gathering Storm, Revisited: Rapidly Approaching CategOlY 5. Washington, D.C.: The National Academies 

Press. 

8 United States Commission on National Seeurity/2l" Century. (2001, February). Road Mapfor JV'ational 

Security: Imperative for Change: Phase III Report of the United States Commission on National 

Security/21" Century. 

Q Chmura, C. (2010, August). Job Demand Forecasting. Presentation to the Governor's Commission on 

Higher Education Reform, Innovation. and Investment, Hampton, VA. 

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States Senators, and all living former Governors joined as honorary leaders of the "Grow 

By Degrees" coalition. 

An equally impressive succession of executive and legislative branch commissions and 

initiatives-Governor Gerald Baliles's in 1988: Senator John Chichester's in 1994: 

Governor Jim Gilmore's in 1998; Governor Mark Warner's in 2002 -have highlighted 

the central importance of the Virginia higher education system to the Commonwealth's 

economic progress and quality of life. Yet, not since Governor Mills Godwin 

championed creation of the Virginia Community College System in the 1960s has a 

Virginia chief executive elevated higher education and its economic impact to toppriority status and undertaken to enact a long-term strategy and plan into law. 

In Virginia, change typically is more evolutionary than revolutionary. Despite the 

recession-impelled funding cutbacks that have severely challenged colleges and 

universities in recent times, the stage has been set for a major higher education initiative 

in part through important reforms that have bcen instituted over the past two decades. 

Prominent among these have been the management decentralization pilot projects of the 

early 1990s, development of the "base budget adequacy" (BBA) funding model under the 

auspices of the Virginia General Assembly's Joint Subcommittee on Funding Policies in 

2000, the concept of institution-specific performance agreements first advanced by the 

Blue Ribbon Commission on Higher Education in 1998, the ground-breaking 

Restructured Higher Education Financial and Administrative Operations Act 

(Restructuring Act) of 2005, and the major research initiative launched by Governor 

Warner in 2006. 

Highcr education capital improvements, without which significant improvement in 

degree attainment would be impossible, have been made at key intervals: through 

general obligation bond issues in 1992 and 2002, and more recently through the 21 st 

Century Capital Improvement Program legislation Enacted in 2008, this innovative 

legislation provided the mechanism for a systematically planned and reliably funded 

program of capital investment in the Commonwealth, including higher education. 

These state-level policy reforms have been matched by innovation and creativity at the 

institutional level. A key attribute of higher education in Virginia is system-wide 

diversity and institutional autonomy, and much of the progress achieved on Virginia's 

public and private campuses in recent years is attributable to forward-thinking leadership, 

an unwavering commitment to quality, and a culture of entrepreneurship at the 

institutions. Various studies have documented the Virginia higher education system's 

positive performance and degree output relative to cost. As already noted, the 

Commonwealth's institutions have earned a steady stream of accolades and high rankings 

from independent organizations that also affirm their stand-out character in terms of 

value. Thcse accomplishments are not cause for satisfaction or complacency, however. 

Rather, they suggest Virginia is wcll positioned to lead the way in managerial reforms, 

academ ic innovations, and new models of instruction that wi \I reinforce and extend 

America's position as a global higher education leader. 

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Some may suggest that the current economic crisis and severe pressure on public 

resources make this a poor time for Virginia to fashion a strategy for long-term 

investment, innovation and reform in higher education. But the opposite is true. Today's 

tough times call to mind the quote commonly attributed to the noted physicist and Nobel 

laureate, Sir Ernest Rutherford of New Zealand: "Gentlemcn, we have run out of money. 

It is time to start thinking." The truth is, Virginians have been thinking about higher 

education and its indispensable role in society for a long time-going back to the days of 

Jefferson, and before. The essential task in these challenging times is to think seriously 

about how to do it better: how to deliver instruction more economically and effectively; 

how to leverage resources for optimal impact across the higher education system; how to 

foster the innovation and entrepreneurship that have long set Virginia and America apart; 

how to realize our colleges' full potential in the economically vital areas of research, 

workforce training and business recruitment; how to weave predictable and reliable 

funding for higher education into the fabric of statc policy so that our actions match our 

aspirations in the years ahead. 

It is certainly true that the unusually weak economy imposes limitations on near-term 

funding opportunities. But the lack of a full tank of gas does not make it any less 

important to decide on a destination; before we can head there, we have to know where 

we are going. If Virginia's governmental leaders in both political parties will come 

together to chart that course, the Commission is confident that other essential participants 

in this initiative-the business and professional community, the larger education 

community, and ultimately the people of Virginia-will respond with enthusiasm, energy 

and resolve. 

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THE COMMISSION'S INTERIM RECOMMENDATIONS 

(1) Economic Opportunity 

Governor McDonnell has made it "Job One" to grow the Commonwealth's economy and 

create more good jobs for Virginians. So, too, has our Commission assigned the highest 

priority to preparing Virginians for the top jobs of the knowledge-based economy. Our 

economic-related recommendations are three-fold: 

• To confer upon Virginians 100,000 additional college degrees from public 

institutions of higher education. combined with a parallel increase in privately 

conferred degrees, during the next fifteen years. 

• To focus the increased degree attainment in high-demand, high-earning 

disciplines, such as STEM and healthcare. 

• To promote dramatically increased public-private collaboration on universitybased research and development. 

We address our specific proposals in these three areas in turn. 

100,000 More Degrees 

The Governor's proposal for 100,000 cumulative additional undergraduate degrees over 

the next fifteen years is, first and foremost, a plan for the economic revitalization of our 

state and economic advancement of our fellow citizens. No other major area of 

expenditure by state government has a documented return on investment that approaches 

the return the Commonwealth realizes from its higher education system. That return is 

refleeted in increased economic activity (Gross Domestic Product, or GOP), job creation, 

personal income growth, and the expanded flow of tax revenues back to state and local 

government coffers. 

Numerous studies document the economic impact of higher education, including the 

recent comprehensive study of Virginia's system by the Weldon Cooper Center for 

Public Service at the University of Virginia. 10 The report was based on 2007 data, and 

results were expressed in 2007 dollars. Taking into account only the impact of the public 

institutions-and thus understating the actual return-the Cooper Center documented the 

following huge impact from each year's higher education spending and degree conferral: 

• For every dollar of state investment, $13.31 is generated in increased GOP. 

• For every dollar of state investment, $1.39 is generated in increased state tax 

revenues. 

10 The study, released in 2009, Was commissioned by the Virginia Business Higher Education Council 

(VBHEC). Its full text is available on VBHEC's "Grow By Degrees" website (www.GrowByDegrees.org). 

18 
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• The system annually accounts for $9.5 billion in purchases of goods and services 

here in Virginia and supports more than 144,000 jobs. 

• Each year's investment contributes $24 billion to the Virginia economy and 

produces $2.5 billion in new state revenues. 

These compelling data show that the public higher education system more than pays for 

itself. Of course, the benefits in terms ofODP and revenue growth are realized over 

time, in part through the higher earnings that college graduates receive over the course of 

their working lives. But since the Commonwealth is making this investment and 

generating the return each year, the payback on Virginians' investment is constantly 

cycling through. To put the impact in perspective, the $2.5 billion in new state revenue 

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generated by each year's investment is roughly twice the combined annual state general 

fund appropriation for all the institutions in the system. 

Another major beneficial impact from the Commonwealth's higher education investment 

is lower social costs. Not only do college graduates on average earn significantly higher 

incomes-in fact, about twice as high11-than those without college degrees. They also 

necessitate fewer expenditures on social services, such as welfare and other forms of 

public assistance, healthcare payments, and corrections costs. The Cooper Center found 

that each year's degree production by Virginia'S public higher education system is 

correlated with nearly $350 million in avoided social services expenditures. Those 

savings go direetly to the Commonwealth's-and thus state taxpayers'-bottom line. 

Given the high rate of return on investment, one might be tempted to suggest that the 

more the Commonwealth spends on higher education, the better off it will be. The 

Commission makes no such sweeping assertion. Indeed, it is important to understand the 

analytical underpinnings of the I OO,OOO-degree goal and the economic impact projected 

to result from the proposal. 

When Governor McDonnell first articulated the 1 OO,OOO-degree objective during the 

gubernatorial election campaign, he based it on an independent study commissioned by 

the Council on Virginia'S Future and conducted by the respected National Center for 

Higher Education Management Systems (NCHEMS). NCHEMS assessed the additional 

number of undergraduate degrees it would take to place Virginia in the top rank of states 

and countries as measured by two key indicators of educational and economic successcollege degree attainment and personal income. Based on that analysis, Governor 

McDonnell called for the Commonwealth's public institutions of higher education to 

confer 100,000 cumulative additional two- and four-year degrees on Virginia students by 

2025 without any diminution in the quality of the degrees. NCHEMS presented an 

updated version of its analysis to the Commission at the start of our work. 

J I Rephann, T. 1., Knapp, 1. L., & Shobe, W.M. (2009, October). Study of the Economic Impact Qf Virginia 

Public Higher Education. Charlottesville, VA: University of Virginia Weldon Coopcr Center for Public 

Service. 

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2 

0. 

'" 

$50,000 

$43,000 

U $36.000 

'-OJ 

Q. 

OJ 

E 

o 

g $29,000 

-

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Q. $22,000 

NV 

KY 

WV loR 

MS LA 

cr 

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WY II'If'l/HVA CO DE CA IL 

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Correlation = 0.83 

$15,000+----~----~---~----~---~----~---~ 

10 15 20 25 30 35 

Percent of Adults Age 25-64 wi th Bachelor's Deqrees 

NCHEMS Chart Depicting 2005 State Performance based on Personal 

Income Per Capita and Percentage of Adults with Bachelor's Degrees 

40 

As the Governor noted in his charge to this Commission, the state's private colleges and 

other degree-conferring organizations-for-proiits and not-for-profits-also have a vital 

role to play in increasing educational attainment. In fact, the NCHEMS assessment of the 

increased degree conferral required from public institutions was premised on comparable 

percentage growth in the degrees awarded by private institutions during the same I5-ycar 

period. When the combined number of additional publicly and privately conferred 

degrees is calculated, the need is for about 70,000 additional associate and bachelor's 

degrees over the next decade-and more than twice that number by 2025. 

With the demographic pressures on Virginia's higher education system easing due to 

slower growth in the number of college-age Virginians, the increased degree conferral 

will have a significant positive impact on the percentage of working-age Virginians with 

college degrees-moving it from the present 42 percent to roughly 55 percent. A similar 

effort to promote increased degree attainment has been advanced by the Lumina 

Foundation, a respected national higher education policy organization whose selfdeclared "Big Goal" is to have 60 percent of the working-age population in the United 

21 

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States with college degrees by 2025. Earlier this year, President Obama embraced much 

the same objective. 12 

The important point here is not that one can project with precision how many more 

college degrees are needed to reach a certain level of degree attainment in the workingage population, or that one can document the precise level at which Virginia will 

outperform other states and other countries educationally and economically. Those 

measures will always be a moving target to some extent. The important point is that 

Virginia's future global competitive position and the job and income opportunities that 

our citizens will enjoy depend on achieving significantly higher degree attainment over 

the next decade and beyond. The Commonwealth urgently needs to make a commitment 

to this core strategic objective and align its policies to begin achieving it. 

We can be confident that significant economic benefits will flow from such a 

commitment. In its 2009 economic impact analysis, the Weldon Cooper Center 

documented the significant positive effects of the plan to award 100,000 more public 

undergraduate degrees to Virginians over the next fifteen years. Its findings understate 

the projected impact because the study did not take into account any corresponding 

growth in output from private colleges and other degree-granting entities. Nevertheless, 

the anticipated impact is extraordinary: $39.5 billion in higher Virginia GDP; $36.0 

billion in increased personal income for Virginians; and $4.1 billion in new tax revenues 

for state government. 

12 Remarks by President Obama on Higher Education and the Economy at the University of Texas at 

Austin. Washington. D.C.: The White House. Retrieved from http://www.whitehouse.gov/the-pressoffice/20 I O/OS/09/remarks-president-higher-education-and-economy-university-texas-austin 

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70 

60T---------------------------~ 

50 

40 Gross Domestil: Product 

••• Personal Income 

-Industrial Output 

30T------------r----~~~------

10T-----~7-'L-----------------

," 

Weldon Cooper Center Graph Depicting GOP, Personal Income and 

Industrial Output Impacts from Plan to Add 100,000 Degrees by 2025 

The Commission has devoted significant time and attention to developing the strategies 

and corresponding policies that will position the Commonwealth to achieve the 100,000-

degree goal. While our work is continuing, our focus has narrowed to three primary 

strategies. 

• First, we need to enroll more Virginia students at our public and private four-year 

colleges, at our community colleges, and in other degree-granting programs in the 

Commonwealth. 

• Second, we need to encourage degree completion by those in the workforce who 

already have partial college credit. According to independent studies, this is a large 

population. 900,000 Virginians--representing 21 percent of our state's working-age 

population--already have some credit toward a college degree but no diploma. 13 

• Third, we need to do a better job of retaining and graduating the young people who 

do enroll at our public and private institutions. Too many students enroll, spend the 

resources of their families and taxpayers, but fail to complete their work. That is an 

area that demands improvement. 

Enrolling More Virginia Students. The Virginia higher education system currently 

includes approximately 191,174 full-time equivalent students enrolled in four-year public 

13 The Lumina Foundation. (2010, September). A Stronger Nation through Higher Education Retrieved 

from http://www.luminafollndation.org/publications/. 

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institutions, 123,669 enrolled in public two-year colleges, 86,630 enrolled in not-forprofit independent colleges, and about 50,000 enrolled in certificate, associate, and 

undergraduate degree programs in proprietary career colleges and other for-profit degreegranting institutions. As Governor McDonnell's Executive Order Number Nine states, the 

Commonwealth's strategy for increasing college degree attainment must "embrace the 

full array of Virginia's higher education assets-public and private, for-profit and notfor-private, residential and non-residential, physical and virtual-for the purpose of 

ensuring that all Virginians have affordable access to appropriate post-secondary 

education, training, and rc-training opportunities." 

Enrolling more Virginia students in our public institutions will require financial 

incentives, and the new higher education funding model recommended in a later section 

of this report so reflects. With many public colleges and universities having absorbed 

large enrollment increases in recent years without any increase in financial support from 

the Commonwealth, it is unsurprising that the four-year institutions now project only 

very modest increases in undergraduate enrollment for the foreseeable futurecollectively, only about three percent over the next five years. 

To make the public four-year colleges and universities full partners in achieving the 

100,000-degree goal, the state must stabilize base funding, reward enrollment growth, 

and work with each college and university to establish new Virginia student enrollment 

targets that are consistent with each institution's mission, "market," and means. 

Independent colleges likewise should be incentivized to enroll more Virginia students. 

The Virginia Tuition Assistance Grant (TAG) program serves this purpose, and its 

funding levels should be restored as state revenues permit. 

As a means of encouraging enrollment growth, the Commission recommends that the 

Commonwealth make a specific financial commitment to every Virginia student whose 

ability and effort enable him or her to meet college entrance criteria in Virginia. Under 

this "Virginia Promise," a constant increment of state funding-to be set initially at the 

current TAG funding level-would follow each student to the public or private (not-forprofit) four-year institution of his or her choosing. The payment would be made to the 

institution and not the student, and it would neither augment nor supplant other forms of 

student financial assistance. It would be funded initially from the public institutions' 

existing base funding (or from existing TAG payments, in the case of private colleges), 

resulting in no net new resources to the institutions. Over time, however, this "Virginia 

Promise" could have an important positive effect. It would allow student choices and 

demand to drive institutional funding levels. at least on an incrcmental and interim basis, 

and thus provide an incentive for institutions to enroll more students. Thc fact that it 

cmbodies a commitment to every Virginia student would increase the likelihood that its 

future funding survives the vagaries of the business cycle and political winds, thereby 

helping to keep the Commonwealth on track toward its long-term educational attainment 

goal. 

Virginia's community colleges, which have experienced especially large enrollment 

increases in recent years, currently project substantially more robust enrollment and 

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degrees conferred growth than do the public four-year institutions. While these plans are 

still in development and it is unclear whether the underlying policy and funding 

assumptions will materialize, there is no doubt that an expanding community college 

system-with increases in both two-year degree conferral and transfers to four-year 

institutions-is an essential component of the state's increased degree attainment 

strategy. Because the community colleges already provide a more affordable alternative, 

the "Virginia Promise" commitment for students attending community colleges should be 

somewhat less than for those attending four-year institutions. 

Any consideration of enrollment growth strategies must take into account the important 

role that community colleges play in producing the bachelor's degrees that are awarded 

by Virginia's four-year colleges and universities. In 2008, more than a third (36 percent) 

of Virginia's public and private bachelor's degree recipients had some experience in the 

community college system, and more than a fourth (27 percent) previously had earned an 

associate degree. Actions taken pursuant to the 2005 Restructuring Act continue to 

facilitate transfers from community colleges to four-year institutions whether or not the 

student first obtains an associate degree. As we discuss more fully later in this report, 

promoting community college transfer options. and making sure there is room for the 

transferees at four-year institutions, arc essential strategies for providing affordable 

access to college degrees for an increasing percentage of college-age Virginians. 

Finally, the Commission anticipates that enrollment in career colleges and other for-profit 

degree-granting programs in the Commonwealth will continue to increase. In 2008-2009. 

nearly 12,000 certificates and associate degrees and more than 2,436 bachelor's degrees 

were awarded by these institutions in Virginia. A recent report by Chmura Economics & 

Analytics found that career colleges were growing at an annual rate of nine percent, 

significantly higher than growth rates at most public and not-for-profit independent 

institutions. 

The Commission believes the approach outlined herein will result in increased admission 

of Virginia students throughout the Virginia higher education system, including at the 

public institutions for which demand is highest throughout the Commonwealth. 

Preliminary anecdotal information suggests that thesc enrollment increases would equal 

or exceed the expanded enrollment of Virginia students envisioned in recent legislative 

proposals that would mandate higher in-state student ratios. The goal of such proposals 

is, or should be, to increase the admission of deserving Virginia students at our state 

colleges and universities. This salutary objective should be accomplished without 

impinging on the governing boards' appropriate authority over out-of-state student 

admissions, especially given the large subsidy that tuition paid by out-of-state students 

provides for college-going young people from across the Commonwealth. 

Degree Completion by Virginians with Partial Credit. From the Commission's first 

meeting, it has been apparent that the existence of900,000 Virginians in the workforce 

with some post-secondary credit but no diploma represents "low-hanging fruit" in the 

push to add 100,000 degrees by 2025, Efforts to promote adult education and strategies 

for serving more non-traditional students should not be, and are not, limited to those 

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Virginians with partial college credit. But the sheer number of people with some credit 

toward college suggests that a focused initiative there could yield strong returns for the 

Commonwealth and significantly improve the earnings opportunities of many Virginians. 

A pressing need is to break down this 900.000-person cohort and determine how many 

who so identify themselves arc reasonably close to the number of credits needed for a 

degree and have acquired those credits relatively reccntly. Various activities are 

underway in this area and should be strongly supported by the Commonwealth: 

• Through the "Win-Win Project," the Lumina Foundation will provide $100,000 over 

three years to assist six community colleges-Germann a, New River, Northern 

Virginia, Thomas Nelson, Tidewater, and Virginia Western-in identifying "nearcompleters" and assisting them in obtaining an associate degree. This project can 

serve as a model for broader efforts in the Commonwealth to identify and assist 

returning students. 

• For Virginians who possess 60 or more credits toward a bachelor's degree, the State 

Council of Higher Education for Virginia (SCHEV), as part of the Commonwealth's 

federal College Access Challenge Grant, will be undertaking a study of: (I) the scope 

and demography of the potential pool of adults who could enroll in a baccalaureate 

degree completion program; (2) the number of adults enrolling in and attaining 

degrees from adult degree completion programs and other nontraditional offerings at 

four-year institutions; and (3) whether these programs are aligned with the needs of 

employers and the economic development needs of the state. The opportunity may 

exist to use grant funding for this purpose on a broader basis in the future. 

• SCHEV has created a link on its website for "Adults Completing their Bachelor's 

Degree." The site links visitors to institutions that offer degree-completion programs, 

adult education programs, courses offered in evenings, on weekends, and online, as 

well as programs certified by military Servicemembers Opportunity Colleges, 

programs in high-demand fields, and information about financial aid. This site can be 

enhanced or spun off as a free-standing electronic portal of the Commonwealth, 

similar to the "Education Wizard" portal of the Virginia Community College System, 

which likewise can be enhanced and marketed for this purpose. 

• Virginia was selected by the National Governors Association to host a Governor's 

Forum on Postsecondary Credential Attainment by Adult Workers. In October 2010, 

this forum brought together policy-makers and practitioners to explore best practices 

in and scaling-up of successful efforts. A Post-Forum Action Plan contains strategies 

to continue the conversation in Virginia and move forward with key program 

initiatives. 

• The regional higher education centers across the Commonwealth provide convenient 

degree-completion opportunities to citizens in their local communities. These centers 

represent significant opportunities to expand course and program offerings targeted at 

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the needs of local employers. A "completion consortium" of public and private 

institutions could help provide instructional content to these centers. 

In addition to conducting a comprehensive analysis to help determine how many of the 

900,000 Virginians with partial credit are close to the obtaining a degree and how they 

can best be encouraged and assisted to that end by the Commonwealth, the Commission 

believes that a consortium (or consortia) of public and private institutions can provide 

valuable assistance in this area. Both in-person and online course offerings have a role to 

play in meeting the need and could be the object of such joint effort. 

Several public college presidents, including members of the Commission, have discussed 

opportunities for their institutions to collaborate in providing online course content, 

perhaps even complete degree programs in several core disciplines, targeted at the nontraditional student population. They envision the degrees would be conferred by a 

separate entity-either an existing institution or another organization created for this 

purpose-rather than their own universities. This is one of several ways that colleges and 

universities can put their instructional resources to use beyond their own campuses, 

resulting in more high-quality instruction at remote locations and a more cost-efficient 

leveraging of scarce higher education resources-an area of innovation discussed in 

greater detail in a later section of this report. The Commission intends to explore both 

the need for such collaboration and the potential logistics in the coming months. 

Improving Retention and Graduation Rates. The third major strategy for increased 

degree attainment focuses on the other side of the coin just discussed-reducing the 

number of people who leave college with some credit but no degree. To state the matter 

positively. incremental improvement in the retention and graduation of students who 

enroll in college in Virginia can havc a very positive impact on college degree attainment 

while reducing cost-indeed, waste-currcntly incurred throughout the system. 

The "waste" occurs when students enroll in college, consuming their families' earnings, 

state tax dollars, institutional resources, and often their own money, only to drop out 

bcfore completing a degree. Studies identify various causes for this attrition-the need to 

work because of financial pressures, academic unpreparedness, transition adjustment 

difficulties, and uncertainty about education and occupational goals -but there is no 

doubt that when it occurs, for whatever reason, an opportunity is missed and resources 

are wastcd. A recent report by the American Institutes of Research documented that 

Virginia taxpayers spent more than $177 million over five years (2003-2008) on 35,461 

college students who did not return after their first year. 14 This statistic is unsettling, and 

it is little consolation that the same organization found that Virginia is outperforming 

many other states in both retention and graduation rates. 

Using the graduation metric that is standard in America higher education-the six-year 

freshman cohort graduation rate-Virginia's four-year institutions have an average 68.3 

14 Schneider, M. (2010, October). Finishing the First Lap: The Cost of First-Year Student Attrition in 

America's Four- rear Colleges and Universities. American Institutes for Research. Retrieved from 

http://www.air.org/news/index.cfm?fa=viewContent&content_id=989 

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percent completion rate, compared with a national average of 55.9 percent. Among those 

four-year institutions, the rates range widely-from a low of about 32 percent to a high of 

93 percent. Some of these variations are expected, as the institutions have different 

missions and enroll students with differing socioeconomic profiles and academic 

credentials. A more useful comparison may be with peer institutions that serve similar 

student populations. 

SCHEV has analyzed the potential impact on degree attainment from improvement in 

completion rates by Virginia's public four-year college and universities. If those 

institutions were to improve so that all at least match the median graduation rates of their 

designated peer institutions, the aggregate result would be the conferral of approximately 

8,000 additional degrees by 2025. Focusing only on the public four-year institutions in 

Virginia with graduation rates below 75 percent, SCHEV finds that everyone-percent 

improvement in graduation rates across those institutions by 2025 would result in I, I 00 

more degrees system-wide. 

The Commission believes improved graduation rates should be a high priority in 

Virginia's overall highcr education reform and investment strategy. A comprehcnsive 

Virginia-specific study of the causes of attrition and the corresponding remedies should 

be commissioned, and the extensive body of literature and policy recommendations on 

this subject from respected organizations should be mined further. Three key 

recommendations, however, need not await that further study: 

• First, the Commonwealth's new higher education funding model should 

incorporatc financial incentives for improved completion rates, with a focus on 

meeting or cxcceding peer institution performance. 

• Second, the next set of restructuring reforms (discussed later in this report) should 

establish a collaborative and consultative process through which specific-and 

inereasing---expectations are set for each institution regarding the number of 

degrees to be confcrred on Virginia students by the institution. 

• Third, for enrollment-related funding purposes, the Commonwealth should 

transition to enrollment calculation methodology that is based on end-of-term 

data, thereby excluding from the calculation students who withdraw or otherwise 

do not complete their work. 

Setting degree expectations for cach institution, providing incentives for improved 

retention and graduation rates, and taking retention into consideration in measuring 

enrollment are sensible steps that will help move the Commonwealth cost-efficiently 

toward its overall degree attainment goals. 

As they respond to completion incentives and pursue specific degree-conferral goals, 

some Virginia higher education institutions will want to take a closc look at enhancing 

targeted student services that support academic performance and adjustment to college 

study. In a recent analysis commissioned by the Virginia Business Higher Education 

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Council, the National Center for Higher Education Management Systems (NCHEMS) 

noted the well-documented impact of such services in improving retention. Tutorial 

assistance and other student services have been shown to make an especially significant 

difference in the success of low-income students and under-represented student 

populations following admission to college. While NCHEMS noted that data reported by 

Virginia institutions may not fully reflect the level of current expenditures, it reported 

that Virginia's colleges appear to spend considerably less on these services than their 

peer institutions-approximately $500 per student less on average at four-year 

institutions, and about $600 per student less at community colleges. 

The Commission is continuing to assess the impact of the various strategies for higher 

degree attainment described in this section of the report. To match the top-performing 

states and countries in college degree attainment and personal income, NCHEMS projects 

that Virginia will need to confer 735 more public college degrees and 315 more private 

college degrees each year, year over year, through 2025. Of course, the mix of public 

and private degrees can, and likely will, vary in practice, as will the actual yearly 

progress. Nevertheless, those numbers provide a point of reference by showing the 

magnitude of the incremental annual progress that must be made to reach the Governor's 

cumulative 100,000-degree goal for the public institutions and the corresponding private 

degree increase. 

The potential of various degree-attainment strategies is readily calculable for illustrative 

purposes. A five-percent increase in public institution enrollments at current graduation 

rates would yield 5,000-10,000 additional degrees by 2025, depending on the timing and 

location of the enrollment increases. If the Commonwealth can identify just 5% of the 

900,000 citizens with partial college credit and help them completc a degree, that would 

create another 45,000 degrees. Improving graduation rates so that Virginia's public 

institutions match the median performance of their peers by 2025 would yield roughly 

8,000 additional degrees. Indeed, taking into account completion progress only at the 

public institutions with graduation rates currcntly below 75 percent, every one-pcrcent 

improvement at those institutions would result in approximately I, I 00 more degrees 

system-wide. Similarly, each one-percent increase in the graduation rate for community 

colleges with rates below 25 percent would yield approximately \,500 new degrees. 

Thc actual segmentation showing the locus of additional degree conferral at specific 

public and private institutions will, of course, be an iterative process influenced by the 

policies and incentives that are adopted, local initiatives, and the planning discussions 

among institutional managers and state-level policymakers that ensue. The Commission 

believes the Commonwealth's policies, including its codified funding model and the 

incentives incorporated therein, should be designed to promotc progress in all three key 

areas-enrollment growth, partial credit completion, and improved graduation rates. 

While it is desirable and perhaps inevitable that particular policies, practices and 

incentives will be adjusted in coming years in light of results, it is clear that progress in 

moving Virginia to a significantly higher level of college degree attainment over the next 

decade-and-a-half will require simultaneous and sustained eff0!1 on all three fronts. 

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STEM Degree Initiative 

Closely connected to the I OO,OOO-degree goal is Virginia's crucial focus on raising 

educational attainment in high-demand, high-earning disciplines, such as science, 

technology, math, science and healthcare. Before addressing the need for a major STEM 

degree initiative in the Commonwealth and the Commission's recommendations in that 

area, it is important to note the pervasive importance of introducing economic 

opportunity metrics into all facets of higher education reform and investment in Virginia. 

The Commission does not gainsay in the least the non-economic benefits from a college 

education. Indeed, when it is done well, much of what occurs in the course of obtaining a 

college degree, as in earlier and later stages of education, contributes to the development 

of character and other qualities that are vital for good citizenship and personal 

fulfillment-benefits not ordinarily or easily expressed in economic terms. Since the 

earliest days of the American Republic and well before, our colleges have played an 

indispensable role in developing the whole person, in equipping him or her to think 

critically, and in supplying the broad context in which women and men of goodwill can 

move consequentially in their time, weaving their own bright threads into the rich fabric 

of experience and progress that is civilization. The Commission's proposals for longterm investment and reform in Virginia's higher education system are as essential for 

future excellence in liberal arts education generally, including in the humanities, as they 

are for progress in scientific, technological and vocational realms. This understanding 

has guided the Commission throughout our work to date, and will continue to guide us as 

we complete our charge. 

A keen sense of our time's distinctive challenges and opportunities requires, however, 

that we keep one eye firmly fixed on the economic implications of what Virginia 

produces through its higher education system. The Governor has aptly noted that some 

degrees in some disciplines can be expensive to provide and costly to obtain yet yield 

relatively little in the form of enhanced earning potential. Given the times' competitive 

pressures and scarce resources, it is vital that the Commonwealth have access to the 

economic impact information necessary to target its investments where they will produce 

the greatest returns. Likewise, polieymakers and administrators at our higher education 

institutions need to know the marketplace impact of various degree programs so they can 

allocate resources optimally. Perhaps most important, the students and families who 

invest their precious income, savings and time in pursuit of a college degree must be 

equipped to make prudent choices that will lead to expanding economic opportunity. 

The Commission thus recommends that the Commonwealth and its colleges and 

universities, assisted by knowledgeable experts, develop a robust set of assessment 

tools-"economic opportunity metrics"-that will enable everyone involved in the higher 

education enterprise to better understand the economic impact of particular degree 

programs at particular institutions. At the request of the Virginia Business Higher 

Education Couneil, NCHEMS has already done some important preliminary work for 

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Virginia institutions in this arena, including developing a "cost per degree" assessment 

that reflects economic value based on degree holders' median earnings. A one-size-fitsall approach is not advisable given the diversity of Virginia institutions, programs, and 

constituencies. Instead, a range of performance measures should be developed, included 

various gauges of marketplace demand, earnings potential, employer satisfaction, and 

other indicators of historical and projected value. The bottom line is that better 

information about the absolute and relative economic value of degree programs, provided 

transparently to all participants in the proccss, is calculated to produce better resource 

allocation decisions and a higher return on investment for the Commonwealth and 

individual citizens alike. 

Such analyses have already been well documented, broadly speaking, the high return on 

investment associated with increased degree attainment in the STEM are as well as the 

multiplier effect that STEM jobs have on non-STEM related employment. As noted in 

the previously cited follow-up to the National Academy of Science's Gathering Storm 

report, the innovation that drives the American economy will come largely from 

advances in science and engineering. "While only four percent of the nation's work force 

is composed of scientists and engineers, this group disproportionately creates jobs for the 

other 96 percent." 15 

The President's Council of Advisors in Science and Technology recently released a 

strategy for K-12 STEM education in which the Council commented that the "success of 

the United States in the 21 st century-its wealth and welfare-will depend on the ideas 

and skills of its population. These have always been the Nation's most important assets. 

As the world becomes increasingly technological, the value of these national assets will 

be determined in no small measure by the effectiveness of science, technology, 

engineering, and mathematics (STEM) cducation in the United States.,,16 While the 

recent report focused on K-12 education, a future rcport will focus on post-secondary 

STEM education. One of the report's key recommendations is that ALL students should 

be inspired and prcparcd to learn STEM subject matter. 

The Commission recognizes that many important STEM programs and initiatives 

underway at the local level are already inspiring and preparing young people to study 

math and science and are strengthening the skills of teachers to develop and deliver 

innovative and effective STEM-related curriculum. [n secondary education, we havc 

STEM high school academies, Governor's schools, FIRST LEGO League and Robotics 

programs in addition to programs that bring K -12 and higher education together to foster 

interest and STEM skill development. The Virginia Mathematics and Science Coalition. 

Space Grant Consortium and othcr partnerships with business and industry, such as the 

SySTEMic Solutions Initiative with Northern Virginia Community College in Prince 

15 Reference National Science Board, Science and Engineering Indicators 2010. Arlington, VA: National 

Science Foundation (NSB 10-01, Figure 3.3) 

'0 Prepare and Inspire: K-12 Education and Science, Technology, Engineering, and Math (STEM) for 

America's Future (Report to the President) by the President's Council of Advisors on Science and 

Technology, September 2010. 

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William County and NASA Langley's K-20 education programs in Hampton, are all 

having a positive impact. 

Enhancing professional development in science and math for K-12 educators is a priority 

that various projects are addressing. Among these efforts is the grant-funded Virginia 

Initiative for Science Teaching and Achievement (VISTA), a partnership among 47 

school distriets, six universities, and the Virginia Department of Education that is 

building a comprehensive professional development model to improve K-12 science 

teaching and increase student performance. The initiative holds promise for bringing the 

strengths of post-secondary research programs and STEM expertise into high school 

classrooms. Secondary school science teachers will be given on-the-job and graduatelevel classroom professional development supported by online resources. The higher 

education partners participating in the initiative include George Mason University, James 

Madison University, College of William and Mary, University of Virginia, Virginia 

Commonwealth University, and Virginia Tech. 

The Virginia Council of Graduate Schools is another resource for strengthening the skills 

of aspiring teachers, future college faculty, and professionals. The Virginia Math and 

Science Coalition's Statewide Masters Program and the Commonwealth Graduate 

Engineering Program are two examples of collaborative masters programs that strengthen 

advanced STEM knowledge throughout the Commonwealth by leveraging existing 

institutional strengths rather than duplicating coursework and programs. 

The Commonwealth offers 113 STEM programs at our public and private higher 

education institutions, ranging from agricultural business technology, to human genetics, 

to toxicology. Despite Virginia'S relatively high ranking on the percentage of STEM 

degrees awarded from public and private institutions, that percentage has been declining 

in recent years, causing STEM degree production in Virginia to remain fairly flat despite 

significant enrollment increases. This trend is highly disturbing given the rapidly 

growing demand for STEM skills and knowledge in the Commonwealth. A recent report 

from the Virginia Employment Commission projected a 4 I-percent increase in the 

professional, scientific and technical sectors, including engineering and computer science 

jobs, through 2018. Sizeable increases are also projected to occur in health-care related 

fields. 17 

17 Virginia Employment Commission."Jndustry and Occupational Projections. 2008-2018." Occupational Employment 

Statistics (OES) Survey. 2009. 

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Total Virginia Public and Private Non-Profit Institutions Total Awards 

• STEM Deoree"i 0 All Other De9rees 

In addition to the salutary goal of increasing the overall number of college degrees 

granted in Virginia, the Commission recommends that concerted action be taken 

specifically to increase the number of students completing degrees in STEM fields, 

including medicine and other health-related areas of study. To help develop and guide 

implementation of a comprehensive plan for higher STEM degree attainment in Virginia, 

the Commission recommends formation ofa public-private entity (similar in some 

respects to the National Science Foundation) comprised of private-sector leaders, 

distinguished representatives from the scientific community (including retired military, 

government scientists, and researchers), educational experts, and responsible government 

officials, among others. Its charge would be to help devise, coordinate and support state 

efforts to make Virginia a national leader in science and technology and in STEM 

scholarship and research. Among the priority issues to be addressed would be the need 

for additional STEM enrollment, capacity, and resources at colleges and universities, 

greater coordination, innovation, and private sector collaboration in K-12 STEM 

initiatives, and the assessment of, and alignment of policies with marketplace demand. 

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The Commission commends efforts already underway to strengthen math and science 

education in grades K-12 and believes that future success in increasing STEM degrees in 

Virginia will require stepped-up efforts, including: 

Early diagnosis of math and science deficiencies; 

Remediation programs; 

Acceleration programs; 

Enrichment opportunities; 

Advisory programs; 

Incentives for getting students interested in math and science fields; and 

Leveraging private resources to assist with scholarships, scientific 

equipment, and youth programming. 

A number of these areas will require harnessing private-sector assistance and promoting 

public-private partnerships like several that have achieved initial success in communities 

across Virginia. The recommended public-private entity would assist in coordinating and 

mobilizing these efforts. 

The Commission believes that the following measures could substantially help in 

promoting STEM degree production in Virginia: 

I. Increasing the number of STEM K-12 academies, including elementary 

and middle school programs (currently nine localities have high school 

academies: Halifax, Hampton, Arlington, Suffolk, Russell, Stafford, 

Loudoun, Chesterfield, and Richmond); 

2. Establishing a process to create regional academic-year Governor's 

Schools for gifted students in grades six through eight focusing on science, 

technology, engineering and mathematics. This concept is an extension of 

the current network of academic-year Governor's Schools for gifted high 

school students; 

3. Initiating an Early College Mathematics and Science Scholars Program 

similar to the existing Early College Scholars Program to encourage high 

school students to earn at least 15 hours of transferable college credit with 

a concentration in mathematics and science while completing the 

requirements for an advanced studies diploma; 

4. Expanding advanced placement course offerings through Virtual 

Virginia-the Commonwealth's online program; 

5. Implementing the recommendations of the Virginia STEM Survey of 

Lab Skills Report sponsored by the Center for Excellence in Education to 

determine where improvement in teacher preparedness can be made for 

laboratory courses, including the feasibility of creating regional laboratory 

facilities (especially in rural areas of the state, where secondary schools 

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could use facilities of the Virginia Community College System and/or 

corporate laboratories for instruction or training); 

6. Encouraging a Virginia university to establish an "'Early College 

Mathematics and Science Lab School" as authorized in the College 

Partnership Laboratory School legislation passed by the 20 I 0 General 

Assembly; 

7. Expanding professional development opportunities to assist teachers 

with the acquisition of knowledge, skills, resources for helping students 

become STEM literate; 

8. Establishing the Center for Training and Teaching, or similar programs, 

with the aim of enriching and diversifying instruction in K-12, 

undergraduate, and graduate education in science, technology, 

engineering, and mathematics (as proposed by Hampton University); 

9. Creating a statewide STEM industry internship program to operate in 

partnership with industry throughout the Commonwealth. The program 

could be modeled after the Virginia Space Grant Consortium program and 

would offer undergraduates an opportunity for real-world work experience 

and provide Virginia's industries with access to qualified interns. 

Regional technology councils could serve as the program's conduit to 

industry with advertising and linking to interested industry partners; and 

10. Developing a STEM certificate for undergraduate liberal arts majors. 

The Commission recommends that consideration be given, as resources permit, to 

targeting some component of tuition assistance to incentivize college students to pursue 

and complete STEM degrees, and to establishing a program to provide matching grants to 

public and non-profit private colleges to assist these institutions in constructing or 

renovating facilities used primarily for the teaching of STEM subjects and acquiring 

scientific equipment to be used primarily for such STEM instruction. 

To meet anticipated demand for STEM degrees, according to one respected economist's 

presentation to the Commission,ls Virginia will need to prepare 100,000 additional 

workers with STEM degrees over the next decade. To better understand what types of 

degrees will meet the demand, the Commission recommends conducting a degree 

demand analysis for careers that require science, technology and engineering-related 

degrees. (A math degree analysis was presented during the Degrce Attainment 

Committee's meeting on August 31.) The analysis also would entail preparing a 

corresponding occupation demand analysis to project growth trends for the industries that 

will employ these 100,000 STEM job seekers in Virginia over the next IS years. The 

analysis should specifically address the industries and market sectors the Commonwealth 

18 Chmura. C. (2010, August). Job Demand Forecasting. Presentation to the Governor's Commission on 

Higher Education Reform. Innovation. and Investment. Hampton, VA. 

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Innovation Index and the Virginia Economic Development Partnership ("VEDP") 

identify as centers of growth in the 21 51 century, including aerospace, automotivc, plastics 

and advanced materials, energy, global logistics, life sciences, and technology, modeling 

and simulation. 

Research and Development Initiative 

The third major component of the Commission's Economic Opportunity 

recommendations relate to university-based research and development activities. 

In March 2010, the Nelson A. Rockefeller Institute of Government at the State University 

of New York (Albany) released an important study entitled, "A New Paradigm for 

Economic Development: How Higher Education Institutions are Working to Revitalize 

Their Regional and State Economies" (authors David F. Shaffer and David J. Wright). 

The report opens by noting two major turning points for the country that werc the direct 

result of higher education. First was passage of the Morrill Act in 1862, which created 

the land grant university and its mission of education and economic development through 

agriculture and thc mechanical arts. Thc second turning point occurred with the passage 

of the GI bill, which provided higher education opportunities to morc than a million 

veterans, resulting in a more educated workforce that dramatically increased the growth 

of our economy. The study's authors suggest that a third major turning point is occurring 

with the transformation of higher education institutions into economic development 

engincs. "In states across America, higher education systems, universities, and 

community colleges are working to help their regions and states advance in the new 

knowledge economy. They are marshalling each of their core responsibilitics--education, 

innovation, knowledge transfer, and community engagcment-in ways designed to spur 

economic development." 

In addition to their educational missions, Virginia's public and private higher education 

institutions conduct important research and development in science and technology to 

enhance the health and well-being of our citizens and growth of our economy. Six 

doctoral public institutions as well as a growing number of comprehensive institutions 

conduct research on topics ranging from aerospace engineering to nanotechnology. In 

addition, Hampton University and George Washington University both have strong 

research programs in the Commonwealth. Each of the public rcsearch universities 

maintains a university-sponsored research park that provides opportunities for private 

companies to co-Iocatc and partner on major research initiatives. These six parks plus 

two federal facilities provide a significant resource for further strengthening research 

capabilities throughout the state. 19 

The Commonwcalth also supports or contributes to the support of a number of research 

facilities, including the Jefferson Lab, the Institute for Advanced Learning and Research, 

Virginia Institute for Marine Science, and the network of twelve Agricultural Experiment 

Stations scattered throughout the state. Somc universities have leveraged state support 

with other funding sources to create research university facilities like Old Dominion 

'·See http://www.yesvirginia.org/whyvirginialinnovated _ RandDluniversity _ parks.aspx. 

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University's Virginia Modeling, Analysis and Simulation Center. Research also has been 

a priority of the Tobacco Indemnification and Community Revitalization Commission, 

which funded over $37 million in research projects in the tobacco region in the past 

decade. Last year, the Tobacco Commission provided funding for five regional energy 

research centers to strengthen the link between innovation and job creation with 

partnerships from industry and Virginia educational facilities. 

Virginia's colleges and universities serve as a powerful economic engine for the 

Commonwealth through research and development activities. The Weldon Cooper Center 

economic impact study described earlier in this report documented the economic impact 

of university research programs at the public institutions-nearly $600 million annually 

in increased GDP, nearly 13,000 jobs, and approximately $72 million in tax revenues to 

the state. This does not include the significant documented impact of start-up companies 

that have resulted from commercialization of university research. 

The Commonwealth is fortunate to be home to the largest concentration of federal R&D 

establishments in the nation, including 25 percent of the total number of federally funded 

R&D research centers. This concentration also includes more than 20 defense-related 

labs and R&D centers and 19 federal civilian research centers, including the new 

Homeland Security Institute, NASA's Langley Research Center, and the federal 

Department of Energy's unique Thomas Jefferson National Accelerator Facility 

(Jefferson Lab)?O Despite our close proximity to many federal agencies, however, 

Virginia ranked only 15th in the nation in 2008 total R&D expenditures, and only two of 

our research institutions ranked in the nation's top 100 (Virginia Tech at 46th and the 

University of Virginia at 70th.) Virginia Commonwealth University was close behind at 

JOSth• 

The most notable state investments in university-sponsored research in recent years 

began with Governor Gilmore's creation of the Commonwealth Technology & Research 

Fund in 2000. The impact of this program, though curtailed by the recession early in the 

past decade, created momentum for increased research funding. Governor Warner then 

expanded the effort significantly through a mulit-faceted Commonwealth Research 

Initiative in the 2006-08 biennial budget. This initiative provided $83 million for 

research-related buildings at four Virginia doctoral institutions and $65 million for 

directed research, including $3 million for the Commonwealth Technology Research 

Fund. 

When the Commonwealth Research Initiative was passed, language in the Appropriations 

Act required institutions receiving the research funding to report annually on the use of 

funds. Thereafter, the University of Virginia reported a 400-percent return in FY2009 

from its $2.2 million state investment, receiving an additional $13.74 million in external 

federal and private funding. The University of Virginia initiative substantially increased 

research capabilities in bioscience and bioengineering. Other noteworthy success storics 

'0 Praxis Strategy Group and Joel Kotkin, "Enterprising States- Creating Jobs, Economic Development, and 

Prosperity in Challenging Times," U.s.Chamber of Com mere en and the National Chamber Foundation, 

May 20 I O. http://ncf.uschamber.com/enterprising-states/. 

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were reflected in the reports of George Mason University (expansion ofbioengincering 

program) and Virginia Tech (infectious disease research). 

In 2006, the Commonwealth provided support to establish SRI Shenandoah Valley and 

the Center for Advanced Drug Rcsearch in Harrisonburg, a partnership with James 

Madison University (JMU), Rockingham County, the City of Harrisonburg, the Virginia 

Economic Development Partnership, and the Shenandoah Valley Partnership. In addition 

to biosciences research, SRI researchers have also been working on regional economic 

development and educational necds through a variety of grant projects. 

In 2008, the General Assembly merged the Innovative Technology Authority and the 

Virginia Research Technology Advisory Committee, creating thc Innovation and 

Entrepreneurship Investment Authority ("lElA") and charging it with establishing a 

statewide research and development strategic roadmap. The roadmap will identify 

common themes among the state's research universities and result in recommendations 

for alignment of R&D and economic growth in the Commonwealth. In addition, lElA is 

charged with creating the Commonwealth Innovation Index. The purpose of the Index is 

to foster the fonnation, retention, and expansion oftechnology-bascd cconomic 

development opportunities. The Center for Innovative Tcchnology, which is thc operating 

arm of the Innovative Technology Authority, has been working with the 

Commonwealth's ten regional technology councils and with othcr local leaders to bettcr 

understand the innovations envisioned in each of the regions and establish the strategic 

planning and managemcnt tool. 

Despite the documented high rcturn on research investment, funding for the 

Commonwealth Research Initiative has been reduced by almost two-thirds in response to 

the current recession-from a high of $32.4 million in operating support in FY 2007 for 

to a low of $ J 1.7 million in FY 2012. Further, the Commonwealth Research 

Commercialization Fund, Virginia's principal entity for supporting commercialization of 

research by Virginia's institutions, is not currently funded at all. 

Some targeted investments have been made. State support was provided to two research 

institutions to help recruit a large advanced manufacturer to the state to build a major 

manufacturing facility and to create a not-for-profit entity focused on applied research-a 

first for Virginia'S Economic Development Partnership. In 2007, the Commonwealth put 

together an attractive package of incentives to entice Rolls Royce to build an advanced 

manufacturing plant in Prince George County. A significant aspect of the package was 

funding for a major research partnership with Virginia Tech and the University of 

Virginia. The Virginia Community College System also was included in the incentive 

package to assist with workforce development, and Virginia State University received 

funding for a manufacturing and logistics program. Two major research facilities were 

proposed in the incentive package-the Commonwealth Center for Advanced 

Manufacturing (CCAM) and the Center for Aerospace Propulsion Systems (CAPS). 

CCAM is under construction and will open in late 2011. It is a not-for-profit, 

membership-based scientific, research and educationaI501(c) (3) corporation that is 

focused on physical applied research for Rolls Royce, but it also offers a unique 

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opportunity for additional industry partners and higher education institutions to 

participate in applied research. 

Virginia's higher education system continues to help the Commonwealth attract 

companies that need cutting-edge research expertise and a well-trained workforce. In 

April 2010, for example, Northrop Grumman Corporation executives cited opportunities 

to partner with George Mason University as a reason they chose to move the company's 

headquarters from Los Angeles to Fairfax. Future business recruitment will include more 

partnerships between higher education institutions and companies interested in building 

innovation and accessing an educated workforce. 

Against this backdrop, the Commission's work, through the Regional Strategies 

Committee, has focused on evaluating current research programs and partnerships and 

providing recommendations for policy changes and future funding. The objective is to 

increase the economic return on investment by encouraging formation of public-private 

research partnerships and by growing our higher education institutions' research 

capabilities-actions that have a direct positive impact on job creation and economic 

development. We have followed closely the parallel work on research by the Governor's 

Commission on Eeonomic Development and Job Creation, and many of the strategies 

included in its recent Final Report align with the recommendations contained herein. 

Statewide R&D Strategic Roadmap. The Innovation and Entrepreneurship Investment 

Authority (lElA) should continue work on the development of a statewide R&D strategic 

roadmap that identifies strategic direction from university research assets, capabilities 

and activities, particularly those related to federally-funded research, and aligns 

Virginia's economic development activitics with additional R&D investments. The 

Board of lElA's operating arm, the Center for Innovative Technology (CIT) established 

the Strategic R&D Committee to oversee this activity. The Committee envisions 

developing the roadmap through a collaborative process and will engage private and 

public institutions of higher education as well as the private sector. Once complete, the 

Commonwealth will have a better understanding of common themes among the state's 

research universities and how research activities can be directed for maximum effect. 

The Commission recognizes the need for a champion to create visibility for research 

initiatives, highlight strengths, facilitate partnerships with business and industry, and seek 

out major federal research opportunities. Greater coordination among VEDP and the 

research universities would assist in exploiting synergies among the higher education 

institutions' research programs and in bringing those resources to bear most effectively in 

the business recruitment process and other economic development efforts. 

Federally-Funded Research. Virginia needs a more aggressive, coordinated, and 

sustained effort to pursue federally funded research projects. Such projects offer the most 

immediate opportunity to significantly improve our universities' national rankings as 

premier research institutions. To accomplish this goal, the Commonwealth's highest 

elected officials-state and federal-should make it a priority to help Virginia 

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universities attract morc research through key agencies such as the National Institutes of 

Health, National Science Foundation, Dcpartment of Defense and Department of Energy. 

A coordinated statewide federal research strategy should take full advantage of the 

existing strengths and priorities rcflected in the statewide R&D strategic roadmap and the 

Commonwealth Innovation Index. For example, the Southeastern Universities Research 

Association (SURA) offers an immediate opportunity for a coordinated effort advocating 

thc continuous upgrading of the Jefferson Lab in Newport News through the Department 

of Energy. Investments in the Jefferson Lab yield short-term benefits in the form of 

construction and technology jobs, and they greatly increase the long-term possibilities for 

technology transfer and high-tech business development on the Peninsula and through thc 

universities that conduct research at thc Lab. 

Emerging Technologies Fund. The Commission recommends establishment of an 

emerging technologies fund as a vehicle for bundling and strengthening researchcnhancing initiatives-including eminent scholar attraction, research and 

commercialization funding, seed-stage funding and the higher education equipment trust 

fund-that are currently underway to some degree in the Commonwealth. These 

programs mirror the core components ofTexas's Emerging Technology Fund, and they 

require a sustained commitment: 

• STEM Eminent Scholars Program: Within the proposed emerging technologies 

fund structure. the Commonwealth should provide eminent-scholar funding so 

that in STEM and other high-demand disciplines universities have the rcsources 

to attract and retain key faculty with a proven track record of (i) obtaining 

research funding and (ii) commercializing technology. 

• Commonwealth Research Commercialization Fund: The Commonwealth 

Research Commercialization Fund. prcviously known as the Commonwealth 

Technology Research Fund. should be a priority for new resources. The Fund's 

emphasis is translational research funding for targetcd. promising technologies 

that offcr opportunities for commercialization. Sectors and activities identified as 

eligiblc for funding should align with the Commonwealth's strategic priorities. 

Proposals for grants from the Fund should be peer reviewed by subject-matter 

experts. Criteria for awards should incorporate incentives for collaboration 

among Virginia universities, partnering with the private sector, and attracting 

matching funds that may be required for large federally funded research projects. 

Tbe matching component is critical to the emerging technologies fund structure so 

as to allow for a source of matching funds for higher education and companies 

sceking grant and other funding sources for commercialization activitics. 

These programs complement the emerging technologies fund concept. and the 

Commission rccommends their continued support: 

• Seed Stage Funding: The Commonwealth should support CIT's existing 

convertible debt funding mechanism in order to exponentially increase new 

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technology company formation, including proof-of-concept start-up companies 

based on research and commercialization at Virginia universities. This 

mechanism-CIT GAP Funds-is a family of seed stage funds developed and 

managed by CIT that addresses Virginia's early seed stage funding "gap" by 

placing investments in high-potential start-up companies across a range of sectors, 

including information technology, biotech and life science, energy, advanced 

materials, sensors, and electronics. 

• Higher Education Equipment Trust Fund: The Commonwealth should commit to 

providing the Higher Education Equipment Trust Fund with sufficient funding to 

assist universities in acquiring equipment needcd to support world-class research. 

IP Commercialization Incentives. Commercializing intellectual property (IP) 

developed by Virginia's higher education institutions is an esscntial component of 

innovation-based economic development. Virginia has a far better chance of creating and 

growing a company if the basic intellectual capital for the new company is generated 

within the Commonwealth. Improving the speed and ease in which university-based 

research can be commercialized is critical. University IP offices, which are the front line 

in research commercialization efforts, need rcsources adequate for their mission. The 

Commission recommends creating a fund to support university IP offices based on 

competitive performance metrics tied to success in commercializing intellectual property 

and in stimulating private-sector job growth and economic activity. Such a fund could 

provide a cash incentive to universities that license IP to small companies in exchange for 

equity in those companies, provided the university agrees to share a percentage of the 

equity with the Commonwealth. This approach has thc potential to unleash new 

commercialization opportunities that may not provide an immediate return but in time 

prove to be smart investments. 

Regional Centers of Excellence. A number of centers of excellence already reside in 

the Commonwealth. Regional research centers can help leverage the research assets that 

exist across the state and align them with the Commonwealth's statewide R&D strategic 

roadmap. The Commonwealth Center for Advanced Manufacturing and Areva's 

Chemistry and Materials Center are models of regional research centers that expedite 

research and development. A proposal by Hampton University to establish four centers 

of excellence across the state also deserves close attention. Such centers arc driven by 

the private sector and ean be a valuable tool in increasing overall research investment in 

the Commonwealth. 

R&D Income Tax Credit. The Commission also recommends modifieation of 

Virginia's current tax laws to encourage private sector funding of research and 

development. The Commonwealth has an opportunity to increase the amount of 

corporate-funded directed research at Virginia's higher education institutions by creating 

a tax credit for joint research projects by businesses and universities. Currently, Virginia 

only has a sales tax exemption that is limited to purchases used directly in research and 

development; we need an income tax credit for research and development expenditures. 

As noted in the Final Report of the Governor's Commission on Economic Development 

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and Job Creation, 38 other states provide this tax credit Virginia is at a significant 

competitive disadvantage in this crucial area, and a correction is overdue, 

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(2) Reform-Based Investment 

With a top-performing higher education system that routinely receives high marks for 

quality, cost-efficiency and value, all Virginians-including those most directly involved 

in the higher education enterprise-have much reason to be proud, and grateful. The 

successes and accolades have come only through much dedication and effort at all levels. 

With success, however, comes the tendency toward complacency. Ifwe mean to be a 

pace-setting performer nationally and competitive internationally, we cannot rest on our 

laurels. And we certainly cannot continue to draw away from the higher education 

system the vital resources that are necessary to preserve excellence and serve more 

students. In the most basic sense, it is irrational and self-defeating to respond to a time of 

unprecedented economic hardship by gutting the state program with the highest 

demonstrated economic return and by driving up the cost for students and parents at the 

time when they can least afford it and most need it. All Virginians appreciate that tough 

decisions have been necessary to balance the books, whether it is the family checkbook 

or the state budget. But as the Commonwealth turns the comer on these unprecedented 

difficulties, a renewed commitment to higher education and its economic benefits must 

be a top priority. 

The need to reverse the recent pattern of deep disinvestment in higher education is clear, 

but so is the infeasibility of delivering educational services the same way it has been done 

before. Simply stated, there is no realistic prospect of sufficient additional funding 

adequate to provide a high-quality college education to significantly more students 

relying wholly on traditional approaches. The need for innovation and reform therefore 

has occupied much of the Commission's attention. Because we have an excellent and 

resilient higher education system full of imaginative and talented people, we believe 

Virginia is ideally positioned to lead the way for the nation in implementing innovative 

new instructional approaches and models of service delivery. 

Higher education cost-containment strategies in Virginia have taken various forms during 

the past decade as state resources have ebbed sharply. Savings have been pursued 

primarily in the areas of energy management, faci lities and infrastructure, business 

services and processes, personnel, and academic programs, and the Restructuring Act has 

facilitated progress on these fronts consistent with the distinctive situations of the 

institutions. The colleges (public and private) have reduced costs through various 

collaborative approaches. For example, a number of public institutions collaborate on 

procurement through the Virginia Association of State Colleges and University 

Purchasing Professionals, and the Council of Independent Colleges in Virginia likewise 

pools the resources and purchasing power of member institutions in areas such as 

healthcare. The Virtual Library of Virginia enables academic libraries at public and 

private not-for-profit institutions to avoid duplication, leverage resources, and maximize 

purchasing power. Many more examples could be cited. 

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While it is beyond the scope of this Interim Report to catalog all ongoing and anticipated 

cost-saving and collaborative initiatives, it must be emphasized that a plethora of 

partnership arrangements between and among higher education institutions, state and 

local government agencies, businesses, associations and other organizations have allowed 

Virginia to leverage its higher education investment broadly. This has enabled the 

system, despite its decentralized character, to perform at a high level with comparatively 

low cost to taxpayers. Ultimately, that leveraging of private resources accounts to a large 

degree for the high return on investment documented earlier in this report. 

The Commission's exploration of opportunities for reform and innovation has led it to 

examine a wide range of best practices nationally and internationally as well as the 

thoughtful suggestions of many experts, think-tanks, and experienced participants and 

observers within the state and withOUt.21 While cost-containment efforts must continue to 

wring the maximum from every tax and tuition dollar, the Commission has concentrated 

its efforts in four areas where we see the greatest potential for innovation and 

improvement: 

• Optimizing utilization of physical and instructional resources on a yearround basis; 

• Using technology-enhanced instruction to deliver greater value to 

traditional and non-traditional students; 

• Creating innovative and economical degree paths to enable more 

Virginians to complete degrees; and 

• Taking system-wide restructuring to the next level and creating an 

atmosphere of trust and collaboration. 

In addition to these four major areas of reform, which apply to virtually all higher 

education institutions and to the system as a whole, the Commission has closely followed 

the progress of the Virginia Community College System's Reengineering Task Force, 

which has developed a number of proposals specific to the community colleges and their 

distinctive role in achieving Virginia's educational and economie policy goals. The 

following paragraphs elaborate first on the four cross-cutting areas of initiative and then 

provide recommendations relating specifically to the community college system. 

Year-Round Utilization. With course work primarily concentrated between the months 

of late August and early May throughout American higher education, few would argue 

that we are making optimal use of our physical or instructional resources. The 

Commission has been impressed by the widespread emphasis internationally on yearround instruction and has also considered various promising models for year-round 

instruction in the United States. In calling on Virginia's higher education community to 

focus on enhanced utilization of physical and instructional resources throughout the year, 

"See, e.g., Kathryn Webb Farley, Boris Bruk and Emily Swenson Brock, "Strategies for Achieving 

Productivity and Efficiencies in Higher Education," November 18, 2010. 

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the Commission does not suggest a mandated or uniform approach. Given the diversity 

among higher education institutions and programs in Virginia, optimal utilization will not 

look the same on every campus. 

Tapping unused seasonal capacity at existing institutions promises multiple benefits, 

from enabling the colleges to enroll more students cost-effectively to enhancing 

opportunities for timely or expedited degree completion, with cost-saving benefits to 

tuition-paying students and their parents. The Commission has received informal input 

from a number of institutions but does not yet have sufficient information to forecast the 

impact of this initiative. Representatives of some colleges and universities have 

expressed interest in having their governing boards consider substantial schedule 

adjustments that could markedly expand summertime instruction. Other institutions have 

well-established programs and schedules that would be less amenable to significant 

alteration. Virginia Military Institute (VMI), for example, has a highly refined and long 

established four-year program of mandatory residential, military-style instruction that 

could not easily be replicated on a year-round basis. VMI nevertheless has undertaken to 

make extensive use of its facilities during the summer months, with one third of its cadets 

taking summer course work and more than half of each entering cadet class voluntarily 

attending a pre-enrollment summertime transition program on Post that has proven 

successful in materially improving the first-year retention rate. 

While the opportunities for innovation vary, what every institution can do is carefully 

assess its programming and assets and develop a plan to make the best possible use of its 

facilities and teaching resources during four seasons of the year rather than only three. 

The Commission recommends that such an assessment and plan be required of every 

public institution. Few businesses in today's competitive environment can afford to 

under-utilize their assets for a third or fourth of the year, and neither can our higher 

education system. 

Technology-Enhanced Instruction. The development of new technology and its 

acceptance by students and instructors alike has opened many new opportunities for 

sharing academic resources across the higher education system and delivering enhanced 

instruction at lower cost. Far from requiring compromises in quality to reduce cost, new 

methods oftechnology-enhanced instruction offer opportunities to make high-quality 

instruetional resources available more broadly to students throughout the higher 

education system. For a generation raised in a dynamic digital environment, appropriate 

uscs of instructional technology also have the advantage of communicating with students 

through methods and media by which they have become accustomed to receiving 

information. As an added benefit, once the up-front developmental cost of some forms of 

technology-enhanced instruction is absorbed, significant ongoing cost savings can also 

resu It. 

The Commission has embraced a concept that, for shorthand purposes, we have labeled 

"virtual departments." By this we mean moving toward an environment in which a wider 

array of instructional resources is made available to students, regardless of institution and 

location, through the aid of sophisticated (and sometimes interactive) communications 

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technology. The most immediate potential applications for this new and more robust 

form of distance learning appear to be in two contexts at opposite ends of the 

instructional spectrum. At one end are introductory-level courses that, at many 

universities, already enroll hundreds of students and are taught largely in a lecture format. 

At the other end of the spectrum are courses in which the total student enrollment is 

small, including highly specialized fields of study and/or advanced-level courses. At one 

end of the spectrum, think of Dr. Larry Sabato's Introduction to American Politics course 

at the University of Virginia, which routinely enrolls 400 students per semester with a 

waiting list. At the other end, think of a course of study in Arabic language and culture, 

an undeniably important subject but one that now lacks sufficient demand to justify 

hiring a professor on every campus. For divergent reasons, both of these situations lend 

themselves to distance learning applications. 

Faculty members often prefer to teach higher-level courses that are closely connected to 

their own areas of scholarship and expertise and that afford better opportunities for 

meaningful interaction with students. As a result, some institutions report increased 

reliance on adjunct professors and graduate students to teach large introductory-level 

lecture courses. Could overall instruction be improved if students throughout the higher 

education system could access introductory-level courses taught by the most 

accomplished and effective lecturers? The answer would seem to be "yes." Would such 

a resource be utilized on every campus, including smaller liberal arts colleges that 

typically rely little on large lecture courses? The answer likely is "no." Should Virginia 

be moving toward a model where more high-quality lectures are available to more 

students regardless of institution or location? The Commission believes the answer 

clearly is "yes." 

Similarly, in the situation at the other end of the spectrum-the course that is important 

but not yet in sufficient demand to justify in-person instruction on every campustechnology provides a vehicle for extending academic offerings and opportunity to 

students regardless of where they choose to enroll. There are many examples around the 

country today where technology has enabled consortia of institutions to collaborate on 

instruction, and a few exist in Virginia. 

Importantly, Virginia does not start from scratch with distance learning. Successful 

examples of remote instruction abound, whether it is through Teletechnet at Old 

Dominion University, the Electronic Campus of Virginia or the Commonwealth Graduate 

Engineering Program, a graduate education partnership with George Mason University, 

Old Dominion University, Virginia Commonwealth University, Virginia Tcch, and 

University of Virginia. These and others provide a proven platform on which to build. 

To do so, however, requires the convergence of instructional resources and 

communications technology on a much broader basis than is occurring currently. 

The Commission believes that every institution of higher education has a role to play in 

the process of leveraging instructional resources across the system. Each can be a 

provider of such resources, a consumer, or both. Each institution therefore should be 

exploring its assets and opportunities and developing a plan to participate. At the same 

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time, no one should expect valuable instructional resources to be conveyed electronically 

to other campuses and venues without compensation; a system of payment must be 

developed. Finally, it is unlikely that the technological infrastructure neccssary to make 

broad-based resource-sharing feasible can be put in place without initiative from the 

Commonwealth, most likely in the fonn of an innovative public-private partnership. The 

Commission, therefore, recommends a three-fold approach: 

• Development of a system of financial incentives to encourage instructional 

resource-sharing across institutions; 

• An obligation on the part of each public institution to commence planning 

its preferred form of participation; and 

• A state-level initiative to help provide the needed infrastructure. 

A second distinct area of opportunity in the realm of technology-enhanced instruction is 

course redesign. Here we refer primarily to enhancing instruction by incorporating 

technology into courses provided through existing two- and four-year degree programs. 

This includes but is not limited to development of wholly online courses and even online 

degree programs. It also includes innovative forms of instruction, such as the math 

emporium at Virginia Tech, that combine online and in-person instruction. At the math 

emporium, students take a variety of math courses in a computer laboratory environment 

on a schedule largely of their choosing, solving problems online but having the ability to 

call upon the assistance of on-site instructors as needed. Virginia Tech acquired and 

converted a large department store to a high-tech learning environment for this purpose. 

Although the cost of developing and transitioning instruction from the traditional 

approach to the math emporium was significant, the university reports that student 

satisfaction is high, academic perfonnance is enhanced, and the cost of instruction for 

those courses has declined. In the case of linear algebra, for example, the cost reduction 

has been from roughly $9 I per student to $21 per student. 

Because the developmental and transitional costs pose a substantial barrier to course 

redesign, the Commission recommends that Virginia'S new funding model for higher 

education include incentives, perhaps in the fonn of matching grants, to support 

institutional efforts to enhance instruction through innovative technology. The 

Commission further recommends that the Commonwealth enter into a relationship with 

the accomplished Center for Academic Transfonnation to advise and assist in the 

development, implementation and assessment of course redesign strategies and proposals. 

A third area of focus related to instructional technology is the provision of online course 

options for non-traditional students. Given the importance the Commission attaches to 

increasing degree attainment by students with partial college credit, it is noteworthy that 

online course offerings are often the only viable option for students who have job 

obligations, must support and care for family members, or for other reasons cannot attend 

college classes in person at the times they are offered. 

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An increasing variety of online course offerings are available to Virginians through 

private and career colleges. Liberty University, for example, has been a pioneer in online 

learning. In the 2009-20 10 academic year, Liberty enrolled 53,000 students in online 

courses and it projects reaching 60,000 students this academic year. At least 18 for-profit 

colleges and other organizations certified by SCHEV provide online programming in the 

state. As noted previously, leaders of several public universities in Virginia have 

expressed interest in collaborating to provide instructional content that could support 

online degree programs in several basic areas of study. Yet, the adequacy of online 

course offerings compared to the current and potential demand is unelear. 

The Commission recommends that the Commonwealth undertake a comprehensive 

assessment of the availability and affordability of online courses, determine the potential 

demand for online instruction (among "returning" college-goers, military personnel and 

veterans, and other non-traditional students), and explore avenues for greater 

collaboration between online course providers and existing public and private 

undergraduate programs in the state. Virginia needs an achievable plan for maximizing 

the opportunities for college completion and degree attainment by non-traditional 

students through online programming. 

A fourth area where technology can cnhance instruction is the use of electronic textbooks 

and other online curriculum. Even in the short time since Governor McDonnell called 

attention to these opportunities-and their positive impact on college affordabilityduring the gubernatorial campaign, the development of new technologies and their use on 

college campuses has expanded rapidly. The pilot project partnership between 

Amazon.com and the Darden School of Business at the University of Virginia for 

educational use of the "Kindle" is an encouraging example. Another notable example is 

at the School of Business at Virginia State University (VSU), where students will need 

nothing more than a computer, an iPad, an e-bookreader, or a mobile phone to gain 

access to the courses in their core curriculum and all the required texts. VSU's School of 

Business has created an online portal through which the content for nine integrated core 

courses can be digitally delivered, and where the textbooks are available for free 

download. This digital delivery mcchanism is designcd to increase access and 

affordability to the student. The Commission believes that ongoing technological 

innovation, the imperative of cost control, and student facility with electronically 

conveyed information will combine to produce rapid movement toward electronic texts 

and course materials in the years ahead. While the Commission does not believe a statelevel initiative is necessary to encourage this trend, institutions should bc alert to 

opportunities to facilitate the transition. 

Degree Path Initiatives. The third major area of reform-based investment advocated by 

the Commission is the development of more innovative and economical degree paths. 

The goal is to decrease the cost and reduce obstacles to timely degree completion for 

Virginia students while maintaining and enhancing academic quality. The strategies 

recommended here address early college credit opportunities, the community college 

transfer program, expedited degree options, and developmental (i.e., remedial) initiatives 

to increase the percentage of college-ready graduates from Virginia's secondary schools. 

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The Commission believes that opportunities for Virginia teens to earn economical college 

credits and/or advanced-placement status during high school should be encouraged, 

expanded, and enhanced. The means exist in some locales for students to complete 

simultaneously the work required for an associate degree and high school diploma. and 

programs of this kind should be expanded to more high schools throughout the 

Commonwealth. At the same time, the rapid increase in the number of high school 

students taking dual-enrollment courses makes it important that steps are taken to ensure 

uniformity of quality and outcomes that do not impede academic success once in college. 

The success of dual enrollment, particularly for low-income and minority students, in the 

Halifax County Public School System can serve as a model for scaling up opportunities 

in other school divisions. 

Similarly, opportunities for high school students to take AP (Advanced Placement) and 

IB (International Baccalaureate) courses and exams should be expanded (including via 

electronic delivery). Where consistent with successful student outcomes once in college. 

public institutions of higher education should be encouraged to accept more of these precollege credits, to count them towards degree completion as set forth in the 

Commonwealth College Course Collaborative. and to promote these options. The 

Virginia Advanced Study Strategies, a partnership in Southside involving the 

Commonwealth and the National Math and Science Initiative. has yielded positive results 

in enrolling more students in Advanced Placement classes and can serve as a resource for 

efforts in other regions. Virginia's track record in this area overall is strong--only two 

other states, New York and Maryland, had higher percentages of seniors earning grades 

of 3 or better on AP tests during 2009. 

Programs that combine opportunities for pre-college credits with student support services 

further increase the likelihood of post-secondary participation and success, especially 

among low-income, first-generation, and minority students. Current efforts along this 

line in Virginia include the community college system's Middle College and the Career 

Coaches program, the Pathways to the Baccalaureate Program at Northern Virginia 

Community College, and the Appalachian Inter-Mountain Scholars (AIMS) Program at 

University of Virginia-Wise. The success of these and similar programs should continue 

to be tracked, and where appropriate they should be supported, publicized, expanded, and 

replicated in order to broaden their impact. 

The Commission believes the following specific steps would be beneficial in promoting 

additional pre-college study in the Commonwealth: 

• The Commonwealth should set the objective of making opp011unities for AP, lB. 

and dual enrollment available to all high school students across the state. As 

student interest exhausts capacity, thc Virginia Department of Education should 

expand online AP course capacity to ensure that all interested and capable 

students can take classes either through the Virtual Virginia program or through 

local partnerships with online content providers, as envisioned in the virtual 

school programs legislation enacted carlier this ycar. Local school divisions 

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should continue to create and extend partnerships of high-school-to-college 

programs, such as Early College IIigh School, College Career Academies 

(Halifax County), Governor's STEM academies, the Pathways to Baccalaureate 

program, Project Lead the Way, and the Governor's College Partnership 

Laboratory School Initiative, so that all regions of the state afford students 

enhanced opportunities for success at the post-secondary level. 

• The Commonwealth should provide incentives that support K-12 schools' work to 

enhance student achievement, increase the number of students earning advanced 

studies diplomas, and better prepare graduating students for college and carecr 

pursuits. The Board of Education's Virginia Index of Performance (VIP) 

incentive program currently provides incentives for schools and divisions to 

increase the number of students who achieve at the advanced proficient level. 

Local school divisions should be required to release students from compulsory 

school attendance requirements upon completion of the state's advanced studies 

diploma requirements and acceptance into a post-secondary program. In addition, 

the Department of Education should increase its goals for the percentage of 

students who graduate from high school with an advanced studies diploma, the 

percentage enrolled in one or more AP, IB, or dual enrollment classes, and the 

percentage who carn at least a 3 or higher on at least one AP exam. 

Beginning study in a community college is an effective strategy for reducing the cost of 

obtaining a four-year degree. Especially since the Commonwealth made community 

college transfers a clear policy priority through the Restructuring Act in 2005, Virginia 

and its higher education institutions have made important strides in promoting this 

convenient and affordable alternative. More than 7,000 students from Virginia's twoyear colleges now transfer to four-year institutions each year. About two-thirds transfer 

prior to completing an associate degree. Obtaining a two-year degree prior to transfer 

tends to facilitate smoother academic transition, including acceptancc of more/all credits 

and receipt of junior class status. In addition, all but one four-year public institution 

currently guarantees admission for transfer students who complete an associate degree. 

The Commonwealth has provided a further financial incentive for students to follow this 

pathway by establishing the Two-Year College Transfcr Grant program. It encourages 

associate degree completion before transfer by otfering a $1,000 annual award for 

associate degrce complcters who meet need-based eligibility requirements. The program 

awards an additional $ I ,000 annually to those who transfer into programs in the highdemand fields of science. engineering, mathematics, teaching or nursing. In addition. a 

Uniform Certificate of General Studies currently is being developed by SCHEV, the 

community college system and the public four-year institutions. It will allow community 

college students to complete a one-year certificate and transfer all ofthose credits to a 

public senior institution. 

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The Commission recommends that the Two-Year Transfer Grant Program and, whcn 

developed, the Uniform Certificate of General Studies be fully funded and aggressively 

marketed throughout the Commonwealth. The Uniform Certificate of General Studies 

should also be made available to high school students who earn an associate's degree 

while completing high school graduate requirements. The potential of the community 

college transfer program to boost degree attainment, enhance affordability, and foster 

more STEM-related study remains insufficiently realized. Collaborative planning efforts 

by the Commonwealth and higher education institutions must ensure that, as more 

students pursue studies in community colleges and perform at a level warranting transfer 

to a four-year institution, space exists at those senior institutions to accommodate them. 

The new higher education funding model should incorporate the community college 

transfer grants and their full funding on a priority basis. 

Students enrolling in four-year institutions also can benefit from various options that help 

hold down costs, expedite degree completion, or both. Several private institutions, 

including ECPI in Virginia, have developed successful models for undergraduate degree 

completion that are convenient for the student and that can be finished in less than four 

years. Public institutions should be encouraged to explore such models and offer options 

for expedited, "no frills" degree completion. Enhanced opportunities for students with 

proprietary degrees to transfer to public institutions also should be explored. And, as 

noted in the preceding section, expanded use of technology-from incorporation of 

technology in classroom course work to providing fully online degree options--{;an assist 

traditional and non-traditional students alike in containing costs and accessing a broader 

array of course and program offerings, often on an expedited basis. 

A recurring problem confronting higher education in Virginia and elsewhere is the 

num ber of students who take more than four years-in some cases, considerably morcto complete their degree work. This adversely impacts both taxpayers and tuition-paying 

families, and the General Assembly has determined that a tuition-based incentive for 

timely completion is needed. In 2006, the General Assembly modified the Code of 

Virginia to require assessment of a surcharge for each semester that a student continues to 

enroll after such student has completed 125 percent of the credit hours needed to satisfy 

degree requirements for a specified undergraduate program.22 

The Commission agrees that creating a greater incentive for students to complete their 

course work on time (or within a reasonable time) is especially important given the 

pressing economic objectives and severe resource limitations impacting Virginia's higher 

education system. At the same time, the Commission is sensitive to the varied 

circumstanccs of students (some of whom need to work part-time to pay for college), to 

factors beyond student control (such as limited availability of needed courses), and to the 

demanding nature of certain dcgree programs for which completion time nationally is 

higher (including some STEM degrees). Care should be taken, therefore, in fashioning 

timely completion incentives so that unintended adverse impacts on degree attainment 

(especially in the STEM area) and affordability do not result. 

22 Virginia Code § 23-7.4. Eligibility for in-state tuition charges 

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A particular problem facing highcr education, with negative implications both for 

timeliness of completion and retention/graduation rates, is the widespread need for 

developmental (i.e., remedial) programming at the post-secondary level. In addition to 

providing opportunities for students to receive college credit in high school, thereby 

saving time and money toward a post-secondary degree, the Commonwealth must ensure 

that high school graduates emerge ready to pursue a successful course of study at a twoor four-year college. Remedial courses are expensive for the student, the 

Commonwealth, and the higher education institution involved. They postpone student 

advancement and often have a discouraging effect, leading a disturbingly large number of 

students to drop out with no credential to show for their investment of time and money. 

According to the community college system, just under half (45 percent) of recent high 

school graduates enrolled in a community college required at least one developmental 

education course in 2008-a percentage that has remained relatively constant over the 

last five years?3 

The Commission recognizes the ongoing work of the College and Career Readiness 

Initiative, a partnership including SCHEV, the community college system, and the 

Virginia Department of Education, which is endeavoring to establish college- and careerready learning standards in reading, writing, and mathematics and to ensure that 

instruction in every Virginia high school classroom measures up. In order to understand 

fully the implications of college readiness in achieving the I OO,OOO-degree goal and 

develop a concerted plan of action, the Commission recommends that a work group be 

created with representatives from SCHEV, the community college system, four-year 

public and private higher education institutions, the Department of Education. the 

Council on Virginia's Future, the Secretary of Education's Office, and other appropriate 

parties. By summer of next year this group should: 

• Develop a collaborative understanding of workforce and college readiness in 

Virginia that rclies on federal and state definitions and addresses research, policy 

and higher education-driven demands for a better-prepared college entrant; 

• Assess current readiness assessments and remediation efforts between high school 

and post-secondary institutions, including the work of the community college 

system's Developmental Education Task Force and the College and Carcer 

Readiness Initiative; 

• Identify national best program practices, early alert measures, and appropriate 

performance indicators; and 

• Make recommendations on a comprehensive plan to phase out reliance on 

developmental/remedial programs at the college level by enhancing student 

readiness and providing necessary diagnostic and remedial attention at the 

secondary level. 

'J Virginia Community College Reengineering Task Force, "Making the Case for Change," 

http;l/rethink.vccs.edu/wp-contentithemes/vccsrethink/docs/CaseforChange.pdf 

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Restructuring Refinements. The fourth major area of reform focus is the continued 

restructuring of the relationship of the Commonwealth and its public higher education 

institutions. All parties expressing views to the Commission on this subject have cited 

achievement of important progress in institutional efficiency, productivity and cost 

containment as a result of the Restructuring Act enacted in 2005. The benefits of the 

legislation vary among institutions, just as the levels of managerial autonomy and 

flexibility vary. 

At the same time, the fiscal pressures associated with the recession have impeded 

realization of the Act's full potential. Actions taken to balance the state budget in some 

cases have disappointed expectations of the institutions. Hopes lor effective 

collaboration between the Commonwealth and institutions on academic and financial 

planning have not been fully achieved. The goal of enhanced outcome measurement and 

less overall reporting and paperwork remains elusive. The incentive regime associated 

with the state's policy goals (i.e., the "state ask") appears to have little punch in practice. 

In short, five years into this important reform there is much to applaud and also room for 

improvement. 

The most important ingredient for success in restructuring is thc least casy to legislatc. In 

a word, it rcquircs trust. Virginia's system of higher education draws its distinctiveness 

and excellence from the diversity of its institutions and from the state and local 

educational and entrepreneurial decisions over time that have made those institutions, and 

the system as a whole, what they are. The dccentralized approach serves Virginia well. 

To achieve the Commonwealth's ambitious goals for economic opportunity, reformbased invcstment, and affordable access in the future, however, close coordination will be 

required in an atmosphere of trust. The bottom line is there must be agreement on the 

mutual commitments that define the relationship between the Commonwealth and higher 

education institutions, and then those commitments must be kept to the fullest extent 

possible. Perhaps nothing is more dispiriting than to go through the arduous process of 

crafting new approaches and understandings only to have them change with the 

perspective of the next administration, the vagaries of the legislative process, or the 

prevailing winds on campus. Continued restructuring must be built on a firm foundation 

of mutual confidence. 

The Commission's recommendations for refinement to the restructuring process and 

legislation are three-fold: 

• An effective collaborative and consultative process must be established for 

the development, refinement and endorsement of institutional performance 

plans with appropriate participation by executive, legislative and 

institutional representatives. 

• Performance metries and corresponding incentives should be streamlined 

and more robust, tailored to specific outcomes on state policy priorities, 

and more focused on economic impact and innovation. 

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• A working group compriscd of institutional and state-level representatives 

should be tasked with identifying additional opportunities for cost-saving 

or productivity-enhancing reforms in the relationship of Commonwealth 

and its higher education institutions. 

Effective planning is the key to the success of strategic initiatives and to operational 

efficiency. In Virginia's system of higher education, effective planning depends on 

collaboration and consultation primarily between and among the institutional 

administrators, executive branch officials and agencies, and legislative money 

committees. Given the distinctive constitutional and statutory roles of each, the process 

must be informal and flexible, providing opportunities to present plans, proposals and 

funding requests, receive timely feedback, and forge a consensus path forward to the 

greatest extent possible. It must be a candid and transparent process and occur in a 

timeframe that makes it relevant and useful in the executive budget development and 

legislative appropriations processes. 

There are numerous models for such a collaborative process already in Virginia, 

including the approach taken in capital outlay pursuant to the 2008 legislation, the 

determination of peer institutions for faculty compensation purposes, the setting of 

institution-specific enrollment and graduation targets, and others. To the extent possible, 

such planning processes for each institution should be integrated and consolidated so that 

interrelated academic, financial, and operational matters are addressed in a coordinated 

manner. Whether the output is characterized as an agreement, a plan, or some other term 

that embodies consensus, the important thing is that it reflects the considered input and 

buy-in of the key players identified above. The Commission views achieving this 

objective as a Iynchpin for success of the initiatives proposed in this report. 

A second area of refinement needed in restructuring relates to performance metrics and 

incentives. Currently, colleges and universities must set targets and report progress with 

respect to the "state ask" embodied in the Act's "Institutional Performance Standards." 

Benefits in certain areas prescribed by statute inure to those institutions that earn a 

passing grade. While the benefits are important to the institutions, most of the comment 

received by the Commission suggests the pooled incentive approach, with its pass-fail 

aspect, has little discernible impact on performance. The all-or-nothing approach results 

in the setting of more modest goals than actually may be achievable since, as a practical 

matter, failure is not an option. 

In addition to remedying these shortcomings in the current regime, the Commission 

believes that more far-reaching changes are needed as part of the "Top Jobs" legislative 

initiative. As discussed in an earlier section of this report, performance metrics should 

focus to a greater extent on outcomes relating directly to economic opportunity and 

impact. Institutional managers, state-level decision-makers, and-perhaps most 

important-tuition-paying students and parents all should be armed with information 

about the earnings potential and value in the job market of particular degrees from 

particular institutions. Improvement according to such economically salient metrics 

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should be among the top performance objectives for individual colleges and universities 

and for the system as a whole. 

The objectives of better outcome-focused performance metrics and a more effective and 

robust performance-based funding system are closely connected. Throughout this report 

we offer specific recommendations for initiative and improvement in the areas of 

economic opportunity, reform and innovation, and affordable access. For the most part, 

our recommended approach does not involve mandating these changes, but rather calls 

for creating incentives to which the institutions can respond entrepreneurially based on 

their distinctive missions, situations, and opportunities. For this approach to work, 

however, the incentives must be a material component of the funding model and must be 

tied directly to specific performance objectives. The modest, pooled incentives currently 

in the Restructuring Act seemingly fail both of these tests. 

As we discuss more fully in the later section of this report describing the Commission's 

funding model recommendations, performance-based funding should be connected to 

each of the Commonwealth's major policy priorities, including increased enrollment of 

Virginia students, increased degree completion by returning students, improved 

graduation rates, STEM degree production, research investment, year-round utilization of 

resources, technology-enhanced instruction and resource-sharing, the creation of 

innovative and affordable degree paths, and so forth. 

A third area of restructuring refinements--one requiring ongoing attention-is the effort 

to eliminate obstacles to efficient management that may still inhere in the regulatory and 

reporting relationship between the Commonwealth and its higher education institutions. 

The Commission has received anecdotal information regarding opportunities for 

additional cost-saving and/or productivity-enhancing changcs. The efficacy of such ideas 

generally cannot be explored without better dialogue between the institutions and 

responsible officials and agencies at the state level. One model for such dialogue may be 

Virginia'S pUblic-private partnership laws for infrastructure development. Since the 

adoption of the more wide-ranging statute in 2002, a working group consisting of 

executive and legislative branch officials and knowledgeable members of the business 

and professional community has met each year to take stock of how the program is 

functioning, implement legislated changes, and suggest refinements in state laws and 

implementing guidelines to improve its operation. A similar approach could help achieve 

additional bcnefits in higher education restructuring. 

Community College "Reengineering." Facing unpreccdented double-digit enrollment 

increases and significant general fund support decreases, the Virginia Community 

College System embarked on a reform initiative of its own in November 2009. It created 

the "Reengineering Task Force" to critically examine and rethink every aspect of the 

system's organization and operations so as to support its strategic plan (Achieve 2015) 

goals focused on access, affordability, student success, workforce, and raising private 

resources. 

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Pervasive throughout the deliberations of the Task Forcc wcrc three themes: the need to 

reinvest in VCCS's people as the centerpiece for accomplishing the system's strategic 

goals; the need to leverage the power of technology to improve productivity; and the need 

to provide personnel with tools and training that will enable them to manage "with 

productivity in mind" as a matter of course in everyday activities. Equally important 

were discussions about the lessons learned from colleges participating in "Achieving the 

Dream" initiatives-especially the lesson that fostering effective change requires datadriven decision making within a culture of evidence.24 After a year of intensive 

meetings, debate, cmails, feedback from various groups, and town hall meetings held by 

the Chancellor, ten "Big Ideas" emerged from the Task Force's work. 

The Commission has followed thc "Reengineering" process closely and applauds the 

effort. Many of the Task Force's "Big Ideas" and corresponding reeommendations 

coincide and rcsonate with the goals and interim recommendations outlined in this report. 

The Task Force's work is ongoing, as it this Commission's. and we anticipate continuing 

co Ilaboration. 

The Commission recommends that the Commonwealth support the "Reengineering" 

process and its reform and innovation efforts focused in the following ten key areas: 

(I) to redesign developmental education; (2) to implemcnt Shared Services (e.g., 

centralizing "Back Office" functions such as financial aid; leveraging VCCS purchasing 

capacity; piloting shared distance learning services; expanding opportunities for 

development of consortia); (3) to strengthen and diversify the VCCS resource base; (4) to 

articulatc eourse/program learning outcomcs to enhance student success; (5) to foster a 

culture of high performance; (6) to automate student success solutions and develop 

public-private partnerships for student success; (7) to expand the teaching employment 

spectrum; (8) to conduct credit audit of academic programs; (9) to reposition Workforce 

Services as a high-performanee operation to meet employer needs and contribute to the 

financial strength of the VCCS; and (10) to continue Rcengincering efforts. 

24 Virginia Community College Reengineering Task Force, '"Making the Case for Change," 

ht!p:llrethink.vccs.edulwp-contentlthemes/vccsrethink/docs/CaseforChange.pdf 

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(3) Affordable Access 

The Commission believes Virginia must renew its longstanding commitment to 

affordable access to a college cducation for cvery capable and determined Virginian. 

College is not right for everyone, but it is right for many more Virginians than are now 

obtaining degrecs, and that is the gap that must be addressed. 

It was Thomas Jefferson-the product of one of our Virginia universities and founder of 

another-who articulated the distinctively American vision of education's central role in 

a free society. He spoke of a "natural aristocracy" based on merit, with education as the 

means to enlightened citizenship and economic opportunity for all, not just a privileged 

few. Virginia has made that vision a reality by developing a public-private system of 

higher education whose hallmarks are excellence, diversity and access. 

Access, however, depends on affordability. While the Virginia Constitution guarantees 

citizens a free public education, that assurance has never included post-secondary study. 

College-going students and their parents have always been expected to pay part of the 

tab, assuming they are financially able. Striking the appropriate balance between the 

contributions of state taxpayers and tuition-paying students and parents is the recurring 

challenge. And with the vast majority of Virginians now believing that a college degree 

rather than a high school diploma is the educational credential required for economic 

success, it is perhaps time to consider updating the state Constitution to embrace the 

principle of affordable college access. 

As state resources allocated to higher education have declined sharply during the severe 

recession, the burden of financing college-level study has shifted decisively to students 

and their families. This trend, while pronounced in Virginia, is not limited to this state. 

The federal government has implemented a two-pronged response-providing so-called 

"stimulus" funding to the states in the hope of maintaining government support for higher 

education while catalyzing economic growth, and assuming direct responsibility for 

administering student loan programs. The former will run its course in 2012, and the 

disappearance of "stimulus" dollars will create a funding cliff that institutions across the 

country will have to offset in large part through further tuition and fee increases. The 

latter measure--replacement of federal guarantees with direct student loan funding and 

administration-was enacted earlier this year, and its effects are unknown. 

In the face of this daunting and uncertain future for those seeking to attend college, the 

Commission has considered various affordability strategies. In a broad sense, the reform 

and innovation described in the preceding section bears on affordability, since our 

recommendations all seek in one way or another to contain costs and deliver greater 

value. Year-round utilization of resources, applications of new technology in instruction, 

development of innovative and affordable degree paths, and further restructuring reforms 

will assist in holding the line on college costs while helping to preserve and enhance 

educational quality. A system that is already lean and efficient will perform even better if 

our recommendations are adopted. 

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More is needed, however. Virginia must couple these cost-saving and value-enhancing 

innovations with changes in state funding policies that put the Commonwealth on a sure 

path toward higher educational attainment and the personal income growth that 

accompanies it. As we have already acknowlcdged, there is no prospect of a big infusion 

of additional state resources or a quick recovery of lost funding. Instead, as we 

contemplate a future beyond the near-term funding cliff and its tuition impact, the 

Commonwealth should make a commitment to long-term policies that will reduce 

reliance on tuition in funding the Virginia higher education system and keep college 

within reach for low- and middle-income families. Our Commission has a four-part 

recommendation with respect to that long-term policy change: 

• First, the Commonwealth should craft and codify a funding model that 

embodies its commitment to sustained investment in higher education, 

with the corresponding effect of relieving the upward pressure on tuition 

over time. 

• Second, the Commonwealth should provide an incentive for increased 

access by promising to every capable Virginia student that a significant 

increment of state resources will follow the student to the public or private 

not-for-profit college of his or her choice. 

• Third, the Commonwealth should invest more in student financial 

assistance-in the form of direct aid and low-interest/forgivable loans-to 

ensure that college remains affordable for middle-income families as well 

as for the low-income families that traditionally have received aid. 

• Fourth, as growth revenues rebound, the Commonwealth should set some 

of them aside in a rainy day fund reserved for higher education, so that 

colleges in the future are less subject to dramatic swings in state support 

and students and parents are not burdened by large and often unexpected 

spikes in tuition and fees. 

Codified Funding Model. The central benefit of a codified funding plan is that it will 

embody the Commonwealth's strategic commitment to higher degree attainment and 

knowledge-based economic growth and help cnsure that the state's actions over time 

match those aspirations. A parallel bcnefit is that it will enhance affordability by 

reducing reliance on tuition over time. 

To achieve these objectives, the model must be understandable, and the funding it 

provides must be as predictable and reliable as possible. One of the biggest obstacles to 

cost-efficient management of colleges and universities-and to the systematic pursuit of 

innovation and reform at those institutions-is the impediment to strategic planning and 

execution posed by gyrations in government policy and funding. A related impediment, 

at least in Virginia, is the lack of an effective mechanism by which institutional leaders 

and state policymakers can come together to fashion agreement on key initiatives. A 

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well-conceived state policy, plan and corresponding funding model for higher education 

can build on methodologies and innovations that have contributed to the system's success 

to date, establish protocols for effcctive policy collaboration going forward, and provide 

incentives for improvement in the priority areas outlined elsewhere in this report 

(economic opportunity, reform-based investment, and affordable access). 

We take as a given that such a new funding model will not be "fully funded" initially. 

There is nothing to be gained from premising a model on current per-student funding 

levels that are worth barely half of what they were just a decade ago, that over-burden 

students and their families, and that does not reflect or contemplate the level of 

investment necessary to achieve the state's ambitious goals for educational attainment 

and personal income growth. Instead, the funding model should serve as a roadmap for 

improvement and a magnet for investment as revenues gradually rebound. As Governor 

McDonnell has observed and we noted earlier in this report, even a relatively modest 

change in state spending priorities, if consistently maintained over time, can have a 

dramatic impact on the level of investment in higher education. The course must be set 

so that incremental progress actually follows. 

As a conceptual framework for the funding model, the Commission recommends four 

main categories, or building blocks, that capitalize on existing strengths and incorporate 

the various initiativcs recommended in this report. They are: 

I. Basic Operations and Instruction 

2. The Virginia Promise (Per-Student Funding) 

3. Need-Based Financial Aid 

4. Incentives for Economic Impact and Innovation 

While the enrolling college or university is the funding recipient regardless of the 

category, two of the four categories (first and fourth) would be caleulated based on the 

institutions' operations, programs, and initiatives. The other two categories (second and 

third) would follow the student based on factors specific to the individual, such as where 

he or she applies and gains admission, where he or she chooses to enroll, and what his or 

her financial needs are. Because the funding in the second and third categories follows 

the student, the policies applicable to those building blocks have implications for both the 

public institutions and the independent (not-for-profit) colleges in the Commonwealth. 

Basic Operations and Instruction. In developing a consistent. reliable approach for 

funding the public institutions' basic operations and instruction, the Commission believes 

the proper starting point is the "base budget adequacy" (BBA) model developed initially 

in 2000 pursuant to the work of the Virginia General Assembly's Joint Subcommittee on 

Funding Policies ("Chichester Commission") and used for limited purposcs during the 

past decade. Primarily a peer-based cost reimbursement model, the BBA regime was 

fashioned through a collaborative approach that included experienced finance officers 

from several of the public colleges and universities, staff of the legislative money 

committees, SCHEV representatives, and others. The model's salient feature is a set of 

formulas for caleulating instructional cost on faculty-student ratios for different 

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disciplines. It also calculates funding needs for non-faculty academic support, student 

services, and operation and maintenance and physical plant. 

Although the BBA model has not been updated since its adoption more than a decade 

ago, the Virginia Business Higher Education Council commissioned an independent 

study by NCHEMS to review and largely validated its accuracy.25 NCHEMS identified 

several deficiencies or issues that should be addressed in updating the model, the most 

consequential of which is the organization's finding that the model chronically tends to 

understate the appropriate level of funding for the community college system. NCHEMS 

also noted that the trend in other states is away from a pure cost-reimbursement model 

like BBA and toward making a portion of higher education funding performance-based. 

Our recommendations likewise call for a significant set ofperformancc incentives as a 

fourth component of the overall funding model, a topic on which we elaborate below. 

The Commission believcs that the Cost of Education concept first advanced in the early 

dialogue leading to the 2005 Restructuring Act should be incorporated into the base 

funding component of the new Virginia model. Using an updated version of the BBA 

methodology, an appropriate level of funding for instructional and operational costs 

("Cost of Education") should be calculated for each institution. As in the earlier 

consultations leading to the BBA model, this should be a collaborative process that 

reflects input and buy-in by the institutions and appropriate executive and legislative 

branch officials. 

In crafting the model, the BBA methodology should be followed to the extent feasible 

consistent with established state policies and institutional practices here in Virginia. 

Certain longstanding policies, such as the Commonwealth's commitment to its 

historically black colleges and universities, its support for the adversative military-style 

pedagogy at VMI, and its commitment to having a distinctive "public ivy" at William and 

Mary, among others, will necessitate adjustments in arriving at the "Cost of Education" 

figure for those institutions. Consideration should also be given to the value of medical 

and other graduate degree programs that traditionally have not covered their full cost and 

have necessitated subsidy through other graduate and undergraduate programs. 

Additional grounds for adjustment may well be warranted based on policy and practice. 

At the end of the process, the methodology for calculating each institution's basic Cost of 

Education would be set. The calculations could be re-run annually (or less often if state 

policymakers see fit), but the model itself would need to be updated only periodically, 

perhaps every five or seven years. 

Several important benefits would accrue from establishing the Cost of Education for each 

institution and employing it consistently in state funding allocations. First, it would 

enhance funding predictability and reliability, thereby aiding planning and efficient 

management. Second, it would make base funding allocations more objective and 

minimize the influence of ad hoc considerations, such as lobbying. Third, as state 

15 "Assessment of the Base Adequacy Funding Model, National Center for Higher Education Management 

Systems and Delta Project on Postsecondary Education costs, productivity and Accountability, October 12, 

2010 

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funding for higher education rebounds with the economy, discrepancies among 

institutions could be remedied so that each institution makes progress toward "full 

funding" at the same rate as the system as a whole, enhancing fairness. And, as state 

support progresses incrementally toward "full funding," the Cost of Education would 

supply an upper limit on tuition increases, enhancing affordability. 

Current state policy for the public higher education system calls for the Commonwealth 

to pay two-thirds of the cost of educating Virginia students and for the institutions to 

cover the other third through non-general funds (i.e., mainly tuition and mandatory fees). 

This policy has been honored more in the breach than the observance, however. On 

average the Commonwealth today pays less than 50 percent of this cost today, and the 

rest is borne mostly by tuition-paying studcnts and families. The Commonwealth should 

determine what the appropriate share of this cost burden is for tax- and tuition-payers 

going forward, and set the funding model accordingly. An aspirational funding split that 

is so far from present or achievable reality as to make it irrelevant not only lacks valuc in 

the planning and funding process; it fosters a detrimental cynicism. Whether state policy 

continues to envision a 67-33 percent split or is set at a different level is a decision for the 

Commonwealth's policymakers, who must weigh a range of competing goals and needs. 

The more the Commonwealth is able to cover, the less the burden will fall on tuitionpaying families. What matters most for the future is that the Commonwealth's funding 

actions over time actually match its declared policy goals embodied in the model to the 

fullest extent possible. 

Once the basic Cost of Education for each institution is fixed and the Commonwealth's 

contribution toward meeting that cost is determined, the balance of funding will 

ordinarily come from non-general funds generated by tuition and fee charges. Absent 

initiatives approved by thc institutions' governing boards and endorsed at the state level, 

tuition should not excecd the amount neccssary to close this gap. That way, as the 

Commonwealth makes progress toward funding its full share of college costs for Virginia 

students, there will bc a corrcsponding casing of tuition pressures on students and their 

families. Certain tuition-funded costs generally will be outside this sliding-scale formula, 

such as the institution's required contribution to state-mandated pay raises, its local 

match of statc-incentivizcd initiativcs, and financial aid payments not funded by the 

Commonwealth. 

The proposed funding model thus will provide significant leverage for greater college 

affordability-leverage, that is, to the extent the Commonwealth succeeds in funding its 

share of the total Cost of Education. The Commission believes it is imperative that the 

actual authority for setting tuition and fees remain with the institutions, as it is under 

current law. Nevertheless, the incentives-financial and otherwise-for keeping tuition 

within the bounds of the model will be significant. The means for making wellconsidered and justified departures from the model also will exist: 

• In the event an institution conceives a new initiative of value to the 

Commonwealth that it proposes to fund in whole or in part by raising 

non-general funds beyond the level envisioned in the funding model. 

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the planning process recommended in the preceding section on 

restructuring will provide an effective vehicle for state-level 

endorsement, acquiescence, or discouragemcnt. 

• In the event an institution with the requisite market power chooses to 

restructure its pricing and generate additional revenue by increasing 

the effective tuition cost for those at higher income levels while 

protecting middle- and low-income students through increased 

financial aid, that same planning process will afford a mechanism for 

determining any corresponding change in the level of state support or 

other conditions. 

• And, in the unlikely event that a public college or university proceeds, 

outside thc bounds of both the funding model and the planning 

process, to increase tuition to levels deemed unacceptable at the state 

level, legislative and executive branch decision-makers have ample 

means through thc appropriations process to impose consequences. 

Also important as an element of each institution's basic instructional funding is the 

Commonwcalth's policy on faculty salaries. Instructional quality is the central element 

in the college value equation, and vigorous competition for talented faculty is a facet of 

the higher education landscape that comes into play in virtually every aspect of this 

initiative, from generating a high economic return by equipping Virginians for top 

knowledge-based jobs, to enhancing our national and international competitiveness 

through much higher STEM degree production, to generating leading-edge business 

investment and job creation through lucrative university-based research. The 

Commission believes the Commonwcalth's declared but unattained objective of 

providing average faculty compensation at the 60th pcrccntilc, or somewhat above 

average of designated peer institutions is a sound policy and should be embeddcd in the 

funding model. 

While performance-based funding is addressed below and reflects the Commission's 

emphasis on providing incentives for innovation and refonn rather than imposing new 

mandates on the institutions, ccrtain actions are so central to the Commonwealth's 

intcrcst as to be cxpected from each institution. Failure to comply with state policy in 

such arcas should have some impact on funding of basic instruction and operations. In 

addition to cxisting expectations related to legal compliance and financial stewardship, 

thc Commission belicves three areas of initiative fall in this category: 

• The achievement of targets for confcrral of dcgrees on Virginia students; 

• The development of plans for optimal ycar-round utilization of facilities 

and resources; and 

• Thc development of plans for instructional-rcsource sharing across the 

highcr cducation system. 

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The Virginia Promise (Per-Student Funding). Turning to the second building block in 

the four-block funding model, the Commission's proposal to have an increment of state 

funding follow the student to the public or private (not-for-profit) institution of his or her 

choice has a two-fold rationale and benefit. First, it would allow student choices and 

demand to drive institutional funding levels, at least on an incremental and interim basis, 

and thus provide an incentive for institutions to enroll more students-a key element in 

achieving the overarching goal of having more Virginians earn college degrees. Second, 

the fact that it embodies a commitment to every Virginia student would increase the 

likelihood that its future funding survives the vagaries of the business cycle and political 

winds, thereby helping to keep the Commonwealth on track toward its long-term 

educational attainment goal. 

As a starting point, the Commission recommends that the "Virginia Promise" be set at the 

current level of the Virginia Tuition Assistance Grant (TAG) program, approximately 

$2,600---or, if TAG grant funding is restored and enhanced, as we recommend, then at 

that higher level. Except to the extent of such a TAG increase, no new funding would be 

provided initially. Rather, the "Virginia Promise" would be funded as part of the public 

institutions' existing base funding or, in the case of private colleges, through their 

existing TAG funding. Over time, however, economic substance would be added to the 

Virginia Promise's symbolic value, since institutional funding would grow with the 

enrollment of more Virginia students. Of course, funding already generally follows 

enrollment growth at independent colleges under the TAG program, and under the base 

funding approach outlined above public institutions would see their funding rise with 

enrollments whenever the base is recalculated. In the interim between such 

recalculations, thc Virginia Promise payments would provide an incremental increase in 

per-student support. 

Need-Based Financial Aid. The funding model's third major component is need-based 

financial aid. In contrast to the Virginia Promise, which applies to every Virginia student 

and is a portion of the enrolling institution's base funding, student financial assistance is 

based on need and helps defray the eligible student's tuition and fee charges. Currently, 

the Commonwealth funds a portion of need-based financial aid and the balance is funded 

by the institutions. While need-based financial aid is an essential tool in addressing 

afford ability, it has limitations. Commission members have expressed concern about 

increased reliance on higher tuition charges for some students as a source of funding for 

financial aid to others. The Commonwealth needs to do more. 

The Commission has focused on the particular affordability challenge faced by middleincome students and their families. Wealthy Virginians generally can afford to pay for 

college, and they even get a subsidy from taxpayers: those attending independent 

colleges qualify for TAG payments, and at public institutions in-state tuition is 

substantially lower than the actual cost to educate the student. At the low-income end of 

the spectrum, needy Virginians traditionally have qualified for ample federal grants 

and/or loans. In the middle, however, families are squeezed because tuition continues to 

rise yet financial aid through grants is limited or nonexistent. 

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The Commission recommends that the Commonwealth undertake a systematic 

assessment of financial aid eligibility and practices at its institutions of higher education, 

including the impact of recent policy changes at the federal level, with the objectivc of 

enhancing tinancial aid eligibility and awards for middle-income families without 

diminishing need-based aid for low-income families. Consideration should be given to 

providing increased grants and exploring the feasibility of guaranteed loan options for 

middle-income tuition-payers as means of filling identified gaps in existing aid programs. 

To avoid merely adding to the student debt burden, any guaranteed loan program at the 

state level either should provide a lower-interest alternative to federal loan programs or 

should be convertible into a grant based on performance of certain conditions. Such 

forgivable loan options may have value in achieving important state policy goals. For 

example, a loan might be forgiven in whole or in part if a student completes a STEM 

degree program and then teaches STEM-related courses in elementary or high school for 

a specified period of time. 

While the recent federal changes in student financial assistance programs have altered the 

landscape significantly, necessitating more extensive study than the Commission has 

been able to accomplish to date, it is important that the forthcoming "Top lobs" higher 

education legislation express the Commonwealth's commitment to college affordability 

for middle-income as well as low-income families, and set in motion a process leading to 

viable student financial aid solutions that are incorporated in the codified higher 

education funding model. 

Incentives for Economic Impact and Innovation. Earlier in this report we noted the 

salutary trend across the country toward a more perfonnance-based approach to higher 

education funding, a fact cited by the National Council of Higher Education Management 

Systems (NCHEMS) in its recent review of Virginia's current higher education funding 

methodology. The fourth major component of our proposed funding model consists of 

performance incentives tied to the key policy outcomes we have recommended 

throughout this report. Virtually all of these recommendations relate to enhancing the 

economic impact of Virginia'S higher education system, introducing value-enhancing 

innovation and reform, or both. 

Rather than a pooled incentive approach tied loosely to the achievement of a set of 

performance measures, the Commission recommends the development of direct and 

meaningful performance funding mechanisms tailored to each of the major policy 

initiatives proposed in this report. The incentives will take various forms, and, as with 

other aspects of higher education reform, the process of fashioning the criteria and 

corresponding funding consequences will require a collaborative legislative, executive, 

and institutional process. The forthcoming legislation should articulate the policy 

priorities and outcomes and provide for such a developmental process during 20 II so the 

mechanisms are in place for the next biennial budget process. 

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The Commission recommends development of performance-based funding elements 

corresponding to the following major initiatives recommended in this Interim Report, 

including: 

• Increased enrollment of Virginia students; 

• Increased degree completion by returning students; 

• Improved retention and graduation rates; 

• STEM degree production; 

• Public-private research partnerships; 

• Optimal year-round utilization of resources and other efficiency reforms; 

• Technology-enhanced instruction and resource-sharing; and 

• Community college transfer grants and other degree path programs 

Rainy Day Fund. The Commonwealth has benefited greatly from its forward-thinking 

policy of setting aside a portion of growth revenues in a reserve for times of fiscal stress. 

This concept should be extended specifically to higher education funding, the category of 

state spending that has been cut first and deepest in response to each recession over the 

last several decades. The boom-or-bust character of higher education spending in 

Virginia not only has wreaked havoc with planning and reform efforts; it has made it next 

to impossible for parents to anticipate what it will take to put their kids through college 

and prepare accordingly. 

As a key strategy for higher education affordability and to keep the initiatives outlined 

herein on track, the Commission recommends creation of an additional rainy day fund 

reserved for higher education. As revenues rebound over time, a portion should be set 

aside to help sustain higher education support in the face of future economic stresses. 

Perhaps most important given the demonstrated impact of our colleges and universities in 

creating jobs, boosting the Commonwealth's economy, and generating tax revenues, such 

a fund would help prevent these growth-producing investments from being slashed 

during the very times when they arc most needed-times of economic strain. 

THE COMMISSION'S NEXT STEPS 

The Commission's work has been underway less than a year, and some remaining aspects 

of our charge will received heightened attention in the coming months. 

As noted earlier in this report, we have purposely deferred most of our work on regional 

strategies and public-private partnerships for business recruitment, workforce 

preparation, and university-based research. The Commission will focus on these 

important subjects in 201 I, aided by the Final Report of the Governor's Commission on 

Economic Development and Job Creation. which was completed earlier this fall. 

Another area of focus next year will be the Governor's charge to make Virginia a 

national leader in providing higher education opportunities to military personnel and 

veterans. While many of our interim recommendations encompass military personnel 

and veterans, we intend to give this subject particular attention in the coming months. 

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The Commission will actively support passage of the Governor's Top Jobs legislation in 

next year's legislative session. We believe this landmark legislation is an essential 

foundational step in committing the Commonwealth to a long-term and sustained plan 

that will lead to significantly higher college degree attainment, greater personal economic 

opportunity, and unsurpassed economic growth and competitiveness for our state. We 

cxpect this initiative and legislation to received broad bipartisan support in the General 

Assembly, fueled in part by an intense belief in the business and professional community 

that this action is urgently needed for success in the knowledge economy. All Virginians 

have a stake in the enactment ofthis strategic vision for reform, innovation, and 

investment. 

As we noted at the outset, passage of the legislation will not complete the planning 

process. But it is a vital first step, because it will set the direction, provide a framework, 

and commence a collaborative process for the full development of the funding model, key 

incentive components of the plan, and other provisions. Work likewise will continue on 

STEM degree production strategies, opportunities to capitalize on new technologies, 

course redesign and instructional resource-sharing, restructuring and Reengineering 

reforms, and other key initiatives referenced in our interim recommendations. The 

Commission expects to be actively involved in many of these discussions. 

We conclude this phase of our work with an appeal to all Virginians who love our 

Commonwealth and believe in its potential for continued greatness. These times 

continue to challenge us all, but they also serve to clarify our choices and focus our 

vision. As Governor McDonnell said in his inaugural address, "The creation of and 

desire for opportunity has shaped Virginia from its very foundation. It is why even in 

these tough times we will have the foresight to invest today in ideas and economic 

policies that increase economic prosperity tomorrow." It is in that spirit that we offer 

thcse interim recommendations and urge enactment of legislation affirming the 

Commonwealth's resolve to prepare Virginians for the top jobs of the 21 5t century. 

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Attachment A - Executive Order No.9 (revised July 9, 2010) 

Establishing the: "Governor's Commission on Higher Education Reform, 

Innovation and Investment" 

Importance of the Issue 

The current period of economic challenge facing our Commonwealth and Nation comes 

during an era of rapid technological advancement and intensifying international 

competition, requiring an increasingly knowledgeable workforce and engaged citizenry. 

There is a well-documented general correlation between the degree or certificate a person 

gains and the income he or she earns-between a state's educational attainment and its per 

capita incomc. Higher education is among the state programs generating the highest 

return in terms of job creation, economic growth, and ultimately tax revenues. 

With great national universities, a higher education system distinguished by both its 

quality and diversity, and a vibrant knowledge-based economy, Virginia has a unique 

opportunity to show the way to a new era of American leadership in advanced education, 

ground-breaking research, and economic growth. Our country's security, our state's 

prosperity, and our citizens' opportunity all depend on a sustained commitment to higher 

education excellence and access. 

During the first decade of this century. Virginia's state support for public colleges and 

universities was cut nearly in half on a per-student, constant-dollar basis. The result was 

an unprecedented cost shift to students and their families and a potential threat to quality 

and access. Tuition has nearly doubled in the past decade. Colleges and universities 

must continue to find ways to reduce operating costs and focus on the disciplines that 

lead to the high paying jobs of the future. Greater efficicncies and more productivity in 

the state system must be found. 

Therc is a pressing need for the Commonwealth to establish a long-term policy of reform, 

innovation and investment that will ensure instructional excellence, create affordable 

pathways to college degree attainment for many thousands more Virginians, prepare our 

citizens for employment in the high-income, high-demand fields of the new economy. 

foster socio-economically important research and development, and ensure affordable 

access to appropriate post-secondary education, training, and re-training for all 

Virginians. 

Governor's Commission on Higher Education Reform, Innovation and Investment 

Accordingly. by virtue of the authority vested in me as Governor under Article V of the 

Constitution of Virginia and under the laws of the Commonwealth, including but not 

limited to Section 2.2-134 of the Code of Virginia, and subject always to my continuing 

and ultimate authority and responsibility to act in such matters, I hereby establish the 

Governor's Commission on Highcr Education Rcform, Innovation and Investment 

("Commission"). 

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The Commission shall consist of up to 30 members appointed by the Governor and 

serving at his pleasure. The Governor shall designate a Chairman and one or more ViceChairmen from among the members. The Commission shall include the Secretary of 

Education, the Secretary of Technology, the Secretary of Finance or designate, and the 

Vice-Chairman of the Council on Virginia's Future and other state leaders as determincd 

by the Governor. The Lieutenant Governor, Secretary of Commerce and Trade, and 

Senior Economic Advisor shall serve as ex officio members. 

The Commission shall consider the current state of public and private higher education in 

Virginia and the best practices in other states and countries, and shall make findings and 

recommendations for addressing the following priorities: 

Preserving and enhancing the instructional excellence of Virginia's leading 

universities and of the higher education system as a whole; 

Increasing significantly the percentage of college-age Virginians enrolling in 

institutions of higher education and attaining degrees; 

Attracting and preparing young people for the STEM (science, technology, 

engineering, and math) areas and other disciplines (e.g., healthcare and advanced 

manufacturing) where skill shortages now exist and/or unmct demand is 

anticipated; 

Forging new effective public-private partnerships and regional strategies for 

business recruitment, workforce preparation, and university-based research; 

Making Virginia a national leader in providing higher education opportunities to 

military personnel and veterans; 

Crafting a sustainable higher education funding model that will systematically 

move Virginia toward higher levels of educational attainment and economic 

competitiveness over the next decade-and-a-half; 

Developing innovative ways to deliver quality instruction, cost-saving reform 

strategies, and affordable new pathways to degree attainment for capable and 

motivated Virginians regardless of income or background; 

Evaluating strategies to reduce costs through additional college placement testing 

and accelerated degree completion; and 

Creating effective workforce development programs through expanded use of the 

Community College System in coordination with the Commission on Economic 

Development and Job Creation. 

The Commission's report shall set forth a comprehensive strategy for increased 

educational attainment, skills developmcnt, and lifelong learning that will equip 

Virginians to succeed at the highest levels of global economic competition. The strategy 

shall include a renewed commitment to public-private collaboration, predictable state 

operational support, and managerial flexibility at the institutionalleve!' The strategy 

shall simultaneously challenge, encourage, and empower the institutions to attract 

resources, emphasize STEM and other priority disciplines, while deemphasizing lowdemand programs, and using new technology and pedagogy to replace outmoded 

methods of service delivery with cost-effective instructional programming. The strategy 

shall embrace the full array of Virginia's higher education assets-public and private, for68 
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profit and not-for-profit, residential and non-residential, physical and virtual-for the 

purpose of ensuring that all Virginians have affordable access to appropriate postsecondary education, training, and re-training opportunities. 

The Commission shall accomplish its work through committees appointed by the 

Chairman and corresponding to the following three major objectives, together with such 

additional committees, subcommittees and working groups as the Chairman may 

establish: 

(I) Increased Degree Attainment, Financial Aid and Workforce Training 

• Plan for achicving the goal of 100,000 cumulative additional associate and 

bachelor's degrees over the next IS years; 

Concentration of increased educational attainment in the STEM areas and other 

high-demand and high-income fields; 

Plan to support increased enrollment of Virginia students; 

Suitable financial aid for low and middle income families; 

Alignment of policies, resources and incentives to promotc study in areas where 

shortages of skilled workers exist or are anticipated; 

Provision of enhanced higher education opportunities to military personnel and 

veterans; and 

• Coordination with the Job Creation Officer, Office of Commcrce and Trade, and 

Governor's Economic Development and Job Creation Commission on workforce 

development initiatives and recommendations. 

(2) Implement Innovation and Cost Containment 

Model for higher education funding and service delivery that cmbodies a longterm commitment to high-quality instruction and affordable access, and that 

incorporates the degree attainment goals set out in (I) above; 

Rigorous cost-benefit analysis to identify and phase out low-demand programs 

and reduce/prevent wasteful central office administrative spending and eliminate 

redundancy within and across higher educational institutions; 

• Optimal development and utilization of private and federal resources; 

Increased collaboration among high schools, community colleges, four-year 

institutions, and private providers to reduce the time and cost of obtaining a 

college degrec; 

• Use of new technology for delivcring instruction, including course re-design for 

online learning, use of electronic instructional materials in lieu of textbooks, etc.; 

and 

Analysis of the principles and objectives ofthe Higher Education Restructuring 

Act of2005, and enhancements thereto. 

(3) Regional Strategies/Partnerships for Research and Economic Development 

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Plan to dramatically increase the leveraging of private and federal research 

funding by Virginia's colleges and universities; 

Coordination with development of a Virginia Energy Institute and other energyrelated research initiatives; 

Coordination with the Office of Commerce and Trade to develop region-specific 

strategies and partnerships through which public and private colleges and 

community colleges participate actively in economic development, workforce 

training, development of research parks, and related activities; and 

Identification of funding streams through which financial incentives for regional 

collaboration and public-private partnerships may be introduced. 

The Commission shall submit to the Governor its interim findings and recommendations 

on matters potentially impacting the development of the Executive Budget no later than 

September 30, 20 I O. The Commission shall submit to the Governor an interim report of 

its activities, findings and recommendations no later than November 30, 20 I O. The 

interim report shall focus primarily on increasing degree attainment, concentrating 

increased educational attainment in STEM areas and other high-demand and high-income 

fields, a model for higher education funding, and partnerships through which public and 

private colleges and community colleges participate actively in economic development 

and workforce training. The Commission shall continue to meet and make 

recommendations on additional stated objectives throughout calendar year 20 II. 

Staff support as necessary for the conduct ofthc Commission's work during the term of 

its existence shall be provided by the Office of the Governor, the Office of the Secretary 

of Education, the Offices of the other Governor's Secretaries represented on the 

Commission, the Department of Planning and Budget, the Council on Virginia's Future, 

and such other agencies as the Governor may designate. All executive branch agencies 

shall cooperate fully with the Commission and render such assistance as may be 

requested by it. 

An estimated 2,000 hours of staff time will be required to support the Commission. Such 

funding as is necessary for the term of the Commission's existence shall be provided from 

sources, including both private and appropriated funds, contributed or appropriated for 

purposes related to the work of the Commission, as authorized by Section 2.2-135(B) of 

the Code a/Virginia. Direct expenditures for the Commission's work are estimated to be 

$15,000, exclusive of staff support. 

Effective Date of the Executive Order 

This Executive Order shall be effective upon its signing and shall remain in full force and 

effect until March 26, 2011 unless amended or rescinded by further executive order. 

Given under my hand and under the Seal of the Commonwealth of Virginia this 26th day 

of March, 20 

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Attachment B - Degree Attainment, Financial Aid and Workforce Training 

Committee Interim Report 

Committee Background 

The Degree Attainment, Financial Aid and Workforce Training Committee is chaired by 

Bill Barr and co-chaired by Leslie Peterson. It's members include: President John 

Broderick, Dr. Bill Bosher, Delegate Kirk Cox, JoAnn DiGennaro, President Mark 

Dreyfus, Senator Edd Houck, President Robert Lindgren, President Linwood Rose, 

Prcsidcnt Carlyle Ramsey and Senator Walter Stosch. 

As outlined in its charge, the Degree Attainment Committee's goals are to: (I) develop a 

plan for achieving the goal of 100,000 cumulative additional associatcs and bachclor's 

degrees over the next IS years; (2) increase education attainment in the STEM areas and 

other high-demand and high-income fields; (3) support increascd enrollmcnt of Virginia 

students; (4) align policies, resources and incentives to promote study in areas where 

shortages of skilled workers exist or are anticipated; (5) support financial aid for low and 

middle income families; and (6) enhance higher education opportunities to military 

personnel and veterans. 

During this calendar year, the Committee primarily focused on the first four goals as 

requested by the Policy Officc. Continuing in 2011, the Committee will address the last 

two goals. 

Committee Activity: The Degree Attainment, Financial Aid and Workforce Training 

Committee held two half day meetings in addition to the introductory meeting on July 12 

and the joint meeting with the Innovation and Cost Containment Committee on October 

12. 

July 22: The first meeting was held at the UV ANT Center in Richmond. The 

committee heard presentations from SCHEV staff on Virginia student demographics and 

enrollment and degree attainment patterns in the public institutions, including data 

regarding STEM degree production. The committee also received a presentation from 

Robert Lindgren, president of Randolph-Macon College, on the capacity of Virginia's 

private not-for-profit institutions to contribute to the degree production and STEM degree 

goals. The committee discussed the initial goal matrix and set priorities for its work. 

August 31: The committee held its second mecting at Hampton University. 

Linda Wallinger of Virginia Department of Education ("V DOE") delivered a presentation 

on STEM and K-12 initiatives, both in Virginia and the nation. VDOE is participating in 

the Achieve American Diploma Project (ADP) to align curriculums of K-12 with the 

post-secondary system in addition to designing Virginia's College and Career Readiness 

Initaitive in partnership with the SCHEV and the VCCS. The initiative is designed to (I) 

ensure that college-ready learning standards in reading, writing, and mathematics are 

emphasized in every Virginia classroom, and (2) increase students' preparation for 

college and the work force before leaving high school. Scores on the Science and Math 

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SOL's have steadily increased over the last 8 years, and on the National Assessment of 

Educational Progress (NAEP), Virginia students scored higher in mathematics than 

students nationwide in 2009. In support of improved STEM education, VDOE is also 

involved in teacher professional development initiatives and eollaborations with the 

higher education and business communities. 

Also at the August 31 meeting, Mark Dreyfus, ECPI President and committee 

member, described his institution's programs, which are developed in accordance with 

workforce needs and structured to expedite degree attainment. Christine Chmura of 

Chmura Economics & Analytics presented job demand forecasting which demonstrated 

that Virginia will need 100,000 additional STEM workers over the next ten years, a 

growth which is due to expansion in the number of STEM occupations. The presentation 

underscored the problem that students' lack of information about demand occupations 

contributes to misalignment of degrees produced by higher education and workforce 

needs. Students and displaced workers should have better information to identify 

demand occupations to enable them to make better decisions about what degrees to 

pursue. Industry leaders than engaged in a panel discussion moderated by Dr. Bob Leber, 

the Senior Advisor to the Governor for Workforce Development, regarding job demand 

reality. The panelists' discllssion stressed that some of Virginia's most important 

enterprises are experiencing shortages of both high-skill (e.g., engineers) and low-skill 

(e.g., technicians) STEM workers. 

Dr. Pinelli, the University Affairs Officer for NASA, gave a presentation on the 

value of STEM education and prcparation, highlighting the limitations and weaknesses of 

the STEM pipeline. Glenn DuBois, Chancellor oCthe Virginia Community College 

System, presented the System's recent initiatives which are helping Virginians obtain 

credentials and jobs. Ideas that have successfully increased degree attainment for 

community college students are the Two-Year College Transfer Grant, Middle College, 

and career coaches (community college employees located in Virginia's high schools that 

provide individual services to students). Dr. DuBois also announced that Virginia is one 

of six states selected to participate in the Lumina Foundation's Project Win-Win grant, 

which will identify former students who fell short of an associate degree and re-enroll 

them to complete an associates degree. Finally, Dr. Leanna Blevins of The New College 

Institute made a presentation regarding the role of Higher Education Centers in increasing 

access and innovation in rural Virginia. The centers can contribute to the goal of 100,000 

degrees by enrolling more students through technology and leveraging public-private 

partnerships to enhance funding and programs. 

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Attachment C - Innovation and Cost Containment Committee Interim Report 

Committee Background 

The Innovation and Cost Containment ("ICC") Committee is chaired by Todd 

Stottlemyer and co-chaired by Dr. Pam Moran. Its members include: Delegate Rosalyn 

Dance, Chancellor Jerry Falwell, Dr. Rachel Fowlkes, Heywood Fralin, Paul Nardo, 

Senator Steve Newman, Senator Tommy Norment, Delegate Beverly Sherwood, 

President Paul Trible, and John "Dubby" Wynne. 

As outlined in its charge, the ICC Committee's goals are to: (I) develop a model for 

higher education funding and service delivery that embodies a long-term commitment to 

high-quality instruction and aftordable access, and that incorporates the Commission's 

degree attainment goals; (2) conduct a rigorous cost-benefit analysis to identify and phase 

out low-demand programs and reduce/prevent wasteful central office administrative 

spending and eliminate redundancy within and across higher educational institutions; (3) 

review utilization of private and federal resources and recommend enhancements; (4) 

identify current partnerships and strategies to strengthen collaboration among high 

schools, community colleges, four-year institutions, and private providers to reduce the 

time and cost of obtaining a college degree; (5) identify models for using new technology 

for delivering instruction, including course re-design for online learning, use of electronic 

instructional materials in lieu of textbooks; and (6) analyze the principles and objectives 

of the Higher Education Restructuring Act of2005, and enhancements thereto. 

Committee Activity 

The ICC Committee met five times: two brief meetings following the Commission's July 

12 and October 12 meetings, the latter held jointly with thc Degree Attainment 

Committee; and three half-day meetings at locations around the state. 

July 12. Convening immediately after the Commission's kick-off meeting, the 

ICC Committee spent its first meeting discussing potential meeting dates and strategies 

for addressing its charges/goals. The strategy that was developed centered on seeking 

information on examples, models, and resources that would assist members in 

understanding activities that were currently "working" (and could be built 

upon/shared/leveraged); held the potential to "work;" or were "not working." Potential 

overlap with the work of the Degree Attainment Committee was noted in regard to some 

issues; a strict focus on the committee's goals was urged. Prioritization and synthesis of 

the committee's charges/goals were also suggested, leading Mr. Stottlemyer to offer to 

draft a working outline of goals and priorities. 

July 29. The Innovation and Cost Containment Committee held the first of what 

Chairman Stottlemyer would later call its three "discovery meetings" at the CapitoL The 

agenda included presentations on: (l) the Restructuring Act (Restructured Higher 

Education Financial and Administrative Operations Act of 2005) by staff from the State 

Council of Higher Education (academic measures) and the Department of Planning and 

Budget (administrative measures); and (2) the perspectives of a public-university 

president (Mr. Trible) on restructuring, productivity, and resource optimization. 

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Much of thc discussion centered on strategies for using the goals and processes of 

the Restructuring Act to address productivity issues (e.g., fewer but more focused and 

meaningful goals; more institutional autonomy and less state "micro-management" in 

pursuing and achieving the goals; more significant rewards for good performance and 

more significant disincentives for poor performance). The fostering on an 

"entrepreneurial infrastructure" in higher education was suggested. Commission chair 

Tom Farrell suggested that more students could be served - and perhaps more could 

complete their degrees in less time - through more and better use of campus 

facilities/resources. President Trible highlighted the importance of internships, study 

abroad, and other off-campus learning experiences during the summer break, as well as 

the need of many students to work part-time jobs to fund their education; he stressed the 

roles and contributions of liberal arts institutions and face-to-face interaction between 

students and faculty. 

August 23. Another committee meeting was held at George Mason University. 

The agenda centered on the innovative use of technology to improve student outcomes 

and to reduce costs. Presenters made clear that technology can be a strategic means of 

hastening innovation and decision-making, of facilitating cross-cultural interaction and 

collaboration while reducing travel costs, and of accommodating the changing needs, 

demands, and learning methodologies of to day's global students (and faculty and 

researchers). 

Under the "innovative use of technology" rubric: 

• Online learning was discussed as a means to enhance student access and 

options and to improve student and institutional outcomes (better learning; 

more graduates), with participation by representatives from Western 

Governor's University, University of Phoenix, and Liberty University. 

• Course-redesign initiatives, such as those spearheaded by the National 

Center for Academic Transformation (e.g. the Math Emporium at Virginia 

Tech) were discussed as proven examples of strategies for improving 

student outcomes while serving more students, often at lower costs. 

• New tools for learning, such as electronic textbooks, course management 

systems, collaborative tools, social media tools, and cloud computing were 

also discussed. 

Discussion centered on the types of "organizing structures" needed to facilitate such 

efforts, particularly at large scales. Presenters noted that incentives often foster 

innovation and overcome resistance to change and that budget challenges are currently 

limiting technological innovation in higher education. 

The committee also reviewed and discussed goals and strategies of the Virginia 

Community College System's Reengineering Task Force and its connections to and 

overlap with the Commission's goals. The discussion centered on issues of adequacyadequacy of high-school-students' readiness for college; adequacy of lower-division 

course availability for transfer students; adequacy of funding for the community college 

system to meet current and projected enrollment demand and the Commission's degreeattainment goals; and adequacy of colleges' and universities' declining percentages of 

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full-time faculty (which one member pointed to as evidence that Virginia's public higher 

education system is "broken"). 

September 17. The third meeting took place on September 17 at the University 

of Virginia. The agenda centered primarily on cost containment strategies and on 

partnerships between PK-12 and higher education, but also included innovative STEMrelated initiatives (e.g., the Pathways to the Baccalaureate program and SySTEMic 

Solutions at NVCC, and the Virginia Initiative for Science Teaching and Achievement at 

GMU). 

Minnis Ridenour, Senior Fellow for Resource Development at Virginia Tech, 

gave a presentation on cost containment and savings strategies in higher education based 

on a research paper by Kathryn Webb Farley, Boris Bruk and Emily Swenson Brock, 

Virginia Tech graduate students, "Strategies for Achieving Productivity and Efliciencies 

in Higher Education."Strategies were discussed for reducing costs and increasing savings 

and efficiencies, with discussion of examples and best practices from across Virginia and 

the nation in the areas of energy management, facilities and infrastructure, business 

services and processes, human capital and compensation, and academic programs. 

Presenters recommended the use of incentives and multiple strategies, each tailored for 

specific types of institutions. 

Examples of - and strategies for incrcasing/improving - opportunities for high 

school students in Virginia to acquire pre-college credits (such as advanced placement 

and dual enrollment) were also highlighted. The recent significant growth in the 

Commonwealth's dual enrollment opportunities was noted as a positive trend, and the 

successes of such efforts in rural Halifax County, particularly for minority students, were 

discussed. With the expanding availability of opportunities to acquire credits and to 

transfer them across institutions, students' ability craft programs of study to fit their 

interests and needs (financial, scheduling, etc.) is improving; however, when students 

transfer from two-year institutions to four-year institutions without first completing the 

associate degree which is currently true of most transfer students, issues can arise in 

terms of which and how credits are counted, what status the student receives (sophomore 

or junior), and how many credits/semesters (and tuition dollars) will be needed to 

graduate. 

October 12. Following the full Commission's meeting on October 12, the ICC 

Committee met jointly with the Degree Attainment Committee to discuss matters of 

potential overlap, namely PK-20 strategies for college readiness and access. The 

"pipeline" the supply of college-ready students - was identified as one of the most 

significant issues facing the Commission and the Commonwealth. The need for a 

cohesive and systemic response to pipeline issues was cited as a necessary means to 

move beyond the current "random" distribution of successful efforts across the state. 

Members of the two committees debated means of addressing "readiness" within the 

parameters of the Commission's work (i.e., how to do so without overreaching its charge 

from Gov. McDonnell and its foci). The discussion continued beyond the time allotted 

and continued collaboration between the committees was agreed upon by the chairs. 

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Attachment D - Regional Strategies/Partnerships for Research and Economic 

Development Committee Interim Report 

Committee Background 

The Regional Strategies/Partnerships for Research and Economic Development 

Committee is chaired by Raj Narasimhan and co-chaired by Tom Loehr. Members of this 

committee include Jacob Downer, President William Harvey, Dr. Bob Holsworth, 

Delegate Scott Lingamfelter, Dr. Mirta Martin, Gil Minor, Delegate Tom Rust, President 

Charles Steger, Robin Sullenberger, Senator William Wampler and Charlie Whitaker. 

As outlined in its charge, the Committee's goals are to: (I) plan to dramatically increase 

the leveraging of private and federal research funding by Virginia's colleges and 

universities; (2) identify funding streams through which financial incentives for regional 

collaboration and public-private partnerships may be introduced; (3) coordinate with the 

development of a Virginia Energy Institute and other energy-related research initiatives; 

and (4) coordinate with the Office of the Secretary of Commerce and Trade to develop 

region-specific strategies and partnerships through which public and private colleges and 

community colleges participate actively in economic development, workforce training, 

development of research parks, and related activities. 

During this calendar year, the Committee focused on the first two goals including 

leveraging private and federal research dollars and financial incentives for regional 

collaboration as requested by the Policy Office. Continuing in 20 II, the Committee will 

address the second two goals. 

Committee Activity 

The Regional Strategies/Partnership Committee met four times following its introductory 

briefing on July 12, during which committee members introduced themselves, reviewed 

their charter, and explored subsequent meeting dates. 

August 2: The Committee held its first full meeting at the Capitol. Following a 

review of Executive Order 9 and the Committee's priorities, members received briefings 

on programs to stimulate academic research and tools to measure research-related 

outcomes. Throughout its work, the Committee wished to understand and align with, as 

appropriate, research-related activities and recommendations of other gubernatorial 

commissions. As such, Carrie Cantrell, Deputy Secretary of Commerce and Trade, 

reported on research-related incentives examined by the Governor's Commission on 

Economic Development and Job Creation. 

Other important briefings included the Virginia Tobacco Indemnification and 

Community Revitalization Commission's $100 million research and development 

investment program; the Restructuring Act of 2005, particularly addressing goals and 

outcomes related to economic development and externally-funded research; and research 

and development tax incentives at the federal level, in Virginia, and in other states. 

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August 16: The committee next met at Virginia Tech's Corporate Research 

Center in Blacksburg. Briefings focused on leveraging R&D through federal, state, and 

private resources, factors impacting the innovation ecosystem and innovation, and models 

for regional collaboration and public private partnerships. Dr. Charles Steger, President 

of Virginia Tech, introduced current and potential research strengths at Virginia Tech, 

public-private partncrships, and challenges and potential solutions to enhancing 

university-based research. 

Virginia Tech's Corporate Research Center and KnowledgeWorks, a full servicc 

business acceleration center, were introduced, along with TECHLAB, a Corporate 

Research Center tenant and Virginia Tech spin-out. Subsequent briefings addressed 

intellectual property; the mission, goals, governancc, and IP policy of the Commonwealth 

Center for Advanced Manufacturing ("CCAM"), a research facility founded by Rolls 

Royce, the University of Virginia, and Virginia Tech; and federal and regional research 

strategies. 

Ann Loomis, Director of Federal Public Policy for Dominion Power, discussed 

challenges and opportunities in securing federal research funding, particularly through 

the appropriations process. She discussed the importance of partnerships that include 

other states and entities other than universities in order to broaden congressional appeal. 

Formal presentations concluded with a briefing on the Institute of Advanced 

Research and Development (lALR) by Ben Davcnport, board member and Chairman, 

First Piedmont Corporation/Davenport Energy, and by Karl Stauber, President and CEO 

of the Danville Regional Foundation. They discussed the importance of degree attainment 

and ensuring that economic benefits occur in regions of Virginia without a major rescarch 

institution. 

September 8: The committee held its third meeting at James Madison University 

in Harrisonburg; briefings and discussion focused on academic research leading to 

commercialization oflP, company andjob creation, and R&D tax incentives. Dr. 

Linwood Rose, President of JMU and a member of the Higher Education Commission, 

welcomed the Committee. 

Mark Crowell, the University of Virginia's Executive Director and Associate 

Vice President for Innovation Partnerships and Commercialization, discussed the 

innovation ecosystem at the University of Virginia, at other U.S. universities and at 

Research Triangle Park (RTP). He addressed key factors in RTP's success, including 

alignment of university research excellence with industry clusters, sustained state and 

academic commitments, and an innovation ecosystem in the university and business 

communities. 

John Backus, Managing Partner with New Atlantic Ventures, a venture capital 

company based in Virginia, examined challenges and suggested solutions associated with 

commercializing academic R&D. Mr. Backus' perspective was suggested by Jeannemarie 

Davis, Director of the Virginia Liaison Offiee in Washington, D.C. 

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Tom Weithman, Vice President Entrepreneurship and Investment Services for the 

Center for Innovative Technology (CIT), discussed Virginia's low level of seed and early 

state capital compared to peer states. He introduced CIT's GAP Funds, a family of seedstage, near-equity convertible debt investment funds designed to transfer and 

commercialize IP, form companies, and create financial as well as social wealth and 

benefits. The GAP Funds' portfolio includes companies created from Virginia's 

university-based research; the program invests in technologies across the spectrum of 

science and technology sectors. 

Pete lobse, CIT President and CEO, spoke about the Commonwealth's 

comprehensive R&D strategic roadmap. The Innovation and Entrepreneurship 

Investment Authority has the duty of creating this roadmap, which will help guide 

universities in establishing research and development priorities and will include common 

themes and recommendations for alignment of research areas. 

Paul Timmreck spoke on behalf of the Virginia Business Higher Education 

Council's "Grow by Degrees" campaign. He provided a historical perspective on research 

funding and economic development in Virginia and suggested issues that the Committee 

consider in order to maximize the Commonwealth's job creation and other rcsearchrelated economic benefits. 

October 12: In coordination with the full Commission meeting in Richmond, the 

committee's fourth meeting was held. At this meeting, the Chair invited discussion on 

priorities, concerns, and next steps. In addition, Deputy Secretary of Commerce and 

Trade Cantrell briefed the Committee on the lob Commission's research-related 

recommendations. 

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Attachment E - Higher Education Commission Members 

Chairman - Thomas F. Farrell, II, Chairman, President and CEO, Dominion Resources, 

Inc. and Former Rector of the University of Virginia 

Vice Chairman-Delegate Kirk Cox, Colonial Heights 

Members 

William Barr, Former U.S. Attorney General 

Dr. Bill Bosher, Executive Director, Commonwealth Policy Institute and 

Distinguished Professor of Public Policy and Education, Virginia Commonwealth 

University 

John Broderick, President, Old Dominion University 

Ric Brown, Secretary of Finance 

Delegate Rosalyn Dance, Petersburg 

JoAnn DiGennaro, President, Center for Excellence in Education 

Jacob Downer, second year student at Dabney S. Lancaster Community College 

Mark Dreyfus, President and CEO, ECPl Colleges 

Jim Duffy, Secretary of Technology 

• Jerry Falwell, Jr., Chancellor, Liberty University 

Heywood Fralin, CEO of Medical Facilities of America, Inc. 

Dr. Rachel Fowlkes, Executive Director, Southwest Virginia Higher Education 

Center 

Dr. William Harvey, President, Hampton University 

Dr. Bob Holsworth, Founder and President, Virginia Tomorrow 

Senator Edd Houck, Spotsylvania 

Dr. Robert Lindgren, President, Randolph-Macon College 

Delegate Scott Lingamfelter, Prince William 

Thomas Loehr, Executive Vice President - Crosspointe Operations, Rolls Royce 

Dr. Mirta Martin, Dean, School of Business and Professor of Management, 

Virginia State University 

G. Gilmer Minor, Chairman, Owens and Minor, Inc. 

Dr. Pamela Moran, Superintendent, Albemarle County Public Schools 

Raj Narasimhan, Site Director, Micron Technology Virginia 

Paul Nardo, Chief of Staff, Speaker William J. Howell 

Senator Steve Newman, Lynchburg 

Senator Tommy Norment, Williamsburg 

Leslie Peterson, Director of Operations, Chmura Economics & Analytics 

Dr. B. Carlyle Ramsey, President, Danville Community College 

Gerard Robinson, Secretary of Education 

Dr. Linwood Rose, President, James Madison University 

Delegate Tom Rust, Herndon 

Delegate Beverly Sherwood 

Dr. Charles Steger, President, Virginia Tech 

Senator Walter Stosch, Glen Allen 

Todd Stottlemyer, Executive Vice-President, Inova Health System 

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Robin Sullenberger, CEO, Shenandoah Valley Partnership 

Paul Trible, Jr., President, Christopher Newport University 

• Senator William Wampler, Bristol 

Charlie Whitaker, Senior VP of Human Resources and Compliance, Altria Client 

Services, Inc 

• John O. "Dubby" Wynne, Vice Chairman of the Council on Virginia's Future 

Ex Officio Members 

Bill Bolling, Lieutenant Governor 

Jim Chcng, Secretary of Commerce and Tradc 

Bob Sledd, Senior Economic Advisor 

Commission Staff 

Laura Fornash, Deputy Secretary of Education 

Melissa Luchau, Deputy Director of Policy 

Emily Webb, Special Assistant to the Secretary of Education 

Committee Staff 

Degree Attainment. Financial Aid and Workforce Training Committee-Beverly 

Covington. Policy Analyst and Dr. Joseph DeFilippo, Academic Affairs and Planning 

Director, State Council of Higher Education for Virginia 

Innovation and Cost Containment Committee-Dr. Alan Edwards, Policy Studies Director, 

State Council of Higher Education for Virginia 

Regional Strategies/Partnerships for Research and Economic Development CommitteePeter Blake, Vice Chancellor for Workforce Development, Virginia Community College 

System and Nancy Vorona, Vice President. Research Investment, Center for Innovative 

Technology 

Special thanks to Tod Massa. Policy Research & Data Warehousing Director, State 

Council of Higher Education for Virginia. who provided support to all three committees 

and data for the interim report. 

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GOVERNOR'S RURAL JOBS COUNCIL 

REPORT TO THE GOVERNOR 

June 12,2013 

http://www.governor.virginia.gov/RuraiJobsCouncil/ 
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June 6, 2013 

Dear Governor McDonnell, 

I am pleased to submit the final report of the Governor's Rural Jobs Council. Over the past three 

and a half years we have worked hard to create jobs in Virginia, We have experienced 

tremendous success, closing 1,167 economic development deals, creating 171,300 net new jobs 

and reducing our state's unemployment rate to 5.2%, which is well below regional and national 

averages. 

These positive economic development results have been one of the major accomplishments of 

the McDonnell/Boiling administration, and our Commonwealth is stronger today because of 

these successes. Despite this progress, we know there is still important work to accomplish 

through the remainder of the term. The Rural Jobs Council's efforts over the last several months 

are further indication that we intend to sprint to the finish. 

The recommendations contained in the report are focused on strategies to improve K-12 

education and the workforce pipeline; develop a comprehensive economic and infrastructure 

plan for rural Virginia; and development policies that encourage and expand Virginia'S 

entrepreneurial foundation. 

Throughout the process, members of the Council researched, developed and exchanged a wide 

array of innovative ideas, including the Rural Virginia Horseshoe Initiative, a promising 

community college based initiative that has recently emerged to drive job creation in Rural 

Virginia through full-time career coaches. The Rural Virginia Horseshoe Initiative is an example 

of the power of public-private partnerships to drive job creation and workforce development. 

I want to thank the members of the Council who worked hard to help develop these 

recommendations. They include legislators and leaders in business, manufacturing, agriculture 

and healthcare. I also want to reiterate my thanks to you for your leadership in providing us with 

this forum in which to discuss these kinds of important issues. I look forward to seeing what 

results come from these recommendations in the future. 

Sincerely, 

LIEUTENANT GOVERNOR BILL BOLLING 

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Members of the Governor's Rural Jobs Council 

Chair: Lieutenant Governor Bill Bolling 

Vice Chairs: Secretary Jim Cheng 

Secretary Todd Haymore 

Members: Shannon Blevins, Director of Economic Development, UVA at Wise, Wise 

County 

David Brash, Senior Vice President of Business Development and Rural Strategy, 

Wellmont Health System, Lebanon 

Delegatc Kathy Byron, Lynchburg 

Elizabeth Crowther, President, Rappahannock Community College, Saluda 

Jeff Edwards, CEO, Southside Electric Cooperative, Crewe 

Katie Frazier, President, Virginia Agribusiness Council, Richmond 

Timothy Heydon, CEO, Shenandoah Growers, Harrisonburg 

Rebecca Hough, Co-Founder and CEO, Evatran, Wytheville 

Thomas Hudson, President, Virginia Coal Association, Richmond 

Delegate Danny Marshall, Danville 

Ned Massee, Chairman, Virginia Chamber of Commerce, Richmond 

Delegate Don Merricks, Pittsylvania County 

Phil Miskovic, Councilman, Crewe 

Martha Moore, Vice President for Government Affairs, Virginia Farm Bureau 

Federation, Richmond 

Delegate Israel O'Quinn, Abingdon 

Bill Parr, Parr Properties, Cape Charles 

Senator Phil Puckett, Tazewell 

Delegate Margaret Ransone, Kinsale 

Nicole Riley, State Director, National Federation oflndependent Business, 

Richmond 

Michael Robinson, Superintendent, Smyth County Public Schools, Smyth County 

Senator Frank Ruff, Clarksville 

Dr. Nettie Simon-Owens, Director of Workforce Serviccs, Southern Virginia 

Higher Education Center, South Boston 

Brett Vassey, President and CEO, Virginia Manufacturers Association, Richmond 

Senator William Wampler, Executive Director, New College Institute, 

Martinsville 

Delegate Onzlee Ware, Roanoke 

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Staff Director 

Ibbie Hedrick 

Deputy Chief of Staff 

Staff to the Governor's Rural Jobs Council 

Office of Lieutenant Governor Bolling 

Policy Director 

Generra Peck 

Assistant Director of Legislative Affairs 

Office of Governor Bob McDonnell 

Infrastructure Advisor 

Liz Povar 

Vice President of Business Expansion 

Virginia Economic Development Partnership 

Infrastructure Advisor 

Bill Shelton 

Director 

Department of Housing and Community Development 

WorkforceIK12 Advisor 

Elizabeth Creamer 

Director of Education and Workforce Development 

Office of Governor Bob McDonnell 

Entrepreneurship Advisor 

Chad Cole 

Policy Assistant 

Office of Governor Bob McDonnell 

Staff Assistant 

Micala MacRae 

Executive Assistant to Commerce and Trade 

Office of Governor Bob McDonnell 

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Governor's Rural Jobs Council Report Executive Summary 

Governor McDonnell issued Executive Order 57 on January 2, 2013, establishing the Rural Jobs 

Council. He named Lieutenant Governor Bolling, Virginia's Chief Jobs Creation Officer, as 

Chair of the Council. Secretary of Commerce and Trade Jim Cheng and Secretary of Agriculture 

and Forestry Todd Haymore were named as Co-Vice Chairs for the group. 

The Council's purpose was to ensure a continued focus on rural Virginia. Since the beginning of 

the term, the administration has been committed to jobs and economic development and rural 

development has been a key part of those efforts. This Council helped by continuing to look for 

ways to improve the business environment and quality of life and leave a legacy of dedication to 

rural Virginia that will benefit the Commonwealth for years to come. 

The membership of the Council consisted of legislators and leaders in the business, 

manufacturing, agriculture, and healthcare industries. The group's goal was to put forth 

recommendations to address the challenges to economic growth in rural Virginia. 

Since the Council began its work several months ago, members, staff and expert agency staff 

worked diligently to identify key initial recommendations that would be achievable in scope. 

The Council's key recommendations are fully detailed in individual sections of the report. They 

include: 

• Promoting regional capacity building 

• Improving health care outcomes 

• Supporting efforts to increase access to capital in rural areas 

• Expanding access to dual-enrollment, particularly in Science, Technology, Engineering, 

Mathematics, and Health (STEM-H) 

• Strengthening pipeline and credentials of rural STEM-H teachers 

• Sustaining and expanding use of annual Report Card on Workforce Development in 

Virginia 

Conducting public awareness campaign for middle skills jobs and the Career Readiness 

Certificate (CRC) 

Disseminating regional workforce solutions that address skills gap in key industry sectors 

• Guaranteeing that participants of Virginia's Career and Technical Education (erE) and 

Workforce Programs have opportunities to earn a work readiness credential 

Implementing "Rural Entrepreneurial Community" program for rural Virginia to promotc 

localities that have maintained healthy entrepreneurial climates 

• Developing regional strategies to promote cooperative efforts that foster entrepreneurship 

• Developing educational entrepreneurship package to include the selection of a site in 

rural Virginia for the future Governor's School for Entrepreneurship 

• Reviewing new technology applications for surface-influenced public well water 

treatment systems 

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Entrepreneurship 

The Entrepreneurship Subcommittee of the Governor's Rural Jobs Council considered many 

ways in which entrepreneurial activity and a culture of innovation could be encouraged in rural 

Virginia. There were four key areas in which the subcommittee determined policy 

recommendations were appropriate, including: (I) the implementation of a "Rural 

Entrepreneurial Community" program for rural Virginia to promote localities that have 

maintained healthy entrepreneurial climates, (2) the development of regional strategies to 

promote cooperative efforts that foster entrepreneurship, (3) the development of an educational 

entrepreneurship policy to include the inclusion of a site in rural Virginia for the future 

Governor's School for Entrepreneurship. and (4) specific short-term recommendations regarding 

the review of new technology applications for surface-influenced public well water treatment 

systems. The recommendations are outlined in the following action ideas along with further 

details on their implementation. 

Action Item #1: Rural Entrepreneurial Communities 

Problem: 

While many rural communities may identify themselves as having the eco-system critical for 

entrepreneurs to grow and flourish, there is no consistent measurement or designation that 

communities can strive to achieve in order to set them apart as an entrepreneurially focused 

community. 

Key Players: 

Government, Entrepreneurs, Corporations, Investors, Academic Institutions, Service Providers, 

NGOs & Foundations 

How it works: 

Implement a "Rural Entrepreneurial Community" program for Rural Virginia to promote 

communities with a vibrant entrepreneurial eeo-system. 

No secret formula exists for communities to transform themselves into a vibrant entrepreneurial 

hub. However, there are several strategies localities can implement to build the right eco-system 

for generating and sustaining successful entrepreneurial ventures. From providing robust 

internet access for residents and businesses within its borders to hosting Opportunity Summits to 

help citizens see business needs within their community, localities can make a positive impact on 

creating a culture of entrepreneurship. 

The Commonwealth may also encourage communities to take positive steps in boosting 

entrepreneurship support by developing an official recognition program - Partner Rural 

Entrepreneurship Community. Entrepreneurial Community Tool Kits provide a roadmap for 

communities and a series of workshops tailored to government officials and community leaders 

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motivated by sharing results of a business-friendly climate and provide helpful information for 

communities to use as they develop effective strategies that meet their needs. 

Highlights: 

Opportunity Summits expose the region's citizens to business necds within their communities. 

Do-It-Yourself Summit packages designed specifically for Institutions of Higher Education 

(IHE) within rural regions will provide a roadmap to promote entrepreneurship at a large-scale 

level. These summits serve promotional purposes for the universities, which will operate as the 

regional hubs for such events. 

Rural Economic Development Toolkit tailored for local leaders with limited human resources and 

ncwly-elected local officials. Elected officials in rural areas may not have had substantial 

exposure to successful economic development initiatives, and may have limited knowledge of 

the resources available at the state level. Often times in an effort to preservc longstanding local 

traditions and culture, rural communities fight against institutional changes resulting in economic 

disadvantage and stunting economic growth. The toolkit will acknowledge this tendency and 

provide differentiated resources for rural areas that require specific and targeted approaches to 

achieve desirable economic results. 

Economic Gardening Workshops provided through a partnership with a statewide association 

will highlight case studies of what can happen when a town, city, or county creates a businessfriendly climate that attracts and supports an entrepreneurial venture. These workshops would 

encourage government officials to appeal to entrepreneurs with their policies. 

Entrepreneurial Mentoring Programs strengthen existing businesses by supporting the "high 

school to work" program. Legislation in 2013 created this program to encourage high school 

students gaining real world experience 

Examples: 

Certified Entrepreneurial Communities 

North Carolina - http://www.prweb.comlreleases/2008fI0/prwebI516664.htm 

AdvantageWest Economic Development Group, a 23 county economic development 

organization established a rigorous five-step process known as the Certified Entrepreneurial 

Community program. It is designed to assist community leaders in creating a business friendly 

climate by improving access to capital for entrepreneurs and providing an exceptional support 

system. Haywood County, located in the mountains of Western North Carolina was the first 

locality awarded the designation in the fall of2008. This region of North Carolina has 

experienced a higher rate of entrepreneurial activity than the rest of the state. 

Rogers State University - http://www.rsll.edu/innovation/entrepreneur.asp 

Entrepreneurial Ready Community Certification Program was created by Rogers State 

University to recognize communities who provide support services to small businesses and local 

entrepreneurs. The program is based upon economic gardening principles pioneered by Chris 

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Gibbons in the City of Littleton, Colorado as they transfonned themselves into a vibrant 

entrepreneurial hub. 

Opportunity Summits 

http://www.empactsummit.com/about. php 

This Summit held at the US Chamber of Commerce, Capitol Hill, and White House included 

over 300 delegates. The mission is to spark conversations that facilitate relationship building in 

order to forge and strengthen bonds in both local and global entrepreneurship ecosystems thus 

making entrepreneurship a viable option. 

http://rockymountainentrepreneurialsum mit .com/ 

The Rocky Mountain Entrepreneurial Summit is hosted semi-annually in Denver, Colorado. This 

summit is dedicated toward spurring innovation, job creation, and a better quality oflife. The 

Summit seeks, encourages, supports, and catapults entrepreneurs in the Rocky Mountain Region. 

Tool Kits 

http://www.joe.org/joe/20020ctober/tt5.php 

Oklahoma Cooperative Extension provides economic development educations a toolkit targeting 

two categories: educational programming and technical assistance. The tools work best when 

used together however, they can be used independently and can significantly impact rural 

communities dedicated to the process of economic development. 

http://www.nisl.gov/ineap/upload/RI SmallBizToolkit-20 12-Web. pdf 

The National League of Cities offers toolkits to local leaders which provide guidance on 

constructive action local officials can take to foster an entrepreneurial environment. Common 

themes of leadership, communication and partnerships are themes found within this toolkit 

which is applicable to both large and small cities. 

Action Item #2: Regional Strategy to Grow Entrepreneurship 

Problem: 

Many rural localities, regions and institutions utilize a strategic planning process to chart a 

course for the future. Often these strategic plans do not consider the critical role of a robust 

entrepreneurial culture for a region's economic growth. 

Key Players: 

Government, Entrepreneurs, Business Leaders, Academic Institutions, Regional Planning 

Organizations, Engaged Citizens 

How it works: 

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In partnership with the "Rural Entrepreneurial Communities" recommendation, rural regions 

should consider the potential benefit from a regional entrepreneurship strategy. Regions should 

consider strategies to grow entrepreneurship through: 

I. Strategy Meetings 

Strategic planning groups should engage thought leaders early to determine the scope and 

size of such a planning effort. The organizational leadership should provide the 

framework and support, but not be the only source of content. 

2. Gap Analysis 

Each region or community has existing resources which make up the eco-system needed 

for entrepreneurial ventures to thrive. However. gaps in these resources will inevitably 

exist, especially in rural regions. A thorough gap analysis will provide a foundation for 

strategic planning and identify where the region should focus attention to fill existing 

gaps. 

3. Public Engagement 

Public input continues to be one of the most critical elements of a successful regional 

strategy. The strategic planning groups should be sure to engage the public in person and 

through electronic comment tools. 

4. Strategy ventures 

Leaders from regions who are seeking to learn from other successful models should 

dedieate time to visit a peer region to learn about their strategy. 

Examples: 

Blueprint for Entrepreneurial Growth and Economic Prosperity in Southwest Virginia 

Appalachian Prosperity Project - http://approiect.orglinitiatives/appalachian-ventures.htmI 

The Blueprint for Entrepreneurial Growth and Economic Prosperity is a regional strategy to 

grow entrepreneurship and innovation in southwest Virginia. It is a key focus of the Appalachian 

Prosperity Project, a collaborative initiative resulting from the work done in partnership between 

the University of Virginia, The University of Virginia's College at Wise and the Virginia 

Coalfield Coalition. Most importantly. the Entrepreneurship Blueprint is a strategy born of the 

region for the region and is flexible enough to adapt to the ever changing needs of a region. The 

strategy was developed with a broad stakeholder group of thought leaders who are committed to 

its success. 

Inter-city Visits linter-Region Visits 

Greater Richmond Chamber of Commerce --

www.grcc.comlView.aspx?page=events/list/intercity VISit 

Each year, the Greater Richmond Chamber of Commerce sponsors an exciting trip to a 

comparable region in the nation to exchange ideas and best practices. The InterCity visit (lCV) 

has become one of the GRCC's most sought after programs because it helps participants look at 

the Richmond region through new eyes. 

Rural communities could partner the ICV model with their strategic planning process to better 

inform and prepare stakeholder input. 

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Action Item #3: Educational Entrepreneurship Programs 

Problem: 

Virginia Governor's Schools provide skilled students the opportunity to participate in 

academically and artistically challenging programs beyond those offered in their home school 

districts. These schools serve more than 7,500 students in various parts of the state. 

Unfortunately, there is currently no program available for students to study entrepreneurship. 

Key Players: 

Governor's Office, Department of Education, Local Governments, Academic Institutions, 

Entrepreneurs, Corporations. 

How it Works: 

Entrepreneurship has grown at a rapid pace in recent years. In an increasingly globalized world, 

entrepreneurs with education and ambition have found opportunities to drive emerging markets 

with revolutionary products and services. But as businesses and individuals have gravitated 

towards the ever-expanding urban centers, rural areas have been slow to develop a culture of 

entrepreneurship. 

In recent years, the number of universities in the US that offer education and training in 

entrepreneurship has skyrocketed to roughly 1,600. Although Virginia, like several other states, 

has begun to see the effects of this cultural shift trickle down to K-12 education, the following 

arc recommended specific initiatives to expedite the adoption of early entrepreneurship 

education programs. 

Highlights: 

Inclusion of a rural Virginia site for the future location of the Governor's School for 

Entrepreneurship 

Virginia Governor's Schools provide skilled students the opportunity to participate in 

academically and artistically challenging programs beyond those offered in their home school 

districts. These schools serve more than 7.500 students in various parts of the state. 

Unfortunately. there is currently no program available for students to study entrepreneurship. 

The Subcommittee recommends selecting a site in rural Virginia as the location of the 

Governor's School for Entrepreneurship. This school. either a summer program or a full-year 

curriculum. could be modeled off of successful programs implemented in several other states. 

Endorsement o.fthe High School to Work Program 

During the 2013 legislative session, Governor McDonnell support legislation sponsored by 

Senator Dick Black and Delegate David Ramadan directing the Board of Education to develop 

guidelines for the establishment of High School to Work Partnerships between public high 

schools and local businesses to create apprenticeships, internships, and job shadow programs in a 

variety of trades and skilled positions. Programs like this one have been used successfully across 

the country to give job-seeking high school students a head start towards employment. For 

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students with ambitions of starting and running their own company, this training proves 

invaluable to their future. 

The subcommittee encourages the steps the Governor, Senator Black and Delegate Ramadan. 

and members of the General Assembly have taken to advance this initiative. 

Case Studies: 

Pennsylvania's School for Global Entrepreneurship (PSGE) 

PSGE was launched in 2001. The program runs through the existing Governor's school during 

the summer. It provides hands on exposure to entrepreneurship. After the state cut funds for the 

program, Lehigh University assumed responsibility for the program in 2009. 

http://www.iacocca-Iehigh.orgllacoccalpsge/ 

South Carolina Governor's School 

South Carolina started the Innovation, Technology and Entrepreneurship Among Middltl 

Schoolers (iTEAMS) program in partnership with Google. The program exposes young students 

to topics in computer science, app development, and cyber security. 

http://www.iacocca-Iehigh.orgllacocca/psge/ 

Kentucky's Governor's School for Entrepreneurs (GSE) 

Kentucky will be opening the GSE during 2013. This summer program provides students 

experience developing a business venture from the ground up. 

http://gse,kstc,com/ 

SBl248 (Black)/HB21 0 1 (Ramadan) High school to work partnerships 

Directs the Board of Education to develop guidelines for the establishment of High School to 

Work Partnerships between public high schools and local businesses to create apprenticeships, 

internships, and job shadow programs in a variety of trades and skilled labor positions. The bill 

also provides that local school boards may encourage the local school division's career and 

technical education administrator to work with the guidance counselor office of each public high 

school to establish such partnerships, 

http://lis.virginia.gov/cgi-bin/legp604.exe? 131 +sum+HB21 0 I 

Action Item #4: Expedited decisions on alternative surface-influenced public well water 

treatment systems 

Problem: 

The Virginia Department of Health is committed to protecting public health by ensuring all 

Virginians have access to an adequate supply of affordable, safe drinking water that meets state 

and federal standards. The Virginia Waterworks Regulations require any drinking well facility or 

distribution network that serves more than 25 persons a day, whether through multiple taps (i.e. 

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meters) or employees at a facility, is deemed a public drinking water system and must conform 

to all Commonwealth guidelines. This means the water purification level for e coli, viruses, 

HTC, Giardia lamblia cysts, and other harmful organisms and contaminants must be removed to 

the Commonwealth specified levels. Currently, the technology and filtration systems accepted 

for public water facilities are large and expensive-in some cases, starting around $250,000. 

This is cost prohibitive for the average small rural business that may employ more than 25 

persons working on site within a 24-hour day. 

The Virginia Department of Health is committed to periodic reviews of the Virginia Wastewater 

Regulations to ensure the best available water treatment technologies are permitted per the 

regulations. The Rural Jobs Council applauds VDH's commitment to continuous review of these 

regulations to ensure they reflect advancing and new technologies that produce safe and reliable 

drinking water at a lower cost to the operator. 

The Virginia Department of Health also reviews new technology applications on a case-by-case 

basis. The Rural Jobs Council recognizes that water treatment systems that are effective in one 

location may not be equally effective in another, and accordingly, approves ofVDH's efforts to 

review individual applications and work with operators to ensure that new systems will 

effectively uphold their commitment to public health and safety. 

Key Players: 

The Virginia Department of Health; Water Treatment System Operators; Water Quality 

Engineers 

How it Works: 

The Entrepreneurship Subcommittee of the Rural Jobs Council encourages VDH to continue to 

work with stakeholders and engineers during the regulatory revision process to allow for the use 

of new, reliable, and safe treatment technologies for surface-influenced well water to meet state 

and federal standards. During the revision process, the subcommittee recommends that VDH 

take into consideration ways in which the case-by-case review of alternative systems can safely 

be accelerated. 

The approval process for use of new technologies understandably requires diligent review and 

careful consideration before approval or denial. The subcommittee apprcciates the thoroughness 

with which VDH evaluates each application, often following up with engineers for further 

information or clarification before making final decisions. 

from a business-owner's perspective, delays in the approval process for alternative technologies 

can have signilicant budgeting implications. Specifically, when a startup operation meets the 

definition of a noncommunity water supply, the owner is required to install a system meeting 

VDH criteria to ensure water quality remains constant and safe. Property and business owners 

are therefore faced with the difficult decision of installing a large and expensive treatment 

system that complies with state regulations, pursuing less-expensive but also effective alternative 

systems that require navigation of the lengthy approval process, or simply restricting 

employment so as not to exceed the 25 person maximum. 

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The Rural Jobs Council has becn asked to examine policics that improve the busine~s 

environment and quality oflife in rural areas ofthc Commonwealth. It is the opinion of the 

Entrepreneurship Subcommittee that delays in the approval process of alternative treatment 

systems serve as a dcterrent to job growth for start-up operations in rural arcas. That said, the 

subcommittee recognizes the importance of a reliably safe finishcd product and the impact it has 

on quality of life and public health. For this reason the subcommittee recommends the 

consideration of new technology application review proccsses that will quickly, safely, and 

reliably evaluate plans. 

Infrastructure 

The Infrastructure Subcommittee of the Governor's Rural Jobs Council focused on three key 

action areas to impact economic development and job creation in rural Virginia. These key areas 

include: (a) capacity building, (b) healthcare and (c) access to capital. This report highlights 

each of these action areas and provides key strategies to effectively implement the 

recommendations. The document details the need for each action item and highlights the 

positive economic results it would have on communities throughout the Commonwealth. 

Action Item #1: Promote Regional Capacity Building 

The first action idea from the Infrastructure Subcommittee is to promote regional capacity 

building efforts in rural communities. This action idea focuses on two specific categories for 

capacity building that includes: 1.) organizational development and 2.) economic development. 

It is recommended that these capacity building efforts be implemented through a regional 

approach that encourages and facilitates local government cooperation in addressing problems of 

greater than local significance. These two capacity building categories are highlighted below. 

Organizational Development Capacity 

Problem: 

The decline in traditional cconomic sectors as well as increased international competition has left 

many rural areas ofthe state behind economically. Many rural localities may lack the resources 

and capacity to independently address community and economic development needs. However, 

addressing these issues on a regional, rather than local, basis would enhance the region's ability 

to adequately respond to the community needs. 

Recommendation: 

The first action item from the Infrastructure Subcommittee is to expand and increase the support 

of Virginia's Building Collaborative Communities (BCC) initiative. To effectively meet the 

program's demand and to increase the organizational capacity of many rural areas in Virginia, 

the Building Collaborative Communities program should be funded at $500,000 annually. 

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How It Works: 

The primary objective of Building Collaborative Communities (BCC) program is to promote 

regional capacity and economic collaborations in economically distressed areas that stimulate 

job-creation, economic development, and provide a significant return on State investment. 

This program requires projects to facilitate significant involvement from the private sector, 

economic development agencies, community organizations, educational institutions, non profits, 

local leaders and governmental officials. Investment and engagement from local private 

industries are a vital component of this program. Collaborative resources for this program are 

provided from a number of state entities, including the Department of Business Assistance, 

Virginia Tourism Corporation, Virginia Economic Development Partnership, Department of 

Housing and Community Development, Virginia Community College System and other agencies 

as appropriate. 

Community capacity underpins and spurs economic development. Sustainable community and 

economic development does not come from the outside in, but rather, from the assets and 

leadership from within the community. Capable leadership is a key factor in a community's 

sustainable growth and economic development. Thus, it is imperative for communities to 

develop leaders with the capacity and commitment to help their communities survive and thrive. 

Developing ways to enhance and strengthen local leadership is necessary for distressed 

communities to compete in the knowledge-based economy. Human resources are the 

community's greatest asset in addressing sustainable economic development issues, and 

community and economic development initiatives are difficult to sustain without a constant 

source of strong and devoted leaders. 

In the global economy, regions must serve as the economic unit. Economic boundaries are not 

defined by political boundaries. Economic research shows that in areas around the country where 

localities work together cooperatively, economic competiveness is enhanced. Quality of life 

indicators such as income disparity between localities, area median income, and job creation arc 

more positive in areas that interact on a regional level. Regional, community-based strategies 

that capitalize upon the unique assets of communities offer stronger opportunities for success and 

long-term sustainability. Location decisions made by businesses are based on a number of 

lactors, ranging from quality of life, local amenities, supply chain availability, and workforce 

competency to name a few-low on the list of considerations, if at all, are geographical 

boundaries. Collaborative ctTorts represent the best opportunity for economic growth and 

prosperity. 

Key Players: 

The key players for this action item would include: Elected Officials, Decision Makers, 

Community Leaders, Local Governments, Planning District Commissions (PDCs), Regional 

Economic Dcvelopment Marketing Organizations, Chambers of Commerce, Private Sector, State 

Agencies with economic development mission. 

Highlights: 

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In the two years since its inception, the Building Collaborative Communities initiative received 

seventeen application proposals of which, nine regional projects were funded. The program has 

strategically invested $400,000 in these regional initiatives which has leveraged commitments of 

$750,000 from local partners and $80,000 from state agency partner. Interest in the BCC 

remains high and from all across the Commonwealth. New regional initiatives, such as the 

Stronger Economies Together program initiated in the Northern Neck and Southern Virginia 

regions have further spurred other regional interest. A few exemplary BSC funded projects 

include: 

• Virginia Growth's Alliance (formerly Trans Tech) 

Virginia Growth's Alliance (formerly TransTech) is a newly-formed organization 

of six counties and one city that have come together to facilitate investment attraction 

and economic growth in the rcgion. The localities include the counties of Brunswick, 

Charlotte, Greensville, Lunenburg, Mecklenburg and Nottoway and the city of 

Emporia. Although, the initial major focus is on business recruitment, the 

organization is also creating strategies for entrepreneurship development, asset 

development and leadership development. Within the past year, the region has 

engaged the community by hosting a creative economy conference, creating a cultural 

asset map and leveraging resourccs to obtain additional capacity building support. 

Fields of Gold 

This regional economic development collaboration promotes agritourism in thc 

Shenandoah Valley. It is a collaborative effort among six counties and five cities in 

Virginia. Fields of Gold program has brought togcther local government officials and 

agritourism representatives from localities across the region to work together on a 

comprehensive marketing, tracking, and capacity building initiative. It is intended to 

create and retain jobs on the farm, expand tourism jobs off the farm, and nurture an 

environment for entrepreneurism. Additionally, Fields of Gold strives to establish 

better linkages between agricultural producers and consumers which strengthen the 

local food system and invigorate the region's economy. 

• Virginia's Region 2000 

The Building Collaborative Communities program can also serve to expand and 

enhance the services delivered through an already existing, well estahlished regional 

organization. SSC funds were invcsted in Virginia's Region 2000 to primarily focus 

on developing and fostering entrepreneurship. 

The Virginia'S Region 2000 partnership is an interwoven network of 

organizations with a centralized vision to provide regional development leadership 

within the 2,000 square miles that surround Lynchburg, Virginia. The organization 

provides a single point of contact to the public and private sector for regional 

planning services, economic development, marketing, and workforce training. BCC 

funds will be leveraged in Region 2000 projects to further add value to an alrcady 

effective regional organization. 

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Economic Development Capacity 

Problem: 

Virginia is competing against states that have strong certified sites programs, putting the 

Commonwealth at a significant disadvantage when companies are seeking new locations. For 

businesses. narrowing sites to a shortlist of candidates that clearly meets their goals. with 

minimal risk and cost. is critical. One step that can be taken to improve the competitive 

positioning of states and localities is to ensure that development costs are minimized through 

programs that prequali f'y certain real estate properties by identifying ownership structures. 

inJills1ructure. appropriate zoning. and conducting certain environmental impact studies. These 

prequalification programs. known as "certified sites" or "shovel-ready" programs, effectively 

reduce risk and shorten development timeframes. States who offer certified sites have 

demonstrated success in new business location. Virginia has been omitted from some site 

searches because it does not have similar prepared sites. 

Recommendation: 

The second action item from the Infrastructure Subcommittee is to expand and increase the 

support for the Right Now Sites initiative currently managed by the Virginia Economic 

Development Partnership. To effectively compete with other states. the program needs to be 

enhanced to better define and set certification standards, and then supported with funding for 

localities who desire to complete the certification process. To meet the program's anticipated 

demand and to increase the competitive standing of rural areas in Virginia, the Right Now Sites 

program should be funded at $500,000 annually. 

How It Works: 

The current Right Now Sites Program is designed to ensure business prospects and consultants 

that those business properties designated as "Right Now Sites" have all the essential elements in 

place for rapid business location that lowers risk and shortens timeframes for development. The 

Right Now Sites Program establishes minimum infrastructure requirements for eight industry 

groups (light manufacturing. general manufacturing, heavy manufacturing, mega sites, 

business/industrial parks, office parks. warehouse/distribution. and research & development). In 

addition to these industry-specific standards, separate "readiness standards" have been 

established to ensure that these sites are truly ready to go. The Virginia Economic Development 

Partnership has determined that each site designated as a "Right Now Site" has met the minimum 

readiness standards and one or more industry-specific criteria. The program as currently 

implemented does not offer funding support for localities who wish to achieve the "Right Now 

Site" designation. nor does the program have a recognized brand in the market. 

In an enhanced program, VEDP would assess the current industry groups and standards. make 

modifications as necessary (i.e. site certification for data centers would align well with Virginia's 

current strength in this growing sector). identify strategic partners with whom to collaborate (i.e. 

utility companies and rail companies are traditional partners in site certification programs; the 

Virginia Department of Housing & Community Development offers technical assistance 

programs in its capacity-building role), create a framework for receiving applications for 

financial support from localities and regions who are interested in achieving certification; and 

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create a branding/marketing strategy to promote these sites to corporations and site selection 

co n s u Itants. 

An enhanced Right Now Sites Program will complement and align strategically with thc 

proposed Building Collaborative Communities program, in that both programs support 

increasing community capacity that will attract private-sector investment. The Right Now Sites 

Program's marketing and branding element will link the prepared communities to the market 

opportunities, by creating a brand standard that exempliJies excellence, and by utilizing the 

marketing channels of strategic partners such as electric utilities, railroads, and broadband 

partners. 

Mark Williams, President of Strategic Development Group, says "For. ..... corporate clients, 

narrowing sites to a short list of candidates that clearly meet. .... goals with minimal risk and cost 

is critical. As site search timelines become more compressed, the availability of site data 

generated through quality site certiJication programs will be increasingly attractive to site 

selectors and their corporate clients. As the economy continues its recovery, site location 

projects will likely become more frequent, making site readiness identiJied by quality site 

certiJication programs an important marketing tool for economic developers. For corporations 

considering site locations, sites certiJied correctly will signiJicantiy reduce development risks 

and related delays to project timelines while simultaneously generating eost savings." 

Key Players: 

The key players for this action item would include: Virginia Economic Development 

Partnership, and other state agencies with an economic development mission; federal agencies 

with an economic development mission; Virginia's electric utilities, railroads, and broadband 

providers; regional and local economic development organizations and local elected ofiicials; 

planning district commissions; and private sector partners. 

Highlights: 

Relevant site certiJication programs in Virginia'S competitor states: 

• Tennessee Valley Authority's Megasite Program: 

In 2004, the Tennessee Valley Authority established one ofthe first, ifnot the first, 

noteworthy site certification program with its Megasite initiative. Originally launched 

to certify sites for automotive assembly plants, TVA's Megasite program has been 

incredibly successful, with five of the eight certified sites sold to major corporations. 

To date, Dow Corning/Hemlock Semiconductor, VW, Paccar, Toyota and Severstal 

are or have built massive facilities on sites in Clarksville, Tenn., Chattanooga, Tenn., 

Columbus, Miss. and Tupelo, Miss. Together, those projects represent capital 

investments that total more than $5 billion with 5,500 or more direct jobs created. 

Three sites remain in TVA's Megasite inventory; the 2,1 OO-acre 1-24 Megasite in 

Hopkinsville, Ky., the 1, nO-acre (plus 3,000 acres under option) Memphis-Jackson 

1-40 Advantage Megasite in Haywood, Tenn. and the 2,0 10-acre 1-65 Megasite in 

Athens, Alabama. 

• Mississippi Power's Project Ready Program 

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Like TV A's Megasite Program, Mississippi Power partnered with South Carolinabased McCallum Sweeney Consulting to design and implement a customized site 

certification program for southeast Mississippi. Mississippi Power's Project Ready 

site certification initiative has an aviation and aerospace flavor to it, as several of the 

sites are located near the John C. Stennis Space Center. There are currently five sites 

in the Project Ready inventory, including Howard Technology Park, Key Brothers 

Aviation Site, George County Industrial Park Phase II, Jackson County Aviation 

Technology Park and John C. Stennis Space Ccnter. All of Project Ready's sites have 

undergone a rigorous screening and are available, fully-served, and developable. 

I. South Carolina Power Team and Santee Cooper's Certified Sites Program 

The South Carolina Power Team and Santee Cooper's program has certified 39 sites 

in South Carolina, all ranging from about 50 to 1,500 acres. The two power 

companies have spent well over $1 million certifying sites in the Palmetto State. 

There are three large certified sites in and around Sumter and Florence, S.C. that are 

all I ,200-acres plus, including the Black River Airport Industrial Park (1,300 acres), 

the 1-95 Mega Site (1,441 acres) and the Young Lands Industrial Site (1,445 acres). 

All three are located on or just a few miles away from Interstate 95. The South 

Carolina Power Team is the economic development alliance ofthe state-owned 

electric utility. 

2. Entergy Arkansas' Select Site Program 

This certified site program has a nice mix of 16 certified sites in Arkansas. Entergy 

Arkansas used Deloitte Consulting to certify sites for its Select Site program. Deloitte 

implemented 50-point criteria for certification and the sites rangc in size from 40 

acres to more than 2,000 acres. Three of the sites certified by Entergy Arkansas can 

accommodate just about any large project. The Saline County 1-530 site encompasses 

2,045 acres and the Carlisle, Ark. 1-40 site totals 1,925 acres. Also in Entergy's 

inventory is the M-I site in Marion, Ark. that Toyota considered twice in the last 

decade for automotive assembly plants that went to San Antonio and Tupelo, Miss. 

Since 2005, Select Site has created 2,091 jobs with $335 million in capital 

investment. 

Action Item #2: Improve Health Care Outcomes 

The second action idea from the Infrastructure Subcommittee is to support efforts to increase 

health care outcomes, by improving health care systems, in rural areas. Among other challenges 

that rural localities face in terms of successfully sustaining and growing their economies, is the 

impact ofthe health of their populations their workforce - which is a key driver as companies 

consider locations for expansions. Rural localities also face the challenge of lack of critical 

population mass due to a disperscd geography, thus limiting the location of key clinical services 

and physicians. Rural localities also struggle to maintain quality support staff in the health care 

industry; jobs which pay well but require educational standards that may not be attained by rural 

populations. Comhined with the anticipated impact of adjusting to the federal Affordable Care 

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Act noting that rural health care systems are disproportionally dependent upon reimbursements 

from Medicare and Medicaid - rural communities are facing a crisis of magnitude that must be 

addressed. 

Comments received from CEOs of Virginia's rural hospitals were collected and presented to the 

subcommittee. Summarized, the CEOs comments indicated the following are the primary 

challenges facing rural health care systems: 

• Decreasing & inadequate payment/reimbursements, and competition for paying 

customers 

• Recruitment and retention of physicians 

• Financial support for physician hospital enterprise and information technology 

• Managing the continuum of care and value-based purchasing 

Population critical mass to support key clinical services 

Comments from other health care professionals also raised the issue of needing to evaluate 

Virginia's "scope of practice" regulations. Ensuring that state-specific scope of practice laws allow 

non-physician primary care providers to diagnose, order tests, write prescriptions and make referrals 

could increase the capacity of primary care, especially in rural areas by increasing their reach and 

allowing non-physician primary care practitioners to practice at the top of their licensure. Nonphysician providers are trained to treat patients with low-acuity illnesses and provide care to those 

with chronic diseases, as well as referring patients with more complex issues to physicians. This 

flexibility allows physicians the time to treat those with the more complex issues while ensuring all 

patients are seen in a timely and an efficient manner. 

As evidenced by the above, health plays a critical role in sustaining and developing strong rural 

communities. Rural health is a necessary component of community health and economic 

development, in that the availability of a healthy workforce is critical in attracting employers. In 

addition, health service providers (hospitals, community health centers, nursing facilities, 

pharmacies, home care agencies and others) are oftentimes the major employers in many rural 

communities. The related expenditures generated by these providers have significant direct and 

indirect community impacts (i.e., economic multiplier effects). There is an undeniable 

connection between employment (a key social determinant of health) and improved health status. 

Strategies should address support for I) sustaining and growing the scopes of practice in rural 

communitics; 2) workforce development for health care professions; and 3) mitigating the impact 

of the Affordable Care Act. 

1. Recruitment and retention of health care professionals 

Problem: 

Recruiting and retaining physicians (and their professional services support systems) in rural 

communities is extremely challenging. The competition for physicians and related health 

care professionals is intense. A 2009 policy bricffrom the federal Office of Rural Health 

Policy highlighted that 77% of rural counties face a shortage or primary-care providers. The 

number of general surgeons practicing in rural communities decreased 21 % between 1981 

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and 2005. Rural physicians are often without "cross-coverage" (serving as the sole provider 

in a given region) and this 2417 lifestyle is not attractive to young residents. In addition, 

finding spousal employment can be a challenge in rural areas. 

Recommendation: 

The Infrastructure Sub-committee recommends supporting a series of tools that can 

positively impact the successful retention and recruitment of primary care health care 

professionals. The tools include the following programs and would necessitate budget 

increases, program modifications, or both. 

1. Expand the parameters andfunding of the Virginia State Loan Repayment 

Program to effectively double the number of recipients serving in rural areas, 

within two years. 

How It Works: 

The Commonwealth of Virginia offers the Department of Health Professions (DHP), Virginia 

State Loan Repayment Program (VA SLRP). This program offers substantial financial 

assistance for repayment of qualified medical education loans for eligible primary care 

disciplines and specialties. Loans are repaid in return for a minimum of two years offulltime practice of the recipient's specialty in a federally designated Health Professional 

Shortage Area (HPSA) of Virginia. The Loan Repayment Programs pay up to $25,000 a year 

toward the qualified educational loans of program participants. The minimum service 

obligation is 2 years, during which the maximum payment of$50,000 will be paid the first 

year. Subsequent extensions of the loan repayment contract are entitled to annual loan 

repayments of up to $35,000. These benefits are in addition to any salary or compensation 

received from employment by an authorized program employer. Loan repayment program 

participants are required to provide fulltime clinical service at a service site for the period 

agreed to in the contract. These sites are specific primary health care or psychiatric 

employment opportunities in a medically underserved area of Virginia. V A SLRP 

participants are required to complete their obligation in a federally designated primary care 

Health Professional Shortage Area (HPSA) or a federally designated mental HPSA (for 

psychiatrists) that have been identified by the Virginia Department of Health, Office of 

Minority Health and Public Health Policy as having a deficient of certain health 

professionals. 

2. Expand the Health Professional Shortage Area (HPSA) 

How It Works: 

The federal Health Professional Shortage Area (HPSA) designation identifies an area or 

population as having a shortage of dental, mental, and primary health care providers. HPSA 

designation is used to qualify for state and federal programs aimed at increasing primary care 

services to underserved areas and populations. A HPSA designation is based on three criteria, 

establishcd by federal regulation, based on criteria including I) geography rational for delivery 

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of health services; 2) specified population-to-provider ratio must bc evidcnced; and 3) health 

care resources in surrounding areas must be unavailable because of distance. overutilization or 

other access barriers. Health Professional Shortage Areas (HPSAs) have shortages of primary 

medical care, dental or mental health providers and may be geographic (a county or service 

area), demographic (low income population) or institutional (comprehensive health center, 

federally qualified health center or other public facility). Current designations for health 

professional shortage areas and medically underserved areas are inadequate in many ways. Counting 

only physicians provides an inadequate picture on primary care availability within rural communities. 

Use of high-need indicators fails to capture broader access measures. The persistence of separate 

federal designations for different programs creates a burden on local communities. An assessment of 

Virginia's current HPSAs indicates that there are a number of rural communities which do not 

have the HPSA designation. The Infrastructure subcommittee recommends that an assessment of 

these areas be conducted and evaluated for designation. 

3. Increase funding to support new and existing rural residency sites 

How It Works: 

Rural family medicine residency training is a viable and an important pipeline for rural health 

care. Testimony to the Infrastructure Subcommittee from health care professionals indicated that 

an expansion of rural residency sites in Virginia could have a positive impact on the retention of 

health care professionals in rural areas. While the subcommittee has been unable to validate the 

number of rural residency sites in the Commonwealth, several have been identified as successful 

examples. 

Highlights: 

The Shenandoah Valley Family Practice Residency Program is a rural-oriented program in 

the Shenandoah Valley of northwestern Virginia, about 70 miles west of Washington. D.C. It is 

affiliated with the Medical College ofVirginialVirginia Commonwealth University School of 

Medicine (v,ww.familymcdicinc.vcu.edu) and is fully accredited for our 3-year residency by 

both the ACGME and the American Osteopathic Association, allowing full board certification 

eligibility for MD and DO physicians. It has 5 residents in each class. Its tag line is "the best of 

both worlds". http://www.valleyhealthlink.com/svfpr/ 

The Lynchburg Family Medicine Residency Program was established in 1975, and is the only 

residency in a community based program affiliated with Centra Health, Inc. and the University of 

Virginia. Residents care for patients in Lynchburg as well as the Big Island Family Medicine 

Center - its rural site. It offers a solid base in hospital medicine and care for patients at 

Lynchburg General Hospital and Virginia Baptist Hospital. Continuity of the physician-patient 

relationship is valued. and patients are also seen in local nursing homes and home visits. 

The Blackstone Residency Program markets that the best of both worlds come together in this 

program - the excellence of academic Family Medicine and the reality of rural Family Medicine. 

The Blackstone Rural Program is located in Blackstone, Virginia. a division of the St. Francis 

Family Medicine Residency. sponsored by Bon Secours Health System. and affiliated with 

Virginia Commonwealth University School of Medicine. Us program is a 2-2-2 integrated rural 

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training track. Residents spend their intern year in clinical practice at St. Francis Family 

Medicine in Midlothian, VA and the upper two years in clinical practice in rural Blackstone. 

This rural continuity practice is interspersed with specialty rotations in pediatrics, cardiology, 

OB, sports medicine, and many other specialties at Bon Secours St. Francis Hospital in 

Midlothian, VA and St. Mary's in Henrico, Virginia. Blackstone Family Practice had a long 

history oftraining high quality residents for ovcr 30 years with approximately 2/3 of the 

graduates practicing in rural areas upon graduation. 

The Wellmont Osteopathic Family Medicine Residency Program was established in June of 

2009 and approved by the American Osteopathic Association for twenty-four (24) Family 

Medicine Residents. The program, bascd in rural Wise County at sixty beds Wellmont Lonesome 

Pine Hospital, acceptcd thc first two residents in July of201O. The residents do rotations and 

training at Wellmont's other two rural Virginia facilitics, Mountain View Rcgional Medical 

Center in Norton and Lee Regional Medical Center in Pennington Gap. Residents also do 

training rotations at the System's Tennessee facilities to include Bristol Regional Medical Ccnter 

and Holston Valley Medical Center. The residency program has been almost immediately 

successful growing from two residents in the first year, to twelvc in thc second year and nineteen 

in only the third year of operation. The three-year residency produced its first graduate in July of 

2012, who after completing his training in rural Wise County, decided to locate there to begin his 

practice with Wellmont Medical Associates. In calendar year 2013, four additional residents will 

complete their training, with some already having accepted offers to remain in rural Virginia and 

practice with Wellmont. The program is expected to continue to grow and evolve to other 

residency opportunities and potentially specialty fellowship programs. This residency program 

is accredited by the AOA and has been recognized by the Virginia llospital and Healthcare 

Association as a Community Benefit Award Finalist in 2012. 

Key Players: The key players for these action items would include: rural health care systems; 

state agencies whose missions incorporate rural health care; federal agencies whose missions 

incorporate rural health care; medical schools & clinics; workforce delivery system partners; 

community foundations; federal and statc elected officials. 

2. Workforce Development for Health Care Professionals 

Problem: 

According to the National Rural Health Association, near-retirement primary care physicians 

(age 56 or older) constitute a larger proportion of the rural workforce (25.5 percent urban, 27.5 

percent rural, and 28.9 percent remote rural), making it likely that rural workforce shortages will 

increase in the years ahead, putting even more pressure on the existing rural workforce. The 

health care labor shortage in the United States has been widely documcnted and is expected to 

last for the foreseeable future. The increa~e in population is partially responsible for the health 

care labor shortagc. 

As the health care workforce ages, the U.S. population is expected to rise by J 8 percent by 2030, 

and the population over the age of 65 is expected to increase three times that rate. In addition to 

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the overall shortage of health professionals, maldistribution is another prevalent obstacle rural 

Americans face in accessing timely and appropriate primary health care services. As of June 30, 

201 L the number of non-metropolitan primary medical health professional shortage areas 

(HPSAs) was 4,148, representing 65 percent of the primary care HPSAs and nearly 34.5 million 

people. Nationally, these HPSAs would require an additional 3,959 practitioners to remove the 

HPSA designations and 8,851 to achieve target population-to-practitioner ratios. Based on 

comments received by the Infrastructure Subcommittee from Virginia health care professionals, 

national trends are mirrored in rural Virginia. The Virginia Health Workforce Development 

Authority is tasked with developing a statewide health professions pipeline. 

Recommendation: 

The Infrastructure Subcommittee recommends that state funding be targeted for: 

• graduate medical education training, and 

• clinical practice sites for advanced practice professionals 

In addition, the Subcommittee recommends that consortia models of workforce development 

systems in the health care field be developed to pilot in rural geographies. 

How It Works: 

Utilizing existing partnership structures in rural regions of Virginia, and in collaboration with 

Virginia's Community College System, identify two pilot regions in which funds can be used to 

support both graduate medical education training (see above Rural Residency programs) and 

health care support professions such as CNAs, health technicians, etc. The expectation is that the 

support professions programs will target rural residents. youth or displaced adult workers and 

will result in at least an associate degree in the identified occupational categories. For both 

audiences, leverage existing partnerships to reach the intended candidates, and support the 

programs by establishing linkages with health care providers who can commit to supporting 

employment upon completion of programs. 

Key Players: 

The key players for these action items would include: rural health care systems; state agencies 

whose missions incorporate rural health care; federal agencies whose missions incorporate rural 

health care; medical schools & clinics; workforce delivery system partners; community 

foundations; federal and state elected officials. 

Highlights: 

Highlighted below are three examples of health care system organizations in rural Virginia: 

The Southwest Virginia Area Health Education Center (SWAHEC)'s mission is to provide 

education, information, training, and services to improve health outcomes in Southwest Virginia. 

SW AHEC primarily focuses on rural health care workforce development to meet the needs of 

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communities and health care professionals. Located in Tazewell. Virginia, SWAHEC reaches 

some of the neediest areas in the Appalachians. Established in 1993, SWAHEC is an 

independent. not-for-profit corporation led by a volunteer Board of Directors. The Board is 

primarily made up of community members from health care and education organizations. 

Southwest Virginia AHEC's major programs include: 

• Health Professions Students' Clinical Training Opportunities 

• Exposing Youth to Health Carcers 

• Support for Practicing Health Professionals 

• Community Health Initiativcs 

The Southside Area Health Education Center In 1992, the Southside Area Health Education 

Center (AHEC) was incorporated by local community leaders to address the availability and 

distribution of health care providers in its 15 county and 3 city region. Health care workers are in 

short supply in 12 of Southside AHEC's rural communities, which is compounded by a growing 

demand for health care services. To help these underserved communities attract and produce 

more health care professionals, the Southside AHEC engages in a wide array of education-based 

activities that range from summer health careers camps and school clubs for middle and high 

school students to clinical training opportunities for health professions students in communitybased clinics to providing educational resources for health care practitioners. The mission ofthe 

Southside Area Health Education Center. Inc .• is to improve the health of Southside Virginians 

through health careers promotion, practice support, and health education. The goals of the 

Southside Area Health Education Center, Inc. include: 

• Provide secondary students exposure to health careers and the opportunities available in 

health careers. 

• Enhance and expand relationships with health training institutions. 

• Identify means of support to the community-based training programs of Primary Care and 

allied health professional students and residents in Southside Virginia'S underserved 

areas. 

• Provide practice support to health care professionals, matching graduates to practice sites 

and disseminate information through modem technology. 

Creating partnerships with community businesses, healthcare, education and human 

service organizations to achieve the shared goal of improved health and disease 

prevention for the citizens of Southside Virginia. 

• Promote a broad based concept of wellness for Southside Virginians. 

Current Projects 

• Southside AHEC assists MCVIVCU School of Medicine with the placement of 

approximately thirty, 3 rd year medical students in the region. 

• In partnership with the Virginia Foundation for Healthy Youth (VFHY) the Southside 

AHEC works with more than 360 disadvantaged students in grades K-8 to instill 

resiliency, social skills, emotional development, character building skills and health 

living lifestyles. 

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The Southern Virginia Higher Education Center (SVHEC) has had incredible impact in 

workforce development in and outside health care. The Center of Nursing Excellence was 

developed at the SVHEC just a few years ago to combat the nursing shortage in southern 

Virginia. Ifs a vibrant example of best practice in a rural community. 

3. Medicaid Reform 

Problem: 

The Infrastructure Subcommittee heard passionate testimony from rural health care professionals 

that the Affordable Care Act implementation poses major risks especially for rural providers. 

Rural Virginia hospitals generally have a higher percentage of un insured and Medicare/Medicaid 

beneficiaries coupled with a lower percentage of commercially-insured patients (commercial 

payers represent only 20% of the payer mix in rural hospitals). Virginia must remain engaged to 

both understand the implications of the Affordable Care Act while identifying appropriate ways 

to brace for the change without compromising care to citizens in rural Virginia. 

Health care provides over 50,000 direct jobs in rural Virginia and another 20,000 indirect jobs. 

In some rural communities, the health care sector represents up to 37% of jobs; in the majority of 

rural Virginia, health care represents between 12% - 19% of all jobs. These jobs are not ones that 

can be outsourced and are relatively stable, they are generally higher-paying; and they build on 

STEM knowledge. The importance of their impact in rural Virginia, as a stabilizing force in local 

and regional economies, is evident. 

Recommendation: 

The Infrastructure Subcommittee received input from various health care professionals related to 

Medicaid expansion. Comments received included the view that there is risk and reward 

resulting from a possible Medicaid expansion. Ultimately. however, the Infrastructure 

Subcommittee recognizes that the complexity of this issue, combined with the time frame in 

which the Rural Jobs Commission report is due, does not give the Subcommittee appropriate 

capability to make a recommendation on the topic of Virginia's approach to Medicaid reform. 

Due to the significant impact on the citizens and health care systems that anchor rural Virginia. 

the subcommittee defers to the Medicaid Innovation and Reform Commission for action. 

How It Works: 

Medicaid Reform budget language was passed by the 2013 General Assembly and subsequently 

signed by the Governor. Several components captured in the budget language are underway by 

the department. while strategic approaches to all described reforms are being prepared. The 

Medicaid Innovation and Reform Commission is a legislative body that will consider these 

reforms and will signal back to the legislature at large when reforms are substantial enough to 

reengage the conversation ofa Medicaid expansion. Undoubtedly. health coverage is important; 

however, the dialogue concerning any type of Medicaid expansion must include the often 

unspoken reality that coverage does not equal access to care. 

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Key Players: 

The key players for these action items would include: rural health care systems; state agencies 

whose missions incorporate rural health care; federal agencies whose missions incorporate rural 

health care; medical schools & clinics; workforce delivery system partners; community 

foundations; federal and state elected officials, and the Virginia Medicaid Innovation and 

Reform Commission. 

Action Idea #3: Support efforts to Increase Access to Capital in Rural Areas 

The third action idea from the Infrastructure Subcommittee is to support efforts to increase 

access to capital in rural areas. Rural municipalities must have reliable access to capital to help 

optimize economic development opportunities and improve the overall quality of life of local 

communities. Increased access to capital can attract new businesses to rural areas and create 

viable, competitive, communities. 

As the economic landscape has changed in rural areas, it is no longer a viable economic strategy 

to simply pursue the large industrial employer; instead, a diversified job creation strategy is 

needed. Strategies must be identified for communities to create access to capital and training for 

small business owners to invigorate the area. Strategies should support these efforts both 

through technical assistance to the localities and the organizations that provide funding and 

implement entrepreneurial assistance. Below are key strategic recommendations for increasing 

access to capital in rural areas. These strategies are primarily focused on: I.) 

entrepreneurship/business development, 2.) water/waste water, and 3.) broadband. 

1. Entrepreneurship and Business Development 

Problem: 

In many of Virginia's rural communities, the economic engine that once thrived is no longer 

viable. Many of these communities were driven by textiles, manufacturing, coal, rail, and 

other forces that no longer sustain them. Many of these localities face severe economic 

distress as they have fallen behind the rapid pace of economic change prevailing in much of 

the state. Rural areas often have both the greatest need and the least ability to address their 

condition. To succeed, rural communities must be positioned to access opportunities in 

current markets by developing local and regional economic development strategies that focus 

and guide both local and state investment. Maintaining economic viability requires finding 

new economic engines, the future economic drivers for a community, and otten it is the small 

businesses and entrepreneurial networks that are vital to that new framework. Additionally, 

these small businesses must have access to entrepreneurial assistance and financing through 

loan pools and microfinance. 

Recommendation: 

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The Infrastructure Sub-committee recommends Virginia provide an annual allocation of $ 4.0 

million to state agencies to increase access to capital for developing and expanding 

entrepreneurial networks and business development. 

How It Works: 

Improving access to capital for communities, entrepreneurs and businesses must be a vital 

part of a comprehensive economic development strategy for rural regions. These funds would 

be directed to state agencies with an economic development mission and currently able to 

provide financing directly to local businesses and communities. These funds would be 

leveraged with private investments to multiply the economic impact on the region. These 

funding strategies should be a part of a broader, more coherent regional approach that 

facilitates both financing assistance and technical assistance. This rural financing effort 

should promote a regional approach that includes; "value added" agribusinesses, small farm 

initiatives and other commercial development. 

Key Players: 

The key players for this action item would include: Community Banks, Community 

Development Financial Institutions (CDFIs), Lending Institutions, Community Foundations, 

Private Sector Investors, State Agencies with an economic development mission. 

Highlights: 

Highlighted below are three institutions that promote increased access to capital throughout 

Virginia. 

• Community Banks 

Community banks playa primary role in the economic development of rural 

Virginia. Community banks are often the first line of financing for entrepreneurship, 

business development and company expansion. These banks have long established 

ties to the local communities and are in the best position to understand the needs of 

local area businesses. State policy and programs should support and not compete 

with community banking efforts. 

• Virginia Small Business Finance Authority (VSBFA) 

Thc Virginia Small Business Finance Authority (VSBF A) promotes economic 

development and provides state and federally source financing programs for the 

benefit of businesses and local IDAs and EDAs. VSBFA assists Virginia'S existing 

businesses and those businesses that are seeking to come to Virginia through a 

portfolio of financing programs. VSBFA does not provide grants; however, the 

agency adds value by helping Virginia's financial institutions offer business loans that 

they might not be able to offer without our assistance. 

• Virginia Community Capital, Inc. (VCC) 

To help address some of these financing issues in rural and distressed regions, the 

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Commonwealth created the Virginia Community Capital, Inc (VCC). Virginia 

Community Capital is a multi-million dollar non-profit, community development 

financial institution that provides innovative loan and investment solutions for 

affordable housing and economic development projects throughout Virginia. VCC is 

a unique banking structure that provides loan capital that is broader than bank lending 

to projects that have a positive community impact in low- to moderatc-income 

communities in underserved geographies and markets. VCC partners with community 

banks where appropriate and also seeks to address the capital needs of worthy 

projects that exceed the capacity of community banks. VCC provides great 

partnership opportunities for the Commonwealth and has played a key role in the 

implementation of new economic development programs, providing underwriting 

services, developing financial packages, and loan servicing. 

2. Water and Wastewater 

Problem: 

Access to safe, reliable drinking water continues to be a critical need in many rural parts of 

Virginia. Due to the limited number of customers, small public water systems are not able to 

generate enough revenue to pay additional technical staff, make infrastructure improvements, 

pay debts, or even meet national drinking water standards. Unlike municipalities with general 

taxation authority, many of the small water systems in rural Virginia can only raise revenue 

through user and connection fees. Often there have not been rate increases to provide 

sufficient revenue to properly manage and maintain these systems, resulting infrastructure 

which is inadequate and failing. Additionally, challenges posed by the geography and terrain 

often prohibit the installation of conventional wastewater systems, resulting in the need for 

alternative systems which are generally far more expensive and which carry thcir own set of 

maintenance issues. Also, small water systems in rural Virginia have fractured and 

uncoordinated delivery systems, which would benefit from greater consolidation. 

Recommendation: 

It is recommended that the State provides $500,000 to fund a state administered program to 

plan, design and implement three (3) regional water/wastewater initiatives. 

How It Works: 

This program would be coordinated and delivered through a state agency in collaboration 

with selected Planning District Commissions. This funding would be used for planning and 

preliminary engineering of more cost effective alternative wastewater treatment models, 

including resolving issue of proper management and maintenance of alternative systems. 

The State should identify funding sourccs and incentivize efforts to pursue more efficient 

regional approaches to consolidate water and wastewater systems. These strategic 

investments in regional projects should facilitate orderly economic development similar to 

the Virginia Coalfields Water Study (VCRWS). This study conducted a regional needs 

assessment for rural communities and to address appropriate funding and implementation 

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strategies for Virginia's Coalfields region, Virginia should also provide funding to address 

water quality issues in non-Chesapeake Bay eommunities that lack access to WQIF, This 

funding could be similar to the funds that were allocated for the Southern Rivers Watershed 

Enhancement Program (SRWEP). This initiative was designed to improve the water quality 

in the streams and groundwater of the "Southern Rivers" region of Virginia. 

3. Broadband 

Problem: 

Currently, many rural communities are not afforded access to broadband telecommunications 

and hence deprived of their ability to participate in enhanced social, education, occupation, 

healthcare, and economic development opportunities. It is critical that all Virginia 

communities have affordable access to high-speed broadband telecommunications. 

Recommendation: 

The Commonwealth should consider the need for annual funding for the planning and 

deployment of affordable, high-speed broadband infrastructure in UNserved areas (as 

determined by the Commonwealth Broadband Mapping Initiative). 

How it would work: 

Community initiated projects seeking funding should utilize the extensive mapping of 

existing telecom infrastructure carried out by the Secretary of Technology and the CIT with 

the cooperation and assistance of the private sector to demonstrate that the proposed area(s) 

to be planned for/served are currently "unserved". Projects under consideration for funding 

(planning and/or infrastructure deployment) should be merit based and emphasize the 

applicant's ability to provide (contract for, deploy) affordably priced, sustainable high-speed 

(as defined by the FCC) broadband services in UNserved areas. Strategies should: a) 

emphasize collaboration and partnership b) be integrated into a broader community and 

economic development strategy, and c) focus on solutions that emphasize long term 

sustainability that leverage, to the fullest extent possible, existing public and private sector 

assets. 

Problem: 

Many rural communities and smaller providers do not have the staffing or skill sets necessary 

to successfully compete for federal broadband funding opportunities. 

Recommendation: 

The Commonwealth should consider creating (funding) a federal funding assistance program 

to provide assistance to communities and small Internet Service Providers (ISP's) who lack 

the staffing and skill sets to effectively compete for federal funding opportunities. 

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How it would work: 

The program would be established to work with communities and small private sector 

providers who lack the ability to effectively apply for federal broadband funding 

opportunities. Applicants would request funding to hire a grant-writer to assist with the 

preparation and submission of federal funding proposal preparation on a catch-match basis. 

The Center for Innovative Technology ran a similar program several years ago. 

Problem: 

Commonwealth public policies related to the deployment of affordable, high-speed 

broadband services should be evaluated on a rcgular basis to insure that programs, policies, 

and legislation remain relevant. 

Recommendation: 

The Commonwealth's Broadband Advisory Council should review public policy related to 

the provision of broadband services in rural areas of the Commonwealth to identify 

opportunities and barriers to the provision of such services. The intent of this review is to 

ensure that Virginia is best positioned to promote the development of affordable broadband 

in rural areas. 

Stakeholders: 

The key players for this action item would include (but not be limited to): Elected Officials, 

Community Leaders, Decision Makers, Chambers of Commerce, Local Governments, 

Planning District Commissions (PDCs), Regional Economic Development Marketing 

Organizations, Appropriate State Agencies, Broadband Authorities, Broadband Service 

Providers, Wireless Service Authorities, the Private Sector, and the Office of Tele-work 

Promotion and Broadband Assistance. 

Workforce and K12 

The K-12 and Workforce Subcommittee ofthe Governor's Rural Jobs Council focused on six 

key action areas for workforce development of K -12 students and adult populations served 

through Virginia's Workforce Network (VWN). Key areas of inquiry and recommendation 

include: (I) Expanding access to dual-enrollment, particularly in Science, Technology, 

Engineering, Mathematics, and Health (STEM-H); (2) Strengthening pipeline and credentials of 

rural STEM-H teachers; (3) Sustaining and expanding use of annual Report Card on Workforce 

Development in Virginia; (4) Conducting public awareness campaign for middle skills jobs and 

the Career Readiness Certificate (CRC); (5) Disseminating regional workforce solutions that 

address skills gap in key industry sectors; (6) Guaranteeing that Participants of Virginia's Career 

and Technical Education (CTE) and Workforce Programs have opportunities to earn a work 

readiness credential. A total of eight specific policy or budget recommendations are included for 

these six action areas. 

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Action Item #1: Expand participation of rural high school students in dual and concurrent 

enrollment courses in Science, Technology, Engineering, and Mathematics (STEM-H), 

including Career and Technical Education (CTE) 

Problem: 

As stated in a recent report of the Education Commission of the States, "In today's global 

economy, knowledge truly is power." With most labor forecasts projecting, by 2020, 66 percent 

of all jobs will require some level of education beyond high school, and with the fastest growing 

and highest paying occupations between now and 2014 requiring some form of postsecondary 

education, increasing the number and percentage of rural Virginians attaining a postsecondary 

education credential remains essential (0 job creation. As the U.S. Chamber of Commerce's #1 

ranked state for STEM (Science, Technology, Engineering, and Mathcmatics) jobs, with the 3rd 

highest rate of STEM job growth in the United States according to an analysis by Chmura 

Economics, Virginia needs to produce more college graduates with STEM-H degrees to maintain 

our economic competitiveness. Several regions with the greatest discrepancy between STEM-H 

degree attainment and employer demands are located in rural Virginia. 

A growing body of national research documents the benefits of dual-enrollment programs 

administered in high school classrooms, on a college campus or through a distance learning 

provider. According to the U.S. Department of Education, college credits earned prior (0 high 

school graduation reduce the average time-to-degree and increase the likelihood of college 

graduation for high school student participants. Research reported by Regional Educational 

Laboratory of Appalachia shows that: 

• Dual enrollment participants learn study skills and other habits related to college success, 

including learning "how to play the part of a college student"; 

Dual enrollment is related to increased high school graduation; 

• Dual enrollment participants are more likely to enroll in college than their nonparticipating peers; 

Participation in dual-enrollment is related to improved college grade point averages; 

• Participation is related to persistence to a seeond year of college; 

• Participation is positively related to credit accrual; 

Students in Career and Technical Education (CTE) programs benefit from dualenrollment participation; and 

Middle and low-income students benefit more from participation than other sub-groups. 

In Virginia, over 30,488 high school students in the 2011-12 academic year earned college 

credits through dual-enrollment programs, and of those students 28,544 earned credits through 

community colleges. Virginia's Standards of Accreditation require secondary students be 

counseled, beginning in middle school, on opportunities for beginning postsecondary education 

prior to high school graduation, and Virginia's Standards of Accreditation require students in all 

school divisions have access to at least three Advanced Placement (AP) classes or three collegelevel courses for dual-credit. School division and college participation in dual-enrollment is 

further supported by the fact that both public schools and colleges offering students dualenrollment options are not penalized in state appropriations, with schools receiving average daily 

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enrollment students. Virginia's Plan for Dual-Enrollment, a collaboration of Virginia's public 

school divisions and community colleges, encourages schools and colleges to offer students 

dual-enrollment opportunities at no tuition cost. 

Beginning in fall 2013, student and parent interest in dual-enrollment as well as AP and 

International Baccalaureate (lB) options should be enhanced when all school divisions will begin 

a process of providing a personal Acadcmic and Career Plan for each i h grade student. These 

plans, supported in an online format through Virginia's Education Wizard, will include the 

student's program of study for high school graduation as well as a postsecondary career pathway. 

Plans will be developed with participation by parents or guardians, and revisited prior to 9th and 

11 th grades. The planning process will provide additional opportunities for informing and 

encouraging parents, as well as students, to learn more about the variety of early college options 

available in rural school divisions through AP and lB programs, as well as dual-enrollment 

course options available through partnerships of school divisions with community colleges, 

regional higher education centers and universities. 

In 2012, HB 1184 was signed by Governor McDonnell into law, directing community colleges 

and school divisions to work together to provide a program of study for high school students that 

will allow them through dual-enrollment or a combination of dual-enrollment and AP classes to 

earn a one year General Studies community college certificate or an associate's degree by high 

school graduation. In spring 2013, through the new Governor's Scholar program recognizing 

high school graduates who attain the General Studies certificate or an associate degree 

simultaneously with a high school diploma, more than 610 high school graduates in the 

Commonwealth were recognized in graduation ceremonies as Governor's Scholars. The 

majority ofthese students were from rural school divisions. 

While Southern Virginia, in particular, has higher levels of dual-enrollment participation 

compared to other regions in the state, more can be done to expand participation in dualenrollment throughout rural Virginia, and particularly dual-enrollment in STEM-H courses as a 

means to supplement math and science options available in school divisions and provide students 

with a jump start toward a STEM-H college degree. The need to encourage access and success 

of rural students in programs such as dual-enrollment that afford an opportunity to ··try on 

college" is important given the challenges of rural school divisions in attracting and retaining 

STEM-H teachers to teach higher level math and science classes and also given research that 

indicates that early college programs such as dual-enrollment can have a positive impact on 

access to and attainment of a postsecondary education credential for underrepresented students 

such as first generation students whose parents did not attend college. 

Recommendation: 

1. Expand the range of dual-enrollment course options available to students in rural school 

divisions by directing the VCCS to work with college acadcmic leaders and dualenrollment coordinators to share with school divisions and other stakeholders 

opportunities for high school students to take STEM-H and other on-line courses through 

the statewide Shared Services Distance Learning (SSDL) Program hosted by Northern 

Virginia Community College. 

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How It Works: 

Launched in 2011, SSDL currently provides more than 616 college courses available online to 

enrollees from 12 community colleges participating in the program. The benefit to rural students 

is that college course options available to them are dramatically expanded. For example, 

students needing foreign language courses to complete an associate degree from Rappahannock 

or Paul D. Camp Community Colleges can now earn those credits through online Arabic, 

Japanese, Chinese or Russian classes that may be designed and instructed by community college 

faculty from any participating college but are offered and transcripted through the local college. 

SSDL also offers a diverse array of college level STEM classes, including topics in information 

technology, mathematics, physics and geology. To date, 2,025 students have participated in the 

online courses provided through SSDL, and this number will significantly increase as SSDL 

expands to all 23 community college service regions. 

SSDL has not been yet used for the purpose of expanding dual-enrollment college course options 

to high school students; however, with appropriate communication from VDOE and local school 

divisions to parents, students, counselors and career coaches, SSDL would greatly expand the 

number and variety of college courscs available to rural students. One significant advantage of 

deploying the partnerships, infrastructure and resources of SSDL for dual-enrollment populations 

is students would continue to register for courses through their local community college 

participating in SSDL, alleviating administrative burdens on guidance counselors and local 

school division personnel who are familiar with their local college dual-enrollment and 

admissions procedures. 

In addition to the online, statewide instruction available through SSDL, rural students should be 

reminded ofthe benefits of accessing VDOE's Virtual Virginia that offers 23 AP courses, free 

of charge, to any student in Virginia. Rural students and their parents could be informed about 

both these two signiticant, statewide resources for online college level courses through R U 

Ready career and college planning publication, the Virginia Education Wizard, new academic 

and career planning meetings with students and parents, guidance counselors and career coaches, 

and other information sources for college and career planning. 

Recommendation: 

2. Expand current statute addressing Danville, Patrick Henry, Southside Virginia, Virginia 

Western, and Wytheville Community Colleges, to include other rural community 

colleges. Approved in March 2013, SB 846 (Stanley) requires the above named colteges 

to develop policies to encourage greater dual enrollment in career and technical education 

(CTE) courses that are not at full capacity in terms of community college student 

enrollment. Rural school divisions and students outside the college servicc regions 

identified in SB 846 would benefit from increased access to college-based CTE courses 

and the law might be expanded to include all rural community colleges. 

Key Players: 

The key players for this action item would include: Virginia Community Colleges, Virginia 

Department of Education, Local School Divisions 

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Case Studies: 

National research suggests career focused, dual-enrollment programs can benefit underachieving 

students and those underrepresented in higher education. Southern Virginia, in particular, has a 

number of robust dual-enrollment programs targeted to underrepresented populations. 

Partnerships between Southside Virginia Community College (SSVCC) and neighboring school 

divisions will result in a record estimated number of 420 high school graduates from divisions 

served by SSVCC earning a Career Studies Certificate, General Studies certificate, or associate 

degree simultaneously with earning their high school diploma in Spring 2013. 

Universities and regional higher education centers are increasingly important to efforts to expand 

access to dual-enrollment of rural high school student populations, generally through programs 

targeted to specific workforce needs. For example, New College Institute has initiated a 

partnership with Virginia State University (VSU) providing high school students in the 

Martinsville Rcgion an opportunity to earn up to 20 college credits through an Academy for 

Engineering and Technology that is ABET accredited, delivered by public school and VSU 

faculty, and delivered through both classroom and online instruction. This promising dualenrollment program, offering two programs of study in Engineering and Technology, is 

noteworthy for its hybrid instructional methods, the rigor of its course offerings, its alliance with 

a major research university, and access to labs equipped with a list from Commonwealth Center 

for Advanced Manufacturing (CCAM) and Rolls-Royce and other major manufacturers. 

Additionally, in line with national research as to best practices in dual-cnrollment, the Academy 

integrates into its curricular offerings career and college development activities such as industry 

tours, college visits, and internships. In fall 2013, the Academy will offer five different courses, 

two on line, with enrollments of approximately 20 students per class. An expansion of the 

Academy to the Center for Advanced Learning and Research in Danville is planned. 

National research is available on the impact of dual-enrollment, including its impact on CTE 

students, but to improve the performance of Virginia's public workforce development system, it 

is imperative to research and report effective strategies and rate of return for the multiple, diverse 

postsecondary cducation options available to high school students. With support from the 

Virginia Longitudinal Data System (VLDS), one of the Governor's workforce initiatives, 

University of Virginia (UVA) researchers are currently studying the impact of dual cnrollment 

on high school graduation, college matriculation and college persistence outcomes. This is but 

one area where VLDS data is being used to inform university research and, ultimately, to inform 

policy and program decisions for Virginia's education and workforce systems. 

Action Item #2: Expand the Pipeline ofSTEM-H teachers in Rural Virginia including 

teachers with credentials to teach dual-enrollment 

Problem: 

The Virginia Department of Education reports for 2013-14 CTE, Mathematics and Seience will 

remain in the Top Ten Critical Shortages of Teaching Endorsement Areas in Virginia, with 

Career and Technical Education teacher shortages the most acute of these STEM-J-I areas of 

study. To expand the number of rural high school students exposed to college level coursc work 

in STEM-H fields, including CTE courses, rural Virginia must dedicate itself to "growing its 

own workforce" of STEM-J-I teachers who, with some additional graduate or undergraduate 

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coursework or industry certifications, are candidates to teach dual-enrollment through local 

community colleges or regional universities, The recent Boston Consulting Group report 

"Developing an Advanced Manufacturing Workforce for Virginia's Tobacco Region" cites the 

need to expand dual-enrollment as one of their top thrce recommendations to position the 

rcgion's K-12 education system as a strong producer of future advanced manufacturing 

technicians. Ultimately, expansion of dual-enrollment is contingent upon availability of 

qualified faculty and instructors. 

Included in the Governor's biennial budget, Virginia's 2013 Appropriations Act supports a 

number of initiatives to recruit and retain STEM-H teachers. These include an appropriation of 

$500,000 in the first year and $808,000 in the second year to fund a pilot initiative to attract, 

recruit and retain high-quality diverse individuals to teach STEM subjects in Virginia's middle 

and high schools. A teacher with up to three years of teaching experience employed full-time in 

a Virginia school division who has been issued a five-year Virginia teaching license with an 

endorsement in targeted areas and levels of math, science or technology education is eligible to 

receive a $5,000 initial incentive award after the completion of the first, second or third year of 

teaching with a satisfactory performance evaluation and a signed contract for the following 

school year. Additionally, a teacher holding one of the targeted STEM-II endorsements and 

assign cd to a teaching position in a corresponding STEM subject area and regardless of teaching 

experience, who is reassigned from a fully accredited school in a Virginia school division to a 

hard to staff school or a school not fully accredited and who receives a satisfactory performance 

evaluation and a signed contract for the following year is also eligible to receive an initial 

incentive award of$5,000. An additional $1,000 incentive award may be granted for each year 

the eligible teacher receives a satisfactory evaluation and teaches a qualifying STEM subject 

with the maximum incentive award for each eligible teacher up to $8,000. 

Recommendation: 

I. Extend current bienniallevcl offunding to Old Dominion University (ODU) to support 

the Monarch Teach program, based on the national UTeach model, and increase program 

funding in the next biennial budget to expand the program to a second university in VA. 

How It Works: 

Old Dominion University's Monarch Teach program replicates highly successful UTeach 

programs now active in 17 states across the nation. Developed at the University of Texas at 

Austin, UTeach's mission is to recruit, prepare and retain qualified STEM teachers through 

undergraduate level teacher preparation and mentoring that emphasizes inquiry, problem and 

project based instruction and that instills in future teachers a deep subject matter expertise in a 

STEM field of study. The program's track record for recruiting and preparing university 

students for tcaching STEM-H subject arcas is impressive: at University of Texas at Austin, 90 

percent of UTeach program graduates enter the teaching profession and 80 percent are still 

teaching five years later. ODU's first cadre of students in the Monarch Teach program will 

begin their studies in the program in fall 2013. 

The second UTeach program should be hOLlsed at a university or regional higher education center 

that is located in rural Virginia and that provides a significant level of teacher candidates to rural 

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Virginia school divisions. As was done with the first UTeach program. now based at ODU, the 

selection of the university will be made through a competitive RFP process. 

Recommendation: 

2. Initiate a scholarship program through which high school teachers with teaching 

endorsements in stipulated areas relevant to STEM-H college disciplines and who are 

teaching STEM-H subjects, including CTE, can apply through their school divisions for 

reimbursement of tuition and fees for university courses identified by the community 

college as relevant to the STEM-H teaching discipline for which the teacher is attempting 

to become credentialed to teach college classes. 

How It Works: 

VDOE will provide guidelines for distribution and priority of scholarships so as to align with 

those academic disciplines and school divisions with the most critical shortages of teachers with 

appropriate qualifications to instruct dual-enrollment or AP courses. Local community colleges 

will be asked to advise the review process for teacher applicants for scholarships to ensure 

planned coursework is appropriate to the goal of developing more dual-enrollment teachers and 

selected applicants are individuals with academic transcripts appropriate to the goal of college 

teaching. 

Players: The key players for this action item would include: Virginia Department of Education, 

Virginia Community Colleges, Old Dominion University and other higher education institutions 

offering teacher preparation programs 

Case Studies: 

The UTeach Institute partners with 35 universities in J 7 states. To date, the original program at 

University of Texas at Austin. has graduated more than 800 STEM teachers. Other universities 

across the country have produced an additional 800 alumni. Graduates of these programs are 

projected to teach over 4.8 million secondary students by 2020. Current information and 

outcomes ofUTeach programs are available at http://uteach-institute.org. 

Action Item #3: Sustain and expand the use in policy and budget planning of an annual 

Report Card on Virginia's Workforce System 

Problem: 

Workforce development programs span nine state agencies and encompass a significant number 

of federal programs - each with different rules, regulations, funding streams and target 

populations. Measuring the performance of such a complex system presents a significant 

challenge. To address this issue, as a part of Virginia Performs, and in collaboration with the 

nine agency Career Pathways Work Group supporting Virginia's Workforce Council, Virginia's 

Workforce System Report Card was created to bring together indicators across state agencies in 

the areas of STEM-H, college and career readiness, postsecondary education, secondary 

education, and employment and business development. With a special section devoted to 

manufacturing and plans in the future to expand that section to incorporate other targeted 

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industry sectors, the report card recognizes the need of critical industries for workers with the 

right credentials and skills. 

Recommendation: 

Virginia's Workforce System Report Card should continue to be produced on a regularly 

scheduled basis and continually refined and updated with new measures and data as 

available. Virginia's Workforce System Report Card in conjunction with other workforce 

data resources should be used to facilitate thoughtful and focused discussion on 

workforce priorities among government, policy, and education and workforce system 

leaders. The Report Card should inform the annual work plan of the Virginia Workforce 

Council. 

How It Works: 

The recommendation related to Virginia's Workforce System Report Card would be carried out 

by: 

• Using strategic partners, such as the Virginia Workforce Council, the Council's Career 

Pathways System Workgroup, and relevant stakeholder organizations to explore new 

measures and industry focus areas, and to refine existing measures annually. The Council 

on Virginia's Future will continue to produce the report card. 

By far the more significant piece of this recommendation is related to strategy development 

around key indicators. It would be carried out by: 

Presenting opportunities for discussion, additional research, and eventual action based on 

data from Virginia's Workforce System Report Card and other data tools. Each year this 

should guide the work of the Virginia Workforce Council at the committee level. Thc 

Virginia Community College System, as staff to the Virginia Workforce Council, will 

develop an approach to integrating strategy development around key metrics and 

outcomes. 

Key Players: 

The key players for this action item would include: Governor's Director of Education and 

Workforce Development, Council on Virginia's Future, The Virginia Workforce Council, and 

Virginia's Career Pathways Workgroup 

Case Studies: 

A number of states with strong reputations for workforce development and workforce policy use 

annual scorecards to guide analysis and decision making by their state Workforce Investment 

Boards (WIBs) and other major stakeholders in education and workforce development. These 

include: Washington, Kentucky, Oregon, Massachusetts and Maryland. 

Action Item #4: Conduct Public Awareness Campaign to Promote Middle Skills Jobs and 

the Career Readiness Certificate (CRC) 

Problem: 

Virginia, like other states, faces an increasing skills gap in middle skills jobs-those requiring 

more than a high school education but less than a bachelor's degree. Middle skills jobs are often 

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accessible through certifications, licensures, and apprenticeship credentials as well as community 

college certificates and degrees. The nature of America's skills gap was recently addressed in 

State Sector Strategies Coming of Age: Implications for State Workforce Policy Makers, a report 

jointly produced by the National Governors Association Center for Best Practices and the 

National Skills Coalition. Closer to home, the Boston Consulting Group report Developing an 

Advanced Manufacturing Workforce for Virginia's Tobacco Region underscored a pending 

"skills gap" in middle skills jobs with a projected 1,045 manufacturing jobs in the Tobacco 

Region to be left unfilled by 2017, due to a shortage of trained and prepared workers for these 

jobs. The Boston Consulting Report states in order for the Tobacco Commission Region to 

address current and future workforce needs for "middle skills" technicians and trades workers a 

focus must be placed on attracting individuals to pursue careers in manufacturing. Other 

industry sectors, such as energy and health care, report a similar challenge in attracting 

applicants with the work and career readiness skills to pass pre-employment examinations 

required by the hiring process. But in no occupational sector is the impending skills shortage 

more acute than in skilled trades-welders, electricians, machinists-the "most in-demand group 

of workers" in America, according to Forbes. Whereas 44 percent of all workers in the U.S. are 

45 or older, 53 percent of skilled trade workers fall into that age bracket with nearly 20 percent 

of all trade workers over the age of 55. 

With businesses looking to a need to replace skilled trade workers, it is of great concern in 

Virginia there are fewer high school students completing CTE programs in the manufacturing 

cluster than in all but one other of the 16 national career clusters adopted by Virginia's school 

systems. Whereas business management and administration programs in school divisions across 

the statc produce 5,177 CTE program completers a year and marketing programs 3,873, 

statewide, high school manufacturing programs produced only 828 CTE completers in 2011-12. 

lt should be noted, however, the number of completers in manufacturing in recent years has 

increased with statewide gains of about 100 manufacturing program com pieters per year. 

The Career Readiness Certificate (CRC), awarded by the Commonwealth of Virginia and ACT, 

provides a certification of work readiness for the technology sectors most in need of "middle 

skills" employees. The CRC program provides not only an assessment of core workforce skills 

but maps those skills to specific occupations in specific industries. In order to move forward 

business and industry recognition of the certification, thus increasing its value to job seekers and 

employers alike, information available to business and industry about the CRC needs to be 

expanded and enhanced. In addition, there is a need to better inform industry as to Virginia's 

production of emerging workers and the value of job seekers with certifications. including the 

CRC, and thereby better connect industry with available resources and manpower. 

Recommendation: 

Calling the attention of communities, schools, parents, and students to the skills gap in "middle 

skills" jobs and the carcer opportunities afforded young people who are hard working and ready 

to move into the industries that most need them demands a public relations campaign. 

Additionally, by improving the telling of its own workforce story--the Commonwealth's efforts 

and successes in developing and expanding a pipeline of "middle skills" technicians-Virginia 

can enhance its attractiveness to businesses and industries seeking to relocate, start a new venture 

or expand operations. There is also an opportunity to promote career pathways-including those 

providing industry recognized certifications-into these "middle skills" jobs beginning with the 

advantages of earning aCRe. 

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How It Works: 

Develop a Requcst for Proposal (RFP) and select vendor to develop a plan, a brand, and 

materials for a public information and marketing campaign to be specifically targeted to 

expanding the pipeline of future workers preparing for "middle skills" jobs, such as skilled 

trades, where there is demonstrated evidence of a skills gap in both the industry sector and rural 

region(s). The public relations campaign should focus on careers while providing information 

and referrals to education, training and employment resources to connect to featured career tields 

and industries, and the campaign should build on current work being done in this area, such as 

Virginia Manufacturers Association's Dream It, Do It activities and materials, VDOE's R U 

Ready publications, Virginia Education Wizard and other efforts. Funds for this effort should be 

supplemented by private donations from business and industry stakeholders. 

Key Players: 

The key players for this action item would be: Virginia's Career Pathways Work Group and the 

Virginia Workforce Council 

Case Studies: 

A number of states have launched major workforce initiatives that were the focus of ambitious 

public relations campaigns. Some have directly focused these efforts on driving their message 

(and their pubic workforce programs) to the skills gap in "middle skills" jobs, and some states 

have launched statewide campaigns to promote the Career Readiness Certitlcate (CRC) as a 

starting point for entering "middle skills" jobs. To date, there is limited data on the impact of 

these statewide marketing campaigns on outcomes in education or employment. 

In Virginia, Race to the GED, launched as a Governor's initiative in 2003, was a successful 

statewide public relations campaign including various forms of advertising. During the course of 

the campaign, academic years 2003-04 to 2008-09, the Commonwealth saw an increase of 50 

percent ofGED passers as compared to pre-campaign years. The success orthat campaign is 

supportive of the premise that a similarly ambitious campaign, targeted to expanding enrollment 

in education and training "pipelines" to middle skills jobs could have impact on participant 

enrollment and behaviors. 

Action Item #5: Expand regional solutions for addressing the skills gap in targeted industry 

sectors 

Problem: 

Even as some regions in rural Virginia are challenged with the highest levels of unemployment 

in the state, many employers in key sectors have good paying positions that remain unfilled 

becausc of the disconnect in demonstrated skills sets of applicants and the requirements of 

available jobs. Seeking to address this skills gap is the goal of several regional initiatives 

throughout rural Virginia that have sprung up in recent years. These include career pathways in 

manufacturing and energy in the Blue Ridge and Southwest regions, respectively. and the 

Southern Virginia Work Ready Community initiative, led by the Dan River Regional 

Collaborative with a Steering Committee representing local Workforce Investment Boards 

(WIBs), Chambers of Commerce, and regional foundations and non-profit organizations. 

Recommendation: 

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The Virginia Workforce Council (VWC) and the Governor's Office will evaluate the 

Southern Virginia Work Ready Community Initiative 

How It Works: 

To meet the challenge of helping employers assess applicant skills sets to job requirements and 

helping job seekers develop and demonstrate "work ready" skills in demand by employers, the 

Dan River Collaborative has launched a Southern Virginia Work Ready Community Initiative 

that is driving the number of incumbent, transitional, and emerging workers (or high school 

students) who attain the National Career Readiness Certificate (NCRC Plus). The NCRC Plus is 

an industry recognized, portable credential that certifies essential skills for success in the 

workplace including: Applied Mathematics, Locating Information, Reading for Information, and 

the "soft skills" of dependability, tolerance, attitude, interpersonal skills, perseverance, 

persuasion, and problem solving. The NCRC has also been mapped against job requirements for 

specific occupations-especially "middle skills" jobs-in key industries, so that the NCRC can 

be used to align foundational skills sets of job seekers and available job positions. 

In addition to driving National Career Readiness Certificate Plus (NCRC Plus) attainment by 

emerging, incumbent and displaced workers, the Dan River Regional Collaborative hopes that its 

Work Ready Communities initiative will help regional leaders and economic developers tell a 

better story about workforce development in the region: a story about skills sets and a 

community's collaborative attempt to increase those skills sets. The potential of the Work Ready 

Communities initiative to create a specifically rural Virginia story of workforce development is a 

consideration appropriate to the VWC, with its members well versed in the NCRC and Work 

Ready Communities. 

Additionally, while the Dan River Regional Collaborative has only identified two indicators of 

work readiness for the Southern Virginia region-NCRC attainment levels by targeted 

workforce populations and use ofNCRC by regional employers-local WIBs and training 

providers are adopting a practice of using the NCRC as a first step in career pathways to 

occupationally specific credentials and entry into the skilled workforce. The VWC may choose 

to consider the impact of CRC attainment on entry into occupationally specific training and 

certification attainment beyond the CRC in considering the issue of expansion. as well as other 

participant and community outcomes. 

Key Players: 

The key players for this action item would include: Virginia Workforce Council, Dan River 

Regional Collaborative, and Virginia Community College System in the VCCS's role as state 

administrator of the CRC. 

Case Studies 

ACT has produced a number of case studies on the impact of Work Ready Communities. Until 

recently, evidence of the success ofthese initiatives has been limited to increased NCRC 

attainment levels in targeted populations and increased use of Work Keys job proliling with 

some anecdotal evidence of improvements in employer satisfaction levels and job placement 

rates. However. a recent report of the Southwest Missouri Workforce Investment Board on 

Average Earnings, Employment, and Retention by National Career Readiness Certificate and 

Education Levcls provides quantifiable data on the impact ofNCRC attainment by adult 

participants in that region's workforce programs on such participant outcomes as average 

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earnings, entered employment, and retention in employment. An additional recent research 

report on the impact ofCRC attainment on displaced manufacturing workers in Ohio suggests a 

positive relationship between CRC attainment and pursuit and completion of occupational 

specific, industry recognized certifications. 

Action Item #6: Guarantee that Virginians Sened through CTE and Workforce Programs 

Have Opportunities to Improve and Demonstrate Work and Career Readiness 

Problem: 

Virginia took a big jump forward in prioritizing the work readiness of future high school 

graduates who earn standard diplomas when a Governor McDonnell proposed education 

initiative in 2012 (HB 1061 ISB 489) was passed by the General Assembly and signed into law. 

The new law, effective with the entering high school class of fall 2013, requires all high school 

graduates earning a standard diploma to cam a state approved workforce credential in order to 

graduate. Since 2009, the Board of Education has approved over 281 industry recognized 

certifications, licensures, and other national and state assessments including the VDOE 

developed Work Readiness Skills assessment and the CRC. Anyone of these 281 approved 

credentials will now serve to meet the new graduation requirement. Over 35,946 high school 

graduates earned standard diplomas in 2012 or 41.13 percent of the Commonwealth's high 

school graduates, suggesting the scope of impact of the new law on Virginia's emerging 

workforce and the school divisions preparing these students. 

As school divisions across the Commonwealth prepare to implement HB 1061, nearly 200,000 

adults looking for work in the Commonwealth have an equally critical need to demonstrate work 

and career readiness-basic applied academic skills and occupationally specific skills--to 

potential employers. HB 1061 ISS 489 prioritizes demonstration of work or career readiness by 

targeted high school populations, but there is no correlating policy requirement that would apply 

to the displaced and adult workers served by the 14 federally funded programs under the 

umbrella of Virginia'S Workforce Network. The need to demonstrate proficiency in work and 

career readiness to employers may be most acute for adults without postsecondary education 

credentials and young adults without much work experience. 

Recommendation: 

Require publiely-funded workforee programs to prepare plans for how each program will 

provide participants with an opportunity to attain a credential of work or career readiness 

How It Works: 

As previously described, the CRC provides a national credential of work readiness; however, for 

some occupations and some populations of youth and adults, other demonstrations of work 

readiness may be appropriate and acceptable. For example, the Virginia Employment 

Commission's Trade Act Adjustment program has collaborated with the VDOE Office of Adult 

Education and Literacy and with Virginia Commonwealth University to develop a holistic sixmonth training program--commonly called Pre-Pluggedln VA-that affords trade impacted, 

displaced workers who test at a 5th to 9th grade reading level with a six-month individualized 

course of instruction that includes basic skills, GED test preparation, CRC preparation, digital 

literacy skills, and "soft skills." To allow for demonstration of specific workplace competencies 

that are aligned with available jobs for this adult population that may not rapidly qualify to earn a 

CRC but needs to almost immediately return to work, program developers have implemented a 

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stepping stone approach in tenns of credential attainment, following a model developed by 

Purdue University and Mozilla. The system confers badges that each attest to a demonstrated 

competency or competencies in occupationally specific skills and in "soft skills." Each of the 

badges is the result of agreement between education and training providers and employers. 

Another example of a way in which work readiness credentials might be obtained is fonnal on 

the job training programs-from registered apprenticeships to structured internships and 

cooperative education-that provide evidence of work and career readiness through the 

nationally recognized apprenticeship credential or through project-based portfolios or structured 

perfonnance evaluations. 

The Governor's workforce initiative to further strengthen the Virginia Workforce Council, HB 

2154/SB 1177 (2013 Session) calls for the VWC to "review and recommend industry credentials 

that align with high demand occupations. ,. With this in mind, the Virginia Workforce Council, 

assisted by the nine agency represented Career Pathways Work Group, is charged with reviewing 

proposed guidelines to be submitted to the VWC by the Career Pathways Work Group for 

providing participants of targeted programs within Virginia's workforce system with a credential 

or other approved demonstration of work or career readiness skills. 

Key Players: 

The key players for this action item would include: Virginia Workforce Council and Career 

Pathways Work Group in their role of providing cross-agency staffing support to the Council. 

Case Studies 

Virginia's vision of its workforce system is singularly ambitious in its incorporation and 

integration of CTE education at all levels as well as more than 20 state and federally funded 

workforce development programs. Whereas this subcommittee is recommending a strategy that 

would cross agencies and programs with responsibilities for workforce development, currently 

available national case studies and data on the impact of work ready credentials, such as the 

CRC, are often limited to participants in only WIA programs or a small cluster of workforce 

programs and. often, these studies delineate impact on a single region rather than a state or 

multiple regions within a state. Such evidence as exists to support the impact of CRC attainment 

on entry into employment and higher level credential attainment has been previously cited. 

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