LEAD Hampton Roads, the leadership program of the Hampton Roads Chamber of Commerce, hosted the 15th Annual State of the Region address in Norfolk on October 7 to a crowd of 850 business and community leaders. The annual address provided a comprehensive review of the region’s current challenges, explore our current approach to economic growth and offer possible courses of action.
The breakfast program was at the Norfolk Waterside Marriott featuring Keynote Speaker Dr. James V. Koch, President Emeritus and Professor of Economics, Old Dominion University, who was joined by Dr. Gary A. Wagner, Professor of Economics, Associate Director, Economic Forecasting Project, Old Dominion University. Read the 2014 State of the Region Report.
The overall message of the 2014 State of the Region report was that our regional economy continues to recover, but still has not regained the jobs lost in the 2008 recession. Department of Defense (DOD) spending has helped lessen the impact of a recession. DOD spending in Hampton Roads increased in our region by an average of 6.1% between 2000 and 2011, but then stalled. According to the report, estimated defense spending in 2014 will barely exceed 2011 level and fall below 2012. In 2014, defense spending is expected to account for 42.2% of the region’s economy, which was 46.6% in 2011.
Regarding sequestration, Dr. Wagner, said, “The bad news is that we’re just starting to feel the effects of sequestration. And these are going to last at least for several more years.”
Adverse trends relating to DOD spending include:
- The total number of active-duty military personnel in our region continues to decline
- The U.S. Navy continues to grow smaller in terms of the number of active ships in the fleet
- The escalating costs of building and producing major defense assets, such as aircraft carries and state-of-the-art fighter airplanes
- Military challenges and conflicts the U.S. has confronted in the 21st century have not always matched up well with the powerful traditional military assets the country has the ability to deploy.
“Procurement spending in Newport News, primarily the shipyard, post sequestration, is up 103%,” said Wagner. He added, “It comes down to two contracts. One project to overall the Abraham Lincoln which was $2.5 billion and a contract for construction of the Kennedy of $1 billion. We’ve got a few bumpy years ahead of us.” Wagner concluded that without these two contracts, this region would be in a recession.
Following the presentation, Hampton Roads Chamber of Commerce President & CEO Bryan K. Stephens said, “The ODU report highlighting our region's diversification problem was not new to the Chamber or to its members. We’ve been active in this discussion for some time now. This region has so much potential in sectors such as IT, healthcare, cyber security, advanced manufacturing, aerospace, life sciences and tourism and coastal energy.” Stephens added, “Last year, our Small Business Development Center sought special grant money to teach small businesses how to handle the impact defense cutbacks had on them. Our SBDC created a new course this year, showing these contractors new ways to approach, bid and execute government contracts. They receive training, one-on-one confidential counseling, and peer mentoring.”
Hampton Roads’ job growth is flat. We have not yet replaced the jobs the region lost during the recession. The region’s unemployment rate (5.8% in July 2014) continues to be below the U.S. rate of 6.5%. Among 381 U.S. metropolitan areas, Hampton Roads ranked 321 in employment growth since August 2013.
“The bright spot is the Port,” Wagner told the crowd. It is more active than ever and has reported profits. The report says that “one indicator of the Port’s recent success is the increase in the proportion of containers that have been moving out of the Port by means of rail rather than trucks.” There’s now been realignment with the Virginia Port Authority and Virginia International Terminals to allow for more collaboration and unified objectives.
Tourism has been growing slow and steadily since the recession ended by approximately 3% annually, but still down 20% since 2007. The trend continues to show that tourism is moving away from Williamsburg and toward Virginia Beach.
Virginia Beach’s share increased from 33.2% in 1999 to 40.8% in 2013.
Regarding the housing market, Wagner said that during the last two years, house prices rose 3%. The number of distressed houses, bank owned or short sales, was down 8% last year. In the coming years, DOD spending will be a large factor in the housing market.
Dr. Jim Koch discussed the impact of vehicle tolls on the region. A new set of tolls was implemented on the Downtown Tunnel, Midtown Tunnel and the Martin Luther King Freeway, to pay for a $2.16 billion transportation improvement project which includes a new tube for the MTT. Currently, 65% of the region live in one city and commute to work into another city. According to the report, “approximately 25% of all workers in the region are tied to jobs that require them to commute over bridges and through tunnels to their jobs, or whose jobs require them to make business and delivery trips that utilize the same crossings.”
Regarding the burden of the tolls, Koch said, “Portsmouth is effected four times as much as Virginia Beach.” Speaking about a third crossing, the Patriot’s Crossing, Koch stressed that we must be careful how the project is funded. “If we toll it, and I think we must, we can’t pay for it otherwise…let’s be careful about putting on tolls that are too high.” He said, “If they are too high, we will essentially split our region into three parts, eastern Hampton Roads, western Hampton Roads and the Peninsula. We will artificially decrease the size of our market. We will decrease the size of our labor force and we will increase people’s costs.” Koch said people change their behavior once a toll reaches the $2 mark.
Koch turned to discussing regional economic development programs. He suggested that new ideas are to focus on:
- Gardening and expanding existing firms
- Incubate startup firms
- Commercialize and bring to market the basic research emanating from the Jefferson Laboratory, NASA Langley, Eastern Virginia Medical School and Old Dominion University
The report suggests a long-term approach would improve our K-12 schools, stimulate workforce development in community college and universities, promote research and development activities, enhance our transportation infrastructure, stimulate the development of cultural amenities and reduce crime.
Koch addressed our municipalities and recent hotel and convention center projects. The report states, “numerous studies of public investments in hotel and convention center complexes reveal that the answer to the question often is not simply ‘no,’ but a resounding ‘NO!’ The benefits often do not exceed the costs despite the rosy forecasts of those investing the public funds.” The report goes onto say that these investments may improve the quality of life, but don’t generate the economic development jolt we receive from regional economic activities that enable us to sell to those outside our region.
LEAD Hampton Roads asked attendees to use their mobile devices to respond to survey questions. Of 334 people who responded, 64% predicted that their businesses would hire more people in the next year. But, 74% didn’t think local governments are efficient and poised to take a regional approach to service delivery and problem solving. The survey showed that 69% agreed that the Port of Hampton Roads will grow exponentially in 2015 and 2016.
Attendees received a copy of “The State of the Region 2014” produced by the Regional Studies Institute, Old Dominion University. The address will also be given on October 9 at 8am at the Hampton Roads Convention Center. LEAD Hampton Roads thanks Presenting Sponsor Optima Health.