Jonathan Hunley – Leesburg Today
The Dec. 12 news that medical-device manufacturer K2M Group Holdings Inc. plans to expand in Leesburg may have been announced by Gov. Terry McAuliffe’s office in Richmond, but local economic development efforts also played a role in getting the company to remain in Loudoun.
For example, county supervisors are expected to approve next month $450,000 worth of incentives for the company: a $340,000 cash grant and $110,000 worth of waived fees.
The money is slated to come from a $500,000 fund supervisors created in July 2013 to help attract new businesses to Loudoun and retain companies already here. It’s a relatively new tool that the Board of Supervisors and economic development officials feel is necessary to have at the county’s disposal: not a be all, end all in terms of marketing, but a necessary arrow in the quiver when targeting sought-after firms.
“No deal is ever one thing” only, Buddy Rizer, who leads Loudoun’s Economic Development Department, said.
In the case of K2M, the $450,000 will serve as a local match to $450,000 from the Governor’s Opportunity Fund, an account Virginia’s chief executive can use to close deals to bring companies to the Old Dominion or to ensure existing employers don’t leave.
And as a desirable high-tech medical business, K2M certainly could have chosen to take its operation elsewhere, instead of deciding just to move from Miller Drive to a spot just a few blocks away in the Oaklawn development.
“They had very aggressive [incentive] packages elsewhere,” said Supervisor Matthew F. Letourneau (R-Dulles), who noted that the county and state contributions “certainly helped” in landing K2M.
In addition, Letourneau, who chairs the supervisors’ Economic Development Committee, said he’s pleased with how the incentive fund has been used so far.
The idea is that the fund is filled from money in annual county budget surpluses. That way, it isn’t tied up in budget negotiations each year, where it would compete with other service needs. On the other hand, if Loudoun doesn’t have the money for it one year, the fund won’t get a fresh infusion of cash.
Letourneau said the main factor involved with deciding who gets incentives is the county’s ability to see a return on the investment. A business receiving a cash contribution needs to generate, over three years, at least the same amount of new local tax revenue as the incentive cost Loudoun to provide.
So if the supervisors agree to give a company $250,000, for example, then the county should realize at least $250,000 worth of new revenue from that business before three years is up. If not, then the firm agrees to pay back the incentive.
Instead of giving a company cash, supervisors also can agree to complete infrastructure projects that help the prospective business, such as building a road or putting in sidewalks. In that case, the business promises to generate at least as much new tax revenue over five years as the cost of the infrastructure.
Completing an infrastructure incentive deal is the supervisors’ preference over offering cash, Letourneau said. However, he also pointed out that K2M shouldn’t have any problem meeting its commitment.
“We’re going to be collecting more than we’re giving them in less than three years,” he said.
First time
Rizer noted that K2M’s expansion would mark the first time that a cash grant from the incentive fund has been used.
And Eric Major, president and CEO of K2M, confirmed that the company had considered moving to other localities in Northern Virginia as well as crossing state borders to either West Virginia or Maryland.
“We did look at a lot of options,” he said.
Partnerships the business has forged with Loudoun and Leesburg, however, made for a compelling reason to expand in the county rather than moving away, Major said.
Employee commuting patterns and access to Dulles Airport were big factors in the decision to stay, the CEO said. Almost 270 of K2M’s 460 employees work at the Leesburg headquarters, and physician customers visit that operation from all over the world, which meant the local availability of international flights was a plus.
Earlier this year, supervisors also approved a $500,000 infrastructure incentive to keep Ashburn-based Telos Corp. from leaving the county and expanding elsewhere. The county government’s contribution in that deal was the construction of Russell Branch Parkway between Ashburn Road and Ashburn Village Boulevard. Because the county already had funded that work, the agreement required no taxpayer dollars would be spent on the incentive.
The road will help with employees’ access to Telos’ headquarters, Rizer said.
“It was a very important part of the deal for them,” he said.
And, as Major noted, Telos CEO John Wood said that, beyond the positives of the road project itself, it’s rewarding when a county and state show their commitment to a company. The $500,000 infrastructure grant for Telos was a match to $500,000 from the Governor’s Opportunity Fund.
A lot of government officials can say they support [a company], Wood said, but putting up money shows they really do.
The K2M and Telos deals were closed using incentives, and Rizer emphasized that that’s where the tool is effective: at the end of negotiations. They can’t make a bad location seem good to a prospective business or turn around an agreement that just doesn’t work, he said.
Incentives help Loudoun compete with other localities, Rizer said. That is, if two places rank almost the same on a list of desirable locations for a business making a move, incentives offered here may swing a deal in Loudoun’s favor.
Rizer underscored the payback aspect of incentives, as well. That ensures that grants are “in no way gifts.”
They serve “to help grow the economy,” he said, bringing new jobs and new tax revenue.
‘No merit’
K2M’s announcement came just days after the supervisors’ finance committee discussed incentives and how to pay for them.
At that meeting, board Vice Chairman Shawn M. Williams (R-Broad Run) affirmed the idea that cash contributions be used only if other incentives don’t work.
He also questioned the need for putting money into the incentive fund. Instead, he said, the supervisors could simply allocate incentive money on a case-by-case basis.
Supervisor Kenneth D. Reid (R-Leesburg) also voiced support for using cash grants as a last resort.
Finance committee members, however, ended up unanimously recommending that the full Board of Supervisors allocate $950,000 for the incentive fund: $450,000 to replace the K2M incentives, and another $500,000 that could be spent on other projects.
County Chairman Scott K. York (R-At Large) noted before that vote that the board needs to be “very picky” with how it uses the incentive fund, but that supervisors “have that opportunity on a case-by-case basis.”
Supervisor Ralph M. Buona (R-Ashburn), who chairs the board’s finance committee, said that the incentive program has brought “significant business” into the county. Buona also works for Telos, but has said he was not involved in that company’s negotiations with the county.
Not everyone is necessarily sold on the incentive fund, however.
Supervisor Eugene A. Delgaudio (R-Sterling) noted during the Dec. 9 meeting that he judges each prospect for incentive funds on a project-by-project basis.
And he said that some county residents are skeptical of the incentive program.
Their thinking, he said: “It is an expenditure of funds that doesn’t go to safety, that doesn’t go to education, that doesn’t go to tax reduction, and therefore it has no merit.”
However, Buona said those questioning incentive funds don’t understand the purpose of the money.
They wrongly think the county is somehow investing taxpayer dollars in companies that receive the incentives, he said.
“You’re not making an investment in the company like Wall Street or a venture-capital firm would do,” Buona said. “You’re simply saying, ‘Come to Loudoun, not to Maryland,’ and that’s why we do this.”
