2016 President’s Report

GNC Annual Meeting, June 7, 2016Chuck McPhillips

This afternoon I will take just a few minutes to talk about GNC’s role in devising a new economic development game plan for Norfolk and the region.  I am proud of the leadership that GNC has exhibited in first calling for a debate over our region’s economic development strategy and then, I believe, in winning the debate over necessary course corrections in that strategy.  Indeed, something is rising in Norfolk beside the sea level.  We are rising to the challenge of retooling ourselves into a more diverse, more innovative and less federally dependent economy.

Truth be told, we started this movement five or six years ago groping around in the dark for a way out of the economic mulligrubs we suddenly found ourselves in.  At a retreat, many of you remarked on how your children were not returning to this region because they found better job opportunities or living options elsewhere.  We knew military‑related spending and employment were in a profound decline; we also knew that out-of-town or foreign companies were not locating plants in our region like they once did; that our rate of new business startups was lagging behind other regions in Virginia and the Southeast; that few of our early stage companies were getting funded by private equity or venture capital; and that, save for Norfolk-Southern and Dollar Tree, our mainstay employers were increasingly controlled by parent corporations headquartered elsewhere.  But little did we realize that we were sliding toward a historic collapse in local economic activity to the point that Hampton Roads is now dead last among the 100 largest metropolitan regions in the United States in recovering from the Great Recession.  Indeed, from 2011 to 2014, employment growth in this region averaged only .46% per annum.  To put that meager number in context, in the same period Richmond’s employment growth rate has more than tripled ours, Raleigh’s was six times greater and Austin’s eight times greater.

So it turns out that all of you were right to be concerned and we were right to call for a departure from our region’s traditional economic-development strategy which featured, as far as I could tell, only two tactics.  Number one, trying our best to recruit out of town companies to move or invest here and, number two, lobbying to keep as much federal military spending in this region as we could.  We needed more of that strategy like we need more rain this Spring.

Now, to be fair, our leaders in Norfolk had been making and were continuing to make significant investments in our downtown that would play a large role in brightening our future—more about that in a minute.

But first, back to that dimly lit room where we stumbled around five years ago, when we decided to try something new, to explore a long term strategy to reverse a brain drain we perceived as weakening our region.  We asked Shurl Montgomery to work with our best and brightest Millennials to identify initiatives that would attract and retain their peers in our City.  We also resolved to move forward with major new educational initiatives to internally develop the brains and skills our region would need to compete in the future – thus our long term campaigns to establish a STEM-oriented Governor’s School for Innovation & Entrepreneurship as well as a national caliber Career/Technical School.

We then brought in an array of outside experts, consulted the best thinkers in this region, and took a deep dive nationally to discover and validate the best practices adopted in more rapidly growing regions such as Nashville, Chattanooga, Durham, Raleigh, Charlotte, Richmond and Austin, among others.

The Brain Drain task force soon morphed into a full-fledged blue ribbon panel of regional thought leaders led by Shurl Montgomery and Thom Crabtree to devise a game plan by which our home team would rally from behind in the second half of this decade.  This game plan was intended to diversify (not replace) our traditional economic development strategy by focusing on cultivating, attracting and retaining talent – entrepreneurial talent, innovative talent, risk-taking talent, high-tech talent, engineering talent and talent armed with the skills necessary to compete for work in a global 21st century economy.  This talent would create and staff new and existing companies in the region preparing to export their products (hardware and software) and services to non-federal customers located around the country and the world.

We have learned that the talent require to pull this off must be developed here or drawn here, and kept here, by the magnetic force of clusters.  Clusters of other creative, talented people of all ages, especially the Millennials who are marrying later and demanding places to live and work in authentic downtowns.  Clusters of Higher Ed, research institutions and other world-class educational institutions; clusters of medical institutions in an economy that is almost one-fifth health care; clusters of skilled workers coming out of our great high schools and community colleges; clusters of start-ups found in business accelerators and co-working spaces; clusters of physical assets to include vibrant, diverse, bikeable, walkable and transit-connected urban spaces and places that excite creative people of all ages; clusters of funders providing patient equity capital to early-stage growth businesses; clusters of mentors who guide and support early stage entrepreneurial startups; and clusters of entrepreneurs who seize upon the advantages of an open-source environment and knowledge spillover among firms concentrated in compact innovation districts where all these economic, physical and networking assets are densely clustered.

Now you know why the City’s investment in downtown was warranted.  ADP was but one return on that investment.  ADP wanted a particular type of environment for its 1800 employees.

So what have done and what have we accomplished at GNC beyond tweeting our brilliant insights?  First, we recognized the need to more equitably fund our public institutions of high learning in Norfolk – EVMS, Old Dominion and Norfolk State – so that they will eventually be able to do for us for what VCU has done for Richmond, Virginia Tech for Blacksburg, the University of Pennsylvania for West Philadelphia, and so on.  To that end, GNC convened a group of regional heavyweights to lobby the Governor, leaders of the General Assembly, the Hampton Roads delegation and the money committees to treat our three state schools better, more fairly.  Although we were certainly not alone in advocating for more equitable treatment, the fact that we were not acting as employees, lobbyists or board members of these institutions, but as business leaders primarily looking out for the future of our region, was found to be instrumental to the considerable success these institutions enjoyed in the last General Assembly in improving their operational funding and in funding a number of their key capital projects.

We have been vigorous supporters of Paul Hirschbiel and the others associated with Hampton Roads Community Foundation’s work to improve the availability of private equity capital for early stage companies, which has taken off through the growth of 757 Angels.  A group of us from GNC (we are calling ourselves the GNC Investors) has invested in 757 Angels and we have begun to invest in some of the promising early stage companies they are supporting.  We have also worked to bring CIT more prominently into Hampton Roads so that your tax dollars are not merely funding cyber startups and other high-tech startups in Northern Virginia, but also technology companies in Hampton Roads.  I got an email from Maurice Jones just yesterday reporting on his efforts to help us increase the connection between CIT and Hampton Roads.

Third, we have pushed for the establishment of the Norfolk Innovation Corridor stretching along the Elizabeth River from Old Dominion to Norfolk State as a place in which anchor institutions in education, health care, the arts and business, together with a cohort of young entrepreneurs, are densely located, exemplifying the innovation district phenomenon that has catalyzed the economic surges in Chattanooga, Nashville, Boston, Seattle and other more prosperous regions.  We seek to build upon the concentration of these assets in the Norfolk Innovation Corridor in order to foster the startup and growth of more technology related businesses and thus employment opportunities for citizens throughout the City and region.  In this regard, please allow me to recognize Deputy City Manager Peter Chapman for his great work side by side with our GNC team in developing this concept and then City Manager Maurice Jones and Deputy City manager Sabrina Joy-Hogg for crafting the ordinance that officially designated the Norfolk Innovation Corridor as a “technology zone” under Virginia law, enabling the City to incentivize the growth of technology businesses with a multi-year BPOL tax exemption and abatement program.  This ordinance was unanimously approved by City Council in adopting the 2016-17 budget.

The BPOL tax incentive program will be complemented by the new Norfolk First Loan programs for which companies locating in the Innovation Corridor/Technology Zone will be given priority consideration.  We congratulate Peter Chapman and his colleagues at the City for their success in winning a $19 million authorization from HUD to help fund some of the more capital-intensive business investments to be made in our Innovation Corridor and City.  Please make sure you have a representative of your firm at our briefing this Friday at 8:00 a.m. on these new loan programs, especially the opportunities created by the HUD program.

As a further incentive, we also propose rewarding businesses located in our Innovation Corridor that succeed in obtaining a U.S. patent for inventions incorporated in their products or services to be exported from the Norfolk Innovation Corridor.  This patent reimbursement incentive will boldly, crisply and clearly communicate to entrepreneurs and innovators that the Norfolk Innovation Corridor should be home to them.

How will we fund this program?  To get there, we must first take the Elizabeth River Trail to the next level if we desire to capture the recreational, health-related, social and economic development benefits that cities such as Columbus, Chattanooga and Greenville have enjoyed from their vastly improved urban river trails.  Indeed, Columbus recently announced the construction of a 25-floor Millennial Tower brought to their downtown because of its proximity to their wildly popular river trail.  We have in Norfolk – what, 144 miles of shoreline?  But how much access do we give the public?  We need kayak and canoe let-ins and water access generally to grace the necessary improvements to this Elizabeth River Trail, which in turn will become a great physical asset and economic development asset for the City of Norfolk.

Again, I thank City Manager Marcus Jones and Deputy City Manager Sabrina Joy-Hogg, and our City Council, for their support of the 2016-17 budget funding design work on a prototype quarter-mile stretch of our Elizabeth River Trail, as brought up to the standard of these other successful urban river trails.  Once we have that prototype design in hand, we will cost out the amenities and other improvements needed, and then we will turn to all of our respective firms to each adopt a quarter mile stretch of the Trail, branded in the name of your companies. Your sponsorships will fund construction of these amenities and improvements as well as your pro rata contribution to the privately funded patent reimbursement program I mentioned a few minutes ago.

Let me also take this opportunity to thank Mel Price, Kevin Murphy, Rachael McCall, John Garrett, Joe LaFond and Peter Johnston for their hard work in getting us to this critical juncture.

There are other accomplishments but lastly I mention our partnership with the Downtown Norfolk Council and the City.  Through Barry’s and our partners’ hard work, we have tripled the size of the LiveNFK summer intern program.  The 2016 LiveNFK intern program kicks off later this week with a welcome lunch with the City Manager and approximately 90 interns/summer associates participating.  This program is now a talent recruitment tool, enabling college students to establish relationships and learn their way around what we hope will become their future homes.  Their exposure to senior business and government leaders make them feel like insiders and help them perceive Norfolk and the region as the place where their best opportunities lie.  Our next step must be to elevate this program to the regional level.

So in closing, let me quickly tick off some unfinished business that we need to get on with:

  • First: we must brand and market the new Norfolk Innovation Corridor – Steve Van Leeuwen will lead that effort.  We must implement the Adopt a Quarter Mile Program for the Elizabeth River Trail.  We must fund the patent reimbursement program.
  • Second: We must continue to push for the Career/Technical High School and the Governor’s School for Innovation and Entrepreneurship together on the same campus as a transformational Center for Excellence for Norfolk and the region.
  • Third: Like Durham, Boston, Chattanooga and Nashville, we need to open an iconic, magnetic flagship building in the heart of our Innovation Corridor; i.e. a mixing bowl where entrepreneurs and their support system come together in co-working spaces, a business accelerator, and other collaborative activities.  Think of it as an aquarium where we can take people to see our entrepreneurial ecosystem at work.
  • Fourth: Persuade CIT to establish a local presence for funding early stage technology companies in Norfolk and the region.
  • Fifth: Work to expand broadband connections throughout the Innovation Corridor and City – Dave Iwans will lead this effort.
  • Sixth: Take the Elizabeth River Trail to a new level.
  • Seventh: Continue to work with our partners in Higher Ed, in hopes that they will spin off graduates, new technologies and new companies which will provide great jobs and satisfying careers for folks from all walks of life.

When a history is written of this era, I believe 2014-16 will be seen as a true turning point.  We are indeed headed in a new, more positive direction.  Now we must stay the new course and speed our movement in this direction for the sake of this great City and this great region we call home.  If we do so, more of our children and grandchildren will call it home too.