2008 Economic Deal of the Year Awards: Gold

Infrastructure, Education and Quality of Life Convince Rolls-Royce To Deliver a Jet-Powered Boost for Growth in Virginia

Project Title: Rolls-Royce, a New Economic Engine for Virginia’s Gateway Region
Entered By: Virginia’s Gateway Region

Project Impact Estimates:

• Over 10 years, nearly $1.4 billion in direct economic activity in VGR; indirect economic output will be $489 million; induced activity is expected to total $228 million

• 3,110 direct jobs created; 3,019 indirect jobs; 2,097 induced jobs
• $205 million in direct personal income (wages); $174 million in indirect income; $75 million in induced income

• Estimates calculated by the NCDS Economic Strategy Center of Atlanta

The competition this year for our annual Economic Development Deal of the Year Awards was intense, with 17 big-ticket projects nominated by agencies in 14 states. Picking a winner was a challenge for our eight-member judging panel, which evaluated economic impact statistics, job-creation estimates and project narratives submitted by the applicants. Overall, the development initiatives nominated for the awards are expected to generate billions of dollars in positive economic activity for the regions they represent, creating thousands of new jobs as they come to fruition.

The verdict is in and the winner of our Gold Award for 2008 Economic Development Deal of the Year is Virginia’s Gateway Region (VGR) for its entry, “Rolls-Royce: A New Economic Engine for Virginia’s Gateway Region.”

Rolls-Royce, a global leader in jet engines and other power systems for the aerospace, defense, marine and energy markets, considered 35 U.S. and international locations during the site selection process for its new advanced manufacturing center, a search that began several years ago.

During the next 10 years, the 480,000-square-foot manufacturing center is expected to generate nearly $2 billion in economic activity in Virginia’s Gateway Region, including $383 million in wages resulting from the creation of more than 8,200 new jobs, with about 3,100 employed directly by the plant. The project also is expected to have a dramatic positive impact on the region’s education programs, research capabilities, and its standing as a prominent player in global markets.

According to James Guyette, president and CEO of Rolls-Royce North America, the combination of VGR’s excellent transportation infrastructure, large and varied skilled workforce, competitive incentive package, and a superior quality of life sealed the deal. “The overall combination of value that we saw in [Virginia] was the deciding factor,” Guyette says.

London-based Rolls-Royce, the second largest maker of aircraft engines, says it intends to assemble and test engines for midsize jets at the new advanced manufacturing center, which will be located about 25 miles south of Richmond and is scheduled to be fully operational by the end of 2009. The North American headquarters of Rolls-Royce are located in Chantilly, VA.

A major attraction of the Prince George County site for Rolls-Royce was the fact that it is 100% county-owned, with all studies and due diligence already completed, allowing for a swift and simple transaction and fast permitting. As an additional sweetener, Prince George County gifted the plot of land to Rolls-Royce.

Our judging panel was particularly impressed with the creativity displayed by Virginia in crafting an incentive package for Rolls-Royce. Included in the package are $35 million in performance grants; $56.8 million in cash payments that are partly dependent on employment and investment targets over the next 16 years; $6 million from the Governor’s Opportunity Fund to meet future infrastructure needs; a $5 million grant for the development of spin-off companies; a five-year tax break on machinery taxes, tool taxes, and the company’s business license; a 50% discount for connecting utilities; and the waiving of rezoning costs also are part of the deal.

Beyond these financial tools, additional incentives were included that met the specific needs of Rolls-Royce’s technology-driven business, such as guaranteed workforce development funds (Virginia will invest $8.7 million to assist in employee training). VGR also added a “highly customized” relocation package worth approximately $1.5 million.

Virginia predicts that it will break even on its investment in the Rolls-Royce plant by 2015, and it expects a return of at least $70 million within 20 years. In addition to a bonanza of new jobs, the state is making a concerted effort to lure a number of tier-one suppliers to service the new plant, maximizing the overall impact.

“The Rolls-Royce deal represents an impressive initiative to create future prosperity for the region and surrounding area,” says judging panel member Howard Silverman, president and CEO of The CAI Global Group, Inc. “The numbers are outstanding and the creativity to get the deal done is why this submission is a real winner from all perspectives. Congratulations are well deserved.”

The bevy of incentives was complemented by an innovative and collaborative approach toward meeting Rolls-Royce’s need for a skilled, high-tech workforce. This approach resulted in an agreement to create the Commonwealth Center for Advanced Manufacturing (CCAM) at the plant site. CCAM will be a collaboration between the University of Virginia, Virginia Tech, and Rolls-Royce; it will serve as a research and training facility for Rolls-Royce engineers, scientists and graduate students. The program will reach down to the community college and high school level, with “career coaches” in high schools steering engineering-oriented students to undergraduate programs in mechanical and aerospace manufacturing. The Commonwealth Center also will be located at the plant site.

“Virginia’s education system was a key factor in [our] decision to locate a plant here,” Guyette says.

Virginia Governor Tim Kaine said in announcing the deal that the new facility will help solidify Virginia’s place as a global leader in advanced manufacturing, with world-class ports and airports. “There isn’t any reason why our Commonwealth can’t embrace global trade and feel optimistic about it,” Kaine said.

Rolls-Royce initially is investing about $100 million in the new plant, with options to invest up to $500 million for future manufacturing projects in its defense and civil aerospace businesses. The Virginia facility will assemble and test the RB282 engine, selected by France’s Dassault Aviation for its new super-midsize business jet, potentially the first in a family of small engines for corporate and regional jets. The plant also will have the capability to produce components for the F136, an advanced engine that the U.S. Department of Defense is developing for its Joint Strike Fighter.

VGR acted as a liaison between Prince George County, the Commonwealth of Virginia and Rolls-Royce, providing a mix of local and regional information in a 150-page package and through regional tours that highlighted the quality of life and relocation services in the region. In its award nomination, VGR specifically cited Virginia Economic Development Partnership and Prince George County Economic Development for the key roles they played in bringing the project to fruition.

Transportation infrastructure was a key concern for Rolls-Royce. VGR offered a well-developed infrastructure that boasts central positioning on the East Coast and close proximity to major ports, and facilitated discussions between Rolls-Royce and the Virginia Department of Transportation to discuss potential traffic issues and to gain an understanding of future transportation needs and improvements that will be required by the new plant. As a result, a progressive traffic plan was created and a $6-million grant from the Governor’s Opportunity Fund was approved to help finance future infrastructure needs.

Virginia’s Gateway Region is made up of five counties (Chesterfield, Dinwiddie, Prince George, Surry and Sussex) and three cities (Petersburg, Colonial Heights and Hopewell) in central Virginia with a combined population of approximately 451,000. Business Facilities congratulates Virginia’s Gateway Region for its selection as the site of the Rolls-Royce manufacturing center and for this well-deserved recognition as the winner of our 2008 Economic Development Deal of the Year Gold Award.

Picking the Winner

The 2008 Economic Development Deal of the Year recognizes the locations and economic development agencies that landed the highest-impact corporate expansions announced between July 1, 2007 and the entry deadline of September 30, 2008. With this award, we also seek to demonstrate the vast impact that these companies have on communities through their decisions to invest and create jobs.

For the purposes of this award, an “economic development deal” is defined as any one of the following:

• A project or effort that resulted in the relocation/expansion of a company to a location served by the entering organization;

• A project or effort that resulted in the expansion of a company already within the territory served by the entering organization;

• A project or effort that resulted in the demonstrable retention of a company that would have otherwise left, in whole or in part, the territory served by the entering organization;

• Any combination of the above.

Nominees were required to provide official economic impact numbers produced by the RIMS II, IMPLAN, or REMI certified analysis methods, including direct, indirect, and induced figures for economic output, job creation, and capital investment when available; and a narrative explaining the impact of the project; the unique challenges this project presented to the company and economic developers; and the originality of the methods used by the economic development organizations involved to secure the deal. Judges evaluated the narrative and the economic impact numbers and gave each project a score ranging from zero to 100. The highest rated entry is our Gold winner and is considered our official Economic Development Deal of the Year; the second, third, and fourth place entries are awarded the Silver, Bronze, and Honorable Mention awards, respectively.