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Media Truth

How Cable Ready Socialism Failed Southwest Virginia

by Lewis Loflin

Starting around 2002 Bristol Virginia Utilities, part of the City of Bristol, Virginia, decided to "over build" existing private sector fiber-optic services. To quote Jim Kelley, manager of telecommunications for BVU,

"A fiber-optic network will make all the difference in allowing Bristol's business community to grow and compete for jobs on the upper-end of the wage scale. We cannot afford to wait for the day when private industry decides to deliver competitive broadband services to our community."

Almost 12 years and over $120 million in economic development funds across the rural counties of Southwest Virginia has yielded no measurable growth in either hi-tech or high paying private sector jobs. Most of the "new jobs" has been in the retail, hospitality, and related low-end services, which neither utilizes fiber optic as such and would have developed without it.

In that 12 years business has turned job destruction across the nation into an art form. Using technology combined with mass immigration has left American workers helpless against often government-backed business interests. As government backed high-speed fiber-optic has spread across rural America we find many job-poor regions, such as Bristol-Tri-Cities-Southwest Virginia, in bidding wars against each other for fewer and often lower paying jobs.

Bristol Virginia and OptiNet have simply given up on even trying to lure in any form of technology jobs at higher pay and is now sinking almost $65 million into a massive retail development.

Thus "public investment" in fiber-optic has totally failed in the sense of promoting economic growth even when given away as part of incentive packages to business. High-speed fiber-optic across the region operates more as a government subsidized utility and may have cost more jobs than it created. Some call it "cable ready socialism."

In my view as more and more fiber-optic is constructed in rural communities across the nation the return will be less and less in the sense of jobs and opportunity for the large numbers of poor rural Americans. They will continue reeling from declines in manufacturing, mining, and agriculture.

The subsidies and grants have become an industry in itself enriching mostly those in the government loop. This is also becoming an outsourcing bonanza for business working to further undercut the labor market and displace workers.

Let's look some examples across the region and see what 12 years and $120 million has brought to Southwest Virginia.

Lenoir, North Carolina. While not in Virginia they stand out as one of the more costly fiber-optic fiascos. The community has suffered massive job losses similar to Southwest Virginia with the loss of manufacturing jobs.

In 2007 Google was offered $265 million in incentives to locate a server farm and data center in the community and promised 220 jobs. In 2013 only 150 jobs have been created including janitors and security guards and the unemployment rate still hovers at almost 12 percent. Other than the usual unstable and low paying call centers, few hi-tech or high paying jobs have materialized.

Bristol, Virginia 2013. Going over $50 million in debt at Opti-Net in addition to tens of millions in government grants the promised jobs never materialized. Bristol Virginia in 2012 suffered to loss of two call centers and perhaps 500 jobs despite its high-speed fiber optic and financial incentives. In 2012 Sprint and US Solutions jumped the state line to Bristol Tennessee and Sullivan County to collect millions in incentives from Tennessee taxpayers and get the same high-speed fiber optic.

This has been problematic all along as the spread of fiber optic across this poor, low-wage rural and semi-rural communities has now pitted one community against another trying to outbid each other trying to buy jobs. In this case no new jobs were created, but simply moved around within the community costing taxpayers between $5 and $10 million. I don't classify call center jobs as IT jobs and that is what we got before the millions of public dollars were "invested", and that is all we are still getting.

In addition Bristol Virginia Utilities became embroiled in a legal fight with Sprint. These pseudo-government entities such as BVU put private sector companies out of business and in this case a number of Sprint employees losing their jobs exceeded the few new ones hired at BVU.

We are not creating new or better jobs, but often just shifting jobs around or eliminating existing jobs while enabling outsourcing firms and contractors to push wage-scales ever lower.

See BVU and Cable Ready Socialism

Buchanan County Virginia Outsourcing firm Sykes became the anchor tenant in a new $25 million industrial park paid for by taxpayer funds and the presence of new high-speed fiber optic. Sykes in 2004 closed down a similar call center in nearby Pikeville, Kentucky costing almost 400 jobs there. Fiber optic in fact was already available in much of the area, but they simply "overbuilt" that with taxpayer subsidized fiber optic.

Controversy broke out in 2010 at the Virginia Tobacco Commission over Sykes cutting jobs in nearby Wise, Virginia while hiring new workers in Buchanan County on the taxpayer dime. That was a direct violation of the funding criteria, but public officials wanted to reclassify the "new" jobs as different from the near identical call center jobs in Wise. They argued the higher standards (and higher pay) of the jobs in Wise made them different than the new lower paying jobs in Buchanan County. Net new jobs were only about 100.

See Buchanan County Sykes Fiasco

Dickenson County Virginia Like the problem with outsourcing firms such as Sykes nowhere is this better illustrated than with Travelocity at the Dickinson County industrial Park near the town of Clintwood. In 2000 a call center for Nexus moved in and never hired more than 188 people of the 550 promised at the almost $7 million facility.

Nexus went away and by 2001 it was announced Travelocity.com would get the building and more public handouts. They promised another 500 jobs. By May 2005 Travelocity made national headlines when they dumped Clintwood for India. The 500 new jobs never exceeded 250 many part time and temporary positions. To this day public officials claim the "creation" of 1200 jobs.

The alphabet soup of government economic development agencies (LENOWISCO, VCEDA, Virginia Tobacco Commission, etc.) had a terrible record in recruiting stable jobs that paid a decent wage. The region was already overly dependant on government money in one form or the other, now it would be official. Critical was the decision in 2005 to mostly abandon luring private sector employment and throw their efforts into keeping what was left and go after government contractors. These two news releases stand as a record:

"The Virginia Coalfield Economic Development Authority (VCEDA) wants to keep the jobs it lures to Southwest Virginia, which has endured losses in recent years to cheaper overseas labor...the authority has changed its recruitment and development strategies for the upcoming fiscal year...State and federal contracts are among the new targets...The region had success luring an AT&T Virginia Relay Center to Norton and a Virginia Employment Commission customer care center to Grundy. Both rely on government contracts to keep them in business. "Federal contracts can be lucrative and provide stable, long-term employment opportunities...Usually, the compensation is excellent and the benefit package is excellent. The benefits and compensation frequently mirrors federal and state pay and benefits." Ref. Bristol Herald Courier June 4, 2005.

And:

"An $18 million federal contract will mean more than 80 new jobs in Dickenson County. SI International, a company based in Reston, VA., will open a call center in the former Travelocity building...SI International has already contacted some former Travelocity workers about the possibility of hiring them. The company offers hourly wages in the $9 to $10 range...The authority decided last month to change its recruitment efforts to focus more on landing companies that contract to provide services for federal and state governments...Because it won a federal contract, the company will not require any financial incentives from the authority..." Ref. Bristol Herald Courier June 22, 2005.

But the facility they occupy cost taxpayers about $10 million or around $100,000 per job. Then they simply rehired those that suffered layoffs from previous firms as many as three times. Let me focus on the Virginia Employment Commission center in Grundy. Those were not new jobs as such.

In 1996 VCEDA claimed the creation of 318 new jobs at Pro Air call center in Buchanan County. They soon pulled out, most of those jobs never materialized. They soon announced 60 new jobs at a new VEC center to process unemployment claims. What they forgot to tell us is the plan to fire workers at other VEC offices in the region.

In Southwest Virginia, the plan calls for eliminating more than 50 jobs at seven field offices. That represents about a 40 percent cut in staff. They claim this is due to a drop in processing unemployment claims, so why open a center to process unemployment claims? Net real job gain is zero and pay is less than the jobs lost. VCEDA gets credit for so-called "job creation" and fills an empty shell building. Ref. Bristol Herald Courier June 3, 2005.

They simply fired and displaced local workers around in regional Employment Commission offices and pilfered economic development funding that paid for the new facility, which I was told then subcontracted the jobs out at much lower pay and benefits. Technology including government subsidized fiber-optic allowed the State of Virginia to cut jobs and wages in a region already in desperate need of the just the opposite.

Since 2000 about $300 million has been spent on infrastructure (roads, flood control, high speed fiber optic), a law school and pharmacy school (underwritten by tax payers) which resulted in the creation of a new Wal-Mart. The population of Grundy and Buchanan County suffered another 10 percent loss of population as of the 2010 census. Infrastructure is not the problem.

Russell County and Lebanon Virginia

Related: How CGI-AMS and Northrop Grumman Failed Russell County Virginia

"With two gleaming office buildings on a hill above Main Street, there's no question that CGI and Northrop Grumman have changed the landscape since announcing their arrival here five years ago. But no one's calling them the saviors of Russell County anymore."

This was a local press release near the end of 2010. Eight years after announcing in 2005 the "creation" of 700 new jobs over five years has fallen woefully short. Even with $9 million in local incentives and a $2 billion state outsourcing contract, as of 2013 there's no evidence any substantial IT or high-tech employment in Russell County.

I predicted then this was another scam and was overblown by politicians and the press. I was proven right by the same press that banned my letters to the editor critical of this deal. Let's quote the Bristol Herald Courier from October 17, 2010:

"Yes, they have afforded many economic development opportunities and advantages for Russell County. If the question is, did they bring an overnight sensation and a great influx of population or commercial development - we are still working on that."

So says County Administrator Jim Gillespie, who has since retired. What advantages Mr. Gillespie? I've written several public officials at VCEDA and Russell County for specific employment numbers and other information. All information related to IT employment in the County is suppressed by the State of Virginia.

They did let it slip what was really going on. Cheryl Janey, vice president of communications for Northrop Grumman's information systems sector according to the press said NG only had 170 employees. What happened to the 500 new jobs we were promised? Even worse is they are operating a call center and a data backup facility. Many of the call center jobs which makes up much of their workforce pays only $9 an hour or about the same as the local AT&T call center according to workers I interviewed.

Nobody will confirm anything officially on what jobs pay or what they really are. That is nowhere near the $50,000 a year average announced by now Virginia Senator and then Governor Mark Warner (D-VA). Nobody was listening to what they were really saying at the time.

An article titled After plant closings, hard-hit towns see salvation in high-tech (Herald Courier June 2, 2007) reveals some of the reasons. While the article concerns Lenoir, N.C. and the Google fiasco, they also mentioned Lebanon:

"In rural areas, the phenomenon is known as "farmshoring," a play on the term for moving jobs overseas, "offshoring" Farmshoring is already happening in Lebanon, a small town in Southwest Virginia hit by manufacturing losses and changes in coal mining. Two high-tech companies, Northrop Grumman and CGI, are building facilities that together will employ 700. One big draw to Lebanon for the companies: workforce stability. In places with a large high-tech base, turnover can be rampant.

It's easier for employees to jump to other companies, driving up salaries. In some parts of India, it's as high as one in three leave within the first year because of competition for employees. With us, here, there aren't that many other places for people to go," said Mark Eschle, of CGI, which also has offices in India."

Listen real close to what they are really saying: We want to pay low-wages and have a captive workforce. That means keeping out competition and pay low and CGI seems very successful of that.

At the time they also had a job fair for CGI and Grumman that I attended in Abingdon. After all my degree is in computer information technology. The job fair was a scam. It was put on by VCEDA and not by Northrop Grumman and CGI. When I talked to their reps they said the jobs paid averaged $30,000 a year and might be more dependant on experience. They got very defensive when I asked about CGI outsourcing jobs to its India office.

It's my opinion that's just what they did. Virginia Highlands Community College was offering at the time computer classes in Java, C++, etc. but dropped after a year or two. There are no real courses in computer programming offered there today because there is no demand for the jobs. And while IT job statistics are suppressed in Russell County, data shows no increase in IT employment or pay scales in surrounding communities even with Opti-Net being connected to every chicken coop in the region. They remain depressed far below the state average.

They came in way short of the 700 jobs promised, but what of the commercial development that was supposed to follow? Mr. Gillespie is proud of the $217,000 in property taxes paid by the firms and the almost $9 million in incentives he seems to think was a good deal. The County "onschool budget" is only $26 million a year. Mr. Gillespie goes on bragging about the wonderful sales tax collections from Wal-Mart!

Something called At GardenSide Village a high-end housing development remains mostly unbuilt and vacant. The builders blame it on the housing bubble, Mike Fletcher a managing partner of the development had this strange reasoning. To quote,

"We didn't get the people that we thought we were going to get. I think what you have is a lot of kids straight out of college who can't really afford to buy anything; they rented apartments in Abingdon."

It's strange in the fact this was supposed to be 700 new high-paying jobs, but it obvious not only did many of the jobs never materialize, but most paid closer to the $30,000 I was quoted at the job fair a few years back. Call centers don't pay $50,000 a year.

Further evidence from the press report which checked with the Chamber of Commerce executive director Linda Tate. She noted,

"There's nothing that really stands out in my mind that would be a direct link to those businesses [CGI and Northrop Grumman] that's been able to survive. I think everyone who has started a business in the last five years has had a great business plan and a great idea. ... I don't know what the factors were, but they did not survive."

Morning Star Bakery was one of those that closed and its owner Donna Watson said,

"I thought they were all going to live here and they would support this place and it would start to grow. I can't see that it has. You could talk to some people in the politics of it that might think differently, but ... as far as growth, I don't see any growth in town."

And yet the politicians still claim this is a "proven model." The trouble is they can't prove that it is. In the last census Russell County lost another five percent of its population.

Summery

There is no proof anywhere in the Southwest Virginia Bristol region that "socialized" fiber optic service lead to jobs or economic development. Local planners don't even pretend to try and chose to rely on government contractors and government spending in general to float the region's economy.

Because of its politics and job structure this region can never get or retain any number of high-tech workers in the private sector. Luring companies with massive incentive packages and promises of a cheap educated workforce borders on waste and fraud. There is a near total lack of an educated workforce due to out migration driven by poverty and the very low wage scales economic try to sell as an asset.

Much of the workforce needs to repeat at least three years of high to even begin any meaningful career in college. Most college graduates we have now refuse to work for $8-$9 and simply leave.

BVU's Opti-Net operates as another utility under written by tax payers. There is zero proof in Bristol or in the Tri-Cities region high speed has created any real opportunity or development. The thousands of college graduates (between 8000 to 10,000 a year) have little to look forward to except costly student loans and $8-$9 an at local call centers. (Many were lured from Southwest Virginia and other small communities by generous incentive packages.)

Yet here In Tri-Cities (Bristol-Kingsport-Johnson City) County Commissioner Jack Sitgreaves said the following,

"I was in no way casting dispersions on the level of education at ETSU. (East Tennessee State University) When I said that "we have ETSU students flipping burgers," I was pointing out that we do not have the level of jobs in this area to sustain the number of graduates from our local colleges...My comments were in response to another commissioner who seemed to treat these jobs as lesser to those of a college graduate. It is this perception that deters our young people from seeking trade training. It is this perception we must change."

That was in 2004. In 2012 Sullivan County paid millions in incentives to get those two Bristol call centers to jump the state line. Highest rates of jobs growth in Tri-Cites even with thousands of college graduates and high-speed fiber optic is still retail, restaurants, hospitality, and yes those $8-$9 an hour call centers.

Posted 9/24/2013

See College Graduates Flipping Burgers in Tri-Cities