Reason, Liberty, & Culture

Southwest Virginia Job loses 2010-2020.
Fig. 2 Southwest Virginia Job loses 2010-2020.

How Northrop Grumman Failed Russell County

by Lewis Loflin

Update 2022: sadly I was proven right again. This kind of economic development must end.

I was asked to submit ideas and not just complaints. Fair enough. See Needed Political Reforms Ending Poverty Southwest Virginia

I wrote this letter to the editor in the Bristol Herald Courier December 10, 2005 in regards to the massive state IT outsourcing deal with CGI-AMS and Northrop Grumman in Lebanon, Virginia. Eight years later we need to take a sobering look at reality and how all the promises failed once again.

As a participant in the CGI-AMS Career Fair, I have deep concerns on what's really going on here. I feel the ad they placed in the Herald Courier was dishonest.

Most of those collecting applications weren't CGI-AMS employees and admitted they didn't know anything. What employees they had were very evasive. They couldn't even state job requirements, salaries, etc. other than a BS degree with experience paid in the "low 40s." That's not an average of $51,000!

What they did admit is troubling. They intend to hire most employees outside the region intending to pay far below industry standards hoping our low cost of living (due to our low standard of living) will compensate for their below market pay scales.

According to the Pasadena Star-News (July 13, 2004) this company had a similar deal with California, then outsourced the jobs to India creating a political uproar. Their representative got agitated when I asked about the use of H1b visas to bring in foreign workers. These type visas are used to bring in cheap foreign labor to replace American workers.

From their reaction, I don't think they have any intention of hiring 300 people. Many job announcements from public officials have proven grossly inflated according to data I obtained from VCEDA.

If Russell County residents are paying millions in corporate welfare so CGI-AMS gets a lucrative state contract, we should at least demand rigorous public oversight to be assured they hire the 300 people promised and they"re legal American citizens. No backdoor outsourcing to India.

It's time to end these dishonest job claims from government officials.

Also see Debacle in Clintwood Virginia.

Let's review a few facts from that exciting announcement about 700 high-paying technology jobs coming to Lebanon and Russell County.

Why Russell County?

June 2, 2007: If we dig long enough, we reveal the truth. An article titled After plant closings, hard-hit towns see salvation in high-tech (Herald Courier June 2, 2007) reveals some of the reasons. The article concerns Lenoir, N.C., which lost 5000 jobs in the furniture industry. Google planned to create a data backup center to create 220 jobs. Why Lenoir? Andrew Johnson, Google's Eastern regional infrastructure manager, cited several reasons:

"The town's manufacturing base offered a ready supply of affordable electricity and water. Tax incentives potentially worth $265 million, cheaper land, and cheaper living costs also made it economically attractive. Lenoir's location on the Eastern seaboard is close to millions of Internet users. Although Google made no promises to hire locally, it hopes to, partly "because it makes good business sense."

This article also brought up Lebanon, Virginia.

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.

At over a million dollars, a job in corporate welfare and no promise to hire local people sounds like a deal for Google. Lenoir, North Carolina, while not in Virginia, stands 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 incentives to locate a server farm and data center in the community and promised 220 jobs. In 2013 only 150 jobs were 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 center jobs, few hi-tech or high-paying jobs ever materialized.

In other words, they wanted a low-paid captive workforce. But controversy raged on at the time. In the report "Technology secretary wants full bids public: Three companies are fighting for Virginia's outsourcing contracts," Richmond Times-Dispatch Aug 9, 2005:

The state technology secretary Technology Eugene Huang will try tomorrow to pry into public view - unedited - the three detailed proposals for outsourcing the state's information-technology operations. Outsourcing the state's IT operations is potentially worth billions of dollars...VITA has taken the position that letting the public see the unsolicited business propositions would undermine the state's negotiating position in the deals. Details have still not been disclosed as of 2007.

And still, information was suppressed on job numbers and pay in 2013. CGI-AMS and Northrop Grumman landed Virginia's 10-year, $2 billion contract to update the state's information technology infrastructure.

They promised to hire 700 people at a backup data center and help desk. In the past, a "technology job" has been a call center paying $8-$9 an hour. Customer service call centers are not IT jobs.

Russell County and Lebanon Virginia in 2013

"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 in eight years.

Even with $9 million in local incentives and a $2 billion state outsourcing contract, as of 2013, there is no evidence of any substantial IT or high-tech employment in Russell County.

Just the opposite as Russell County continues to hemorrhage population. With more downturns in coal, the completion of a nearby power plant, and the loss of more manufacturing have left Russell County worse off than ever.

I predicted then this was another scam and was overblown by politicians and the press. I was proven right. 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. Still, Mr. Gillespie is not "working on that" because he retired and went away. What advantages is Mr. Gillespie referring to? He has yet to answer in a recent e-mail.

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 Russell County continues to be suppressed by the Virginia Employment Commission.

They did let it slip what was going on. According to the press, Cheryl Janey, vice president of communications for Northrop Grumman's information systems sector, said NG only had 170 employees.

What happened to the 500-700 new jobs? Even worse, they are operating a call center and backup data facility. Many of the call center jobs, which make up much of their workforce, pay only $9 an hour or about the same as the local AT&T call center, according to workers I interviewed.

It's simply another repeat of the Google fiasco in Lenoir, North Carolina.

Nobody will officially confirm what the jobs pay or what they are. $9 an hour is nowhere near the $ 50,000-a-year average announced by now-Virginia Senator and then-Governor Mark Warner (D-VA).

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, as I thought it was. VCEDA ran the job fair, not Northrop Grumman and CGI. When I talked to their reps, they said the paid jobs averaged $30,000 a year and might depend more on experience. It turns out they were sincere on that point.

They got very defensive when I asked about CGI outsourcing jobs to its India office. But we must understand that modern technology works against workers for the benefit of the business.

Technology opened up a vast pool of cheap labor across the globe. If they can't automate the job away, they outsource to those forced to take less - something CGI planned on in Lebanon, in their own words. Let's remember what they did in California.

It's my opinion that's just what they did. Virginia Highlands Community College offered computer classes in Java, C++, etc., "preparing" workers for those mythical high-tech jobs.

Those classes got dropped. There is no demand for IT jobs.

While IT job statistics are suppressed in Russell County, data shows no increase in IT employment or pay scales in surrounding communities in 2013.

That is information suppressed in 2022; only state-wide averages are available.

Even with fiber-optic connected to every chicken coop in the region, still nothing. Pay scales remain depressed, far below the state average.

They came short of the 700 jobs promised, but what of the commercial development that was supposed to follow? Russell County officials were proud of the $217,000 in property taxes paid by the firms and thought the almost $9 million in incentives was a good deal. The County's "school budget" is only $26 million a year. Officials go on bragging about the wonderful sales tax collections from Wal-Mart!

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 hard to buy a house for a college degree paying $9 an hour. Strangely, this was supposed to be 700 new high-paying jobs. Still, 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.

Southwest Virginia Population decline 2010-2018.

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."

Most workers in this region lack disposable income due to low pay scales and under-employment. This wage poverty is the work climate CGI and Grumman came here for, and reports say they are doing very well. Corporations are in business to create wealth for their shareholders, and cutting labor costs is a big part.

The politicians still claim this is a "proven model." It certainly is for corporate profits and money for consultants and economic developers such as themselves. In the last census, Russell County lost 7.5% percent of its population from 2010-18, proving that nothing ever changes in Southwest Virginia.

Updated Nov. 30, 2022.