Scientific and technological incentives in Virginia are insufficient, the study said

Several incentives designed to make Virginia’s economy more innovative have largely failed to stimulate economic growth, according to a state report presented to lawmakers on Monday.

Lawmakers are gradually expanding tax breaks to encourage Virginia companies to invest in research and development, with tax breaks in excess of $ 27 million in fiscal 2020. But a new report from the research department of the legislature, the Joint Legislative Audit and Review Committee, found that the program did not stimulate strong economic growth compared to other types of incentives, especially grant or loan programs.

Ellen Miller, chief analyst at JLARC’s economic development, told lawmakers that grants often work better than tax incentives because the state has more voice in the way they work.

“They’re better targeted, they’re discretionary, and they usually all have some minimum level of activity, like job creation, that is required,” Miller said.

The latest report is based on a series of JLARC findings showing mixed results for government incentives, ranging from labor force development to film subsidies. The commission previously found that the state spent $ 3 billion on economic development incentives from 2011 to 2020, most of which were either tax credits or tax breaks. About 28% of that comes from one program: a tax center tax exemption, which JLARC says saves companies more than $ 100 million a year. In a 2019 report, JLARC called the stimulus “relatively effective” and said it generated “moderate economic benefits”.

One of the goals of the stimulus for science and technology is to wean Virginia’s economy from its traditional dependence on the federal government and make it more dynamic. To that end, lawmakers expanded a program focused on research and development in 2016. But its impact is mixed, according to state researchers.

“R&D tax credits help businesses increase R&D spending, especially on smaller businesses,” Miller told lawmakers in a presentation. “However, Virginia’s R&D tax credits are too small to have a significant impact on the state’s overall R&D.” However, the increase in credit will not have a significant improvement in research and development. “

Miller said other engines, such as the economy and the combination of industry, play a bigger role.

The report also looks at a tax credit program for so-called angel investors who invest in companies at an early stage. Only 6% of people who received the loan had entrepreneurial experience, according to JLARC, which found that the program offered a low return on investment. The Commission has recommended that lawmakers consider abolishing the program, as well as narrowly targeted tax subsidies targeted at space companies using a launch site on Wallop Island.

Two programs focused on investing in start-ups offer more promising results. The program, now known as Virginia Venture Partners, offers a 60% higher rate of return than its initial investment and won JLARC’s highest job creation results. This program and another, now called the Commonwealth Commercialization Fund, have also helped start-ups grow, JLARC found, although the latter program offers lower returns on investment than other government incentives.

The report notes that Virginia lags behind in several measures for entrepreneurial vitality compared to other states. For example, when it comes to the number of patents per capita, Virginia ranks 27th in the country.

Government subsidies have been growing steadily over the last decade. The trend is likely to continue as the state pays a $ 750 million grant to Amazon in early 2026. This grant requires the company to create more than 37,000 jobs and invest at least $ 2 billion at its second headquarters in Northern Virginia .

This story was created with the help of the Editorial Board of the Association of Public Media Journalists, funded by the Public Broadcasting Corporation, a private corporation funded by the American people.

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