IS THERE ECONOMIC OPPORTUNITY FOR WV?
WVU chief economist says opportunity could come in several different forms.
It’s no secret that the coal industry is on the decline in West Virginia. Production is down, natural gas is booming and prices are very low, environmental regulatory standards are more stringent and international demand is dropping. For a state that has depended too much on coal for generations, that’s not the best news.
Thus, West Virginia is at a crossroads. But is there economic opportunity out there for the state? West Virginia University’s chief economist says “yes.”
Dr. John Deskins, director of WVU’s Bureau of Business and Economic Research, produces economic forecasts for the state and its distinct regions, the monthly Mountain State Business Index, and leads studies and research on West Virginia’s economy. And while the coal industry has seen steep declines in recent years, Deskins said the state could have bright days ahead of it.
“West Virginia as a whole needs to come to the realization quickly that it needs to diversify its economy and it needs to do much better with its human capital,” Deskins said. "If we develop good public policy and look at the industries that can really flourish here, the outlook could be anything we want it to be.”
He emphasized that the biggest potential to bring money into the West Virginia economy are the industries of energy (specifically, natural gas), manufacturing and tourism. “There are other sectors that have the potential to grow, but these are the industries that stand to bring in money from outside the state.”
The decline in coal has been dramatic, and the BBER’s annual coal report released in July indicated that the industry likely will not return to its peak production.
“After reaching nearly 158 million short tons in 2008, the state’s coal mine output has plummeted to 95 million short tons in 2015,” read the study. “The drop in statewide coal production has even accelerated in recent quarters, falling to an annualized pace of less than 73 million short tons through the first half of 2016. In the short term, the forecast calls for coal production in West Virginia to continue to slow to a total of less than 68 million short tons for 2016 as a whole — likely a historical low.”
But Deskins said that as one industry declines, the state must do a better job of identifying potential in industries that can flourish. “It’s like the old saying: ‘As one door closes, another one opens.’ As a state, we have to work together to identify those doors and open them.”
“We do think coal will improve a little, perhaps by a few million tons of annual production. By historical standards, it will continue to be depressed for some time, so we need to look at energy alternatives, such as natural gas,” said Deskins. “After infrastructure kinks get worked out, say in the next year or year and a half, you will see marked improvement in the natural gas industry.”
WVU’s chief economist said West Virginia is in a good position to benefit from “downstream” economic activity, with natural gas cracker facilities to be located in nearby Pennsylvania and Ohio.
“We will see substantial economic impact as a result of drilling alone,” he said, “and that will be a very positive impact. And that’s not the only industry opportunity.”
Scott Rotruck, director of Energy and Transportation Services with West Virginia law firm Spilman Thomas & Battle, supports Deskins’ call for a diverse economy and has long supported economic diversification from a variety of policy appointments.
“Dr. Deskins is absolutely right on the mark that economic diversification is critical,” said Rotruck. “An ‘all of the above’ energy strategy is the reality that we face — we ought to seek to optimize each energy source. Public policy is very important when it comes to energy. Seeking to optimize each energy source ensures competition, as companies in these various energy sectors are looking to get their piece of the pie in the market.”
Rotruck, a 1977 political science graduate of WVU and former vice president of Chesapeake Energy, knows the state economy. He was former chairman of the West Virginia Council for Community and Economic Development, the West Virginia Jobs Investment Trust and the West Virginia Tourism Commission. He recently accepted a position on the West Virginia State Board of Education. The Keyser, W.Va., native said the 1979 Energy Act introduced by President Carter put the coal industry in the spotlight by turning to the biggest coal reserves in the world, which were in the U.S. This laid the groundwork for the success of the coal industry in West Virginia.
“But now we know we need energy diversity. That diversity includes coal, natural gas, solar, geothermal, wind and water, and West Virginia can be a source for all of these because we have reliable energy sources in our state,” he said.
Rotruck pointed to an abundance of water in West Virginia, which is important in the energy sector. “There is an enormous connection between energy and water. Natural gas is a water-conserving energy. I am optimistic because West Virginia is sitting on top of major gas shales and we have an abundance of water,” he said. “That’s extremely advantageous.”
When it comes to natural gas, West Virginia is in a pretty good spot. The Marcellus and Utica shales that are economically recoverable exist primarily in the northern part of West Virginia, but the Rogersville Shale, an even deeper formation, may prove to be economically recoverable in some southern counties.
“The natural gas industry has been continuously productive and increasingly efficient in West Virginia and also has the nicest slices of the Marcellus Shale ‘wet’ gas window. That wet gas has the ability to reinvigorate the manufacturing sector in a state that is within a day’s drive of two-thirds of the U.S. population,” he said.
“For West Virginia, we want to capture all the value-added manufacturing based off of optimizing the use of our diverse energy resources. We are near an energy-hungry New England. Manufacturing here can see an amazing resurgence, and the investment by Proctor & Gamble in the Eastern Panhandle can become the first example of that.”
“Manufacturing has lost a lot of jobs in West Virginia over the last decade, but that tide is definitely turning. And there is so much potential there,” said Deskins.
He specifically pointed to the manufacturing of natural gas, chemicals and transportation equipment, the last one attributed to the Toyota Motor Manufacturing WV, Inc., facility in Buffalo, West Virginia. Deskins also spoke positively of Proctor & Gamble’s new $500 million Tabler Station location in the state’s Eastern Panhandle that will eventually employ 700 full-time workers at the facility about four miles south of Martinsburg. The P&G plant will produce products like Bounce fabric enhancers, shampoos and body wash.
“The P&G facility will be a boost to the economy, with hundreds of new jobs in the manufacturing sector. The company actually had to shut down its application portal this spring because it had been inundated with applicants for jobs,” Deskins said.
Rebecca McPhail, president of the West Virginia Manufacturers Association, agreed that the state is poised for significant growth in the manufacturing industry because of an abundance of shale gas in the region.
“This sort of growth leads to additional manufacturing needs and growth of manufacturing companies who manufacture items to support the natural gas and chemical industries, or who use these chemicals to produce other goods,” McPhail said. She added that West Virginia has the ability to attract manufacturing to the state through location, a reasonable cost of living, diversity and quality of life, and a supportive business and advocacy network that includes groups like the WVMA, WVU Manufacturing Extension Partnership and other industry partners.
However, she said the state must focus on the components that must exist in order to attract companies, create jobs and lay the foundation for a burgeoning manufacturing sector.
“West Virginia must continue its newfound focus on policy development that creates a positive environment not just for manufacturing, but for all business and industry investment and growth. This includes regulatory balance, a competitive tax environment, and strengthening of the state’s education system,” said McPhail. “In addition, developing the infrastructure needed to maintain the benefit of shale gas development and downstream manufacturing growth is essential.
“The state must also focus on education, training and health initiatives to prepare West Virginians to meet the needs of an expanded workforce. This can begin by promoting educational pathways that create a strong workforce for future manufacturing growth, assembling stakeholders and implementing cross-sector strategies to address the regional drug crisis, and working to improve the overall health and well-being of West Virginians,” she said.
While the state is comprised almost entirely of small- to medium-sized businesses, the lion’s share of the largest companies in West Virginia — Toyota, Macy’s and, now, P&G — reside in the manufacturing industry. And the state’s leading manufacturing official said that is a great sign.
“Companies like P&G selecting West Virginia demonstrates the growing strength of the state’s manufacturing environment,” McPhail said. “These companies create great paying direct jobs along with a multiplier effect that further expands the economy — tax base, decreased unemployment and infrastructure development. Equally important is that investments the caliber of P&G create a sense of confidence in West Virginia for other companies that might be considering new ventures.”
Above all, West Virginia is probably best known for its beauty. Hospitality and tourism comprise an important area of focus for the state for two reasons: the attractions and beauty for which the state is known are not going to go away, and the industry can draw dollars from outside of West Virginia.
“We have so much potential, and if the industry pulls together to do more it can play a very important role in the state economy,” said Deskins. “I liken West Virginia to the Smoky Mountains in Tennessee, except that West Virginia has the advantage of having major population centers in close proximity.”
He also stressed the linkage of burgeoning entrepreneurship in West Virginia to the potential for a growing tourism sector. “It will be up to entrepreneurs over time to see what works in the state in this economy,” he said. “We need to make sure it is a priority for West Virginia to create and promote an entrepreneurial culture, which will be an important part of tourism overall. Fostering that culture is imperative, and that’s not nearly as good as it should be in our state.”
Alisa Bailey, CEO of the Charleston Convention and Visitors Bureau as well as the former West Virginia state tourism director and former president and CEO of the Virginia Tourism Corporation, said a commitment to the tourism industry in the state can pay big dividends.
“We’ve barely tapped the potential of the West Virginia tourism industry,” said Bailey, a 1979 WVU Perley Isaac Reed School of Journalism grad and industry executive for more than 20 years. “Travelers want to get away, experience outdoor recreation and unique experiences related to that, and there is a direct connection, for example, to the state’s unique towns. West Virginia needs to keep up its downtown areas, because many travelers want to come to downtowns. So you’re seeing many downtowns working to revitalize.”
The Charleston area is working on exactly that, putting forth some $200 million in public and private money to do things like refurbish the Charleston Convention Center and Clay Center for the Arts and Sciences, downtown development and expansion of its airport. Such a focus on revitalization, she said, can open up economic development strategies such as tying together communities that have common threads, such as heritage or history, or common activities or events. And she emphasized that there is no room for territoriality.
“This can be the economic seed of growing lodging, restaurants, retail and attractions. Tourists don’t care where the municipal or county lines are,” Bailey said. “We all need to work together.”
“B&E needs to be at the center of what is happening in the West Virginia economy,” Rotruck said. “B&E provides the solid numbers those of us in the business community can count on, whether they are hard and fast numbers or projections. Through a number of activities, the school brings parties together who are stakeholders in the state’s economy. It’s important that WVU’s business school continues its important role in research and education, strengthening programs specific to the state, and service and thought leadership to improve the lives of its citizens.”
Deskins said the leadership role is especially important now.
“We have very specific regional economies in West Virginia, but there is little data and forecasting out there for these regions. B&E can be the sole provider of this critical information for these regional economies,” he said. “We serve as a thought leader — we help people think about how they look at economic development.
“The challenges we face are hard and they’re hard to overcome, but we can help shape the approach policymakers use in taking on these challenges. Our role in thought leadership is so very important, and is critical to the forward advancement of our state.”