Virginia s Manufacturing Roadmap

Transcription

1 Virginia s Manufacturing Roadmap Recommendations for the The Commonwealth of Virginia Prepared by The Virginia Manufacturing Advisory Council October 6,

2 Virginia s Manufacturing Roadmap Table of Contents Executive Summary... 3 Goal... 6 History... 6 Manufacturing Industry Issues... 9 Recommendations for the Commonwealth Survey If you would like to offer comments or suggestions, please contact: Bruce L. Kravitz CEO, Southwest Virginia Alliance for Manufacturing, Inc. 851 French Moore Jr. Blvd., Suite 128 Abingdon, VA Phone: FAX: Mobile: bkravitz@swvam.org 2

3 Introduction Executive Summary Manufacturing remains near the top of the list of economic drivers of Virginia s economy. The recent global economic downturn has affected not only the economic health of the manufacturers, but the image of the industry and its careers as well. The goals of Virginia s Manufacturing Roadmap, as prepared by the Manufacturing Advisory Council (MAC), are to make the Commonwealth aware of the concerns of the manufacturing community, and to recommend specific actions to revive the health and image of manufacturing in Virginia. The MAC comprises 15 members - ten from industry, two from higher education, two from government service agencies, and the Secretary of Commerce and Trade. History Since its inception in 2004, the Manufacturing Advisory Council has endeavored to help guide the Commonwealth s leaders to develop policies that would lead to improvement in the manufacturing environment in both economic development and education. Among these efforts has been the annual Governor s Manufacturing Summit, a statewide forum of top industrial, governmental and educational leaders. There has also been MAC committee involvement in specific tasks that researched the then-current business, regulatory, and educational climates, and made industry-specific recommendations to help progress the cause of advanced manufacturing in Virginia. These efforts include, but are not limited to 1) a Skilled Trades Gap Analysis, 2) creation of the Manufacturing, Engineering and Technology (MET) Career Coach program, 3) advocating a Career and Technical Education (CTE) diploma program in the public high schools, 4) researching and recommending various ways the Commonwealth could promote manufacturing, 5) creating a skilled trades certification system, 6) looking for alternatives to the Machine and Tools (M&T) tax, and 7) compiling these reports and analyses in the Virginia Manufacturing Roadmap. Issues Manufacturers and educators who contributed to this report were in general agreement on the major issues contributing to their concerns about how to improve the business environment and thus positively impact their businesses such as expanding their capacity utilization. The major categories they expressed included: improving the transportation infrastructure to lower costs and increase efficiency in the movement of goods to and from their facilities, 3

4 the negative influences current economic conditions are exerting on their markets and workforce, the expense caused by inequitable taxation systems both within Virginia and between Virginia and other states, the need for improved workforce training system delivery, including high school career guidance and post-secondary training and occupational certification systems, and the need for Commonwealth-wide support of the manufacturing industry, including both business and career opportunity promotion. The preceding issues formed the basis of the areas researched, and the resultant recommendations which follow. Recommendations The most recent recommendations suggested in this report are set forth in some detail in the body of this document. This listing is designed to highlight the areas thought to be important for near-term action by the administration. They mirror the categories noted in the issues section above. Create a committee of the Manufacturing Advisory Council to study manufacturers needs as they relate to the Commonwealth s transportation infrastructure to make suggestions for requirements or current-system improvement. These recommendations would be shared with the Transportation Secretariat. Continue and strengthen the recent efforts to enhance the educational programs and resultant occupational certification programs. These include the development of Manufacturing Specialist Career Coaches, promotion of Career Pathways, and offering more dual-enrollment classes offered by the high schools and community colleges. Postsecondary registered apprenticeships, Commonwealth-wide Career and Technical Educational diplomas and Career Readiness Certificates, and multi-level occupational certifications should be continued and strengthened. Tax reform needs immediate attention to correct the inequities placed on manufacturers by way of the Machinery and Tools Tax and to equalize the damper placed on Virginia manufacturers by other state s commercial activity taxes. Additionally, there need to be tax incentives offered for new product development among Virginia s manufacturers and to attract new industry to the Commonwealth. Included in this category are the need to promote higher-efficiency alternative fuels and power generation equipment usage such as cogeneration, wind and solar power. 4

5 Health care cost containment is critical to control operating costs. The image of manufacturing in Virginia must be addressed. Just as the Virginia is for Lovers marketing program is the longest running and most successful marketing campaign, spanning over 40 years, if manufacturing is to remain the backbone of Virginia s economy, it must be marketed, promoted, advertised and supported. Request for Input The Virginia Manufacturing Advisory Council requests your input on the issues noted above and which are included in more detail in the Virginia s Manufacturing Roadmap document, which follows. This report contains a survey form that you are encouraged to use, or you can take the survey online. Download a copy of the Roadmap, or complete the survey at If you choose to mail or FAX a hard copy of the survey, please send to: Bruce Kravitz Southwest Virginia Alliance for Manufacturing, Inc. 851 French Moore Jr. Blvd. Abingdon, VA FAX:

6 Goal The goal of this Manufacturing Roadmap is to guide the re-emergence of the manufacturing industry as the pre-eminent driver of Virginia s economy. It recommends measures that will help establish an environment in the Commonwealth that will offer the best hope for the success of existing and potential manufacturing businesses. The issues contained in this document may also serve as the subject matter for the 2010 Manufacturing Summit. History Manufacturing in Virginia Virginia and indeed all states in the nation have lost manufacturing jobs over the last 10 years. From Virginia s manufacturing employment has declined as shown in Table 1. Virginia Manufacturing Employees (Thousands) Year Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Source: U.S. Department of Labor Statistics Table 1 According to projections made prior to the recession, all primary skilled occupations, which include Manufacturing Technician, will experience as many as 70,506 retirements by the end of The retirement of Manufacturing Technicians alone is estimated at 22,606 by the end of the year. Virginia s manufacturing sector is viewed as particularly important as it is a major driver for other sectors of Virginia s economy because it creates original wealth. This creation of wealth (as opposed to the transfer of wealth typical of the service sectors of the economy) is unique to the manufacturing and agricultural sectors. 6

7 Manufacturing employment has long been a pathway for creating a vibrant middle-class lifestyle for many Virginians. Manufacturing jobs generate a high median income per employee, and typically provide healthcare and retirement benefits, thereby reducing government-borne social costs. Manufacturing has been and continues to be a major contributor to a healthy and diversified economy in Virginia. Policy Development In early 2003 the Virginia Secretary of Commerce and Trade was looking for ideas and input that could serve as the basis for preserving and indeed invigorating the manufacturing sector of Virginia s economy. Accordingly, he formed a Steering Committee with knowledge of the issues thought to be important in such a pursuit. A first-of-its-kind Manufacturing Summit was held October 2004 in Roanoke with more than 50 representatives of the state s manufacturing interests attending. Priority issues were identified and action plans developed at Summit I that led to heightened awareness of the importance of the manufacturing sector to Virginia s economy. From this grew a Governor s annual proclamation of a Manufacturing Appreciation Week (usually in early October). Not wanting to lose the industry participation and interest evident at the 2004 Summit, and with a desire to sustain the emphasis on manufacturing through an employer-based initiative that could hopefully span a change of administrations in Richmond, the Virginia Manufacturing Advisory Council was formed, primarily consisting of representatives from a diverse group of private sector employers but also including representatives from Virginia Tech, Virginia s community colleges, Virginia Philpot Manufacturing Extension Program (VPMEP), and the Virginia Manufacturers Association (VMA). This group was charged with developing Virginia s Manufacturing Roadmap and coordinating its development as a part of the 2005 Manufacturing Summit. 7

8 Recent Activities During the past five years, the Manufacturing Advisory Council (MAC) has continued its research and advisory functions, working with and reporting its findings and recommendations to the Virginia Secretary of Commerce and Trade. Activities include organizing and conducting Manufacturing Summits, defining the need for manufacturing, engineering and technology (MET) career coaches provided by the Virginia Community College System to public high school students, guidance to the Commonwealth on issues critical to the manufacturing community, and participating in government-sponsored committee hearings. Additionally, the Council has studied and recommended actions to promote the Commonwealth s manufacturing industry. MAC has organized annual Manufacturing Summits in Roanoke (2004, 2009), Richmond (2005, 2006, 2008, 2010), and Danville (2007). The conferences provide participating companies with information and insight into how they might utilize a variety of resources to enhance their businesses on workforce development, technology and innovation. The Virginia Manufacturers Association spearheaded a Skilled Trades Gap Analysis, in cooperation with the Virginia Workforce Council, the Virginia Manufacturers Advisory Council (Skilled Trades Committee), the Virginia Philpott Manufacturing Extension Partnership, Virginia Tech, Virginia s Commerce and Trade Secretariat, the Virginia Employment Commission, and a committee of representatives from private sector employers. The report shows, among other items, that Manufacturing Technicians are expected to experience the largest number of openings of all skilled trades by the end of ,606. Based upon requests from the Manufacturing Advisory Council, the Virginia Community College System (VCCS) has begun a pilot program to include Manufacturing, Engineer and Technology (MET) specialists in the VCCS Career Coach Program. This effort is designed to identify and guide students and other candidates toward manufacturing careers, using current and former manufacturing professionals. Various Council members have participated in legislative hearings aimed at creating a Career and Technical Education high school diploma program. The Manufacturing Image Committee of MAC has studied and reported its recommendations to former administration officials regarding actions that it believes should be incorporated into the Commonwealth s promotion of the manufacturing industry. 8

9 Manufacturing Industry Issues Production and Capacity It appears that the recession-induced 10% (+/-) unemployment rate overall, and nearly 17% unemployment in manufacturing, has not translated into a commensurate reduction in production. However, capacity utilization has remained low when compared with other recessionary periods. See Table 2. Transportation Cost and Efficiency Table 2 Nearly all manufacturers and economic developers who commented on this subject agreed that attention to improving the transportation infrastructure in Virginia will help their businesses. While few gave specific details, it was generally agreed that the condition of the transit routes needs to be upgraded. One element that is usually not mentioned in this discussion is the desire for more intrastate business in order to keep product shipping schedules and costs at reasonable levels. With the current creep of fuel prices, the use of lean manufacturing principles, including Just-in-Time material deliveries, and delays caused by poor quality and congested roads, associated rising costs are jeopardizing competitive product pricing. A continuing concern regarding congested transportation routes is the wasted time and the associated costs of lengthy worker commutes. 9

10 Economic Conditions Shifting of Workforce The manufacturing that has moved overseas, and will continue to move overseas, is largely mass manufacturing. That s not really disputed. While not all mass manufacturing will leave, much of it inevitably will, due to cost concerns coupled with capability improvements overseas. If it is not China, it will be some other willing low labor cost region. This will leave behind a much higher percentage of specialty manufacturing here in the US, which will include, but is not limited to, custom manufacturing, mass customization manufacturing, manufacturing with new or boutique or challenging materials, or any other manufacturing that requires a high degree of engineering and/or skill. And as these items become less dependent on specific skilled labor, more companies will inevitably move out, or see their market share decline due to excessive cost. This shift makes education and training more important than ever if the U.S. is expected to maintain its competitive edge. Influence of Economic Recession In terms of job creation, economic developers have opined that growing existing firms is more efficient than recruiting new businesses from outside of the area. However, the interest in renewable energy specifically wind technology could be a tremendous draw for new advanced manufacturing firms. One of the not-so-obvious effects of the recent economic downturn is that multiple exhaustive studies that were performed by various organizations probably do not represent the current conditions. Nonetheless, it is anticipated that revised studies still would show a gap between available jobs and qualified employees, in part because of the new competitive landscape. The Commonwealth has limited resources with which to promote manufacturing as an industry, or improve the educational climate that will lead to a solution to the skills gaps. Rising fuel costs are of major concern to Virginia s manufacturers. At present there seems to be little organized help in the areas of fuel efficiency and utility costs. Health care costs have been increasing to the point that employers have to make a choice between maintaining coverage at current levels (at the 10

11 risk of losing employees) or increasing the cost of employee contribution to maintain adequate protection. Product development is an item of importance and requires that we work on the revenue side of the equation. Therefore, most, if not all companies, need a larger stream of new products. It is even more important now with a down economy, but engineering is often an area that is put off until a later time. Taxation Regressive Taxes Hinder Growth Taxes are one of the top five factors considered by firms in their asset deployment. Compared to selected states with which Virginia competes for manufacturing jobs, including the contiguous states of Tennessee, North Carolina, West Virginia, Kentucky, and Maryland, Virginia currently has the highest effective tax rates on manufacturers. The difference in tax rates paid by Virginia s manufacturers, compared to the five state averages, amounts to a $227 million per year competitive disadvantage for the state s manufacturers [Ernst & Young]. In response to a nation-wide loss of manufacturing jobs, other states (notably SC, OH and NY) have embarked on or are actively designing ambitious programs to fortify the manufacturing sector, including major tax reforms. Implication: Virginia manufacturing s current competitive disadvantage will probably worsen unless it adopts significant tax reforms. A particularly offensive tax on manufacturers is the locally administered Machinery & Tools (M&T) Tax. In addition to real estate and property taxes, the current manufacturing tax structure within the Commonwealth allows local authorities to tax manufacturers assets via Machinery & Tools assessments even though such taxes bear no correlation to cost of government services provided to manufacturers. The M&T tax is counter-productive to the overall objective of growing Virginia s manufacturing base. Tax policy needs to encourage, not discourage, manufacturers investment in state-of-the-art productive assets. It simply is not in Virginia s interest to penalize manufacturers for doing something desirable, i.e., investing in equipment that can make their operations more competitive. 11

12 Points to consider: Virginia s tax system is similar to other states reviewed, except for the M&T tax. The M&T tax is frequently levied on fully depreciated, semiretired, or obsolete assets New equipment is often mandated to meet safety or environmental legislation Equipping a facility with new, highly productive equipment results in a punitive tax bill to the manufacturer Existing firms are punished for investing in new technology Reduced incentive to expand existing production facilities The M&T tax is administered locally, and varies significantly by community (Figure 1) Figure 1 Virginia M&T Tax Assessments by County / City 12

13 Workforce Development Workforce Training Delivery Documented loss of businesses choosing other locations includes markets moving overseas, monetary exchange rates, and the perception that the retiring workforce could not be replaced with workers possessing the appropriate occupational skills that are required by advanced manufacturing within the timeframe that they required. At the moment, it is up to many manufacturers to design their own training requirements, and in some cases create their own training programs. Because of the specialized nature of the work, this sometimes is appropriate. While manufacturers see a need to do this, their main business is the creation and sale of products. Because the Commonwealth has an educational system, it should be incumbent upon it to produce the qualified applicants required by industry. Public Schools Development of a statewide technical diploma in Career and Technical Education (CTE) has apparently stalled for reasons including reduced budgets. Teachers and guidance counselors have been concentrating heavily on the Standards of Learning scores, and have not focused on guiding students toward technical careers, when appropriate. The elements above result in continued complaints from Virginia manufacturers that high school graduates continue to fall short of the skills required for entry-level positions. The concept of career coaches in the high schools, supplied by the Community College System, is a good idea, and has widespread application throughout the Commonwealth. However, the career coaches are typically generalists who are not familiar with the manufacturing environment. A Manufacturing, Engineering and Technology (MET) career coach program is being piloted in five community college regions, but is not yet funded adequately to help the high school students who desperately need guidance in this discipline. One concept to expand this is local sponsorship of the MET coaches, but this does not ensure total coverage of the program once the pilot program has been completed. Another concept is to infuse the experience of the MET coaches pilot program into the wider pool of career coaches across the state. 13

14 Occupational Certifications Noting that the U.S. Department of Labor (DOL) does not have an adequate manufacturing technician job classification system, the Virginia Manufacturers Association and the Virginia Biotechnology Association created the non-profit Virginia Council on Advanced Technology Skills (VCATS) to develop a multi-level manufacturing technician certification program. The pilot, funded by grants from DOL and the Virginia Tobacco Indemnification and Community Revitalization Commission, is currently assessing a few manufacturers employees for level one certification. Levels two and three of the program are being developed. The system hopefully will be accepted by DOL when the pilot is finished. Meanwhile, a number of other industry-specific educational and training programs lead to certificates, degrees, and industry certifications that have value in the manufacturing marketplace. Image of Advanced Manufacturing Industry Promotion It has been said that perception is reality despite the facts. Due to the concerns about Workforce Training Delivery, Public Schools and Occupational Certifications noted above, there has been a spoken concern about the attractiveness of manufacturing as a career choice among current and future workforce participants. While touting the Forbes report that Virginia had topped the list of the best states for business for two out of the past four years, Virginia has done relatively little to promote manufacturing as an industry, which allows the perception to persist that manufacturing is a dying industry. Manufacturing Image Study During 2009, the Image Committee of the Manufacturing Advisory Council studied and issued a report on how it believed the image of the manufacturing industry in Virginia could be improved. While it was passed on to the then Secretary of Commerce and Trade, we are not aware of any action that was taken as a result of the report s recommendations. 14

15 Recommendations for the Commonwealth The following outlines the steps that the Manufacturing Advisory Council (MAC) will address in order to help solve the problems noted above. One successful instrument in gathering opinions from a broad spectrum of manufacturers in Virginia has been the annual Manufacturing Summit. In these uncertain economic times, the business climate is creating a constantly moving target. The Council believes that the Summit helps the state government understand the concerns of industry, as well as creating a forum for the dissemination of new information useful to the manufacturers. Therefore, it is recommended that subjectspecific committees be created and assigned investigative tasks to help refine our positions and create potential subjects for the next Manufacturing Summit. Further, it is recommended that the Governor s Commissions on Job Creation and Economic Development, and Higher Education, be informed of the work of the MAC. Transportation In order to incorporate transportation as a key element to improve Virginia s business climate, it may be desirable to create a transportation committee of the Manufacturing Advisory Council to either make suggestions for infrastructure improvement requirements, or to offer advisory services on the subject to the Transportation Secretariat. Influence of Economic Conditions on Education It has been opined by futurists that the best way to predict the future is to invent it. It appears now is the time to update the pre-recession studies on workforce skills gaps, employment trends and the available future workforce so that the state and industries have up-to-date information on which to act. There are many mistakes made by business during difficult economic times, including cutting back on retooling for the next up-cycle and reducing training and marketing programs. It is precisely these economic conditions that offer the opportunity to retool - whether on the factory floor, or in the marketing and education delivery systems. The solution to expected shortages in the skilled trade workforce base is not limited to increasing the supply of education and training programs. Among potential employees, the current perception of a manufacturing career is quite possibly an even stronger deterrent to increasing the pipeline of interested applicants for skilled trade positions. The work in the last five years on the development of career coaches, Career Pathways, registered apprenticeships, and programs to support manufacturing credentials, such as VCATS and the Career Readiness Certificate (CRC) speaks directly to these issues and should be continued and strengthened. 15

16 Tax Reform and Incentives Earlier committees of the Manufacturing Advisory Council were unsuccessful in effecting any change of attitude among legislators regarding the Machinery and Tools Tax. However, among current members, it is still a subject that arises for discussion. The current administration has committed to developing jobs in Virginia. Replacing regressive tax systems with more useful ones is desirable. The strategy needs to be to enlighten the legislators to the merits and larger revenues of a Commercial Activities Tax in which all business in every sector would participate. Along with this would need to be a campaign to educate local governments that the M&T tax is really hurting the business climate. Product development incentives to attract new companies to Virginia or to invite existing companies to expand should be enhanced. Companies that stay ahead of the product/technology development curve will thrive in the future. The Governor s Opportunity Fund and other economic development incentives provided in the state budget should be directed strategically to support new and expanded manufacturing opportunities. Promotion of alternative fuels and sources of heat and electrical power are essential. Incentives for converting to less-polluting fuels, installation of cogeneration systems and other efficiency enhancing technologies such as wind and solar power should be considered and promoted. Health care cost containment is critical for the economic health of the state s manufacturers. Manufacturing s Image Develop and implement targeted marketing plan(s) to reach the next generation of manufacturing and skilled trade workers, including current students, individuals new to the workforce, career changers, immigrants with special language needs, displaced workers, military retirees and incumbent employees. Work should continue through public secondary schools, the VCCS, and the Workforce Investment Boards on raising the level of understanding and interest in these careers. Manufacturing Image materials, in addition to the marketing items noted in earlier, should also include a package of training services and incentives that are available to career seekers and manufacturers. Review and revise the Improving Manufacturing s Image report to reflect current needs and conditions as a precursor of implementing items above. 16

17 Survey Virginia s Manufacturing Roadmap Please answer the questions by circling the appropriate number 1 = Strongly Disagree, 5 = Strongly Agree # Assessment Questions of Importance to the Manufacturing Advisory Council Do the Issues in the Roadmap reflect your assessment of manufacturing? Do you agree with the Recommendations? Would you volunteer to help promote manufacturing in your locality? Would your company contribute resources to implement Recommendations? Do you believe there are other Issues or Recommendations that need to be included in the Roadmap? If so, please elaborate below. Name: Company: Address: Phone: Contact Information Please complete this Survey online at: or complete this form and mail or FAX it to: Bruce Kravitz Southwest Virginia Alliance for Manufacturing, Inc. 851 French Moore Jr. Blvd., Suite 128 Abingdon, VA FAX