Federal Reserve District, 5th ; Budget ; Cities and towns

Betty Joyce Nash

Matthew Conner

English

Research Papers in Economics

10 Region Focus • Fall 2008
DOCTORS ON THE SUPPLY SIDE 
Virginia Adds Fourth Med School
A
new medical school is under construction in Roanoke.
The school is expected to add jobs, spill economic 
benefits over into the city’s growing health sciences cluster,
and alleviate doctor shortages in the rural southwest corner
of the state. Nationwide, about 10 new med schools are in
the planning or construction stage, along with expansions. 
The effort is designed to ease a looming national 
doctor shortfall predicted by the Association of American
Medical Colleges (AAMC). That’s a change from the late
1990s when the AAMC’s analysts predicted a national sur-
plus of 145,000 doctors. Newer information indicates that
retiring doctors and a growing population mean there 
will be too-few doctors even if medical schools increase
enrollment by the stated goal of 30 percent over 2002 levels
by 2015. 
While there’s no guarantee that new doctors will fan out
over rural Virginia, “where you educate and train has a major
impact on where you practice,” says Edward Salsberg, direc-
tor of the AAMC’s Center for Workforce Studies. Of
Virginia’s 18,510 active physicians, 23 percent completed
medical studies in the state, according to the AAMC’s 2007
State Physician Workforce Data Book. Virginia ranks 30th
among the 50 states in the percentage of doctors who 
practice in the same state where they studied.
The new medical school will help, says Dr. Cynda
Johnson, dean of the new Virginia Tech Carilion School of
Medicine. Affiliated with the for-profit health care firm
Carilion, the school will be private. Carilion has trained resi-
dent physicians for 25 years. Over the years, about 170
graduates of its Family Medicine program have stayed in
Southwest Virginia, she says. “They often choose to stay if
they have a good experience.”
Virginia Polytechnic Institute and State University is also
a partner in the venture. Virginia Tech will own the building,
for which the state has agreed to pay $59 million. The first
class of 42 students will arrive in 2010.
Even with the AAMC goal of increasing med school
enrollment, there’s likely to be a shortage. “Demand will far
outstrip supply even with our recommended increase,”
Salsberg says. “We have to look at a redesign of services with
nonphysician clinicians, redesigning and improving delivery.
Increasing supply is not the solution; it’s only part of the
solution.” 
Despite the push for more doctors, simply increasing 
supply may not improve care, according to authors of the
Dartmouth Atlas of Health Care 2008. Supplies of medical 
services (specialists, equipment, or the number of hospital
beds, for instance) influence how often they are used, accord-
ing to the Dartmouth report, but “higher spending and
greater use of supply-sensitive care is not associated with
better care.” 
Researchers counted doctors who had cared for Medicare
recipients with chronic diseases over their final two years of
life. For example, patients at the University of California at
Los Angeles medical center had more than twice the physi-
cian visits that patients at the Mayo Clinic did, but earned no
better marks on established quality measures. The report
concludes that the variation is grounded in the “assumption
among both physicians and patients that more medical care
means better care; the marked variations in supply that
emerge in an unplanned marketplace; and a fee-for-service
payment system that rewards providers for staying busy.”
However, access to services is associated with better out-
comes, according to Salsberg, and increased supply will
provide greater access.
Virginia now has four medical schools. The University of
Virginia School of Medicine in Charlottesville and Virginia
Commonwealth University’s Medical College of Virginia in
Richmond are public. Eastern Virginia Medical School in
Norfolk is a public-private venture, while the Virginia College
of Osteopathic Medicine, located in Blacksburg, is private.
MONSOON SEASON 
MONSOON SEASON
State and Local Governments 
Curtail Spending 
M
yrtle Beach, S.C., has delayed a boardwalk project 
and a plan to add a performing arts center to its con-
vention hall. “We do not see it meeting the same time lines
envisioned 6 to 12 months ago,” says Myrtle Beach City
Manager Tom Leath, referring to the project. Blame uncer-
tainty in the bond markets. 
Forty-three state governments, including all Fifth
District states except West Virginia, are coping with eco-
nomic turmoil that has reduced personal income and
consumption tax revenues. Those declines are hurting local
governments nationwide because of declining property 
values and taxes, with the fallout extending to school 
budgets. For instance, in Chesterfield County, Va., school
officials need to cut more than $38 million from the FY
2009-2010 budget of about $603 million. 
And it’s only the beginning, says Scott Pattison, executive
director of the National Association of State Budget
Officers (NASBO).
At press time, Maryland, North Carolina, and Virginia
were projecting fiscal 2010 budget gaps of $1.3 billion, $2.7
billion, and $1.8 billion, respectively.That budget year begins
in July 2009.
“I think you’ll see more significant cuts in the next year or
SHORTTAKES
— BETTY JOYCE NASHFall 2008 • Region Focus 11
two,” Pattison says. By law, most states can’t run deficits, so
states raise taxes, cut expenses, or use reserve rainy day
funds to balance budgets.
Virginia Gov. Tim Kaine proposed a 30-cent cigarette tax
hike, likely to cause a stir because the home turf of Philip 
Morris’ parent company, Altria, is Richmond. He’s also pro-
posed education and Medicaid cuts. Kaine’s proposal would
cut the Virginia Department of Transportation’s work force
by about 1,000. 
All that and no raises, for those who keep their jobs. The
governor’s proposal also includes cuts of 15 percent in next
year’s projected budget totals, except for community col-
leges (10 percent) and public safety agencies (7 percent).
And for the second year in a row, the state may dip into its
rainy day fund to the tune of $490 million, the biggest with-
drawal in history, if approved.
But West Virginia is all “green grass and high tides” right
now, according to budget director Mike McKown. Coal and
natural gas severance tax revenue has driven collections
through November of 2008 to $72 million ahead of esti-
mates. He doesn’t expect the surplus to last, however, and
plans a conservative estimate for FY2010. For now, though,
there are no hiring freezes, job or budget cuts.
North Carolina faces a nearly 6 percent shortfall ($1.2 bil-
lion) in the current fiscal year, with most agencies being
forced to cut spending by 5 percent. Gov. Mike Easley 
also wants agencies to submit plans for 3 percent, 5 percent, 
and 7 percent cuts for the coming years because of revenue
uncertainty. South Carolina has cut its budget by more than
$1 billion since lawmakers approved the budget in June.
Revenue projections fell by more than 11 percent.  
Pattison expects personal income tax collections to
“trough” in 2009. “It’s hard to predict refunds,” he says.
States, at least, have no credit problems for now, but are pay-
ing higher interest rates on bond issues. And, even though
retail investment remains strong in the bond market, insti-
tutional investment has not. “People are concerned that
institutions won’t get in on purchasing bonds soon enough,”
he notes. And that will affect future bond issues.
— MATTHEW CONNER AND BETTY JOYCE NASH
OPEN FOR BUSINESS 
Taxpayers Subsidize Firm’s Expansion 
in Virginia
C
ontinental AG will close its manufacturing facility in
South Carolina, and take its 318 jobs to its gasoline
injector plant in Newport News, Va.
The announcement comes at an uncertain time for the
future of the Big Three U.S. automakers. Yet even more
uncertain is the fate of many suppliers to the car makers,
particularly in the wake of a bruising year for car sales by
American manufacturers. A Continental spokeswoman in
Michigan, Michele Tinson, notes the move was mainly a
consideration of the new realities in the auto industry. The
expansion in Newport News will put the firm under one
roof, eliminate redundancies, and help the firm leverage
expertise to cut manufacturing costs, according to a
Continental press release.
The German-based company’s decision is part of a larger
consolidation and cost-cutting trend occurring in the auto
industry worldwide. “There’s going to be a big restructuring
because of the trouble that the auto firms are undergoing,”
says Doug Woodward, professor of economics at the Moore
School of Business at the University of South Carolina. “And
it’s not just the domestics. Foreign plants are revamping.
The BMW plant located in Spartanburg is expanding still,
but they are laying off workers. Michelin is still here, but
these are tough times for them.” South Carolina’s unem-
ployment rate is the third-highest in the nation, 8.4 percent
in November 2008.
When Virginia Gov. Tim Kaine announced the move, 
he noted the state will give the firm $3 million in relocation
assistance. Two $1.5 million “performance grants” will go
Continental’s way after the firm closes up shop in South
Carolina. The city of Newport News offered $3.5 million in
tax rebates. As is often the case in corporate relocations,
economic development agencies of both states vied for the
jobs. The competition between Virginia and South Carolina
“was very close,” according to Florence Kingston, director of
development for Newport News.  
But it’s possible that the subsidies were unnecessary,
according to a study that surveyed foreign-owned firms 
published in a 2004 issue of the Journal of World Business. 
The journal queried 26 foreign-owned firms that set up 
shop in North Carolina. The answers the executives gave to
questions about location decisions suggest there are far
more important considerations than taxpayer-funded 
handouts.
Most foreign-owned companies in North Carolina see
government incentives as a minor factor in their location
decisions, according to Dennis A. Rondinelli, Glaxo distin-
guished professor of management at the University of North
Carolina-Chapel Hill’s Kenan-Flagler Business School and
co-author of the study. In news accounts, he has said that
executives have consistently emphasized that the primary
criteria are locational assets: good transportation access,
skilled labor force, quality of life, good education and 
training facilities, and ability to train work force for their
industry.
Meanwhile, Newport News experienced what might 
be called an investment boom this year. Canon Inc.
announced in May its intent to build a new $625 million
facility and initiate a $20 million expansion of its Gloucester
recycling plant. At least 1,000 new jobs are expected over
the next five years. In October, Northrop Grumman teamed
up with French firm AREVA to announce a joint venture
that will build reactor parts at an area factory. Each venture
was promised over $20 million in a variety of grants and tax
abatements by state and local governments. 
— BETTY JOYCE NASH AND STEPHEN SLIVINSKI

Short Takes : State and local governments curtail spending

http://www.richmondfed.org/publications/research/region_focus/2008/fall/pdf/short_takes.pdf

Short Takes : State and local governments curtail spending

Abstract

Similar works

Full text

Available Versions

Research Papers in Economics