Mining coal town for techies
Multimillion dollar CGI-AMS Inc. and Grumman Corp. plant is slated to be built in a small Virginia town, one where employees can afford to live
The Washington Post
LEBANON, Va. ' In this town of 3,300 people, cow pastures encircle the local high school, churches outnumber nightclubs 14 to zero and the unemployment rate is almost twice as high as the rest of the state.
This is where government contractors CGI-AMS Inc. and Northrop Grumman Corp. will in the next few months start building multimillion-dollar technology centers and hire hundreds of software engineers at salaries far above the region's average, bringing a taste of Washington's lucrative tech sector to a coal country enclave.
How the companies came to build here is a tale of the economic factors shaping Northern Virginia ' towering home prices and nightmare commutes that are making it hard to hire new workers at reasonable wages. But it's also a tale of Virginia politics and the potential boost that outgoing Gov. Mark R. Warner's ambitions for this part of the state could give a presidential bid.
Along with cutting their costs, the companies saw in the coalfields of southwest Virginia a way to improve their chances of winning state contracts and ' in the case of CGI-AMS ' a way to turn the promise of jobs into millions of dollars in government concessions.
This is the day southwest Virginia is transformed, Warner told the senior class at Lebanon High School in late October as he announced CGI-AMS's plans to hire 300 software engineers from the region. These are serious high-tech jobs that any city in Northern Virginia would die to get.
— In fact, the tech companies that line the overflowing roads of Northern Virginia have thousands of open jobs they can't fill. The job market in Washington is so tight, companies regularly pay bonuses and inflated salaries to recruit employees with technical skills, even though the work required to develop new software programs has become increasingly routine.
Banks and insurance firms long ago cut their software development costs by shipping the work to India and China, but legal restrictions and the politics of government procurement have prevented federal contractors from following suit.
So they are looking at rural America instead ' to places where rents are cheap, traffic is light and, instead of companies being forced to offer bonuses or poach employees from a competitor, resumes pour in by the dozen.
The area turns out plenty of resumes that the companies want to see. Local officials drafted a study to show that 4,566 computer science degrees were awarded in the past five years by colleges within 100 miles of Lebanon, including Virginia Tech, Radford University and James Madison University. Area community colleges promised to tailor their courses to fit CGI-AMS's needs, and the county said it would build a new &
36;5 million, 53,000-square-foot facility where the company could do relatively basic software development and troubleshooting.
The company was in the running at the time for a &
36;270 million state contract it eventually won. Donna S. Morea, president of CGI-AMS, said the contract had no bearing on the decision to locate in Lebanon. A &
36;4.5 million incentive package put together by local and state officials, however, was taken into consideration, she said.
Along with the two recent announcements in Lebanon, McLean, Va.-based BearingPoint Inc. announced in March that it was opening a 250-person software development shop in an old mall in Hattiesburg, Miss. In November 2004, Science Applications International Corp. (SAIC), taking a cue from defense contractors that locate facilities in the back yards of influential politicians, opened its newest technology center in Somerset, Ky., home of Rep. Harold Hal Rogers, Republican, who controls some of the purse strings for homeland security spending.
The contractors' move to rural America echoes a strategy that commercial tech companies made in the early 1990s. Some of them moved basic software coding jobs to small towns before they began sending such jobs overseas.
Though executive and sales offices are likely to remain in Washington, D.C., and on-site systems integrators will need to stay near the agencies they work with, the move of software developers and some other more routine jobs will be a growing pattern, said Anirban Basu, an economist and chief executive of the Sage Policy Group. The Washington area cost structure is pushing jobs out of the region.
This company could take our talents and our knowledge and do something with it, said Chastity Brown, 26, a computer enthusiast from Lebanon who waited in line for nearly an hour to meet a CGI-AMS recruiter at a job fair in November. This is the way our generation can actually find jobs here.
Executives at government contracting companies say that the boost these jobs can give rural communities is significant but that the driving factor for them is money, not altruism. Most companies expect to save 30 to 40 percent on projects done through a process dubbed onshore outsourcing, or farmshoring. The average salary for the 300 people CGI-AMS expects to hire in Lebanon, for instance, will be &
36;50,000 ' far above the town's &
36;27,606 average annual wage but about half the salary an advanced software developer in Northern Virginia might earn.
We have the opportunity to tap into a talented workforce, a high quality of life ... and set up a center that will deliver as well as any we have in the U.S., and at a lower cost, Morea said.
It's also a way for Democrat Warner to fulfill the promise he made as a gubernatorial candidate four years ago ' that rural Virginia wouldn't be left behind as the state's Washington suburbs thrive. I'm a huge believer that if all the good technology jobs are in Northern Virginia, the state's not going to prosper anywhere, said Warner, who is considering a run for president in 2008.
As the state sought bidders for a &
36;2 billion technology contract, officials made clear that only companies willing to do business in rural Virginia would be considered. In its winning bid, Northrop promised to set up a &
36;22 million technology center in Lebanon and hire 430 employees.
Lebanon was well positioned to compete for the jobs. The region's congressional delegate had helped Russell County, where Lebanon is located, obtain &
36;1.65 million in federal grants that, along with funds from the state's tobacco commission, was used to install fiber-optic cable necessary for tech companies to operate. A dozen officials from the region, including U.S. Rep. Rick Boucher, D, and Nelson A. Tony Dodi, who serves as the high school principal and the town mayor, worked to develop economic incentive packages for tech companies willing to come to Lebanon.
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Lebanon is the biggest town in Russell County, a farming and coal-mining community tucked into the Appalachian Mountains. Modest homes dot the swirling country roads here, and teen-agers drive 20 miles on Saturday nights to get to the closest movie theater. Kentucky and Tennessee are neighbors, and the technology hub of Northern Virginia is a world away.
The unemployment rate in the county topped 20 percent in the 1980s, when miners and tobacco farmers came on hard times. In the past decade, the jobless rate dipped into the single digits as some manufacturers and call centers moved into town. The median income remains far below the national average.
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For all of Warner's optimism, the long-term impact on southwest Virginia is uncertain. Stephan J. Goetz, a Pennsylvania State University economist who studies rural areas, said an immediate boost is likely as construction workers move in to build new homes and restaurants pop up to serve residents with more disposable income. Speculation about when a Starbucks will appear is rampant on the streets of Lebanon.
But the change will last, Goetz said, only if other companies and subcontractors settle around the two companies and stay there for years to come.
Whenever you have a stable source of income, that can really be a boon, Goetz said. Things like this can really change the face of a community.
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But the companies have to stay. In 2001, a call center for Travelocity moved to nearby Clintwood, but three years later it pulled out, leaving 275 people jobless.
Michael Kiser, 18, a senior at Lebanon High School, is hoping the technology centers will help change Lebanon.
Before this, I always thought I'd have to move away, said Kiser, who wants to be an engineer. But I'd love to come back here. ... I want my kids to have the same experience I had.