Virginia program offers state subsidies to defense contractors
- Written by Ben Paviour, VPM News
- Category: Local News
- Published: 07 March 2022
A little-known Virginia program has given nearly $930,000 in state subsidies to defense contractors over the last three years in a bid to increase exports abroad and shore up a key industry in the commonwealth.
The program’s organizers in the Virginia Economic Development Partnership say they’re not aware of any other states that offer something like their Global Defense Program. VEDP helps companies craft business plans, attend trade shows and comply with complicated federal regulations. In addition to consulting advice, some of it pro bono, the program reimburses businesses for up to $10,000 in expenses related to exports such as accounting or legal services.
With some economists predicting an uptick in defense spending sparked by Russia’s invasion of Ukraine, the ripple effects could be felt thousands of miles away in Northern Virginia and Hampton Roads. Federal defense spending accounted for over 10% of the commonwealth’s GDP in 2019 and over $37 billion in federal defense contracts flowed to the state in 2018, according to the data analysis firm Chmura. Those numbers dwarf the $670,000 VEDP says they currently allocate to their program.
A list of Global Defense Program recipients from 2018 through this year obtained by VPM in a public records request shows a range of businesses have gotten assistance from the program. They include: Marine Acoustics, a company selling “technical superiority in the ocean environment”; Alacran Consulting, which offers logistics planning and supply distribution; Prime Photonics, which makes “sensors for extreme environments”; and Enodo Global, which sifts through social media and other channels to identify “social risks” for clients ranging from oil companies to electoral campaigns.
For the Hampton Roads firm SimIS, roughly $20,000 in state subsidies for consulting services helped the firm meet potential new clients in New Zealand, Australia and Columbia, according to Julian Baena, director of business development. The company offers a range of products including remote-controlled “human type targets” that rove across fields and an iPod-faced robot designed to train law enforcement officers in de-escalation. It also sells services ranging from cybersecurity to modeling and simulation software.
Baena says the Global Defense Program helped the company develop an export-focused business plan and allowed them to attend trade conferences it might otherwise have skipped. The program also connected the firm to consultants who had a grasp on the local market in places like Columbia.
“We may not understand the cultural and business nuances of doing business in Colombia,” Baena said. “So the trade mission to Colombia was very beneficial because we now have a list sent or a list of companies that we've spoken to that we've built an established rapport with.”
The Virginia Economic Development Partnership has asked for increased funding as part of its broader International Trade Plan. Officials hope to increase the commonwealth’s per capita exports to 20th in the U.S. by 2035, up 19 slots from its current position.
The Global Defense Program grew out of a $1.5 million Department of Defense grant the state received in 2013. At the time, federal budget sequestrations were affecting Virginia defense firms, according to Lindsey Bertozzi, assistant vice president for international trade at VEDP. That fear was still alive in 2015, when then-Gov. Terry McAuliffe announced another $1.8 million grant to address an estimated 5,000 defense companies set to lose out on federal funding, threatening the commonwealth’s spot as what the administration said was the top state in the country for federal defense contracts.
The state continued to win federal grants through 2017, according to Bertozzi, before the state took over funding in 2018. The broader defense market steadily improved as the Pentagon’s budget grew; Department of Defense contract spending jumped 45% from 2016 to 2020, according to Bloomberg Government.
Not everyone believes the state subsidies are necessary. Kim Bobo, executive director of the Virginia Interfaith Center, said the funding, while small, constituted “corporate welfare.”
“It's just really hard to imagine that this is the best use in terms of helping businesses,” Bobo said. “How Virginia uses its budget is really a moral question.”
Bertozzi said she wasn’t aware of any subsidy recipients that sold traditional arms. “A lot of it is consulting services around how countries should handle their contracts,” Bertozzi said. “Very detailed, kind of tricky stuff. It's not like guns and ammo like you think about.”
In order to qualify, businesses must operate in Virginia, have a minimum of 25% of total sales to federal defense-related entities and have an international growth strategy focused on defense sales.
In a letter to top lawmakers involved in budget negotiations Friday, Gov. Glenn Youngkin noted defense spending was an area where the conflict in Ukraine could affect Virginia's economy: "As is the case in past times when government spending and defense spending rises, Virginia will disproportionately participate in that relative to the rest of the country."