Miguel Gereda [CC BY-SA 4.0], via Wikimedia Commons

July 18, 2019; The Atlantic

As NPQ readers know, too much of what passes these days as economic development involves giving large tax abatements to corporations. But efforts that focus on investing in building community capacity most often outperform efforts to buy success through tax incentives. Writing in the Atlantic about the smallish city of Danville, Virginia (population: 43,000), journalist and author James Fallows again illustrates these principles.

In particular, Fallows highlights three factors that have promoted successful economic development in Danville: namely, the grants provided over 15 years by a local health conversion foundation, the wise use of one-time tobacco settlement revenue, and investment in the city’s municipally owned broadband network.

First, the health conversion foundation. NPQ has written about health conversion foundations before. And they are decidedly a mixed bag, especially given that the foundations are only created if the nonprofit that seeded them is absorbed by a for-profit entity. But as Sheela Nimishakavi wrote in NPQ back in 2017, “Because you can’t legally profit from the sale of a nonprofit, federal law requires that the proceeds from that sale then be placed into a nonprofit foundation.” And that money can be significant. A 2014 Health Affairs article estimated that there were 306 such foundations nationally with total assets, as of 2010, of $26.2 billion.

In Danville’s case, Fallows writes that the Danville Regional Foundation (DRF) “was formed after the sale of the local Danville Regional Hospital Center to a private company, LifePoint Hospitals, in 2005 for about $200 million.” To date, the foundation has awarded $116 million in grants. Fallows adds that, “Almost everything under way in the vicinity—from the revival of Danville’s downtown to the launching of regional initiatives connecting smaller towns that have lost tobacco, textile, or furniture industries—bears the mark of the DRF.”

Karl Stauber, who is stepping down this summer after a dozen years at the DRF helm, tells Fallows that while many health conversion foundations are not transformative in their grantmaking, he estimates that “two in 10 have had an oversized impact on the revitalization of the areas that they serve.”

Danville, Fallows indicates, also benefitted from investing tobacco settlement dollars into an institution that would have staying power. In particular, Fallows calls attention to the Institute for Advanced Learning and Research. Danville, Fallows notes, is in a part of Virginia that was highly dependent on the tobacco business, which made it eligible for a larger share of that state dollars to help it transition its economy away from tobacco.

Founded in 2000, the Institute, Fallows notes, “has evolved to offer many of the spin-off functions you’d associate with a serious state university: research projects, start-up spaces, training partnerships with companies, alliances with local schools and [nonprofits], development centers for advanced manufacturing, and a general sense of involvement with the economic future of the community.”

Municipal broadband, Fallows add, has been the third key to Danville’s economic development. “A dozen years ago,” Fallows writes, Danville “began building a municipally owned high-speed fiber-optic network, which now offers lower-cost, higher-speed connections to existing and start-up businesses than in most communities of its location and size. That network is called nDanville.”

Writing in Broadband Communities earlier this year, Andrew Michael Cohill notes that Danville “is the largest of 15 municipalities in Virginia that own electric power distribution services….As in other fiber communities that own electric utilities, city ownership of utility poles eliminates negotiation of pole attachment fees and minimizes the impact of make-ready costs.”

Danville’s municipal power company has aggressively expanded capacity. As Cohill explains, the municipally owned nDanville has installed more than 135 miles of fiber. The network, Cohill adds, “passes more than 1,000 business locations, including every parcel in all five business parks. Current customers have access to 100 Mbps fiber connections capable of delivering a wide variety of services, and 1 Gbps and 10 Gbps connections are available upon request.” Not only is the broadband network in the black, but it has also fostered significant economic development.

And, as Cohill notes, the broadband investment—particularly when combined with the grantmaking of DRF and the development of the Institute—has made a difference, not just in connection speed, but in economic well-being.

In just a decade, Cohill writes, “Danville has gone from having the highest unemployment in the state of Virginia (19 percent at its peak) to attracting national attention as an excellent small city with a low cost of living, world-class technology infrastructure, revitalized downtown live-work spaces and a workforce trained to meet the needs of today’s high-tech businesses.

Of course, the impact of broadband in rural economic development has not gone unnoticed elsewhere. Indeed, both Mississippi and North Carolina overwhelmingly passed legislation to facilitate municipal broadband buildout this year.—Steve Dubb