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RICHMOND — When Gov. Bob McDonnell testified before a congressional committee in Washington last week about Virginia's efforts to rebound from the national recession, he focused on entrepreneurs and small business.
"I firmly believe it is the entrepreneur who makes businesses grow and prosper — not the government," he said.
He called small businesses "the backbone of our economy."
But McDonnell has placed government aid front and center in his campaign to reinvigorate the state's economy.
At the outset of his administration a year ago, the General Assembly granted his request for a $50 million economic development agenda that was billed as the most aggressive such program in Virginia history.
This year he has doubled down, asking the legislature for an additional $54 million.
Over the past year, the state has doled out $23.8 million in government incentives to 22 businesses coming into Virginia or expanding their operations in the state, resulting in 3,429 new jobs.
That works out to about $7,000 in taxpayer money for each job created.
Small businesses got a relatively small sliver of the pie. About three-quarters of the money went to five Fortune 500 companies.
Some lawmakers wonder whether it's worth it. "We are investing large sums on economic incentives," state Sen. Janet Howell (D-Fairfax County) said recently. "We have to make sure we're spending wisely and there aren't any unintended consequences."
Howell has a bill working its way through the Senate calling for a study by the Joint Legislative Audit and Review Commission — a General Assembly watchdog agency — of the effectiveness of economic development incentive grants.
Howell said she agrees with McDonnell, a Republican, that "small business is the backbone of our economy and we need to do all we can to support it," but she said she worries that government incentives might be giving big businesses an unfair leg up on smaller competitors.
More than half of the incentive money paid out last year, $13 million, went to Northrop Grumman Corp., the giant military contractor, which announced in April that it was moving its corporate headquarters from Los Angeles to Fairfax County, bringing 300 jobs to the state.
Seven months later, the company laid off 378 workers at its Newport News shipyard.
An additional $2.1 million in state money went to Microsoft Corp., which is building a $499 million data center in Mecklenburg County that will employ 50 people.
Among other big companies receiving state grants were Micron Technology Inc., Kraft Foods and Capital One Financial Corp.
In one case, an incentive payment went to a project that resulted in a net job loss. Smurfit-Stone Container Corp., a manufacturer of corrugated boxes, got $300,000 from the state to help finance a consolidation of two existing plants in Henrico County that cost about 150 people their jobs.
The money came from a program designed to encourage new capital investments by companies that already have operations in Virginia. State officials said the program has no job-creation requirements.
Carrie Cantrell, McDonnell's deputy secretary of commerce and trade, said the grants to big businesses are only part of the picture.
"We have a tremendous focus on the small-business area," Cantrell said, noting that last year the governor secured an extra $1 million for the Virginia Small Business Financing Authority, a loan agency, and is seeking an additional $5 million this year.
He has also directed funds toward tourism-related businesses and the state's burgeoning wine industry.
"We have a very strong balance between attracting the large companies and growing our small businesses," Cantrell said.
In addition to the jobs associated with incentive grants, the administration claims credit for 8,200 jobs brought into the state last year by companies that received some form of assistance from the Virginia Economic Development Partnership, a state agency with a $20 million annual budget that recruits businesses and helps them find locations in the state.
Nearly half of the new economic development funding McDonnell is seeking this year, $25 million, would go for an initiative called the Virginia Research and Technology Innovation Program, described as a catalyst for nurturing entrepreneurs and evolving technologies.
The governor's proposals have encountered some skepticism among lawmakers.
One of the most persistent critics has been Del. Johnny Joannou (D-Portsmouth), a member of the budget-writing House Appropriations Committee. At a recent presentation by Secretary of Commerce and Trade Jim Cheng, Joannou peppered Cheng with questions.
"Why are we giving taxpayer money away?" he asked. "It's hard to explain to my constituents. I'm a little concerned about where we're heading."
The skepticism has been bipartisan at times. Del. Jimmie Massie (R-Henrico County), a private-equity investor who also sits on the budget-writing panel, told Cheng he understands that, in a stressed economy when private financing is hard to get, perhaps the government needs to step in.
But in general, Massie said, "I would argue that Virginia ought not to be in the business of providing equity money to businesses. It is not a core function of government."