Ripple effect

Published 12:36 am Saturday, October 24, 2009

The likely long-term effects of International Paper’s planned closure this spring will be unclear for some time, but two things are sure: Job losses at the plant will be spread over a wide region, and the economic “ripples” are likely to be huge.

With 1,100 people directly employed by the mill, the immediate effect on the area’s unemployment rate is likely to be harsh and sudden. But the wider effects could be staggering.

“The ripple effect is huge,” Isle of Wight County Economic Development Director Lisa Perry said Thursday.

Indeed, a hastily compiled report released by the Virginia Economic Development Partnership late Thursday predicts that 2,400 other jobs in the region would be lost as a result of the closure — in addition to those people directly employed at IP.

For the purposes of the report, the region includes Franklin, Isle of Wight, Suffolk, Southampton, Surry and Sussex.

Those job losses will be in economic sectors that provide support for the mill’s operations and among businesses that provide goods and services to those employed there, VDEP predicted.

According to the report, leading sectors for additional job losses will include automotive repair and maintenance, logging, maintenance and repair of nonresidential buildings, medical services, real estate, restaurants, retail trade, services to buildings and dwellings, trucking services and wholesale trade.

Looking at an even broader picture, the report predicts that 700 more Virginia jobs outside of the immediate region will be lost as a result of the closure, putting the total expected job loss at 4,200.

Kevin Hughes, economic development manager for the city of Suffolk, said Friday that he expects the mill’s suppliers in the city to be hurt by the shutdown. He declined to name any specific companies that might suffer, but suggested that warehousing is one primary industry that will be impacted.

With so many job losses expected — Suffolk, alone, has 139 people employed at the mill — workforce retraining is expected to be a primary focus for those tasked with helping to re-employ the displaced workers, Hughes and others have said.

Within hours of the mill’s surprise announcement on Thursday, Gov. Timothy Kaine had directed the Virginia Department of Labor to set up a special “rapid-reaction task force” to determine how the state can help get people back to work.

Paul D. Camp Community College and its workforce centers in Franklin and Suffolk will be instrumental in that retraining process, Hughes said, along with Opportunity Inc.

But the ripple effects of the closure go far beyond even the loss of jobs throughout the state.

State tax revenues are projected to fall by $20.6 million, according to the VEDP report, and local tax revenues could drop by as much as $14.6 million, including $12.5 million in property taxes alone.

Although the mill is located in Isle of Wight County, the city of Franklin shares in tax revenues generated by the paper mill under the terms of a 1986 agreement between the localities.

That revenue-sharing agreement gave Franklin a portion of tax proceeds for a 6.37-square-mile area of the county that includes the mill. In exchange, the city agreed never to annex that area.

Under the agreement, Franklin receives between 17 percent and 23 percent of the tax revenues, depending on various economic conditions.

Franklin officials could not say on Friday how much the city had received in taxes from IP, but Isle of Wight officials Thursday said the mill accounts for 25 percent of the county’s $96 million budget.

As with the jobs numbers, though, the tax loss would be exacerbated by the ripple effects of less retail spending, slower home sales and follow-on business closures.

Thursday’s VEDP report is a follow-up to one prepared for Isle of Wight in April that sought to identify the likely effects of potential closures by ATC Panels, Franklin Equipment Co., International Paper and Smithfield Foods.

With its closure in the spring, IP will become the third company on that list to shut its doors in Isle of Wight, and Smithfield Foods has announced major reductions in its Smithfield operations.

“We were very hopeful we would never have to put our hands back on (that report) again,” Caskey said.