Defense budget cuts could dampen state economy

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by Paula C. Squires

With more federal budget cuts on the horizon, Northern Virginia has a “huge” exposure in terms of jobs and its overall economy, a George Mason University economist said Thursday at a statewide economic summit. 

Hampton Roads should expect to take a hit as well, Stephen Fuller, director of GMU’s Center for Regional Analysis, told a gathering of more than 300 people at the second annual Virginia Economic Summit sponsored by the Virginia Chamber of Commerce and held at the Ritz Carlton Hotel in Tysons Corner.

In the past 10 years, Virginia’s gross state product (GSP) has grown 60 percent while total federal spending in the commonwealth during the same period has increased 117 percent, Fuller said.
One important aspect of federal spending, procurement spending by Department of Defense, grew by nearly 200 percent during the 10-year span.
“For 30 years, [federal spending] is what has made us different from the rest of the country,” said Fuller.

That flow of federal dollars to Virginia, however, may be jeopardy. Because a congressional “super committee”  failed to come up with its own plan of budget cuts, automatic cuts of $600 billion in defense spending will begin in 2013. 

According to Fuller’s analysis, Virginia can expect:
• A loss of $7.3 billion in wage and salaries
• A loss of 122,800 jobs statewide, including 92,691 jobs in Northern Virginia and 20,785 jobs in Hampton Roads

Seventy-five percent of all DOD procurement spending in Virginia goes to Northern Virginia. In fact, 35 percent of the Greater Washington area’s economy last year came from federal spending. Federal procurement spending alone accounted for more than 19 percent of the area’s gross regional product. “We have a huge exposure …. We have never been more dependent on federal spending,” Fuller said. “Procurement has been our bread and butter.”

While federal spending in the Washington region has soared, the number of federal employees has not increased dramatically in the past 40 years. In 1970, there were 345,000 federal employees in the Washington metro area. Today there are 376,000 federal employees. Meanwhile the number of employees working for federal contractors has swelled to 600,000.

Another topic at the summit was transportation spending. Sean Connaughton, Virginia’s secretary of transportation, said the McDonnell administration plans to introduce a package of incentives for the Virginia Port Authority and the commercial spaceport at Wallops Island in the upcoming General Assembly session in January.

Connaughton also told the audience to expect some major transportation announcements next week when the Governor’ s Conference on Transportation is held in Norfolk. He said the state plans to fund three projects worth $3.5 billion, including a major project for Northern Virginia.





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