Virginia weighs its dependence on defense spending

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by Nicole Anderson Ellis

You might have mistaken it for a summer breeze.  If you were in a quiet place on July 7, what you really heard was the sound of many Virginians simultaneously issuing a sigh of relief.

That was the day U.S. Sen. Jim Webb said that under no circumstances would he join Sen. Barrack Obama on the Democratic presidential ticket.  The prospect of losing the votes of both Webb and Sen. John Warner (who retires in January) on the powerful Senate Armed Services Committee had Virginians holding their breath.

Webb’s pledge to stay in the Senate marks the second bullet aimed at military assets that the commonwealth has dodged in recent years.  The 2005 Base Realignment and Closure process (BRAC) is in the midst of shutting down 33 major installations in 22 states, with sometimes ruinous economic ramifications for surrounding communities.  Virginia’s Fort Monroe is scheduled to close its doors in September 2011, a move that will eliminate an estimated 3,300 jobs (military and civilian employees) while causing the loss of another 1,000 jobs (at local restaurants, stores, etc.). 

It could have been far worse.  For a time Naval Air Station Oceana — whose 10,000 civilian/military personnel make it the largest employer in Virginia Beach — was on the chopping block. “It would have been devastating to lose that,” says Rep. Thelma Drake (R-2nd District).

Virginia Beach’s dependence on Oceana reveals only a small slice of the beefy economic pie that military spending represents in Virginia.  The Department of Defense (DoD) is projected to spend $56 billion in Virginia this year.  Virginia, in fact, ranks only behind the District of Columbia and is first among the 50 states in Defense spending per capita.  The DoD employs 245,000 civilians, active duty personnel, reserves and National Guard in Virginia; only California boasts more.

“The military is probably the single most important driver of the Virginia economy,” says Stephen Fuller, director of George Mason University’s Center for Regional Analysis in Fairfax and a member of the Governor’s Advisory Board of Economists.  In addition to employment, he notes, the Defense Department spends much of its procurement budget here. DoD contracts in Virginia totaled $29 billion in 2006, the most recent year that figures are available.  “That’s huge,” Fuller says. “That’s buying aircraft carriers.  That’s systems technology.”

Just as stabilizers keep ships from rolling in rough seas, defense spending shores up Virginia’s economy in downturns.  So as the rest of the nation gears up for hard times, says Fuller, “the state looks pretty good.”  Wars in Iraq and Afghanistan prompted Congress to pass a 2009 budget that includes $419 billion in national defense spending, a large chunk of which will find its way to Virginia.  Plus, in the final BRAC tally, the military’s presence grew in the Old Dominion.

“Other states look longingly at Virginia,” says Fuller.  “The grass is greener here.”  Yet while the commonwealth draws envy, there are causes for concern.  Pending elections, debated shifts in war policy, the recession, Warner’s retirement and ongoing attempts by other states to snare Virginia’s military assets have raised questions about the DoD’s role in the commonwealth’s economy: How did Virginia become such a military bastion? How long can it keep its military facilities? And finally, has Virginia’s economy become too dependent on the military?

Location, location, location

Virginia has been center stage for defense spending since the nation’s founding.  In 1790, the U.S. Congress selected 100 square miles of swampland along the Potomac River as the site for the nation’s capital, ensuring the commonwealth proximity to political and military power. 

By that time, however, the commonwealth’s military roots already ran deep.  Fort Monroe, founded in 1834 on a location known to house fortifications since 1609, sits on the lip of Virginia’s oldest and most coveted military asset — the port of Hampton Roads.  It has been 35 million years since a meteor punched a 56 mile-wide crater on the East Coast, altering the drainage patterns of regional rivers, and forming one of the world’s deepest natural harbors.  Today Hampton Roads is home to 59 percent of Virginia’s Defense employees, more than a dozen military facilities, and a wealth of defense-dependent companies, earning the region the moniker Pentagon South. “We are the hub,” says Drake.

If Hampton Roads is the military heartbeat of Virginia, the U.S. Navy is its lifeblood.  With nearly 140,000 uniform and civilian employees in the state, the Navy and the Marine Corps employ more than all the other branches combined, binding the commonwealth’s economy to the ebb and flow of Navy spending.

In 1988, Webb resigned as Navy secretary under President Ronald Reagan in response to deep cuts in the Navy’s budget and its shipbuilding program.  Twenty years later the tide has turned; the U.S. is building ships again. “We’ve shrunk from a 600-ship Navy in the 1980s, the Reagan era, to roughly 280,” says David Dickson, executive director of the Virginia National Defense Industrial Authority (VNDIA), a Richmond-based state agency charged with supporting defense and military-related opportunities in the commonwealth.  “Today we’re working toward a stated goal of 313 ships.” 

Virginia needs to stay a player in building ships and serving as the home port for ships, Dickson says.  “These are important activities to Virginia’s economy.” They always have been.  The Norfolk Naval Shipyard in Portsmouth has been building ships since 1767, and when defense giant Northrop Grumman Corp. bought Newport News Shipbuilding in 2003, the facility had been in business for more than a century. 

Northrop Grumman is the top defense contractor operating in the commonwealth and the third largest in the U.S.  Last year its Virginia divisions received defense contracts totaling $6.46 billion and employed more than 35,000 workers. Twenty-one thousand of them work in Newport News building nuclear submarines and aircraft carriers.

While Northrop Grumman is proud to be the sole provider of nuclear aircraft carriers for the U.S. Navy, it is not the only company operating in Virginia that is cashing in on the Navy’s shipbuilding spree.  Falls Church-based General Dynamics Corp. recently won a multibillion dollar contract to help the Navy meet its goal of 30 new submarines by 2020.

In Virginia the benefits of shipbuilding don’t end with the products’ completion.  Hampton Roads serves as home port for close to 70 ships, including six aircraft carriers. (Its closest competition, San Diego, serves as home port to two).  Each of these floating cities boasts a crew of 5,000 or more.  Greg Grootendorst, deputy ex­­­ec­utive director for economics for the Hampton Roads Planning District Commission, says that a single aircraft carrier can create an additional 6,000 jobs in the community and contribute $650 million a year to the regional economy.

Testing an economic shield

The job of the military is to guard the nation’s security.  In Virginia, however, it’s protecting the economy as well.  And this economic shield has faced its share of tests.

When times got tough in the early 1990s, employment in Virginia decreased 3.25 percent, more than twice the nationwide decline. In the recession of 2001, Virginia again lost jobs faster than the nation as a whole.  But those recessions were during peacetime.  There are two reasons experts expect Virginia to weather the current recession better: the wars in Afghanistan and Iraq. 

Defense spending helped Virginia avoid the worst of two recessions that rocked the nation during the Cold War.  It’s doing it again, Fuller says.  “We’re cushioned.”  In Hampton Roads the defense cushion is deep. “It is the military that keeps our housing market stable relative to the nation,” says Drake.  “Historically it has buffered our region.”

But proximity to a military base is no economic guarantee.  Petersburg is next door to Fort Lee, which employs more than 8,200 people. Still, the city suffers from an unemployment rate that is twice the state average, and a poverty level that regularly tops 18 percent.

So when the new BRAC round was announced, the city was worried.  “If Fort Lee closed down, it would be devastating to Petersburg,” says City Councilman Carl Ross.  But the city caught a break. As a result of BRAC, Fort Lee is in the midst of a $1.9 billion expansion, absorbing more than half a dozen programs previously housed in Hopewell, Virginia Beach, Alexandria and Fort Eustis, as well as in Maryland, Alabama and Texas.

Fort Lee’s post-BRAC military/civilian employment is expected to swell beyond 11,700, and its average daily population of workers, including Army trainees, is expected to pass 21,000. Col. Dionysios Anninos of the U.S. Army Corps of Engineers says Petersburg and the surrounding cities and counties should benefit from the expansion.  “Military families boost local economies,” says Anninos, whose job includes overseeing statewide construction and real estate for the Army and Air Force.  “They’re going to buy homes. They’re going to buy cars and shop in stores.”

In Virginia these trickle-down benefits will be concentrated in a corridor of construction stretching southeast from the District of Columbia to Hampton Roads.  Marine Corps Base Quantico is growing by 2,658 employees.  Langley Air Force Base in Hampton is increasing by 750 and Fort Eustis in Newport News by 300.  In Fairfax County, Fort Belvoir is embarking on an expansion estimated to cost more than $3 billion that will increase personnel by 19,300.  “At Belvoir, you’re essentially building a mini-Pentagon,” says Anninos.

Though these employment figures reflect a lot of “shuffling” — jobs being relocated from elsewhere in the state — by the 2011 BRAC deadline Virginia will have realized a gain of more than 5,000 employees and an investment of $4.7 billion, according to the VNDIA.  “And that’s a conservative figure,” Dickson says. But he is quick to point out that Virginia battled hard for these resources.  “Some of the most difficult decisions made in BRAC were made in Virginia,” he says. 

Strategies for defending the commonwealth’s military installations in the BRAC process were being planned as early as the fall of 2003, when Gov. Mark R. Warner appointed a 26-person commission to study Virginia’s vulnerabilities.

His successor, Gov. Timothy M. Kaine, appointed Patrick Gottschalk, his secretary of commerce and trade, as the point person for BRAC issues. “That really communicates that this is an economics issue,” says Patrick Tremblay, VNDIA’s communications manager.

Even with this effort, Virginia did not go unscathed.  In May 2005 the BRAC commission announced the closure of Fort Monroe; two months later it added Oceana Naval Air Station to the list of potential closures.  For 18 months Virginia watched other states compete for Oceana’s jet fighter squadrons. The worst threat came from Florida, which proposed to restore Cecil Field, near Jacksonville, to house the F-18s.  In the end, opposition from Jacksonville residents forced Florida officials to abandon their pursuit.  “We really lucked out in that one,” says Drake.  “Florida decided not to engage.”

Raising a caution flag

The battle over Oceana was a reminder of the importance of Virginia’s clout on the Senate Armed Services Committee. The committee, considered one of the powerful bodies in Congress, oversees and authorizes the DoD budget. “We’ve always had strong representation on the Armed Services Committee,” says Fuller “That’s always been a factor.”

For the past 30 years John Warner was the anchor of that representation. For six years Warner served as the committee’s chairman. With Warner’s retirement, Virginians are evaluating the loss of his clout. “There’s a yellow flag flying,” says Fuller.  “A caution flag.  We had two senators on the Armed Services Committee.  That was good. I suspect the next senator who replaces Warner will strive to get on the committee, but he won’t have seniority.”

“I don’t think there’s any question about the importance of Senator Warner’s advocacy,” says Dickson. “Frankly, looking to the future for the next realignment, the Senate Armed Services Committee will be critical to those decisions.”

Yet in conversation after conversation, concerns over Warner’s departure are tempered by increased confidence in Webb, who was elected to the Senate in 2006. “Senator Webb is growing in importance on the Senate Armed Services Committee,” says Dickson.  “The GI Bill [offering better benefits to today’s military personnel] shows him as a player.”

Warner has touted Webb’s leadership.  Despite sitting on opposite sides of the Senate aisle, the two collaborated on many efforts, including the GI bill.  Webb pledges that when Warner leaves, “I’ll do everything I can to continue to advances we’ve made together.”  But it won’t be easy flying solo. The shifting power dynamics on the committee already have revealed new threats. “One concern [Warner] and I have discussed is that, with two Florida members on the Senate Armed Services Committee, there’s been discussion of moving an aircraft carrier from our port down to Florida.  In terms of cost sensibilities there’s just no justification,” says Webb.  “I’ll be watching that.”

The war crutch

While the tug-of-war over military assets continues in Washington, the real battles rage overseas.  Webb condemns the war in Iraq, calling it a “botched occupation.” But how would an end to fighting affect the economy of his home state?

Virginia’s largest defense contractor doesn’t fear peacetime. “We don’t build bullets,” says Randy Belote, Northrop Grumman’s vice president of corporate and international relations.  “We don’t build bombs.  We don’t build products that need to be replaced regularly.”  A single aircraft carrier can take 30 years to produce, he notes.  “We’re very stable.”

As for the military-rich 2nd District, Drake says peace would bring more growth.  “It helps our economy to have troops here,” she says.

An end to fighting will have less effect on Virginia’s military investment than the current economic slump, says Fuller. “I don’t think DoD spending in Virginia has ever gone down,” he notes.  “But it’s paid for with tax money, so it’s dependent on the economy.  The next president, no matter who it is, will not be able to spend money on defense as fast as the last one.”

As for concerns that Virginia is too dependent on military money, “it is a vulnerability,” Fuller concedes, but so is any specialization. “If you had to have a so-called crutch, this is the one to have,” says Dickson.  “Defense is an integral part of the federal government’s spending, and they’re not going to walk away from that.”

And, adds Webb, Virginia is no one-trick pony.  “We’ve got the military presence but we have many other strengths.  High-tech in Northern Virginia is strong.  With the right infrastructure, the importance of Hampton Roads to the entire country is going to grow.”

Virginia without the military is something Fuller can’t foresee.  Not with its leadership. Not with its history.  And, in the end, not with Hampton Roads.  “No one can say they have a better port,” says Fuller.  “And you just don’t walk away from a channel where you can float an aircraft carrier.”

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