Virginia, Say Hello to the Sequester

Official U.S. Navy Imagery

Tugboats guide the Nimitz-class aircraft carrier USS Harry S. Truman to its new berth at Norfolk Naval Shipyard.

Virginia didn't just weather the Great Recession; it thrived. Because of its reliance on federal dollars, the state was insulated from the worst of the economic crisis. At no point over the last five years, for instance, did joblessness reach 8 percent. Its peak was 7.4 percent in January 2010, and since then, it's declined to just 5.5 percent—one of the lowest rates in the country. But that was before the sequester. Every state will lose funding as a result of the $85.4 billion in across-the-board spending cuts, but because of its close ties to Washington and the military, Virginia might see the worst of it.

Already, Governor Bob McDonnell has warned the commonwealth risks falling into recession. "The automatic sequestration reductions mandated by the Budget Control Act of 2011 are already having a significant adverse effect on the Commonwealth," said the governor in a letter to President Obama and the state's congressional delegate. "When fully implemented, they could force Virginia and other states into a recession. Sequestration-mandated reductions will be implemented with no regard for relative national priorities. "

McDonnell isn't exaggerating. Both state population centers—Northern Virginia and the Tidewater region of eastern Virginia—depend heavily on federal dollars. Fairfax County, for example, is home to more than 20,000 federal employees, to say nothing of the contractors and consultants who make their living from congressional spending. Likewise, Hampton Roads (otherwise known as "Tidewater") is home to the largest concentration of military assets in the United States, including the nation's largest naval base and a massive naval shipyard.

What's more, there are nearly 90,000 Navy and Pentagon civil employees living in Hampton Roads, while private contractors employ more than 40,000 people. Each branch of the military is represented in the area and, overall, nearly one quarter of the nation's active-duty military personnel is stationed in the region. According to the Norfolk Department of Economic Development, nearly one out of every two dollars in the $81 billion Hampton Roads economy is dependent on either the military or the defense industry. The area's universities and research institutions, which receive millions of dollars in federal funding, will also feel the impact; the NASA Langley Research Center in Hampton, for example, might lose resources as a result of overall NASA sequester cuts totaling $726 million.

The White House fact sheet on sequestration provides more details on how Virginia loses out. "This year alone," notes the administration, "Virginia will lose approximately $14 million in funding for primary and secondary education, putting around 190 teacher and aide jobs at risk. In addition about 14,000 fewer students would be served and approximately 40 fewer schools would receive funding." Head Start and Early Head Start services would be eliminated for approximately 1,000 children, and the state would lose $3 million in environmental funding. Army-base funding would fall by $146 million, and the Navy would cancel the maintenance of 11 ships in Norfolk, elminating work for thousands of shipyard workers.

In other words, the effects of sequestration go beyond direct federal employees or even government contractors. From barbershops to restaurants, the scheduled furloughs and pay cuts will also deprive businesses of needed customers and patrons. George Mason University estimates that nearly 10 percent of the 2.1 million jobs that would be cut under sequestration come from Virginia. More than 136,000 of those would come as a result of defense cuts, while 71,380 would come as a result of cuts to the non-defense discretionary budget, which funds federal functions that for the most part aren't entitlements. Overall, Virginia can expect to lose $20.8 billion in economic output.

Virginia lawmakers have tried to account for some of this lost income. According to the Richmond Times-Dispatch, state lawmakers created the Federal Action Contingency Trust Fund in 2011—just after the budget deal that created the sequester was struck—to help cushion against cuts. The reserve contains $785 million, which, given the income lost from furloughs and closures, might not be enough to cover the gap.

McDonnell and the state legislature might be on the right side of policy, but it's unclear if they're on the right side of politics, at least within the GOP. On one end is McDonnell (who represented Virginia Beach for eight years), the General Assembly, and the Republican members of Congress from Hampton Roads and Northern Virginia, who want Congress to find a fix for the sequester. Last week, for example, Republicans representatives Scott Rigel, Randy Forbes, and Rob Wittman held a forum in Virginia Beach where they asked Washington leadership to limit the extent of defense cuts. Rigell—who represents a more moderate district in Tidewater—even expressed openness to new revenues as a way to deal with the sequester.

On the other side are conservatives, like House Majority Leader Eric Cantor and Attorney General Ken Cuccinelli, who oppose new revenue and see sequester cuts as a minor price for smaller government. In a recent interview, Cuccinelli told The Hill that the government had to eventually "spend within its means and Virginia, no doubt, with one third of its economy based on federal jobs, will take a hit on that." Likewise, as one of the most prominent Republicans in the country, Cantor has been steadfast in his opposition to new taxes or revenue. Indeed, he might bear the greatest responsibility for the sequester on account of his successful effort to derail a "grand bargain" in 2011.

Already, McDonnell is in hot water with conservatives over his transportation bill, which raises taxes to fund big improvements to Virginia's infrastructure. His opposition to the sequester—and Republican leadership—might harm his position in the party. At the moment, however, it's hard to know.

It's worth noting how far we are from the sequester endgame. Depending on where the public places its blame, one side or the other might cave on a new agreement to replace or repeal these cuts, in which case Virginia would be fine. But Republicans refuse to entertain any proposal from the White House that raises revenue, meaning that the odds for full sequestration are good. And if it's allowed to happen, the state and the country will see a huge amount of needless economic damage. For no particular reason, we'll slip into a worse recovery, with lower wages and higher unemployment.