07/21/11: If the ceiling lands on Virginia

This op-ed appeared in The Virginian-Pilot on the date shown.

“GRAVITY,” Dave Barry observed, “is a contributing factor in nearly 73 percent of all accidents involving falling objects.” Even if the percentage is a little off, it should come as no surprise that the current fight in Washington over the debt ceiling is falling on Virginia and several other states.

Tuesday, the bond rating firm Moody’s Investor Service warned that Virginia’s coveted AAA bond rating — in place since 1938 — may be in jeopardy if the federal government defaults on its obligation.

Gov. Bob McDonnell was furious.

Referring to the warning received by Virginia and four other states, he fumed that “we’re put on the watch list because of the inability and ineptitude of the president and the Congress to reach a deal on how to fund the obligations of the United States of America.”

The other states receiving notices were Maryland, Tennessee, New Mexico and South Carolina.

What these states have in common is what Moody’s calls their “sensitivity to sovereign risk.”

In other words, these states’ fortunes are inextricably linked to those of the federal government.

Compared to other states, Virginia is above average in federal employees as a percentage of total employment.

Virginia is also above average in federal procurement contracts as a percentage of the state’s gross domestic product.

A lthough not a part of Moody’s six-factor consideration, it should be noted that even the state’s budget surplus, also announced Tuesday, is partially the result of federal money — in the form of stimulus dollars distributed to the state.

Kinda puts that “best state for business” award in a different perspective, doesn’t it? A significant part of Virginia’s “business” is the federal government.

Without looking at numbers, we in Hampton Roads are aware of the impact of government spending on our own economy.

We are home to the world’s largest naval base. According to the 2011 forecast for Hampton Roads, prepared by the Old Dominion University Economic Forecasting Project, nearly 30 percent of our region’s real gross product will come from direct Department of Defense spending alone.

And that’s not even all of the government spending here.

Should Virginia’s bond rating be downgraded, our costs of borrowing will increase.

Paying higher interest rates means less money in the budget for other things, such as roads and schools.

One of the reasons the state enjoyed a surplus both this year and last is not only because of deferred contributions to the retirement plan but also because the state reduced payments to the localities.

This in turn forced localities to reduce their outlays for things like roads and schools.

Little wonder, then, that Hampton Roads localities looked at increasing taxes and fees to cover the shortfall.

It is easy to shake a fist at Washington’s excesses, which even the governor acknowledged is the fault of both parties.

“Frankly, it’s been both Republican and Democrat[ic] presidents and Congresses that have contributed to this mess,” McDonnell said.

Harder is realizing that what rolls down to Virginia — and to Hampton Roads — from Washington may mean that our beleaguered economy faces even more battering.