11/30/11: The super failure rolls this way

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

THE JOINT Select Committee on Deficit Reduction, popularly known as the super-committee, failed to reach an agreement last week, to the surprise of no one. Looming are $1.2 trillion in automatic cuts, with half to come from defense and half from non-defense programs.

Exempt from the cuts are Social Security, unemployment insurance, programs for low-income families and both civilian and military retirement. Cuts to Medicare are capped and are limited to those on the provider side. The cuts are scheduled to take effect Jan. 1, 2013.

Who is responsible for this mess is really irrelevant. I’ll leave the spinning to the politicians.

In the meantime, across Virginia, concern for the effects of the cuts is spreading. I’ve said it before: The real “business” of Virginia is the federal government.

Stephen Fuller, director of the Center for Regional Analysis at George Mason University, provided information about federal spending in the commonwealth in a presentation to the House Appropriations Committee earlier this month.

In 2010, Virginia ranked first among the states receiving federal procurement dollars, edging out California, with an estimated $58.3 billion. In the same year, Virginia ranked fourth in federal wages and salaries, behind Texas, California and the District of Columbia. Although the state has just 2.6 percent of the U.S. population, it receives 4.2 percent of total federal spending.

Looking just at the Department of Defense spending, Virginia receives 10.4 percent of the total outlays. Fuller’s presentation estimated that 15.6 percent of the gross state product comes from DoD spending. Here in Hampton Roads, defense spending accounts for nearly 46 percent of our gross regional product.

The last slide from Fuller’s presentation was sobering: If the DoD spending reductions are implemented as expected, Virginia could stand to lose about 122,800 jobs, including some 20,785 here in Hampton Roads.

In a special report last week, the Hampton Roads Planning District Commission’s chief economist, Greg Grootendorst, estimated that a reduction in defense spending would take $1.6 billion out of our economy. The Old Dominion University Economic Forecasting Project estimates that our regional economy is about $80.4 billion.

I know, I know — too many numbers. The point is that Hampton Roads and Virginia rely heavily on federal spending. Cuts, on top of a sputtering economy, are going to be painful, and no one is going to be spared. As lawmakers return to Richmond in January to tackle the two-year budget, covering July 1, 2012, to June 30, 2014, hard decisions await.

Localities, which derive a significant portion of their funding from the state, will be waiting to learn how it affects them.

Instructive of what could happen here is what has already happened in San Jose, Calif. As presented in a recent Vanity Fair article, the city of a million people was once run by 7,450 workers. That number is now down to 5,400 and is expected to drop to an astonishing 1,600 by 2014.

Much of the city’s problem stems from its pension obligations, an additional worry of Virginia, which has underfunded its own pension obligations for years. According to a report distributed but not discussed at the Senate Finance Committee retreat, the unfunded liability for the Virginia retirement system programs stands at nearly $20 billion. Expect the localities to have to chip in to help make up this difference.

In a few months, I fully expect to see a slew of new fees. I won’t be surprised to see increases in the real estate tax rates. And more layoffs.

While Washington dallies, Virginia and Hampton Roads burn.