Dealing damage

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Congress's debt deal strips billions from Virginia's economy

The debt deal Congress sent to President Obama's desk today cuts at least $350 billion to defense, which could damage a significant portion of Virginia's military-dependent economy.

A full 14 percent of the state's economy depends on defense spending. Military bases, defense contractors and federal employees are concentrated in northern Virginia, host to the Pentagon, and Hampton Roads, home to the world's largest U.S. Navy base. From its Hampton Roads installations in 2009, the military contributed $56.9 billion to the state's economy through payroll, grants and contracts. Two-thirds of jobs in Northern Virginia are funded by defense spending, and Virginia companies are among the top recipients of federal defense contracts.

While Virginia lawmakers are admitting the cuts may be necessary, they're worried about the budget's effects on Virginia.

"For the nation, they've got to. It's going to impact Virginia tremendously," Delegate Steve Landes (R-Weyers Cave) told Statehouse News in June.

The Associated Press reported today that after an agreement, the United States still could face a downgrade in its credit rating because Congress hasn't cut enough. And if the federal bond rating is downgraded, that means Virginia's bond rating could still be downgraded too. ("Moody economy" 7/21)

The defense cuts, which mark the first defense reductions since the 1990s, will gradually affect Virginia's economy over the next 10 years. Defense funds not only pay employees but also support their families and trickle down to other community businesses where those employees spend. If local businesses lose revenue, the state loses tax revenue. Contractors pay state business and income taxes as well-- which could mean a significant loss of taxpayer funds when Virginia lawmakers return to debate next year's state budget.

And $350 billion is just the beginning. According to a Washington Post report, the debt deal calls for more reductions. If a bipartisan committee doesn't agree on cuts in four months, a total of $600 billion will be automatically cut from defense programs.

Already faced with reductions in government money, defense contractors have begun laying off workers. General Dynamics, a Falls Church-based contractor, laid off 112 Woodbridge employees after Defense Department cuts in May, the Washington Post reported.

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