Virginia Economic Growth Still a Struggle

New home of Phone2Action -- celebrating small victories.

New home of Phone2Action — celebrating small victories.

Straws in the wind regarding Northern Virginia’s business climate:

Budget sequestration may be a thing of the past, but the federal budget squeeze is not. In her latest Richmond Times-Dispatch column, economist Chris Chmura notes that in the fiscal year ending Sept. 30, 2015, federal spending on contracts fell 4.4% — some $2.4 billion — in Virginia. About two-thirds of that was defense spending. With slow economic growth and Baby Boomer retirements driving Medicare spending ever higher, there is likely no relief in sight. Short of another big war, it seems to me, it is difficult to imagine a strong rebound in federal contracting.

Meanwhile, Washington, D.C., continues to gain competitive advantage over outlying jurisdictions in the metropolitan region. Even Arlington County, which is highly urbanized, close to the urban core, and blessed by mass transit and walkable neighborhoods, is feeling the challenge. “The county is … facing heavy competition from Alexandria and D.C., both of which are aggressively recruiting the same pool of talent,” writes Daniel J. Sernovitz with the Washington Business Journal.

The competition has gotten so fierce that Governor Terry McAuliffe made a trip to Arlington last week to celebrate the leasing of 3,586 square feet on Wilson Blvd. by Phone2Action, a 25-employee startup that had recently landed $4.7 million in venture funding. The governor provided $127,800 in state assistance. According to Sernowitz, Opower, an energy conservation company, has wangled money out of the state and Arlington County, to stay in Arlington rather than move to the district. Meanwhile, Arlington and Alexandria, he reported in February, felt compelled to set aside more funds for business recruitment.

To mangle an old phrase, if Northern Virginia sneezes, Virginia catches a cold. The commonwealth finished the 2016 fiscal year $266 million in the red, as revenues increased only 1.7%, short of the projected 3.2%.


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16 responses to “Virginia Economic Growth Still a Struggle

  1. Just want to point out that an increase in Medicare and even Medicaid is just like an increase in Defense spending…


    • Larry, from NoVA’s perspective, I don’t think so. While a federal dollar is a federal dollar, Medicare/Medicaid spending is likely fairly evenly dispersed throughout the nation – with higher and lower pockets. But I strongly suspect defense spending dollars would be less evening spread out throughout the nation and more concentrated in places such as Virginia, Texas and California. And in Virginia, that means Tidewater and NoVA, IMO.

      So if I were Terry McAuliffe or Sharon Bulova, I’d cheer more for defense spending.

  2. @TMT – if more people retire to Medicare – it’s likely that NoVa and Va will certainly get their share of the trend – right?

    What I’m pointing out is that Medicare – and MedicAid money – both get spent on doctors, nurses, services, equipment, just as DOD money gets spent on engineers, sailors, services and weaponry.

    I think they pointed out that Virginia would have gotten more than a billion additional dollars and 30,000 additional jobs from the MedicAid expansion.

    The Federal budget – spends money – on DOD , Medicare, MedicAid and other.

    If you cut DOD – then you spend less – in places like Va – yes

    but if you CUT Medicare or MedicAid – the same thing happens probably on a more generalized basis – keyed to population demographics.

    finally – if you CUT Medicare and use that money to increase Defense spending – it likely cancels itself… in terms of net spending.

    • I’m not disagreeing that a federal dollar is a federal dollar. What I am saying is that a $100 M increase in federal spending on defense nationally is likely to bring more federal dollars to Virginia than a $100 M nationwide increase in federal spending on Medicare or Medicaid. Similarly, a $100 M increase in defense spending solely in Virginia is likely to bring more federal dollars to Fairfax County than a $100 M increase in Medicare/Medicaid spending solely in Virginia would bring to Fairfax County.

      Likewise, cuts in defense spending of X amount are more likely to hurt Virginia and Fairfax County than cuts in Medicare/Medicaid spending.

      I’m not arguing pro or con for increases or decreases in any type of spending. I’m just focused on the selfish interests of the Commonwealth and Fairfax County. We are more affected by federal defense spending than federal spending on Medicare/Medicaid.

  3. I got it… DOD $ accrue to Va more and better than Medicare/Medicaid dollars…

    probably agree.

    do we actually know how many Medicare and Medicaid dollars come to Virginia compared to DOD dollars?

    ” Brian Coy, a McAuliffe spokesman pointed us to figures from the Center for Effective Government, a liberal non-profit group that tracks U.S. spending. They show that in fiscal 2011, companies located in Virginia had federal contracts totaling $88.7 billion”

    Total Medicare Spending by State – Virginia $9,736
    Total MedicAid spending by state – Virginia $7,611,531,956

    so looks like we get about 5 times as much from DOD….than Medicare/MedicAid

    maybe you already knew that and I bow to your superior grasp of the numbers!


  4. It’s a concern (the economy in VA). Some feel the proverbial “crap will hit the fan” after the elections, re: less gov’t jobs in NOVA (no matter which party wins). I don’t know if that’s true or hearsay and fear, but I heard it.

    Obviously Gov McAuliffe working very hard on job creation.

  5. Here’s the problem:

    ” Congress funds problematic weapons the Pentagon does not want
    A third of a billion dollars for an extra warship is just one of many pork-barrel items being forced by lawmakers on the Department of Defense in a spending bill about to come up for a Senate vote.

    In the nearly eight years since the first Littoral Combat Ship (LCS) was delivered to the Navy, it hasn’t won many ardent fans outside the Navy, its home-state lawmakers, or the employees of the two shipbuilders producing dueling models. The ships’ maiden voyages have been marked by cracked hulls, engine failures, unexpected rusting, software snafus, weapons glitches, and persistent criticism of how vulnerable they are to an attack.

    “The ship is not reliable,” the Pentagon’s operational test and evaluation director said in a report released in January 2016, only the most recent such judgment it has made. During 113 days of testing on one ship last year, some of the engines and water jets responsible for propelling the ship forward were out of commission for 45 days.

    Defense Secretary Ashton Carter expressed his concern last December by ordering the overall number of new ships trimmed from 52 to 40, saving billions of dollars. The department’s leaders also ordered production scaled back from three to two ships in 2017 and said all the work should eventually go to just one of the two shipyards.

    But lawmakers on Capitol Hill — provoked or perhaps inspired by a steady stream of contractor donations and unusually determined Navy lobbying — are now on the verge of ordering the Pentagon to build more than Carter wanted.”
    A defense appropriations bill moving towards Senate approval in coming days or weeks directs that $475 million be spent by the Navy to procure an extra LCS next year. The House of Representatives has already passed legislation ordering that $384 million be spent on the extra ship. So it’s virtually certain to happen, a prospect that cheers the Navy greatly but has evoked dismay among the ships’ many critics.

    so don’t be yammering about entitlements.. this is the problem.

    same thing with BRAC – BRAC is what the Pentagon wants so it can afford other things it actually needs but Congress – including Virginia’s reps who piously whine about deficit and debt and Medicaid Expansions … want the DOD money.. even when DOD does not want it.

    The extra spending is a direct repudiation of the Secretary of Defense, putting the Navy back on track with its original three-ship production schedule for 2017 — and pushing the decision about the fate and total size of the LCS fleet off to the next president.

  6. This is pretty shocking and is starting to look like it confirms a drammatic shift in the way the economy is now working:

    ” Virginia Retirement System estimates 1.5 percent return on investments in just ended fiscal year”

    If this trend holds – unfunded liabilities gets to be a much bigger and nastier issue – that will fundamentally affect how school teachers, police, fire, and University professors – work – and retire in Va.

  7. I am genuinely interested if Mr. Bacon or commenters have specific proposals to increase economic growth beyond the generic right-wing response of “cut taxes and regulations” or left-wing response of “better education and more economic development incentives”. It seems that most economic development conversations quickly turn into those 2 boiler plate responses.

    • If you seek specifics for proposed Virginia economy improvements, I feel our car tax system reduces car sales. I would try to find a way to shift the tax burden off of new cars. I know this is a zero sum game, we have to make up the car tax somehow. Increased car sales would be one element of my suggested approach. Possibly some green car incentives to spur sales, etc. In other areas, I would keep energy/elec costs low to encourage businesses and industry to move in.

    • so here’s a question in response to Cville Resident and TBill…

      is economic growth – real economic growth beyond zero sum – productivity?

      Does producing more with the same amount or less – equal to increased economic gains/benefits?

      or there other things besides this that actually leads to gains/increases?

      is literacy an enabler of economic gains?

    • Last fall, I attended a meeting where our guest speaker was from the Fairfax County Economic Development Authority, the entity that tries to attract businesses to Fairfax County, among other responsibilities. The meeting was a bit of a give and take and quite informative. The speaker too concluded there is no job growth at the upper ends of the compensation scale. Job growth is chiefly low-end service jobs, food service, janitorial service, hospitality and the like.

      One of the topics discussed was the speaker’s view as to whether Virginia in general and Fairfax County has the right type of people to compete with economic growth centers in Texas, Utah, California, etc., since we heavily attract people who are good at government-related things.

      The speaker said “yes” and “no.” We have many very bright people with skill sets and knowledge that could easily move from government contracting-solving government problems to more private sector industries. But, like me, the speaker felt we sorely lack risk takers of the type that are found in other areas of the nation.

      While I have problems with some of McAuliffe’s efforts to avoid the constitution and state law, I give him high credit for trying to bring more business and jobs to the Old Dominion. But how does he convince the necessary risk takers to come here? Can he even do it? Can any governor?

      • Very interesting points.

      • Good points. Let’s give the Gov high marks, not only for job creation attempts, but also for keeping VA on the right path as far as NOT doing the NC discrimination approach. Aside from economics, we need to make sure VA is a welcoming state. Gov McAuliffe has tackled both ends of the jobs equation with distinction. I don’t know if we’ll ever see that combo again.

        As far as Larry’s comment below, let’s face it medical is a big business today, so yes anything to cater to that.

  8. @TMT – for a given job – whether it be a service job or a govt contracting job, etc…

    do you believe that things like technology , hardware, software, knowledge can generate more services , more product for the same amount of effort by leveraging technology and knowledge?

    that’s how I have viewed “productivity” – that a person would generate “more” product or services with the same level of effort -by modersionation, automation, etc…

    does that lead to an expanding economy?

    another example – Medicare – changes it’s processes so that Doctors are able to see what other doctors are doing for the same patient and that leads to a reduction in duplicative services rendered and/or less costly mistakes?

    do things like that – lead to an expanded economy ?

    • Productivity has generally been measured as the amount of output per unit of input. Technology can, of course, add to productivity. A simple example, when I started practicing law in the late 70s, there was a staff assistant for every two lawyers. Some big shots had their own “secretary.” Lawyers either wrote by hand or dictated documents. They generally looked up the law in hardcover books.

      The small firm where I am Of Counsel has a staff assistant for nine lawyers and two consultants. And the same staff assistant also helps more lawyers and consultants who work remotely from other cities. We only have one office in Fairfax County, but employees live as far south as Florida and as far west as Colorado.

      Short of a single paragraph, I’ve not seen a lawyer or consultant handwrite anything in the four plus years I’ve been affiliated with the Firm. I honestly cannot remember the last time I dictated anything on tape or to memory, short of a note to myself on my smartphone. I remember receiving a small dictation device when I joined a law firm in January 1998. Not sure I ever used it.

      As much as can be filed or transmitted electronically, is. Many hearings are conducted via phone or Skype. With the exception of a dictionary and a couple technical books, there is no physical law library.

      I would agree technology and adaptive behavior by workers has greatly increased productivity, at least in the area of legal services and telecom consulting. I think it does provide for an expanded economy or, at least, allows businesses to stay afloat.

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