Chichester Sounds the Alarm — Fiscal Good Times May Soon Be Over

For once I agree with John Chichester. (Scary, huh?) During a legislative retreat in Staunton yesterday, the Senate Finance chair warned that the state’s budget “will be hit hard’’ when there is a drop in national defense spending, which he anticipates in the next few years.

Reports Bob Stuart with the News Virginian: “Virginia is much more dependent than other states on federal spending,’’ Chichester said. “Homeland security and defense contracts have buoyed our growth.”

John Peterson, a professor of public policy and finance at George Mason University, drove home the message. “Defense spending is four and a half times more important in Virginia than in the United States,” he said, “and nine and a half times more important in Northern Virginia than in the United States.’’

While Virginia’s economy is strong now, Chichester called for continued fiscal discipline. The state senator cited the 1990s dot-com boom, which led to budget surpluses across America. “In Virginia, we enacted tax credits and other tax relief that totaled $1.5 billion a year,’’ he said. “And then we hit another recession.” The recession led to Virginia budget shortfalls and painful spending cuts.

We are well advanced in our current economic cycle. Another recession is more or less inevitable. The only question is the timing. Over and above that threat, with the Democrats running Congress, the spending bonanza for Northern Virginia’s defense/intelligence/homeland security sector is sure to end. I question whether spending will decline outright, but we can be certain that the rate of growth will slow.

I would be interested to hear Chichester’s take on Gov. Tim Kaine’s proposal to provide universal pre-school in Virginia, at a cost of some $300 million a year. Given his views on the coming slowdown in state revenues, will Chichester support a major expansion of a spending program? If not, Kaine has no prayer of triangulating past the House of Delegates.

One more note: Virginia is in much better shape now than in the 1990s. We’ve fully funded our rainy day fund, we’ve built a cushion of unused debt capacity, and we’re spending a significant percentage of the General Fund budget on one-time capital expenditures, not ongoing programs. While I still think we should roll back the 2004 tax increase, I will concede that the state has not spent the revenues recklessly. If we can simply restrain our appetites for more spending, we should stay in good shape.

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7 responses to “Chichester Sounds the Alarm — Fiscal Good Times May Soon Be Over”

  1. Toomanytaxes Avatar

    Let me play the contrarian. Given the importance of defense and homeland security spending to Virginia’s economy and the revenues produced or induced by federal spending, the Commonwealth’s basic economy is not all that strong. Our vaunted business climate and reputation might be a bit overrated. Perhaps, without the federal input, we’ve become just one more expensive, East Coast state. Our underlying private economy is not as strong as we often believe. Could this be true?

    I’m not sure I buy this argument fully myself, but the questions have me wondering.

  2. Jim Bacon Avatar

    TMT, You ask a legitimate question. As the old NoVa saying goes, take away Arlington, Alexandria and Fairfax (it’s an old syaing, maybe we need to throw in Loudoun and Prince William), and what you’re left with is… Arkansas.

    How does downstate Virginia compare to the rest of the country? Richmond holds up fairly well — higher-than-average income, growing in line with the national averages. There are some bright spots in smaller cities like Charlottesville and Harrisonburg. But among large MSAs, Norfolk isn’t doing so great. And, of course, small town/rural Virginia is not doing well at all.

    Of course, take away Raleigh/Durham/Chapel Hill, and what does North Carolina look like? Except for Charlotte, it looks like Virginia’s old industrial piedmont. Take away Atlanta, and what does Georgia look like?

  3. Larry Gross Avatar
    Larry Gross

    I tend to agree with TMT. Take away the Fed presence in NoVa and HR and what have you got?

    What does Virginia “produce” besides products and services for the Feds and just as important an mostly understated and under appreciated – the “ripple” economy due to the Fed Presence?

    How about this news (excerpts):

    “Va. road revenues less than expected
    Transportation cuts likely if tax shortfalls continue unchanged”

    … Virginia’s motor-fuels tax the 17.5 cents-per-gallon gas tax — collections for July through October were down 4.7 percent, or about $11.3 million, compared with last year.

    The state’s motor-vehicle sales and use-tax revenues came in 3 percent, or about $6.7 million, below last year for the same period.

    Both taxes also came in well below official revenue estimates.
    Higher gas prices and depressed auto sales account for the downturn in the tax collections, Reese said. “

    I’d say that this news.. means the Va GA will be even less thrilled with the idea of raising the gas tax.

    I suspect .. this is why Mr. C wants a “short” session. The longer it goes on – the worse the news will be.

  4. Scott Leake Avatar
    Scott Leake

    Come back on Monday, guys. Data that can give insight to several of your questions are included in the more detailed presentations. Hard copies were distributed at the retreat but are not online yet on the SFC website. Once they are you will have plenty of grist for your policy mill.

  5. Anonymous Avatar

    It is well known in the General Assembly that Senator Chichester is not supportive of universal Pre-K. As he and the Gang of 5 have said on a number of occassions, they don’t want to start any new programs, but rather take care of the programs that are already on the books.

  6. Anonymous Avatar

    I also agree with TMT. You can only take away so much. mortgage man

  7. Larry Gross Avatar
    Larry Gross

    Believe me – when it comes to education I’m a liberal… I think there are few expenditures of tax money that truly can be called “investments”.. but education is one of them.

    Every kid he emerges with a good education – has a legitimate opportunity to “produce” something – enough to take care of him/her self and if they are luck/smart/bold/risk-taker entrepreneur-types maybe end up as net employers of others.

    I was going to say.. if we could have a program that walks/talks like the Fed Head-Start program then .. maybe…

    (though I hear different “facts” about the efficacy of that program.

    But, in general, money sent to Richmond and then returned does what?

    Why is that superior than raising it locally and having local accountability for the expenditures?

    The only reason I can see the state path is to make sure we have a relatively level playing field between rich and poor counties and cities – and perhaps that the advocacy that others in this blog thread have….

    But wouldn’t a local sales tax dedicated to local pre-K be better than income taxes?

    I just tend to think that bad stuff happens to money sent to Washington and Richmond… and if it has to – then it needs a strong accountability framework – and a mandatory sunset so that if it doesn’t perform it goes away.

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