When the Bubble Pops

Image credit: Commonwealth Institute

Image credit: Commonwealth Institute

by James A. Bacon

Northern Virginia is so much more prosperous than the Rest of Virginia that it’s difficult for we RoVians to appreciate what is happening north of the Rappahannock. But the picture isn’t pretty. Gripped by the realities of sequestration and budget cuts, the Washington region has one of the worst-performing economies in the country at the moment. And when Northern Virginia sneezes, as the saying goes, Virginia catches cold. Virginia’s current budget travails can be traced directly to NoVa’s economic ailment.

Two new reports drive home the message that Northern Virginia, the state’s economic locomotive for the past three or four decades, has experienced an unfortunate confrontation with reality.

First, CityLabs has published a list, drawn from Bureau of Labor Statistics data, listing the 10 jurisdictions that gained the most jobs in 2013 and the 10 that lost the most. Three of the 10 biggest losers — Arlington County (-1.1%, Fairfax County, -1.2% and the City of Alexandria (-1.4%) — were located in Virginia. Interestingly enough, neither Washington, D.C., nor any Maryland jurisdiction was included in the list of Top 10 biggest losers, which I would attribute to the facts that sequestration has clamped down hardest on military spending and that Northern Virginia’s economy is more military-dependent than D.C.’s or Maryland’s.

Second, the Commonwealth Institute (working in collaboration with two other regional think tanks) has published a new report, “Bursting the Bubble,” on the challenges of living in the national capital region.  The broad conclusion:

Income inequality is growing. Employment levels for people without a college education are far lower than before the recession. Unemployment rates for several groups of workers, including those without a college degree, remain high. Black workers and young workers were particularly hard hit by the recession, even when compared to other areas residents with similar education levels. The high cost of living in the region is pushing many families to spend more than they can afford on housing, while others trade more affordable housing for long and expensive commutes.

The region has many successes worth celebrating. But broadly shared prosperity is not one of them.

College-educated workers are earning more than before the recession; everyone else is earning less. States the report: “While wages are rising at the top and declining at the bottom nationwide, the divergence is more extreme in the national capital region.”

“Bursting the Bubble” looks at a longer time-frame than the CityLabs article — the period from 2007 to 2012. Over those five years, which includes the Obama administration’s economic stimulus phase and ends before the CityLabs data picks up, public administration jobs (which disproportionately hires college grads) increased by 40,000 jobs while the construction sector (with mostly less-than-college grads) lost a comparable amount.

income_breakdownThe wage growth that did occur was overwhelmingly concentrated in Washington, D.C. Every other jurisdiction (but Stafford County) saw median incomes decline.

These employment and income trends make life especially hard for the poor. Between the high cost of housing, the high cost of child care and the long commutes, families need higher incomes to stay out of poverty. Adjusted for living costs, the region’s poverty rate is 13.4%, only a little lower the nation’ adjusted poverty rate of 15.3%.

The highest-cost housing (ranked by median home sales prices in 2012) was located in the metropolitan core — Arlington County the highest, followed by Alexandria, Washington, D.C., and Fairfax County. (It would be interesting to see a ranking based on the cost of housing per square foot.) Many homeowners are still struggling, especially in heavily African-American jurisdictions in Maryland’s Prince George County. Three percent of mortgages in the metro’s Maryland jurisdictions are in foreclosure compared to o.5% in Virginia.

Bacon’s bottom line: There’s only so much that state and local government officials can do to counteract the inevitable squeeze of federal government spending. Uncle Sam’s long-term budget crisis is far from over. The federal government will continue to be a drag on the regional economy for a long, long time. While there is a reasonable prospect that all the super-smart people who moved to the region will manage to reinvent the economy along more entrepreneurial, private-sector lines, that adjustment will take years to occur.

In the meantime, Virginia has a large backlog of transportation and infrastructure projects conceived during Northern Virginia’s go-go years. Some, like the Silver Line to Dulles, will proceed; nothing is likely to derail them. Others, like the proposed Bi-County Connector, which is part of a larger western bypass, have considerable institutional momentum but may be possible to block. It is more essential than ever that Northern Virginia authorities be cautious about loading up on debt to finance projects predicated upon the endless population and economic growth that seemed so inevitable back in the mid-2000s.

I have little confidence, however, that prudence will prevail. If anything, we could see the opposite. Governor Terry McAuliffe has signaled that he looks favorably upon the Bi-County Connector in a bid to stimulate air cargo growth at Washington Dulles International Airport. Still, we can always hope that state funds will be focused on projects, big or small, demonstrating the highest return on public investment. Rolling the dice on speculative ventures like Dulles air cargo won’t restore the region’s prosperity. Investing funds where they will achieve the greatest improvement to mobility and access is the best way to get NoVa moving again.

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27 responses to “When the Bubble Pops

  1. Bacon, you’re only a year late on this …

    https://www.baconsrebellion.com/2013/08/is-virginias-economy-tanking-2.html

    That’s not bad for you.

    Of course, we can all predict the next issue – school funding. As the economy in Northern Virginia continues going southward the school funding formulas will be impacted. Less money in NoVa means less money for elsewhere in the commonwealth. Last time this happened McDonnell raided the retirement fund as I recall. That might have made sense in a national recession but won’t make any sense in a structural downturn. The idea of “borrowing” from a retirement fund only makes sense if you have some way to pay back the fund. I see no reason to believe there will be any way to pay back what is borrowed anytime soon.

    McAuliffe is wasting his time playing patty cake with the Republicans. Say what you want about Ole Terry – he’s one hell of a salesman. He needs to be out personally convincing companies to hire in Northern Virginia before the people with the education and earning capacity leave. As I’ve said before, most of the people who flocked to NoVa over the last 20 – 30 years were looking for a job when the came here. They were abandoning Cleveland, Detroit, Pittsburgh, etc when they arrived. They will abandon Virginia just as quickly.

    I can see the Amazon Web Services building every day on my commute. They are now clearing additional floors. I assume that’s so they can hire more people. Time for Terry to go to Microsoft, Oracle, SAP, etc and put on a charm offensive. Lots of top notch cybersecurity skills in NoVa. But maybe not for long.

    And where is our technical entrepreneur turned senator Mark Warner? Too busy to be bothered by his constituents?

    Finally, this brings up the usefulness of people like John Foust and Barbara Comstock. What have either of these politicians done to diversify the NoVa economy? Those libertarian candidates are looking better and better.

  2. turning down 30,000 jobs for ROVA and 3.9 billion dollar in new money in a partisan spasm shows you just how focused on Virginia’s economy the Va GA is not the mention the gloom and doom pundits types that frequent this blog.

    what’s even dumber is that Virginians themselves are paying for this.

    Virginia can’t figure out how to provide fair opportunity to health insurance to the working poor, not even providing a state-insurance pool for them -but they sure can wring their hands and make whiny noises over sequestration.

    • Your point about Medicaid expansion and jobs is a good one. Given the budget challenge, given that the money has already been committed (at least for the first few years) it gets harder and harder to say “no”.

      Hopefully, someone at the DPVA will start putting together the “Virginia recession” and the Medicaid expansion jobs number.

      Even the RPV would have a hard time arguing against jobs.

      • re: ” Even the RPV would have a hard time arguing against jobs.”

        apparently not…

        that’s what is inexplicable about this.

        we can’t control what the Federal govt does – we have to look out for Virginia and it’s citizens – one would think.

        but you know things have gone sideways in a big way when the Va GA is more focused with aligning with National GOP efforts to discredit the POTUS that they so despise, that they’re willing, in effect, to let Virginia, it’s economy and it’s citizens get screwed in the process.

        The Feds might well go broke – (I do doubt it, but I allow the idea to satisfy the gloom and doom crowd and Jim Bacon)..

        but why should Va opt out of MedicAid money any more or less than it would opt out of Military or Medicare money?

        what exactly is the underlying core scruples of the Virginia GOP these days?

        and why in the world would people desperate for health care in RoVa who go at 5am to attend private charitable mobile medical clinics , continue to keep these charlatan creeps in office?

  3. From North Carolina and Jonathan Gruber, Kosali Simon, “Crowd-out 10 years later: Have recent public insurance expansions crowded out private health insurance? ” Journal of Health Economics,” February 2008, pp. 201–217.

    If all states were to go along with the optional Medicaid expansion, nearly 90 million people would be enrolled in the program by the end of the decade, including those newly-eligible under the ObamaCare optional expansion. However, as many as 60% of these new enrollees are likely to drop private coverage in order to sign up for Medicaid, moving from private to public insurance that will be funded by taxpayers. That will strain not only federal and state budgets, but would also shred the safety net for the poor as they are forced to compete with millions more people to get care from the limited number of providers who see Medicaid patients.

    Doesn’t honest accounting require that the jobs losses from the dropping of private insurance offset the 30,000 free jobs? See the entire article. http://nchouse116.com/why-didnt-nc-expand-medicaid/ I’d like my state senator (Barbara Favola) to address these 12 points, most especially the increased costs. But then when a Party is dedicated to taking money from others to buy votes, what do you expect? It would also be fun to see the Post’s “Paddy-Cake Boys” Hiatt and Hockstader try to answer these also.

    • ” If all states were to go along with the optional Medicaid expansion, nearly 90 million people would be enrolled in the program by the end of the decade, including those newly-eligible under the ObamaCare optional expansion. However, as many as 60% of these new enrollees are likely to drop private coverage in order to sign up for Medicaid, moving from private to public insurance that will be funded by taxpayers. That will strain not only federal and state budgets, but would also shred the safety net for the poor as they are forced to compete with millions more people to get care from the limited number of providers who see Medicaid patients.

      Doesn’t honest accounting require that the jobs losses from the dropping of private insurance offset the 30,000 free jobs? See the entire article. http://nchouse116.com/why-didnt-nc-expand-medicaid/ I’d like my state senator (Barbara Favola) to address these 12 points, most especially the increased costs. But then when a Party is dedicated to taking money from others to buy votes, what do you expect? It would also be fun to see the Post’s “Paddy-Cake Boys” Hiatt and Hockstader try to answer these also.”

      I thought you were saying that the expansion was going to increase charity care costs in the ERs..

      which is it?

      do you SERIOUSLY THINK that the working poor actually can afford to have adequate insurance?

      if you really thought that -then why would you worry about ER use?

      let’s do this.

      lets give the working poor access to insurance ON THE SAME BASIS that you have access.. through a big employer pool with no pre-existing condition denial – and everyone in the pool pays the same price.

      how about that? would that be fair – for the working poor to get the same deal that you get?

      why do you not advocate for this – as a fair solution?

    • “Doesn’t honest accounting require that the jobs losses from the dropping of private insurance offset the 30,000 free jobs?”

      Yes, must be net jobs added.

      • indeed. so getting insurance already from one source… and then getting insurance from another source = jobs lost?

        only in the partisan world…

        this is the fundamental problem in Va – that Virginia could solve – like other states have done – and that is create a statewide pool that functions like employer-provided insurance for those who don’t have access to employer-provided insurance.

        This is once again – one of those deals where our own legislators have chosen to do nothing and now that someone else has done what they chose not to do – they oppose it … worse – they have no alternative “better” proposal.

        these guys are ZEROS.

        they have no dog in the hunt – period and they oppose anyone else who does and then they try to make this about McAuliffe and the Constitution.

        how about this being about their own feckless behavior?

        remember, once again. these are NOT slough-offs. these are 400,000 WORKING people that the GA ignores while they give tax credits for shooting funeral urns into space and plum judgeships, and giving MedicAid money to people who own homes…and have assets… while their own constituents get in line at 5am for free mobile medical clinics.

        you tell me what kind of creep would conduct themselves that way.

  4. Getting a bit rusty up there boys? Well you better buy some WD-40 cause it will get worse. The Fed is looking at boosting interest rates. Remember what happens to the deficit when that happens? Remember what will happen to jobs in response? There’s more of Detroit coming to DC and you all ain’t gonna like it.

    • Well, the military is finally discovering that humans are expensive and that they can do a lot of their mission with less or even no people.

      Paying people to be boots-in-the-ground (cannon-fodder) – in training is expensive. They have to provide the family with healthcare and the solider with lifetime medical care if he (she) gets whacked.

      what you need instead of a brigade or a ship manned by hundreds of low-skill sailors is much smaller tech-savy teams using unmanned vehicles and other weaponry that requires more than a facsimile high school diploma.

      The question is – are we REALLY ready for this? We’ve been used to paying top dollar for people to dig foxholes while they wait for a potential deployment but are people (and State economies) really ready for the military to shed as much as 1/3 of their current “workforce”?

      Norfolk/Hampton are still going to do “Navy” but perhaps with 2/3 or even 1/2 of personnel …

  5. All too true. Virginia is the state most dependent on federal spending in the Nation. And while much of it is defense spending in Northern and Eastern Virginia it is statewide. I grew up in Southwest Va and now that region is almost totally dependent on federal spending: Ss, Medicare, Medcaid, transfers of taxes from federal spending in Eastern and Northern Virginia and spending by/on higher education institutions…federal and state.
    I recent wrote a piece in the Roanoke Times about this issue and how we need a completely new strategy for economic development that focuses on more than getting more federal spending to support our economy.
    Southwest Va lost more than 60 plants after the NAFTA agreement in 2005 and the real unemployment rate is dramatic now with no possibilities for people over 40.
    We need to step back and come up with a new long term economic development strategy….more than anything else.

    • You have to give North Carolina credit. They had the same rural dependence on textiles and furniture (and smaller manufacturing plants) and they have made (in my view) better progress than Va, simply in part, that they did not have the continuing availability of the Feds.

      but I think NC has the same problem in rural areas that we do in Va – in that the ones that stay – often depend on govt entitlements and programs to survive and many rural places in Va and NC would be largely 3rd world nation type places without Social Security and govt jobs like Post Office, public safety, schools, etc.

      not really restricted to NC/Va – all over – the economic changes to rural has relegated it to a very different economic realm .. than 50-100 years ago.

      Another thing, good to keep in mind – you don’t necessarily get much in the way of social security if you did not have a job that paid into FICA over your lifetime. You get somewhere around 5-10,000 .. which is below poverty and you’ll see those folks getting food stamps, MedicAid, etc…

      you can’t retrain people who are 40, 50, 60 who live in real areas to go to work as software programmers in the cities.. they totally lack the fundamental academic education.

      • “you can’t retrain people who are 40, 50, 60 who live in real areas to go to work as software programmers in the cities.”

        You can’t retrain people who are 40, 50, 60 who live in the cities to go work as software programmers in the cities.

        However, an unemployed waitress in Hooterville could probably get a job as a waitress in Arlington.

        I keep hearing Virginia Republicans talk about the great self-sufficiency and self-reliance among the rural folks who constitute so much of their base. Ask any kid in Southwest Virginia to sing “A Country Boy Can Survive” and you’ll get every word of the lyrics. Ask Jim Webb about the Scotch – Irish settlers of western Virginia and West Virginia and you’ll hear of fiercely independent mountain men.

        But if you suggest that people living in towns where there is no economic base and chronic unemployment move a couple of hundred miles away in the same state where they live – Oh My God! How cruel. How unfair. Their ancestors got on rickety wooden ships and sailed in the rat infested holds from Europe to America for better opportunities. But their progeny can’t stomach the idea of moving from Martinsville to Leesburg.

        The truly amazing fact is that the folks living in these rural Republican strongholds not only refuse to move to areas with more opportunity – they support grandstanding anti-government types like Bill Howell. Yes, there are plenty of quiet subsidies that flow from elsewhere to rural Virginia. Yes, the anti-government Republican politicians silently support these subsidies. But open up a new subsidy like Medicaid expansion and the Republican politicians scream their opposition while being applauded by the very poor rural constituents who would most benefit from that program.

        • well if you want to assume the waitress is single, unmarried or willing to leave her spouse and family behind to live in a cardboard box while she earns minimum wage that won’t buy her shelter or medical care –

          really?

          Country boys DO survive. They live on land in their family, in double-wides and other housing that folks in NoVa would not touch with a 10-foot pole – with their family, with their extended family , in their generational communities.

          The only way this works is to get their kids a GOOD education and let their kids go off to find their way and you can’t do that when you’ve got people resentful of providing funds for rural education.

          Education is the way forward and everything else is money spent to maintain people who are not going to be able to do what their kids can and will do.

          We could do what FDR and Byrd in Va did- during the depression and put folks to work fixing and repairing infrastructure…better than just paying them welfare but the neanderthals want to extract some kind of punishment for being uneducated and destitute… as a priority, apparently.

          We say we have “family values”. Really?

  6. As suggested above, we have a split taxation system where NoVA pays higher sales tax, car taxes, gaso taxes, etc. Some new NoVA residents are happy to leave when they can in the face of $1000+/yr taxes on each new car. I don’t think we’ll see too many Tesla Model S EV owners in NoVA for this reason, but even a new FORD F150 is typcially $40000…ouch! in NoVA.

  7. Interesting. I was in NoVa a couple of weekends ago. I get the “numbers”, but Jesus. If that’s what a downturn looks like for NoVa, the rest of the state must be past the depression stage and into the barter/mud hut stage because they’re so far behind NoVa.

    You could literally stop all economic activity in NoVa, and the part of Virginia and places like Roanoke, Lynchburg, Danville, and Bristol still wouldn’t catch up in 100 years.

    All states have prosperous and depressed areas, but Virginia’s got a really bad case of it.

    • It is kind of funny. About a month ago Jim Bacon posted another of his screeds about office vacancy rates being higher in NoVa than they had been in decades. To nobody’s surprise this was used by Jim to argue for shutting down transportation projects in NoVa. So, I looked up the national commercial office vacancy rate. Still higher than the rate in NoVa. NoVa’s worst rate in decades is still better than the national rate.

      I see a pretty flat future ahead for Northern Virginia. There is a definite chance that the building boom in NoVa will turn out to be a substantial error in judgement by the developers. This could lead to some serious real estate deflation which could turn a flat economy negative. However, the City of Washington, DC has been experiencing a renaissance. Most of the credit for that goes back to a single, brilliant mayor named Anthony Williams. But that renaissance might be just enough to keep attracting young talented people to the area. Some will settle in DC, some in the ‘burbs.

      I was perfectly happy here in NoVa back in 1959 when Tysons was still a farm. I’ll remain perfectly happy if things settle down and stop growing so fast – or even if they shrink a bit.

  8. I find it difficult to believe that an area with so much talent it going to be the next “Detroit.” ha ha

    I, too, find Bacon’s posts about NoVa office space to be hilarious/farcical. Hey Jim, why don’t you do a post on Lynchburg or Danville or Roanoke office vacancy rates?

    • Why don’t I post on Lynchburg, Danville or Roanoke office vacancy rates? Because Lynchburg, Danville and Roanoke haven’t launched and/or proposed multibillion-dollar infrastructure schemes predicated upon the kind of growth they were seeing in the mid-2000s.

  9. But based on your reasoning, if NoVa has an office vacancy rate that is below the nat’l average and should lose money for its infrastructure projects, what about localities with office vacancy rates higher than the nat’l average? I guess they shouldn’t receive any state funds for projects?

    Even though I’m a Rovaite, I acknowledge that the portion of the state that is west of Richmond and south of Warrenton would be a wipe-out zone without NoVa money. Do you have any idea how much that region is dependent on tax transfers from NoVa? I honestly think that Charlottesville/Albemarle is the only community in that entire swath of Virginia that would be livable without all of the state tax transfers for money, social services, and transportation. Maybe, and it’s a huge stretch, the Roanoke area might be ok w/o the NoVa-generated money. But that’s it….Roanoke and Charlottesville, the rest of that part of Virginia would be beyond pitiful.

    • You’re absolutely right about the choices we face. Let me make the choice even clearer. Do we continue subsidizing declining rural areas at the expense of viable metro areas?

      Is there any prospect of reviving the economies of Virginia’s small towns and rural areas? Personally, I don’t think so. Our challenge is to help them decline as gracefully as possible. As Don the Ripper says, young people will just have to pick up and move to where the job opportunities are.

      No one wants to face reality. No one wants to say what must be said. I have reached this conclusion with great sadness because I spent years in places like Martinsville, Blacksburg and Roanoke and became very fond of the people who live there. They are good people. I sympathize with their plight. But facts are facts.

      • well.. with some of this stuff, it’s along the lines of “REPENT NOW you FISCAL HEATHENS OR FACE HELL AND DAMNATION IN ROVA”

        😉

        I think this is beyond ROVA – it’s ROUSA .

        you have to go to every town that is not a major urban area and ask yourself what industry exists there that generates workers rather than sell stuff and services to people who are receiving entitlements, retirement, or work at local government including schools.

        What industry? what companies?

        It’s not zero but it’s not like it was in the 1950, 60, 70’s… either.. many towns are hanging by an economic string.

        and it’s that way in all rural areas across the USA…

        what I call zombie towns… they’re wonderful places.. where you can walk to the schools and libraries.. get a meal.. etc but there are no jobs beyond the ones that serve the rooftops that are there…

        these places are in transition – and I still think the kids that are there need to have the best educations possible so they CAN move to where the jobs are – and successfully compete rather than become entitlement burdens.

        Some might call that a “lefty” idea. I think it’s a fiscally conservative idea unless you have some way to get rid of people who will receive entitlements.

        we need to reach out to these kids in RoVa and help them escape their parents fates… and that means do more than what we are doing right now which is a joke for kids who do not have college-educated parents.. and/or live in economically-disadvantaged circumstances.

        the funny thing about all of this is that we grew from an agrarian society to the greatest economic power on the planet – PRIMARILY because of Public education – and now – we want to get rid of it and replace it with privatized/choice/voucher schools which are wonderful in concept and totally bogus in implementation.

        the kids who do best – have college-educated parents. that’s the harsh truth.
        it’s EASY to educate those kids… but our challenge are the kids who don’t have those advantages and RoVa is a hotbed of it.

      • This is why I enjoy your blog. You and the commenters are willing to tell the hard truths. I agree with you. It’s utter insanity to keep some of these dying cities going. That’s not politically correct to say, but honestly, look at Martinsville-Danville-South Boston-South Hill-Emporia.

        There is one column I’d love to see you write. What would have happened if Virginia Tech had located about 30 miles closer to Roanoke (Big Lick at the time). I think that’s so fascinating from a land use/development perspective. You can imagine all sorts of synergy for that region if Tech was near or in the City of Roanoke. Talk about 30 or so miles making a huge difference to history. While they now want to claim to be a region, they’re really not. Throwing the name Blacksburg on the Airport doesn’t make it a region. They’re still commercially distinct locales.

        • One of the interesting things about Va Tech – is – why in the world would you locate a University in that location to start with – ever?

          What would Blacksburg, Va be if not for Va Tech?

          for those who question the role of govt, this might be a good read for you:

          https://en.wikipedia.org/wiki/Land-grant_university

          then check out the wiki for Va Tech itself.

        • Roanoke and Blacksburg have been talking seriously about forging closer ties for at least two decades, probably longer. It makes sense to combine Tech’s research brainpower with Roanoke’s population and business base. The two communities came together to create a regional tech council. But I don’t know of much else that’s happened. The reality is, it’s 45 minutes from downtown Roanoke to downtown Blacksburg and there’s a whole bunch of mountains in between, so the two communities never really merge. It’s sad. Both communities would benefit enormously if they could pull it off.

          • DO you really need physical ties in the internet age?

            why I bet VaTech could gen up a self-driving bus or even autonomous drone shuttle service.

            but what’s the plan for the zombie parts of RoVa?

            I would think – an educational tour-de-force.

            start with Pre-K and Head Start – then have a new kind of Governor School that has two tracks – one for college and one for technical (like Europe) – then community colleges with occupational certificate programs as well as guaranteed admission into a Va 4-yr if you have the grades.

            Community colleges could be distance learning centers for VaTech, UVA, and other Va 4-year institutions.

            Virginia should put together a strategic plan that seeks to put Virginia in the top 10 countries in the world on academic performance…

            They should do such an exemplary job in RoVa that the urban areas start crying “foul”!

            see.. this is the DIFFERENCE between Armageddon Gloom and Doom and bubbles bursting and the non-stop bad news bear perspective and one that looks taking on the the challenges – like Americans used to be distinguished by,

            Of course the gloom and doom folks characterize such nefarious things as tax & spend tomfoolery.

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