- The Washington Times - Tuesday, November 15, 2011

STAUNTON, Va. — State officials on Tuesday sounded a cautionary tone as Virginia prepares for a lean budget season and the potential of cuts from Capitol Hill next week — cuts that could stanch economic recovery in a region heavily reliant on federal spending.

Members of the state’s money committees discussed the state’s financial outlook during their annual retreats that began Tuesday, about a month before Gov. Bob McDonnell is scheduled to present his biennial budget proposal.

“While the U.S. economy has technically emerged from the Great Recession … it appears that the recovery will be long and uneven,” said Delegate Lacey E. Putney, Bedford independent and chairman of the House Appropriations Committee. “The outlook points to a growing economy, albeit a very slow one.”

Looming over the budget talks was the work of the 12-member congressional supercommittee, tasked with finding $1.2 trillion through some combination of revenue increases and spending cuts by Nov. 23. Should legislators fail to act, automatic cuts would begin in January 2013. Half the cuts would come from the Defense Department — a significant driver of the state economy, particularly in Northern Virginia.

The state ranks first in per-capita defense spending at $6,713 — 4.3 times the national average — and accounted for 11.1 percent of all defense spending in the country.

In 2000, 24 percent of the state’s economy was comprised of direct federal spending, which has grown to 32 percent in the past decade, said Stephen S. Fuller, director of George Mason University’s Center for Regional Analysis. Virginia was also ranked first in the country in total federal procurement last year, at just shy of $60 billion.

That leaves Virginia, in large part, at the mercy of what — and how much — the supercommittee ends up cutting.

“It helped all of Virginia weather the recession, but it also shows … that we’re going to be more vulnerable to cutbacks,” Mr. Fuller said of the ramp-up in defense spending in the past decade. “I think this is more than a wake-up call for the state.”

He estimated that $1 trillion in defense cuts over the next decade would cost the state nearly 123,000 jobs — 92,691 in Northern Virginia — and reduce the gross state product by $10.5 billion, or 2.2 percent, which is about half of the economy’s projected 2013 growth.

“It’s a huge concern,” said Delegate David Englin, Alexandria Democrat and a member of the House Finance Committee. “Clearly, cuts to federal defense spending will disproportionately affect Northern Virginia. It’s frustrating that we’re at the mercy of Congress, but our challenge and our responsibility is to mitigate that.”

Still, more than half of the state’s federal funding goes to programs that are exempt from the automatic cuts. Though social programs such as Medicaid are exempt, a cutback in federal funding could still hit programs that provide services and deliver meals to the elderly and assist the homeless, for example.

Virginia, though, is one of many states girding for potential cutbacks from the federal government. Mr. McDonnell intends to set aside $30 million from the state’s year-end fund balance of $545 million to brace the state for potential cuts in direct spending and contracting.

Legislators at the retreat also noted that, based on revenue forecasts, the state faces a potential budget gap between $885 million and $1.5 billion over the next two fiscal years, working off a “base budget” of $16.4 billion in the general fund.

Mr. McDonnell, a Republican, has directed state agencies to prepare savings plans of 2 percent, 4 percent and 6 percent of across-the-board cuts, exempting higher education, K-12 standards of quality, Medicaid and behavioral health, for which the governor has convened work groups to identify targeted savings strategies.

Proposals include closing facilities and increasing fees, and could result in 31 state layoffs if across-the-board cuts of 2 percent are enacted and 181 state layoffs if across-the-board cuts of 6 percent are enacted.

“It doesn’t take a rocket scientist to say, ‘Hey, Houston, we have a problem,’ ” said Robert P. Vaughn, staff director for the House Appropriations Committee.

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