- The Washington Times - Monday, February 18, 2013

Virginia Gov. Bob McDonnell sent a letter to President Obama on Monday asking him to broker a solution to avoid billions in automatic federal spending cuts on the same day that a study found the cuts would hit Virginia and the D.C. region harder than any other area in the country.

The Republican governor’s letter came as pressure mounts for Congress to reach a deal to avoid $85 billion in sequestration cuts that would kick in if lawmakers fail to act by March 1.

The cuts could put many federal employees and contractors out of work and would be most damaging in Virginia, Maryland and the District, where federal spending makes up nearly 20 percent of the local economy, according to a report released Monday by Wells Fargo Securities.

Mr. McDonnell called the cuts a “blunt and unnecessary instrument” and urged the president to show leadership in crafting a more reasonable bipartisan plan.

“As we all know, the defense, and other cuts in the sequester were designed to be a hammer, not a real policy,” Mr. McDonnell wrote. “Unfortunately, inaction by you and Congress now leaves states and localities to adjust to the looming threat of this haphazard idea.”

The March 1 cuts would be the first wave of $1.2 trillion in total reductions over the next decade, as approved by Congress in the 2011 Budget Control Act.

The cuts would have a ripple effect throughout state economics, according to Wells Fargo economists, slowing income growth and raising unemployment while cutting into local tax revenue and raising the need for social services.

The company’s report predicted the effects will be most harmful in Maryland, Virginia and the District, which have the nation’s highest concentration of federal employees and federal-spending-dependent private contractors.

Defense spending accounts for 9.8 percent of the region’s economy and total federal spending accounts for 19.8 percent.

Wells Fargo economists Mark Vitner and Michael A. Brown noted that while the cuts have yet to occur, their looming presence is already weighing down the region’s economy.

“Employment growth in the Washington, D.C., metro area has slowed this past year,” they wrote, adding that “defense spending has wound down, and agencies and contractors have pulled back on discretionary purchases.”

Other states that could be especially affected include Hawaii, Alaska, Kentucky and Alabama, all of which have a heavy military presence and federal spending that accounts for anywhere from 9 percent to 16 percent of the state economy.

Leaders in Virginia and Maryland warn that the cuts could prove disastrous, but they also say they have taken steps to cushion the blow.

Mr. McDonnell sent a memo to Virginia agencies last fall asking them to identify potential cuts of as much as 4 percent in the event that sequestration happens.

Maryland Gov. Martin O’Malley, a Democrat, has proposed a budget this year that would grow the state’s rainy-day fund from 5 percent to 6 percent of the state’s $16 billion general fund.

Nonetheless, Mr. McDonnell predicted in his letter that even budget surpluses and a well-run state government could prove powerless against massive federal cuts.

“When fully implemented, they could force Virginia and other states into a recession,” he wrote. “Sequestration-mandated reductions will be implemented with no regard for relative national priorities.”

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