Monday, November 21, 2011

Is Virginia Overinvested in Defense? Why Maryland Can More Easily Survive the Defense Bubble Burst

A Maryland Juice reader sends us the latest entry in the Maryland vs. Virginia battles. It comes from Politico writer Mike Allen's daily news roundup from 11/20/2011. The article he points to raises an interesting question: putting tax rates aside, has Virginia been living large (perhaps too large) from defense spending during two major wars?
Bloomberg Government Special Report, "Defense Spending State-by-State": "Virginia, Hawaii and Alaska may suffer the most economic harm from defense cuts of as much as $1 trillion during the next decade ... Virginia, home of the Pentagon and the Norfolk naval base, tops the list with 13.9 percent of its gross domestic product derived from defense spending. Hawaii ranks second, at 13.5 percent, and Alaska is third with 10.7 percent. All other states are in single digits, the study showed."
Indeed, a visit to the Bloomberg Report referenced above notes dark and stormy waters for Virginia:
Bloomberg Government examined military spending by state and combined the data with innovative graphics to provide a comprehensive view of Pentagon spending, as Congress considers budget cuts that might threaten the economies of states such as Virginia.

Virginia accounted for 10.8 percent of federal defense spending in fiscal 2009, making the state the top recipient and vulnerable to possible reductions.
Bloomberg included visualizations of the potential for pain in Virginia:

This sounds eerily similar to a recent Washington Post reader's comment that Montgomery County Planning Board member Casey Anderson highlighted for Maryland Juice readers:
...don't kid yourself, without the federal government presence, Fairfax and the rest of NoVA would not have much to talk about. And without NOVA and Hampton Roads (huge military presence), Virginia would not have much to talk about either. Its not attracting businesses because of its policies, its attracting them because of the huge federal gov't presence. NoVA and Hampton Roads are the rest of the state. 

For example, just go visit Richmond. I had to leave there last year because it has nothing to offer anymore. No more jobs. Fairly high unemployment - much higher than NoVA. Too many office buildings left standing empty due to bankruptcies. It is relying on VCU (largest school in the state) to live on these days because ever since tobacco ran its course and the banking industry left to go elsewhere (like Charlotte and St. Louis), there is nothing left to offer.

Oh and a couple of other things. I live in Loudoun now. My property taxes are as high as anywhere in MD and our governor has only balanced the budget by borrowing on future revenues and not making pension payments owed to the state workers....
Indeed, one day after Politico highlighted the article predicting bad days ahead for Virginia, Mike Allen followed up with yet another news roundup highlighting the issue:

The Politico blurb accompanying the headline above, stated:
...there’s a growing push by defense hawks to blunt the so-called ‘sequester’ that would slice $600 billion out of Pentagon programs starting in 2013 … The conservative Wall Street Journal editorial page Friday appeared to give some cover, indicating that the cuts to defense spending are not so bad. Even though the cuts in the trigger don’t go into effect until 2013, the Pentagon has to start cutting. The Defense Department says it’ll have to cut 200,000 troops in 2012. That has defense hawks vowing to spend 2012 reversing it. … Republicans are considering packaging unemployment benefits and the so-called ‘doc fix’ with a bill filled with spending cuts — a duel-headed strategy to lessen the impact of the sequester by crafting a bill Obama could not turn down. Attaching the AMT and other measures could be a possibility.

Maybe all of the past bravado from Virginia about job-creation was just a temporary exhibit. After all, The Examiner reports that Virginia Senator Macaca's Governor is now joining Maryland Governor Martin O'Malley in seeking jobs from India:
Virginia and Maryland have a history of competing for businesses, but when it comes to emerging international markets, they put the rivalry aside.

"There are so many opportunities here that I'm not worried about that competition," Virginia Gov. Bob McDonnell said last week from India.

McDonnell returns Monday after a two-week trip to Israel and India just as Maryland Gov. Martin O'Malley heads to India on a six-day trade mission with more than 100 business leaders, educators and elected officials. Both governors have openly embraced developing foreign economies, set up trade offices in China and now are hoping to find new customers for local products among India's 1.2 billion citizens.
In addition to having a less defense-dependent tax base, Maryland has been strategically repositioning itself in various areas (ie: the shipping industry and startup funding). But I think that ultimately Maryland can be more successful than Virginia if it invests in having better, more efficient neighborhoods. After all, the "experts" lately have been chattering about the looming housing shortage in the DC Metro region. But various proposals are lurking in the Maryland suburbs that can help juice the region's economy. The latest entry comes by way of Montgomery Councilmember Marc Elrich's proposal for a countywide transit system. The Washington Post reports the project received a $260,000 grant from the Rockefeller Foundation:
Montgomery County has received a $260,000 grant it plans to use in the planning of a bus rapid transit system that county officials say would provide the convenience, comfort and reliability of light rail.

A 20-member county transit task force is studying how to build and pay for a 150-mile network of dedicated bus lanes to reduce traffic congestion and improve mobility for riders.

The Rockefeller Foundation grant— part of an initiative to assist localities in the United States to plan and construct bus rapid transit systems—will be used to hire consultants to conduct studies and research other areas with such systems already in place, officials said.

See you in 2020, Virginia! In the meantime, policymakers should continue being skeptical about trying to make Maryland more like Virginia.

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