With the so-called fiscal cliff’s January 1 deadline looming, it is still unclear what the upcoming federal budget will look like.
Depending on how the budget plays out—will the automatic tax increases and spending cuts of the fiscal cliff take effect or will leaders in Washington come up with an alternative solution?—Virginia could see serious effects.
The Virginia economy, particularly in Northern Virginia, is boosted by federal jobs, meaning the fiscal cliff cuts could have an outsized impact on the Commonwealth.
Gov. Bob McDonnell met with his executive advisory council of legislators and business leaders Monday to try to project the state’s finances this year so he can propose budget amendments for the final year of his two-year, $85 billion state budget, which he will present to legislative spending committees on Dec.17—two weeks before the deadline of the fiscal cliff.
“It will be a cautious and conservative approach to budgeting to account for these uncertainties in Washington,” [McDonnell] said.
The defense industry would take the biggest hit in Virginia. The spending cuts include 9.4 percent for defense spending and 8.2 percent for non-defense appropriations.
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In other words, defense cuts could cost the state 130,000 to 200,000 jobs.
The good news: McDonnell said Virginia is in strong economic standing and has accrued $1.4 billion in budget surpluses over the past three years.
McDonnell, according to the Wall Street Journal, has proposed depositing $30 million into a new reserve account as a “cushion against the fiscal cliff." Beltway counties such as Arlington are doing the same.
"We have developed a huge apparatus in Northern Virginia" tied to federal spending, particularly on defense, Ric Brown, the state's finance secretary, told the Journal.
In Maryland the stakes are just as high. There could be more than 100,000 jobs losses in Maryland, an assistant director of the Bureau of Revenue Estimates told the Associated Press.
Leaders are also concerned how the uncertainty of the “fiscal cliff” could impact consumer behavior during holiday shopping season.
All in all, hundreds of thousands of jobs could be lost, a good chunk of which are concentrated in the DMV area. Twenty percent of Maryland, Virginia’s and the District’s GDPs comes from Federal spending.
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