Virginia's love-hate relationship with federal spending
Thursday, May 6, 2010
RICHMOND -- At a news conference last week at Northrop Grumman's Rosslyn offices, where a panoramic view of Washington loomed outside a floor-to-ceiling wall of glass, Virginia Gov. Robert F. McDonnell ticked off the reasons he thinks the giant defense contractor chose to locate its new corporate headquarters in the commonwealth.
He cited the state's low corporate tax rate, its business-friendly regulations and right-to-work laws that prohibit requiring employees to join unions.
One factor the Republican didn't mention: The massive flow of federal spending that provides the core of Northrop's business and has made it the nation's 61st-largest company.
McDonnell has been a leading voice in railing against rising federal spending. But lost amid the calls for Washington to freeze or reduce spending is this twist: Although most economists agree that mounting federal debt could be dangerous to the national economy, Virginia has thrived on Washington's decade-long spending spree, according to analyses done by professors at Virginia colleges.
Ten cents of every federal procurement dollar spent anywhere on Earth is spent in Virginia. More than 15,000 Virginia companies hold federal contracts, a number that has almost tripled since 2001. Total federal spending -- from salaries to outsourced contracts -- has more than doubled, to $118 billion, since 2000, as homeland security and defense spending skyrocketed in response to the 2001 terrorist attacks and the wars in Iraq and Afghanistan. By 2008, it accounted for about 30 percent of Virginia's entire economy.
Federal dollars have filtered through the rest of the economy, too, helping to build the high-tech Dulles corridor and funding new homes and cars for federal workers and contractors and meals at local restaurants. The billions have helped fuel the economic boom cycles of the past decade and have cushioned the blow of the recent recession, particularly in Northern Virginia, where the unemployment rate has stayed stubbornly below 6 percent, less than the state and national rates.
"We have a rich uncle, I like to remind people -- Uncle Sam," said Stephen Fuller, director of the Center for Regional Analysis at George Mason University.
Democrats in Virginia, including both of the state's U.S. senators, also talk about the need for restraint in federal spending. But the Democrats have mostly backed President Obama's major spending initiatives, such as the $787 billion stimulus package, while Republicans have made restraint a core campaign theme.
U.S. House Minority Whip Eric Cantor (R-Va.) has said excessive spending "threatens the future of our nation, our workers, and our families." State Attorney General Ken Cuccinelli II (R) has decried the costs of a federal health-care bill that he will soon argue in court is also unconstitutional.
In an interview, McDonnell acknowledged last week that federal per-capital spending is high in Virginia. And it is true, he said, that most of Northrop Grumman's business comes from the government. But he said the company's business is largely defense-related, including shipbuilding in the Newport News area.
"I call that good investment and good federal spending," he said.
He said the government must restrain spending in other areas -- entitlements, earmarks and "other kinds of pork projects."