D.C. cash flow turns Virginia green – and blue

By Kenric Ward / December 5, 2013 / This Originally Appeared Here.

RICHMOND, Va. — While Virginia boasts the highest percentage of federally funded private-sector jobs in the nation, “real” private enterprise in the commonwealth ranks second to last, a new report says.

Only 70.2 percent of Virginia jobs are free of government purse strings — coming in just ahead of New Mexico’s 68.1 percent. The national average is 80.8 percent.

On the flip side, nearly a third of Virginia workers are paid directly or indirectly with local, state or federal tax dollars — second highest behind New Mexico.

That dependence on government, says one political pundit, helps explain why the Old Dominion is electing more liberal Democrats statewide.

“No wonder Virginia is turning into a blue state,” writes James Bacon at the website, Bacon’s Rebellion.

Virginia’s proximity to, and dependence on, Washington, D.C., is a mixed bag, according to George Mason University’s Mercatus Center, which produced the study.

A steady diet of defense-related contracts kept cash flowing into Virginia during the so-called Great Recession. But the influx of money from across the Potomac “poses a long-term threat” because the cash flow is not sustainable, said Mercatus researcher Keith Hall.

Even if the largess remains unlimited, the result will be a badly splintered labor market – with northern Virginia raking in hefty salaries, and hardscrabble southern Virginia mired in double-digit unemployment.

Hall advises that Virginia diversify its labor market by depending less on federal support.

Gov.-elect Terry McAuliffe — who defeated Republican Ken Cuccinelli last month with incessant calls for more state spending — agrees Virginia has an economic challenge.

“We will continue to be the recipient of federal dollars. The challenge is to replace those assets with new business,” McAuliffe told a gathering of reporters in Richmond on Wednesday.

“We have to make Virginia more attractive to industries not attached to the partisan battles in Washington,” the Democrat said.

“Our workforce development program is not working,” he added, vowing to pump more money into public education, from pre-K to college, as well as spreading technological upgrades such as broadband service to rural areas.

Without specifying funding sources for his proposed outlays, McAuliffe declared, “Businesses and families will move elsewhere if we don’t invest.”

Hall, a former commissioner of the U.S. Bureau of Labor Statistics, takes a less Keynesian view and said Virginia policymakers need to start cutting red tape that strangles business development.

Since 2007, Virginia lost 2.8 percent of its private-sector jobs – some 74,900 positions. Yet unemployment has held relatively steady because thousands more left the job market and no longer count in the statistics.

During the same period, Virginia’s regulatory burden, as calculated by the Mercatus’ Freedom in the 50 States index, fell from third best in the country to ninth.

According to the Tax Foundation, the commonwealth had the 19th most friendly tax climate for businesses in 2006, but today it has fallen to the 27^th — worse than neighboring Kentucky and Tennessee.

The state’s personal income tax is the 38th most burdensome in the country.

“Virginia’s tax and regulatory competitiveness must improve and wasteful special-interest grants and loopholes should be eliminated.” Hall said. “These reforms would facilitate the economic growth necessary to increase Virginia’s private-sector employment.

“If (federal) government spending starts to slow at some point, (Virginia) will have a bigger issue with replacing jobs that might be lost from federal contracting,” he told Watchdog.

Katie Watson contributed to this report.

Kenric Ward is chief of Watchdog.org’s Virginia Bureau. Contact him at kenric@watchdogvirginia.org or at (571) 319-9824. @Kenricward

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Kenric Ward