Reports analyze impact of sequestration on Fairfax -- Gazette.Net


Economists and local elected officials are continuing to sound alarms regarding the impact that potential federal budget cuts would have on Northern Virginia’s economy.

The biggest potential hit, to the tune of $5 billion statewide, would come from across-the-board defense cuts included in the Budget Control Act, a process also known as sequestration. Additional job losses would come from cuts in other areas of federal discretionary spending, Michael Cassidy of the Commonwealth Institute told the Northern Virginia Regional Commission last week.

The local economy and housing market has improved since the recession, Cassidy said, but it has not returned to pre-recession levels. At the same time, local governments continue to see increased demand for services due to population growth and needs, he said.

In addition, Northern Virginians would be disproportionately affected by the expiration of the 2003 income tax cuts, which also will occur Jan. 1 if Congress doesn’t act, because of the higher income levels here. That could reduce the spending power of local residents.

“The combined impact of these would obviously be very significant,” Cassidy said. “They could prove to be far deeper than even this very deep recession.”

Fairfax County alone could lose tens of thousands of jobs and experience an 8 percent decrease in the gross county product, thereby shrinking the county’s tax base, according to a recent analysis by Stephen Fuller, director of George Mason University’s Center for Regional Analysis.

Public schools in the county would lose at least $6 million in federal money from sequestration, according to initial Fairfax County Public Schools estimates.

However, those dire estimates assume that congressional leaders do not act to prevent sequestration and the tax increases from automatically going into effect. It is widely anticipated that Congress will do something when it goes back in session following the election.

U.S. Rep. Jim Moran (D-8th) and Dan Scandling, the longtime chief of staff for U.S. Rep. Frank Wolf (R-10th), told the Northern Virginia Regional Commission that the outcome likely depends on who the next president is.

If President Barack Obama is re-elected, he will most likely try and strike a grand bargain between both parties that includes a mix of cuts and new tax revenue, Moran said.

If former Massachusetts Gov. Mitt Romney wins Tuesday’s election, it is likely that both parties in Congress will agree to kick the can down the road to allow the new president time to negotiate an agreement, Moran said.

However, such an agreement is not guaranteed.

“I’ve become increasingly concerned that some version of sequestration and the budget reductions is going to happen,” said Albert Dwoskin, CEO of real estate development and management company A.J. Dwoskin & Associates. His company funded the Commonwealth Institute report.

“We’re going to be dealing with a new economic reality,” Dwoskin said. “What I see is local government’s role becoming much more important.”

For his part, Moran said he also does not have a lot of confidence that Congress can reach an agreement on deficit reduction and other big-ticket budgetary issues by the end of 2012.

“There is one thing that this particular Congress can be counted on to do, and that is nothing,” he said. “We could all laugh at the scenarios, but this [sequestration] has a 50-50 chance of happening.”

Any action to stop the automatic cuts might lessen the pain but, no matter what happens, federal spending reductions are in the offing, Scandling and Moran said.

“There are going to be cuts. It is coming,” Scandling said, because Congress will have to deal with the federal deficit and the cost of entitlements.

The positive thing for Northern Virginia, Moran said, is that its strong talent pool, particularly in IT fields, and its proximity to Washington will make the region successful in the long term.

“Over the short run, I think we’re going to get hit pretty hard,” Moran said. “But over the long run I think we’re going to be better off than most areas.”