Potential home buyers are putting things off. Businesses thinking of moving to new spaces are re-thinking it. Hiring is slowing, and uncertainly is the rule of the day.
All because we never really avoided that “fiscal cliff.” It was more of a postponement —till March 1. That’s when the first $85 billion in across-the-board* spending cuts will take effect unless Congress can grow up and work with the President to craft a budget everyone can live with.
Some cuts affect just about everyone — kids potentially kicked out of after-school programs, teachers laid off, small-business loan guarantees no longer available, food production slowed for want of inspectors… you get the picture.
Virginia is a state that’s a bit more reliant on government spending than most.
But Virginia is a state that’s a bit more reliant on government spending than most, thanks in large part to that shipyard in Norfolk you may have heard about, not to mention the area around Washington, D.C.
In fact, today (Feb. 20) is the day the military lets Congress know what cuts it’s going to be making, including reducing the amount of shipyard work being done in Norfolk. For example, earlier this month, the Navy had said it was postponing the overhaul of the carrier USS Abraham Lincoln: “The Lincoln will remain moored at the Norfolk base until Congress resolves the shortfall created by its inability to agree on a budget,” the Virginian-Pilot reported.
Granted, not everyone thinks massive government cuts are a bad thing; there are plenty of “cut federal spending at all costs” folks out there. (Although most of them will clarify that with “unless it’s for something I like.”) But things are never that simple. The ripple effects of military cuts — even temporary ones — are enormous in Virginia.
Something like 800,000 civilian employees of the military could each lose 22 days of pay because of the cuts. Then there are the businesses those people spend their money with: everything from grocery stores to plumbers to the kid who mows the lawn.
As Senator Tim Kaine pointed out, Virginia will lose about $48 million in federal funds for education, from pre-kindergarten through high school.
The Richmond Times-Dispatch quoted Mark Vitner, a senior economist with Wells Fargo, who singled out the Washington, D.C., and Norfolk regions as areas that would suffer the most.
“The potential impact from reduced federal outlays could affect everything from biomedical research to homeland security […] Cuts in nondefense outlays would likely trigger significant furloughs, layoffs at civilian contractors and generally less business for supporting services, including law firms, caterers, airlines and hotels.”
In areas like Hampton Roads that rely heavily on government spending for their economies, that means people rethinking budgets and holding off on major purchases like, you know, a house. Realtors throughout the Hampton Roads and Norfolk areas are reporting a sales slowdown as potential home buyers hold off, waiting to see what cuts are going to be made where, and how long they’ll last.
Commercial real estate is also under the gun. When no one knows how long military spending will remain sequestered, it’s hard to be willing to invest in a business expansion or move. Will you need to hire more people after all?
And here we were just beginning to enjoy the resurgence of the housing market.
Governor McDonnell even wrote to President Obama, asking him to find a way out of the impending crisis. (He may want to make another 535 copies of that letter.)
You could argue, of course, that we spend too much on our military, or that some programs really need to be cut. That’s certainly a discussion to have… but not right now. Economics 101 says that you don’t cut spending when there’s high unemployment; common sense says that some programs are more important than others. No reasonable person wants to see these massive, indiscriminate cuts. If you owe too much on your Visa, you don’t stop spending equally on food and movies.
But this is what happens when you play chicken with your future self. You really have to hope he lets you win.
* Well, almost. There are a few things that aren’t under the sequestration gun, such as Social Security, Medicaid benefits, military pay, some anti-poverty programs, and the ongoing wars.