Indebted Virginia economy needs ‘reboot’

Kenric Ward
|
Aug 25, 2014 5:00 AM
Indebted Virginia economy needs ‘reboot’
Photo by Associated Press

OFF BALANCE: Virginia’s state and local debt is going through the roof, putting the state’s economy at risk.

By Kenric Ward | Watchdog.org Virginia Bureau

RICHMOND, Va. — Not long ago, Virginia was considered to be in the pink of economic health. That diagnosis has turned dark red as the state and its municipalities pile up debt.

On paper, Virginia maintains a balanced budget. But government indebtedness is expanding faster than any single budget category — including the much-debated cost of Medicaid.

Debt-service expenditures jumped 120 percent since 2006, reports Jim Regimbal, principal of Fiscal Analytics Ltd., in Richmond.

See charts and here.

“We’re no longer doing pay as you go,” Regimbal told Watchdog.org. Debt-service expenditures, now around $600 million annually, will rise to $700 million within two years, he projected.

This month, Gov. Terry McAuliffe announced the state is forecast to take in $2.4 billion less than it’s budgeted to spend during the upcoming three years.

The problem is trickling down in a big way.

In 2012, the state Auditor of Public Accounts reported that Virginia counties carried a combined debt of $15 billion. An APA advisory panel recommended the agency no longer disclose debt figures, purportedly to give government spenders “more leeway.”

Regimbal says, “It’s time for a reboot” – and that means more private-sector jobs to grow Virginia’s economy.

“The government engine is over. We have to become an innovative economy, not a ‘managerial’ one.”

Watchdog reported earlier this month the state suffered more than 2,000 private-sector layoffs since May.

University of California photo

GEOGRAPHY OF JOBS: University of California economics Enrico Moretti says successful and sustainable economic development focuses on tech-based jobs.

Though Northern Virginia has gotten fat on federal defense contracts, Regimbal says that dependency has hurt the state’s competitive standing.

“There are no patents coming out of Northern Virginia. It’s not creating new business in the way that Silicon Valley does in California.”

Regimbal dismissed the notion that Virginia merely has to “get a piece of the action” from other states or countries.

“You have to create it,” he says, citing economist Erico Moretti’s book, “The New Geography of Jobs.”

Moretti, a professor at the University of California, Berkeley, contends that high-tech, knowledge-based jobs create far more spin-off employment than manufacturing or retail sectors.

Tax increases and expanding the government workforce merely accelerate the death spiral of debt.

Ruby Brabo, a supervisor in King George County, says local governments are suffering, along with Richmond.

Ticking off the ingredients for fiscal implosion, Brabo blames the debt run-up on “a lack of economic diversification and relying on — or taking for granted — spending by the Department of Defense.”

She said politicians dig a deeper hole as they forgo pay-as-you-go financing in favor of bonded, or even unfunded, debt.

Kenric Ward is a national correspondent for Watchdog.org and chief of its Virginia Bureau. Contact him at kenric@watchdogvirginia.org or at (571) 319-9824. @Kenricward