Category Archives: Federal

Comstock Supports the Tax Cuts. Do her Democratic Foes?

Alfredo Ortiz

by Alfredo Ortiz

Democrats have put Virginia’s 10th Congressional District, represented by Republican Barbara Comstock, in their crosshairs in their attempt to take back the House of Representatives on Election Day in November.

Seven opportunistic Democratic challengers have entered the race so far, recognizing their chance to represent this historic swing district that favored Hillary Clinton by ten percentage points in 2016, and Democratic Gov. Ralph Northam by a similar margin in 2017. Politico has named this race one of the top-10 to watch on Election Day.

Last October, Public Policy Polling found Rep. Comstock trailing a generic Democrat opponent by nine points, with a favorability rating of just 32 percent. “She’s a clear underdog,” said David Wasserman, who analyzes House races for the nonpartisan Cook Political Report, the day after the election last year.

But a lot has changed since then. Most notably, Congressional Republicans, including Comstock, passed historic tax cuts over the opposition of every Congressional Democrat. Virginia 10 voters deserve to know whether Comstock’s Democratic challengers would carry out national Democratic leaders’ promise and vote to repeal these tax cuts if they are victorious.

The answer to this question is especially important in Virginia’s 10th District because tax cuts have disproportionately helped its residents. The median income in the counties that make up the district are among the highest in the nation at over $120,000, meaning the median constituent is taking home thousands of dollars more each year as a result of less federal tax withholding.

Virginia’s 10th has also significantly benefited from the trend of hundreds of major national employers directing billions of dollars to millions of employees because of their tax cut savings. For instance, Capital One Bank, one of Virginia’s biggest employers whose headquarters are located in the 10th District, used its tax cut savings to raise its minimum wage to $15 an hour. And Walmart, the state’s largest employer, raised its base wage to $11 and gave its employees significant bonuses because of the tax cut.

Verizon and BB&T, the third and fifth largest employers in Northern Virginia, respectively, are also rewarding their employees with share payouts or $1,200 bonuses. And other major state employers including Bank of America, The Home Depot, AT&T, Starbucks, and Comcast are giving their employees up to $1,000 bonuses because of the tax cuts Rep. Comstock helped pass. These are the same tax cuts that  congressional Democrats called “theApocalypse,” “the worst bill in the history of the United States Congress,” “a heist,” and “highway robbery.”

Despite this vast evidence demonstrating that tax cuts have been a major success in allowing ordinary Americans to keep more of their hard-earned money, leading Democrats are doubling-down on their opposition and promising to repeal them if they retake Congress. Pelosi has called for “replace and repeal.” Senate Minority Leader Chuck Shumer has called for “a drastic overhaul.” Such moves would raise taxes on ordinary residents of Virginia’s 10th District and tens of million Americans across the country.

Democrats’ unwillingness to admit they made a mistake by opposing tax cuts has coincided with their House of Representatives polling advantage being cut in half. Democratic challengers in Virginia’s 10th District haven’t been clear about whether they would repeal the tax cuts if they win in November. Voters must demand to know where they stand on this issue given the implications for their paychecks. The answers might make the the difference between Democrats hitting their target or not.

Alfredo Ortiz is president and CEO of the Job Creators Network.

Enjoy It While It Lasts

Woo hoo! Tax cuts and spending increases — it doesn’t get any better than this. The United States is about to enjoy its biggest fiscal stimulus since Barack Obama’s American Recovery and Reinvestment Act of 2009. All this spending and tax cutting is going to feel great for the next couple of years — especially here in Virginia, which could be the single biggest beneficiary in the country of the budget deal’s $165 billion boost to Pentagon spending over the next two years. Who needs Amazon when you’ve got the federal government with its limitless credit card?

Let’s enjoy the booming economy while it lasts. But let’s not fool ourselves either. When Virginia’s GDP suddenly perks up and revenues start surging, let’s not pretend that we have somehow “turned the corner” and are experiencing a “new normal.” It would be a huge mistake to see the fiscal stimulus as anything more than superficial prosperity purchased largely through the massive accumulation of federal debt. (I’ll give corporate tax restructuring and deregulation credit for being more than passing phenomena, but much of the economic euphoria will come from old-fashion deficit spending.)

Unfortunately, if something is too good to be true… it’s probably not true. Inflation, which has been quiescent for a decade, is now surpassing 2% annually. When you cut taxes, increase spending, and tighten monetary policy in the face of increasing inflation while the private-sector economy is booming, you get higher interest rates.

Higher interest rates will do two things. They will dampen the economy, acting as a regulator on growth. And they will increase the cost of borrowing for the world’s largest debtor, Uncle Sam, with $20 trillion in national debt. As new debt is financed and old debt rolls over, each 1% increase in interest rates eventually will add $200 billion a year to federal spending. We could find that a strong economy is actually worse for the deficit and national debt than a weak economy!

Since I wrote “Boomergeddon” almost eight years ago, the United States has squandered its opportunity to get its fiscal house in order. The problem, as I outlined back then, is that Democrats refuse to cut domestic spending, Republicans refuse to cut defense spending, and Republicans talk about cutting entitlements but are too scared to act because Democrats would crucify them. As we’ve seen in the latest budget deal, nothing about that political logic has changed.

Meanwhile, the Medicare Hospital trust fund is scheduled to run out be depleted in eleven years, and the Social Security trust fund is scheduled to run out in sixteen years. In 2019 when the Medicare trust fund runs out and Congress looks for ways to maintain benefits, the U.S. budget will be running annual deficits of about $1.5 trillion a year — and that’s according to a June 2017 forecast that doesn’t reflect the recent tax cuts and spending hikes, and assumes no big recessions between now and then. Faced with the prospect of putting Medicare and Social Security on a pay-as-you-go basis or dramatically raising payroll taxes, the U.S. will be facing the greatest fiscal crisis since the Great Depression. This political armageddon — or, as I call it, Boomergeddon — is only a decade away.

Oblivious to all this, the General Assembly is perilously close to agreeing to expand the Medicaid program in Virginia predicated upon federal promises to pay for 90% of the expansion — and even then the state is committing itself to adding roughly $300 million to its biennial budget. The Republicans’ insistence upon restricting the program to adults who are working or seeking work is nothing more than a face-saving device that will not alter the underlying fiscal dynamics. Ten years from now, when Uncle Sam is dealing with an exploding Medicare system, Virginia’s retired state employees, local employees, and teachers will be depleting the Virginia Retirement System. The VRS’s $20 billion in unfunded liabilities are, for reasons I have explained previously, likely to get get bigger, not smaller. At some point between now and ten years from now, we’ll also have to acknowledge that the Washington Metro isn’t the only component of the state’s transportation infrastructure facing a multibillion-dollar unfunded maintenance backlog.

Sadly, human nature being what it is, Virginia state and local governments will interpret the Trump boom as the sign of enduring prosperity, not an unsustainable spurt, and elected officials will crank up borrowing to pay for the endless list of “unmet needs,” which never seems to shrink in good times or bad.

I don’t know why I bother sounding the alarm. No one’s going to listen. Nothing’s going to change. But I can always hope, when it comes time to dissect the greatest social and economic tragedy in nearly a century, maybe someone will remember that someone saw it coming.

The New Normal: Rising Interest Rates

U.S. Treasury Department

The United States enjoyed a three-decade decline in interest rates, beginning with the early-1980s quashing of inflation by Federal Reserve Board Chairman Paul Volker and culminating with Ben Bernanke’s Quantitative Easing in the mid-2010s. Lower interest rates, which made equities look more favorable by comparison, helped drive stock market indices like the Dow Jones Industrial Average and the S&P 500 to record highs.

Now the age of declining interest rates is over. Dead. Pound the nail in the coffin. Dig the grave.

The implications of this seismic shift are dire for the world’s largest debtor, the U.S. federal government. But state and local governments have cause for concern, too.

The manic bull market for stocks took its first big drubbing earlier this week when U.S. Treasury yields took an unexpected uptick. It is finally dawning on financial markets that as good as the Trump tax cuts may prove to be for the economy, they will increase federal budget deficits and borrowing, which will pressure interest rates higher. Even accounting for a stronger economy that pumps up tax revenues, nonpartisan groups say the tax law could add $1 trillion to deficits over the next 10 years.

Meanwhile, the Treasury Borrowing Advisory Committee has estimated that the Treasury will need to borrow a net $955 billion in the fiscal year ending Sept. 30, 2018, up from $519 billion the previous year. Borrowing will increase further to $1,083 billion next year and $1,128 billion the following year. That’s with a strong economy, not a recession.

The Treasury borrowed even larger sums back in 2009 and 2010 as the U.S. economy struggled to pull out of the global recession. But the economic picture looked very different back then, allowing the U.S. to finance $1.6 trillion annual deficits without driving interest rates higher. As the Wall Street Journal explains:

Back then, global demand for safe assets was high and investors gobbled up U.S. Treasury issues, pushing up Treasury prices and down their yields. The Federal Reserve had also cut short-term interest rates to near zero and was beginning a series of programs to buy government debt itself, putting further upward pressure on Treasure prices and downward pressure on interest rates. …

Treasury’s increased borrowing now comes against a much different economic and financial backdrop. The economy is strong and inflation is expected to rise gradually in the months ahead. In response, the Fed is pushing short-term interest rates higher and allowing its portfolio of Treasury and mortgage debt to shrink as bonds mature.

Another factor, I might add, is the weakness of the dollar, which also discourages foreign purchases of U.S. debt and adds to inflationary pressure.

Why am I writing about the end of the era of low interest rates in a blog dedicated to Virginia public policy? Because state and local governments, colleges, universities, economic development authorities, and public service entities are big borrowers, too. Higher interest rates makes life harder for all of them.

To draw from the latest headlines, Mayor Levar Stoney wants to increase the City of Richmond meals tax to fund school building improvements because the city has maxed out its debt capacity and can borrow no more without undermining its AA bond rating. Likewise the Commonwealth of Virginia has borrowed close to its cap, constraining the state’s ability to issue new debt.

Virginia policy limits annual service on its long-term debt to 5% of General Fund revenues. Debt service can be broken into two main parts: the principal borrowed and the interest paid. It is axiomatic: If interest rates increase, so does the annual debt service…. Which means the state can borrow less.

Most important of all, Virginia has a massive unfunded pension liability. That liability, about $20 billion now, has shrunk modestly in the past couple of years thanks to the strong performance of the Virginia Retirement System (VRS) equities portfolio. The next VRS report, reflecting results from the astonishing Trump-era bull market, likely will be positive. Virginia, it will appear, is making continual progress in whittling down its liabilities. No one will be concerned.

But the stock market cannot possibly extend the past decade’s performance into the future. While earnings may continue to improve, stock prices will be dampened by interest rates and shrinking price-earnings multiples. Do not be deceived. The turning point in the bond market does not augur well for either the United States with its $20 trillion national debt or Virginia with its more modest obligations.

The GOP’s Hail Mary Pass

House Speaker Paul Ryan savors his biggest legislative victory.

Faced with a chronically slow-growth economy, expanding deficits, mounting federal debt, and a looming funding crisis for the U.S. welfare state, Republican congressmen are, to borrow a football metaphor, throwing a hail Mary pass into the end zone in the desperate hope of scoring a winning touchdown. They are gambling that tax cuts combined with President Trump’s deregulation agenda will boost economic growth from roughly 2% per year to 3% or more, reducing the tax burden for millions of Americans, creating new jobs, boosting wages, and bending the curve on long-term deficit projections.

Convinced that the tax cuts will prove to be a disaster for everyone but the rich, Democrats and the mainstream media have subjected the tax plan to relentless, unremitting attacks. Viewed in terms of static economic analysis, we are told, the tax cuts will inflate federal deficits by a cumulative $1.5 trillion over the next ten years. Suddenly, deficits matter!

Republicans respond that measures in the bill — accelerating write-offs for business investment, encouraging the repatriation of hundreds of billions of dollars in corporate profits to the U.S., and making the corporate tax rate more competitive internationally — will stimulate economic growth. Unlike the Democrats, I think that much will prove to be true. My question is: Will faster economic growth generate enough new tax revenue to offset that $1.5 trillion? Longer term, will it avert Boomergeddon?

Let’s dig into the numbers. The Congressional Budget Office’s current 10-year budget forecast assumes a modest 2.1% annual growth rate over the next ten years, a slight uptick from the trend established during the Obama years. But economic growth has accelerated to roughly 3% in the past couple of quarters, and the Trump administration’s deregulation + tax cuts strategy could nudge it even higher. Let us assume for purposes of discussion that, thanks to the tax cuts, the U.S. can grow the economy at a sustainable rate of 3.1% annually. What does an extra percentage point in economic growth get us in deficit fighting?

Well, the latest CBO federal revenue forecast for the next ten years is $43 trillion. A 1% boost in federal revenues will yield $430 billion, not nearly enough to close the $1.5 trillion gap. The analysis gets a bit more complicated because economic growth and higher incomes push Americans into higher tax brackets while a roaring stock market generates massive capital gains. So a 1% increase in economic growth could produce more than a 1% increase in federal revenue. Let’s go for the gusto and double the growth-to-revenue ratio, assuming that federal taxes increase actually increase by $86 billion per year over current projections. That’s still doesn’t close the ten-year $1.5 trillion gap.

Could the economy grow much faster than 3.1% over the decade ahead? I’m skeptical. First, Baby Boomers are retiring in droves, and the working-age population is stagnating. A growing labor force supports economic growth; a stagnant labor force undermines it. Second, the Federal Reserve Board, intent upon unwinding the monetary stimulus of the Obama years, will continue to raise interest rates. It goes without saying that higher interest rates are a damper to economic growth.

In summary, in my untutored opinion, I think that the U.S. will see modestly faster economic growth over the next few years. The Dems have predicted economic Armageddon. They won’t get it. The lives of millions of Americans will improve… in the short run. But Republicans are deluding themselves if they think modestly faster economic growth will reduce the nation’s long-term structural budget deficit. Entitlement spending is still running out of control, and the nation still faces a hideously painful fiscal reckoning. Our 20-year future still looks like Boomergeddon.

Entitlements, Fiscal Limits and the Looming Age of Rage

Now that Democrats are close to parity with Republicans in the House of Delegates, there is renewed talk of Medicaid expansion in Virginia. Meanwhile, in Washington, President Trump and Republicans are pushing a tax-cut plan that would spur economic growth but, even with stronger growth, would increase deficits by $1.5 trillion over the next ten years. Nobody is talking about the $14.6 trillion national debt except as a cudgel against partisan foes. Even as Medicare, Disability, and Old Age and Survivors trust funds are projected to run out within a single generation, entitlement reform is not up for discussion.

Just a reminder… Here’s are U.S. budget deficits forecast by the Congressional Budget Office without counting proposed GOP tax cuts:

The “on-budget” deficit is what we conventionally think of the deficit. It does not include the draw-down of “off-budget” Medicare and Social Security trust funds. Data source: Congressional Budget Office.

Within eight years, the U.S. will be running $1 trillion-per-year deficits every year, pretty much forever. And the CBO forecast does not take into account the likelihood of a recession or two over the next ten years, in which case deficits will metastasize.

And here’s the off-budget forecast. Payouts for Medicare hospitalization, Social Security disability and Social Security old-age programs exceed tax revenues, but interest income on the assets will keep the respective trust funds in the black for the next couple of years. By 2020, however, the off-budget numbers shift  into deficit mode and plunge rapidly thereafter.

Barring major changes in U.S. spending programs or economic growth, here’s when the trust funds are expected to run out, according to Medicare and Social Security trust estimates:

  • 2028: Disability trust fund runs out of money.
  • 2029: Medicare hospitalization trust fund runs out of money.
  • 2035: Social Security trust fund runs out of money.

Back when the Simpson-Bowles commission tackled the deficit issue in 2010 — the last time Americans thought seriously about entitlement reform — the county had 25 years before keystone social safety net programs imploded. If Congress had acted then, it could have put the trust funds into fiscal balance with relatively minor tweaks (slightly higher payroll taxes, slightly reduced benefits, slightly older retirement ages) that had a large cumulative effect over many years. But a decade of delay will require more painful sacrifices, which means they likely never will be made.

If nothing gets done until the trust funds run out of money — what I call Boomergeddon — the programs will have to cut benefits to match revenues generated. We are only twelve years from massive dislocations to the Medicare program, and 17 years from disruptions to Social Security. Baby Boomers beware, your retirement will be a lot uglier than you realize.

As for those $1 trillion+ on-budget deficits every year, they put Virginia at special risk. Any Congressional effort to tame deficits without touching entitlements will require cuts to discretionary spending, the biggest pot of which is related to defense, intelligence and homeland security…. which happens to be Virginia’s biggest industry sector. Son of Sequester will subject the Virginia economy to chronic economic stress and fiscal pain. But instead of dealing with Virginia’s long-term structural issues, the next session of the General Assembly could well consume itself in a renewed debate over expanding Medicaid.

As Americans speak no evil, see no evil, and hear no evil, we hurtle toward an era of brutal fiscal limits, broken promises to millions of Americans, and polarization and rage that will surpass anything we see today.

Government’s War on the Poor: College Loans

Chart credit: Mercatus Center

Students graduating in recent years are defaulting on student loans at a significantly higher rate than earlier age cohorts, finds Mark J. Warshawsky, a senior research fellow with the Mercatus Center at George Mason University, in a posting on the Mercatus website.

“Some students, particularly from nontraditional backgrounds, seem to have been harmed by the increase in federal funding of student loans,” he says. “They have not seen increases in their incomes as workers, have often not completed their education, are more likely to default on their loans, and miss out on job-related income and training.

Click for more legible image.

Warshawsky does not offer an explanation of why loan default rates are climbing. But the answer is obvious: Uncle Sam has been shoveling out more and more loans without any consideration of credit risk. As the percentage of high school graduates enrolled in two- and four-year institutions of higher education has increased over the years (see chart immediately above), we have seen an increase in the number of students who (a) are not academically prepared for college-level work, (b) lack the family resources to complete college, even with loans, or (c) both.

These college drop-outs and defaulters are disproportionately poor and minorities. The federal government cannot issue loans on the basis of credit quality, for that would mean discriminating against the poor and minorities, a political impossibility. So, instead, Uncle Sam dishes out loans indiscriminately, and the poor and minorities are the ones who wind up defaulting disproportionately on student loans and suffering the adverse consequences of ruined credit scores and debt they cannot discharge.

Thus the price of misguided compassion…

Do you want stronger proof? The percentage of high school graduates attending college has ticked down slightly since 2009, while the total of state and federal grants and loans has dipped since 2010. If I my logic above is correct, and absent an economic downturn and widespread job loss, at some point we should see a reversal of the trend shown in Warshawsky’s chart and a decline in the rate of defaulting students.

Trump Budget Bullet Barely Grazes NoVa

President Trump’s proposed budget would cost the Washington metropolitan region up to 24,600 jobs and billions in lost salaries and procurement spending, according to a new analysis by regional economist Stephen Fuller.

But Washington’s Virginia suburbs would get off easier than Maryland and the District of Columbia, reports the Washington Business Journal. The district would lose 14,000 to 15,000 jobs and Maryland would lose 5,500 to 6,000. But in Northern Virginia, where cuts to the federal bureaucracy would be partially offset by an increase in defense spending, would lose only 500 to 3,600 jobs.

Overall federal spending in the Washington region would drop between $4.2 billion to $5 billion, reducing growth in the region’s gross domestic product by 1%. If GDP tracks job losses, the impact on Northern Virginia will be even milder.

Bacon’s bottom line: Trump’s budget will not be enacted as submitted. Congress will tinker, undoubtedly sparing some non-defense programs on Trump’s chopping block. (I’m rooting for preservation of funds for Chesapeake Bay restoration.) But assuming that Fuller’s projections are in the ballpark, it doesn’t look like Virginia has much to worry about. The loss of 500 to 3,600 jobs in Northern Virginia’s dynamic economy will cause no more than a burp in growth.

Health Care as Entitlement for All

State involvement in health care can be traced back to 1773 when the "Public Hospital for Persons of Insane and Disordered Minds" opened in Williamsburg.

Virginia”s state involvement in health care can be traced back to 1773 when the “Public Hospital for Persons of Insane and Disordered Minds” opened in Williamsburg.

by Allen Barringer

For seven years now we have lived with “Obamacare,” the Affordable Care Act, and now we are engaged in rewriting it as the American Health Care Act, and, yes, it’s “all very complicated.” One thing already is clear: both Democrats and Republicans talk about “affordable, quality health coverage for all Americans” — but neither the ACA nor the proposed ACHA truly lives up to that description.

I understand that standards of health care are contentious. We don’t agree on what is “quality” or “adequate” care, let alone “humane,” and we don’t even agree how limited medical resources, such as transplantable organs, should be allocated. But until this year, I thought we did agree on equal access to whatever it is the government provides. If there is a health entitlement at all, it should be available to all.

Health care has long been a government responsibility. From medieval times, the established Church organized hospitals and administered the poor house and other components of the social safety net, while the King dealt with public sanitation, quarantines and military health. The Enlightenment brought about a greatly expanded government role in public improvements, including public health, during the 17th and 18th centuries. Those traditions were brought to the American Colonies; indeed, persons drafted for their medical skills were among the earliest settlers in Virginia and in New England. By the 19th century, and particularly after the Civil War, public health (including, individual care for the ill and the indigent) was generally recognized as a concern and a responsibility of the States.

In Virginia, the first mental hospital was built in Williamsburg in 1773 at the urging of Governor Fauquier, and Western State opened in Staunton in 1825. Jefferson’s Anatomical Hall, completed in 1826, was an early building for medical instruction at the University of Virginia. The Hampden-Sydney “Richmond Department of Medicine” opened in 1834, becoming the Medical College of Virginia in 1854. After the Civil War health activity in Virginia exploded due to the legacy of military health care and new learning about the importance of cleanliness, the source of infections and epidemics, and use of anesthesia.

Virginia’s State Board of Health came in 1872. Virginia mandated vaccinations and sanitary sewers and quarantine regulations in its port cities. In 1889, a young doctor recently trained in Vienna, Austria, in the latest medical and public health practices, was hired as Professor of Medicine at the University of Virginia. He quickly convinced Charlottesville and university authorities that to maintain the good health of university students and faculty it was necessary to address the health of the whole community they lived in. Eventually he persuaded the General Assembly to support this approach also. Teaching students through the practice of public health was the hospital’s mission. Teaching better health practices to the community and abating communicable disease at the source was its outreach.

Health care for the community means everyone in the community. Disease afflicts rich and poor and all races and occupations alike; every occupation has its hazards. The University hospital which Professor Barringer, my grandfather, founded and promoted so tirelessly was from its inception open to the Charlottesville community without regard for university affiliation, status, gender, race, or ability to pay. Many medical professionals and hospital administrators in Virginia still provide medical care on those principles, although they try to obtain payment when they can. And health remains an object of State concern and appropriations. For example, just a few months ago, Governor Terry McAuliffe announced State measures to make counteragents available at little or no charge aimed at combating the growth of opioid addiction, which he described as “a public health emergency” in Virginia.

The involvement of our state and federal governments in providing health care is so pervasive that we cannot pretend this is, “by default,” a private responsibility. The details of how the government goes about providing “affordable, quality health coverage for all Americans” are not as important as the affordability, the quality, the coverage offered. And this is a Virginia issue, not just a federal one.

Medicaid has a state budget impact, and there is talk of turning the entire health entitlement spectrum into federal block grants to the States. When McAuliffe tried to expand Medicaid under the ACA (essentially “free” to Virginians for a time, at the expense of the federal government), the General Assembly turned him down. That seemed to many observers (including me) to be more a partisan rejection of Obamacare than a vote against the public health and economic welfare of Virginians — but it certainly had the latter effect. And according to the Congressional Budget Office, the ACHA as proposed would substantially aggravate that effect.

Government support for health care has two rationales. One is economic. A healthy community is more productive, with less missed work, less down-time, less family distraction and dysfunction, and less threat of a catastrophic epidemic. Even if it isn’t you who is ill, you have an economic stake in the health of those around you, and you receive a direct benefit from the investment of your tax dollars in health care for others, not to mention the indirect benefit of a higher quality of community life. There is no distinction between individual health and public health in this regard.

The other rationale, of course, is compassion. Compassion is a moral imperative, and while I hear very little about compassion from Republicans these days it’s high time they re-discover it. The parable of the Good Samaritan is in the Bible, not a book of etiquette. Working in health care is an intensely rewarding endeavor, which attracts churches, charities, and all those many individual volunteers who devote their time to helping others. Not incidentally, compassionate policies also appeal to voters. Continue reading

What the Obama Giveth, the Trump Taketh Away

Slash and burn

The federal budget sequestration may have kept a lid on escalating federal budget deficits, a good thing, but it was a disaster for Virginia’s economy. The cap on federal spending hammered a Northern Virginia economy built largely around the Pentagon. The ascension of Donald Trump to the presidency signaled a possible return to the region’s glory days as the new president promised to increase defense spending by $50 billion.

But the president has created massive uncertainty with a vow to slash discretionary spending in civilian programs and bureaucracies. The Washington Post is all in a dither:

The cuts Trump plans to propose this week are also expected to lead to layoffs among federal workers, changes that would be felt sharply in the Washington area. According to an economic analysis by Mark Zandi, chief economist for Moody’s Analytics, the reductions outlined so far by Trump’s advisers would reduce employment in the region by 1.8 percent and personal income by 3.5 percent, and lower home prices by 1.9 percent. …

Trump’s emphasis on defense spending might provide a buffer for Northern Virginia, although, as noted previously on this blog, there are some within his administration who believe that the Pentagon civilian bureaucracy needs to be whacked down to size in order to free more resources for fighting forces. Under a serious effort to rebuild the U.S. Navy, Hampton Roads’ military bases and shipbuilders could be big beneficiaries.

We can’t say anything with certainty until Trump releases the details of his plans later this week. But at this moment in time, it looks like the new budgetary policies could be a mild plus for Virginia with boosts in defense spending offsetting cuts in other areas. Conversely, Maryland and Washington, D.C., with their large non-military exposure, could be in for a world of hurt

Adding to Washington’s woes…. The metro area’s job performance in 2016 has been revised downward. Reports the Washington Business Journal: “The D.C. region added 55,600 jobs in 2016, according to final data released Tuesday by the Bureau of Labor Statistics — about 16,800 fewer than the agency had initially counted.”

“We are talking slashing and burning several different agencies on the discretionary, non-defense side. That could have a pretty chilling effect for the local economy,” said Clifford Rossi, a professor of the practice at the Robert H. Smith School of Business at the University of Maryland-College Park.

Rossi agreed that the revised job growth numbers reveal an economy that was weaker than it originally appeared, and that the federal spending cuts proposed by Trump could have a compound effect on the regional economy.

Bacon’s bottom line: Actually, the loss of 1.8% employment and 3.5% income is no worse than what dozens of other metros experienced in the last recession. But have compassion! Washington has never been through anything like this before.

(Hat tip: Rob Whitfield)

Virginia Colleges Spend Millions on Federal Regs

Federal regulations add measurably to the cost of running Virginia colleges and universities.

Federal regulations add measurably to the cost of running Virginia colleges and universities.

The University of Virginia estimates that it spends $20 million a year complying with unfunded federal mandates, just for its academic division, reports Karin Kapsidelis with the Richmond Times-Dispatch. The College of William & Mary estimates its compliance costs at $4.5 million to $6.7 million, and Virginia Commonwealth University puts the number at $13 million.

The estimates come in response to a Congressional request for information as part of a review of federal review of unfunded mandates. Higher ed institutions say the costs were likely underestimated due to the short turnaround time for providing the figures.

While universities have blamed federal regulations in the past for pushing up the cost of higher education, Virginia institutions are not necessarily eager to roll them all back. Reports Kapsidelis:

“There are rules that if no one else put them on us, we would put them on ourselves,” said Samuel E. Jones, W&M’s senior vice president for finance and administration.

“There are some requirements we might want to take a hedge clipper to and not an ax,” said Gary Nimax, U.Va.’s assistant vice president for compliance. …

“We’re just waiting to see what might change,” said Nimax. … . “The idea of having fewer regulations is an attractive one.” But U.Va. would like to see the focus on cutting “the non-value-added pieces of these requirements,” he said.

Prime offenders are the Clery Act, which requires extensive reports on campus crime statistics that run nearly 1oo pages long, and Title IX, which forbids discrimination on the basis of sex in higher ed. The initial focus on campus athletic programs under Title IX has expanded to the regulation of student sexual behavior.

Bacon’s bottom line: For purposes of comparison, the University of Virginia generates roughly $500 million a year in tuition revenue and gets another $150 million in state support. The $20 million regulatory burden amounts to 3% of those two sources of revenue. An argument can be made that federal regulations do contribute to the mushrooming costs of higher education, but insofar as universities’ priorities mirror those of the federal government — how many institutions would dismantle their Title IX bureaucracies? — it would be unrealistic to expect that deregulation would save much money.

Update: In an article about the growing self-censorship of faculty members due to fear of transgressing some politically correct taboo, the Wall Street Journal quotes Dale Carpenter, a Southern Methodist University law professor:

Universities have developed entire bureaucracies to combat the problem of discrimination and a hostile environment. Those bureaucracies are needed but the also tend to feed on their own momentum.