Bacon's Rebellion

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If the U.S. Defaults, What’s Virginia’s Plan of Action?

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by

James A. Bacon
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by James A. Bacon

Gov. Bob McDonnell is chapped that the inability of the buffoons in the nation’s capital to reach a budget deal and raise the debt ceiling could impact negatively on Virginia’s AAA credit rating. He made the comments last week in response to news that Moody’s Investor Service had put the state rating on a review downgrade list because of its reliance on federal funding. (See the Times-Dispatch article.)

I am sympathetic to a degree. Democrats and Republicans in Washington, D.C., are playing a game of chicken — the car is heading toward a precipice and the first guy to take his hand off the wheel loses. Unfortunately, the American economy is in the back seat. There could be a lot of collateral damage, including Virginia’s AAA rating.

On the other hand, Virginia’s dependence upon the federal government is no secret. I’ve been harping upon it for a long time on this blog. I’ve also argued, on the grounds that federal default on its debt is highly likely within the next 15 to 20 years as I explained in my book Boomergeddon, we need to get our fiscal house in order while we still can. The first order of business is increasing the strength of the commonwealth’s balance sheet — paying down long-term debt, not adding to it. The second order of business is de-coupling the Virginia economy from its excessive reliance upon federal spending for economic growth.

What has McDonnell done? Well, he championed a transportation-funding plan built around the borrowing of $3 billion, thus pushing state indebtedness to the limit of what it can handle without jeopardizing its AAA rating. Also, his economic development strategy has emphasized attracting more federal investment in the state, thus making our economy even more dependent upon the fiscal health of the federal government.

It’s fine to lecture Congress — we all do it! But that’s no substitute for crafting sound fiscal and economic development policy. If the debt ceiling talks do crash, pointing a finger of blame at Congress won’t cut it. Moody’s won’t be impressed. One thing Moody’s will want to know is what contingency plan the governor is developing in case Uncle Sam does run off the cliff. Do we have a plan? If we do, the governor hasn’t made it public. I have submitted an email request to McDonnell spokesman Jeff Caldwell for details.

Here is Caldwell’s response: “Because we do not know a) if a deal will come together to mitigate the impact, b) what that plan would entail or c) what cuts will be made and how they will be made if no deal is reached, we really cannot ascertain the size or scope of any impact to Virginia. We have been examining areas where we think there could be impacts, but cannot make any firm contingency plans because of the uncertainty of what impacts we may see from the federal government.”

Fair enough. The uncertainties are massive.

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10 responses to “If the U.S. Defaults, What’s Virginia’s Plan of Action?”

  1. larryg Avatar
    larryg

    I think the interesting thing about the debt “crisis” is that it essentially gives the President line item veto power.

    so… one of the biggest causes of the 1.5 trillion deficit is what? Two wars, right?

    So.. want to reduce debt? Accelerate the withdrawal of forces from those two countries.

    We literally cannot afford to pay those costs anymore.

    Lay off 100,000 soldiers. Cut the nation-building infrastructure money to zero.

    The American people will support it. NoVa and Va will take a hit but then we’ll see how our Gov does the same thing he’s recommending that Obama do.

    eh?

    (I presume Groveton wrote this).

  2. TMT Avatar
    TMT

    The transportation borrowing plan, for all of its hoopla or teeth gnashing, is not new. It is essentially the very same plan that then-Governor Tim Kaine got through the General Assembly, except that McDonnell’s plan sells bonds more quickly. The dedicated funding sources are the same: the state tax on automobile insurance premiums, along with the wholesale tax on gasoline that is charged to retailers. Moreover, the Secretary of Finance, who happens to be same person for both Kaine and McDonnell, has stated the financing sources will cover the costs of the bonds.

    So why is the GOP blowing its trumpet? Who are they trying to fool? And why are the Democrats wailing and gnashing their teeth? Does the word hypocrites ring a bell?

    But NoVA is vulnerable to federal budget cuts and we just happen to the sibling with a job. Either our downstate brothers and sisters find work or the Virginia household is going to be hurting.

  3. Groveton Avatar
    Groveton

    I did not write this. I assume that Jim Bacon did given the reference to Boomergeddon.

    “The first order of business is increasing the strength of the commonwealth’s balance sheet — paying down long-term debt, not adding to it.”.

    Wrong! Wrong! Wrong! Wrong! Wrong!

    Borrowing money at historically low interest rates to finance the infrastructure required for job creation is good business.

    Virginia’s political elite have been asleep at the switch for decades. Their inane and incompetent policy of refusing to raise the gas tax to keep up with inflation is but one example of their empty suited, hollow headed buffoonery. It is the outgrowth of an almost suicidal addiction to the federal teat. As long as Washington kept spending it didn’t really matter if the underfunded infrastructure in Northern Virginia and Tidewater created transportation chaos. Or so the General Assembly thought. Year after year of rising federal deficits and ever more strident cries of impending chaos went unheeded by the sad sacks we elected and sent to Richmond.

    Now the bell tolls and it tolls for Virginia. It tolls for a state that has stared like Adonis into the reflecting pool of low taxes and “best run state” awards from politically motivated business periodicals.

    The centralized nanny state in Richmond is on the edge of a catastrophic cliff. And what advice does Jim Bacon provide? Draw into your shells turtles of the commonwealth. Pretend that your crumbling infrastructure is sufficient to attract new private jobs. Don’t tamper with “Ye Olde Academical Village” – it might dampen the tradition of the Olde Dominion.

    Wake up, Bacon!

    Virginia needs risk-takers in the state house. Virginia needs to borrow at a lower rate than it gets in return for those borrowings. You know, kind of like every single successful corporation does.

  4. James Bacon Avatar
    James Bacon

    Groveton, I have suggested plenty of ways for Virginia to raise money to build for roads and highways — you just don’t like them. In that regard, you’re the foolish one, not I, because you want to pay for NoVa’s roads with “someone else’s money.”

    As for protecting the sanctity of “ye olde academical village,” how many bloggers anywhere do you know who have more persistently criticized the practice of higher education in this state than me?

    As for your comparison to corporations, yes, some corporations do take on debt. Two points. (1) Corporations that take on too much debt can go out of business. The commonwealth of Virginia doesn’t have the option of going out of business. We can’t afford to bet the farm. (2) Corporations usually have a productive use for borrowed money, and they can measure their return on investment. The state of Virginia (all states, for that matter) have no process for allocating funds to the most productive use. Money gets allocated through the political process. A lot of it gets wasted.

    Comparison fails. Groveton goes to the back of the classroom.

  5. Peter Galuszka Avatar
    Peter Galuszka

    But Jim,
    I thought we were all lauding McDonnell’s budget surplus. If so, why are you fussing about borrowing?

    PG

  6. Hydra Avatar
    Hydra

    “Borrowing money at historically low interest rates to finance the infrastructure required for job creation is good business.”

    I agree, provided you think you will have more business and more tax revenue in the future. If you expect to see increased unemployment and financial turmoil across Virginia, then this is no time to be borrowing, even at cheap rates.

    I agree with Groveton: the states refusla to deal with NOVA transportation problems is suicidal. Virginia consists of NOVA and a few other scattered burgs.

  7. Groveton Avatar
    Groveton

    “Groveton, I have suggested plenty of ways for Virginia to raise money to build for roads and highways — you just don’t like them. In that regard, you’re the foolish one, not I, because you want to pay for NoVa’s roads with “someone else’s money.”.

    Someone else’s money is humorous. If NoVa kept all the tax money they pay to Richmond each year there would be no need for any transportation borrowing for our roads. In fact, there would be virtually no need for anything from the Commonwealth of Virginia. I am very hard pressed to see a single service which Northern Virginia would need from the state if we kept our tax money in region and paid for everything we need ourselves. State police? We’ll pay for those troopers who live and work in NoVa. Governor and his cabinet? We’ll pay for our population prorated share. VDOT? No thanks. You keep VDOT. We’ll establish NVDOT.

    The Commonwealth of Virginia is a net economic hinderance to Northern Virginia. Beyond sucking money out of our pockets the rest of the state lacks the common sense to see what’s needed to keep an educated workforce in Virginia once the federal jobs contract.

    Seriously, you “Richmond types” need to just go away. Leave us alone. We’ll stay in the Commonwealth like Canada and Australia are part of the British Commonwealth. But that’s about it. A loose affiliation with the other regions in the state (many of which would take autonomy from the Richmond nanny state if they could get it).

    Other people’s money … that’s rich.

  8. James Bacon Avatar
    James Bacon

    Great attitude, Groveton. Look, the rest of the state is a “net economic hindrance” to the Richmond metropolitan area, too (though by not as large a margin as NoVa, I’ll concede). All counties/cities outside the major metro areas are the recipients of large wealth transfers from the metropolitan areas. The difference is, the people of Richmond feel a connection to our less fortunate brethren, while you and many other Novians do not.

    I tell you what, you set up a NoVa version of VDOT and fund your own roads. RoVa will fund its roads, including all the interstate highways and U.S. highways that connect NoVa to points west and south…. but we’ll charge NoVa residents a special toll any time they want to use them. Don’t think you get all those highway connections for free. Someone has to pay for them, even though they so self-evidently represents a “net economic drain” to your region.

  9. Groveton Avatar
    Groveton

    I tell you what, you set up a NoVa version of VDOT and fund your own roads.’.

    Nope. We set up a British Commonwealth version of NoVa. Not just roads – everything. We’ll put the Virginia flag somewhere in the corner of our new NoVa flag and we’ll put the kings and queens from Richmond on our money. But after that – no further integration.

    As for the US highways – spare me. I never said anything about leaving the United States – only the nanny state in Richmond.

  10. James Bacon Avatar
    James Bacon

    Groveton, who do you think maintains the U.S. Highways?

    The tooth fairy?

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