Gov. Bob McDonnell issued an executive order last Thursday, establishing a task force to confront the potential loss of state revenue from cutbacks in federal spending.
McDonnell created the Multidisciplinary Task Force on Economic Competitiveness and Versatility after Virginia's AAA credit rating was placed on review for downgrade July 19 by the Moody's credit-rating agency. The agency confirmed Virginia's AAA rating Aug. 4, but gave it a negative outlook because of the state's dependence on federal spending.
"Today we are faced with the stark reality that our federal government has not followed Virginia's example of thrift, moderation, and restraint," the executive order stated.
The task force will be headed by Lt. Gov. Bill Bolling, and will include various state cabinet officials and appointments from McDonnell.
"While we all recognize that spending reductions will be necessary to help address federal budget deficits, we want to make certain that we do everything we can to position Virginia to manage these cuts and their impact on our economy," Bolling said in a statement.
Virginia, which is home to the Department of Defense, the Central Intelligence Agency and other federal offices, traditionally receives the attention of the government's appropriators.
"Virginia is a state that benefits tremendously from its location next to the District of Columbia," University Economics Prof. William Johnson said.
McDonnell also noted in the executive order that Virginia ranked among the top five states benefiting from the federal government in terms of procurement, defense spending, salaries and wages, and retirement and disability payments.
"A big reduction in the defense budget would hurt the Virginia economy, at least in the short run" until the commonwealth diversified its economy, Johnson said.
Johnson also noted that there was a recession in the 1990s which was in part caused by substantial cuts in defense spending in the aftermath of the Cold War.
Kyle Kondik, a political analyst at the University's Center for Politics, said the new "super committee" in Washington charged with cutting $1.5 trillion from the federal budget throughout the next 10 years may well recommend large defense spending cuts.
If the committee fails to find mutually agreed upon federal budget cuts and revenues, $1.2 trillion of automatic cuts will go into effect, slashing about $600 billion from the Defense Department.
In August, McDonnell asked the state legislature to create a $30 million dollar contingency fund to prepare for potential budget cutbacks.
Currently, while the Republicans control the Virginia House of Delegates and the governor's office, Democrats control the Senate and would have to approve any budget cuts at the state level.
"As long as Democrats keep holding the Senate, there have to be compromises," Kondik said, adding that statewide elections will be held in November when Republicans will attempt to gain control of the Senate.
Although Kondik said he believes the task force's recommendations will not become a political issue until after the November elections, he commented on the significance of the executive order.
"This is [McDonnell's] time to put his imprint on the state," he said.
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