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Virginia and King George are dependent on federal spending

For most people the economic situation, as compared to say four years ago, is substantially improved. In 2010, unemployment in King George County was 9.2%. Statewide it was 7.0%. That’s high by Virginia standards. Today, King George’s jobless rate is 6.3% and is trending downwards. The number of foreclosures has dropped substantially. Almost to the point where no one talks about them that much anymore, and the local real estate market, if not booming, is at least picking up steam.

That’s an encouraging report. However, like most discussions in economics, there is always another side to the story. A recent report showed that median income in Virginia fell by almost 7% between 2007 and 2013.

That’s not too surprising. It wasn’t called the “Great Recession” for nothing. However, what’s disconcerting is that it showed no improvement in 2012 and 2013, and in fact, gave every indication that it was continuing to fall. That’s not good and explains why a lot of people in the Commonwealth, while employed, are earning less, paying more, and all in all feeling squeezed.

However, what raised an eyebrow was the suggestion that the reason for this fall in median income was the fall in government spending. It may not seem like the federal government is spending less, but over the past few years, various cutbacks, primarily in defense, have taken their toll. So, has sequestration. For many, this statistic raises a question. Just how dependent is Virginia on Federal money? The answer, a shock for many, particularly my more conservative friends, is that we’re heavily dependent on Uncle Sam.

Nationally, Virginia, in terms of per capita expenditure, ranks number two when it comes to federal spending.

Alaska is number one. Overall spending in the Commonwealth, as reported in the most recent data, which dates back to 2011, was $139 billion. In that roll up, we rank number five, beat out by such big states as California, New York, Texas and Pennsylvania. When it comes to the Commonwealth, defense is a big part of that number, well over half, while federal pensions, both military and civilian, social security, and agricultural assistance take up the rest.

While government spending has grown massively over the past thirty years, federal dollars have been a major part of Virginia’s economy for over a century, and it was defense spending that led the way.
The Quantico Marine Base was established in 1912.

What was then called the Dahlgren Naval Proving Ground was established in 1918. Both facilities, joined by Fort A.P. Hill in Caroline County, grew massively during World War II. During the Cold War, and now in the War on Terror, their vital role in our local economy continues.

King George isn’t the largest recipient of federal dollars in Virginia, but we’re still in the top ten counties. Overall, federal spending in King George is just shy of a billion dollars. Again, this includes salaries, pensions, and purchases. Most notably, in King George, however, over half of the federal dollars go to procurements. Most of this is for defense related acquisitions managed through Dahlgren.

But there is more to federal spending than these raw numbers indicated. There is what economists refer to as the multiplier effect. Namely, that a dollar spent in the economy results in other transactions. Depending on the type of expenditure, the multiplier can be as little as two or three, or as much as seven. High tech purchases, for example, tend to generate the highest multiplier. Of course, not all of the additional transactions are local, but many are, and result in even more activity for our economy. Many businesses, seemingly with little to do with the federal government, can, thanks to the multiplier, trace their economic success back to federal expenditures and salaries.

However, there is a problem with this dependence on federal money. While benefited from it, our economy, as the result of this dependence, isn’t diverse, and when federal monies are at risk, so are we.

Sequestration, reductions in defense spending, and the continuing stalemate in Washington, all could have a significant impact on our local economy. Federal money, overall, is going to continue to play a dominant role in our local economy. But, in years to come, it’s going to get tighter and we’re going to feel it.

You may reach David Kerr at This email address is being protected from spambots. You need JavaScript enabled to view it.

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