Sequestration cuts could have major impact on Virginia real estate

image Realtors in areas of Virginia that are dependent on government spending are not only bracing for the impact of the impending “sequestration” budget cuts — they’re already feeling the impact.

Potential home buyers are putting things off. Businesses thinking of moving to new spaces are re-thinking it. Hiring is slowing, and uncertainly is the rule of the day.

All because we never really avoided that “fiscal cliff.” It was more of a postponement —till March 1. That’s when the first $85 billion in across-the-board* spending cuts will take effect unless Congress can grow up and work with the President to craft a budget everyone can live with.

Some cuts affect just about everyone — kids potentially kicked out of after-school programs, teachers laid off, small-business loan guarantees no longer available, food production slowed for want of inspectors… you get the picture.

Virginia is a state that’s a bit more reliant on government spending than most.

But Virginia is a state that’s a bit more reliant on government spending than most, thanks in large part to that shipyard in Norfolk you may have heard about, not to mention the area around Washington, D.C.

In fact, today (Feb. 20) is the day the military lets Congress know what cuts it’s going to be making, including reducing the amount of shipyard work being done in Norfolk. For example, earlier this month, the Navy had said it was postponing the overhaul of the carrier USS Abraham Lincoln: “The Lincoln will remain moored at the Norfolk base until Congress resolves the shortfall created by its inability to agree on a budget,” the Virginian-Pilot reported.

Granted, not everyone thinks massive government cuts are a bad thing; there are plenty of “cut federal spending at all costs” folks out there. (Although most of them will clarify that with “unless it’s for something I like.”) But things are never that simple. The ripple effects of military cuts — even temporary ones — are enormous in Virginia.

Commonwealth cuts

Courtesy US NavySomething like 800,000 civilian employees of the military could each lose 22 days of pay because of the cuts. Then there are the businesses those people spend their money with: everything from grocery stores to plumbers to the kid who mows the lawn.

As Senator Tim Kaine pointed out, Virginia will lose about $48 million in federal funds for education, from pre-kindergarten through high school.

The Richmond Times-Dispatch quoted Mark Vitner, a senior economist with Wells Fargo, who singled out the Washington, D.C., and Norfolk regions as areas that would suffer the most.

“The potential impact from reduced federal outlays could affect everything from biomedical research to homeland security […] Cuts in nondefense outlays would likely trigger significant furloughs, layoffs at civilian contractors and generally less business for supporting services, including law firms, caterers, airlines and hotels.”

In areas like Hampton Roads that rely heavily on government spending for their economies, that means people rethinking budgets and holding off on major purchases like, you know, a house. Realtors throughout the Hampton Roads and Norfolk areas are reporting a sales slowdown as potential home buyers hold off, waiting to see what cuts are going to be made where, and how long they’ll last.

Commercial real estate is also under the gun. When no one knows how long military spending will remain sequestered, it’s hard to be willing to invest in a business expansion or move. Will you need to hire more people after all?

And here we were just beginning to enjoy the resurgence of the housing market.

Governor McDonnell even wrote to President Obama, asking him to find a way out of the impending crisis. (He may want to make another 535 copies of that letter.)

You could argue, of course, that we spend too much on our military, or that some programs really need to be cut. That’s certainly a discussion to have… but not right now. Economics 101 says that you don’t cut spending when there’s high unemployment; common sense says that some programs are more important than others. No reasonable person wants to see these massive, indiscriminate cuts. If you owe too much on your Visa, you don’t stop spending equally on food and movies.

But this is what happens when you play chicken with your future self. You really have to hope he lets you win.

 

* Well, almost. There are a few things that aren’t under the sequestration gun, such as Social Security, Medicaid benefits, military pay, some anti-poverty programs, and the ongoing wars.

About Andrew Kantor

Andrew is VAR's editor and information manager, and -- lessee now -- a former reporter for the Roanoke Times, former technology columnist for USA Today, and a former magazine editor for a bunch of places. He hails from New York with stops in Connecticut, New Jersey, Cincinnati, Columbus, and Roanoke.
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11 Responses to Sequestration cuts could have major impact on Virginia real estate

  1. Lenn Harley says:

    Is it $85 Billion or is it $44 Billion for 2013 and the balance in 2014???

    From the Congressional Budget Office – Looming Policy Decisions May
    Have a Substantial Effect on the
    Budget Outlook
    Current law leaves many key budget issues unresolved,
    and this year, lawmakers will face three significant
    budgetary deadlines:
     Automatic reductions in spending are scheduled to be
    implemented at the beginning of March; when that
    happens, funding for many government activities will
    be reduced by 5 percent or more.
     The continuing resolution that currently provides
    operational funding for much of the government will
    expire in late March. If no additional appropriations
    are provided by then, nonessential functions of the
    government will have to cease operations.

    The key word there is NONESSENTIAL.

    Armageddon is not going to be the result of sequestration.

    We could easily find 5% reductions in the federal budget,
    IF THERE WERE A BUDGET TO SEE.

  2. It’s $85 billion in 2013, and cuts rise over 10 years to a total of about $1.2 trillion. Some of that comes from savings — the government paying less interest because it borrows less.

    It includes a 7.3-something percent cut for the military in 2013, and about 5 percent in cuts for “domestic discretionary programs.”

  3. The problem is not for the Congress to “grow up”. It’s the President’s unwillingness to agree to a plan without tax increases. The Congress already agreed to tax increases. We could have a bill in place by March 1st if the President and the senate majority will drop tax increases.

  4. Deborah Harms says:

    Mack Strickland’s comments above have it correctly.Sequestration was the invention of the President not Congress. The “growing up” needs to be on the part of the President.

  5. Actually, sequestration came from Congress, which passed the Budget Control Act of 2011 that the President signed. Before then, both President Obama and Speaker Boehner had reached a deal on the debt ceiling, but Congress balked at it and essentially forced the idea of sequestration through. It was mainly the fault of the [insert name of political party you don’t like here].

    The Times has a detailed article on the process and how it all went down.

  6. Gail Bucker says:

    “If Congress would “grow up?” Sequestration was from Congress? We ALL know sequestration was proposed by our President. Please don’t recreate history for us as we’re all paying attention. I can certainly hear the left leaning nature of your opinions in your blogs, Andrew. Let’s keep our REALTOR communication free of bias and factual, please.

  7. I’m sorry, Gail, but that really isn’t the case. Sequestration was originally devised in order to get the debt limit raised — it was part of a deal the White House made with House Republicans because the House demanded it in order to keep the government functioning. (In fact, back in 2011, House Speaker John Boehner took credit for the automatic spending cuts when he ‘sold’ the plan to the House leadership.)

    Slate has a very good article on the subject.

    If nothing else — and correct me if I’m wrong here — but as I recall, under our Constitution all spending bills must come from the House of Representatives. The President can propose whatever he wants, but only Congress — the House, specifically — can originate and pass a spending bill.

  8. Gail Bucker says:

    Here are the facts. The White House originally proposed the sequester – House Speaker John Boehner dubbed it the “Obamaquester.” Then White House budget director Jack Lew and legislative liaison Rob Nabors hatched the idea of a trigger – a delayed-onset package that would ostensibly force Congress to reach an agreement on the budget – during the height of dramatic negotiations on raising the federal debt ceiling during the summer of 2011.

    President Obama, Woodward reported, signed off on the proposal, and the result of the debt ceiling negotiations – the 2011 Budget Control Act – created a congressional “Super Committee” to reach an agreement on deficit reduction and included the spending cuts in the sequester as a fallback if the committee failed.

    Obama also promised sequestration “would never happen” when he signed it.

    The committee failed; the sequester looms.

  9. Cynthia Garrett says:

    Yes it is true, congress not only needs to grow up, but grow a heart. They are deturmined to hurt poor people just because they think they can. Cut programs for children rather than cut subsidies to oil companies. Hurt hard working federal workers than reform the tax code for millionaires and billionaires. They are doing all they can to destroy the economy. They have no solutions for job creation, which would automatically fix a lot of our problems. Demanding social security reform, why now? Social security didn’t get our country in the shape it is now. Tax breaks for the wealthy and a unfunded war started from deception got us in this condition. A congress that is heartless keeps us from moving forward.

  10. Mark Edwards says:

    Andrew, how are you liking your President now? With all of the wasteful spending and investment in failed energy companies, there is no reason for this administration to make Americans suffer with Sequestration- a proposal by this President. Stop saying it was the House of Rep, because your Times article is inaccurate. Also, you fail to post responses that are contrary to your opinion.

  11. “Also, you fail to post responses that are contrary to your opinion.” Pardon? I have posted EVERY response here that wasn’t spam, thank you.

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