It was cold and gray on November 20th when I pulled into the "Hospitality House" in Fredericksburg for the annual Senate briefing on our state economy.
Virginia Senate presentations are comprehensive and professional. The best economists come to educate us. The hearings are open to the public and the information is available on the web. However, even the best minds were at a loss to state the trajectory of our economy.
You see, as I was arriving in Fred-burg, the U.S. stock market was reeling. The Dow Jones closed that day below 7,500, the lowest close since 1997. On Capitol Hill, the Big Three automakers were pleading for Federal relief. Unemployment claims were spiking up.
The Senate presentation did not alter the bleak outlook for 2009. The Virginia economy has been declining in terms of employment and retail sales for the past year. Early in 2008, we had adjusted for these shortfalls. But the worst had not yet occurred.
The failing housing market has been the culprit. In Northern Virginia, home sales have declined dramatically and housing starts are nearly zero. In Prince William, "ground zero" of the subprime crisis, the average home price has dropped from $389,000 in 2005 to $170,000 in 2008. The majority of the new home sales are via foreclosure.
With all this information in hand, the Senate staff is projecting a
3% decline in state revenues for 2009, despite increasing population. The net result is that our projected budget of $34.0 billion will be more like $30.5 billion -- approximately a 10% drop --which will impact every single state service we provide.
My first reaction is that we are in better condition than most sister states. Virginia has two unmovable job anchors (the Federal government and U.S. Navy) on either end of the state. We attract new jobs due to the quality of our K-12 schools and universities. We are going to rebound.
My second reaction is that the 2009 Assembly must make tough choices. Some of this will take the form of program cuts and eliminations. But that's not enough. The Assembly must also shake the Christmas tree of special interest tax credits that it has doled out over the past few years.
For example, cutting the salaries of Virginia teachers and state troopers during a recession while preserving the tax exemption for million-dollar inheritances is not acceptable. It's not just cutting down programs. We also need to pare down special interest tax breaks.
At the end of the day, we are going to balance the budget and keep this state solvent. We have no choice. But that's not enough. We also have to create jobs with new "next generation" industries that will spur long-term job growth and keep Virginia in the forefront of emerging industries.
Either way, the next six months promise to be some of the most challenging times that we have had in Virginia since the era of Massive Resistance. I am humbled by the challenge, but I believe we are up for it. Together we will pull through it.
JCP Notes: For all my friends in the Business Community, please mark your calendars for
January 9th at 7:30 am when we are having our first annual "Petersen Roundtable" for business leaders at the Courtyard by Marriott, Tysons Corner. Details and registration are
on my website here. If you are interested in being a sponsor, please let us know so we can put your business in the program.
For everyone interested in the 2009 Governor's race, I am excited to be endorsing my friend and fellow Democratic Senator Creigh Deeds from western Virginia. We are having an event for Creigh on
December 4th at 5:30 pm in Oakton. This event is both for fundraising and also for speaking to "undecided" voters. Please come as my guest. Further details are
available here.
Finally, a shout-out to everyone who ran in the Vienna "Turkey Trot" 5K to benefit the James Madison Band on November 8th. Delegate Steve Shannon and I ran up and down Cottage Street in a combined time of 46 minutes and 1 second. Of course, he had to carry me the last few yards.
If you have any questions, comments or suggestions, please contact my home office at 703-349-3361 or
www.fairfaxsenator.com. Join the discussion on my blog at
www.oxroadsouth.com.
