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October 3, 2013

Shutting Down

The longer the partial government shutdown lasts, the greater the danger that Virginia’s already slow economic recovery will be stopped dead in its tracks.

If we look just at civilian employees of the federal government—the park rangers, mine safety inspectors, scientists and others most at risk of not being paid— that’s 1 in 20 Virginia jobs, compared to 1 in 47 in the country as a whole. Those jobs alone account for 9 percent of earnings in the state.

Federal contracting—especially by the Defense Department —is the other big piece of the story. Procurement contracts paid to Virginia companies were worth $58.5 billion in 2010, almost three times the level during the last federal shutdown in 1996. (More recent data is not available due, ironically, to funding cuts that have delayed the gathering of such statistics.)

The shutdown of federally-operated tourist attractions in the DC area – like museums, parks and monuments – will likely reduce leisure travel and spending in the region, further reducing income for the region’s businesses and workers. Altogether, the Washington region could be losing $200 million a day in economic activity, according to an analysis by Stephen Fuller at the George Mason Center for Regional Analysis.

Counting both civilian and military employment, 1 in 12 Virginia jobs is direct federal employment. That’s over twice the national average. And because those jobs are relatively well paid (and disproportionately located in high-cost areas of the state), about 15 percent of all earnings in the state come from federal jobs.

And it’s not just Northern Virginia that will feel the heat. The Hampton Roads area has the second- highest concentration of federal workers in the country. One out of every 6 jobs there is with the federal government, a rate higher than even the Washington region.


Not all these workers are being told to stay home. Active-duty members of the armed forces are all working and will continue to be paid. Some civilian Defense Department employees will also continue to be paid. But no other federal workers will be paid on time if the shutdown isn’t ended. And many may never see any back pay.

The impact on federal contractors and their employees will vary, depending on what sort of work they’re doing. And, as with civilian Defense Department employees, some may continue to get paid. But if the shutdown drags out it is likely that employees at federal contractors will also face furloughs. This could mean trouble for Virginia’s ability to fund schools, health care and other services. Withholdings from federal contractors accounted for $483 million of Virginia’s income tax revenue last year, and the related professional and business services sector brought in another $286 million.


As Virginia faces the possibility of falling tax collections and the disappearance of federal support for a range of necessities like food assistance for families, pregnant women, and infants, Virginia’s leaders must decide how to respond. The state has less than $14 million left in its Federal Action Contingency Fund, which was created to help deal with the economic effects of cuts to federal spending. The governor has indicated his willingness to loan general fund money to particularly hard-hit state agencies, as well as to tapping the contingency fund and other reserves, but those sources won’t last forever. Let’s hope our federal lawmakers end the shutdown before the situation becomes even worse.

Levi Goren

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