The House of Delegates and the Senate have formed special committees to understand the scope of potential impacts of federal funding reductions on the state budget and the Commonwealth’s ability to provide services. The House Emergency Committee on the Impacts of Federal Workforce and Funding Reductions, which is chaired by Delegate David Bulova, held its first meeting at the end of February, prior to the adjournment of the regular session (a recap of that meeting may be found at this link). The Senate Special Subcommittee on Federal Impacts to Resources met for the first time on April 2, and the House Emergency Committee held its first field hearing on April 8 in Alexandria, which featured a presentation by Fairfax County Chairman Jeff McKay highlighting challenges in the region and proposing several actions the state could take to mitigate the impacts of federal workforce reductions.
The House Emergency Committee will be accepting written public comments through its online system and has asked for comments focusing on “(i) how federal spending and employment reductions have affected you, your family, and/or your community and (ii) specific policies, programs, and investments the Commonwealth could adopt to mitigate impacts on affected workers and Virginia’s economy.”
April 2 Meeting of the Senate Special Subcommittee on Federal Impacts to Resources
The Senate Special Subcommittee, which is chaired by Senate Finance and Appropriations Chair L. Louise Lucas, dedicated its initial meeting to a briefing by Sonya Ravindranath Waddell, Vice President and Economist with the Federal Reserve Bank of Richmond, on the status of the economy nationwide and in Virginia, and potential risks to the economic outlook. Ms. Waddell cautioned that it is challenging to gauge the state of the economy, as data for key economic indicators is lagging and the most current information available is derived from surveys of household and business sentiment. Ms. Waddell explained that over the last several years, economic growth has been “remarkably resilient” overall, although there has been some softening in the job market, possibly reflecting normalization from an unusually tight labor market during the pandemic recovery. Inflation has been gradually returning to the Federal Reserve’s 2 percent target; however, inflation in goods has recently ticked upward.
The Federal Reserve’s most recent survey of business leaders showed a drop in optimism, with tariffs and trade policy chief among cited concerns; the Federal Reserve’s news release notes that “uncertainty” newly ranks in the top five concerns expressed by survey respondents. Surveys of households have also shown a decline in consumer sentiment in the first quarter of 2025. Subcommittee members discussed whether this indicator may be predictive of a reduction in consumer spending, or whether consumer sentiment is becoming disconnected from consumer behavior.
Ms. Waddell provided several depictions of Virginia’s significant reliance on federal spending. Although Virginia is in the middle of the pack among neighboring states in the Federal Reserve’s Fifth District in terms of grant dollars per capita, Virginia is the top state for contract spending measured in total dollars, and second only to the District of Columbia on a per-capita basis. The meeting concluded with a brief discussion about potential impacts of tariffs on rural areas in Virginia that rely on industries dependent on exports, such as agriculture. The subcommittee’s next meeting is scheduled for May 20 in Northern Virginia.
April 8 Meeting of the House Emergency Committee on the Impacts of Federal Workforce and Funding Reductions
The House Emergency Committee’s hearing stretched for the better part of a day and featured perspectives from regional leaders, as well as representatives of higher education. The day began with a presentation from the Weldon Cooper Center for Public Service that expanded upon the briefing provided to the Committee at its initial meeting in February. Hamilton Lombard, João Ferreira, and Terry Rephann presented more detailed estimates of federal employment and contracting in Virginia, explaining that they estimate the number of federal civilian employees in Virginia at 321,516 (nearly tied with California in numbers of employees, with a much smaller population, and trailing only Maryland in terms of the percentage of residents employed by the federal government). Federal civilian employees in Virginia are highly educated and well-compensated and largely work in agencies related to defense and homeland security. As noted by Ms. Waddell last week, Virginia is the top state for federal contracting, with $109 billion in federal contracts; 62 percent of these dollars are spent in Northern Virginia, and 16 percent are spent in Hampton Roads, translating to 441,488 jobs in the state dependent on federal contracting. Weldon Cooper staff estimate that the $4.4 billion in local government revenue received from the federal government represents 10 percent of all local government revenues and supports 35,000 jobs. When adding the federal civil workforce to estimates of members of the armed forces in Virginia and the jobs supported by federal contracting, 16.1 percent of all full- and part-time jobs in Virginia are associated with the federal government. A 5 percent reduction in federal civilian employment would result in an estimated state GDP loss of $3.1 billion; a 10 percent reduction would represent a $6.1 billion loss. (These figures represent the immediate impact and do not include models of recovery in the out-years.) Committee members discussed challenges in matching dislocated workers’ skills to available jobs and the danger of losing skilled workers to opportunities in other states.
Committee members heard presentations from several regional perspectives, led by Fairfax County Chairman Jeff McKay, who commended the Committee for its sense of urgency. He encouraged members not to dwell on the details of estimated job losses, noting that the data is fluid but that the impact is large by any estimation. He offered several suggestions for state assistance, including adjustments to child care subsidy policy to ensure that providers are not harmed by drops in attendance associated with loss of employment among federal workers and that dislocated workers have time to secure other employment; housing assistance to avoid evictions and foreclosures of dislocated federal employees and contractors; utility assistance and a shutoff moratorium; state funding to stabilize community-based organizations; assistance for dislocated workers in the transition to the private sector; and support for research and development and commercialization in the high-tech industry.
Jill Kaneff, the Senior Regional Demographer at the Northern Virginia Regional Commission, provided information on the Commission’s data collection efforts, including limitations of the current data sources on unemployment claims. Mark Carrier, Chair of the Northern Virginia Chamber of Commerce, highlighted the vulnerability of the region’s hospitality industry to federal spending reductions and reported on the Chamber’s efforts to collect information from its members about the impacts of current policy decisions and its work to develop a plan to nurture new industries in the region. Patrick Small, Economic Development Director for the City of Manassas and Chair of the Northern Virginia Economic Development Alliance, discussed opportunities to reduce the region’s dependence on federal spending; he advocated for the Virginia Economic Development Partnership and other state workforce agencies to make a concerted effort to market the region’s skilled and educated workforce to new industries, and also encouraged the legislature to develop a program similar to the existing Business Ready Sites Fund that would assist with redevelopment of vacant office space. Alissa Tafti, Chair of the NoVA Labor Federation’s Federal Labor Caucus, discussed the impacts of layoffs and firings, as well as the frequent reversals of these decisions, on federal workers.
The afternoon’s presentations included an overview of the federal budget process, a discussion of potential federal reductions to higher education research, and a presentation by Dr. Anne Kress, President of Northern Virginia Community College, on the NOVAnext initiative, which seeks to assist dislocated federal workers with attaining new workforce credentials or otherwise preparing for new employment. Committee members commended this project for its quick launch and leveraging of the existing FastForward program and expressed interest in expanding it to other institutions.
During the meeting’s concluding roundtable, Committee members raised several issues for further consideration, including the importance of mental health supports, the need to bolster community organizations and nonprofits, and the need for additional short-term housing assistance. Several members expressed an interest in hearing from the Department of Taxation at a future meeting regarding state revenue modeling, as well as better understanding how the timing of federal tax policy actions might affect Virginia’s income tax structure. Members were also interested in further discussion about impacts to K-12 and potential loss of services in rural areas associated with federal funding reductions.
The Committee plans to conclude its work and provide recommendations by Labor Day. Its next meeting is scheduled for May 12 in Wytheville and will focus on health and human services, rural issues, and housing.
VACo Contact: Katie Boyle