Va. escapes worst of recession but new fears ahead

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By SHARON COHEN, Associated Press

LEESBURG, Va. (AP) — Amid scenic horse farms, vineyards, Civil War landmarks and quaint shops tucked in historic red-brick buildings, signs of prosperity are plainly visible. The anxiety about the economy, less so — but it's here.

Talk to the husband and wife who opened a used bookstore last year, and they reveal they first signed one six-month lease, then another, not wanting to lock into anything longer until they were sure they had a viable business.

Or the construction consultant who realized government budgets were shrinking and a full-fledged economic recovery was years away, so it was time to change careers.

Or the restaurant owner who wonders when the uncertainty will fade and people will start spending.

While Virginia escaped the worst of the recession — unemployment peaked at 7.3 percent — uneasiness about the future is in the air. For good reason: The state's fortunes are tied to the outcome of the deficit debate on Capitol Hill and its outcome could dramatically alter its economy. Unless Congress finds a way to avoid the tax increases and spending cuts that could send the nation barreling over the so-called fiscal cliff early next year, the state could face serious pain.

The cuts could impact federal workers, defense firms, the state's many military installations and beyond. Virginia is home to the Pentagon, the CIA, Naval Station Norfolk, Fort A.P. Hill, Langley Air Force Base, Marine Corps Base Quantico and more. By one account, more than 200,000 jobs could be vulnerable — more than those lost in the recession

"This would be a punch in the face for the whole state," says James Koch, an economist at Old Dominion University. "People here have looked at other states such as Florida, Ohio and Nevada and said, 'Oh, they have it worse.' Now the worm could turn a bit."

Against this tense backdrop, President Barack Obama and Mitt Romney are dueling over the size of government and defense cuts, pouring tens of millions of dollars into this crucial battleground, a state where military spending adds enormous sums to the local economy. The winner will claim Virginia's 13 critical electoral votes — and most likely, better odds for capturing the White House.

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SHIFTING POLITICAL LANDSCAPE

Four years ago, Obama broke a 44-year GOP grip on Virginia with a decisive 6.3 point win over John McCain.

The president cobbled together a coalition of minorities, young people and college-educated white voters (women more than men) in the affluent suburbs across the Potomac River from the nation's capital, a Democratic-leaning, fast-growing area. Here in Loudoun County, for instance, the population skyrocketed 84 percent in the decade ending in 2010.

Obama scored victories, too, in the Hampton Roads region, home to the world's largest U.S. Naval base in Norfolk, along with many active duty and retired military. It was a stunning defeat for McCain, a Navy veteran.

Changing demographics also made the state friendly territory for Obama. The Latino population in Virginia jumped 92 percent from 2000 to 2010. Minorities now account for 27 percent of eligible voters in this state that was home to the Confederate capital.

The constituencies that propelled the president to victory remain, but enthusiasm has waned and Democrats expect a much closer race this time. Polls show Obama with a slight edge or virtually tied with Romney.

"Things are probably more competitive, just as they are nationally," says Peter Brodnitz, a Democratic pollster working in the Senate campaign of former Gov. Tim Kaine. "I don't think it's a repeat of 2008 when the wind was blowing strongly in just one direction."

The state's economy, though, shouldn't be a drag on the president.

Among battleground states, Virginia has one of the lower unemployment rates: 5.9 percent in August. It also has fared better than many others in rebounding from the recession, gaining about two-thirds of 171,000 jobs lost, compared with a national recovery rate of about 45 percent, according to Scott Hoyt of Moody's Analytics.

These days, Virginia is in an enviable position: It ended its fiscal year in June with a $448 million surplus that triggers a 3 percent bonus for state employees.

It's a record the Republican nominee should be trumpeting, says Mark Rozell, a political scientist at George Mason University.

"Romney should be telling the story as a Republican success — that policies on the state level are responsible for the budget surplus and overall the better economic situation," he says. "That's the political message. Whether it has any economic merits is an entirely different matter. Most economists think it's a stretch to attribute better circumstances entirely or even mostly to state government policies."

Despite its sound finances, Virginia is a land of extremes, home to the very poor and very rich.

Five of the nation's top 10 wealthiest counties are in the northern part of the state, according to the 2011 American Community Survey. Among the key reasons: a heavy concentration of college graduates and two-income families, many with good-paying government or contractor jobs.

That diversity spawns two Virginia economies. One is urban-based, dependent on technology and government (including defense) and doing well; the other is more rural with timber, coal and agriculture and higher, even double-digit joblessness, according to Stephen Fuller, director of the Center for Regional Analysis at George Mason.

"It's a harder sell for Romney in more urbanized areas to suggest that he can manage the economy better because it already seems better," Fuller says, noting that in northern Virginia, housing prices are up and about 30,000 jobs have been added in the last year.

Romney, he adds, will have more appeal in conservative, moderate-income areas where "the population is disenchanted with the recovery. These are the people who feel government ought to get out of their lives."

Throughout the state, Romney also has been trying to convince women his economic policies would help them more than Obama's, part of a strategy to cut into the president's strength among female voters. Obama, who has emphasized women's health issues, held a 19-point lead among females in one Virginia poll.

Economic messages still matter despite the state's relatively low unemployment, Rozell says, because people hear the national dialogue and "share the same anxieties and concerns about their own futures."

That's true in Loudoun County. Though this is home to the nation's highest median household income (more than $119,000 a year in the 2011 survey), it's also not immune to struggle.

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TALES OF ANXIETY

Molly Lovato and her husband, Paulo, both felt the recession's pinch. She lost her lease on her flower shop at Dulles International Airport; his landscape business lost many middle-income clients.

But, she says, "plenty of people suffered far worse than we did," and business decisions may have contributed to some of their troubles.

A local Obama volunteer, Lovato credits the president with steering the country away from financial disaster. "I think he kept us from sliding into a depression," she says. "I'm really dumbfounded by people who say 'Why didn't he fix this?' and it's 20 minutes later."

She compares reviving the economy to gutting and then rehabbing a home. "It takes a hot minute for everything to unravel," she says, "but to put it back together is really very difficult."

But Anthony Cavallo, who owns the Vintage 50 restaurant in Leesburg, says lingering questions about the economic future hurt business. He closed two restaurants in the last year.

As a small businessman, he doesn't relate to Obama or Romney. "Neither one of them has ever really walked in my shoes," Cavallo adds.

"Romney — he lives up here," he says, lifting his right hand horizontally above his head, sitting in his candlelit restaurant. "He doesn't know me down here ... and I'm middle class. I own a business. I have a home. I can only imagine how disconnected he is from the majority of the people that don't have that."

As for the president, Cavallo believes that while Obama champions poor people, he sometimes shuts out the middle class.

"As a white American, I can't relate to what he's trying to do," Cavallo says. "I can't relate to where he wants to take the country. Explain to me how my working every day, owning a small business ... how does that fit into his plan?"

Cavallo was swayed by the first presidential debate. Before, he says, "I thought Romney was a wuss. He wasn't coming on strong." But he admired the Republican nominee's "aggressive" performance, and is now leaning toward him.

Nancy King Robinson, and her husband, Allen, owners of Books and Other Found Things, have already decided. They're backing Obama.

"I'm one of the 47 percent," says King Robinson, who has multiple sclerosis and receives Social Security disability. "I get it because I worked for it." She believes Romney revealed his "true colors" in his disparaging remarks, made at a private fundraiser, that 47 percent of Americans who don't pay federal income taxes feel entitled to government handouts.

Romney later renounced his comments, saying he was "completely wrong," but Allen Robinson isn't buying it.

"It's just reinforces to us ... he's willing to say whatever he has to win," he says. "If he's elected, what's to keep him from changing his mind again?"

For some voters, though, philosophy matters more than the candidate.

Chris Charron, who is leaning Republican, likes Romney's run-government-like-a-business approach, though he's less impressed with the candidate. "There's a certain charisma you have to have," he says, "And I don't think he's got it."

Charron recently sold his construction consulting company, nervous about how the business — 80 percent involved government contracts — would fare in this era of budget cutbacks. He also was impatient with the pace of recovery.

"Every time the economy takes a step forward," he says, "you get a little excited, then you get knocked back on your knees."

Now part owner of a winery, 868 Estate Vineyards, and the adjoining Grandale Farm Restaurant, Charron is relieved he no longer works with federal bureaucrats.

"There are some people in the government who are not qualified or capable of doing their job," he says. "But there's no way to get fired in government. You either get moved around or you get promoted."

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THE GOVERNMENT DIVIDE

In campaign 2012, the candidates have repeatedly clashed over the size and scope of government. Obama believes government has a role in creating conditions for prosperity. Romney argues it's too big and intrusive, though he wants to increase defense spending.

Those sharp divisions are reflected among Virginia voters, too.

Tom Mastaglio, CEO of MYMIC, a simulation and training company in Portsmouth — most of his clients are in the defense industry — sides with Republicans on this issue. He thinks the federal government is inefficient and has too many unnecessary programs.

Mastaglio thinks Romney is a good businessman and will likely support him. He believes Obama, Vice President Joe Biden and the Democratic House and Senate leaders share a government-has-all-the-answers attitude, stemming from lifetime political careers. "They don't understand there are other ways to solve problems without federal tax dollars," the Army veteran says. "That's just their upbringing."

But Peter Gillard, a retired Social Security worker, says people criticize government until they need it.

"The attitude is 'As long as it doesn't affect me, government is too big,'" says Gillard, a volunteer at an AFL-CIO Democratic get-out-the-vote phone bank. "But when there's a disaster, like a flood or a hurricane, what's the first thing people say? 'Where's MY government?'"

And in this state where the federal government, according to Fuller, accounts for 32 percent of the economy, candidates tread gingerly.

"You have to be somewhat nuanced in how you attack federal government because many people in Virginia understand their prosperity is in part, dependent on it," says Robert Holsworth, a retired Virginia Commonwealth University political science professor. About 375,000 federal workers live in the Washington, D.C., area.

McDonnell, the governor, has acknowledged the importance of federal government, noting that stimulus funds did help Virginia's economy, but he maintains it was only a short-term benefit.

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NEW ECONOMIC WORRIES

The recession may be over, but a new financial threat looms.

It's sequestration, the automatic across-the-board cuts that will take place if Congress doesn't reach a budget agreement soon. About half, or $56.7 billion, would come in defense, according to a report by Fuller, of George Mason and Chmura Economics & Analytics.

It's a topic Romney dwells on when campaigning in military communities, criticizing the president for the potential cuts, though they were agreed to under a deal between Obama and Republican leaders in Congress.

If the cuts proceed, they could result in the loss of more than 207,000 jobs in Virginia alone — almost two-thirds of them in defense, according to the report. Fuller says the impact would also hit retailers, car dealers and local governments.

"People are scared, extremely scared," says Johnny Garcia, CEO of SimIS, a simulation and information security company in Portsmouth. A Navy veteran, Garcia says his business already has begun adapting to the shrinking defense business, moving into health care and manufacturing.

"The defense industry — if it doesn't collapse in the next six months, it's going to take a big turn for the worse," he says." It's scary not knowing who the next president is going to be. But I don't think it really matters. We're going to be in a downward spiral the next four years."

Garcia says he's "a Democrat at heart," but is disappointed in the president, saying he believed in the "hype" about Obama in 2008 that "this was going to be something different. It wasn't. It's like getting on a roller coaster ride and it's not all that exciting when it's done. It's a dud."

He's still an undecided voter, unsure if Obama should have more time or Romney has the right ideas.

"It's all about who's going to make the difference," he adds. "That's the hard part. I don't know."

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Sharon Cohen is a Chicago-based national writer for The Associated Press. She can be reached at scohen(at)ap.org

EDITOR'S NOTE _ Another in an occasional series, 'It's the Economy,' looking at the economies of battleground states.

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