McDonnell: Virginia to take hit in debt crisis

The standoff in Washington over the debt ceiling is embarrassing the greatest country in the world, Gov. Bob McDonnell said Thursday.

Federal payrolls and contracting are key parts of Virginia’s economy, so the state is likely to lose substantial revenue no matter what Congress decides, or doesn’t decide, McDonnell said.

If Congress fails to increase the debt ceiling, Virginia’s credit rating will be lowered along with the nation’s, McDonnell said.

“Reductions in those areas will affect economic activity in Virginia and will affect the state budget, but the flip side is that if they don’t do that, we will get downgraded and it’s going to cost us tens and tens of millions in interest payments,” the governor said. 

“So either way, we are going to take a hit,” McDonnell said in an interview with The News & Advance.

“I would much rather they get their fiscal house in order for the good of the country,” McDonnell said.

In a wide-ranging interview with reporters and editors, McDonnell also talked about changes he hopes to make in public education, the Virginia Retirement System, and speculation that he could become a running mate for the next Republican presidential candidate – and he didn’t say “no” to the possibility.

A package of legislation to overhaul public schools will be introduced in the General Assembly next winter, McDonnell said, and he hopes to work with principals, administrators and teachers’ groups to develop those bills, he said.

Driven by what he’s seen of education programs in Asian countries and other parts of the world, McDonnell said Virginia needs to step up its efforts. Those nations, he said, have “phenomenal education systems training people in math and science and technology.”

“I want to raise the bar,” McDonnell said. “I’d like to have more competition. I’d like to have more charter schools, more college laboratory schools, and more virtual schools. I’d like to find ways to increase our teaching of important life skills, from financial literacy to civics to business, so young people will have a sense of the broader things that are going to make them good citizens,” he said.

More money for K-12 schools isn’t necessarily the way to achieve his goals, he said.

“I am suggesting we may want to look at the ways we allocate that (money for K-12) and put it more directly into instructional programs and less in non-instructional ones,” he said.

He repeated his goal of spending 65 percent of education dollars in the classroom, “because that’s where Johnny learns,” he said, while reducing funds that go to central-office administration.

Over the past decade, funding of public education has increased 36 percent while enrollment has gone up 6 percent. “What are we getting out of it,” he asked.

The state’s retirement system is underfunded by $18 billion, McDonnell said, and he plans to ask the General Assembly to make significant changes that could require sacrifices by employees.

“At a minimum,” he said, he will ask the legislature to approve an optional defined-contribution plan similar to private employers’ 401(k) retirement plans. 

That proposal failed in this year’s General Assembly, but next year could be different, McDonnell said.

“It’s a little easier to get things done when people are not running for re-election, shall we say,” because lawmakers in January will have two years left in their terms.

“We will look at some other contributions,” he added, such as larger contributions by workers and reduced benefits in coming years. 

Employee groups know the system’s underfunded status is a math problem and not a political problem, McDonnell said.

He also complimented Texas Gov. Rick Perry’s work as chairman of the Republican Governors Association and talked up Perry’s qualifications to be president, although Perry hasn’t declared himself as a candidate.

“I think he’s leaning strongly that way, but I don’t want to speak for Governor Perry,” said McDonnell, who is vice chairman of the association. Perry has the best job-creation record of any governor and Texas is a business-friendly state, McDonnell said.

“When it comes to activating the Republican base, he’s pretty broadly embraced by people from the tea party and by evangelicals. A guy who can get social conservatives and economic conservatives in the party riled up to work is the perfect candidate,” McDonnell said.

McDonnell said he also liked Tim Pawlenty of Minnesota and Mitt Romney of Massachusetts as potential candidates, partly because they have been governors.

“Romney knows business better than anyone,” McDonnell said.