Jeff Schapiro

The fellow New York billionaire who will advise President Donald Trump on cutting government red tape that supposedly kills jobs contributed to the death of an iconic Southside Virginia manufacturer that once employed nearly 20,000. It did not stop most people in that red-clay region from voting for Trump, apparently believing he can get them back to work.

In 1982, corporate raider Carl Icahn made a dramatic play for Dan River Mills, driving up its stock price in a yearlong battle that was thwarted when the Danville textile firm went private. That move was financed with a $150 million bank loan, employee pension funds and the sale of company assets.

Dan River Mills survived but not for long. Weakened by the struggle with Icahn — the company’s debts were more than twice its equity — Dan River Mills could not modernize.

With trade deals backed by Democrats and Republicans moving textile jobs abroad — and technology eliminating others — Dan River Mills went into bankruptcy in 2004, gasping its last three years later.

Talk about American carnage.

In the fight over Dan River Mills, Icahn came out ahead, making $8 million — pocket change compared with the $510 million that Forbes, the business magazine, estimates he amassed on the stock market the day after Trump announced in December that Icahn would become his special adviser on regulatory reform.

Trump has been very, very good to Icahn’s economy. But what about Virginia’s?

Virginia, the only state in the South carried by Hillary Clinton, no longer is the manufacturing mecca that was plundered by Icahn.

The state’s economy — agricultural in the 19th century, factory-driven in the 20th — is, in the 21st, dominated by service industries. There is a lot more money made managing things, especially for big business and the biggest of all: the federal government.

But Virginia learned the hard way, starting in 2013, that usually dependable Uncle Sam isn’t always.

A government shutdown, triggered by a partisan impasse over the budget, forced across-the-board spending cuts that drained $10 billion from the Virginia economy, erased 22,000 jobs — many high-paying, information-technology positions in Northern Virginia and Hampton Roads — and, because of lost tax revenue, three years later blew a $1.5 billion hole in the state budget.

This continuing trauma illustrates a challenge faced by politicians in both parties: how to diversify a Virginia economy that, by every measure, is overly dependent on federal largess — and could become more so during the Trump era.

Roughly one in four dollars flowing through the Virginia economy can be attributed to direct and indirect spending by Washington.

Defense spending, alone, makes up 13 percent of the gross state product. Virginia is first among the states in total defense spending, at nearly $55 billion a year, according to that Arlington County-anchored fountainhead of military money: the Pentagon.

Virginia ranks fourth in the number of fighting men and women — about 117,000.

And of the 10 localities across the country that receive the most money from the Defense Department, as measured by staff and contracts, two are in Virginia: Fairfax County, a D.C. suburb teeming with military and homeland security offices, that feasts on $19 billion; and Newport News, home of a giant shipyard that builds aircraft carriers and submarines. The Peninsula city gets $6.2 billion.

But it’s not just the Pentagon that’s fueling the Virginia economy. Thirteen of the state’s top 20 employers — the Defense Department is No. 1 — either are public sector enterprises or contractors overwhelmingly reliant on the public sector, federal, state and local, a McAuliffe administration study shows.

Trump, whose vast holdings include a vineyard and golf resort in Virginia, pledges to increase the military budget, for example, by puffing up the Navy to 350 ships. It is an objective that would mean more activity at the Norfolk Naval Base. It is the world’s largest naval base, perched at Hampton Roads, which is the world’s largest natural port.

Near-term, this might sate a jittery public and create a sliver of common ground for Democrats and Republicans in time for the 2018 midterm elections.

U.S. Sen. Tim Kaine, the defeated Democratic vice presidential nominee and a member of the Senate Armed Services Committee, would have something to talk up in his campaign for a second term.

Ditto Rep. Rob Wittman, the new chairman of the House Armed Services sea power subcommittee. Wittman will be seeking a seventh term.

Kaine, Wittman and others would tell voters that they, indeed, can have gunboats and butter.

But this also would make it harder for Virginia to kick its long federal-funds habit, one supported by booming deficits that fly in the face of this state’s supposed commitment to fiscal discipline. Going cold turkey on Washington — kinda, sorta — is a theme Gov. Terry McAuliffe has loudly advanced since he took office in 2014.

Claiming credit for every new job — whether 40 at a feed lot in Henry County on the North Carolina line or 1,400 at a credit union in Frederick County, near West Virginia — McAuliffe, nonetheless, puts a special emphasis on promoting a flowering knowledge-based industry here: cybersecurity.

The two Democrats and four Republicans who want to succeed McAuliffe are saying a lot about retooling the Virginia economy, though their perspective is colored by partisanship.

Democrats, strongest in the prosperous cities and suburbs, vow to build on McAuliffe’s foundation. Republicans, struggling to reach beyond their base in the lagging countryside, say there never was much of one.

Another obstacle to weaning Virginia off federal funds: the uncertainty surrounding federal budgets.

Because a Republican Congress and a Democratic White House rarely could agree on spending beyond short-term schemes, Washington became a more unreliable partner to the states. This only reinforced gridlock in Richmond, where McAuliffe is certain to fail for the fourth and final time of his nonrenewable term to goad the GOP legislature into adopting a Medicaid-financed expansion of Obamacare.

The main Republican talking point: What would prevent the federal government from cutting funding, forcing Virginia to pay a larger share of an ever-expanding Medicaid bill?

Republicans — and now Democrats — are alarmed by a possible replacement for Obamacare, one that would depend on state-managed federal grants.

It could cost Virginia — 47th in per-capita Medicaid spending, shockingly low for a wealthy state — more than $314 million in federal assistance during the next two years.

And with fewer dollars flowing to hospitals, which employ about 115,000 people and pump $36 billion into the Virginia economy despite being denied more than $1 billion from Obamacare, politics could do to health care what Carl Icahn did to Dan River Mills.

Contact Jeff E. Schapiro at (804) 649-6814. His column appears Wednesday and Sunday. Watch his video column Thursday on Richmond.com. Follow him on Facebook and on Twitter, @RTDSchapiro. Listen to his analysis 8:45 a.m. Friday on WCVE (88.9 FM).

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