October 16, 2012 / 6:01 PM / 5 years ago

Is there life without government money? Washington to find out

* Washington area federal spending doubled over 10 years

* Regional growth slowed amid budget fears

* Washington’s strengths: educated workers, biotech, spyware

* Area’s weaknesses - traffic, worker-job mismatches

By Ian Simpson

WASHINGTON, Oct 16 (Reuters) - Stacks of federal money may have buffered Washington and its wealthy surroundings from the Great Recession, but now the area must adapt to a new reality - life without government spending.

Sectors from biotechnology to cybersecurity and logistics, and even traffic-beating Potomac River ferries are the focus as the fourth-biggest U.S. metro economy tries to reinvent itself for a sharp tightening of the federal budget.

“It’s going to feel different around here. We’re used to growth” in federal spending, said Jim Dinegar, president and chief executive of the Greater Washington Board of Trade.

Now the area is getting used to slowing growth “and we’ll have to adjust to the potential of a decline,” he added.

After years of ever more federal money, the region of 5.2 million people will bear the brunt of $1.2 trillion in budget cuts over 10 years that are set to take effect in January.

Stephen Fuller, director of George Mason University’s Center for Regional Analysis, estimated that federal spending would make up just over 36 percent of the local economy in 2015, down 3.5 percentage points from 2010.

Reducing the appetite for federal money “is a 40-year evolution. But it won’t happen unless local governments get out of denial phase,” he said.


Over the last two decades, federal spending that went only one way - up - made Washington and its sprawling suburbs one of the fastest-growing metropolitan areas in the United States. It also was the first to bounce back from the housing crisis in early 2009.

Driven by Pentagon outlays, area federal procurement ballooned to $80 billion in 2010 from $30 billion 10 years earlier and overall spending in the region nearly doubled, according to Fuller.

Companies such as Lockheed Martin Corp moved their headquarters to the area. The boom helped put six of the top 10 U.S. counties for median household income around Washington, including the top three, according to the Census Bureau.

That flood of money laid the foundation for what could be a remixed local economy, especially its vibrant environment for entrepreneurs and high-tech industries.

“We can no longer be just the government town,” said Frank Principi, chairman of the Metropolitan Washington Council of Governments (COG).

Washington has the highest number of fast-growing companies in the country, with almost half working in government services, according to the Kauffman Foundation of Kansas City, Missouri.

The COG said in a report last month that the region needed to focus on its strengths as federal money dried up. One mainstay could be better commercialized biotechnology from universities and federal research centers such as the National Institutes for Health.

Other possibilities include cybersecurity, where the area is an industry leader, as well as information technology. The area has more than 31,000 high-tech businesses and half of U.S. Internet traffic runs through it, it said.


Washington can count an a solid infrastructure in logistics, with three major airports and the nearby Port of Baltimore is gearing up for more traffic as the Panama Canal expands.

The area can also call on extensive global links ranging from the World Bank and the International Monetary Fund to scores of embassies and the fifth-largest Asian-born population in the United States.

Weaknesses include the shortage of training for workers in high-tech businesses. Although almost half the population holds a bachelor’s degree, employers cannot find people with the right skills and have to hire from outside the region. And transportation is a major headache, with some of the worst traffic congestion in the country, the COG report said.

Frances Craig, president and chief executive of Unanet Technologies Inc, a Dulles, Virginia, business software company, said she has started to shift marketing to commercial customers and away from those holding federal contracts.

“I think our clients will fade away or get swallowed” as federal money dries up, she said.

Moves by President Barack Obama to curb spending and jitters about potential cuts have already had an effect. The region ranked 13th out of the 15 biggest metro areas last year in job growth, the COG said.

The regional office market also was flat in the third quarter, with defense contractors in particular delaying signing leases until the budget issue is clarified, consultancy CBRE Group Inc said in a statement.

District of Columbia Mayor Vincent Gray, worried about the loss of federal money, is backing a standalone community college for worker training and reducing capital gains on technology investments.

“We’ve got to be able to find ways to be more self-sustaining and this is an opportunity to do that,” he told reporters.

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