As federal gravy train ends for D.C. area’s economy, it’s time to plan ahead

Washington has a lot to be thankful for as we enter the new year.

Since 2007, the region’s economy has grown by about 14 percent at a time when the national economy has expanded by about 3 percent. According to Stephen Fuller, my colleague at George Mason University and the go-to guy for statistics on the regional economy, growth here has exceeded that of every other metropolitan region.

Steven Pearlstein is a Pulitzer Prize-winning business and economics columnist at The Washington Post.

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A fair reading of Fuller’s most recent report suggests that most of that growth — perhaps all of it, once the typical multipliers are applied — has been the result of rapid increases in spending by the government.

In the past decade, for example, federal employment increased by 50,000, more than erasing the declines of the Clinton era. More significantly, federal procurement spending over the decade grew 166 percent, to $80 billion from $30 billion. With less than 5 percent of the nation’s population, the region captures 17 percent of the federal payroll and 21 percent of procurement dollars.

It’s been a wonderful ride, not just for the past 10 years but the past 20, and it has helped make ours one of the richest regions in the country. Which makes it all the more painful to have to inform you that it’s about to come to an end.

Any reasonable scenario for the future would surely project federal spending on salaries and procurement to grow very little, if at all. Given the region’s lopsided reliance on those types of federal spending, it’s a pretty good bet that the regional Washington economy will grow slower than the rest of the country for an extended period of time.

The reversal is unlikely to begin this year or even next — there’s a lot of built-in momentum to federal contracting and employment. Nor will we really know the extent of the federal pullback until several months after the coming election. Even the anticipation of a slowdown, however, is bound to have a self-fulfilling impact. It’s time — indeed, it’s past time — for the Washington region to begin thinking about its next act.

Over the next month, I propose we begin together to do just that — I in this and several subsequent columns, you in e-mails to pearlsteins@
washpost.com that will be shared with readers in this space at the end of the month. Please keep them relatively short and to the point. And please, spare us the “green energy” fantasies that have characterized such exercises in the past.

Given its outsize influence, the logical place to begin may be with the federal government and imagining how it is likely to be transformed over the next decade.

There’s nobody in the government who does this sort of long-range system planning, if for no other reason than it’s impossible to know what future Congresses and presidents will do. However, I’m going to go out on a limb here and predict that when faced with the prospect of big and painful cuts to the government’s operating budget, voters and politicians are going to be mighty insistent we start to get more value out of our money. And any discussion about greater productivity and accountability leads directly to an overhaul of how government hires, fires and compensates its employees.