In Fairfax County, sequestration is already here

October 23, 2012

Although they’re not set to take effect until January, the possibility of more than $1 trillion in mandatory federal spending cuts is already taking a measurable toll in Fairfax County, a group of experts told the county’s Economic Advisory Commission on Tuesday.

Their advice for Fairfax: Do what you can to diversify your economy, and get ready for years of trickle-down effects that could materialize even if the cuts do not.

“We’re already seeing the chill,” said economist Stephen S. Fuller of George Mason University’s Center for Regional Analysis. “And it will get worse.”

While communities across the country are bracing for the cuts, known as sequestration, the threat is looming especially large in Fairfax, where an overwhelming portion of the economy relies on federal jobs and contracts. Although the county gets only 1 percent of its general fund money from the federal government, the indirect effects would be significant. In 2011, federal procurement contracts totaled more than $26 billion in Fairfax, more than anywhere else in the country.

In his presentation to the commission, Fuller called sequestration a “poison pill” and warned that if Congress doesn’t reach a deal to avoid the reductions, they will drive the nation into an economic recession. In Fairfax, he said, the effects would be felt by everyone — shopping centers, hair salons, landlords, restaurants — in ways that few are even considering.

“It will show up everywhere,” he said. “A lot of workers don’t even know” that their jobs are dependent on federal spending.

Fuller projects that in 2013, the cuts would mean for the county a loss of more than 86,000 jobs — 13 percent of total employment — and an 8 percent decrease in the gross county product, considerably more than what was lost during the downturn and recession.

He called Fairfax’s dependence on federal spending its “Achilles heel.” Small businesses, such as defense suppliers and subcontractors of subcontractors, would be particularly vulnerable, he said, and many probably would fail because they don’t have the same capacity to respond that bigger companies do.

Fuller said the uncertainty created by sequestration has been playing out for months in the form of decreased consumer confidence, delayed car and home purchases, and precautionary cuts by nervous companies and business owners.

“We’re already seeing businesses hold off on expansions,” said Sharon Bulova (D), chairman of the Board of Supervisors, one of three supervisors who was present.

Doug Koelemay, with SAIC, a federal contracting giant headquartered in McLean, told the commission that his company already is seeing the effects of the sequestration threat — what he called “soft sequestration.” Among other reductions, the government is cutting the scope of contracts, trying to renegotiate prices and exercising fewer options.

In turn, he said, SAIC has laid off workers, divested certain parts of the company, taken work back from subcontractors and started looking for new, non-government business.

“A lot depends on what happens with the elections,” said Nancy Prowitt, with Alcalde & Fay, the county’s lobbying firm. “This is very much a moving target.”

Among the papers circulated at the meeting was an Oct. 15 memo from County Executive Edward L. Long Jr. with a report on the potential cuts by the county’s staff.

“The most significant concern from a budget perspective is reductions of federal funding for schools, human services, grants and housing,” the report said, adding that federal government and contractor layoffs would increase demand for social services while reducing tax revenues.

The Board of Supervisors voted in September to set aside $8 million to deal with potential federal reductions, but Supervisor Pat S. Herrity (R-Springfield) said it’s not enough. He criticized a recent move to raise taxes in Tysons Corner and said the county should instead be cutting back and putting off major expenses until the fiscal picture becomes clearer.

“The private sector is obviously doing a lot more than we are,” he said.

Supervisor John W. Foust (D-Dranesville), the commission’s chairman, agreed that the county needs to do more, especially to grow variety in its economy. But he said he wasn’t alarmed to hear that companies are taking action; he was reassured.

“It’s good to know they’re not just curling up into a ball,” he said. “They’re dealing with this.”

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