Obama’s 2013 budget would probably hurt the Washington area economy

February 13, 2012

Much as slumping box office sales hurt Hollywood and lower car sales upend Detroit’s economy, a leaner federal spending plan would probably slow the Washington region’s economy.

Economists predict that the local area will grow more slowly in the coming years, largely because of the kind of pullback in government spending proposed by President Obama on Monday and advocated by many on Capitol Hill.

The rate of local economic growth could decline between 2 percent and 2.7 percent this year, experts said.

Growth in the private sector could pick up the slack, but it may not be enough to fully offset federal budget cuts, according to a recent forecast from economist Stephen Fuller, who heads the Center for Regional Analysis at George Mason University.

Defense contractors have been preparing for the Pentagon’s spending slowdown for more than a year, cutting hundreds of jobs and reorienting their businesses to focus on areas that show promise, such as cybersecurity.

Recent earnings reports show that many contractors have been able to maintain their profits through cost-cutting methods, but analysts question how long companies can keep that up. Analysts also are skeptical that contractors would be able to make up for cuts in the United States with sales overseas, given the economic troubles in Europe and elsewhere.

The region’s federal employees, who represent the largest segment of the area’s labor pool and a crucial source of consumer demand, may not fare much better.

Most of the hundreds of thousands of federal employees in the D.C. area would receive a 0.5 percent pay raise under Obama’s plan. But the White House also proposed forcing workers to pay 1.2 percent more of their salaries over three years toward their retirement, a change that federal worker union leaders warned would result in hundreds of dollars less in annual take-home pay.

Obama’s budget could also undercut the Metrorail system, which is crucial to the region’s economy.

The White House proposed cutting $15 million in funding provided to Metro annually for capital improvements. Metro relies on about $150 million a year in funds from the Passenger Rail Improvement and Investment Act (PRIIA) that pay for capital improvement projects, including new escalators and rail cars and track repairs. Local jurisdictions match the federal funds.

Metro board Chairman Catherine Hudgins said Monday that PRIIA funding “has been an important part of rebuilding Metro.”

“Any reduction has an impact on safety and capital improvements,” she said.

Obama’s plan would still give Metro $475.5 million in fiscal 2013.

Staff writers Marjorie Censer, Dana Hedgpeth and Eric Yoder contributed to this report.

Ed O’Keefe is a congressional reporter with The Washington Post and covered the 2008 and 2012 presidential and congressional elections.
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