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Government Spending Up Sharply Locally

By Neil Irwin
Washington Post Staff Writer
Monday, August 16, 2004; Page E01

Federal procurement spending in the Washington area rose last year at its highest rate since the 1980s, according to a study to be released today, creating tens of thousands of jobs and increasing economic growth disproportionately in Northern Virginia.

The federal government spent $42.2 billion to buy goods and services in the Washington area in the fiscal year that ended in September 2003, according to the study, conducted by the George Mason University Center for Regional Analysis. That was $6.1 billion, or 16.9 percent, more than in 2002, the highest percentage rise since the Reagan-era defense buildup in 1985. Much of the higher spending appears to be largely linked to the war in Iraq and fighting terrorism; the Defense Department accounted for $2.6 billion of the increase, and other security-related agencies were high on the list.

_____Graphics_____
More Federal Dollars Local federal spending increased an average of 10 percent annually from 1991 to 2003.
A Boost for Virginia Northern Virginia benefited the most from last year's increase in local federal spending, the largest since the mid-1980s.
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The Washington area economy surged in the past year, adding jobs at a pace similar to that in the late 1990s. Economists and businesspeople long attributed the booming local economy to rising federal spending and the George Mason study, based on data from the Federal Procurement Data Center, supports that belief.

"For a while it has looked like procurement was driving growth in the Washington area economy," said Stephen S. Fuller, the George Mason public policy professor who led the study. "Now we know it."

As a result of the additional $6.1 billion in the local economy, Fuller estimated, the value of all goods and services produced in the region, or gross regional product, rose 4.1 percent in 2003, compared with 3.1 percent nationally. In the year ended in June, the Washington area added 82,000 jobs, according to the Labor Department, more than any other metropolitan area.

Local federal spending on professional, administrative, and management services was $3.3 billion higher in the 2003 fiscal year that in the previous year, a 42.8 percent increase.

The Labor Department statistics do not differentiate between work done for government contractors and purely private-sector equivalents, but it has a category of employers called "professional and business services" firms, which includes many of the government contractors that have the professional, administrative, and management services contracts. There were 31,000 local jobs added in that category in the year ended in June.

"Government spending is the only thing that can explain the very strong job creation the Washington metro area is experiencing," said Anirban Basu, chief executive of economic consulting firm Sage Policy Group in Baltimore, who was not involved with the George Mason study but agreed with Fuller's conclusions about the impact of federal procurement.

The growth in federal purchasing differs on the two sides of the Potomac; some $4.7 billion of the $6.1 billion total increase in procurement was in Northern Virginia. Federal spending in Fairfax County alone rose by $2.3 billion, compared with a $484 million rise in the District and a $950 million increase in suburban Maryland.

That's reflected by job creation. The District added 5,000 jobs in the year ended in June, suburban Maryland added 15,800 and Northern Virginia added 37,400.

Fuller noted the types of government contracting work done in the different jurisdictions. Maryland's government contracting sector is disproportionately occupied by agencies that deal with health care and social services. The government contractors who build computer systems to help analyze intelligence data and manage troops in the battlefield are more commonly in Virginia, in part because it puts them closer to the Pentagon and CIA headquarters.

Procurement spending in the region will almost certainly grow more slowly in coming years, Fuller said, noting the growing federal budget deficit. But he argued that federal procurement spending provides a solid base for the local economy that will keep it growing solidly, if not as spectacularly as last year, through good times and bad.

"As we get back to a balanced budget, we will not get 17 percent growth," Fuller said. "But 7, 8, 9 percent is not so bad."


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