Business leaders and jurisdictions worry about a federal shutdown

By Danielle Douglas
Monday, February 28, 2011

This week's looming budget deadline has jurisdictions and business leaders in the Washington area contemplating the economic ramifications of a federal government shutdown.

If Congress cannot agree by Friday on a spending plan for the current fiscal year and a closure ensues, the region could lose millions in income tax and sales tax revenue, said Jim Dinegar, chief executive of the Greater Washington Board of Trade.

"If the federal worker doesn't get paid and is not paid back retroactively like the last time, that's just revenue that the governments can't tax," he said. "This would adversely hit this region more so than others. At a time of fragile economic recovery, now is the worst time to do this."

Area restaurants, stores and entertainment venues would all feel the sting of federal employees, numbering in the hundreds of thousands, not getting paid, Dinegar said. The Board of Trade is hosting an event at the Capital Hilton on Tuesdayto evaluate the trickle-down effects of a shutdown and to help businesses prepare.

With federal employees living and working in the region, municipal governments in suburban Maryland, Northern Virginia and the Districtwould certainly feel the fiscal pinch.

The Fairfax Board of Supervisors asked the county executive last week to look into the implications of a shutdown on the county, said Jeremy Lasich, a spokesman for the county government. Not only is the jurisdiction home to federal agencies, such as the CIA, but it's also the headquarters for a myriad of government contractors, from BAE Systems to Lockheed Martin.

"Companies under federal contracts would not be paid for however many days or perhaps weeks that the government is closed," Dinegar said. "That's also significant tax implications for the counties and the states."

During the last Clinton-era shutdowns of 1995 and 1996, about 20 percent, or $3.7 billion, of the $18 billion in contracts in the Washington region was impacted, according to the Congressional Research Service's recent report on federal shutdowns.

Officials in Montgomery County are fairly optimistic that a closure may be short-lived and have a negligible impact on the county's coffers.

"Employees in the non-national security agencies didn't get paid and that had an impact on income, except the big asterisk is they eventually got their pay back, which neutralized the whole thing," said Jennifer Barrett, director of Montgomery County's Department of Finance.

While a shutdown would certainly have some impact, she said it could be "offset a little bit by people who might spend money on retail or entertainment" during their time off and "local governments might get a little bit of benefit."

Effect on the District

Not everyone shares her optimism. D.C. Del. Eleanor Holmes Norton (D) is adamant that a shutdown could cripple the District, which doesn't have budget autonomy. That means the city needs Congress to approve its spending, but the House has yet to okay the bill that includes the appropriations for the District.

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