Business leaders and jurisdictions worry about a federal shutdown

By Danielle Douglas
Monday, February 28, 2011; 9

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.

This effectively places the District on the same time table as the feds. So when the continuing resolution expires, the District will also have to close non-essential departments. Norton introduced a bill last week imploring Congress to allow the District to remain open in the wake of a shutdown.

"We know of virtually no member of Congress who even knew the District would be shutdown until we told them," she said.

The last major federal shutdown came in two waves: The first lasted five days in November 1995, while the other stretched 21 days from December of that year into January 1996. The District was spared from the second round of pain, after Congress agreed on a funding bill for the city.

"It was a huge impact for a week," Norton said. "If Speaker Gingrich had not intervened, then the District would have suffered harm that would have been difficult to repair."

Attorneys for the District's Office of the Chief Financial Officer are currently looking into the broader economic impact, according to David Umansky, a spokesman for the agency.

Much of the impact of a federal shutdown would depend on which agencies are deemed essential and get to stay open. Experts anticipate all of those tied to homeland security would fall into that category, but an agency like the National Park Service likely would not. Yet when some 368 parks, museums and monuments were shuttered in the mid-1990s, it resulted in a loss of about 9 million visitors in total, according to the Congressional Research report.

"If you close down the Smithsonian, consider what that would do to one of our main non-governmental sectors, tourism," Norton said. "A shutdown would have a serious impact on the District not only because of the federal employees, but because of the way in which our economy is interlaced with federal entities, such as museums."

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