Washington-area economic growth may be one casualty of the push to trim the federal budget deficit, according to a report to be released today by a local research center.
But the Reagan administration's efforts to cut the budget by turning many government tasks over to the private sector already have boosted the local service industry and may continue to soften the impact of further cuts, some local companies, business leaders and analysts said.
"The Washington area is facing a potentially major setback to its economic growth," said R. Robert Linowes, chairman of the Greater Washington Research Center, which prepared the report. "We don't know where the bombs will fall or the explosions will go off, but we better be prepared."
Federal spending in the local area would drop by about 6 percent if the president's proposed budget for fiscal year 1987 were adopted, with the biggest cuts made in grants and nondefense purchases, according to the report by the research center, a private nonprofit organization.
About 8,000 federal civilian jobs would be lost, although many could be eliminated through attrition rather than layoffs, the report said. And the loss in income would be offset by a proposed 2.25 percent pay increase for federal civilian workers, it added.
Local companies selling defense goods and services would see business pick up, but that gain would be overshadowed by the losses suffered by firms selling to civilian agencies, the report said.
Social Security payments would increase, it added.
The center acknowledged that the president's proposals are not likely to be adopted in their current form, but said they serve as one measure of possible spending cuts.
"There will almost certainly be changes from the president's proposals, but because of the Gramm-Rudman-Hollings deficit reduction law, the final budget may contain other actions needed to reduce the deficit to the $144 billion target," Linowes said.
Even before the report was made public, it drew criticism from the Metropolitan Washington Council of Governments.
"The conclusions are flawed, and [it] doesn't mean a lot to local government," John McClain, COG director of metropolitan development, said. "The most obvious flaw is being based on the president's budget."
Also, using the percentage change from the 1986 budget to the 1987 president's budget is "a very long reach," he said.
Philip Dearborn, who authored the Greater Washington Research report, said the report is indeed a rough estimate, but it still is important to make an attempt to translate the impact of federal spending cuts on the Washington area.
The center's report underscores the continued importance of the federal government to the local economy, despite the development in recent years of a vibrant private sector.
The federal government spent almost $31 billion in the Washington area in fiscal 1984, an amount roughly equal to 50 percent of total personal income of local residents, the center said.
Greater Washington would have lost $1.8 billion in federal spending, or 6 percent, in 1984 if that year's budget were cut along the lines now proposed for 1987, the report said.
The deepest cuts would be applied to government grants to local institutions, down 13.2 percent, and nondefense purchases of goods and services, down 10.2 percent, according to the center's projections.
Government purchases of nondefense goods and services -- ranging from custodial to computer support to telephone services -- have boosted the local economy while cushioning the effects of past budget reductions.
"In recent years we have seen federal spending shift, with employment stable or declining, but with rapid growth in federal purchases," Linowes said. "This change fueled the expansion of area businesses and made us one of the most economically healthy areas in the country. In addition, it has helped make us a leader in high technology.
"This report, however, raises the very real possibility that the federal stimulus to the local economy could end," he said.
Other local business analysts disagree, suggesting that the government will have to buy more support services as it cuts its own operations. "The increased privatization since Reagan came to town has meant that the growth in services has taken the place of growth in federal spending," said Stephen S. Fuller, chairman of the George Washington University department of urban and regional planning and author of a 1984 report on federal purchases in the Washington area.
For example, one local computer services firm said it expects to profit handsomely from the budget cuts mandated by the Gramm-Rudman-Hollings law. Aristotle Industries, which provides computer access to Capitol Hill offices, expects its clients to rely more heavily on computer services as they cut their own staff budgets, said company President John Phillips.
Dynalectron Corp., an industrial construction and electrical engineering services firm in McLean, also believes it may benefit from Gramm-Rudman-Hollings. "Our services are basic to the nation's needs . . . [and] we can provide them more cost-efficiently" than the government, a spokeswoman said.
Companies that have their roots in government contracts also can develop expertise that they later market to the private sector.
"Northern Virginia's federal contractors tend to be flexible, highly diversified service companies serving many diverse clients and not solely dependent on a single contract or customer," Charles G. Gulledge, chairman of the Fairfax County Economic Development Authority Commission, said in a speech last month.
Atlantic Research Corp., based in Alexandria, attributes about two-thirds of its business to "national security-related" work, and does not expect to suffer under Gramm-Rudman-Hollings, said spokesman Len Parkinson. Much of ARC's rocket propulsion work is assured by multiyear, fixed-price contracts, while it is marketing data communications work and some electronics work to commercial clients, he said.
The research center said its report included only preliminary findings, without specific data on the potential impact of budget cuts on advanced technology, commercial and residential development, colleges and universities, financial services or local governments.
The Washington/Baltimore Regional Association is working on a similar report, and says preliminary results indicate local service companies are in good shape.