Back when Maryland businessman Larry Letow relied almost entirely on federal contracts for his computer data security company, government work was so plentiful that he viewed it as “sort of an aphrodisiac.”
The romance is over. Congress’s budget cuts forced Letow last year to reduce his staff by 10 percent. He has begun transforming his firm to compete for private deals and added some staffers, but the company remains smaller than before.
“We finally have come to terms with the new norm, which is that the government is not going to continue to grow,” said Letow, chief executive of Convergence Technology Consulting in Columbia, Md. “It’s been a tremendous change of focus.”
The entire Washington region has entered a wrenching era of adjustment similar to Letow’s. A historic slowdown in federal spending — caused largely by the mandated budget cuts known as sequestration — has taken a bite of $11 billion a year in government contracts out of the area’s economy and forced local companies to scramble to respond.
It has also prompted local business and civic leaders to push state and local governments to compete less with one another for jobs, investment and sports teams. They are urging politicians instead to collaborate in areas such as training workers, marketing the region and, above all, improving transportation.
The goal is to nudge the region to compete more effectively with rival metropolitan areas such as Silicon Valley and Boston. The concern is that without such change, the Washington area risks becoming an economic laggard.
“We shouldn’t just sit here hunky-dory and think we’re in this great region and we’re on top of the world,” said former District mayor Anthony A. Williams, who heads the Federal City Council. “The federal government cutting back on its discretionary, contracting spending really hits us.”
Letow said he would like to see the region cooperate more on two issues: funding technical research and reducing commuting times. The latter is necessary to attract the kinds of workers needed for high-tech jobs.
“The traffic issue is brutal, especially if you’re in the commercial world,” Letow said. “There’s this subset of the younger generation that doesn’t necessarily want to have cars, that uses public transportation. We’ve got to figure out a better model.”
In the Washington area, the Federal City Council and other major business and civic organizations are supporting a plan to produce a post-sequestration “Road Map” for the region’s economy.
The 2030 Group, led by Maryland developer Robert E. Buchanan, organized the effort. It has hired George Mason University economist Stephen S. Fuller to study how to aid seven key local industries, including information technology and bio-health services, that have high growth potential. The group plans to release its results by October.
The eventual goal is one or more “regional summits” to agree on a strategy for “diversifying the region’s economy based on its unique competitive position . . . as the capital of the world’s largest economy,” according to the Road Map’s research proposal.
Separately, in a possible preview of such summits, Virginia Gov. Terry McAuliffe (D), Maryland Gov. Larry Hogan (R) and D.C. Mayor Muriel E. Bowser (D) have accepted invitations to participate in a regional discussion in the winter, according to the Greater Washington Board of Trade. The meeting, also supported by the chambers of commerce of Fairfax and Prince George’s counties, is tentatively planned for December.
But while the initiatives enjoy nearly unanimous support in the business community, fissures are already apparent that could undermine them.
On transportation, for instance, business leaders in Northern Virginia say that real cooperation would require adding a bridge across the Potomac River north of the American Legion span on the Capital Beltway. But many in Maryland say that local opposition there runs too strong to be pushing such a project now.
In addition, Northern Virginia is being tugged in two directions. Washington regional groups want it to work with counterparts in the District and Maryland, but state leaders in Richmond are wary.
McAuliffe makes no secret of his desire to lure jobs to Virginia from anyplace he can find them, including Maryland and the District. He drew headlines with bids to coax the D.C. United soccer team out of the District (unsuccessful) and the National Football League’s Redskins from their stadium in Maryland (unresolved).
In July, Northern Virginia was slighted in the announcement when McAuliffe and top Republican leaders unveiled a plan to use state funds to encourage business, government and universities to cooperate more in individual metropolitan regions to promote economic development. The rollout took place with well-publicized news conferences in Norfolk, Richmond, Danville and Blacksburg.
Northern Virginia was excluded partly because of a concern that the Washington-focused media would ignore the event. The initiative, called GO Virginia, could still direct state money to Washington’s Virginia suburbs, but local business executives said organizers feared leaving an impression that the funds might help the District and Maryland.
Anthony T. Pierce, chairman of the Greater Washington Board of Trade, would like to see McAuliffe travel with Hogan and Bowser on trade trips to pitch the region’s overall attractiveness for, say, cybersecurity or health companies.
“We’re not naive,” Pierce conceded. “Terry McAuliffe is not going to get on a plane and say, ‘You ought to come to Maryland or D.C.’ But I think it can be done in a way that it’s more collaborative among them, and everybody is going to benefit from it.”
The Washington-area economy has picked up steam this year, along with the rest of the country. But the budget cuts’ impact continues to be felt, and the area is bracing for another blow with the next round of sequestration, scheduled to begin Oct. 1.
The loss of federal business already left the Washington region with the weakest rate of job growth last year among the nation’s 15 largest metropolitan areas. In 2010, it ranked first.
Between 2010 and 2020, the federal share of the area’s economy is projected to drop from 40 percent to 29 percent. That’s the biggest drop in at least 30 years, according to Fuller, a senior adviser at George Mason’s Center for Regional Analysis.
For local companies, the change means hunting for new markets and adapting to a quicker pace typical of the private sector. Letow’s company, which has 60 employees, has overhauled its sales force, opened a new division and is making three to four times as many business pitches as before.
But individual businesses, especially smaller ones, need help from government and universities to succeed as they wean themselves away from federal dependence, according to business groups and academic researchers.
The Road Map has drawn the endorsement of the Metropolitan Washington Council of Governments and some nonprofit organizations frustrated that counties and states spend so much time battling one another.
Prince George’s and Fairfax are in a tug of war to host a new FBI headquarters. Northern Virginia would like to see Marriott International, which has announced plans to leave its headquarters in Bethesda, Md., come across the Potomac.
“Can we promote our region, so instead of one jurisdiction competing against another, we’re competing together against Los Angeles or Miami?” said Tamara Copeland, president of the Washington Regional Association of Grantmakers.
Montgomery County Executive Isiah Leggett (D) says the breadth of backing for the Road Map reflects the level of concern about sequestration’s effects. “Given the people involved in it, given the support it has around the region, it is a very strong statement,” he said.
Business leaders are the main drivers of the efforts because they find their workers and customers throughout the region, regardless of where they are headquartered.
“The business community is a common denominator,” said Jim Corcoran, president of the Fairfax County Chamber of Commerce. “Hilton [based in McLean, Va.] doesn’t care if its employees live in Maryland, and Marriott doesn’t care if its employees live in Virginia.”
But Corcoran acknowledged that politicians’ differences over specific issues — such as expanding capacity on Potomac bridges — could lead to dissension.
Noting that Virginia has recommended extending toll lanes across the American Legion Bridge and up Interstate 270 in Montgomery, he said, “You can just hear the people in Annapolis saying, ‘Who are they to tell us what we need to do?’ ”