The Washington PostDemocracy Dies in Darkness

Northern Virginia’s economic growth risks leaving Maryland suburbs behind

A line of people snakes down a full block and around the corner as thousands of job-seekers gather for Amazon Career Day last September in Arlington.
A line of people snakes down a full block and around the corner as thousands of job-seekers gather for Amazon Career Day last September in Arlington. (Jahi Chikwendiu/The Washington Post)

The scene is dreary at what’s left of Montgomery County’s White Flint Mall, the site that Maryland hoped would lure Amazon to build its second headquarters. A lonely Lord & Taylor store sits next to acres of land filled with bushes and weeds where much of the shopping center once stood.

“Essentially, it’s a big hole in the ground,” said Jonathan Pilley, owner of a nearby decorative hardware showroom. He and others in the community described the local economy as lackluster.

“The business climate is very cool. I think there were a lot of eggs put in the Amazon basket,” Pilley said.

By contrast, across the Potomac, Amazon just won Arlington County approval to build two office towers to anchor the modern campus where it plans to employ 25,000 people. Analysts say the 22-story buildings in Crystal City will symbolize Northern Virginia’s emergence as a national high-tech powerhouse.

The disparity illustrates an imbalance within the Washington region that threatens the area’s overall growth and poses extra risks for the Maryland suburbs, according to local officials, business leaders and economists. Economic growth has been heavily concentrated in Northern Virginia, rather than Maryland or the District, and the divergence has widened in the past two years.

Why did Maryland lose out on Amazon HQ2?

In the first 10 months of 2019, Northern Virginia gained an average of 19,500 jobs from a year earlier, compared to 5,700 jobs in the District and just 200 in suburban Maryland, according to preliminary data from the federal Bureau of Labor Statistics.

Those figures are expected to be revised, but Northern Virginia is estimated to get 71 percent of the new jobs in the period, compared to 15 percent in the District and 14 percent in suburban Maryland, according to Jeannette Chapman, deputy director of George Mason University’s Stephen S. Fuller Institute for Research on the Washington Region’s Economic Future.

From 2017 to 2018, Northern Virginia’s share of new jobs in the region jumped from 52 percent to 71 percent.

There are several reasons for Northern Virginia’s advantage, but basically it offers more of what businesses like to see in deciding where to invest. The Virginia suburbs have more available land to develop, two airports, weaker unions, lower corporate and income taxes, and a generally more welcoming political climate.

It also has a head start on Maryland both in developing transit-friendly, urban-style neighborhoods such as Arlington — which helped attract Amazon — and in widening major highways including the Capital Beltway and Interstate 95 in hope of easing traffic congestion.

One result has been an influx of major corporate headquarters in Northern Virginia, which began well before Amazon’s decision and has not been matched across the Potomac. Northern Virginia has lured companies such as Hilton, Nestle and Volkswagen, whereas Maryland lost Discovery and had to fight to keep Marriott.

Amazon’s Va. headquarters expected to have $15 billion economic impact by 2030.

“When large headquarters move to the metropolitan area, they almost never consider Maryland and D.C.,” said Yesim Sayin Taylor, executive director of the D.C. Policy Center. “They invariably locate in Northern Virginia, and that’s now snowballing. The Dulles corridor has become a huge attraction to technology companies.”

The Amazon decision will accelerate the trend, analysts say. Other companies will come to do business with the online retail giant, and to take advantage of an expanding, high-tech workforce. Virginia’s commitment to invest more than $1 billion in university programs teaching computer science and related fields will help. (Amazon founder and chief executive Jeff Bezos owns The Washington Post.)

The company’s selection of Northern Virginia after a highly publicized competition also gave the area a stamp of approval as a desirable place to do business. It helped dispel a reputation that the area was only a home for federal bureaucrats and contractors.

Amazon’s arrival “is transformational and validates everything we’ve been saying for 20 years about both the reality and potential of Northern Virginia,” said Bobbie Kilberg, chief executive of the Northern Virginia Technology Council. As Amazon grows, she said, it will spin off companies and attract others to the area, and the tech sector will “really ramp up over the next five years.”

The District and Maryland will enjoy spillover benefits from Northern Virginia’s success. Some of the new Amazon employees, who have been promised salaries averaging $150,000 or more a year, will choose to live in the city or Maryland and commute across the river.

Study: Montgomery Co. economy is stagnant, and leaders are ignoring job creation.

But there is also a risk that a Virginia boom will leave behind suburban Maryland and, to a lesser extent, the District, analysts say. That’s a problem partly because slow growth in one part of the region affects the whole.

“A large part of our regional economy really isn’t growing,” Chapman said. “About 30 percent of all [existing] jobs are in suburban Maryland, and that part is not moving very much, and that’s a problem.”

Business leaders and some politicians are especially concerned in Montgomery County, Maryland’s largest jurisdiction and historically the state’s economic engine. If growth doesn’t improve, they say, the county eventually will lack tax revenue needed to sustain support for schools and social services.

“It’s very serious,” Montgomery County Council member Hans Riemer (D-At Large) said. “Historically, the region grew fairly evenly in thirds. . . . If we don’t change this picture at all, then we are no longer a suburb of D.C. alone. Instead, we’re a suburb of both D.C. and Northern Virginia.”

The mood is better in neighboring Prince George’s County, which has been outpacing other parts of Maryland in job creation even as it trails Northern Virginia. County Executive Angela D. Alsobrooks (D) says Prince George’s is “headed in the right direction” and can benefit from the dynamism across the river.

Northern Virginia counties and cities form alliance to lure companies and jobs.

“Prince George’s County is best situated to benefit from the growth we’re seeing in other areas,” Alsobrooks said. Still, she acknowledges that Northern Virginia’s economic dominance is a worry.

“We recognize that we are just in a very competitive region,” Alsobrooks said. “We are obviously concerned about it.”

In the District, John Falcicchio, who is chief of staff for Mayor Muriel E. Bowser (D), did not respond directly to questions about Northern Virginia’s strong growth but instead pointed to the city’s performance in recent years.

“The District of Columbia saw tremendous growth in the 2010s — not just in renewed vibrancy in our neighborhoods with population growth of 100,000 residents, but also with the lesser known but just as critical addition of 100,000 jobs,” Falcicchio said. “Mayor Bowser remains focused on preparing our residents for the jobs of today and the future.”

Economic advantages

In some important ways, suburban Maryland and the District are on an equal footing with Northern Virginia regarding economic potential. All three have highly educated workforces and access to Metro and other transit. All host top-notch universities and colleges, as well as federal agencies that generate business for private contractors.

But Northern Virginia has advantages that have given it an edge since as far back as the 1980s Reagan defense buildup. Virginia benefited from a boom in federal contracting partly because it is home to the Pentagon and CIA. That spawned a steadily growing information technology sector, now a core of its economic base.

Suburban Maryland hosts the National Institutes of Health and the Food and Drug Administration, which have made it a center for biotech companies. But the biotech industry isn’t as large or robust as the Internet-driven information technology sector.

As Montgomery-based real estate executive Bryant Foulger said of Virginia: “They’ve got the death sciences; we’ve got the life sciences. The death sciences dwarf the life sciences, when you look at government spending.”

The overall business climate has also played a role. In general, Virginia has had lower taxes and less regulation than its neighbors. For 2019, the corporate income tax rate in Virginia was 6 percent, compared to 8.25 percent in Maryland and the District.

Virginia also is a right-to-work state, which means employees cannot be required to join a union, or pay union dues or fees, as a condition of employment. In contrast, both Maryland and the District allow union shops.

The different approaches arise partly from political disparities between Virginia and Maryland in parts of the states outside the Washington region. Conservatives from Southern Virginia have frequently wielded power in Richmond and favored corporate-friendly policies. By contrast, liberals from the Baltimore area have tended to dominate the Annapolis state government.

The District has generally enjoyed steady growth since the city recovered from its fiscal crisis in the 1990s. Taylor said it could do even better, and compete more effectively with Northern Virginia, if it adopted stable economic policies.

“What businesses don’t like is when the commercial tax rate changes four times in two budget cycles, and that’s what happened in D.C.” in 2018 and 2019, Taylor said. “There is a risk attached to being in a jurisdiction where regulatory changes are sudden and done without any collaboration with business.”

Some Virginia corporate executives are concerned that the Democrats’ takeover of the General Assembly in the November elections will lead to less business-friendly policies. But analysts doubt that it would be enough to change the overall trend in the area.

“Business climate is not the only factor driving Northern Virginia’s job growth,” Chapman said. “In particular, it has had a stronger mix of private-sector jobs. . . . While policy changes could affect economic growth, the changes would need to be extensive to reduce Northern Virginia’s position relative to the rest of the region.”

Making plans

In Montgomery, county officials say they’re taking seriously the challenge from Northern Virginia. County Executive Marc Elrich (D), who took office amid concerns that he had an anti-business philosophy, has held meetings with business executives and owners to hear their concerns.

The County Council’s Planning, Housing and Economic Development Committee launched a Business Advisory Roundtable to consider topics such as promoting small-scale manufacturing.

But there’s a recognition that change is a long-term process.

“I think the circumstances with Northern Virginia having much more job growth are frankly decades in the making,” said Robert G. Brewer Jr., chairman of the Montgomery County Economic Development Corp.

“For a while now, three or four years, our government partners have recognized and acknowledged, certainly privately . . . that they’re not as competitive. That change takes time,” Brewer said.

Business leaders warn against complacency.

At some point, Foulger said, slow growth “starts to affect the revenue of Montgomery County as a government. It affects how much they can spend. It starts to affect schools. You’ve got to have a sustainable financial model, and I don’t think Montgomery County has that.”