From The Washington Post:
Washingtonians are beginning to worry that President Trump might do what wars, peace, recessions and government shutdowns could not: upend the historically stable regional economy.
Bolstered by the federal government, the metropolitan area has largely avoided the sharp ups and downs that have made life unpredictable for the rest of the nation. The Washington economy was barely nicked by the Great Recession, and it has roared ahead since then on the strength of steady job growth, booming home prices, a nascent technology sector and a huge influx of millennial workers.
But Trump is set to release a budget Thursday that threatens the prosperity Washington has built by suggesting cuts of 10 to 20 percent to federal agencies headquartered in and around the nation’s capital, while boosting defense spending. It’s a proposal that, if enacted, would shake up the local economy’s calculus, striking at government workers while possibly delivering new business to its contractors.
The federal bureaucracy has long shielded Washington from a bottoming out similar to the one automakers and other manufacturers experienced in parts of the Rust Belt — a stark contrast that Trump hammered on with his pledge to “drain the swamp.”
Once the Washington establishment might have shrugged off such talk. Trump is hardly the first president to denounce the federal government’s size, as Ronald Reagan famously said “government is the problem” and Bill Clinton transferred millions of federal jobs to contractor positions.
Construction cranes are shown in the District’s Southwest Waterfront neighborhood. Some Washingtonians are beginning to worry that President Trump’s budget proposals could destabilize the regional economy. (Michael S. Williamson/The Washington Post)
But perhaps because of his success overturning political orthodoxy, Trump’s threats are being taken more seriously. Should he prevail, his spending priorities would pose the greatest test in decades for the regional economy by threatening the underpinning of everything it is built upon: the federal workforce.
Trump’s proposed cuts would reduce employment in the region by 1.8 percent, slash personal income by 3.5 percent and lower home prices by 1.9 percent, according to an estimate by Moody’s Analytics. Mark Zandi, chief economist at Moody’s, reasons that cuts in nondefense spending would probably fall disproportionately hard on the Washington region, while the increase in military spending would be spread across the nation.
That level of contraction would probably rattle many of the business owners and developers who have benefited from the region’s economic gains.
“This definitely has an effect on the morale of the people,” said Ashok Bajaj, who owns fine-dining restaurants in downtown Washington including Rasika and the Bombay Club. “I think it’s going to have a tremendous effect on downtown business, not just restaurants.”
Trump is not the only one calling for austerity in Washington. Other Republicans have taken aim at the federal bureaucracy.
Last year, Rep. Rod Blum (R-Iowa) snapped a photo of construction cranes on the District’s Southwest Waterfront and tweeted that “DC needs a recession.”
Then last week, after Rep. Jason Chaffetz (R-Utah) submitted a bill that would relocate agencies across the country, he said that his constituents question “why some desk jockey in D.C. gets to make decisions about what’s going on in their own back yard.”
Stephen S. Fuller, an economist at George Mason University in Northern Virginia, said the proposed cuts have him more concerned about the area’s prospects than at any other time since the Carter administration in the late 1970s, when the nation struggled with high inflation.
“It’s all aimed at undoing government, which is our business here. That’s what makes this city,” Fuller said.
Fuller tends to be an optimist when it comes to Washington’s growth and has watched as four Washington suburbs have climbed the rankings to join the list of the 10 wealthiest counties in the United States.
“We are a company town, and everything here revolves around a viable national capital,” he said.
Trump’s budget proposal will probably seek to reorder federal priorities, bringing sharp cuts to domestic agencies while steering new money into defense and priorities such as building a wall along the Mexican border. There are differing views on what his budget might mean for the local economy.
“In the past, when we lost the jobs, they started to outsource the work to private contractors. If this time the work just is not going to get done, the jobs are lost and entire agencies are threatened with going out of business,” Fuller said.
Scott Homa, a researcher at the real estate services firm JLL, pointed to the booming stocks of government contractors as a sign that “you’re going to see a big privatization of a lot of federal functions. All that is going to do is push jobs to the private sector.”
Such a shift could add jobs at the Pentagon and affiliated contractors in the Dulles Airport corridor and elsewhere in the region.
For now, Jack Fitzgerald, the owner of 15 Maryland auto dealerships, said car sales have remained strong. He has seen cuts promised by previous administrations go unfulfilled.
“So far, I haven’t seen anything change. They always talk about reducing the size of government, but every time they want to do something, people complain and the government gets bigger,” he said.
In many ways, Washington’s economy is better prepared for government cuts than it would have been a decade or two ago, as the federal government’s share of regional office jobs has been dropping since 2010 and is down to 22 percent.
Meanwhile, young workers have flocked to the region in recent years, fueling a boom in apartment construction and mixed-use real estate projects rivaled only by those in New York, San Francisco, Boston and a handful of other metropolises.
The area added 55,600 jobs last year, according to the Bureau of Labor Statistics, keeping pace with national job growth and driving local unemployment down to 3.4 percent in December. The stock market is up, and gas prices are down.
James Beall, president of Ledo Pizza, the family-style chain with dozens of locations from Richmond to Baltimore, said growth in tech jobs in areas such as the Interstate 270 corridor in Maryland make the region less reliant on the federal government.
“It’s less of a government town,” he said. “It used to be, when the rest of the world went into a recession, the D.C. area is fine; and if there were [federal] cuts, we would have been more worried then than we are now. But it doesn’t seem to have that effect like it did years ago.”
Still, many of the new jobs being added in the region are lower-paying service jobs at restaurants and hotels for workers in their 20s and early 30s.
While the newcomers are filling tiny new D.C. apartments and their tax dollars are buoying the District government’s tax coffers, the changes expose economic vulnerabilities in suburban areas.
“You’re seeing older government workers retiring, and you’re seeing the region continuing to add young people, who aren’t making as much money,” said Ronald D. Paul, chairman and chief executive at Bethesda, Md.-based EagleBank. “That’s why you’re seeing homes of $1 million or more sitting on the market but apartments getting snapped up.”
Since the tea-party-driven election of 2010, the region has already absorbed economic losses and uncertainty prompted by across-the-board budget cuts known as sequestration, a 2013 government shutdown and an Obama administration initiative to “freeze the footprint,” which requires federal agencies to cap their office space — sometimes leaving thousands of employees without assigned desks, requiring them to telework.
Out of necessity, local elected officials have pressed in recent years to diversify their economies away from a reliance on the federal government. In the District, the federal government remains by far the highest employer, with 201,622 jobs, but the public-sector gross domestic product grew just 0.5 percent annually from 2011 to 2014, while the private sector over a similar time period grew by 4.2 percent annually.
And no matter what happens to spending, Washington will remain the nation’s capital.
“I think you’ve got to past the headline story of ‘this agency has a freeze or that agency has a freeze,’ ” Paul said. “I think that’s politics. When you get under the kimono on that stuff, you’re not going to see the Department of Energy going vacant.”