Sequestration and Our Economy
Let me take you back to 2012. With Congress and the White House at loggerheads over the fiscal 2013 federal budget, many in the nation were introduced to a new vocabulary word: sequestration, or automatic spending cuts. In the Washington area, the word swept up and down the Potomac with great alarm.
The prospect of mandated spending cuts – more than $40 billion in annual cash outlays over nine years – sent shock waves through local jurisdictions, even as they sought to recover from the Great Recession. Given the region’s close economic ties to the federal government, economists warned that it should brace for a fiscal tsunami, perhaps on an unprecedented scale.
One academic predicted that Virginia, Maryland and the District would lose more than 330,000 jobs in the years following the sequester and find themselves receding into a protracted recession. The forecasts prompted such overstated headlines as “Sequestration could devastate Virginia” (Washington Business Journal, August 13, 2012).
The Chicken Little forecasts of the time did not come to pass, and in fact, the capital region weathered the sequester with resiliency and durability. Understanding why tells us a bit about what the regional economy is becoming.
Yes, budget cuts have taken a toll on the Washington area which receives the most federal procurement dollars of any region. Federal contracts awarded to companies in metropolitan D.C. totaled $79.9 billion in fiscal 2011, and fell to $71.2 billion in fiscal 2014. As you might expect, job creation took a hit too. In 2014 and 2015 the Washington region was last amongst the largest U.S. metropolitan areas for job growth.
Congressional and presidential actions stalled further mandated budget cuts, but federal procurement in fiscal 2015 was about the same as a year earlier, and we aren’t seeing any signs of change this year.
However, there are positive signs to report. Employment has started to increase all across the region. Fairfax County, for example, added nearly 8,000 jobs in 2015. In fact, job numbers increased in every major jurisdiction in the Washington area.
If federal procurement is roughly steady but employment is going up, something significant must be happening, and that something is this: the longstanding efforts at diversification of the Washington area economy are bearing fruit. The statistics that point to job growth during a period of federal stagnancy mean that companies not focused on federal customers are outpacing employers that have been largely federally oriented, and this is a healthy sign.
Take Fairfax County as an example. We recognized the need to diversify our economy decades ago, adding or retaining such headquarters operations as Hilton Worldwide, Volkswagen of America, Bechtel, Capital One, Intelsat and Cvent – companies that are not dependent upon federal work. Cancer research and translational medicine are accelerating. The entrepreneurial climate also is spawning a diversity of small companies, including close to 50,000 owned by minorities and more than 40,000 founded and run by women. And what is happening in Fairfax is occurring across the region.
The work of diversifying the regional economy will never be finished, but the Washington area has turned a corner in this important effort.
Gerald L. Gordon, Ph.D., is president and CEO of the Fairfax County Economic Development Authority.
Note: This piece ran on Forbes.com October 10, 2016.