Procurement boosts the state

Benefit: By diversifying, Maryland has made itself more attractive to federal spenders.

January 23, 2000|By Greg Schneider | Greg Schneider,Sun Staff

Maryland has been trying for years to build an industrial base that isn't dependent on doing business with the fickle federal government.

Now comes the payoff: Not only has the state built up a burgeoning technology industry, its business with the government is booming, as well.

Maryland ranked third in the nation in per capita federal procurement spending in 1998, the most recent year for which statistics are available from the Consolidated Federal Funds Report of the Census Bureau.

All told, the federal government spent nearly $18.5 billion in Maryland in 1998 for procurement contracts, salaries and wages. That was up significantly from $16 billion in 1997, breaking a plateau of little or no increase that had held for the past several years.

Procurement boost

Procurement accounted for the biggest part of that jump, climbing to $10.4 billion from $8.4 billion the year before. Experts said that a strong economy and new trends in federal spending should keep those numbers healthy for the next year at least.

"I think the economy in Maryland and the consolidation of federal facilities is likely to mean procurement will continue to grow faster in Maryland than in the nation as a whole," said Charles McMillion, chief economist for MBG Information Services in Washington.

A large part of the bump up for Maryland was the consolidation of Navy jobs at Patuxent River Naval Air Station in St. Mary's County. The government's Base Realignment and Closure process sent 5,197 jobs there in 1997 as bases were closed elsewhere.

But the city of Baltimore and the counties of Montgomery and Prince Georges "also had a nice bounce," McMillion said.

A solid year

When the numbers come in for 1999, they should show a continued high level of business, said Paul Murphy of Eagle Eye Publishing, a Vienna, Va., procurement research firm.

He expects the trend to hold for 2000, as well, though rumblings in Congress about the possibility of cuts to the National Aeronautics and Space Administration could be ominous.

"Cutbacks in NASA could dramatically impact Maryland" because of the thousands of jobs at the Goddard Space Flight Center in Greenbelt, Murphy said.

Overall, though, several trends are benefiting federal contractors. One is the increasing use of commercial purchasing practices, which allows a government agency to shop like anyone else instead of sending out unique specifications for tailor-made items.

Credit-card connection

"I see more and more emphasis on that and I think it will be even bigger in 2000," said Richard White, president of Wood River Technologies, a Sun Valley, Idaho, firm that runs a federal vendor web site.

Another factor with a similar impact is the increasing use of credit card transactions by federal agencies. A program manager can buy up to $2,500 worth of merchandise on a credit card without having to go through procurement procedures, White said.

"That's good for especially the small shop," he said. "If a government office in Baltimore needs something, it's just like you're talking to a commercial buyer. He'll say, 'Hey, I'll take that, here's my credit card, can I come pick it up or do you deliver?' That was unheard of five years ago."

In that short time, more than 480,000 government credit cards have gone into use, White said.

For fiscal year 1998, government agencies bought $7.96 billion worth of goods in more than 16 million transactions using credit cards, according to the the Federal Procurement Data System.

Those trends help inject life into the federal contracting business at a time when congressional budget caps are keeping spending flat.

Another source of potential growth for contractors is the same factor remaking the private sector: the drive to outsource services. While total federal spending might not be rising, the type of work being handed off to commercial companies is expanding.

A diversity shield

Thanks to Maryland's efforts to diversify its economy, the state is in a better position than ever to take advantage of such a trend, McMillion said.

In addition, the state has a degree of protection if federal business cycles back downward.

"Procurement and federal employment continue to be a major factor in Maryland, but not as major as they were 10 years ago," McMillion said. "The diversity of the Maryland economy now is not just in what they produce but who they sell to. The diversity of the customer base has changed significantly over this decade, so the Maryland economy is really extremely healthy."

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