War, tax dollars power resilient capital economy

Tourism suffers in wake of Sept. 11 tragedies

January 27, 2002|By Johanna Neuman | Johanna Neuman,SPECIAL TO THE SUN

WASHINGTON - Tourism here was devastated by the Sept. 11 attacks, flattened to Depression-era levels. The anthrax scare made matters worse, as news accounts painted a picture of a city under siege. Reagan International Airport - a feared terrorist target - closed temporarily and even now is operating far below capacity.

Buffeted by a storm of terrorist-related problems, the nation's capital would seem to be ripe for economic meltdown.

Yet the Washington area is one of the few major metropolitan regions in the country that is not in recession. In fact, thanks to federal spending in wartime, it has proved to be remarkably resilient.

`Follow the money'

"Follow the money," said Stephen S. Fuller, an economist at George Mason University in Virginia, whose reports on regional forecasts are baseline reading for local governments.

Even before the war on terrorism, federal spending in the Washington area was expected to increase to about $80 billion this year, up from $77 billion in 2001. Now, spending in 2002 is expected to reach at least $85 billion.

Evidence of a wartime boom abounds. The office vacancy rate in the District of Columbia has fallen to 5.2 percent, about half the national average. Area home prices are rising, forecast to post the nation's highest increase - 7.2 percent - this year. And the defense consultants and information technology companies, whose skyscrapers line the highway from Washington Dulles International Airport into town, are on a hiring binge. TRW Inc., a $3-billion company based in Reston, Va., is so short-staffed it is contacting former employees and retirees - especially those with security clearances - asking them to return.

War has in the past conferred an economic bounce locally, but this time it is different, dramatized by a profound redefinition of federal spending. This boom is driven not so much by the government creating jobs as by the private sector minting them with federal dollars. Thanks to President Reagan's campaigns for privatization in the 1980s and President Clinton's efforts to reinvent government in the 1990s, both political parties have embraced the principle that the private sector is more efficient, flexible and innovative than the sluggish federal bureaucracy.

The numbers tell the story. The federal work force here peaked in June 1993 at nearly 400,000 workers. By 2000, 66,000 of those jobs were eliminated. While spending on federal procurement - the purchase of goods and services - increased nearly 16 percent nationwide during the same period, in the Washington area it increased nearly 68 percent.

More services, fewer goods

"There's been a remarkable increase in federal procurement of services, and a decrease in the purchase of goods," Fuller said.

The New Economy, federal style, is more technology-driven, less hardware-based. And Washington, which has no manufacturing base or hometown industry to call its own, no baseball team or strong local government and few local heroes except transplants such as Michael Jordan, imported from Chicago, is uniquely situated to benefit.

Mark Zandi, chief economist at economy.com, a consulting company in West Chester, Pa., said federal spending is "flowing into the Washington, D.C., economy" in part because of the area's diversity. This war requires defense spending and appropriations for research in areas such as bioterrorism, tapping the resources not only of the technology companies in suburban Virginia but also the medical research companies clustered around the National Institutes of Health in Bethesda, Md.

Renewed public confidence in government, coupled with the dot.com collapse that left many young entrepreneurs eager for stable employment, also has increased the interest in the kind of jobs Washington now generates.

"A year ago, there was nothing sexy about being a government contractor," said Charlene Wheeless, spokeswoman for Dyncorp, a $1.8-billion-a-year, employee-owned consulting company based in Reston that earns 98 percent of its revenue from government contracts. "Today, we're very sexy."

A need to be close

Dyncorp runs telecommunication systems for the Environmental Protection Agency and information technology services for the FBI. It maintains the Army's helicopter training fleet in Alabama and manages a vaccine production program for the Department of Health and Human Services. In short, Wheeless said, Dyncorp works with 42 federal agencies, and, "We want to be close to our customer."

The need to be closer to Uncle Sam also ripples through the local commercial real estate market. The U.S. Naval Sea Systems Command recently left its headquarters in Crystal City, Va., for the Navy Yards in Southeast Washington. Several private contractors combined to lease 1.5 million square feet of new office space directly outside the Navy Yard gates.

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