Md. No. 2 in federal contracts

Military shift is expected to boost outlays for goods and services


The secret of success in government contracting, as with real estate, is location, location, location -- now more than ever.

Capitalizing on its proximity to the nation's capital, Maryland moved up to No. 2 among all states in per capita federal spending on goods and services between fall 2003 and fall 2004, according to Census Bureau numbers being released today. The U.S. government pumped $20.8 billion in procurement contracts here that fiscal year, a $4.6 billion jump from the year before.

That's $3,743 for every man, woman and child in the state, more than three times the national average.

Maryland was second to Virginia ($4,735 per person) and surpassed New Mexico, which had the No. 2 spot in the 2003 fiscal year.

The District of Columbia would naturally top the list if it were a state; its goods-and-services purchases totaled more than $24,000 per person.

Washington's influence on the state's economy reaches far beyond what it doles out to businesses. Add up all federal government spending per capita -- which includes salaries and grants -- and Maryland is third behind Alaska and Virginia at $11,645 per person, for a total of nearly $65 billion.

"That's what drives the private economy here," said Richard P. Clinch, director of economic research at the University of Baltimore's Jacob France Institute.

The largest private employer in Maryland is the Johns Hopkins institutions -- including the Johns Hopkins University, whose $600 million in National Institutes of Health grants far exceed anyone else's. One of the other largest employers is Northrop Grumman Corp., the defense contractor. As more money is spent on homeland security post-Sept. 11, and more federal work outsourced, the state has been a key beneficiary.

The downside is that Maryland's increasing fortunes are partly financed by the federal government's ballooning deficit. Economists agree that can't continue indefinitely.

But there are no signs of slowing yet. From fall 2001 to fall 2004, federal procurement in Maryland nearly doubled, a huge change after several years of stagnating at about $10 billion. Close to half the procurement here in fiscal 2004 came from the Defense Department.

To the best of its knowledge, the Census Bureau says, these numbers do not include the classified budgets of such agencies as the Anne Arundel County-based National Security Agency.

And NSA said in the 2004 fiscal year that it planned to do more than $2 billion in business with Maryland companies.

Hearing about Maryland's move up the procurement ranks, Aris Melissaratos, the state's secretary of business and economic development, shot back in dissatisfaction: "I'd rather be No. 1."

He thinks recent trends bode well for continued increases in spending locally, the deficit notwithstanding. The nationwide military restructuring that will send thousands of government jobs to Aberdeen Proving Ground in Harford County and Fort Meade in Anne Arundel in the next few years will also mean many millions of dollars in local contracting work.

"It's clearly a good driver," Clinch said, referring to federal spending. "It creates, by and large, very good jobs."

Northrop Grumman accounts for about 11,000 jobs in the state, the Los Angeles-based company's fourth-largest concentration of employees. (Virginia, with 30,000, is the largest.) The majority of its local employees work on electronic systems and defense electronics in Anne Arundel.

Gus Gulmert, a spokesman for Northrop Grumman, said proximity to Washington gives the state an edge, but so does its high level of college-educated adults -- though even that distinction, economists say, can be credited in part to Washington's influence.

Melissaratos -- himself a former government contractor, with 32 years at Westinghouse Electric Corp. -- said the federal government is the foundation of Maryland's economy because its ripple effects are far-reaching. Its contractors hire contractors of their own for services ranging from accounting to catering. Federal employees spend their paychecks in local stores. And many of the federal institutions are research-heavy, fueling the local biotechnology and high-tech sectors.

"The bottom line, for me, is having the right agencies located here," Melissaratos said.

Montgomery and Prince George's counties, cheek and jowl with Washington, got the lion's share of the money the federal government spent on goods and services in Maryland in the 2004 fiscal year -- nearly six out of every 10 dollars. The Baltimore area consumed a quarter of the total.

Procurement in the city rose 50 percent that year to $2.6 billion, helped along by contractors such as military antenna manufacturer Nurad Technologies Inc. in Park Heights. All told, federal spending on goods and services in the metro region increased 20 percent to $5.6 billion.

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