Md. contractors got $34 billion from federal spending last year

Spending on goods and services rises 35 percent

August 31, 2010|By Jamie Smith Hopkins, The Baltimore Sun

The U.S. government funneled more than $34 billion to Maryland contractors last fiscal year as defense and other spending saw huge increases that eclipsed the ramp-up after the Sept. 11 terrorist attacks.

Federal dollars earmarked for goods and services in the state rose year-over-year by nearly $9 billion during the 12-month period that ended last September, according to the latest statistics reported by the Census Bureau on Tuesday. That's an annual increase in procurement of 35 percent, a big boost even for a state long accustomed to an outsized share from Uncle Sam.

Such spending rose in Maryland in 2002, 2003 and 2004 — fueled by two wars abroad and more security efforts at home — but the increases never topped 25 percent a year. And nationwide last fiscal year, federal contracting rose by a much more modest 7 percent.

Dollars budgeted by the Department of Defense accounted for more than half of the increase in Maryland last year and included funding for construction work related to the base realignment and closure effort, known as BRAC. Bases in Maryland, particularly Aberdeen Proving Ground and Fort Meade in the Baltimore area, are adding space to accommodate thousands of workers relocating from out of state.

Stimulus spending as a way to pump up the anemic economy also got under way in the last fiscal year. And the Suitland-headquartered Census Bureau was gearing up for its 2010 count, adding more contracting dollars to the mix.

"Having a rich uncle is good," said Stephen S. Fuller, director of the Center for Regional Analysis at George Mason University. "Whatever Maryland got … couldn't have come at a better time, because that was the depth of the recession."

But it's unclear how much longer the federal largess will continue apace. While the federal dollars prop up Maryland companies and employment, the rising tide for contractors has been paid for in part by borrowed money. Maryland could get less in the future — or see much less growth — as Congress looks for ways to clamp down on the spiraling federal deficit.

Defense Secretary Robert Gates said in August that he plans to cut thousands of jobs and rein in contractor spending. Meanwhile, the government is due to pull back on stimulus spending next fiscal year. And an effort by the Obama administration is aimed at paring the budget deficit that the Congressional Budget Office projects will exceed $1.3 trillion this year, or about 9 percent of the U.S. gross domestic product.

"A lot of companies are expecting significant cuts," said Neal J. Couture, executive director of the National Contract Management Association, a trade group with many federal-contractor members. "There's simply not enough money out there."

Travis Sharp, a defense analyst with the Center for a New American Security, a Washington think tank, said Gates is trying to reorder his budget to make more money available to modernize military equipment. Losers in that shuffle will be contractors who provide advice, analysis and other services. The Obama administration believes such work should be done by government employees, he said.

Many of the defense service companies are in Maryland and Virginia, close to the nation's capital. "So Maryland and Virginia are going to be disproportionately impacted by any reductions in service spending," Sharp said.

But Maryland companies could benefit from a renewed focus on military equipment, he said. And Loren B. Thompson, a defense analyst at the Lexington Institute, another think tank, predicts that the BRAC expansion will be a major boon for years to come.

"In the future, contractors will not be able to sell major communications gear to the U.S. Army unless they go through Aberdeen," he said.

Defense contractor Northrop Grumman Corp., which employs about 10,500 people in Maryland, expects slower growth in defense spending rather than a drop.

"The world is not becoming a safer place by any stretch," said Randy Belote, a spokesman for the company. "We are still fighting a global war on terrorism."

For years, the state has benefited from its proximity to the nation's capital.

Federal spending has been credited with buoying the Maryland economy during the recession. Maryland's unemployment rate was 7.3 percent at the end of last fiscal year, compared with nearly 10 percent nationwide. And because the census report tracks money when it is earmarked, some of the actual spending likely spilled over into this year.

The federal government spends more on contractors in Maryland per capita — $6,025 — than anywhere else in the nation besides Washington, D.C., Virginia and Alaska. The state is also one of the largest recipients of per-person overall federal spending, a figure that also includes salaries for agency employees and Social Security payments to residents.

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