Federal spending benefits capital region, report finds

Federal agencies are purchasing increasing percentages of services from capital region companies, boosting the local economy, according to a study published Monday by a George Mason University professor.

In fiscal 2003, the most recent year for which data are available, the government spent $42.2 billion in Washington and surrounding suburbs, representing 15 percent of the total prime contract dollars awarded, according to a report by Stephen Fuller, director of the Center of Regional Analysis at George Mason University's School of Public Policy. This marks an increase of $6.1 billion, or nearly 17 percent, over fiscal 2002, when the capital region garnered $36.1 billion in contract dollars.

Federal contracts awarded to companies in or near Washington supported 294,000 regional jobs and spurred 42,500 new jobs, according to the report. Fuller's research is based on statistics from the federal Procurement Data Center, a central repository of contract information housed at the General Services Administration.

In addition to direct economic benefits, increased procurement spending in the Washington area generates businesses for companies supporting contract employees and increases the demand for local real estate, according to participants in a roundtable discussion on the report. "In many ways, this is so much bigger than baseball, but it rarely gets any press," Fuller said.

The rewards of increased federal spending aren't felt evenly across the Washington region, Fuller added. Northern Virginia has benefited the most, receiving more than half of the area's fiscal 2003 contract dollars, he found. But the rise in procurement is also helping revitalize parts of the District of Columbia, particularly the Southeast of the city near the Navy Yard, said Marcel Acosta, deputy executive director of the National Capital Planning Commission.

The planning commission, which oversees development of the region, previously measured federal "presence" in D.C. by counting the number of federal employees in the capital, Acosta said. But the commission has started taking contractors into account because of the growth in procurement, and is searching for ways to take advantage of the higher spending in a "smart way," he explained.

An increased contractor presence is noticeable when looking at growth in the area's shadow workforce in the past 14 years, according to the report. In 1990, 7,689 contractors worked in the Washington area. By fiscal 2003, that number increased more than 60 percent, Fuller said.

"This suggests that the contracting gains in 2003 are more systemic than event driven or one-time outlays and, as a result, reflect an ongoing policy favoring outsourcing," the report stated. "With more and more federal contractors locating in the Washington area in order to better serve their federal clients, it is likely that the share of the national federal procurement market captured by businesses located in the Washington area will also continue to grow."

Over the past two decades, the capital region has maintained a steady increase in federal procurement dollars garnered, Fuller said. In 1980, the agencies awarded $4.2 billion in prime contracts to businesses located in the region, representing only 4 percent of total spending.

The flow of federal money to the Washington area increased most rapidly after the Gulf War, with a 15.9 percent annual increase for fiscal 1991, Fuller said. The 2003 increase of 16.9 percent broke that record.

Jumps in fiscal 2003 can be attributed partly to homeland security spending and to a desire to contract with service providers, including technology companies, closer to agency headquarters, Fuller said. Growth in Washington-area contracting likely will slow in the coming years as the rest of the economy accelerates, but will not disappear, Fuller said.

The Defense Department spent the most in the capital area in fiscal 2003, with $18.5 billion in contracts awarded to local companies. GSA came in second, at $5.8 billion, with Health and Human Services and the Justice Department third and fourth.

But civilian agencies are awarding local contracts at a faster rate than the Pentagon is, Fuller said. "Over the years, as outsourcing of services has become accepted practice across all federal agencies," he noted, "the Defense Department's share of local contractor awards has declined."