Local jobs a casualty if Congress fails to act

'I think nobody escapes this'

wtopstaff | November 14, 2014 4:45 pm

Megan Cloherty, wtop.com

WASHINGTON – If Congress fails to strike a budget deal before year’s end and the nation falls over the “fiscal cliff,” the cost in local jobs is projected to be enormous.

The area could quickly lose up to 95,000 federal contractor jobs, and may forfeit as many as 65,000 additional federal jobs, says Stephen Fuller, public policy professor at George Mason University.

Fifteen percent of the area’s federal workforce could be laid off, he says.

“This is really serious. It’s a major threat to the local economy – a substantial decrease in jobs in the Washington area,” Fuller says.

Fuller says analysts already are seeing a hesitation in local hiring.

“It’s already started. Federal contractors aren’t hiring, they’re laying off in some cases, they’re repositioning themselves for some kind of future growth. It’s something that’s been going on for more than a year … It has taken the energy out of the economy,” Fuller says.

D.C. Mayor Vincent Gray says federal cuts also could hurt the region’s overall transportation system.

“That flies in the face of our effort to get people out of automobiles,” Gray says.

The situation also threatens the city’s recent economic boom, making it less attractive to businesses. Gray says that translates into lost sales tax revenue that could impact the city’s already tight budget.

It’s estimated Virginia, Maryland and D.C. together could lose more than 300,000 jobs if the mandatory cuts do come.

Virginia State Sen. Dick Saslaw, D-Alexandria, says his state could be hit very hard, especially defense contractors in northern Virginia.

“If they let it happen, to put the genie back in the bottle is going to take a lot more effort than to reach an agreement,” Saslaw says.

Along with automatic tax increases set to take effect Jan. 2, Washington also is facing a shorter retail season, with attention to holiday spending cut short by the election. Thanksgiving is only two weeks away, and the short holiday season coupled with looming job uncertainty will hurt consumer confidence, Fuller says.

The Tax Policy Center estimates taxes could rise by an average of nearly $3,500 for each household if no deal is reached.

“The amount of money that’s left in circulation, whether you’re hit by the tax increase or not, there’s just less disposable income. So every retailer, every service provider is going to see less business,” he says.

If there is a deal reached in Congress, Fuller says the outlook changes drastically. But two days after the election, expectations are low that the lame duck Congress will be able to get anything done during its short session.

“The worry, the angst that we see building, it certainly showed up in the stock market yesterday,” Fuller says.

Bloomberg TV Market analyst Dominic Chu agrees the looming budget crisis is a factor in why the market dropped more than 350 points Wednesday.

“The fiscal cliff is very much more in focus right now. We heard House Speaker John Boehner come right out and say, ‘Now it’s time to compromise.’ You’ve got to kind of figure, a lot of people rode this wave higher and now we’re maybe ready to take some profit. We’re heading into the part of the year where that kind of stuff happens,” Chu says.

But if negative catalysts affecting the market do an about-face, Chu says, it will bring the market back to life.

“There are significant headwinds, but if they do get resolved then you get this kind of feeling, ‘Yes maybe things get better.’ Maybe all those people who haven’t been investing in the past few years start to come back into the market – that could be a real catalyst for a move higher here,” Chu says.

“There’s great concern about uncertainty, it’s just going to extend that into the first half of ’13.”

Chu says the market outlook is not entirely negative. But if a deal is not reached on Capitol Hill regarding automatic tax increases, Fuller expects the economic gloom will last through the summer of 2013.

WTOP’s Hank Silverberg contributed to this report.

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