Many in the greater Washington business community woke up this morning to a very uncertain work week. A federal government shutdown, whether it lasts days or weeks, raises serious challenges to our region’s economic prospects.
Virginia Gov. Ralph Northam (D) in a public statement on Friday said the federal shutdown would have a disproportionately negative effect on our region’s economy and would put jobs and economic growth at risk, adding it was “past time for leaders in Washington to get their act together and come to an agreement on long-term funding solutions for the federal government.”
The already extant business uncertainty caused by past short-term funding agreements and sequestration will be exacerbated by this current shutdown. Bobbie Kilberg, chief executive of the Northern Virginia Technology Council, pointed to the many members of her group doing business with the federal government that would lose revenue in the near term and have a difficult time planning for future growth. Since our region’s government contractors receive approximately $1.3 billion in revenue each week from federal government procurement, a shutdown or the unpredictability of short-term spending deals
In addition to the potential harm to businesses, the federal shutdown will leave hundreds of thousands of federal employees with a lot of spare time and no paychecks. Federal rules do not allow non-essential individuals to work for the government without pay, so many federal workers will be furloughed for the duration of a shutdown. Just look at the numbers: The federal government is responsible for 367.900 civilian jobs in the Washington area with a weekly payroll of $777 million, along with another 64,500 military jobs accounting for $122 million in weekly payroll and benefits.
Jeannette Chapman, deputy director and senior research associate at George Mason University’s Stephen S. Fuller Institute, cautioned that the harm from a short shutdown was more reputational than economic. A short shutdown would reinforce the view held by many nationally that the D.C. region is defined by government dysfunction. She believed the actual economic harm from a short-term shutdown would be small, “somewhat similar to a snow storm,” and any lost economic activity would be mostly made up post-shutdown.
However, the longer the shutdown lasts into weeks or longer, she identified much greater economic harm. Chapman pointed to households of government employees that do not have savings to cover expenses during the shutdown, workers that generate income from government contracting jobs who get paid hourly wages only when they work, and family-owned businesses that serve government personnel (such as restaurants and dry cleaners) as all being particularly vulnerable.
She was also concerned that there was no assurance that government workers would receive back pay after their furloughs ended. There is no federal obligation to pay back wages, leaving the issue to be addressed in federal legislation when the government reopens. After each prior federal shutdown, legislation was passed to provide for back pay, but that might not happen in the current political environment. The economic hole created if furloughed government employees are not paid back wages could be significant. Chapman pointed out that even if only 30 percent of furloughed civilian workers didn’t receive back pay this would take $233 million out of our region’s economy for each week of lost pay. This is money that will be lost forever – dragging down our economic growth and creating financial distress for many families.
Our region is disproportionately and adversely affected by a national political dispute in which our region’s economy is collateral damage. This is the downside of our region’s strong interdependence with the federal government, a relationship that over time has created significant wealth and business opportunities.
As we look at the likely harm to our region, we should be justifiably angry at our national politicians for endangering our region’s economy as a result of their failure to govern. However, we should also turn our anger into energy that we focus on the opportunities before us.
Bob Buchanan, president of the local advocacy organization 2030 Group, reminded me that the shutdown is juxtaposed with Amazon identifying our region as having three of the 20 finalists under consideration for the home of its second headquarters project. We shouldn’t lose track of the desirability of our private sector work force and our community.
He is right. I know from my own work that a growing number of businesses are locating in our region and growing in areas such as healthcare, software, education, consumer products and hospitality without any connection to the public sector at all. The reality of our region’s economy is that we have a vibrant and growing private sector business community.
In life, we often learn much about ourselves by how we react to adversity: are we victimized by circumstances or do we meet challenges head on? This can be a moment when we take stock of the many advantages our region has, and we increase our commitment to growing our non government business community.
We can choose to endure the dislocation of a federal shutdown, and hope for a return to business as usual. Or, we can take the opportunity to show the world that Washington, DC is much more than a company town and celebrate our economic diversity.
I think our region is up to this challenge. What do you think?