Nation's Pain Often Washington's Gain

Bailout puts focus on D.C.

WASHINGTON -- Whether it's a buildup of Civil War troops, Depression-era bureaucrats or defense contractors after Sept. 11, the region has prospered in times of crisis. Today, the financial meltdown is delivering a jolt of its own.

Lawyers, lobbyists and public relations experts -- many of whom live and work in Virginia and Maryland suburbs -- are benefiting as companies from Wall Street to Motor City seek a piece of Washington's $700 billion financial bailout, and try to influence any regulatory strings attached. Business is also percolating as President-elect Barack Obama prepares an economic stimulus package comprised of infrastructure spending and tax breaks that could exceed $800 billion.

"There will be a mad rush to have influence on where that money should go," said David Rubenstein, co-founder and managing director of The Carlyle Group, the Washington-based private-equity firm whose partners include former high-ranking U.S. and foreign government officials. Far from struggling, the Washington region could be on the verge of "boom times," Rubenstein said.

At the very least, the expanding federal government -- which has added more than 7,500 jobs in the Washington region over the past decade -- is helping to insulate the area's economy and its 4.5 million residents from the worst effects of the recession.

Annual military and homeland security spending has risen sharply since Sept. 11, leading to years of prosperity for the region's consultants and contractors, including well-known defense companies such as Lockheed Martin Corp., of Bethesda, Md., and General Dynamics Corp., of Falls Church, Va.

Now, as Uncle Sam mounts a multitrillion-dollar effort to rescue the country from its worst financial crisis since the Great Depression, some companies based outside the region are beefing up their Washington offices.

Local business leaders say the influx of influence-peddlers, combined with leadership changes in the White House and Congress, could provide a small lift to the region's commercial and residential real estate markets, which are hurting like everywhere else.

To be sure, the region is not immune to the recession.

Retailers are struggling, tourism is flat, unemployment is on the rise (particularly within D.C.) and municipal budgets are strained. Washington is facing a $127 million budget gap, while neighboring Virginia and Maryland face even steeper shortfalls.

Some well-known companies based in the region, including Sunrise Senior Living, XM Satellite Radio, the Carlyle Group and the Washington Post Co. have been forced to lay off staff or ask workers to take early retirement.

However, the mood among many business leaders -- especially those connected to federal lobbying and contracting -- is upbeat compared with the rest of the country.

The Washington offices of companies seeking bailout money will be transformed into "mini headquarters," said Stanley Collender, managing director at Qorvis Communications, a consulting firm.

"There's a sense of unprecedented realignment" thanks to the turnover in the White House and Congress, said Beth Solomon, a recruiter who works for lawyers and lobbyists.

Washington and its suburbs gained 31,000 jobs over the 12-month period that ended in November, according to the Bureau of Labor Statistics. Losses in construction and retail jobs are being offset by gains in federal government positions as well as health and business services, according to senior fellow John McClain of George Mason University's Center for Regional Analysis.

Those gains come as most major metropolitan areas shed thousands of jobs. McClain predicts positive job growth for the Washington area in 2009, too -- though he expects it will weaken to about 20,000 new jobs.

The region's unemployment rate of 4.4 percent in November, while edging upward, is the lowest among metropolitan areas with a population of at least 1 million, tied with Oklahoma City, according to the most recent Labor Department data. Nationally, the unemployment rate was 7.2 percent in December.

With government workers and contractors accounting for roughly one-third of the job force, Washington tends to prosper in times of crisis.

During the Civil War, the modest city grew as the government swelled to administer the war and soldiers arrived to protect the capital. The federal work force expanded again during the Great Depression under President Franklin Roosevelt's New Deal, and the Pentagon was constructed during World War II. The Department of Homeland Security was created after Sept. 11, leading to another burst of hiring, and the wars in Iraq and Afghanistan expanded the Pentagon's budget to $612 billion in 2009, compared with $310 billion in 2001, before the attacks.

Booz Allen Hamilton Inc., a large consulting firm based in McLean, Va., expects to end the fiscal year more than 15 percent ahead of last year's revenue, in part because of growing demand for financial services experts as regulators and Congress pursue banking reforms, spokeswoman Jennifer Rogers said.

Jon Wohlfert, with the corporate housing company BridgeStreet Worldwide, said he has seen a recent upswing in bookings from consulting companies such as Ernst & Young and Deloitte that are looking to bring workers to the area.

While preliminary data from the city's tourism bureau indicates the number of visitors to the nation's capital was essentially flat in 2008, the city is anticipating a population burst of at least 1 million for Inauguration Day, Jan. 20.

"This is our Olympics," said Jim Dinegar, president and chief executive of the Greater Washington Board of Trade.

Yet even these advantages only go so far in a downturn this severe.

Foreclosures and declining home values have plagued portions of Washington's suburbs. And while the real estate market in Washington and its close-in suburbs has been more resilient because of limited building space and the lure of easier commutes, demand has cooled.

Even so, the city's office vacancy rate is only about 7 percent, a strong number in good economic times, according to Neil Albert, D.C.'s deputy mayor for planning and economic development.

Albert, like others in the business community, said being so closely linked to the federal government is a good place to be these days.

"They're not going to pick up and move overnight," he said.

Copyright AP - Associated Press
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