Washington, D.C., and the broader metropolitan area are undoubtedly and disproportionately impacted by federal budget cuts and reductions in force. The District’s recently downgraded credit rating and reduced revenue estimates exemplify the direct consequences of federal downsizing. While the federal reduction in force creates profound challenges for metropolitan area residents and contributes to growing economic uncertainty, it is only one element of the larger federal presence, and potential economic contraction, in the region.
Federal contracting–when federal agencies hire private companies to provide goods and services–is a major economic force in the region and a more significant driver of employment growth than direct federal jobs. Federal contract spending in the District has grown steadily since the 1980s, boosted by various stimulus and recovery efforts. Since the mid-2010s, jobs tied to contracts—particularly in the Professional and Business Services industry, which makes up the largest share of federal contract spending in the District–have outpaced federal employment growth.[1] The same holds true for the metropolitan area. [2]
The extent of cuts to federal contracts is uncertain. However, any cuts will have a significant and disproportionate impact on the metropolitan area. Federal contract data for fiscal year 2023 underscores this: 29 of the top 100 contractors by dollars obligated are headquartered in the Washington-Arlington-Alexandria metropolitan statistical area (MSA), and they received nearly a third of all federal contract dollars—despite representing under 1 percent of all contract actions.
In contrast, contractors in the top 100 who were headquartered elsewhere received 64.6 percent of all contract actions but only 25 percent of all dollars awarded.[3] This means that metropolitan area contractors are not only overrepresented on the list; they are also awarded disproportionately high-value contracts. Any changes to federal contract spending would have an outsized effect on the Washington metropolitan economy.
The District’s and the region’s economic health is deeply intertwined with federal activity—not just through jobs, but through contracts, grants, and institutional support. For a long time, federal employment offered reliable incomes for workers and households in the region. Federal contracting established a robust network of private companies in support of government functions. Federal grant money supported nonprofits and higher education in the region. As this economic foundation narrows, the region faces a potentially painful economic transition.
[1] ORA-OCFO. “The Importance of Federal Contracting to the District’s Economy.” https://ora-cfo.dc.gov/blog/importance-federal-contracting-districts-economy
[2] Federal Reserve Bank of St. Louis; U.S. Bureau of Labor Statistics via FRED. https://fred.stlouisfed.org/graph/?g=1Ivq9
[3] The top 100 federal contractors in FY 2023 received 65.4 percent of all contract actions and 56 percent of all awarded federal contract money.