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Federal govt. expansion helped D.C. prosper through recession: CFO

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Turns out the Great Recession might have been good for Washington.

The District's chief financial officer said in a memorandum Tuesday what pretty much everyone familiar with the city already knew — that federal government expansion during the economic downturn contributed to a population growth that buoyed the D.C. economy and continues to be a boon for its finances.

Natwar M. Gandhi, for more than a decade the city's top bean counter, summarized a "virtuous cycle" in which highly skilled young professionals came to the District during the recession for high-paying jobs connected to the federal government. They earned, they spent and they paid taxes — enough to make up for unemployment figures that ballooned to 11 percent, he said.

"As many District residents lost low-paying jobs, a surge in income tax revenue from an influx of higher income residents, arriving to fill high-skilled jobs on offer as the federal government expanded, more than offset the reduction in income tax revenue from the low-income job losses," Mr. Gandhi said in the two-page letter to the head of the city's planning department. "The new residents, with relatively high disposable income, also spent in District restaurants and its growing retail sector, boosting sales tax revenue, when sales tax revenue was falling almost everywhere else."

The thrust of the document is nothing new — the District has been the subject of reports in outlets ranging from Fox News to The New York Times Magazine this year on how federal spending fueled economic growth and transformation in the city in the midst of the recession. But coming from the outgoing chief financial officer, who still enjoys widespread respect on Capitol Hill, it's likely to reinforce perceptions of the District as an insulated "boomtown" that has capitalized on the free flow of cash to lawyers, lobbyists and contractors associated with the federal government as much of the rest of the country works to rebound from the fiscal crisis.

Mr. Gandhi noted in his memo that even at the depths of the recession withholding income and sales tax revenue growth in the District remained positive and that home values fell less steeply and recovered more quickly than in either the nation or the region.

The District, with a population of about 632,000 has grown by about 40,000 people since the start of the recession and is adding what city officials estimate to be about 1,100 new residents per month.

Mr. Gandhi also said the younger, highly educated new residents spurred the emergence of the District as a hub for tech startup companies.

"These examples demonstrate how the recent demographic changes have sparked a virtuous cycle, which has been a boon for DC's economy and finances," he said. "The growing population of younger, highly educated cohorts brings more revenue to DC coffers, which fund more and better services and amenities, which increase the attractiveness of DC as a place to live and work, and so on."

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