- The Washington Times - Wednesday, November 30, 2011

Looming trillion-dollar cuts to the federal budget would likely improve the national economy but would be especially tough on the region’s economy, which has long relied on federal spending, business leaders said Wednesday at a conference in the District.

The federal government could be forced in 2013 to make $1.2 trillion in cuts over the following decade as the result of this year’s Budget Control Act.

While government agencies are preparing to have their budgets slashed, speakers at the conference, hosted by the Greater Washington Board of Trade said area businesses - ranging from government contractors to the housing, real estate and hospitality industries - should brace for a ripple effect that could bring fewer dollars their way.

“You can draw linkages to spending cuts, contract cuts and job cuts,” said Stan Soloway, president and CEO of the Professional Services Council. “That’s something we’re looking at over the next few years and a rocky road.”

The congressional supercommittee’s failure last month to recommend specific spending cuts puts the government in danger of facing $1.2 trillion in mandatory cuts if Congress does not reach an agreement on cuts by January 2013.

About half of the mandatory cuts would come from defense spending, which would reduce business opportunities for the many defense contractors in Maryland, Virginia and the District.

The region’s largest defense contractor is Lockheed Martin, which employs roughly 22,500 workers across the region, followed by Northrop Grumman with 20,700 jobs. Roughly $78.9 billion in federal contracts go to area businesses annually.

Speakers at the conference did not discourage the cuts but said Congress should craft a plan that would shelter particularly vulnerable industries.

Solomon Keene, president of the Hotel Association of Washington, D.C., said the industry is already feeling the impact of an executive order issued last month by the Obama administration that requires agencies to cut 20 percent from their spending on travel, personal electronic devices, transportation and printing next year.

While the order could trim government waste, Mr. Keene said, it also could hurt the airline and hotel industries, which he said combine to account for 9 percent of the region’s jobs.

“This notion that any travel is bad travel is negative and has a negative impact,” he said. “Don’t eliminate travel - eliminate all the [travel] upgrades.”

Still, business leaders acknowledged that the cuts also could bring long-term stability and lead to more innovation in more competitive, trimmed-down markets.

“We’re going to see a lot of competition for a smaller piece of the pie,” said Kelly Toole, managing partner for the accounting firm Baker Tilly.

State and District officials already have begun projecting what cuts would do to their federal funding and tax revenues.

Virginia officials say the cuts would put further pressure on a state that already faces as much as a $1 billion budget gap over the next two years. The state ranks first in per-capita defense spending at $6,713 - 4.3 times the national average. In 2000, 24 percent of the state’s economy was made up of direct federal spending, which has grown to 32 percent in the past decade, said Stephen S. Fuller, director of George Mason University’s Center for Regional Analysis.

Virginia also was ranked first in the country in total federal procurement last year, at just shy of $60 billion.

District officials have said cuts to federal social-service programs could really hurt the city, considering roughly one-third of its residents are on Medicaid.

Maryland officials have said they could lose as much as $158 million in federal funding just in the first year.

Gov. Martin O’Malley, a Democrat, said Congress should work to find revised recommendations that would minimize their potential damage.

“We can’t give up, and they can’t give up,” he said. “All of us need to put the national interest first.”

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