Washington, D.C.

Are Boomtown D.C.’s Days Numbered?

The District of Columbia is one of the few cities to emerge from the recession unscathed. For its economy to keep growing, though, the city must wean itself from the government.

A crane is seen above residential row houses in Washington, D.C., on May 2, 2013.
National Journal
Nancy Cook
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Nancy Cook
Nov. 19, 2013, midnight

Many quar­ters of North­w­est D.C. feel like the glob­al fin­an­cial re­ces­sion nev­er hit. Just try re­serving a table at one of the more than 24 new res­taur­ants on 14th Street, the city’s main artery of gentri­fic­a­tion, and you’ll quickly get the pic­ture. The next avail­able table for two at 7:00 p.m. does not open up un­til early Decem­ber at Le Dip­lo­mate, the $6.5 mil­lion French bis­tro built on the site of a former dry clean­er.

Pur­chas­ing real es­tate is hotly com­pet­it­ive in D.C., too, with mul­tiple bid­ders push­ing up the me­di­an sale price of homes by 18.1 per­cent over the past five years. This to say noth­ing of the re­cent in­flux of mil­len­ni­als to the city, or its high me­di­an in­come of $66,538 — com­pared with the na­tion­al av­er­age of just over $50,000 — or the huge jump in the last dec­ade of the num­ber of people in the re­gion in the top 1 per­cent of the in­come brack­et.

But, don’t be fooled by all of the cranes around the na­tion’s cap­it­al. While it is true that the dis­trict has weathered the eco­nom­ic storm far bet­ter than most oth­er cit­ies, eco­nom­ists warn that D.C.’s boom days may by threatened as the fin­an­cial lar­gesse of the fed­er­al gov­ern­ment wanes.

The fed­er­al gov­ern­ment shed jobs in the last year, typ­ic­ally a bright spot of em­ploy­ment for loc­al res­id­ents and the middle class. Now, the ma­jor­ity of the polit­ic­al con­ver­sa­tion re­volves around re­du­cing the foot­print of the fed­er­al gov­ern­ment, not ex­pand­ing it. Even Demo­crats talk about mak­ing cuts to gov­ern­ment pro­grams — smarter ones, they say, than the across-the-board cuts known as se­quest­ra­tion. “As the fed­er­al budget ne­go­ti­ations con­tin­ue and the second round of se­quester cuts takes hold, there is a tre­mend­ous amount of un­cer­tainty for D.C. and oth­er areas,” says Kil Huh, dir­ect­or of the state and loc­al fisc­al-health pro­ject for the Pew Char­it­able Trusts.

The pat­tern of the city’s growth shows that rather than simply shrink­ing with re­duc­tions in fed­er­al jobs, the dis­trict’s eco­nomy is ad­apt­ing. The ques­tion for fu­ture plan­ners is wheth­er that trend can con­tin­ue, as the pres­sure for the loc­al eco­nomy to change in­tens­i­fies. In the com­ing years, the growth in jobs is ex­pec­ted to shift to areas out­side of the fed­er­al gov­ern­ment and its off­spring busi­nesses, like big law firms and lob­by­ing shops, re­gion­al eco­nom­ists say. Growth in­stead should come from high-tech firms, start-ups, health care, and the hos­pit­al­ity in­dustry.

Can those types of jobs make up for the ex­pec­ted down­turn in the gov­ern­ment work­force? No one knows the an­swer yet. Or as James Bo­hnaker, an eco­nom­ist at Moody’s Ana­lyt­ics, says: “I don’t think that any one in­dustry can re­place all of the jobs that the gov­ern­ment has provided.”

It’s also un­clear wheth­er these D.C.-based jobs will pay enough to keep the city’s me­di­an in­come so high. A new pa­per from the Cen­ter for Re­gion­al Ana­lys­is at George Ma­son Uni­versity, which stud­ies the eco­nomy in D.C., Mary­land, and Vir­gin­ia, shows that the pres­ence of middle-class jobs throughout the re­gion has not re­boun­ded to the same levels since 2008.

The eco­nomy keeps adding jobs at the low end of the pay scale, such as jan­it­ors, cooks, cashiers, and re­tail clerks, and more slowly at the high­er-end of the pay scale in grow­ing sec­tors such as health care, or tech­nic­al or sci­entif­ic areas. “The top of our eco­nomy already has peaked,” Steph­en Fuller, a George Ma­son pro­fess­or and the dir­ect­or of the re­gion­al cen­ter, says about the D.C. eco­nomy spe­cific­ally. “The sec­tors that are grow­ing don’t have the same wages. People should not an­ti­cip­ate find­ing more jobs that pay $100,000 to make up for the jobs we’re not gain­ing in fed­er­al con­tract­ing.”

D.C.’s eco­nomy, though, could eas­ily pivot and ad­apt to a new world or­der, giv­en its well-edu­cated pop­u­la­tion. Start-up in­cub­at­ors such as 1776 have be­gun to sprout up to tackle many of the policy ques­tions usu­ally left to the fed­er­al gov­ern­ment, like en­ergy policy or bet­ter trans­port­a­tion sys­tems. (Stephanie Stamm)

Nor is there any evid­ence that the re­duc­tion in fed­er­al jobs is dis­cour­aging smart, young people from flock­ing here. New census data shows that mil­len­ni­als re­lo­cated to D.C. more than any oth­er ma­jor city fol­low­ing the re­ces­sion. “D.C. at this point is an is­land of hope in the coun­try where a lot of the oth­er places are still tread­ing wa­ter,” says Wil­li­am Frey, a demo­graph­er and seni­or fel­low at the Brook­ings In­sti­tu­tion. “It re­mains a place with a crit­ic­al mass of jobs and high in­tel­lect,” Frey says. The big threat to D.C. is that cit­ies and states may take a share of some of D.C.’s growth as they pull them­selves out of the af­ter­math of the re­ces­sion, Frey adds.

Still, not all of D.C.’s res­id­ents share in city’s good for­tune and high in­comes. This is most evid­ent on the oth­er side of the city, at the Cap­it­al Area Food Bank in North­east. There, the massive fa­cil­ity and ad­ja­cent ware­houses dis­trib­ute 45 mil­lion pounds of food a year to D.C., Mary­land, and Vir­gin­ia food pan­tries. In D.C. alone, 15.7 per­cent of res­id­ents do not know where they’ll get their next meal — a snap­shot that’s much dif­fer­ent from the newly gentri­fied 14th Street cor­ridor with its abund­ance of trendy bars and res­taur­ants.

D.C. also suf­fers from the second highest rate of food in­sec­ur­ity among chil­dren com­pared with oth­er states. “It’s sur­pris­ing to come to my ho­met­own and to see the level of hun­ger here that is ex­tremely real,” says Nancy Ro­man, pres­id­ent and CEO of the Cap­it­al Area Food Bank, who joined the non­profit in Janu­ary after work­ing for years on glob­al hun­ger is­sues.

Des­pite the gap between the rich and the poor and the need for D.C. to move to­ward oth­er in­dus­tries, over­all the city’s eco­nomy still looks bet­ter than most oth­er met­ro­pol­it­an areas. When D.C. entered in­to re­ceiv­er­ship in the late 1990s, the ex­er­cise forced the city in­to some meas­ure of fisc­al dis­cip­line, says Huh of the Pew Char­it­able Trusts. The loc­al gov­ern­ment cut spend­ing re­l­at­ive to its tax dol­lars and en­sured that the pen­sion sys­tem re­mained well-fun­ded.

Now that city rev­en­ues have re­boun­ded after the re­ces­sion, D.C. is ahead of oth­er cit­ies and that gives it an ad­vant­age as it seeks to keep up its boomtown ways. “That fa­cil­it­ates a lot of dis­cip­line and helped D.C. to turn around,” Huh says. “D.C. wasn’t a place where people were com­ing to live and now it’s seen as a thriv­ing met­ro­pol­it­an area.” Or, at least, it’s a place where young people now come look­ing for jobs, fun, and some wealth.

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