Housing Complex

Boomtown Brats

The New York TimesRoss Douthat looks at D.C.’s new high-rises and sees “a city running on exploitation,” the wealth of which “is ultimately extracted from taxpayers more than it is earned.” In the paper’s Sunday magazine, Annie Lowrey takes readers on a tour of “Washington’s Economic Boom, Financed by You.” Fox News’ Sean Hannity calls it a “pyramid scheme” and asks, “What is Washington producing except record debts?” Hannity’s guest Peter Schweizer describes D.C. as “a town of Maserati dealerships, fine wines, luxurious homes, and luxurious shops.” Real Clear Politics’ Salena Zito gapes at all the Starbucks and construction sites and concludes that Washingtonians are living in a “bubble.” The Wall Street Journal is the latest to get in on the action, reporting last week that D.C.’s boom is “buoyed [by] two forces specific to the capital city: a surge of federal contractors and a rising tide of government spending.”

Never mind that federal spending as a percentage of gross domestic product is barely higher than in the 1980s and early 1990s, when D.C. was in notoriously rough shape, or that the nearest Maserati dealerships, according to the company website, are in Sterling, Va., and Germantown, Md. The national media seem obsessed these days with pinning every element of D.C.’s recent success on a bloated federal government and the poor taxpayer who’s been screwed into subsidizing the District’s luxuries.

This conventional wisdom misses a big part of the story. Actually, it misses pretty much the entire story.

Of course the federal government has a huge presence in the District. It’s the city’s largest employer by far, and its presence also accounts for many of the lawyers, lobbyists, contractors, and reporters in town. It is, without a doubt, D.C.’s big industry.

But finance is New York’s big industry, and you don’t see New York being demonized for its reliance on the bankers whom your federal tax dollars bailed out for $700 billion. Fossil fuels are Houston’s big industry, and you don’t see Houston getting slammed for the $7 billion a year we taxpayers are spending to subsidize oil and gas companies.

Instead, there’s a peculiar obsession with D.C.’s reliance on the federal government, especially now that D.C.’s economy is growing nicely. Which is odd, because we’re becoming less dependent on the feds than ever.

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Over the past year, federal-government employment in the District shrank by 2.2 percent, while private-sector employment grew by 2.5 percent, according to the latest trends report from the Office of the Chief Financial Officer. A separate study from the Center for Regional Analysis at George Mason University finds that federal government employment accounts for 27.7 percent of D.C. jobs, down from 31.8 percent in 1990 and 28.4 percent in 2000. (For the metropolitan area, it’s at 12.1 percent, down from 15.5 percent in 1990 and 12.3 percent in 2000.)

“The share of the federal government as an employer, that percentage, which is below 30 now, it continues to steadily creep down,” says Office of Planning Director Harriet Tregoning. “We love the federal government, but our future is a much more diverse economy.”

Federal-bloat theorists will argue that a shrinking federal government simply means more jobs getting contracted out, leading fed-driven growth to continue apace. But what sectors of the D.C. economy are actually growing the fastest in terms of employment? From 2007 to 2012, according to the OCFO report, of the city’s large sectors, food service took the prize, growing by 24.3 percent, followed by health (17 percent) and education (16.1 percent). In that time, federal government employment increased by 7.9 percent.

“If you look at where the growth is coming, it’s health care, it’s universities, it’s hotels, it’s technology,” says David Zipper, the director of business development and strategy in the Office of the Deputy Mayor for Planning and Economic Development. “These are not sectors where the federal government is outsourcing or contracting. You can’t contract out to a restaurant.”

You can contract out, say, defense and international security services, and Defense Department contracts jumped after 9/11 (though they started declining after 2008). But the region’s defense contractors are concentrated in the suburbs, highlighting the conflation of D.C., the city, and D.C., the region, prevalent among national pundits who like to treat the Northrop Grumman employees who live and work in Fairfax County and the cranes and Starbucks they scoff at in the District as simple cause and effect. (Many of these cranes are building on valuable lots that had sat vacant for years or decades because there was no money in the city that’s allegedly sucking the rest of the country dry.) These contracts also don’t explain why D.C.’s recent population growth has outpaced the region’s, or why sectors like health, education, and hospitality are booming in the District.

So what accounts for the boom in these homegrown industries? A lot of it has to do with demographics. According to the National Capital Region Transportation Planning Board, an increasing share of the people who work in D.C. are choosing to live in D.C. That’s partly due to safety—homicides were down 82 percent last year from their 1991 peak—and partly due to food, drink, and entertainment options, and to good planning. It helps explain why the city is gaining about 1,100 residents each month, and why, at a time when big cities around the country are growing, D.C. is adding population faster than nearly all of them.

Zipper points out that these new residents are “predominantly young professionals, who have disposable income to spend at restaurants and go shopping with.” Since most of them don’t have families, they’re also more willing to take jobs with long hours and low pay at places like nonprofits and tech startups.

The tech sector doesn’t yet account for a significant percentage of D.C.’s workforce, but its dramatic growth is indicative of the city’s shift from dependence on the feds to local industry, leading Mayor Vince Gray to set an ambitious (and maybe unrealistic) goal of becoming the largest tech center on the East Coast within five years. Peter Corbett, CEO of the tech marketing firm iStrategyLabs and the unofficial dean of the D.C. tech scene, marvels at the maturation of D.C. tech since he moved here nine years ago.

“The super early days would be 20 of us sitting in a Caribou Coffee talking about social APIs,” Corbett recalls. “That was like 2006.” The next year, Corbett’s tech happy hours grew to 100 people, then about 800 in 2008, and 2,200 people at a meetup in early 2009.

Companies are increasingly attracted to D.C. because of its highly educated population, which is in turn drawn to the city by jobs, quality of life, and the dozens of colleges and universities that are based or have secondary campuses in the District. (It’s not, as some critics seem to suggest, as if the people who just happen to live in D.C. have suddenly won the regional economic development lottery and are benefiting randomly from the recent boom.) Tregoning points to a counterintuitive statistic to demonstrate D.C.’s strength: The District has a higher concentration of college debt than any state. That highlights, she says, both the high education level in D.C. and the city’s great transportation network—because it’s so easy to get around without a car, transportation costs are low, people with debt are attracted to D.C., and the District has a lower rate of college debt default than every state but North Dakota.

None of this has much to do with the ebbs and flows of federal government spending. Sure, the city relies on the government just as any city relies on its principal industry, but that reliance, if anything, is shrinking as the city’s economy grows. The Hannitys and Douthats of the world may have chosen this moment to attack the District because of D.C.’s current economic success, especially in contrast to the economy most of the rest of the country has been living through. But from the perspective of dependence on the federal government, they’re making their argument at the wrong time.

“Why would you pick now to be hating on Washington?” Tregoning asks. “You’re late to the party by decades.”

Photo by Darrow Montgomery

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