At over 30% of DC’s GDP, the federal government continues to account for the largest share of the District economy of any sector. It is the largest employer in the District, directly employing over 200,000 people and contributing significantly to the demand in other core sectors, such as professional services and real estate. However, while the federal government sector helped to anchor the DC economy during the Great Recession, growth in the federal government sector in DC has been near-flat in the 2010s and, as discussed above, federal jobs are expected to decline over the coming years as the federal government works to shrink the size of its non-military workforce. The sector grew by 1.2% annually from 2010 to 2014, compared to private-sector growth of 2.9% in the same period.
Major Trends Affecting the Sector and Implications
Tighter federal budgets will continue to limit overall federal spending
Trends: Sequestration and federal budget caps will likely continue to constrain spending into the next decade. The 2011 Budget Control Act stipulates that federal discretionary spending cannot increase more than a compound annual growth rate (CAGR) of 1.7% from FY14 to FY21.1 The transition to a new presidential administration has also created further uncertainty around the levels and direction of federal spending, but it is clear that existing contracts will be scrutinized for opportunities for cost reductions.
Implications: To mitigate the impact of federal spending caps and potential additional reductions, DC will need to further diversify its economy by catalyzing private sector growth in areas well suited to its strengths and comparative advantages.
Spending on cloud computing, data analytics, digital services, and cybersecurity
Trends: While overall federal spending may have plateaued, the federal government continues to spend on moving towards cloud-based computing. For example, in fiscal year 2016 8.5% of the federal government’s IT spending was budgeted for cloud systems or services – a total of $6.7 billion. IDC Government estimates such spending to increase to $11.5 billion by fiscal year 2019.2
Federal agencies have also increasingly come to use data analytics and digital services to deliver greater insights for decision-makers and more efficient service delivery for citizens, such as in health IT or credentialing within the US transport system. The increased use of cloud-based, digitally-enabled data platforms has been accompanied by increased spending on cybersecurity, which topped $30 billion in 2014 alone.3
Implications: The increased focus on technology creates opportunities for federal contractors and adjacent private sector firms in DC that can meet federal demand in cloud, data, digital, and cybersecurity.
Federal spending continues to diversify outside of DC and outside of the region
Trends: Jurisdictions in the DC metro area still compete to be the site of federal agency offices: for instance, the FBI is considering moving its 2.4 million square foot headquarters out of DC to Prince George’s County, Maryland or Fairfax, Virginia.4 Additionally, some agencies have been shifting functions out of the DC metro area entirely. In the past two years, the Departments of Defense, Homeland Security, and State have all opened offices in California and Boston, seeking proximity to entrepreneurial, innovation-focused businesses.
Implications: This could have an impact on the available office space and jobs in DC, as well as on the focus of federal agencies on the District as a source of innovative ideas.
- Data analyzed from Congressional Research Service. Library of Congress. Accessed 19 December 2016.
- IDC Government Insights. Federal Cloud Growth is Substantial Through 2019, But Provider Landscape is in Flux. 10 February 2016. <http://www.idc.com/getdoc.jsp?containerId=prUS41019516>. “4 Government Contracting Trends to Watch in 2016.” Washington Exec. 1 October 2015.
- “Big Trends in Federal Contracting for 2016.” Excellence in Government. 19 January 2016.
- Sernovitz, Daniel. “Here’s why Prince George’s needs a decision on an FBI HQ by the end of the year.” Washington Business Journal. 6 September 2016.