Bloomberg News

Virginia Has Most at Risk as Contracts Hit Cliff: BGOV Barometer

July 26, 2012

Virginia, Maine, New Mexico and the District of Columbia have the most in federal contracts to lose from the looming threat of $1.2 trillion in automatic cuts to government spending.

The BGOV Barometer, ranking the states by the share of their economies tied to federal contracts, shows Washington, D.C., and neighboring Virginia relying on government awards for more than 10 percent of their gross domestic products. Maine is next, with 9.9 percent, followed by New Mexico, at 8.9 percent, according to federal data compiled by Bloomberg.

Those states may be hit hardest by 10-year automatic budget cuts, called sequestration, that will begin Jan. 2 if Congress and the Obama administration fail to agree on a deficit-reduction plan.

The so-called fiscal cliff “would have a bigger effect on states than the recession,” John McClain, senior fellow at George Mason University’s Center for Regional Analysis in Arlington, Virginia, said in an interview. “We’re already trying to swim upriver and this would just knock us down further. It could be an economic disaster.”

Government contracting represents 17 percent of the economy in the nation’s capital, and 14 percent in Virginia, home to the Pentagon and headquarters of top federal contractors such as SAIC Inc. (SAI:US), which is based in McLean.

Los Alamos

The government spent more than $500 billion on federal contracts in 2011. Agencies awarded $77.6 billion in contracts that year for work performed in Washington and Virginia.

SAIC in 2011 received $3.54 billion for work in Washington and Virginia and was the top recipient of awards in both locations. The company performs computer and engineering services for agencies including the Department of Defense and the Justice Department.

General Dynamics Corp. (GD:US)’s shipyard in Maine, where it builds vessels for the Navy, is the biggest U.S. vendor in the state and one of its top employers. The Fall Church, Virginia-based company won $4.53 billion for work in Maine, 88 percent of the $5.12 billion in U.S. contracts in the state last year.

The top contractor in New Mexico last year was Los Alamos National Security LLC, a joint venture that operates Los Alamos National Laboratory. The venture includes Charlotte, North Carolina-based Babcock & Wilcox Co. (BWC:US), an energy company, and San Francisco-based URS Corp. (URS:US), an engineering and construction firm.

The group won $2.46 billion for contract work at the Energy Department lab.

‘Ripple Effect’

The sequester would have a “ripple effect” on the states’ economies, Todd Harrison, a senior fellow at the Center for Strategic and budgetary Assessments, said in an interview.

Jobs generated from contracts would decline, which might lead to a decrease in taxes paid to the state and more people qualifying for government services, he said.

“People aren’t going to be out there spending money,” Harrison said. “People aren’t going to be buying as much gas. They aren’t going to be buying as many groceries.”

The D.C. government is trying to buffer itself from federal cuts by encouraging more diversity in its economy, said Pedro Ribeiro, a city spokesman. It’s trying to help companies that have “little if any tie” to federal contracts, such as LivingSocial Inc., which is the second-largest provider of online daily deals and a rival to Groupon Inc. (GRPN:US)

To prepare for the reductions, Virginia has created a $30 million contingency fund that may be used to help contractors find alternative customers, Ric Brown, the state’s finance secretary, said in an interview. Another $20 million may be added to that fund, he said.

Even so, the state is preparing for “the unthinkable,” he said.

“I’m worried with every day that passes,” said Brown.

To contact the reporter on this story: Danielle Ivory in Washington at divory@bloomberg.net

To contact the editor responsible for this story: Stephanie Stoughton at sstoughton@bloomberg.net


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Companies Mentioned

  • GD
    (General Dynamics Corp)
    • $117.47 USD
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