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Federal spending fuels Southern Maryland

Gene Lauer, Charles County economic development official

LA PLATA — In a business park of red brick buildings and ornate marble fountains, programmers at Zekiah Technologies are engineering the next generation of software that will help the U.S. government and military respond to natural disasters and terrorist attacks.

Zekiah’s neighbors include defense industry giant Scientific Applications International Corp. and Facchina, a family of companies that rebuilt part of the Pentagon after Sept. 11 and sells intelligence analysis services.

Many here view budgetary battles in Congress with trepidation, but so far this strong contracting and federal employment base has shielded Southern Maryland from the worst of the Great Recession and the rocky recovery that has followed.

Charles, Calvert and St. Mary’s counties have maintained unemployment rates well below the state average that has hovered above 7 percent this year. Charles and St. Mary’s both averaged 5.9 percent, and Calvert, 5.7 percent.

The Southern Maryland figures are bested only by Montgomery and Howard counties, which have averaged 5.2 percent.

“We have a pretty stable employment base,” said Gene Lauer, Charles County’s top economic development official. “We have a lot of people that commute out to federal jobs. By and large, I don’t think they’ve been affected.”

It’s all about location

For Brianna Bowling, Zekiah’s founder, the reason for Southern Maryland’s relatively robust economy can be summed up in the old real estate adage — location, location, location.

“We’re not next to anything but we’re near everything. We’re near Quantico. We’re near Indian Head. We’re near Dahlgren. We’re near Pax River,” she said, referring to the military bases that dot Southern Maryland and Northern Virginia.

Even so, Bowling had to lay off four of her 40 employees after Zekiah lost a contract in January. She has since lived with the uncertainty that has trickled down from federal agencies hoarding cash as Congress bickers over their budgets.

Contracts that used to be paid in $100,000 allotments now are paid $10,000 at a time, Bowling said.

“When there’s no budget, it trickles all the way down,” Bowling said.

Maryland is more dependent on federal spending than all but a handful of other states, and government employees have become a greater share of the workforce during the recession and recovery.

Since December 2007, Maryland has lost 102,300 jobs, but the federal government added nearly 15,000 positions in the Old Line State.

While stable government employment traditionally blunted the worst effects of past recessions for Maryland, some experts worry now that the $52.4 billion spent in fiscal 2009 on federal wages, grants and contracts could be more of an anchor than a buoy for the state.

Once a sacred cow, defense spending is on the butcher’s block to the detriment of Maryland and neighboring Virginia. Some economists and state officials fear that the downgrade in the nation’s credit rating by Standard & Poor’s will ultimately lead to a downgrade and higher interest rates for Maryland.

“The challenge for Maryland is it needs to get itself away from the federal government,” said Daraius Irani, a Towson University economist. “If the federal government sneezes, we catch a cold.”

Despite the growth in Southern Maryland, the military’s Base Realignment and Closure process, or BRAC, has not been an economic panacea elsewhere.

David Iannucci, Prince George’s County’s deputy chief administrative officer for economic development, said it is difficult for Maryland counties around Washington to compete against the acres of empty office space in Northern Virginia, leftovers from the pre-recession building boom there.

“We didn’t see that same construction in Maryland,” he said. “You could get financing for a spec office building [in Northern Virginia] with a smile and pro forma. That’s stopped now, but they have office space across the river for fire sale prices.”

Nearby, in Anne Arundel County, Fort George G. Meade is slated to be one of the biggest beneficiaries of BRAC.

“I think most people would say that BRAC has been a disappointment here” in Prince George’s County, Iannucci said. “What we don’t have is in fact the private sector. Private-sector jobs aren’t here. Many of the federal contractors that are so numerous in Northern Virginia and D.C. serve their contracts here out of Crystal City [Va.].”

A time of great change

Bowling, a La Plata native, moved back to her hometown in 1998 and set up Zekiah. She came for family, not for business.

“We moved back and we realized there really wasn’t a whole lot of work to be done here,” she said. “There was nobody here but us.”

But it was a time of great change for Southern Maryland. An earlier BRAC round shifted the Naval Air Systems Command from Crystal City, Va., to Naval Air Station Patuxent River in St. Mary’s County. The base also picked up people and operations from Pennsylvania, New Jersey, Indiana and Ohio.

Pax River now employs 11,000, making it one of the largest employers in the state, according to the Department of Business and Economic Development. Contractors add even more employment muscle to the area, including BAE Systems, with 850 workers in St. Mary’s, SAIC with 550 (not including those at its other facilities across Southern Maryland), and L-3 Services Group with 460.

Naval Support Facility Indian Head is the largest employer in Charles County, with nearly 3,000 on its payroll.

People have followed those jobs and retail corridors have sprouted outside of La Plata and Waldorf to serve them. From 2006 to 2011, Charles County added 813,000 square feet of retail space, a 10 percent increase.

Southern Maryland has been one of the fastest-growing areas of the state in the last decade. Its population increased by 21 percent between 2000 and 2010 while the rest of Maryland only added 9 percent.

Growing but slowing

“I’ve had quite a few buyers who have been transferred to Pax River, and they’re buying all over the Southern Maryland area,” said Sam Greer, sales manager of Agricopia, a housing development outside of La Plata.

The Steuart-Kret Homes development is only about half-full and still growing. Rows and rows of white pipes stand at attention in lots lining paved streets and cul-de-sacs, waiting for the houses and townhomes to come.

There are 150 single-family homes already there and 130 more to go. The 31 townhouse units will be joined by another 60.

Yet the Great Recession had its impact here, too.

Before the downturn, Agricopia would have gobbled up those empty lots in four or five years, Greer estimated. Now, who knows?

“Before the recession, we were probably selling 40 or 50 houses a year,” he said. “We’re not at those numbers. We’re probably going to get to half of that this year.”

But those 20 or 25 houses would be a marked improvement over 2008 and 2009, when Greer said Steuart-Kret sold 10 or 15 each year.

The company always used to have 10 to 12 speculative units under construction or finished. Now it has only one or two. Most are built to order.

Prices are off, too. Single-family homes now start around $400,000, about the price of an Agricopia townhouse at the peak of the market. Townhouses now go for about $270,000.

Greer said foreclosures have hurt prices and the inconsistent, often negative economic news has chased away prospective buyers.

“If the news stays chronically bad for awhile we see our traffic start to dry up. It doesn’t happen when the jobs report comes out, it doesn’t happen that day. It takes a little while,” Greer said. “Even though it’s getting better, it seems like it’s teetering along, then it takes a little dive.”

Still counting on the feds

The debt ceiling compromise in Congress did little to ease economic worries in Southern Maryland.

Bowling, of Zekiah, said she has started looking for opportunities in the commercial and local government markets.

The state’s economic development arm has been on a similar tack, with a focus on leveraging brainpower in government facilities and research universities into commercial ventures.

Invest Maryland, a $75 million state-run venture capital fund targeting high-tech startups, is expected to start making investments next year.

Lauer, from Charles County, said his department would shift to wooing new businesses and finding new opportunities for government contractors in the event of deep federal cuts.

But for now, the county is still counting on the naval facility at Indian Head to employ 3,000 workers and for contractors to keep selling their products to federal customers.

“The fact of the matter is we don’t know how defense will even be impacted,” he said. “You hear some things about there being another BRAC in 2015. But we don’t know that either. It’s pretty hard to say if there really is a Plan B.”