‘Ouch, ouch, ouch’

A few years ago, when much of Virginia was in recession, Fairfax County’s economy remained robust, thanks to a flow of federal funds to its many government contractors.

Now, the county finds itself in the opposite position. The cumulative effects of cuts in government spending during the past few years, plus the $1.2 trillion sequestration that began in March, are making themselves felt. Even as economies elsewhere in the nation are picking up speed, Fairfax faces a slowdown.

No one is panicking about the situation, but uncertainty about the eventual extent and effects of the cuts is causing some unease.
Bobbie Kilberg, president and CEO of the Northern Virginia Technology Council, predicts that Fairfax will feel “a significant portion” of the sequestration and that those effects will become more pronounced during the coming fiscal quarters.

Even before sequestration took effect, some large defense contractors were retrenching in the face of falling demand as U.S. involvement in wars in the Iraq and Afghanistan wound down. Tysons Corner-based ITT Exelis, for example, laid off 70 hourly employees at its night vision facility in Roanoke County in April. The layoff follows more than 570 job cuts at the plant last year.

Another major contractor, Scientific Applications International Corp. (SAIC), recently sold its 18-acre Tysons Corner campus. Later this year it will spin off its government services division as a separate company in a move designed to give both companies more flexibility.

The county’s small and midsize contractors don’t have that kind of flexibility. “Competition will be fierce because there won’t be enough funding to go around,” Kilberg says, and she expects that some of the county’s contractors will go under. Their failure inevitably will create “a ripple effect on state and local budgets and revenue,” she says, adding, “It could be a hard row to hoe over the next few years.”

A ‘difficult time’
“Ouch, ouch, ouch,” is the assessment of Sharon Bulova, chairman of the Fairfax County Board of Supervisors. “This is a difficult time for everyone.”

Last year, Fairfax had an 8 percent increase in revenues, but this year, the chairman says, revenues are flat. In response, the county raised its real estate tax rate for 2014 by a penny, to $1.085 per $100. That will increase the average homeowner’s bill by $216 while generating $20 million in revenue. Still, human services programs are likely to suffer from the sequestration.

“One of our goals is to end homelessness,” Bulova says, but if the feds cut funds for Section 8 housing, Fairfax will need to kick in county dollars, maybe as much as $3 million, “to stabilize the situation.” She foresees possible cuts to Head Start as another headache.

The county’s vaunted public schools, where SAT scores are 100 points higher than the national average, are feeling the pinch along with the rest of county government. Wages are mostly frozen, and capital projects, such as new firehouses, are being deferred. The FY 2014 budget for the schools includes just a 2 percent increase in funding, barely enough to cover the cost of what has become an annual 2,000 to 3,000 increase in enrollment.

“We’ve grown by the size of the Alexandria school system in the past four years,” says Deputy Superintendent of Schools Richard Moniuszko. To cope with what he calls the “double whammy of enrollment growth and budget cuts,” his department is reassessing boundaries to make sure schools are at capacity; cutting back supplemental programs, such as summer school; and increasing class sizes. Teachers will get a 1 percent raise instead of the 2 percent that was requested, and Moniuszko worries that that tiny bump in pay may erode the county’s competitive edge relative to neighboring jurisdictions.

Economic diversity policy
Gerald L. Gordon, however, is quite sanguine about the sequestration. The president and CEO of the Fairfax Economic Development Authority says he long ago recognized that “no economy can sustain itself on the back of a single dominant employer” — even if that employer is the federal government —and that is why he has promoted a policy of economic diversity.

Even though Fairfax has a heavy concentration of government contractors, he says, it also has companies that specialize in cutting-edge technologies, such as cyber-security, alternative fuels and personalized medicine, all of which are in growing demand in the commercial sector. “Future jobs and growth are going to be around IT skill sets,” Gordon maintains. As proof of his point, Amazon Web Services Inc. announced an expansion in May that will bring 500 jobs to the county.

Furthermore, while Fairfax may be in the enviable position of being home to 10 Fortune 500 companies, it also can boast of 34,630 business locations with employees. The county has more African-American-owned businesses (7,714) than any other locality in the commonwealth, and its nearly 400 foreign-owned firms employ 25,000.

That large presence of foreign-owned firms is due at least in part to Gordon’s decision to aggressively pursue overseas investors. In an unusual tactic for a locality, the economic development authority maintains four overseas offices plus an office in California.

In addition to its diverse economic base, Gordon notes that Fairfax County is blessed with lots of sequestration-resistant assets, including its proximity to the nation’s capital and Washington Dulles International Airport and its location in Virginia itself, which is ranked No. 2 by Forbes.com on its list of the best states in which to do business.

Wolf Trap and Tysons
The county’s residents are highly educated and affluent — nearly 30 percent of its residents have advanced degrees — and they value not only their children’s access to excellent schools, but the bounty of nearby cultural amenities, such as Wolf Trap.

The country’s only national park for the performing arts does a lot of educational outreach in Fairfax. New CEO and President Arvind Manocha says he wants to expand upon programs such as the one funded by a $1.15 million four-year grant from the Department of Education, now in its third year. Wolf Trap is working in partnership with Fairfax on the grant, which promotes STEM (science, technology, engineering and math) learning among the county’s preschoolers.

Even in the best of times, Fairfax’s luster always has been tarnished by some of the worst traffic congestion in the country.  Major improvements to the transportation infrastructure, especially around Tysons, finally should provide some relief. Hot lanes on the Beltway opened earlier this year, and four Metro stops at the commercial hub are slated to open early next year.

Just two office buildings are under construction at Tysons at the moment, but Gordon is unwavering in his conviction that the once-rural crossroads will become a business powerhouse, eventually expanding from 26 million square feet of commercial space to as much as 70 million. In 2014, satellite service giant Intelsat will be in the forefront of that surge when it, along with at least 430 employees, abandons Washington, D.C., for a new 22-story office tower at Tysons.

Thanks to growth in nongovernmental businesses, such as Intelsat and Amazon Web Services Inc., in April, the Virginia Employment Commission reported that Fairfax County had an unadjusted unemployment rate of 3.6 percent. (Statewide, the rate was 5 percent.)
“Even if it [the rate] goes up by a quarter, that’s still full employment,” Gordon says. “The sequester is not going to be devastating.”

Inova expansion
Certainly, some Fairfax premier institutions show similar confidence in the county’s prospects. Inova Health System, for instance, is expanding at multiple sites. At its Fairfax hospital, Inova opened a new 11-story patient building in January and is working on a 12-story women’s and children’s facility. Construction on a cancer center there will start in 2014.

At its Lorton complex, Inova inaugurated 24-hour emergency services in March and plans to open an ambulatory center next year. On its Mount Vernon campus, groundbreaking for a patient tower is slated for this month, and expansion of its emergency department is ongoing. And at Inova’s Fair Oaks site, work is under way on a $31 million office building that includes a radiation oncology center.

George Mason University, another strategic player for Fairfax, also is going full ahead under the guidance of recently arrived President Angel Cabrera. Although Cabrera mentions several new bricks-and-mortar projects, such as dorms and classrooms, his real push will be to turn GMU into a world-class research facility. That will include an expanded focus on entrepreneurship, as Cabrera envisions the university doing more incubation of startups and more licensing of faculty innovations.

“The talent is here,” Cabrera says, but “the economic fabric is changing. We [may] need for that talent to be redeployed to other types of products and services. We want to turn ideas into businesses. We want to become an economic engine for the region.”

Saw reductions before
Stephen S. Fuller, director of George Mason University’s Center for Regional Analysis, is confident that the sequestration won’t cause that economic engine to stall out or even splutter all that much.

“The reality is we’ve had reductions before, and the economy adjusted,” he says, noting that federal spending peaked in 2010, yet Fairfax has continued to prosper. “As the region evolves into a global commerce center, Fairfax will be a major component.”

Despite the government reductions, Fuller says, Northern Virginia added almost 18,000 private-sector jobs last year and should add 21,000 more this year — plus, somewhat ironically, given the sequestration, 2,000 federal ones.

Housing sales are showing signs of renewed vigor, too. According to the Northern Virginia Association of Realtors, 1,874 homes were sold in NoVa (it does not break down figures by county) in April, an 11.68 percent increase from the 1,678 houses sold the previous April. Average housing prices in the region rose 8 percent from the previous year, from $497,083 to $537,999. Average time on the market decreased by about 35 percent, from 52 days to 34 days.

Such statistics would seem to support Fuller’s upbeat view of Fairfax’s prospects for continued prosperity, despite sequestration. “In spite of what everyone is fearful about,” he says, “this is a large and growing economy.”