A Reversal of Fortunes Transforms Washington

Times Staff Writer

Ten years ago, the District of Columbia seemed bent on self-destruction. Defiant voters had elected Marion Barry mayor, even though he had just served prison time for cocaine possession. The city's books were so deeply in the red and tainted by corruption that Congress stepped in to take over. The population was dropping by 10,000 people a year. The tax base was eroding. Time magazine dubbed the nation's capital the "District of Calamities."

Today, at a time when many cities are struggling, Washington has become an urban juggernaut. The district has a $27-million budget surplus, a new baseball team -- the Washington Nationals -- and a booming economy. A diverse cultural scene that includes new museums, monuments, art galleries and restaurants is drawing the affluent middle class back to the city.

And unlike many cities at the center of what sociologists call a "doughnut" economy, the district is no longer a deteriorating hole in the middle of a thriving suburban ring. Construction cranes dot downtown corners as aging office buildings give way to new ones and commercial developments rise on once-seedy streets.

Overall, the greater Washington area's economy is twice as robust as its nearest competitor, Phoenix, according to George Mason University's Center for Regional Analysis, which conducts research on regional economic issues for local governments.

In numbers released this month, the Greater Washington Board of Trade, Washington's regional economic development and marketing organization, reported that the area continued to lead the nation in job creation, adding almost 81,000 new jobs between November 2004 and November 2005. During the same period, Boston added 19,100 jobs and San Francisco 7,000, while San Jose lost 3,500.

At 3.1%, the unemployment rate for the region -- which includes D.C. and nearby counties in Maryland and Virginia -- is the lowest in the country.

To be sure, the rising tide -- propelled by post-Sept. 11 spending and an emphasis on outsourcing -- has not lifted all boats equally. Indeed, the paradox of Washington's resurgence is that it has bypassed so many of the city's residents. Unemployment inside the district is 8.8%. The city's dysfunctional schools remain trapped in the quicksand of petty politics; 38% of the district's adult residents read at or below fourth-grade level.

Although the federal civil service system remains a major job provider to the district's sizable middle class, much of the job growth has been in professional and business services, which require a higher level of education.

According to the George Mason center, 62% of Washington-area workers sit in offices. And one in every 10 workers is associated with high-tech firms, twice the national average; AOL, for instance, is headquartered in suburban Virginia. The capital area has 132,700 people involved in computer system designs and related services, three times more than San Jose.

"Think of the Washington regional economy as an incubator for the largest venture capitalist in the country," said Chris Haney, research manager at the National League of Cities. "Increasingly, over the last 20 years, the government sector spins off its inventions."

The median household income here, according to the 2004 Claritas Household Trend Report, is $71,059 -- highest of all the major metropolitan areas except the San Francisco-San Jose corridor, with $79,100.

One result of all this is that home prices have almost doubled in the last five years, and waves of new home construction have stretched the suburbs out more than 30 miles beyond the city.

"We're finally on the map as this thriving economic center," said Robert T. Sweeney, executive director of the Greater Washington Board of Trade, which estimates the gross regional product at about $300 billion.

The area's renaissance springs primarily from three factors:

* Steps taken 10 years ago in response to the district's financial crisis.

* The federal government's increasing tendency to "outsource" work to private contractors that in earlier times would have been done by government workers.

* The huge increase in federal spending that began after the Sept. 11 terrorist attacks, but has not been limited to defense and security.

To deal with the district's financial mess, Congress created a control board with far-reaching powers. President Clinton picked Anthony A. Williams, a bow tie-wearing auditor from Los Angeles, to run it. Williams broke with the past -- when the predominantly black political establishment often was at odds with the predominantly white business community -- and worked to create a climate that encouraged investment. The effort was so successful that he was elected mayor in 1998.

The trend toward outsourcing also has pumped money into the local economy. In previous generations, a war-inspired increase in federal spending meant a larger federal workforce. During World War II, a generation of modestly paid "government girls" lived in temporary housing on the Mall.

Today, outsourcing gives the government flexibility, but private contractors often pay their workers as well or better than the government and collect overhead, expenses and profits to boot. In 2003, government outlays for private contractors and other goods and services accounted for about half of the federal spending in the Washington area, according to the George Mason center.

In fiscal 2004, according to the center's just-released numbers, the U.S. government spent $339 billion nationally in federal procurement, of which about 15%, or $52.6 billion, stayed in the greater Washington area.

"We get 15 cents of every federal procurement dollar," said Stephen S. Fuller, director of the George Mason center. "That's up from 4 cents on the dollar 20 years ago."

Eleven percent of the area's workforce is employed directly by the U.S. government, down from 36% in 1954.

The role of increased federal spending even can be seen in the landscape. A National Counter-terrorism Center has been created. The Transportation Department, carving out high-tech offices as a lure for government employees, has broken ground on a 10-story, 1.35-million-square-foot building that will anchor an $8-billion plan to revitalize some of the city's worst slums.

The Securities and Exchange Commission is getting a new campus, as is the Bureau of Alcohol, Tobacco, Firearms and Explosives. The U.S. Patent and Trademark Office just moved 7,100 employees into a new five-building complex.

Small wonder that Rapiscan Systems of Hawthorne, Calif., which makes half the cargo and personal screening technology used at airports and seaports worldwide, recently opened a Washington office.

As Rapiscan executive Peter Kant said: "Within six miles of where I'm sitting, 20% to 25% of the gross national product is decided. We needed a much larger presence in the home of that market."

For The Record Los Angeles Times Tuesday January 24, 2006 Home Edition Main News Part A Page 2 National Desk 0 inches; 32 words Type of Material: Correction Washington, D.C., economy -- A Jan. 15 article in Section A about the health of the Washington, D.C., economy said the district had a $27-million budget surplus. The surplus is $350 million.
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