Maryland, Virginia, D.C. officials predict economic woes for the region as Trump shrinks government

Maryland, Virginia and D.C. officials say President Trump’s plan for downsizing the federal government could hurt the metropolitan region’s economy.

The D.C. Office of the Chief Financial Officer predicted Friday in a revised forecast that a 21% drop in federal employment would cut 40,000 local jobs and lead to reduced income, decreased housing demand, declining property values, less consumer spending and $1.01 billion in lost revenues by 2029.

The report estimated that an even sharper 25% drop in federal employment would cut D.C. jobs by 50,000 — including 14,000 held by city residents — and cause a 5.3% wage loss by 2029. That would spark a 1.1% decline in the city’s gross domestic product and drive down its annual income and annual sales tax revenues from $1 billion to $550 million.

“There is a high degree of uncertainty around the forecast as some of the new administration’s executive actions have or likely will be challenged in the courts, as new ones emerge, making meaningful economic impact analysis extremely difficult,” CFO Glen Lee wrote in a letter to Mayor Muriel Bowser and D.C. Council Chairman Phil Mendelson, at-large Democrat.

Ms. Bowser, a Democrat, said in a statement that the revised estimates “show the significant financial impact” of the administration’s cuts and a “need to significantly reshape our upcoming budget proposal.”

“Now, more than ever, we need to be strategically focused on investing in the growth of our local economy to bring more good-paying jobs, companies and economic activity to D.C.,” Ms. Bowser said. “We will work with our colleagues on the council to ensure we make it through this together.”

According to the CFO’s office, roughly 190,000 federal employees work in the District, accounting for 25% of all jobs in the nation’s capital. That includes 72,000 D.C. residents employed by the federal government, roughly 19% of resident employment. Most of the remaining workforce commutes or works remotely from Maryland and Virginia.

The Trump administration has initiated a government hiring freeze, moved to sell federal office buildings and bought out the contracts of 75,000 federal workers in recent weeks.

The White House declined to offer a comment for this report.

Rick Manning, a former official in the George W. Bush Labor Department who was on Mr. Trump’s transition team for that agency, said the Biden administration’s extension of COVID-19 restrictions and remote work policies already drove retailers and restaurants out of the city.

“As a result, layoffs will have a significantly smaller effect on the District itself than might be anticipated, but surrounding communities will likely see negative impacts due to lower housing and retail demand,” said Mr. Manning, president of the Virginia-based Americans for Limited Government. “This does not mean that the cuts should not be made, but it would be unrealistic to ignore that the DMV will be negatively economically impacted by this shift in the footprint of its major employer.”

Unemployment claims in the District shot up to 2,047 for the week ended Feb. 22, up 25% from the week before and fourfold from the same week in 2024.

As of Feb. 27, 7,433 workers in the District had filed for unemployment insurance since Mr. Trump returned to office in January and launched the Department of Government Efficiency to trim $1 trillion from the federal deficit.

“Those claimants are probably people laid off from contract work,” said Mary Hansen, an economics professor at American University.

Ms. Hansen estimated that 687,000 federal workers live in the D.C. region, making up nearly 10% of the area’s labor force. Including more than 1.3 million civilian contractors, about one-third of the region’s civilian workforce works directly or indirectly for the federal government, she said.

“Some optimists think that the D.C. region would benefit from being less reliant on the federal government,” Ms. Hansen said. “But changing the economic base of a region takes a long time. Just ask anyone who lived in Detroit, Pittsburgh or any other Rust Belt city.”

Virginia and Maryland

Officials in Virginia and Maryland are expected to release similar budget revisions within the next several weeks.

In Maryland, a 2023 report from the Office of the Comptroller found the state received $31 billion in federal income.

Gov. Wes Moore, a Democrat, on Friday ordered the state’s transportation, budget and higher education agencies to find ways to hire laid-off federal workers.

Sen. Chris Van Hollen, Maryland Democrat, said in a statement to The Times: “The administration’s illegal purge of federal employees and potential selloff of federal offices not only hurts many of those workers and their families, but also will have a devastating toll on Americans losing access to important services as Trump’s policies lead to further inflation and higher prices.”

In a potential blow to Prince George’s County, new FBI Director Kash Patel announced last week that he plans to transfer 1,500 field agents and staff out of the D.C. region to combat crime in other cities.

The transfers call into doubt a plan announced under the Biden administration to build a new headquarters for the FBI — which has long sought to replace the crumbling J. Edgar Hoover Building near the White House — in Greenbelt.

“We haven’t heard anything officially, but we’re very concerned,” Greenbelt Mayor Emmett Jordan, a Democrat, told The Times.

Mr. Jordan said his city manager will release a new budget this month with more information about the impact of federal layoffs on his city, which is also the home of NASA’s Goddard Space Flight Center.

“It’s hard to quantify right now, but there’s going to be a lot of people out of work,” he said. “A lot of our residents work for the federal government or as federal contractors and subcontractors.”

In Northern Virginia, George Mason University economist Jack Salmon estimates that 81,000 residents work for the federal government, 6% of all workers in the Virginia suburbs.

He said that if the Trump administration eliminates 10% to 15% of those jobs, it would affect less than 1% of Northern Virginia jobs but could kill a larger share of defense, intelligence, technology, real estate and commercial development contracts.

“What is more difficult to project is how these changes might impact federal contractors or jobs tied to federal funding,” said Mr. Salmon, a research fellow at GMU’s free-market Mercatus Center. “Unlike private-sector economies, where businesses must compete and adapt, a large portion of Washington’s economy is sustained by taxpayer-funded employment and government spending.”

On a positive note, Mr. Salmon pointed to data showing that the Clinton administration’s elimination of 330,000 federal jobs between 1993 and 1997 — the largest government layoff in recent decades — sparked economic growth in Arlington County, Virginia, and Montgomery County, Maryland.

“It’s what we have known for a while: Big government is bad for business,” he added. “A region less reliant on federal spending would shift toward industries driven by consumer and market demand rather than government contracts and regulatory-driven employment.”

Adjusting economically

According to local economists, the region’s economy would need years to adjust to any major cuts to health and defense programs.

They noted that Fairfax County’s economy leans partly on the presence of five major defense contractors — Boeing, RTX, Lockheed Martin, General Dynamics and Northrop Grumman — while the Pentagon anchors Arlington County.

In Maryland, Montgomery County’s biotech industry depends on the presence of the National Institutes of Health along the Interstate 270 corridor.

While Maryland and the District lack a robust private sector, Fairfax County houses 10 Fortune 500 companies — including Capital One, Hilton and Beacon Roofing Supply.

Baruch Feigenbaum, an analyst at the libertarian Reason Foundation, said government downsizing could have the positive effect of reducing area housing prices and diversifying job opportunities in the District and Maryland. He acknowledged it will also reduce consumer spending, hurt small businesses and drive families to move away.

“People will cut back on spending because of a fear of layoffs,” Mr. Feigenbaum said. “And if people have to move for work or because they cannot afford their mortgage, that will cause disruptions.”

Economists say it’s too early to estimate the effects downsizing will have on the housing and retail markets.

The CFO report released Friday revised the District’s revenue forecast through fiscal 2029 downward by an average of $342.1 million a year, citing “forecasted sharp declines in employment levels as the federal government proceeds with reducing its workforce significantly.”

“With fewer federal employees in the region, spending on restaurants, retail, transportation, and other taxable goods and services is expected to decline, particularly for businesses that rely on federal workers,” the report said. “Job losses are also anticipated for federal contracting, hospitality and transportation sectors, as reduced federal employment leads to lower demand in these sectors.”