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An industry takes flight

A video game firm. A maker of collapsible tents. A provider of office space.

Who would have thought, five years ago, that this hodgepodge of Maryland companies would be doing significant business in homeland security?

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The terrorist attacks of Sept. 11, 2001, changed not only the country but corporate America as well - particularly companies with offices near Washington. Maryland, always a big beneficiary of U.S. taxpayer money, has seen federal spending on goods and services soar.

Federal contracting dollars in the state nearly doubled from fiscal 2001 to fiscal 2004, the most recent year for which Census Bureau figures are available. They topped $20 billion in 2004, propelling Maryland to No. 2 among states in per capita spending.

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That's all spending, not just homeland security, but much of the increase is a side effect of Sept. 11. Procurement here rose faster in each year after the attacks than in the previous six years combined, because of terrorism concerns and the related attention to defense.

"It unfortunately - or fortunately, depending on how you see it - has created opportunities," said Aaron J. Greenfield, president and chief executive of the Anne Arundel Economic Development Corp., the county's economic development arm. Anne Arundel, home to Fort Meade and the National Security Agency, launched a homeland security business incubator in 2003.

Local governments have struggled to measure the industry's full impact. Participants are a tight-lipped bunch, and though the NSA says it expects to do more than $2 billion in business with Maryland companies this fiscal year, its total budget is classified.

Teasing out the amount of spending on homeland security is nearly impossible because the money flows from a variety of federal agencies, not to mention state and local governments that decide to devote part of their own budgets to the cause. "Homeland security" itself is a catchall term that ranges from airport screening to smallpox research as well as a host of things that aren't terrorism-related, such as storm preparedness.

All the region's jurisdictions have seen the ripples. Anne Arundel counted more than 6,300 jobs created between October 2001 and June of last year by organizations involved in homeland security, defense or "informatics."

The statewide effect ranges from obvious to surprising. For example:

Northrop Grumman Electronic Systems in Linthicum has received $100 million to date from the Department of Homeland Security to develop a laser for commercial airliners that would deflect shoulder-launched surface-to-air missiles.

BreakAway Ltd. in Hunt Valley, a video game design shop that in 2001 had 20 employees focusing largely on entertainment, reinvented itself after Sept. 11. Now 80 percent of the business is defense and homeland security; employment has ballooned to 100 to design games that train people with war and disaster simulations. "Since 9/11, what we call the 'serious side' of gaming exploded," said Chief Executive Officer Doug Whatley.

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The University of Maryland Center for Health and Homeland Security, formed six months after Sept. 11, has expanded its staff from one to 25. Its work includes training first-responder agencies to plan how to continue operating after a disaster. "It's a sector that's growing very, very rapidly," said director Michael Greenberger.

Glenn Dale-based TVI Corp., which started making collapsible tents and shelters for the military in 1996, quickly added decontamination rooms and mobile hospitals after the attacks. Homeland security is now about 90 percent of the company's business.

Columbia-based Corporate Office Properties Trust can't build offices fast enough to meet demand from the homeland security and defense sectors. About half its space is used by government or government-related clients, compared with less than a quarter in 2001. Its NSA-adjacent National Business Park, with specialized offices designed to protect information from eavesdroppers, is packed. And its stock price has quadrupled since 9/11.

Biodefense is blossoming here, from the commercial - Emergent BioSolutions Inc., a Gaithersburg anthrax vaccine provider, just filed to go public - to the academic. The University of Maryland School of Medicine is leading a group of biodefense researchers with a $42 million grant from the federal government.

The market hasn't lived up to everyone's expectations, however.

Some complaints

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Homeland security hopefuls complain that their ideas - bright or otherwise - are lost in bureaucracy.

More than $5 billion handed to the Department of Homeland Security is essentially sitting in the bank, yet to go to state and local governments to spend, said Jim Krouse, director of market analysis for INPUT, a research firm in Reston, Va.

John D. Goodspeed, chief executive of ICUC, a three-employee Baltimore business that links telephone numbers, Web sites and physical addresses, thinks his work has homeland security applications. He was, for a short stint, in Anne Arundel's homeland security incubator.

But, so far, his clients are all commercial. Trying to pitch a novel idea to the government seems almost impossible to him. In this case, he was proposing to create Web sites for everyone with their phone numbers as the Web address so family members and emergency workers can find them in a disaster.

"It really is geared to the giants," Goodspeed said of homeland security. "Here's the problem: It's one thing to bid on a government specification ... but what we have here is a whole new paradigm."

Jan Givens, a partner at Innovative Machine Corp. in Westminster, a small machine shop working with two companies on biodetection projects, said business is good this year but she hasn't seen the boom she anticipated from homeland security and defense. The last few years were slow.

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"We were expecting, 'We're going to be really busy, all the shops are going to be swamped,'" she said.

Like a lottery

Homeland security firms are basically holding a lottery ticket, said Brian Ruttenbur, one of the few analysts who covers stocks in that sector.

The winnings could be huge, but they don't know when or if their number will come up. Funding has been "like Niagara Falls in some areas and a trickle in others," he said.

"As investors, you have to be careful," said Ruttenbur, with Morgan Keegan & Co. Inc.

Still, the upside has been bigger here than in many states. NSA, for instance, says that about half its contracts for the fiscal year have gone to companies with local offices.

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Maryland is well positioned because it was already flush with big defense contractors, which have snagged large homeland security contracts, while some of the state's profusion of tech and biotech startups found themselves in the right place at the right time.

Stephen Fuller, director of the Center for Regional Analysis at George Mason University, said the Washington region - which includes five counties in Maryland - got $14 billion in procurement increases above normal growth - about triple the regular growth rate.

"The Washington area is generating more jobs than any metropolitan area in the country in this period since 9/11," Fuller said. "In effect, we benefited from this crisis."

Funding keeps climbing. But because the market depends on world events and political whims, it's not as reliable as it might appear for a company's bottom line.

TVI had a disappointing second quarter because two key contracts weren't funded on time.

And it's unclear whether Northrop Grumman's airline laser will ever get installed on planes. The Air Line Pilots Association International has said it will cost as much as $10 billion each year to maintain and support the systems on the 6,000 aircraft in the U.S. commercial fleet, a burden it says the industry can't afford.

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Meanwhile, the firms that get homeland security dollars aren't necessarily even part of the sector. The Department of Homeland Security comprises 22 agencies, including the Federal Emergency Management Agency, which helps explain its top procurement expense last year: trailers, to the tune of $1.4 billion.

"The Homeland Security budget is growing faster than the DoD budget," said T. Rowe Price Group Inc. investment analyst Tim Bei, referring to the Department of Defense. "But it's difficult to predict where the money is going."

Novak Biddle Venture Partners, a Bethesda firm that invests a significant share of its money in startups with a homeland security angle, calls it a good market. But the firm is looking for homeland security technology that can also be commercialized.

"To build a very, very large company, we think you have to get to the commercial sector," said managing member Roger Novak.

VSi, an Annapolis software developer whose founders include a former NSA analyst, hears that message. It has government contracts for its product, which can correlate vast amounts of data in seconds, but it's marketing to Wall Street now.

Still, the founders' hearts are in national security. When planes struck the World Trade Center towers, VSi President Mark Vasudevan was sitting in an airport awaiting a flight to meet a potential customer at an intelligence agency. He and his vice president of operations, Frank E. Schwartz Jr., believe their software could have helped alert the government to the attack before it happened.

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"It was shocking the amount of information that had been collected, but no one connected the dots," Vasudevan said.

A challenge locally has been finding the employees to keep this sort of high-tech work going. Several colleges in the region have added new programs to help - from a master's degree in homeland security management at Towson University to an associate's degree in information security systems at Anne Arundel Community College.

Clearances golden

Workers with security clearances are gold, employers say.

"The demand is so high ... that there's a lot of job-hopping," said Laura Willoughby, executive director of the Anne Arundel Tech Council.

The tech council pays close attention to homeland security issues - even holding meetings with NSA officials - because it is itself a prime example of the Sept. 11 effect. Overwhelmed by the national implosion of dot-com companies, it had just 10 members at the end of 2001. Last month it hit 200.

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Willoughby doubts homeland security is a bubble like dot-com.

"I think everybody realizes there's going to [be an] ebb and flow to any industry when it grows, especially when it grows fast," Willoughby said. "But at the same time, it's not going to go away."

jamie.smith.hopkins@baltsun.com

allison.connolly@baltsun.com

Security state

A look at some of the local businesses and educational institutions playing a role in homeland security:

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Company:

Lockheed Martin

Headquarters:

Bethesda

Highlights:

The defense contractor is vying for a contract potentially worth $2 billion to build a security network at the borders with Mexico and Canada.

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Company:

TVI Corp.

Headquarters:

Glenn Dale

Highlights:

A maker of collapsible tents, shelters, decontamination rooms and mobile hospitals, TVI is awaiting federal approval of a line of canisters for respirators that allow first responders and health care workers to breathe during a biological or chemical attack.

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Company:

BreakAway Ltd.

Headquarters:

Hunt Valley

Highlights:

This game designer, which ballooned along with the homeland security sector, recently sold to the Justice Department a simulation for training first responders and government agencies.

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Institution:

Johns Hopkins University Applied Physics Laboratory

Headquarters:

North Laurel

Highlights:

The 4,000-employee facility, which has long worked on contracts from the Defense Department, has been busily conducting research that can be used close to home, such as hazardous-agent screening for mail. Employment has jumped 25 percent since 2001.

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Institution:

The University of Maryland Center for Health and Homeland Security

Headquarters:

Baltimore

Highlights:

The center is conducting sessions across the country on a $1.5 million federal contract to train first responders in "continuity of operations" planning. Such plans are aimed at ensuring that organizations can keep operating after an attack or disaster.

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Institution:

The Middle Atlantic Regional Center of Excellence for Biodefense and Emerging Infectious Diseases Research

Headquarters:

Baltimore

Highlights:

The center works on vaccines, drugs and diagnostic tools for pathogens that could be used by terrorists.

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Company:

Emergent BioSolutions Inc.

Headquarters:

Gaithersburg

Highlights:

The Department of Health and Human Services ordered 5 million doses of its anthrax vaccine, BioThrax.

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Company:

ARINC Inc.

Headquarters:

Annapolis

Highlights:

Won a contract to reassign radio frequencies used by public safety agencies in Georgia so they can communicate without interference from cell phones.



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