U.S. outlays in Md. rise

The Baltimore Sun

Federal spending in Maryland - a key engine for this government-town state - rose faster in the 2006 fiscal year than it did nationwide, according to a new tally released yesterday.

Total spending, which ranges from salaries to Social Security checks to spy drones, jumped nearly 10 percent to $75 billion after accounting for inflation, according to the U.S. Census Bureau. Spending in the United States as a whole rose a more modest 4 percent.

Despite that trend, the Census Bureau said the amount funneled to contractors doing work in Maryland, an important part of the state's economy, fell for the first time since just before the 9/11 attacks. Spending on goods made by, or services performed by, contractors was $21.8 billion, a decrease of 3 percent from the 2005 fiscal year - caused entirely by a drop in reported defense contracts.

Maryland held on to its rank as the state with the second-highest amount of federal spending on contracted goods and services per person: $3,883.

Virginia, which was No. 1, added to its lead by getting a 5 percent increase in contract work in fiscal 2006, the most recent year for which the Census has gathered the federal data. (If the District of Columbia were a state, it would eclipse the competition, with $24,462 per person in federal spending on contract work.)

One economist said he suspects that Maryland's decline is a measurement error, particularly because such "procurement" spending rose nationwide. Loren B. Thompson, a defense industry analyst with the Lexington Institute, a think tank in Arlington, Va., said he sees signs of increased contractor activity everywhere he looks in Maryland, from Bethesda-based Lockheed Martin Corp. to unmanned-aircraft maker AAI Corp. in Hunt Valley.

"The overall Pentagon budget shows a steady increase in research and procurement outlays," Thompson said.

"That would not be consistent with a falloff [for] the very big defense contractors located in Maryland. ... If anything, the industrial economy in Maryland has become more dependent on defense spending in the last several years rather than less dependent."

Neither Lockheed Martin nor Northrop Grumman Corp., big defense contractors with substantial operations in Maryland, has any complaints.

"We have seen support for the areas that we're engaged in, consistent support," said Gus Gulmert, a spokesman for Northrop Grumman, which employs about 10,500 in the state.

Said Jeff Adams, a spokesman for Lockheed Martin, which employs about 9,300 in Maryland: "There have been no major surprises or disappointments."

Paul Murphy, president of Eagle Eye Publishers Inc. and an expert on government procurement, says more recent contracting numbers show a continued picture of flat or declining spending in Maryland. But that's not necessarily the whole picture, he added, because spending by top-secret government operations - such as the National Security Agency in Anne Arundel County - aren't measured.

Either way, contracts should be flowing to Maryland in greater numbers soon, said Richard P. Clinch, director of economic research with the University of Baltimore's Jacob France Institute. That's a result of the shift of military jobs to Aberdeen Proving Ground and Fort Meade as part of the national base realignment and closure process.

Defense activities make up nearly half of the federal contracting in Maryland. The Department of Health and Human Services is another major funder, spending $3.6 billion on contractors doing work here in the 2006 fiscal year, which ran from October 2005 through September 2006.

On the whole, contracting accounts for nearly 30 percent of the money spent by the government in Maryland. Grants, the next biggest category, added up to $15.7 billion in fiscal 2006. Retirement and disability payments totaled $15.6 billion; salaries and wages were $11.2 billion; and other direct payments, such as Medicare, were $11.1 billion.

Economists have warned for years that deficits will force the federal government to rein in spending, hurting Maryland. Thompson said he does expect that the country is "approaching the top in the most recent defense-spending surge," but he thinks contractors won't be hurting for work.

"The type of skills that companies like Lockheed Martin and Northrop Grumman sustain in Maryland are applicable both to defense and to commercial ... markets," he said.


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