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U.S. dollars drop

The Baltimore Sun

Federal spending on contractors in Maryland fell last year for the second time in a row, a troubling trend for a state dependent on government business.

Procurement spending dropped $1.3 billion, or 6 percent, in the fiscal year that ended Sept. 30, 2007, the U.S. Census Bureau said in a report set to be released today. Such spending had declined 3 percent the year before. The figures are adjusted to account for inflation.

Federal dollars to contractors, which include such items as computer services and radar systems, totaled $21.1 billion last year. That was the equivalent of three-quarters of the state's budget, and economists say the money is one of the keys to Maryland's wealth because it creates high-paying jobs.

The University of Baltimore's Richard P. Clinch said that such a significant drop is troubling - particularly when procurement rose nearly 5 percent nationally.

"This is a very worrisome trend," said Clinch, director of economic research with the University of Baltimore's Jacob France Institute. "And this may be supported by what you're seeing in terms of these horrific fiscal estimates of the deficit in Maryland. ... We will not avoid recession if procurement continues to fall."

Clinch said there was the possibility that there were errors in the federal statistics caused by problems tracking where in the country contracting work is getting done. But he doubts that could account for the entire drop.

Though it has weathered current financial turmoil better than the country as a whole, the state has seen its unemployment rate worsen in recent months. Maryland's jobless rate was 4.5 percent in August, up from 3.6 percent a year earlier.

Defense procurement, which accounts for half the government's contractor spending in Maryland, dropped only slightly, according to the Census Bureau. Agencies reporting large procurement declines here include the Department of Health and Human Services, down $400 million; Homeland Security, down $545 million; and Transportation, down $583 million.

Loren Thompson, a defense industry analyst with the Lexington Institute, a think tank in Arlington, Va., doubts that defense contracting is anything but up in Maryland. Besides the difficulty tracking where the work is done, the timing of budget obligations could be creating a misleading impression, he said.

"What I see in general is a surge of revenue rather than a decline," Thompson said. "Maryland is doing fine. In fact, Maryland is going to be doing more than fine in the year ahead because these big defense contractors, like Northrop Grumman and Lockheed Martin, are insulated from a downturn."

Northrop Grumman Corp., which employs thousands in Maryland, reported that its Linthicum-based Electronic Systems division saw little revenue growth in the last three months of the 2007 federal fiscal year compared with a year earlier. Accounting for inflation, sales actually fell 2.3 percent.

But funding for new contracts - which represent money to come - increased more than 40 percent at the local division.

Randy Belote, a Northrop Grumman spokesman, said the company is seeing "healthy" growth and is looking to hire 800 people in the state.

"I think that's a good indicator of how sound our business is," Belote said. "Things look very positive."

Federal spending on contractors rose rapidly in the state after the Sept. 11 attacks, with a 25 percent increase in the 2002 fiscal year alone, according to the Census Bureau.

Even with the more recent drops, Maryland hung on to its second-place ranking among states for per-capita procurement spending last year - $3,756 for each man, woman and child. But first-place Virginia increased its lead, its share rising 5 percent.

Nearly $6.3 billion in contracting was performed in the Baltimore metro area, the Census Bureau said. That's three out of every 10 federal procurement dollars spent in Maryland. Clinch says the metro area can expect more when the national base realignment and closure effort draws military and contractor jobs to Aberdeen Proving Ground and Fort Meade in the coming years.

The Census Bureau's new report also tracks overall federal spending, including salaries, grants, Social Security payments and the like. Taxpayer dollars flowing to Maryland totaled just over $70 billion - about the same as the year before.

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