What a Shrinking Federal Government Could Mean for the Fifth District

In the next few years there could be significant changes to federal government spending and employment. The proposed changes, most recently reflected in the budget put forth by the current administration, would disproportionately affect areas with a large federal government presence. The Fifth Federal Reserve District, which contains the District of Columbia in addition to the headquarters of many federal agencies, could be more heavily affected by reductions in government spending and employment than other comparable areas.

Despite only containing 10 percent of civilian employment in the United States, the Fifth District is home to over 23 percent of federal government employees. Most of the more than 880,000 federal employees in the Fifth District reside in Maryland or Virginia. This number does not include active duty military employees; thus, total civilian and military employment is even greater than this. Even without military employees, the federal government employs more than 6 percent of the Fifth District’s workers.

The map below (the share of employees who work for the federal government by county) illustrates the clustering of federal government employment around the District of Columbia and the relatively high concentrations in northern Virginia and central Maryland. This is driven by the large number of federal agencies headquartered in and around D.C. There are also areas of higher employment near Petersburg, Va., (home to Ft. Lee) and Hampton Roads. Hampton Roads is home to several military bases and houses the Norfolk Naval Shipyard, which is a large recipient of contract dollars.

In the whole Fifth District (see below), there are several other clusters of government employment around military bases. Two notable areas are Fayetteville in central North Carolina (home to Ft. Bragg) and Jacksonville on the east coast of North Carolina (home to Camp Lejeune). Because of the civilian support staff required to support military installations, military bases usually lead to higher federal civilian employment in addition to the direct military employment.

In fact, the Department of Defense is the largest civilian employer in the federal government, accounting for 723,000 of the 2,079,000 executive branch civilian employees in 2014 (the latest year for which data are available). Due to the high concentration of defense-related jobs in parts of the Fifth District, the District is more susceptible to changes in defense spending than other areas.

In addition to direct federal employment, government contracts are also an important source of revenue for many businesses in the Fifth District. Virginia, Maryland, and D.C. are all among the top five recipients of federal contract dollars (see chart below).

According to USAspending.gov, the Fifth District received a nearly $113 billion in federal contracts in fiscal year 2016. This was more than 25 percent of all contract dollars received by states and territories in the United States in 2016. Uncertainty around or reductions to the size of contracts will, therefore, affect the decisions of many employers in the region.

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Views expressed are those of the authors and do not necessarily reflect those of the Federal Reserve Bank of Richmond or the Federal Reserve System.