Are Boomtown D.C.'s Days Numbered?

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Many quarters of Northwest D.C. feel like the global financial recession never hit. Just try reserving a table at one of the more than 24 new restaurants on 14th Street, the city's main artery of gentrification, and you'll quickly get the picture. The next available table for two at 7:00 p.m. does not open up until early December at Le Diplomate, the $6.5 million French bistro built on the site of a former dry cleaner.

Purchasing real estate is hotly competitive in D.C., too, with multiple bidders pushing up the median sale price of homes by 18.1 percent over the past five years. This to say nothing of the recent influx of millennials to the city, or its high median income of $66,538 — compared with the national average of just over $50,000 — or the huge jump in the last decade of the number of people in the region in the top 1 percent of the income bracket.

But, don't be fooled by all of the cranes around the nation's capital. While it is true that the district has weathered the economic storm far better than most other cities, economists warn that D.C.'s boom days may by threatened as the financial largesse of the federal government wanes.

The federal government shed jobs in the last year, typically a bright spot of employment for local residents and the middle class. Now, the majority of the political conversation revolves around reducing the footprint of the federal government, not expanding it. Even Democrats talk about making cuts to government programs — smarter ones, they say, than the across-the-board cuts known as sequestration. "As the federal budget negotiations continue and the second round of sequester cuts takes hold, there is a tremendous amount of uncertainty for D.C. and other areas," says Kil Huh, director of the state and local fiscal-health project for the Pew Charitable Trusts.

The pattern of the city's growth shows that rather than simply shrinking with reductions in federal jobs, the district's economy is adapting. The question for future planners is whether that trend can continue, as the pressure for the local economy to change intensifies. In the coming years, the growth in jobs is expected to shift to areas outside of the federal government and its offspring businesses, like big law firms and lobbying shops, regional economists say. Growth instead should come from high-tech firms, start-ups, health care, and the hospitality industry.

Can those types of jobs make up for the expected downturn in the government workforce? No one knows the answer yet. Or as James Bohnaker, an economist at Moody's Analytics, says: "I don't think that any one industry can replace all of the jobs that the government has provided."

It's also unclear whether these D.C.-based jobs will pay enough to keep the city's median income so high. A new paper from the Center for Regional Analysis at George Mason University, which studies the economy in D.C., Maryland, and Virginia, shows that the presence of middle-class jobs throughout the region has not rebounded to the same levels since 2008.

The economy keeps adding jobs at the low end of the pay scale, such as janitors, cooks, cashiers, and retail clerks, and more slowly at the higher-end of the pay scale in growing sectors such as health care, or technical or scientific areas. "The top of our economy already has peaked," Stephen Fuller, a George Mason professor and the director of the regional center, says about the D.C. economy specifically. "The sectors that are growing don't have the same wages. People should not anticipate finding more jobs that pay $100,000 to make up for the jobs we're not gaining in federal contracting."

D.C.'s economy, though, could easily pivot and adapt to a new world order, given its well-educated population. Start-up incubators such as 1776 have begun to sprout up to tackle many of the policy questions usually left to the federal government, like energy policy or better transportation systems. (Stephanie Stamm)

Nor is there any evidence that the reduction in federal jobs is discouraging smart, young people from flocking here. New census data shows that millennials relocated to D.C. more than any other major city following the recession. "D.C. at this point is an island of hope in the country where a lot of the other places are still treading water," says William Frey, a demographer and senior fellow at the Brookings Institution. "It remains a place with a critical mass of jobs and high intellect," Frey says. The big threat to D.C. is that cities and states may take a share of some of D.C.'s growth as they pull themselves out of the aftermath of the recession, Frey adds.

Still, not all of D.C.'s residents share in city's good fortune and high incomes. This is most evident on the other side of the city, at the Capital Area Food Bank in Northeast. There, the massive facility and adjacent warehouses distribute 45 million pounds of food a year to D.C., Maryland, and Virginia food pantries. In D.C. alone, 15.7 percent of residents do not know where they'll get their next meal — a snapshot that's much different from the newly gentrified 14th Street corridor with its abundance of trendy bars and restaurants.

D.C. also suffers from the second highest rate of food insecurity among children compared with other states. "It's surprising to come to my hometown and to see the level of hunger here that is extremely real," says Nancy Roman, president and CEO of the Capital Area Food Bank, who joined the nonprofit in January after working for years on global hunger issues.

Despite the gap between the rich and the poor and the need for D.C. to move toward other industries, overall the city's economy still looks better than most other metropolitan areas. When D.C. entered into receivership in the late 1990s, the exercise forced the city into some measure of fiscal discipline, says Huh of the Pew Charitable Trusts. The local government cut spending relative to its tax dollars and ensured that the pension system remained well-funded.

Now that city revenues have rebounded after the recession, D.C. is ahead of other cities and that gives it an advantage as it seeks to keep up its boomtown ways. "That facilitates a lot of discipline and helped D.C. to turn around," Huh says. "D.C. wasn't a place where people were coming to live and now it's seen as a thriving metropolitan area." Or, at least, it's a place where young people now come looking for jobs, fun, and some wealth.

This article is from the archive of our partner National Journal and part of our Next Economy coverage.