This is the first in a series of articles on the defense industry and its impact on the Arlington economy.
A vital sector of Arlington's economy, the national defense community and the companies that support it, could be threatened if proposed post-9/11 security standards require agencies and contractors to move elsewhere.
An internal memo penned by Secretary of Defense Donald Rumsfeld and shared with county officials, according to County Board member Barbara Favola, indicates the Pentagon may soon require contractors and federal agencies to conduct business not in the many Arlington office buildings they now inhabit, but campus-like facilities. The likelihood of such a shift, Favola said, is uncertain, but its potential consequences are serious.
“Arlington would be very negatively affected,” Favola said. “The impact would be significant.”
The Northern Virginia Regional Commission, on which Favola serves as vice chairman, is now conducting a study on just how these changes could impact all jurisdictions in the region. The defense industry accounts for most of the office space leased in Arlington, she said, and its presence brings money to the county in countless other ways.
“Either it's housing for personnel or it is contract work, construction, or the many other things that go into having them here,” she said.
Favola said Arlington appears to have survived the latest round of evaluations by the DOD's Base Realignment and Closure (BRAC) committee, but these new standards pose their own problems.
DEFENSE AGENCIES and military offices can be found throughout the county, including the Pentagon itself, rumored to be the largest office complex in the world. The Defense Intelligence Agency, according to county statistics, is currently the largest single tenant in Clarendon. Arlington is also home to branches of many companies that contract with the defense industry and the intelligence community, companies like Boeing, United Defense, Systems Applied International Corp. (SAIC) and numerous others. Most are housed in high-rise buildings, according to Terry Holzheimer, director of Arlington's Business Investment Group, a division of the county's economic development office. Yet heightened security concerns in the wake of the 9-11 terrorist attacks have raised questions about the safety of staff and the often sensitive material they work with inside those buildings.
“The security and safety issues are paramount right now,” he said.
Holzheimer said such buildings are vulnerable in several ways. They allow for retail space on the ground level, creating a possible soft spot in security. They also lack the hardened, blast-resistant concrete seen on the exteriors of many defense installations.
“The question becomes: How do you mitigate some of that vulnerability?” he said. “That’s something we're working with the Department of Defense on now.”
In contrast, a government campus like the Washington Navy Yard — where NAVSEA, a defense agency once based in Arlington, now resides — is walled. Traffic in and around them is closely monitored and access tightly restricted.
The DOD later filled NAVSEA's vacant offices with Pentagon staff, but when the agency left, contractors left with it. The county's second largest federal tenant, the Patent and Trademark Office in Crystal City, according to Holzheimer, has relocated to Alexandria. Several patent firms have already relocated to Alexandria as a result.
Federal leases on office space, he said, could also be lost. According to a 2003 report from Arlington Economic Development (AED), titled “The Federal Presence in the Urban Village,” federal agencies make up about 18.7 million square feet of office space in Arlington, just under half the total office space in the county. About 3.2 million square feet is leased by the government for contractors. Contractors themselves also lease 8.2 million square feet. Combined, federal agencies and contractors occupy 60 percent of privately owned office space in the county.
Holzheimer said the amount of federally leased space tends to ebb and flow, with about 15 percent coming up for renewal at any given time. Most leases are for 10 years and while some agencies may be moved out of the county, others are moved in to replace them. The AED report states that from 2004-08, between 769,000 and 2,371,000 square feet of federally leased space will come up for renewal.
“In total, 7.6 million square feet of federal leases will expire over the next five years, representing two-thirds of the entire federally leased inventory,” it states. “While many of them will be renewed within Arlington, not all of them will be, leaving the county at risk for losing a substantial portion of its federal inventory in a short period of time.”
For every agency that operates in Arlington, it states, between one and 47 contractors are working with it. For every square foot of office space leased by a contractor, the county receives $4.16 in tax revenue.
MANY CONTRACTORS have already left Arlington. They include Anteon International, General Dynamics, Identix Inc., EER Systems Inc., Man Tech International, TWD and Associates, and ADI Technology. The estimated non-real-estate tax revenue lost from these moves totals $2.1 million.
Arlington's supply of office space is also facing another serious problem that could make matters worse, deterioration.
“Approximately 29 percent of Arlington's (office space) stock is over 30 years old,” the report states in its conclusion. “Arlington cannot rely solely on the non-federal sectors to absorb the entirety of the potential office space losses from lapsed federal leases. Although some progress was made in the late 1990s to broaden Arlington's industry base and widen the non-federal market, the 'dot-com bomb' and subsequent national recession greatly reduced this activity. Only Arlington's strong federal base prevented the type of office market collapse prevalent in the remainder of the region over the past three years.”
Holzheimer said although these new security standards could create some problems, the county government is exploring how it can keep more federal agencies and contractors, including revamping its office buildings to fit the new security standards.
“We're looking at how to do that over time,” he said. “The federal market is strong and has been for a long time. All of these things are shocks to the county. Is it a threat? Yes. Are we doing something about? Yes. We're just worried about how we go about it.”