Between President Donald Trump’s actions to slash government spending and cut the federal workforce, and efforts by the Republican-led Congress to assert power over the city’s governance, Washington, D.C., is on the precipice of economic recession. Collectively, the damage to the nation’s capital will not be limited to the District of Columbia—the devastation will be felt across the entire Washington metropolitan region.
For district residents, it’s a situation that harkens back to the infamous New York Post headline alleging that President Gerald Ford wanted that city to “drop dead.” The lifeblood of Washington is the federal government, and dramatic slashes to the workforce and funding will be as an arterial wound to the regional economy. But the damage from that wound will not be confined to the D.C. metro area. It will likely be felt in communities far beyond the Beltway, proving that Washington is not as disconnected from the rest of the country as many Americans believe.
Everything begins with one of the nation’s most precious resources: the civil service. The federal government employs nearly 450,000 workers in D.C., Maryland, and Virginia. (To locals, “the DMV” does not only refer to the Department of Motor Vehicles but is a commonly used shorthand for the region—indicating how intertwined the three are culturally, politically, and economically.) A recent report by researchers at the Urban Institute estimated that if the federal workforce is significantly reduced, unemployment rates will increase in the surrounding metropolitan areas. As the majority of state tax revenue in Maryland and Virginia is derived from personal income tax, if federal workers lose their jobs, that would mean a drop in income tax revenues to the states. Unemployed former federal workers may also spend less, meaning that the states will not gain as much in sales tax revenue, in addition to the economic effects on local communities.
“If they lose their jobs, obviously they are not going to be contributing to the income tax anymore. And if they have less money, discretionary money, their spending is going to go down dramatically,” said Lucy Dadayan, a senior research associate at the Urban-Brookings Tax Policy Institute and one of the authors of the Urban Institute report.
But these changes would not only affect federal workers. It would have several “knock-on effects,” said Terry Clower, the director of the Center for Regional Analysis at George Mason University. Area restaurants and stores serving fewer customers as former federal workers cut down on spending could also trim costs by shedding employees. For every federal job loss, Clower said, there will be an additional 0.4 jobs lost in the region.
Then there is the impact of freezes and rollbacks to federal grants: The Urban Institute report also found that nonprofits in D.C., Maryland, and Virginia receive 18 percent–26 percent of their revenue from government sources, meaning that funding cuts would have detrimental effects on local nonprofits—and, by extension, their employees.
Moreover, Musk has suggested that federal buildings in D.C. should be sold to save money; a janitorial contractor at a federal building would lose their job if that building was sold. Even without the federal government’s actions, vacant office space downtown has been a concern for D.C.’s economy; the district’s chief financial officer’s report this month noted that the “office real estate market poses a significant risk to the forecast, with the growing volume of vacant office space a major concern.”
How the federal government “reduces its footprint in D.C.” will have repercussions for the local economy, said Yesim Sayin, executive director of the D.C. Policy Center. “If it happens gradually and with a well-designed plan, with a pitch to the private sector at the same time about why it’s a good deal to come and take these buildings and turn them over, it’s one thing,” said Sayin. “It’s another thing if everything drops on the market without any coordination between the D.C. government and the federal government. That will be another depressant, so to speak.”
The speed of change is part of the larger problem, as the rapidity of job losses, particularly in the federal sector, may prevent easy absorption by the private sector. “The region has some capacity to absorb some of these workers in particular occupations—to be clear, not nearly all, but some. But that process takes a little time,” said Clower. If the pace and severity of federal job losses continue, Clower said, there will be “recessionary pressures” in the region.
Due in large part to the uncertainties around federal layoffs, Moody’s Analytics has predicted that D.C. will enter a mild recession in the next year. Adam Kamins, a senior director at Moody’s who co-authored the report forecasting the D.C. recession, added that it would likely have spillover effects for neighboring Maryland and Virginia—especially Maryland, which houses some of the agencies that have already seen dramatic cuts in funding, such as the National Institutes of Health.
“At the moment, we’re looking at a full-fledged—mild, but full-fledged—recession for D.C.; for Maryland, a very noticeable slowdown; and for Virginia, a slowdown as well, but maybe not quite as dramatic,” said Kamins. The “collar counties” surrounding D.C., such as Montgomery and Prince George’s Counties in Maryland, are also at risk of recession, said Kamins.
The district’s CFO estimated last week that local revenues in Washington are expected to decline by more than $1 billion over the next three years, citing “ongoing and planned federal workforce reductions.” The forecast for income tax, sales tax, and property tax revenue was revised downward from 2026 through 2029.
Federal job losses could push people to seek jobs outside of the D.C. area. Housing listings have spiked in the region in recent weeks, indicating a desire by local homeowners to sell their houses. Much of D.C.’s tax revenue is sourced from property taxes, and so changes in the housing market could affect that revenue source. Moreover, out-migration of former federal employees would mean a regional loss of skilled and largely college-educated workers.
“A lot of them moved to D.C. for these federal government jobs. If that job is no longer there, they’re not going to be as tethered to the region anymore,” said Kamins. The long-term effects could be seen beyond the current administration: One of the appeals of federal jobs over higher-paying private-sector jobs has long been the relative stability of working for the government. That social contract is now being broken, meaning that workers would be wary of working for the federal government—and potentially, by extension, moving to the D.C. area—even after Trump has left office.
“Anyone who’s lived through this sort of shock, or even just witnessed it from afar, now has this new understanding that federal government jobs are stable up until the next administration comes in, and [then] who knows what they might do to this job,” Kamins said.
Clower speculated that the chaos over the cuts could affect planned development efforts in the district, such as investments to revitalize the Chinatown neighborhood. “In real estate, anytime you have a delay in what’s going on, those carrying costs continue on,” said Clower. “It’ll cost more in the short run and the long run.”
Moreover, if there is a larger national recession, it would exacerbate the district’s and the region’s economic woes. In the past, said Sayin, a national recession might result in greater federal hiring. But with government employees losing their jobs, the issues plaguing Americans across the country—such as higher prices of groceries—will be felt even more heavily in the DMV.
Meanwhile, the economic future of D.C. itself is also under threat by Congress. The continuing resolution that will keep the federal government funded through the end of September included a provision that would functionally undo the district’s 2025 budget. While overseen by Congress, the city’s local budget is typically written by the D.C. Council and funded by district taxpayers. (Indeed, Congress approved the district’s 2025 budget last year.)
But by undoing years of precedent and treating Washington as a federal agency—forcing it to function under 2024 spending levels—city officials warn that the government funding measure would effectively slash $1 billion overnight. The cuts are likely to affect law enforcement and education services, potentially resulting in the reduction in numbers of police officers, first responders, and teachers. On Thursday, hundreds of D.C. residents, including children, flocked to Senate office buildings to protest the passage of the bill, warning of how it would affect the city.
“This does nothing to the federal government’s bottom line, nothing. But it does reduce the quality of life in D.C.,” said Sayin. Despite being opposed by nearly every Democrat in the House of Representatives, the continuing resolution appeared on track to pass Friday in the Senate with the Democrats’ help. Senator Susan Collins, the chair of the Senate Appropriations Committee, told The Washington Post that she would be in touch with House Republicans and D.C. Mayor Muriel Bowser’s office to learn more about the situation.
It’s unclear how the specific financial struggles of the D.C. area will affect the country writ large, aside from the impacts on Maryland and Virginia. But the decisions that are being made in D.C.—the ones disproportionately affecting the Washington metropolitan area—will have consequences across the nation. Federal workers are employed in every state, for example, meaning that job losses among government employees will be felt across the country. Research institutions around the nation may see their funding slashed, contractors will see their projects canceled, and farmers reliant on federal assistance could see those funds frozen, among other potential impacts.
“I don’t know if the D.C. recession itself would spill over, but some of these policy decisions, in terms of just shrinking the size of the federal government and what that means, will have impacts elsewhere as well, and could lead to recessions,” said Kamins.
Still, as former federal workers look abroad for new jobs elsewhere, they’ll be followed by the same policy decisions that are currently driving toward the decimation of the regional economy they left behind. Even with federal judges ordering the Trump administration to rehire thousands of terminated employees, economic craters may form in those places where government money once kept communities running. As research money dries up, colleges and universities will feel the strain. State and local economies will heft new burdens as the federal government slashes spending for previous priorities such as food safety, consumer protection, climate change response and education.
And while there is a high concentration of federal workers in the Washington metropolitan area, these cuts are not just happening in the DMV. There are more than three million government employees across the country. So while the damage may be centered in the nation’s capital, the impact will inevitably be felt by all Americans.
This article has been updated with the correct spelling of Lucy Dadayan’s name.
