A report released late last month from the Office of the District of Columbia Auditor projected that District revenue, overall wages and employment will likely suffer if there is a 25 percent reduction in the federal workforce.
The D.C. Auditor found that the District in fiscal year 2025 could lose between $450 and $550 million in income and sales tax revenue, 50,000 jobs and 1.1 percent gross domestic product due to federal layoffs. In the months since President Donald Trump assumed office, he has sought to reduce the size of the federal workforce, which he once described as “bloated” and filled with unnecessary people.
The 25 percent reduction in the federal workforce could lead to a 7.3 percent decline in wages for the District overall and a 5.3 percent decline in wages for District residents, which the report states is the “driver of individual income tax.”
“The uncertain future of the federal workforce is likely the biggest current risk to the District economy and revenues,” the report states.
The federal layoffs started after President Donald Trump took office, a key part of Trump’s domestic policy for his second term. So far, the layoffs have impacted around 14 agencies, like the National Oceanic and Atmospheric Administration and the U.S. Agency for International Development. There is no official count of laid-off employees.
Unemployment claims in the District have risen in January and February to twice as many as the same period last year, but the final impact on the District “is not clear” right now, according to the auditor’s report. About a quarter of jobs in D.C. are through the federal government, and roughly eight percent of the D.C. area’s jobs are through the federal government.
Following his victory in the 2024 presidential election in November, Trump announced the creation of the Department of Government Efficiency, led by Elon Musk and Vivek Ramaswamy. While Ramaswamy left the department before President Trump’s inauguration, Musk has led federal layoffs and has even closed full offices, like the U.S. Agency for International Development. So far, a slight majority of Americans disapprove of the layoffs, according to a PBS News/NPR/Marist poll.
DOGE and the Trump administration have also implemented other means of reducing the federal workforce, including a “deferred resignation” program that guarantees full pay and benefits until the end of September for any federal employees who choose to resign. DOGE implemented the program on Jan. 28, which closed just over two weeks later. According to the Office of Personnel Management, over 75,000 employees, or roughly three percent of the federal workforce, accepted the offer during that time.
Trump also signed an executive order on Inauguration Day mandating that federal employees return to in-person work. The D.C. Auditor’s report suggests that this order will have a “disproportionate impact” on non-D.C. resident employees who would choose to retire or resign rather than begin commuting into the District again.
For District residents, the report suggests that they will be less likely to retire or resign because of the return to office order, mitigating the impacts on D.C. resident employment and D.C. resident wages.
The report also mentions that the return to office order will increase property tax revenue for the District, assuming that the influx of office workers in the District will increase demand for office space and drive up rent.
However, the Trump administration wants federal agencies to relocate their offices to “less-costly parts of the country,” according to a memo from the Trump administration. If this, along with reductions in the federal workforce, were to happen, the report suggests that the smaller workforce will reduce property tax rates.
The report also predicts that federal layoffs could also have secondary effects on other aspects of the economy. Some of the impacts include government service providers, like caterers and childcare providers, and reduced WMATA ridership.
While the report projects some long-lasting effects on the District economy as a result of federal layoffs, it still cautions that the data and projections are still preliminary.
“While executive actions have begun to reduce the federal workforce, it is not clear what the final outcome will be or the impact on the District,” the report states.
