Top local story of 2008: The economy

Anne Arundel County is less than 30 miles from the nation's capital. But its proximity to the center of U.S. government has not shielded the area from a recession of catastrophic proportions.

The Capital's top story of 2008 is the economy, a subject that has generated hundreds of local headlines this year about the deteriorating housing market, mounting foreclosures and companies that closed after decades of business.

Anne Arundel has fared better than other parts of the nation thanks to higher median incomes, federal spending and stable employers such as the Naval Academy, Fort George G. Meade and the National Security Agency.

But there's no doubt the local economic climate grew increasingly uncertain in 2008 as a recession that began like a mild cold soon spread like a virulent disease.

Lakshman Achuthan, managing director of the Economic Cycle Research Institute in New York, said recessions are pervasive by nature and that Anne Arundel is far from immune.

"It will hit the entire country even though there are pockets of the country that are a little more resilient," he said. "However, it doesn't mean that you avoid the pain."

Early symptoms

Even as local business leaders started the year with cautious optimism, 2008 already had major symptoms of a downturn: In January, the county housing market hit its lowest point in nearly a decade as home sales here dropped 42 percent with 259 homes sold in January compared with 446 sold during that month the previous year.

And as homeowners struggled with rising mortgage payments, county foreclosure filings spiked 64 percent in the first quarter, according to figures from the Anne Arundel County Circuit Court.

Consumers dealing with sinking home values and higher mortgage payments also had other worries early on: The most visible was $3 a gallon gas.

The severity of the spreading recession didn't hit home for many until March, when the Federal Reserve intervened to rescue Wall Street bank Bear Stearns to avert a financial disaster.

That's when the local business community realized "we're coming into uncharted waters," said Bob Burdon, president and chief executive officer of the Annapolis and Anne Arundel County Chamber of Commerce. By the second quarter of 2008, businesses moved into "reactive" mode to encourage consumer spending, he said.

Local restaurants offered fixed-price menus.

Construction companies shifted to other markets.

Downtown Annapolis businesses began adjusting price points to more affordable levels.

As businesses worked to fight off the downturn, Gov. Martin O'Malley signed into law mortgage-lending reforms, including one that elongated the foreclosure process, in April.

The legislation has worked in Anne Arundel - for now. By the second quarter, county foreclosures dropped 77 percent to 101 filings from 440 the year before, county Circuit Court figures show. However, state officials said they expect foreclosures to rise as Marylanders continue to lose jobs in 2009 and adjustable-rate mortgages spike to higher interest rates.

But there has been no cure for the county's home market, which continued to falter and made local residents feel less wealthy.

In May, county home sales had fallen 30 percent to 407 homes sold compared with 576 homes in May 2007.

When the county put together its fiscal 2009 budget, officials planned for $83 million in taxes collected from transferring and recording property, only to revise it to $60 million by December.

"Even when things were going well in the early part of the decade, we were very cognizant of the fact that we were in a bubble situation," said County Budget Officer John Hammond.

Vicious downturn

By the third quarter, county residents watched as the national downturn spiraled out of control.

In July, anxieties were running so high that when the federal government took over mortgage lender IndyMac Corp., area banks were launching educational campaigns to ensure clients their money was safe.

Adding to that anxiety was record high of $4.05 for a gallon of unleaded gas by June and soaring electric bills that sent thousands seeking help in Anne Arundel County.

By August, the county lost three longtime businesses: Merritt Athletic Club in Annapolis announced plans to shut down Sept. 1 after three decades of business; Northwoods, a restaurant in west Annapolis, said it would close in August after 23 years; and Boscov's, a department store that debuted just two years ago at Marley Station Mall, said it was filing for Chapter 11 bankruptcy reorganization.

Residents had already witnessed the closing of Johnson's on the Avenue in Annapolis early in the year.

The next month, when the government rescued mortgage companies Freddie Mac and Fannie Mae, local business owners like Steve Samaras recognized the severity of the situation.

"We'd be down 20 to 30 percent only to recover 40 percent the next month," said the owner of Zachary's Jewelers in downtown Annapolis.

To help ride the wave, Mr. Samaras said he increased advertising and pumped up community ties by having employees on several local boards. His business, which went through a major renovation before the economic downturn, is up year-to-date 5 percent, he said.

But all around him, the national economy was crumbling.

Investment banking firm Lehman Brothers announced it had filed for Chapter 11 bankruptcy in September, prompting a wildly uneven stock market and 500-point swings.

The credit markets had virtually "stopped working," said Mr. Achuthan, of the Economic Cycle Research Institute. "That's when pretty much everybody, including cheerleaders of the economy, started to say, "We have a problem,' " he said.

In October, the painful credit crunch swept through Anne Arundel County as Congress hammered out a $700 billion bailout plan to fix the nation's credit markets. Local businesses grasping for loans were turned down left and right, recalled Crownsville adviser Adam Santavicca.

And as job losses spiked higher across the nation, the county's unemployment rate rose to 4.3 percent as of October, compared with 3 percent in October 2007, according to the latest state labor figures. That figure is still lower than the state's unemployment rate that as of November was 5.3 percent and the nation's current 6.7 percent rate, which is expected to rise to 8 or 9 percent next year.

But the full percentage point increase in Anne Arundel County is of "social concern," said Robert Hannon, president and CEO of the Anne Arundel Economic Development Corp. "What we expect is that the unemployment numbers are going to creep upward."

In the midst of all the turmoil, gas prices retreated, falling below $2.50 by October.

But even that didn't throw a lifeline to the Annapolis Boat Shows, where some dealers reported sales drops of 50 percent this fall. The third quarter was no better for the county's four publicly traded banks, which reported that net income fell by more than half.

By November, retailers were rolling out plenty of sales and discounts to lure hesitant shoppers this holiday season. This month, the county announced a $36 million shortfall, likely the largest financial hole in county history, and the state was predicting a $2 billion deficit for next year.

Hope for 2009?

Economists agree the worst is not behind Anne Arundel or the nation. But local businesses leaders said the county's fundamental strengths will help the local economy.

"We certainly have very strong assets that have continued to buffer the county against the worst elements of the national recession," Mr. Hannon said.

He cited the strength of the county's workforce and defense contractors and health care related businesses that remain strong. County officials said they expect 5,700 jobs at Fort George G. Meade from the Base Realignment and Closure process known as BRAC by 2010. Economic development officials also said they expect 10,000 private contractor jobs to land here.

County Executive John R. Leopold said President-elect Barack Obama's plan to provide billions of dollars in public infrastructure could help move the Odenton Town Center in west county forward.

But Mr. Achuthan warned that even if the government was working at 100 percent efficiency and the stimulus-package legislation is approved by the end of the first quarter, the money would have to go through a number of stages before someone gets "hired to put a shovel into the ground."

"There's no quick fix," he said.