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You should let them know and negotiate for better offer. I’d not take a 10% cut going to DC (from somewhere else).
OP, i'm in a similar position where I'm not based in DC and am in Fed. However, I still live in an area with a notable defense industry space in SoCal. I personally would take an industry role at a slight 10% paycut if it was an industry I wanted to work in such as entertainment but if I went into entertainment that would be like a 50% paycut 😂
There's lots of stuff around San Diego, San Antonio, Huntsville, St Louis, and Colorado in the federal space.
A 10% cut is small. Have you tried negotiating that? If you hadn't talked salary prior to their offer, I'd just be honest and say that's less than you're making now. How excited are you about the role? For example, if the salary came in higher, would it be an emphatic yes for you? It's hard to gauge from your post, but it seems like you're kind of meh about the opportunity, and the low salary just adds to that feeling.
Can you get a sign-on bonus to make up the difference?