Thread: Defense cuts poised to deal billions of dollars in damage to contractor-heavy states

Defense cuts poised to deal billions of dollars in damage to contractor-heavy states


Published September 28, 2012


Defense contractors are bracing for a blow to business should Congress fail to avert massive automatic budget cuts come January.

And newly emerging studies are starting to show which states will be hit hardest. For some, the budget ax amounts to billions of dollars in lost income over the next decade.

"(The cuts) will cause dramatic program and personnel dislocation within our industry," Lockheed Martin CEO Robert Stevens said in a recent statement.
Lockheed Martin is headquartered in Bethesda, Md., and Maryland is one of several states expected to take a heavy hit.

The Center for Security Policy recently outlined, state by state, the potential impact of the cuts. The five that would be hit worst are Virginia, California, Texas, Maryland and Florida.

In Virginia, defense contractors could be looking at a $9.9 billion hit every year -- that includes the impact of both the so-called "sequestration" cuts and budget cuts already planned that likely will not be averted. According to the study, that could mean more than 122,000 private-sector jobs.

In California, the projected impact is $7.9 billion. In Texas, it's $6.5 billion.
The "sequestration" cuts are what lawmakers and contractors are all worried about. They were triggered by lawmakers' failure to reach a deficit-reduction plan on their own, following last summer's deal to raise the nation's debt limit.

For the time being, contractors are anxiously awaiting the post-election lame-duck session of Congress, seen as the last and best chance for something to be done to delay or avert the budget cuts. But if Congress does nothing, then more than $500 billion in defense cuts over the next decade are set to go into effect. On top of that are another $500 billion in non-defense cuts.

According to an estimate over the summer by a George Mason University scholar, the defense portion of that could cost more than 1 million jobs over the next decade.

Contractors are warning that the job-loss potential is no bluff. Sikorsky Aircraft Corp., maker of the Black Hawk helicopter, recently announced the elimination of 570 jobs, from the closure of a plant in upstate New York.

And Northrop Grumman recently announced it was cutting 600 aerospace jobs

"Who knows what's going to happen," said Scott Pattison, executive director of the National Association of State Budget Officers. "On the
efense side, there are quite a number of states that will be impacted."

Pattison said the defense cuts won't just hit the companies -- they'll hit, over time, the budgets of the states that rely on tax revenue from those companies.

"Tough decisions will have to be made at the state level to determine do you raise taxes? Do you continue to cut?" he said.

But for now, Congress is at a stalemate, and the issue is more of a political football than anything else. Democrats blame Republicans for their stubbornness on raising taxes. Republicans blame Democrats for their stubbornness on cutting entitlements. And if lawmakers can work together to avert the cuts, budget hawks want to make sure Congress doesn't balk on achieving the $1.2 trillion in total deficit reduction.

Defense Secretary Leon Panetta has been pleading with Congress to work it out.

"You want a strong national defense for this country? I need to have some stability," Panetta said Thursday. "That's what I'm asking the Congress to do. Get me some stability with regards to the funding of the Defense Department for the future."

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Obama administration tells contractors again: Don’t issue layoff notices


By Jeremy Herb - 09/28/12 07:25 PM ET

The Obama administration issued new guidance intended for defense contractors Friday afternoon, reiterating the administration’s position that the companies should not be issuing layoff notices over sequestration.

The Labor Department issued guidance in July saying it would be “inappropriate” for contractors to issue notices of potential layoffs tied to sequestration cuts. But a few contractors, most notably Lockheed Martin, said they still were considering whether to issue the notices — which would be sent out just days before the November election.

But the Friday guidance from the Office of Management and Budget raised the stakes in the dispute, telling contractors that they would be compensated for legal costs if layoffs occur due to contract cancellations under sequestration — but only if the contractors follow the Labor guidance.

The guidance said that if plant closings or mass layoffs occur under sequestration, then “employee compensation costs for [Worker Adjustment and Retraining Notification] WARN act liability as determined by a court” would be paid for covered by the contracting federal agency.

Senate Republicans, who accused the White House of trying to hide job losses after the first guidance, said Friday that the new OMB statement “puts politics ahead of American workers.”

“The Obama Administration is cynically trying to skirt the WARN Act to keep the American people in the dark about this looming national security and fiscal crisis,” Sens. John McCain (R-Ariz.), Lindsey Graham (R-S.C.) and Kelly Ayotte (R-N.H.) said in a statement. “The president should insist that companies act in accordance with the clearly stated law and move forward with the layoff notices.”

The fight over WARN Act notices began in June when Lockheed Martin CEO Bob Stevens said his company might send the notices to all 123,000 of its employees.

Some companies were hesitant to follow Lockheed, but several others told McCain in letters earlier this month they might send the notices, too, despite the Labor Department guidance.

But the new guidance would appear to address one of the chief concerns from the companies — that they could be liable to compensate employees who were laid off if the companies don’t issue the notices.

The GOP senators complained, however, that this tactic would push the cost of the layoffs onto taxpayers.

A Lockheed Martin spokeswoman told The Hill that the company is still reviewing the documents.

Obama administration tells contractors again: Don

While our politically and structurally ravaged military builds down, China is amassing forces for what?