Local defense contractors unsure what lies beyond ‘fiscal cliff’
by Tim Lockette
Aug 27, 2012 | 6398 views |  0 comments | 10 10 recommendations | email to a friend | print
At defense contractor BAE Systems, no one’s quite sure what will happen if the federal government falls off the “fiscal cliff” in January.

But whatever happens, BAE officials are sure it won’t be good.

“It’s difficult to tell what the impact will be, but it will be painful,” said BAE spokeswoman Shannon Booker.

BAE isn’t the only defense contractor bracing for an ill-defined but very real fiscal challenge that could come Jan. 1, if Congress doesn’t come up with a plan to avoid the automatic budget cuts known as sequestration.

The Department of Defense will face an instant $55 billion across-the-board budget cut in January if legislators and the president can’t find a way to cut $1.2 trillion from the federal budget over the next 10 years. That automatic cut would continue for a decade, trimming a total of $500 million off the Pentagon’s projected budgets for coming years.

The fiscal cliff, as some are calling it, is the latest white-knuckle deadline in the nation’s ongoing battle over budget cuts. In 2011, lawmakers played a high-stakes game of fiscal chicken, with budget hawks refusing to raise the nation’s debt ceiling if major budget cuts weren’t made. The government came within two days of running out of money when legislators struck a deal.

That compromise, outlined in the Budget Control Act of 2011, created a “supercommittee” to develop a budget-slashing plan, and gave legislators until 2013 to put the plan in place. Without a plan, automatic cuts will slash billions instantly from the budget.

Defense won’t be the only department cut if sequestration takes effect. One analysis done in the office of Democratic Iowa Sen. Tom Harkin projects that Alabama would lose $10 million in Head Start funds, $18 million in Title I grants to schools and $1 million in assistance to AIDS patients, among other cuts.

But it’s the defense establishment that has sounded off loudest about the cuts, with Defense Secretary Leon Panetta saying they’ll lead to a “hollow force.” And in Calhoun County, where the Chamber of Commerce estimates the Anniston Army Depot employs 6,500 people, defense dollars do double duty as an anti-poverty program, providing jobs that could vanish with the stroke of a pen.

No clear picture

It’s hard to tell exactly which jobs would vanish, though, and where.

“The Lord’s going to send us what he sends us,” said Roy Washburn, vice president of ATAP, an Eastaboga company that did $20 million in business with the Air Force in 2011. ATAP builds and repairs ground equipment, such as the aircraft tow tractors that help big jets get around on the ground.

Washburn said he’s taking a close look at the budget projections sent to him by the Air Force — but they don’t offer a clear picture of what will happen to his business in the next year.

Officials at BAE, which employs about 390 people at its Anniston location, estimated it would have to lay off about 10 percent of its workforce if sequestration happens. But company officials can’t yet say if those cuts would come at the Anniston plant.

The Star’s attempts to reach Anniston Army Depot public affairs staff, for an estimate of sequestration’s effects, were unsuccessful.

But a Washington think tank, the Center for Security Policy, released a study last week that aims to show just how much business the military does with contractors across the country. The study isn’t perfect — it doesn’t count the massive impact of direct federal employment at the depot — but it does try to offer a glimpse of the outside businesses that depend on defense contracts.

The report shows those contracts were worth $61.7 million to Calhoun County in 2011, with about two-thirds of that going to BAE and ATAP. Christine Brim, chief operating officer for the Center for Security Policy, said those contracts would shrink by 18 percent if the defense cuts were applied evenly.

“A lot of smaller businesses are involved in our supply chain,” she said. “Some of these contractors are operating on a small margin. They can’t take these cuts.”

Brim says sequestration would drive some contractors out of business, force some to sell out to bigger companies, and possibly force big companies to produce defense supplies overseas — creating a supply chain that could fall apart if global alliances shift.

That, plus cuts to larger programs will have “devastating consequences on the preparedness of the United States,” she said.

Micah Zenko, an analyst for the Council on Foreign relations, doesn’t see it quite the same way. Despite the “hollow force” talk, Zenko said, sequestration would take the defense budget back only to the levels they were at in 2007. In 2007, he notes, America was fighting two wars. And sequestration affects only the “baseline” defense budget, he notes. For years, the funding for the wars in Iraq and Afghanistan has been given its own budget line, which won’t get automatically cut.

Even so, Zenko is no fan of sequestration.

“It would be an across-the-board haircut that’s not based on any sort of strategic thinking,” he said.

Seen it before

Some local defense contractors, already buffeted by the decade-old closure of Fort McClellan and the drawdown in Iraq, are taking the idea of a cut philosophically. They’ve seen cuts before.

“There’s no way to tell how we’d be affected,” said Carolyn Minerich, owner of Carmin Industries in Jacksonville.

Carmin Industries uses extremely high-pressure water jets to carve objects out of metal and other materials. The shop sometimes makes parts for the military, though it also does work for other industries. The Center for Security Policy report says Minerich did $2.7 million in business with the Department of Defense in 2011, and Minerich says that sounds about right.

“We do job work, so it’s impossible to predict how much we’d be affected,” she said. “With government contracts, you just never know. That’s why you don’t do just government contracts.”

Mike Almaroad, administrator of the nonprofit Easter Seals Opportunity Center in Anniston, said the organization would likely be in demand at Anniston Army Depot even with cuts. The center, which employs people with disabilities, provides janitorial workers at the depot. The center held $2 million in defense contracts last year.

“As long as there are people at the depot, they’re going to need our services,” Almaroad said. He said the organization had seen cuts in recent years. Almaroad said that after the cuts, he asked his workers to vote on whether to cut positions or accept fewer hours. They chose fewer hours.

Allen Bodner sold $5 million worth of eggs to the Department of Defense in 2011. He doesn’t expect sequestration to change that.

“The eggs we sell are sold in commissaries, so not much will change,” said Bodner, president of Lakeside Food, a wholesale food broker with offices on 13th Street in Anniston.

Bodner said sales of eggs in commissaries aren’t likely to go down because of sequestration, though the Defense Department would likely have to pass any costs on their customers — the soldiers and retirees who shop at the military-owned grocery stores.

Higher prices could force some commissary shoppers to make some choices about their own budgets. But there’s a chance they wouldn’t have to if Congress and the president — whoever they are, post-January 20 — can make a few budget choices of their own. Zenko thinks there’s no chance the sequestration issue will be taken care of before the elections, and a pretty good chance there will be a budget agreement afterward. No one has a strong incentive to continue the brinkmanship after the election, he said.

“I think it will get done,” he said. “They may find a way to postpone it until next summer, but I think it will get done.”

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