Published September 30, 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 defense 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."