Defense industry bracing for supercommittee impact

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Predictions about the effects of the Congressional supercommittee’s failure to reduce the federal deficit are dire.

The smallest Air Force in history. The smallest Army since 1940. The least number of Navy ships since 1915, and the loss of thousands of civilian jobs — all thanks to the automatic Department of Defense budget cuts of $600 billion over 10 years that was triggered by the supercommittee’s failure.

But Colorado Springs could be cushioned from the blow, even though the military is 40 percent of the city’s economy.

“We’re somewhat protected because the Air Force has such a high tech mission here,” said Fred Crowley, economist at the University of Colorado at Colorado Springs. “Our understanding is that the Air Force will not touch the space mission or the satellites, and that’s what we have here.”

But Fort Carson’s mission is likely to be influenced by the reductions. The Army post is home to major missions as well, but cutting troops is one way to assure long-term savings, Crowley says.

“If you cut someone early, you don’t have to pay retirement or health benefits,” he said. “I think that’s what we’re going to see. It won’t be immediate, but it will happen. With new technology, you don’t need as many people. The Army hasn’t been aggressive about pursuing that, but this is the new reality.”

The loss of soldiers, in turn, will mean a loss in retail sales, apartment rentals, auto sales, loss of revenue to restaurants and entertainment venues.

“That’s what the military means to the greater Colorado Springs economy,” Crowley said. “It isn’t just the military and defense companies. Everyone relies on them to some extent. But, the city is used to some uncertainty about troop levels. We’re used to having about one-third of the troops gone in any given year. And we’re not going to see one third cut in force. I just don’t think we will.”

That doesn’t mean, however, the city won’t feel the consequences of the impasse in Washington, D.C. Estimates are that the state will lose 17,000 jobs, said Brian Binn, president of military affairs at the Greater Colorado Springs Chamber of Commerce.

“To put that into perspective, California is expecting to lose 124,000 jobs,” he said.

While Air Force bases in the Springs have already cut civilian jobs based on earlier reductions to the budget, more are coming — and that in turn, will affect military contractors.

But not all of them.

“I think those contractors with a high-tech mission, with highly technical workforces, they’ll be fine,” Crowley said. “Some of them, of course, will be hurting over the next few years. Contracting is just going to get tighter.”

Small defense contractors have become used to the uncertainty, said Kelly Roth, owner of Delta Solutions and Strategies. It’s become part of the job, she said earlier this year when the idea of defense cuts was first raised.

“There’s always something,” she said. ‘When you’re a small business, volatility is just part of it — it doesn’t matter if you’re selling cars or sushi. You have to be concerned about the climate, about DoD cuts, about geopolitics. It’s always there.”

Colorado Springs is important to the military, but that importance could leave people without jobs in the future, if the cuts go through. Crowley points out that in 2010, 1 percent of the DoD budget — about $6.5 billion — was spent in El Paso County.

“That’s a staggering amount,” he said. “Just think we’re one county out of 64 in the state, and all the other thousands of counties out there. And we have 1 percent. It’s huge.”

The cuts are scheduled to start in January, 2013, and despite some optimism, economic development officials are bracing for the upcoming changes to the federal budget.

It’s the only real certainty surrounding the federal deficit discussions. But Binn believes there’s still room for optimism.

“Congress could still act,” he said. “They could do something to stop sequestration (that triggers the defense cuts) before 2013. But it is an election year … and I was optimistic before, and I was wrong. But the uncertainty is what will harm us.”

Already there is a massive public relations campaign both by Congressional representatives worried about jobs and by the industry itself.

The Aerospace Industry Association said the DoD budget situation is “of grave concern.”

“At stake are $1.2 trillion in across the board budget cuts hitting the Defense Department, NASA, FAA and other federal programs,” said Marion Blakely, executive director of the AIA.

It’s not just the size of the reductions that troubles analysts and industry officials. It’s the way the budget has to be limited.

“They’re across the board, 23 percent cuts,” said Binn. “The military isn’t going to be allowed to prioritize, to move money around. And, as Sec. Panetta said, you can’t build two-thirds of a ship.”

Those budget delcines could mean the end of big construction projects that have buoyed local companies during the recession. The Air Force Academy updated its dining hall and dorm facilities, and Fort Carson is preparing facilities for a new combat aviation brigade, a multi-million construction project.

“We think the brigade is still coming,” Binn said. “We’re told in Washington that it’s a big priority for the Army.”

Crowley also sounds a hopeful note: cuts in other parts of the budget could mean more Army soldiers in the Springs, given Fort Carson’s mission. But, he said, it isn’t likely.

“We’re going to see cuts, and the economy is going to suffer,” he said. “That’s the way it is. The state as a whole will have problems, but as I’ve been saying since I got here, we have to diversify.”

Colorado’s Office of Economic Development is less sure about the impact.

“It’s too soon for us to tell how it will impact our key industries,” said Jennifer Cassell, spokeswoman for the state’s main economic development effort. “But we are monitoring the situation as it evolves.”

Colorado Congressional delegation sounds off

“Once again, Congress has failed the American people. This type of dysfunction is becoming more and more typical of Congress. This is particularly upsetting considering there were already two bipartisan road maps for resolving our debt crisis that have been submitted. Either the Bowles-Simpson plan or the Gang of Six report can be the foundation for a bipartisan solution to address the debt crisis and ensure that our nation returns to strong financial footing. I call upon Congress to address our fiscal crisis immediately.”

— Rep. Jared Polis

“Congress must end the political gamesmanship that has overwhelmed this session and prevented us from accomplishing important work for the American people. I’m certain my colleagues from both sides of the aisle agree, and will finally focus on a balanced approach that includes the cuts, investments, and revenue enhancements that are essential to America’s ability to reduce our deficit, and ultimately compete in the 21st century global marketplace.”

— Rep. Diana DeGette

“Our $15 trillion debt is the biggest national security challenge we face, threatening our leadership in the world. Businesses across the country have told us that they need certainty that our nation’s debt won’t crush our economy in order to start hiring again. And Americans looking for work, at risk of losing their home or struggling to keep a small business running, were counting on Congress to make the first big step toward fiscal responsibility and economic recovery. “The failure of the super committee means that once again, when it mattered most, Congress failed to do its job. In order to cut our debt, Americans agree that everything needs to be on the table — including spending cuts and revenue increases. Everyone needs to give. Tragically, it seems that some members of Congress were more concerned about a pledge they made to a special interest lobbyist — and protecting their own careers — than in doing the job they were elected to do.

— Sen. Mark Udall

“Congress must now get back to the basics of producing a balanced budget and living within it. This will require reforming entitlement spending and simplifying the outdated and complicated tax code. We need honest accounting in Washington and an end to budget gimmicks. We need a tax code and a budget that instill confidence in our job creators, because ultimately, they are the people who will grow the economy and restore our nation’s fiscal strength.

“I take seriously my constitutional oath to protect this nation and I will not stand by and watch our national defense be decimated by reckless and irresponsible across-the-board cuts. I will continue to fight for a strong national defense.”

— Rep. Doug Lamborn