Are contractors exaggerating sequestration impact?

Tuesday - 2/12/2013, 6:08pm EST

AIA President and CEO Marion Blakey on "In Depth" with Francis Rose

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As sequestration draws nearer, contractor groups have pointed to alarming studies that show the nearly 10 percent across-the-board Defense cuts would throw at least 1 million people out of work and potentially cripple the defense and aerospace industries.

But in a new report, the Center for International Policy, a nonprofit group that advocates reducing military spending, presented evidence that far fewer defense-sector jobs would be lost than industry has claimed and that defense companies would likely be able to absorb the procurement cuts.

On Monday, the Aerospace Industries Association — one of the most outspoken industry groups — joined forces with thousands of other industry and research-and-development organizations to call for a sequestration solution.

"The danger that sequestration poses to the economy and our national security cannot be overstated," said Aerospace Industries Association President and CEO Marion Blakey. "More than 2 million jobs are at stake from all sectors. Sequestration affects all Americans and we must pull together to set it aside."

An AIA-commissioned report last summer found that of the total job losses, about 1 million of them would come specifically from the defense industry.

Job losses 'greatly exaggerated'

But CIP's report, authored by William Hartung and Natalie Peterson, claims those figures are "greatly exaggerated," and that the job losses in the defense-contracting industry would actually be a third to, at most, half of the 1 million jobs claimed by AIA.

Hartung and Peterson said AIA's analysis supposed that $45 billion would be cut from defense procurement under sequestration. But the CIP analysts said that number is inflated because it takes into account both the $550 billion in actual sequestration cuts as well as another $487 billion excised from future defense budgets as part of the 2011 Budget Control Act. These latter reductions actually amount to slowing the growth of new spending, according to the CIP analysis, and are not true budget cuts.

"Looking only at the cuts that would actually have resulted from full sequestration would mean estimating the job impacts of just $26 billion in procurement cuts," Hartung and Peterson wrote. That means the amount of jobs lost solely from sequestration would be 42 percent lower than what AIA's research initially pointed to — about 577,000, according to the CIP analysis.

AIA also may have double-counted the amount of direct and indirect jobs lost to sequestration, according to Hartung and Peterson. When that's taken into effect, the actual number of defense-industry job losses would be 291,000, or just a third of the losses predicted in the AIA report.

The CIP analysts also dismissed suggestions that the cuts would debilitate the defense industry. Along with the growth in contracts spending over the past decade, Hartung and Peterson pointed to the $103 billion in unobligated funding that Congress has already approved but has yet to be assigned to a specific programs.

"This means that major programs like combat aircraft, ships and armored vehicles will proceed smoothly for many months — and probably much longer — before they need to make adjustments," Hartung and Peterson wrote. "Any foreseeable level of Pentagon spending cuts will result in the vast majority of current programs being stretched out, not canceled outright."

Industry warnings growing more urgent

Still, industry groups are growing more urgent in their calls for the White House and Congress to find an alternatives to the cuts.

The threat of sequestration has put the defense-industrial base "at risk," AIA's Blakey wrote in a letter this week to President Barack Obama and congressional leadership. The cuts could make it harder for the industry to attract a strong workforce and weaken the nation's global competitive edge, she wrote.

And in a interview on In Depth with Francis Rose last week, Blakey said contractors are are already feeling the budget squeeze.

"It really is something that is not just looming; it's on top of us," she said. "Pink slips are going out. Programs that would normally be moving ahead in places like Newport News at the shipyards are not because we really are at a point where these kinds of significant — I mean major — cuts to Defense as well as across the federal budget are already something the companies are having to take action on."

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