Posts Tagged ‘Defense Budget’

DoD, Capitol Hill square off for BRAC fight

Monday, February 13th, 2012

In 1991, a Democratic Congressman from California fought hard to keep an Army base open in his congressional district. While he lost that fight and Fort Ord was forced to close, the lawmaker’s political career did not end there.

Leon Panetta went on to become director of the Office of Management and Budget and chief of staff to President Clinton, during which time two more base realignment and closure (BRAC) rounds took place.

In 2005, during what some people call “the mother of all BRACs,” Panetta served as co-chairman of the California Council on Base Support and Retention, where he fought to keep the Defense Language Institute and the Naval Postgraduate School open, both located in his hometown of Monterey, Calif.

Over the course of his career, Panetta has both fought against BRAC and made the case for it.

Now, as Defense Department secretary, he has said that as part of the 2013 budget,the Pentagon will ask Congress for legislation to establish a new BRAC commission to oversee up to two rounds of domestic base closures.

Panetta’s January announcement was met with immediate resistance from Congress,with influential members saying the proposal was dead on arrival as far as they were concerned.

However, Panetta’s experience, especially his understanding of the community-level concerns, could help the Defense Department gain congressional support for further base closures, according to past BRAC officials.

“He has been on all sides of this issue,” said David Berteau, a defense analyst at the Center for Strategic and International Studies (CSIS). “I think therefore he has some unique standing, and if he chooses to put that standing into play, I think it could go a long way toward getting the authorization for a round.”

Berteau served as a senior BRAC official during the 1990s base closures.

After Fort Ord closed, then-Rep. Panetta urged his community back home to move on from the painful decision and start thinking about how the military base could be reused. Part of the old base is now home to a campus of California State University, which includes the Panetta Institute for Public Policy, as well as conservation land and commercial buildings.

Panetta’s unique background allows him to weigh in with members of Congress on a personal level, Berteau said. “If he’s personally willing to make the case, it will put a lot of credibility behind the request.”

That level of authority could come in handy, especially during an election year.

“Don’t ever forget: BRAC is the third rail of defense politics,” an issue so charged and controversial no one wants to touch it, said Ray DuBois, former acting undersecretary of the Army and now a senior adviser at CSIS. From 2001 to 2004, DuBois served as the deputy undersecretary of Defense for installations and environment, overseeing BRAC during that time.

The fact that President Obama is making a BRAC request during an election year shows just how serious the administration is about getting it done, Berteau said.

Resistance is already fierce.

When asked what he would do to a Pentagon request for domestic base closures, Rep. Buck McKeon, R-Calif., chairman of the House Armed Services Committee, said: “Kill it.”

Such a request would be dead on arrival, at least in the House, McKeon told an audience Feb. 1 at a Reserve Officers Association conference.

McKeon was not alone in his opposition. Several Congressmen and senators issued press releases vowing to protect military bases and installations in their districts.

Sen. Kelly Ayotte, R-N.H., questioned whether BRAC rounds ever result in savings.

“Before we have another BRAC round, I think we need to do a cost-benefit analysis of whether we’re really going to save any money,” she said during a Feb. 2 briefing on Capitol Hill.

Defense analysts agree that while closing bases costs money upfront, it produces savings in the long run.

According to the Government Accountability Office, the 2005 BRAC round, which was mostly completed last fall, will start paying for itself in 2018, a date that has slipped due to unforeseen costs.

Sen. John McCain, R-Ariz, ranking member on the Senate Armed Services Committee, indicated he was open to discussing a BRAC request. “I think everything would be on the table,” he said. “We’re willing to negotiate on something like that.”

Meanwhile, the top Democrat on the House Armed Services Committee, Washington Rep. Adam Smith, has said he supports base closures.

“I think without question we’re going to have to do base realignment,” he said in an interview. “I don’t see how any person looking at the strategy and looking at the changes coming down could conclude otherwise.”

If history is a guide, the most likely scenario is that Congress will ask for reports on the effectiveness of BRAC in its 2013 policy bill and then wait until 2014 to include language that would authorize a new BRAC commission, Berteau said. “The track record says that you’ve got to request it, knowing you might not get it this year.”

On that schedule, a new BRAC round would not begin until 2015, the same year the 2005 BRAC Commission recommended a new round of base closures.

DoD leadership would be needed to make the case on Capitol Hill as well as within the Pentagon, where the individual military services will likely push back on reductions to infrastructure.

“It takes a strong Defense secretary and strong [Office of the Secretary of Defense] leadership to demonstrate there are cost-savings and infrastructure reductions that can be achieved,” DuBois said. “If you were to leave it up to the services, you would not achieve very much.”

The military services have the tendency to evaluate base closures from their perspective alone, Berteau said. “To see the true potential for BRAC, you need to look at it DoD-wide.”

Following Panetta’s announcement that the Pentagon would be requesting new base closures, Army Chief of Staff Gen. Ray Odierno said a new round of BRAC might mean minor changes for the Army, but nothing like the 2005 round.

“The Army went through a very significant BRAC here not too long ago,” he said during a press briefing. “For the Army, I believe, a follow-on BRAC would not have as much impact on the Army, because we’ve pretty much done what we want to. We have to do some minor things, I think, as we go through BRAC, but, I think for the most part, we’ve established our installations.”

The Navy and the Air Force also say they’ve been aggressive in previous BRAC rounds.

The Army had 12 major closures in the 2005 BRAC round, while the Navy had five. The Air Force was also slated for five major closures; but Cannon Air Force Base, N.M., was eventually taken off the list.

While the Marine Corps has far less infrastructure than the other services, it probably has excess capacity, especially as it had zero major closures in the last round, DuBois said.

Berteau said it is premature to say how a BRAC may affect any of the services.

Two keys things haven’t been determined yet, he said. “To get the most out of a U.S. base closure, you’ve got to know what your endpoint is — your force structure, but also your support structure for those combat troops.”

Today’s plans call for the Army’s active-duty force to be reduced from 547,000 soldiers to 490,000, a move tied to the Pentagon’s $487 billion cut, which was mandated by the initial spending caps included in the Budget Control Act of 2011.

However, it is far from certain whether defense will be cut further, Berteau said. “Even if it rests at $487 billion, you still have a good case to make for base closures, but the real case to be made is that it’s probably not the last reduction.”

As the Pentagon considers closing stateside facilities, it will have to look at its depots and laboratories, too, which raises the question: What kind of capability needs to be maintained inside DoD and to what extent does the government feel comfortable relying on the private sector?

“Those questions are much bigger than base closures, but would clearly create an opportunity within base closures,” Berteau said. In the end, “the No. 1 measure of whether you close or realign a base, or not, is the military value, not the budgetary savings. That’s a very powerful dynamic I think the department wants to preserve.”

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Seaports Chafe at Loss of Earmarks

Tuesday, February 22nd, 2011

The budget-cutting fervor that killed earmark spending has sent a panic through the nation’s seaports, where billions of federal dollars have traditionally been directed almost entirely at the discretion of lawmakers.

Anxiety is particularly high because the new route for federal funding, which runs directly through the Army Corps of Engineers, is being forged just as many Eastern Seaboard and Gulf of Mexico ports are eager to expand and capitalize on the widening of the Panama Canal, scheduled to be complete in 2014.

“There is a disconnect with reality in Washington,” said Bill Johnson, the director of the Port of Miami, who has been lobbying furiously for approval of dredging of his harbor in advance of the Panama Canal project. The White House budget did not include the $75 million sought by Miami officials for the project, which Johnson said would generate 30,000 jobs.

In addition, for the budget now being considered by lawmakers to fund the rest of the year, Congress will approve overall spending for the Corps,which then has discretion to parcel out the money as it sees fit. That has significantly lessened local officials’ ability to lobby their federal lawmakers to save their projects and has made them more reliant on executive branch judgments.

Port officials complain their public works projects have been unfairly lumped in with more controversial earmarks that drew public ire,such as a cheese museum or the “Bridge to Nowhere” in Alaska.

“You are not talking about a one-time appropriation for the Teapot Museum in Topeka,” said Byron Miller, a spokesman for the Port of Charleston. The South Carolina port has been seeking funds to study deepening of Charleston Harbor so it can compete for business from the bigger ships. Miller and others say dredging projects boost the economy by drawing more international trade.

The president’s budget for fiscal 2012 did not include money for a $400,000 dredging feasibility study, though it does include a $600,000 grant for the Port of Savannah in neighboring Georgia.

Also exacerbating the problem is that South Carolina’s Congressional delegation has split over how to fund the harbor project.

Sen. Lindsey Graham (R) said he would, as a last resort, try to direct money for the study through an earmark. However, the state’s other GOP Senator, Jim DeMint, an ardent earmark opponent, has argued the solution is for the Army Corps of Engineers to overhaul how it allocates its funds.

Rep. James Clyburn, who has secured millions of dollars in earmarks for the Port of Charleston in the past, said he was unwilling to press the White House for a port study earmark. The Democrat said that it was under pressure from Congressional Republicans that President Barack Obama this year threatened to veto any appropriations bills that included earmarks.

“This is a classic case of be careful of what you pray for,” Clyburn said.

Clyburn, whose district includes the port, said this time he may try to persuade another agency to authorize the study in a way that doesn’t require an earmark.

In Florida, the Miami-Dade Board of County Commissioners, which oversees the port, last week approved a contract for a federal lobbying team, which included for the first time the powerhouse law firm of Patton Boggs. Several commissioners expressed concern, however, that delays in approving the contract may have hampered the port’s ability to secure federal funding for next year.

The Port of Miami’s director said he will keep pressure on Washington. “I may just have to rent an apartment there,” Johnson said.

Advocates of the earmark bans say the Army Corps of Engineers can now make more rational decisions on which ports should be improved. They argue that earmarks resulted in taxpayers footing the bill for unnecessary and expensive public works projects.

Steve Ellis, vice president of Taxpayers for Common Sense, a budget watchdog group, said not every port has to be deepened to accommodate the bigger ships from the Panama Canal. Rather, the lobbying for such projects by local officials amounts to “trying to keep up with the Joneses,” he said.

Now the Army Corps of Engineers will underwrite the most critical projects instead of the ones pushed by politicians with the most clout, Ellis said.

But Kurt Nagle, president of the American Association of Port Authorities, which represents 85 U.S. ports, said lawmakers should have a say in which projects are funded.

“They are closer to the location of these ports and recognize what their benefits are,” Nagle said.

He also noted that even when they were inserted as earmarks, the projects still had to be considered feasible by the Corps.

Nagle said his group was working on convincing lawmakers that these projects should be considered differently from other earmarks. But port officials acknowledged they are unsure of how they will have to go about securing federal dollars in the future.

“We’re all trying to figure out what’s next in how these projects will be funded,” said Miller, the Port of Charleston spokesman.

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A Grand Bargain? You Show Me Yours…

Friday, February 18th, 2011

Showing a little leg on deficit reduction is a highly risky proposition these days: display the scantest hint of skin and you risk losing a limb. The ink was still drying on the final edition of the Wall Street Journal’s Thursday story detailing a grand bipartisan plan for deficit reduction when the angry missives began. Grover Norquist fired off a letter to the three Republican senators participating in the talks – Oklahoma’s Tom Coburn, Idaho’s Mike Crapo and Georgia’s Saxby Chambliss – accusing them of treachery. “I urge you to reject this so-called ‘deal’ which is little more than a transparent attempt to hike taxes and put off the spending restraint the country so clearly called for in the 2010 elections,” Norquist, the president of Americans for Tax Reform, wrote.

Just hours later, the trio responded with a defense the negotiations. “Proposals that simplify the tax code, broaden the base, lower all individual and corporate tax rates, and make our corporate tax code more competitive for U.S. business will create a surge in economic growth,” they wrote.

The gang of six – Coburn, Crapo and Chambliss along with Democrats Kent Conrad of North Dakota, Illinois’ Dick Durbin and Mark Warner of Virginia — have actually been meeting for months, but the episode shows how hard it will be for both sides to join hands and jump together into a public debate. If Social Security reform is the most politically radioactive issue in American politics, then overhauling Social Security, Medicare, Medicaid, defense budgets, discretionary spending and taxes all at once is akin to throwing oneself into a nuclear reactor. If you come out glowing, it’s rarely in a good way.

Looming deficits will take drastic action to fix and the sacred cows, entitlements and defense chief among them, will have to be slaughtered. A successful grand bargain will require both parties to expend their combined political capital. Success promises mutual benefit, while failure ensures mutual destruction.

Earlier this week, Senate Minority Leader Mitch McConnell said “entitlement reform will not be done except on a bipartisan basis with presidential leadership,” a signal that he’s unwilling to take action without President Obama making the first move. But the President has taken a wait-and-see attitude as well, declining to mention serious entitlement reform in his 2012 budget. When asked about this, Obama said: “This is not a matter of ‘You go first’ or ‘I go first.’ This is a matter of everybody having a serious conversation about where we want to go and then ultimately getting in that boat at the same time so it doesn’t tip over. And I think that can happen.”

Yet within Obama’s inner circle, there is little interest  in putting out a fixed proposal for entitlement reform only to to see it criticized from the left and picked apart by Republicans. Instead, the President is hoping for a repeat of the backroom negotiations that led to a tax break deal in December of last year. And most important of all, Obama’s aides want to make sure that the President comes out of debate over entitlement reform as one of the adults in the room, someone who is willing to compromise and willing to work hard to solve problems, even if he is not urgently driving the process.

That leaves Congress in the driver’s seat for the time being. The process split is in two. House Republicans have said they plan on including entitlement reform and deficit reduction measures in their 2012 budget that is due out in April. “Our budget will lead where the President has failed,” House Budget Committee Chairman Paul Ryan, a Wisconsin Republican, said in a joint statement with GOP leaders. “It will include real entitlement reforms so that we can have a conversation with the American people about the challenges we face and the need to chart a new path to prosperity.”

In the Senate, Conrad is leading his gang of six. The group is hoping to circulate a draft of their proposals next month to more than 40 senators who have expressed interest in the talks. According to a senior Democratic Senate aide, they are considering two legislative options. One is to attach the deal to a bill to raise the debt ceiling expected at the end of April or early May. The other option is to add whatever deal is reached to the budget, as is his prerogative as chairman of that committee. If Conrad and Ryan, who are personal friends, can hammer out an agreement between the two budget committees on deficit reduction, the package could be passed in the Senate with just 51 votes under a privileged budget resolution process called “reconciliation.”

Though the White House has been careful not to get too involved in the process, they have drawn a few lines in the sand. The administration would prefer not to see any agreement attached to the debt ceiling measure, Office of Management and Budget director Jacob Lew told reporters Thursday. And it wants to see Congress deal with Social Security separately. “It is essentially a parallel issue and it’s important for it not to be confused with either contributing to the problem or a central part of the solution,” Lew said.

Negotiators in Congress are looking at Bill Clinton’s 1997 Balanced Budget Act, which was negotiated with then-Speaker Newt Gingrich, and the 1984 Deficit Reduction Act as models. Both passed under reconciliation and both included triggers, measures that impose specific austerity measures when a predetermined spending level is reached. But both pieces of legislation were later criticized by some fiscal conservatives for including tax hikes. This time around, Conrad and Ryan are looking to the blueprint left in December by the deficit reduction commission on which they both served. The commission recommended an overhaul of the tax system that would bring in $180 billion in new revenue over the next 10 years, a bitter pill for the Tea Party set to swallow, and $1.7 trillion in spending reductions that would be equally hard for Democrats to stomach. Bringing about those major changes would take not only Conrad and Ryan, but Obama, McConnell and House Speaker John Boehner to show a great deal of good faith. It remains unclear who will be willing to make that display first.

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House GOP Proposes Cuts to Scores of Sacred Cows

Wednesday, February 9th, 2011

The House Appropriations Committee proposed on Wednesday to cut funding for scores of politically sacred programs, from NASA and Amtrak to assistance for local police forces and even the FBI.

The proposed cuts are not always as big as they seem, because they are reductions from President Obama’s never-enacted budget proposal for this year.

But the partial list details 70 proposed cuts as part of a House GOP proposal to fund the federal government through the rest of the fiscal year.  The cuts include a $600 million reduction from President Obama’s fiscal 2011 budget request for the Community Oriented Policing Services program and a $758 million cut from food assistance to low-income women, infants and children. 

 “Never before has Congress undertaken a task of this magnitude,” said House Appropriation Chairman Harold Rogers, R-Ky., in a statement.  “The cuts in this CR will represent the largest reduction in discretionary spending in the history of our nation.”

The spending bill will also include cuts to several of Congress’ sacred cows: a $379 million cut to the NASA; a $224 million cut to Amtrak, and a $256 million cut in assistance to state and local law enforcement. The FBI would receive $74 million less than the president requested for it.

And that’s just the start.  The Treasury Department’s budget would be reduced by $268 million.  Funding for university agriculture research would drop by $246 million, and Rural Development Programs would decline $227 million.

The total spending cuts in the CR will top $74 billion, including $58 billion in non-security discretionary spending reductions. 

House Republicans last year campaigned on reducing non-security discretionary spending to fiscal 2008 levels, a roughly $100 billion cut,  and the CR is a down payment on that promise – a point Rogers stressed in a presentation to the GOP caucus this morning.

“While making these cuts is hard, we have a unique opportunity to right our fiscal ship and begin to reduce our massive deficits and debt,” Rogers continued.  “We have taken a wire brush to the discretionary budget and scoured every program to find real savings that are responsible and justifiable to the American people.” 

 “Make no mistake, these cuts are not low-hanging fruit,” Rogers said.  “These cuts are real and will impact every District across the country – including my own.  As I have often said, every dollar we cut has a constituency, an industry, an association, and individual citizens who will disagree with us. But with this CR, we will respond to the millions of Americans who have called on this Congress to rein in spending to help our economy grow and our businesses create jobs.”

Here is the list of proposed cuts, all compared to President Obama’s FY11 budget request:

·         Flood Control and Coastal Emergencies   -$30M

·         Energy Efficiency and Renewable Energy   -$899M

·         Electricity Delivery and Energy Reliability   -$49M

·         Nuclear Energy   -$169M

·         Fossil Energy Research   -$31M

·         Clean Coal Technology   -$18M

·         Strategic Petroleum Reserve   -$15M

·         Energy Information Administration   -$34M

·         Office of Science under the Energy and water spending bill   -$1.1B

·         Power Marketing Administrations   -$52M

·         Department of Treasury   -$675M

·         Internal Revenue Service   -$593M

·         Treasury Forfeiture Fund   -$338M

·         GSA Federal Buildings Fund   -$1.7B

·         ONDCP   -$69M

·         International Trade Administration   -$93M

·         Economic Development Assistance   -$16M

·         Minority Business Development Agency   -$2M

·         National Institute of Standards and Technology   -$186M

·         NOAA   -$336M

·         National Drug Intelligence Center   -$11M

·         Law Enforcement Wireless Communications   -$52M

·         US Marshals Service   -$10M

·         FBI   -$74M

·         State and Local Law Enforcement Assistance   -$256M

·         Juvenile Justice   -$2.3M

·         COPS   -$600M

·         NASA   -$379M

·         NSF   -$139M

·         Legal Services Corporation   -$75M

·         EPA   -$1.6B

·         Food Safety and Inspection Services   -$53M (FY10)

·         Farm Service Agency   -$201M

·         Agriculture University Research   -$246M

·         Natural Resource Conservation Service   -$46M

·         Rural Development Programs   -$237M   

·         WIC   -$758M  

·         International Food Aid grants   -$544M

·         FDA   -$220M

·         Land and Water Conservation Fund   -$348M

·         National Archives and Record Service   -$20M

·         DOE Loan Guarantee Authority   -$1.4B

·         EPA ENERGY STAR   -$7.4M

·         EPA GHG Reporting Registry   -$9M

·         USGS   -$27M

·         EPA Cap and Trade Technical Assistance   -$5M

·         EPA State and Local Air Quality Management   -$25M

·         Fish and Wildlife Service   -$72M

·         Smithsonian   -$7.3M

·         National Park Service   -$51M

·         Clean Water State Revolving Fund   -$700M

·         Drinking Water State Revolving Fund   -$250M

·         EPA Brownfields   -$48M

·         Forest Service   -$38M

·         National Endowment for the Arts   -$6M

·         National Endowment for the Humanities   -$6M

·         Job Training Programs  -$2B

·         Community Health Centers  -$1.3B

·         Maternal and Child Health Block Grants  -$210M

·         Family Planning  -$327M

·         Poison Control Centers  -$27M

·         CDC   -$755M

·         NIH   -$1B

·         Substance Abuse and Mental Health Services   -$96M

·         LIHEAP Contingency fund   -$400M

·         Community Services Block Grant   -$405M

·         High Speed Rail   -$1B

·         FAA Next Gen   -$234M

·         Amtrak   -$224M

·         HUD Community Development Fund   -$530M

(An earlier version of this story, based on a press release from the House Appropriations Committee, mistated the proposed cuts for the Treasury Department, Farm Service Agency, Natural Resources Conservation Service and Rural Development Programs.  Those numbers have been updated.)

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Defense spending in Virginia: How deep will cuts be?

Sunday, February 6th, 2011

War has been good to Hampton Roads. Last year, more than $12 billion in contracts fed the region and helped make Virginia the No. 2 state for defense spending. But defense cuts loom, and contractors and economists are concerned about what that could mean for Hampton Roads.

A block south of the busy auto dealerships and fast-food franchises on Military Highway in Chesapeake, an 80,000-square-foot building sits on a side street in an industrial park.

Most people looking for a new car or a burger, a minute away, would never suspect it’s there, much less what goes on inside.

Small Navy patrol boats, Humvees and black, armor-laden SUVs, like those in movies, are brought by tractor-trailer into the hangar-like facility. There, BAE Systems Inc. installs and tests prototype communications devices in them for U.S. special operations forces, the Navy and an array of other government agencies.

Since Sept. 11, 2001, the facility has grown from a handful of employees to nearly 250.

Many are former military personnel who may have once used equipment similar to what they now help perfect. Others are engineers or programmers, busy at work stations adorned with coils of wire and assorted electronics gear.

BAE Systems, one of the world’s largest defense contractors, is one of thousands of such firms operating in Hampton Roads. The region is so thick with contractors it’s known by some as “Pentagon South.” They’re vying for contracts that are part of a requested Pentagon budget worth $708 billion . Virginia – along with California and Texas – is one of the Big Three states for Department of Defense expenditures. In 2009, it was No. 1 in the nation in total defense spending, surpassing even California.

In terms of defense-contracting dollars, Virginia ranked second only to California. Quite naturally, Hampton Roads gets its share.

The four congressional districts that represent South Hampton Roads were awarded more than $12.5 billion in defense contracts in 2009, federal figures show.
But the defense landscape is shifting.

In a speech last spring, Defense Secretary Robert Gates laid out his case for why business-as-usual at the Pentagon must end.

“The attacks of Sept. 11 , 2001, opened a gusher of defense spending that nearly doubled the base budget over the last decade ,” he said. “… Given America’s difficult economic circumstances and parlous fiscal condition, military spending on things large and small can and should expect closer, harsher scrutiny. The gusher has been turned off, and will stay off for a good period of time.”

In early January, Gates called for $78 billion in defense cuts; later the same day, President Barack Obama signed off on the closure of the Norfolk-based Joint Forces Command, which will mean a loss of roughly 1,900 jobs.

“The canary has died,” said E. Dana Dickens III, president and CEO of the Hampton Roads Partnership, a regional economic development organization.
When the partnership was founded in 1996, military/federal spending accounted for roughly 26 percent of the local economy. Today, he said, it’s “north of 45 percent.”

“There’s a wake-up call, that the region needs to diversify our economy,” Dickens said.

****

Defense contractors and their facilities are so much a part of the local landscape as to seem virtually invisible.

“It’s like the layers of an onion,” said Chris Philbrick, vice president of marketing at ADS Inc., or Atlantic Diving Supply Inc., a roughly $1 billion-a-year defense-contracting firm based in Virginia Beach. “For every large defense contractor, there are hundreds of small ones.”

They range in size and service from huge, well-known companies such as Northrop Grumman Corp. and Lockheed Martin Corp. to a Norfolk-based unit of Flowers Foods Inc., which makes bakery and cereal products, and Jo-Kell Inc. of Chesapeake, which supplies shipboard electrical systems. Even Landmark Media Enterprises LLC, owner of The Virginian-Pilot, publishes base newspapers under a defense contract.

Together, defense contractors pack an economic wallop.

Procurement contracts in the region totaled more than $8.3 billion in fiscal year 2009, according to the Hampton Roads Planning District Commission. Toss in other defense spending in the area, including salaries/wages as well as retirement/disability payments, and the Pentagon’s contribution to the local economy came to nearly $14.5 billion.

Of course, not all that money stays in Hampton Roads. When a contractor such as Northrop Grumman, for example, gets a large award for work on an aircraft carrier, its expenditures will be spread across a number of years and will include purchases of services and materials from companies outside of the region and the state.

Tracking defense contracting isn’t easy. An array of sources offer information , and their numbers don’t always align .

Since its launch in 2007, however, USAspending.gov has become the government’s showcase for user-friendly, publicly accessible federal spending data.
It presents a good picture of how many defense-contracting dollars have been committed to the region and how that spending has grown in recent years.
Defense contract awards for work performed in Congressional Districts 1, 2, 3 and 4 – which cover Hampton Roads but extend elsewhere in Virginia – grew 32-fold between fiscal years 2004 and 2008, from $421.7 million to more than $13.5 billion.

In the past two years, the totals began to slide – to $12.6 billion in 2009 and $11.8 billion in 2010.

****

ADS is one company whose revenues soared as defense-contracting dollars poured into the region.

Its roots go back to the 1980s, when it began as part of Lynnhaven Dive Center. “SEALs were coming in and buying their own stuff,” Philbrick said.

The company soon began to compete for – and win – defense contracts.

ADS was spun off as a separate company in 1997. Its CEO is Luke Hillier, whose father, Michael, founded Lynnhaven Dive Center. Its business has grown at a nearly incomprehensible rate, climbing from $18,380 in contract awards in 2005 to $1.08 billion in 2010, according to USAspending.gov data.

For the past four years, ADS has been the No. 1 defense contractor in the 2nd District – in terms of defense contract awards – eclipsing much larger and more nationally prominent contractors.

Some of ADS’ recent success is the result of a massive contract announced in January 2008. It lets ADS and four other firms compete for work worth up to $4 billion over as many as five years.

Yet even before winning that contract, the kinds of products in which ADS specializes – such as boots, socks, scopes, night-vision and infrared equipment, cold-weather and flame-retardant gear – positioned it to capitalize on the wars the nation is fighting in Iraq and Afghanistan.

The Defense Department is moving away from large programs that focus on aviation or other expensive platforms, to equipment and technology to protect the individual soldier, Philbrick said. “That’s our core business.”

While ADS ships massive amounts of supplies to U.S. troops in Iraq and Afghanistan, it is not a manufacturer, but what Philbrick calls a “value-
added distributor,” a kind of buyer for the Pentagon.

Years ago, if the Pentagon needed, for example, a flame-retardant glove, it would design and develop it itself, buy thousands of them and stockpile them in government warehouses, Philbrick said.

Today, it’s faster and more economical to buy “off-the-shelf” products on the commercial market.

ADS offers the Defense Department and government agencies one-stop-shopping for equipment and logistical support, buying the products that meet the necessary standards and then “kitting” – or assembling – them for shipping.

The company has an 85,000-square-foot kitting operation off London Bridge Road in Virginia Beach and employs more than 400 people. And, Philbrick said, it expects continued growth, so it’s building another kitting operation.

Not everyone is so optimistic, especially with the budget-cutting ax already falling in Hampton Roads.

“These are not easy decisions,” said Charles A. Schue III, president and CEO of UrsaNav Inc. in Chesapeake. “No matter what they decide, somebody in the United States is going to get hurt.”

Among other tasks, UrsaNav helps maintain and service the workhorse navigational radar systems used on most ships in the Navy and Coast Guard.

Schue and another Coast Guard vet established Ursa­Nav about seven years ago when they bought the East Coast operations of a California company.

Now with about 100 employees and annual revenues in the $20 million to $30 million range, UrsaNav has positioned itself in the defense sector as a product and service provider focused on maintaining and modernizing existing systems, sometimes referred to as “legacy systems,” Schue said. Its employees travel to vessels around the world to do repairs, make adjustments and train crew members.

Losing any contract would have a dramatic effect on Ursa­Nav.

“Large defense contractors have the ability to recover from losing 500, 1,000 or 1,500 people; as public corporations, they’re big enough to absorb that,” Schue said. “Small, typically privately held businesses don’t have that big a footprint; there’s much more of a drastic effect. The impact on small businesses is significant.”

Service-contracting companies that provide engineering, maintenance and information-technology services are likely to be more vulnerable to defense cutbacks, said Cindy M. Walters, director of Old Dominion University’s Government Sponsored-Industry Assistance Programs.

The Pentagon already is working to bring back under its roof work that it “outsourced” to businesses over the past 15 years, so “you don’t have as many contracts,” said Walters, who helps local firms get federal contracting work.

“My biggest concern is that we have this somewhat of a perfect storm going on,” she said. “For me, the foregone conclusion would be a cut in defense spending that would impact dollars for programs and contracts, across the board, that would affect our area.”

The impending closure of the Joint Forces Command, which provides research and development, modeling and simulation, and training to the military, will slow one flow of defense contracts for firms large and small in the region.

“Everybody’s kind of breathing a sigh of relief,” said Tom Mastaglio, CEO of Mymic LLC, of news that roughly half of JFCOM’s functions will continue in Hampton Roads.

Yet Mastaglio – a West Point grad, 22-year Army veteran and founding director of the Virginia Modeling, Analysis and Simulation Center in Suffolk in the late 1990s – said he’s not sure how much to buy in to what he terms “spin.”

“We’re on the slippery slope here,” he said. “If we’re not careful, there are going to be some significant issues for small businesses.”

The Portsmouth-based company employs about 80 people and has about $20 million worth of defense contract work, about 90 percent of its portfolio. It’s now on a mission to diversify its product line, creating computer programs to help train emergency medical response teams, provide therapy for people with brain injuries, and improve security at U.S. ports. It’s already won a contract with the Virginia Port Authority.

“As a region, we’ve got to look beyond defense,” Mastaglio said. “If you don’t want to end up like Detroit, we better figure out what we have, what our organic capabilities are and how we can use them to meet other needs, rather than being largely dependent on a single customer .”

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Others, however, believe that the region has such a well-established defense infrastructure, with facilities and a talent pool few other places can match, that it will continue to hold its own, at the very least, and even may see some growth.

“There’s a huge customer base there, and there’s a lot of talent,” said Dave Herr, president of BAE Systems’ Rockville, Md.-based Support Solutions sector. “It’s a good place to do business; it’s fairly diversified; I’d say it’s fairly well-positioned.”

BAE’s Support Solutions sector includes the Chesapeake communications facility, an office in Hampton and, most recognizable, its shipyard at the mouth of the Elizabeth River’s Southern Branch.

“The Hampton Roads area is actually fairly central to the BAE strategy,” Herr said.

Last summer, anticipating some of the shifts in the defense environment now under way, BAE reconfigured its businesses, shoring up the unit Herr heads, servicing and sustaining existing systems.

“We think there’s going to be rising demand to maintain and upgrade some of those older platforms,” Herr said.

The local shipbuilding and ship-repair industry, in which BAE is a player, contributes significantly to the region’s economy. Nearly one of every 11 jobs in Hampton Roads is directly or indirectly dependent upon the private-sector shipbuilding and repair industry, according to a 2007 study by Old Dominion University’s Economic Forecasting Project.

“Knock on wood, it’s not going to affect us very much,” said Malcolm Branch, president and CEO of the Norfolk-based trade group, of any defense-spending adjustments.

The port’s ship-repair facilities are virtually unparalleled, Branch said, and local firms have adapted to changes by the Navy that concentrate more work in one shipyard through “multi-ship, multi-option” contracts. The Navy’s 30-year plan calls for a minimum fleet of 313 ships. As long as they continue to be built and go to sea, Navy ships will require maintenance and periodic overhaul .

It’s that ongoing pace of operations that may secure continued defense contracting for businesses in Hampton Roads.

“When is that going to end?” asked Al White, an executive at BAE’s Chesapeake facility, pointing to a slide-show image of two camouflaged snipers in an Afghan-like setting, near a portable satellite dish. “When is the war on terror going to be over?”

Until that happens, he said, he’s not too worried.

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Lobbyist: Local cuts in military unlikely

Sunday, January 16th, 2011

Despite budget talk, Hirsch doesn’t see any major local cuts soon

Though the scissors are out in Washington, D.C., as lawmakers and leaders focus on budget reductions, including cuts of $100 billion in defense spending over the next five years, the outlook is upbeat regarding Brevard’s military installations.

That’s the view from the Capitol courtesy of Paul Hirsch, president of the D.C.-based lobbying group Madison Government Affairs. For more than a decade, Hirsch and his firm have worked with the Economic Development Commission of Florida’s Space Coast to represent Brevard’s military interests, centered on Patrick Air Force Base and Cape Canaveral Air Force Station.

(That meant, in the mid-2000s, helping guide the Space Coast through the Base Realignment and Closure, or BRAC, proceedings. While many communities were devastated by closures, both military installations in Brevard escaped unscathed.)

During a recent trip to Brevard, where Hirsch updated the EDC board at the agency’s quarterly meeting, he sat for an interview with FLORIDA TODAY. Here’s that discussion.

QUESTION: Are defense cuts on their way?

HIRSCH: Secretary Gates is in the process of identifying over $100 billion of savings and cuts that he will then plow back into the budget. In reality, in real dollars over the next three years, the Department of Defense budget grows by about 3 or 4 percent even with the reductions.

Now, that’s his plan and the Obama administration plan. But we have a new House of Representatives that was sworn in on Jan. 5 and they’re talking about budget reductions, and Speaker John Boehner has said there are no sacred cows, everything is on the table.

Q: So what’s the bottom line?

HIRSCH: My personal opinion is that I don’t think defense will sustain any major overall budget reductions in the next three or four years.

Q: But why is that? The atmosphere seems to be for budget reductions in all sectors?

HIRSCH: We’ve got a war in Afghanistan. We’ve got a draw-down in Iraq. We have international commitments. So I don’t see the budget decreasing. There will be different emphasis on international commitments and the things that we’re doing to combat terrorism.

Q: Who is going to play a key role in the U.S. House of Representatives as far as funding for places like Patrick and Cape Canaveral Air Force Station?

HIRSCH: Bill Young (R-Largo) is chairman of the Defense Appropriations Committee and he’s from Central Florida. He has been a great advocate for the men and women in uniform. I feel really good that Congressman Young is there.

Q: So Rep. Young will be good for the Space Coast and Central Florida?

HIRSCH: It was tremendously good news that he was named chairman. Obviously, if he were named chairman of the appropriations committee it would be even better. But the defense appropriations job, in my mind, is probably the most important subcommittee on appropriations in the House.

Q: You and your firm were heavily involved in ensuring Patrick stayed open during the BRAC hearings in 2004. What is the outlook for Patrick and other Brevard military installations now?

HIRSCH: I think commercial space in regard to Cape Canaveral Air Force Stations will see increased activity. You’re going to see rejuvenation of the Eastern Test Range infrastructure. I think you’ll see more unmanned aerial vehicles — all the military services are big on UAVs. From that standpoint, the Patrick Air Force Base complex is in good shape when it comes to a future BRAC round.

Q: Does the area offer any more selling points as far as the military is concerned?

HIRSCH: Obviously military value is the most important thing when looking at military bases in a BRAC round but there are a lot things taken into consideration.

One is: What kind of quality of life the service men and women and their families will have in the location. Overall, I think Patrick’s in a good position.

Q: How important is the relationship between the non-military community and the military installations when the military looks at adding programs or cutting back?

HIRSCH: There are not any community issues here that you might see at other locations around the country. This is a community that recognizes the value of not only the military base presence and the economic activity but they recognize the value of the people that serve here. That goes a long way when the Pentagon looks at base closures and realignments.

Q: What are the local economic reverberations of a base closure or even reduced spending to a military facility?

HIRSCH: For every military or civil service job you lose on a military base or installation, you can see about three jobs in the community going away. That’s support jobs, groceries, the barber shop, department store. All those kind of jobs go away.

Q: Would you describe Brevard County as a military community or is it more diversified?

HIRSCH: I think there is diversity here. There are a lot of defense institutions here — DRS, Harris, just to name two. It’s a community focused on defense and space, and we all know what’s going to happen in the next couple of years with regards to space.

A closure or major realignment of Patrick would have an effect. But I don’t see that happening here. The EDC and elected officials have really worked hard post-2005 BRAC to make sure that PAFB and the complex from a military value standpoint is 100 percent.

Q: Will the end of the shuttle program take away Brevard’s prestige in Washington?

HIRSCH: It’s a little outside the box for me to talk about space but obviously when you lose something as prestigious to the American people as a manned space program, even if it’s only temporary, it’s going to hurt.

But there’s a lot of things going on at Cape Canaveral with trying to increase commercial space activity that obviously is significant, and will become more significant as time goes on.

Q: How does your firm go about working to enlarge and enhance Brevard’s military interests?

HIRSCH: Here is the first thing we do: We make this the most enticing, wonderful place to move missions or accommodate missions. From a military standpoint, there’s no encroachment here.

There’s a good work force here. There are a lot of good flying days here. It has a lot going for it from a military-value standpoint. You have to start with good foundation, and the foundation is that Patrick Air Force Base and Cape Canaveral Air Force Station is a great place to add missions.

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