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Congressional Sequestration Squabble Has Local Economic Resonance in Virginia

October 23, 2012 at 12:00 AM EST
In the latest installment in our Battleground Dispatches series, Cathy Lewis of WHRO in Hampton Roads, Va., looks at how concern over sequestration is playing out as a local voting issue. Gwen Ifill talks to Roll Call's Steve Dennis and Josh Rogin of Foreign Policy about how congress is working on facing its budget negotiations.
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GWEN IFILL:  Another topic raised last night: the cost of slashing the federal government.  Congress agreed to deep across-the-board cuts known as sequestration as part of a deal to raise the nation’s borrowing capacity. 

But President Obama said those cuts, which would kick in January 1, are avoidable. 

PRESIDENT BARACK OBAMA:  First of all, the sequester is not something that I have proposed.  It is something that Congress has proposed.  It will not happen. 

The budget that we are talking about is not reducing our military spending.  It is maintaining it. 

JUDY WOODRUFF:  It is up to Congress in the lame-duck session after the election to resolve the issue of sequestration.  But the prospect of those cuts, in particular for defense, has some voters worried, especially those who live in Southeastern Virginia. 

That area, with its large military population, is focused on how the cuts would affect the local economy. 

Our story comes from Cathy Lewis of WHRO in Hampton Roads and is part of our new collaboration with public media partners across the country.  We’re bringing you reports from areas that will likely dictate the outcome of the election in a series we call Battleground Dispatches. 

CATHY LEWIS, WHRO:  Are you aware of the term ‘sequestration’? 

WOMAN:  No. 

CATHY LEWIS:  Are you familiar with the terminology ‘sequestration’? 

MAN:  Say again. 

CATHY LEWIS:  People here in the Hampton Roads region might not be able to define sequestration, but with the largest military concentration in the country, they know big cuts to defense means the loss of lots of jobs. 

MAN:  For lots of military here, you have lost a lot of work.  You’re going to put a lot of people out of work.  Most — the majority around here work the Navy vessels.  And that’s all the jobs.  If you cut the government spending, you’re cutting jobs.  And that’s going to trickle on down to where, if the people aren’t working, then they’re not spending the money out in the economy. 

CATHY LEWIS:  Six percent of the population here wears a military uniform.  And another 40 percent work in businesses that support them. 

MAN:  We bring a lot of employment opportunities here by having the Navy down here.  So, if they cut back on that, that will hurt the economy a lot. 

CATHY LEWIS:  With the drawdown of military operations in Iraq and Afghanistan, defense spending will already be shrinking.  But without congressional action, the automatic cuts scheduled in January by sequestration will cost Virginia more than 200,000 jobs, most of them in defense. 

MIKE PETTERS, President and CEO, Huntington Ingalls Industries:  We have an aircraft carrier to go under construction next year, the Kennedy.  We have a carrier to be refueled that will go under contract next year.  We have a carrier to be inactivated.  The Enterprise would go under contract next year.  And we have another bloc of submarines to go under contract in the next year or so. 

CATHY LEWIS:  Mike Petters is a native area and president and CEO of Huntington Ingalls, the parent company of Newport News Shipbuilding.  They’re Virginia’s largest industrial employer and the only shipyard in the nation that can build nuclear-powered aircraft carriers or, as they’re known around here, 90,000 tons of diplomacy. 

Their contracts are safe for the moment, but their future is less certain. 

MIKE PETTERS:  The debate that’s going on around budget sequestration as far as our company is concerned is really what does this business look like five years from now, because it will be future work that might have to be moved around or shifted around that would be work we would be doing in the five- to 10-year time frame. 

CATHY LEWIS:  Petters is also concerned about the impact of cuts on his suppliers. 

MIKE PETTERS:  We have 5,000 suppliers in all 50 states.  And those folks are sitting there looking at what are the orders that are coming out of the business now, what are the investments we need to make in our work force and in our facilities to support the next level of Navy shipbuilding? 

CATHY LEWIS:  Military contracts often look at least five years ahead because it takes a long time to build things like ships and submarines. 

MIKE PETTERS:  The politics are interesting.  The election is important.  I encourage everybody to participate, but when it comes to our business, the things that we do, we’re doing for the president after next. 

CATHY LEWIS:  Quentin Kidd is a professor of public policy at Christopher Newport University. 

DR. QUENTIN KIDD, Christopher Newport University:  Whether you’re in the military or not in Hampton Roads, you’re aware of the impact of the military’s spending in Hampton Roads.  And you’re aware of the potential devastating impact of cuts, either slow cuts or dramatic cuts. 

CATHY LEWIS:  And in this battleground state, the issue is on the minds of voters eying close races for the House, Senate and the White House.  President Obama and former Governor Mitt Romney’s campaigns have devoted time and money here in hopes of securing its 13 electoral votes. 

Both candidates have made repeated visits to the region.  In fact, it was here along this working waterfront lined with military vessels where Governor Romney introduced his running mate to the nation. 

In the closely watched race for the Second District here, a seat that has switched parties twice in recent years, Republican Congressman Scott Rigell has had to defend his votes for the automatic cuts that were part of the resolution to the debt ceiling stalemate last year, and argues they have since worked in the House to protect defense spending from being cut. 

REP. SCOTT RIGELL, (R-Va.):  I think we need to remember that we are right at the precipice of an economic, serious situation because of reaching the debt limit.  We have acted and led.  I actually amended the National Defense Authorization Act with an amendment that would stop sequestration if it would be acted upon in the Senate. 

CATHY LEWIS:  His Democratic opponent is Paul Hirschbie, a successful entrepreneur and philanthropist.  He says he wouldn’t have voted for the debt deal that triggers the cuts, but would have pushed for other cost-cutting strategies like negotiating for better Medicare drug prices and ending tax cuts for those making more than a million dollars. 

PAUL HIRSCHBIE, Democratic Congressional Candidate:  It’s going to take compromise.  That’s not a dirty word when it comes to making sure that we don’t hurt and cripple our economy in Hampton Roads. 

CATHY LEWIS:  The automatic cuts are not a sure thing if Congress in a lame-duck session can come to an agreement.  Each side is using the spat to make political points.  Democrats denounced the cuts, calling for more revenue by taxing the wealthy, and Republicans are proposing to undo the defense cuts or swap them with further reductions in other parts of the budget. 

But their prospects are cause for real concerns in this state, which is home to 20 major military installations. 

DR. QUENTIN KIDD:  We still have a little bit of time between the election and the 1st of January where we may find a compromise worked out.  If so, they have waited an awfully long time and caused people a lot of heartburn to get to that compromise. 

CATHY LEWIS:  Which explains why voters here are as interested in what happens after the election as they are in what happens on November 6. 

GWEN IFILL:  So, how did we get to this pass and what happens next? 

To help us sort that out, we’re joined by Steven Dennis, who covers the White House for Roll Call newspaper, and Josh Rogin, a staff writer with “Foreign Policy” magazine and the author of The Cable blog. 

Steven Dennis, how did we get to this pass?  The president said last night it was really Congress that did this, and some people said, no, the White House had a role.  How did we get to this?

STEVEN DENNIS, Roll Call:  Yes.  I think a lot of folks were shaking their heads, wondering what he was saying, because the reality is the president was involved.  He helped craft this deal. 

This sequestration is really a symptom of Washington’s failure to get a budget deal.  For 18 months, the two sides have been squaring off, and the Democrats are off in their corner saying we need to raise taxes on the wealthy.  And the Republicans are saying we have to have a cuts-only plan. 

And when they cut this deal a year-and-a-half ago, it was designed to bring the two parties together, to make it so onerous that both sides had to come together.

GWEN IFILL:  Nobody thought it was ever going to be real. 

STEVEN DENNIS:  Yes. 

I think that basically the idea was the super committee was going to take a crack at coming up with an alternative.  They failed.  And since then neither, party has really — you know, there hasn’t been much in the way of talks at the high level.  There have been a lot of behind-the-scenes talks and there’s a lot of optimism in recent weeks at sort of the staff level and members of Congress trying to come up with some kind of compromise. 

And, you know, the reality is, when something in Congress nobody wants — the Democrats don’t want these cuts, the Republicans don’t want these cuts, the president doesn’t want these cuts — chances are these cuts aren’t actually going to take place. 

GWEN IFILL:  Well, let’s assume for a moment that nothing happens, which has been known to happen in Washington, Josh Rogin.  So, what would happen at the Pentagon?  What would happen in defense if these cuts were to take effect?  How many jobs, for instance, would be affected? 

JOSH ROGIN, Foreign Policy:  Sure. 

It’s important to caveat that none of this is set in stone.  What we’re talking about here are cuts in the fiscal 2013 budgeting and beyond.  What the Pentagon does is, they budget this advance.  So, on January 2, nothing actually changes.  The Pentagon and its contractors are working based on last year’s contracts, obligated funds.

And this surrounds the whole controversy of when contractors would be forced to cut workers, issue layoff notices, because, on January 2, nothing actually kicks in.  Then begins the process of figuring out how these cuts, again, spread out over 10 years, cuts from projected budgets, not actual budgets, hypothetical budgets even, would then be implemented through the programs. 

GWEN IFILL:  But Mitt Romney has been saying on the campaign trail, with presumably is what the president was responding to last night, this guy is going to cut the Navy.  He’s going to cut.  He’s going to make us weak with these cuts that he has endorsed. 

JOSH ROGIN:  Right. 

So, there’s two things that Mitt Romney said which I think don’t really have a lot of analytical basis.  One is that there’s $1 trillion in cuts.  He’s conflating the sequestration cuts with $487 billion of savings over 10 years that the Obama administration has already put into last year’s budgets. 

Those were savings based on projected budgets again.  They didn’t actually cut the level of the budget.  For me, a cut is when the number goes down, not when you save from future increases.  And the second thing that he said is that this would take our 285-ship Navy down to the low 200s. 

Now, again, we don’t have planning on what these cuts would mean.  Nobody is really sure exactly where the cuts would come.  A document mandated by Congress in the Sequestration Transparency Act forced the administration to outline cuts.  And what they did was, they eliminated a flat percentage from all the accounts, which doesn’t lead us to any conclusions about how many ships or how many plans or how many missiles or how many soldiers would suffer.  It all remains to be seen. 

 (CROSSTALK)

STEVEN DENNIS:  But there have been economic analyses by folks outside and academics who have said that these cuts could lead to the loss of a million jobs on the defense side alone, and maybe another million on the other side of sequestration, which we haven’t talked about much, which is on the economic — which is on the domestic side. 

GWEN IFILL:  Which is my next question.  This is not just about the military. 

STEVEN DENNIS:  Absolutely. 

Every part of the government would be affected.  Medicare payments to doctors would be cut by 2 percent.  Things like food safety inspectors.  The government has warned that FBI agents could be left off.  All kinds of things could happen if this lasts more than a few weeks. 

The reality is that there is probably some time early in January with the new president, whoever it is, sworn in to deal with this situation.  And, you know, the thing is that people talk about it being a trillion-dollar issue.  That’s a 10-year issue.  It’s $109 billion next year. 

If you guys — if the Congress can come together on something like $50 billion, they can kick it halfway into next year and have time to deal with it in sort of a more rational basis. 

GWEN IFILL:  And but — Josh Rogin, one of the things that has to happen, as you pointed out, people plan ahead.  These defense contractors plan ahead.  These people who are building the planes and the ships plan ahead.  Don’t they have to base their budget based on what they know, which is what the deal is? 

JOSH ROGIN:  Right. 

First, let me say I largely agree with everything Steven said.  But, again, these are all economic analysis based on possible contingencies. 

GWEN IFILL:  Right. 

JOSH ROGIN:  We’re going to have two chances to avoid this, once in a lame-duck session, which could go one way if Romney is elected and another way if the president is reelected. 

GWEN IFILL:  What do you mean by that?

JOSH ROGIN:  In a lame-duck where the Democrats maintain control of the Senate and the president is reelected, we will have a much longer lame-duck, with a much greater opportunity for more leverage on the president, more — greater opportunity for revenues to be included in a grand bargain. 

If the Republicans take over, it’s likely that we won’t have a very robust lame-duck session.  Either way, when the Congress comes back in January, the Republicans will likely still control the House.  And they likely will not implement these cuts, one way or the other. 

GWEN IFILL:  Have either of you heard any movement on this?  Everyone is saying, oh, it can’t possibly happen.  That’s what the president said last night.  But is anything actually going on, briefly? 

JOSH ROGIN:  So, what’s interesting is that the actual — and maybe Steven knows this better than I — but the actual top-level negotiations are dormant.  They’re not going on. 

There’s a lot of movement on the political front.  Again, it’s in certain people’s interest to push this issue before the election for political purposes.  That’s why we see a lot of campaigning on this.  And it’s in the interest of the incumbent to wait until after the election and push this down the road a little bit. 

STEVEN DENNIS:  There’s also a lot of work at the staff level, people coming up with scenarios, things like, maybe you could take Mitt Romney’s idea of capping deductions for the wealthy, and use that to raise a little bit of revenue, maybe not bring the rates down to 28, but have them not go up to 39 percent. 

GWEN IFILL:  So, perhaps there is still some hope somewhere?

 (CROSSTALK)

STEVEN DENNIS:  There’s some talk.

And you have a number of Senate Republicans, particularly hawks like John McCain and Lindsey Graham, who have been pushing their colleagues to compromise.  And the question is whether House Republicans are going to be willing to go along. 

GWEN IFILL:  Steven Dennis, Josh Rogin, thank you both very much. 

STEVEN DENNIS:  Great to be here. 

JOSH ROGIN:  Thank you.