Battleground Dispatches: Sequestration a ‘Main Street’ Issue in Virginia

BY Mike Melia and Beth Garbitelli  October 23, 2012 at 2:03 PM EDT

Coming into PortSailors man the rails aboard the aircraft carrier USS Enterprise in Norfolk, Va. Virginia has a high concentration of military and defense jobs that could be threatened if plans for sequestration are enacted in January. Photo by Eric S. Garst/U.S. Navy via Getty Images.

In the battleground state of Virginia, voters are not only eyeing the candidates on the ballot, but looking beyond Election Day at the prospect of severe cuts to the federal budget triggered by the debt-ceiling stalemate last year. Known as sequestration, the automatic cuts set in motion by the Budget Control Act of July 2011 would reduce the nation’s gross domestic product (GDP) by $215 billion and cost the country 2.14 million jobs, according to analysis by economist Stephen Fuller at George Mason University, funded by the Aerospace Industries Association.

The issue of sequestration, particularly cuts to defense spending, was one of the many topics addressed Monday night in the third presidential debate.

“We’re blessed with terrific soldiers, and extraordinary technology and intelligence. But the idea of a trillion dollar in cuts through sequestration and budget cuts to the military would change that,” Republican presidential nominee Mitt Romney said.

But President Obama surprised some by claiming the cuts will not happen. “First of all, the sequester is not something that I’ve proposed. It is something that Congress has proposed. It will not happen,” Mr. Obama said. “The budget that we are talking about is not reducing our military spending. It is maintaining it.”

It is up to Congress to stop the cuts in the lame-duck session after the election and it remains unclear if a compromise can be reached before January, when the cuts are slated to begin.

Virginia is one state where these cuts would have a major impact on the local economy. “This could very easily push the Virginia economy into recession,” Fuller told the NewsHour.
He explains the state has just 2.6 percent of the nation’s population, but 12.1 percent of all federal sequestration cuts would come from Virginia. The bulk of those would come from reductions in defense spending.

“Seventy-five percent of these [defense] dollars are in Northern Virginia and 17 percent are in Hampton Roads,” said Fuller. “When they roll through the economy, 45 percent of the impacts will be jobs at companies that didn’t know they had any direct connection to federal spending. They are main street.”

All told, if nothing is done in a lame-duck session, Virginia is poised to lose more than 200,000 jobs.

In the third installment of our series, “Battleground Dispatches,” Cathy Lewis of WHRO in Norfolk, Va., reports on how sequestration will impact the Hampton Roads region. There, 6 percent of the population wears a military uniform and another 40 percent work in businesses that support them.

“The debate going on around budget sequestration, as far as our company is concerned, is really what does this business look like five years from now?” said Mike Petters, President and CEO of Huntington Ingalls, parent company of Newport News Shipbuilding. They’re Virginia’s largest industrial employer and the only shipyard in the country that can build nuclear powered aircraft carriers.

Their contracts are safe for the moment because military projects often look at least five years ahead due to the fact it takes a long time to build things like ships and submarines, but Petters is concerned about the impact of cuts on his suppliers.

“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 workforce and facilities to support the next level of Navy shipbuilding,” Petters said.

Fuller estimates that more than 30,000 federal employees would lose their jobs immediately in the first round of cuts starting in 2013. An additional 47,800 direct contractor jobs would also be affected rather quickly.

Fuller explains different parts of the state get money for different types of things. Northern Virginia tends to have more technology related federal and defense jobs that pay 30 percent to 40 percent higher salaries than the more industrial manufacturing jobs around Hampton Roads, about 200 miles south of Washington, D.C.

Yet, in Northern Virginia defense contractors have not been planning on dealing with sequester cuts in the near future, in part response to instruction from the federal government. On Sept. 28, The White House Lockheed Martin and General Dynamics confirmed that WARN notices will not be sent out to employees at this point, despite the proximity to the January sequester date.

Lockheed Martin spokesperson Jennifer Allen said in a statement that new timelines released indicated that changes in contracts would not occur for several months after the sequester cuts are timed to go into effect.

Rob Doolittle of General Dynamic stated that a lack of details about the process hindered any action on the company’s part. “We can’t really make an accurate assessment about the effect on our employees,” Doolittle said.

Despite uncertainty and speculation, the specter of sequestration has become fodder for campaign rhetoric in the close senate race in Virginia between former Democratic Gov. Tim Kaine, and former Republican Sen. George Allen. They sparred over the possibility of cuts in their latest debate.

Kaine argues an increase in revenue can offset any potential defense cuts.
“The Bush tax cuts are set to expire at year end and if we do it right, we can avoid defense cuts. If we let the Bush tax cuts expire (for those making) over $500,000 that raises $500 billion of revenue over the next ten years,” Kaine said. “We’re facing a sequester cut of a trillion dollars on defense and non-defense if we don’t come up with a solution.”

Allen contends that jobs should be protected and military personnel should be left out of the campaign.

“They should never be used as a political bargaining chip to raise taxes on job-creating, small businesses,” he said.

In the closely watched House race for the second district — a seat that has switched parties twice in recent years — freshman Republican Rep. Scott Rigell has had to defend his vote for the automatic cuts that were part of the resolution of the debt-ceiling stalemate last year. And he argues they have since worked in the House to protect defense spending from being cut.

“I think we need to remember that we are right at the precipice of an economic, serious situation because of reaching the debt limit. I’ve actually amended the National Defense Authorization Act with an amendment that would stop sequestration if it would be acted upon in the Senate,” Rigell said.

His Democratic opponent is Paul Hirschbiel, 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.
“It’s going to take compromise, that’s not a dirty word when it comes to making sure we don’t hurt and cripple our economy in Hampton Roads,” Hirschbiel said.

Tune in to Tuesday’s NewsHour to watch Lewis’ report from Hampton Roads. It is the third segment in the NewsHour’s series, “Battleground Dispatches,” a project funded by the Corporation for Public Broadcasting in collaboration with public media partners around the country to bring you stories from areas critical to this year’s election.