Automatic cuts looming in federal budget could affect Maine defense contractors

BANGOR, Maine — Substantial across-the-board budget cuts that will kick in automatically next year if Congress fails to act first could result in the loss of almost 6,000 military-related jobs and private-sector earnings of $239 million in Maine.

Last August, when Congress agreed to raise the country’s debt ceiling after prolonged debate, a provision was included in the Budget Control Act that unless lawmakers can balance the federal budget by finding some $1.2 trillion in spending reductions by next year, nondiscretionary spending would suffer approximately 10 percent across-the-board reductions. In the Department of Defense, that translates to about $500 billion between 2013 and 2021 — and that’s on top of $487 billion in long-term cuts ordered by the Obama administration earlier this year, according to a report by a think tank called the Center for Security Policy.

Though members of Maine’s congressional delegation said they seek to avoid the automatic cuts, which are known as “sequestration,” they acknowledged that finding common ground between the two major political parties on where to cut is a challenging proposition. A bipartisan congressional budget “super committee” already convened last year but failed to settle on where the cuts should go.

“The effects of sequestration will be significant nationwide and in the state of Maine,” said Rep. Mike Michaud in a written statement. “Cuts to defense programs will affect the companies and shipyards in Maine that are part of our industrial supply chain, just like cuts to nondefense spending will affect programs that receive federal funding or provide federal services.”

From a national defense standpoint, the cuts would be disastrous, according to Defense Secretary Leon Panetta, who in 2011 said sequestration would be like “shooting ourselves in the head.” But the 10 percent cuts also would subdue the economy in Maine and elsewhere.
According to a 2011 study by Bloomberg Government, which was analyzed by the Congressional Research Service, Maine ranks 15th in the nation for its dependence on defense spending. That ranking derived from military spending as a percentage of the state’s gross state product, which according to the report stood at 4.8 percent as of last year. That loss could amount to some $348 million of Maine’s gross state product.

Though any measure of sequestration’s overall effect in Maine is speculation because the Department of Defense has not detailed where the cuts would be achieved, Panetta has said that among the likely targets would be in the F-35 Lightning II fighter jet program. Components for the F-35 are built by General Dynamics Armament and Technical Products in Saco and Pratt & Whitney in North Berwick.

Matthew C. Bates, a spokesman for Pratt & Whitney’s military engines sector, the long-term effects of sequestration are unclear.

“Congress and the administration still have to work out the details of the budget cuts called for in the recent legislation, and the Pentagon has not yet given any specifics regarding specific programs that may be affected,” said Bates in a written statement to the Bangor Daily News. “Without more guidance from the government, we simply do not know what the effects will be.”

The Center for Security Policy report said Maine defense contractors earned nearly $5 billion in 2011 and estimated that they could lose revenues in excess of $898 million per year. In addition to 4,000 or more expected layoffs at defense contractors, sequestration could result in job losses for 122 active-duty military employees and more than 1,700 civilian Department of Defense employees, according to the study. That’s a total of 5,913 potentially lost jobs spread among 1,063 Maine businesses and numerous military outfits.

Most military dollars, about $4.5 billion in 2011, coming into Maine are concentrated in Sagadahoc County, the home of Bath Iron Works. Navy Adm. Jonathan Greenert has said that sequestration would result in the loss of some shipyards — though he didn’t say which ones — and a reduction in the military’s ocean-going fleet from about 285 ships to about 230.

“I’m very concerned about an industrial base that would be able to adjust from sequestration,” said Greenert in 2011. “And it would be very difficult to keep a shipbuilder that could be efficient in building the types of ships we need.”

BIW spokesman James DeMartini told the Bangor Daily News that the company had little reaction to what amounts to generalized estimates.

“As of yet, the Department of Defense has provided no indication how they will apply the cuts mandated by sequestration should it go into effect,” he said in a written statement. “Until the DOD announces their plans or decisions, any comments from BIW on the subject would be pure speculation on our part.”

Other Maine counties also brought in substantial military contracts in 2011, including Cumberland, $289 million; Penobscot, $60.5 million; Waldo, $43.4 million; and York, $25.3 million.

Sen. Olympia Snowe, in a statement last year, called the super committee’s failure “yet another regrettable milestone in Congress’s steady march toward abject ineffectiveness.” She later said that part of the problem is political positioning leading into the November elections — and the fact that a lame-duck Congress will be forced to deal with sequestration and a number of other important issues by the end of this year.

U.S. Sen. Susan Collins, in a speech to the Surface Navy Association earlier this year, praised strong support in Congress for the 2011 National Defense Authorization Act, but said the future is troubling because of a “backdrop of a toxic partisan environment that has continued to get worse,” according to text of the speech on her website.

“I almost voted against the bill that established the super committee because of the disproportionate cuts to defense that would occur under sequestration if the super committee failed,” she said. “Ultimately, I voted in favor of the measure because my leadership assured me that sequestration would never happen. So much for that prediction. … We now face automatic spending cuts that are slated to begin next year that would undoubtedly result in serious consequences for our national security. Sequestration remains the giant sword of Damocles hanging over our collective head.”