Fri March 1, 2013
St. Louis Defense Industry Braces For Sequester
Earlier this week the Obama Admiration released a state-by-state breakdown of the $85 billion in cuts slated to kick in on Friday.
The report details cuts to expenditures ranging from teachers and schools, to air-traffic control, to public health and head start. Among the line-items slated for the largest cuts is military readiness and defense, or more specifically by civilians working for the Department of Defense.
In the St. Louis region, the defense industry occupies a large footprint. According to the White House figures, 8,000 civilian Department of Defense employees in Missouri would be furloughed, reducing gross pay by around $40.3 million.
Across the river in Illinois, Scott Air Force Base in nearby Mascoutah employs over 5,000 civilians, many of whom have already received warnings of impending one-day-per-week furloughs for the remainder of the fiscal year (Oct 1.)
Speaking at Scott AFB earlier this week, Illinois Senator Dick Durbin pointed out that the sequester was never meant to be applied as actual policy.
“Sequestration is not a budget strategy, it was budget threat,” Durbin says. “We said, when we passed sequestration, it will be so bad it will never happen.”
But not everyone feels the situation is as drastic as Senator Durbin and the President claim.
“I’d say the effect is likely to be fairly minimal,” says Washington University Economics Professor Glenn MacDonald.
MacDonald says these 9 percent cuts aren’t really cuts at all, rather it’s just reigning in future increases.
“Nobody in the defense industry things that they were going to get to spend 9-percent more, every year, out into the future,” MacDonald says. “Are we really going to be spending a lot less on Boeing than we thought we were going to be? I mean, people at Boeing probably don’t think so.”
As reported in the Marketplace Morning Report, giant defense contractors such as Boeing, would be somewhat buffered from the immediate impacts of the sequester. Boeing maintains a workforce of about 15,000 employees in the St. Louis region.
“The way the Pentagon awards contracts, that money spends out over actually a longer period of time,” says Roman Schweizer, Defense Policy Analyst at Guggenheim Securities. “So the brunt of that 9 percent cut would be spread over the course of anywhere from one to three to five years.”
Even more disruptive to companies, Schweizer says, is the long-term uncertainty, caused by the failure of Congress to pass a national budget, and continuing to function via continuing resolution.
The sequester would not touch the two largest entitlement expenditures: Medicare and Medicaid.
Follow Adam Allington on Twitter: @aallington