Thu June 20, 2013
Sequester-Related Defense Cuts Hit North Carolina Businesses
In North Carolina, the defense industry is one of the largest drivers of the state economy. Nearly half a million jobs rely on it. But the military lost more than 10 percent of its budget this year to the policy known as “the sequester” and other federal budget cuts. The state economy is starting to feel the effect.
Even a small cut can create a ripple effect. The army closed the Airborne Special Operations Museum in Fayetteville, just during the week. The museum still opens Friday through Sunday.
But, the museum draws 150,000 visitors a year to downtown Fayetteville. It is one of the top attractions in Cumberland County, where tourism accounts for nearly a half-billion dollars of the local economy each year, according to the N.C. Department of Commerce.
Major Christopher Curley pulled over to see the museum.
“I just happened to be driving by, it’s my second day at Ft. Bragg, I’ve never been here, before and I saw the flags, and so I had to stop and take some pictures,” he says.
Business owner John Malzone says visitors stop at his coffee shop, or have dinner at a downtown restaurant, or shop at the Cross Creek mall. And since the closure, Malzone has seen a noticeable slowdown.
“It’s a major tourist attraction and we downtown count on that traffic. We do,” Malzone says.
The museum closure is a tiny cut compared to the 46 billion dollars the Pentagon must shave from its budget this year—nearly 12 percent. Because of the across-the-board nature of the cuts, nearly every division is affected, other than troops actively fighting in wars.
The Air Force is standing down more than a dozen fighter and bomb squadrons. The Navy is reducing ship operations. 250,000 civilian workers are being furloughed for about two weeks. The Army has halted training for any units that aren’t scheduled to deploy. Malzone says he used to hear the gunfire at Fort Bragg from his home near the base.
“It’s down to nothing. Everyone of those [bursts of gun shots], that’s like, that could be a hundred bucks,” Malzone says. “All of that went away and it’s been gone for a couple of months.”
On bases, most new construction has stopped. Maintenance on buildings and vehicles has been postponed.
The difference is noticeable on Fort Bragg; many construction sites sit empty, including a newly-finished barracks, which will not house any troops for the foreseeable future. A Bragg spokesman says the base cannot afford the maintenance. The base also closed medical clinics and pharmacies on various weekend days.
All of those cuts to construction, maintenance, salaries, and contracts are money out of the economy. The Congressional Budget Office, which is non-partisan, expects the U.S. economy to grow this year as we continue to recover from the recession, but by about half of what it would without the sequester.
“The economy grew only 2.5 percent in the first quarter of this year, in large part that was due to the sharp 11.5 percent drop in military spending,” says Nayantara Hensel, a professor at National Defense University and former Chief Economist of the Navy. “That’s just looking at the direct impact in the decline of military spending, but there’s also the flow-through effects.”
Flow-through effects, like at that museum in Fayetteville—the Army stops spending thousands, but the city loses much more from a drop-off in tourism. In North Carolina, defense is the second-largest industry, according to government statistics. It accounts for 8 percent of the state economy each year and more than 400,000 jobs.
But the state could be in line to lose more than 34,000 of those jobs over the next decade, due to the defense cuts, according to a report from the National Association of Manufacturers. But, this comes at a time when the economy is growing, so the report’s author—Jeff Werling, economist at University of Maryland—says it may be harder to see.
“It’s not so much that you’ll see jobs collapsing,” Werling says. “It’s just that they’re going to grow a lot slower than we would have expected otherwise with the sequester.”
Defense contractors in the state are already reporting choppy water. Kathleen Volandt is a Gulf War veteran who runs the consulting business Auroros out of Raleigh. The company looks for waste and inefficiency in government programs. Volandt says this year, her company planned to bid on 10 contracts, but 8 were canceled.
Volandt says defense contracts have “traditionally been 90 percent of our business, now it’s maybe 20, 30, 40 percent of our business.”
“Every single company I know—every single company,” she says, “has been affected by sequestration.”
Larger companies, including Northrop Grumman have filed WARN Act notices, notifying the state about intended layoffs. Defense companies have filed notices of over 400 intended layoffs in the last three months.
This is the beginning of the sequester’s effect. Despite all the cuts made so far, Pentagon officials told lawmakers in Washington the agency is still running a $30 billion shortfall this year, mostly due to unexpected war costs. And in October, the next fiscal year begins, when there are even bigger hits.