1.16.13 Quote of the Week

“And the fact is…we have no idea what the hell’s going to happen. All told, this uncertainty, if left unresolved by the Congress, will seriously harm our military readiness.” Leon Panetta, Secretary of Defense

During a rare press conference the Secretary of Defense Leon Panetta was joined by the Chairman of the Joint Chiefs of Staff General Martin Dempsey to discuss the devastating budget cuts bearing down on his department. He explained that sequestration, coupled with an expiring continuing resolution and the need to maintain readiness, have combined to be a perfect storm that could threaten to push the department to a “tipping point.”

During the press conference it was made clear by Panetta that sequestration will render our defense strategy unexecutable and leave us with a hollow force incapable of resetting capabilities or responding to emerging national security dangers.

The full transcript from the press conference may be viewed at www.defense.gov.

Help us continue the fight against sequestration by getting active online. Tweet using the hashtag #StopSequestration to let everyone know that you think this bad policy must go.

New study warns of sequestration impacts to NASA, NOAA programs

A new economic impact analysis concludes that over 20,000 NASA contractor jobs and over 2,500 NOAA jobs related to weather satellites could be lost in 2013 if the Budget Control Act’s sequestration mandate takes effect on January 2, 2013.

“This report demonstrates that the biggest single threat to our space programs’ continued success are arbitrary and capricious budget cuts,” said AIA President and CEO Marion C. Blakey. “NASA and NOAA are responsible for cutting edge activities that expand the boundaries of knowledge and discovery, lead to economic innovation and save lives. We can’t afford not to invest in these sources of American scientific and technological greatness.”

Dr. Stephen S. Fuller, Dwight Schar Faculty Chair and University Professor and Director for Regional Analysis at George Mason University, conducted the study on behalf of the Aerospace Industries Association.

Dr. Fuller’s analysis found that in addition to threatening the jobs of many of the scientists, engineers and technicians that design, manufacture and operate our nation’s spacecraft, sequestration would also deal major damage to those regions of the country with high concentrations of aerospace activity, better known as industry clusters. “The importance of maintaining these clusters cannot be overstated,” notes Frank Slazer, AIA’s Vice President of Space Systems. “Clusters have been shown to promote economic efficiencies and specialization, encourage innovation and entrepreneurship, and drive prosperity for entire regions.”

Impacted “clusters” in the study include those in Alabama, California, Colorado, Florida, Louisiana, Maryland, Mississippi, Ohio, Texas, Utah and Virginia.

Sequestration Study: 956,181 Small Business Jobs at Risk

New analysis projects nearly half of 2.14 million sequestration-related job losses to hit small business

Arlington, Va. – A new analysis of an economic report concludes that 956,181 small business jobs nationwide are among those at risk under sequestration, a finding that heightens concern about widespread job losses across defense and non-defense employers of all sizes starting in 2013.

The analysis updates a study conducted for the Aerospace Industries Association in July by Dr. Stephen S. Fuller, Dwight Schar Faculty Chair and director for Regional Analysis at George Mason University, in conjunction with Chmura Economics and Analytics.

The study projected a loss of 2.14 million American jobs in the event that Budget Control Act mandates take effect on January 2, 2013 – the date on which $1.2 trillion budget cuts begin to impact federal programs.

“Further analysis shows that nearly half of all sequestration job losses would come from small businesses,” said Fuller. “This is a crucial finding given the importance of small business job creation to the economy and their role as sources of innovation for national defense.”

Fuller’s analysis concludes that approximately 45 percent of all job losses resulting from cuts to DOD and non-DOD programs in the first year of sequestration would come from businesses with 500 or fewer employees.

“At a time when our leaders are calling for policies to help small businesses boost their capacity for job creation, sequestration threatens to drain the economy of a vital source of economic growth and innovation,” said AIA President and CEO Marion C. Blakey. “Clearly, sequestration is not only a concern for prime contractors and international manufacturers. Sequestration has the potential to do equal harm to Main Street and Wall Street.”

According to the Small Business Administration, 20 percent of Defense Department prime contracts and 35 percent of DOD subcontracts in 2011 were awarded to small firms. In 2011, 18 percent of NASA prime contracts went to small businesses and 38 percent of its subcontracts to small companies. Additionally, between two-thirds and three-quarters of defense industrial purchases are directed to small suppliers, many of which are the only source of specialty parts and technologies for the U.S. military.

“The threat of sequestration is already causing my company to be very cautious,” said Joe Murphy, chairman of The Ferco Aerospace Group, a small family-owned aerospace sheet metal fabrication business in Franklin, Ohio. “Congress doesn’t realize how quickly manufacturing capability will be lost with sequestration. It can take 12 months or longer to train a welder and once those skills are lost, it will take months to recover.”

The SBA says that small firms employ half of all private sector employees. According the U.S. Census Bureau, small businesses create 90 percent of all new jobs on an annual basis.

“The last thing this country can afford is legislative trickery like automatic sequester cuts that knock the legs out from underneath small and minority businesses that generate 90 percent of new jobs every year,” said Roger A. Campos, president and CEO of the Minority Business Roundtable. “Sequestration budget cuts set to hit in January will destroy a total of over 2 million American jobs, half in smaller businesses. The uncertainty has already caused business owners to stop hiring. It will take bipartisan agreement to repeal sequestration and replace it with a smarter approach to the budget and debt reduction. Let’s not put small businesses on the chopping block.”

“This important report highlights how small businesses – the backbone of our economy – are especially vulnerable to sequestration,” said Mackenzie Eaglen, resident fellow at the Marilyn Ware Center for Security Studies. “From a national security perspective, letting the avoidable occurrence of sequestration force small businesses to exit the defense industry or go out of business altogether would not only hurt our economy but taxpayers.”

More information on sequestrations impact on the U.S. economy can be found here.

Sequestration Puts 2.14 Million Total Jobs at Risk

Government Employees, Teachers, Nurses Among At-Risk Workers

Arlington, Va. — A new economic impact analysis concludes that 2.14 million American jobs could be lost if the Budget Control Act’s sequestration mandate takes effect on January 2, 2013. That is the date that budget cuts of $1.2 trillion start throughout government unless Congress and the administration agree on a solution.

Dr. Stephen S. Fuller, Dwight Schar Faculty Chair and University Professor and Director for Regional Analysis at George Mason University, in conjunction with Chmura Economics and Analytics, conducted the study on behalf of the Aerospace Industries Association.

“The results are bleak but clear-cut,” said Fuller. “The unemployment rate will climb above 9 percent, pushing the economy toward recession and reducing projected growth in 2013 by two-thirds. An already weak economy will be undercut as the paychecks of thousands of workers across the economy will be affected from teachers, nurses, construction workers to key federal employees such as border patrol and FBI agents, food inspectors and others.”

The analysis concludes that the automatic spending cuts mandated in the Budget Control Act of 2011 affecting defense and non-defense discretionary spending in just the first year of implementation will reduce the nation’s GDP by $215 billion; decrease personal earnings of the workforce by $109.4 billion and cost the U.S. economy 2.14 million jobs.

“This report shows that sequestration is not just a defense problem, it’s an American problem,” said AIA President and CEO Marion C. Blakey. “Unless our leaders in Washington take action, massive cuts have the potential to devastate our economy. In addition, more than one million defense-dependent jobs on the line will risk our national security, economy and the technological innovation that keeps America Second to None.”

According to “The Economic Impact of the Budget Control Act of 2011 on DOD and Non-DOD Agencies,” 48,059 jobs in healthcare, 98,953 in construction, 473,250 in manufacturing and 617,449 federal jobs are at risk. The study outlines the impacts in all 50 states with California, Virginia and Texas experiencing the largest potential jobs loss and most states taking five-digit job losses.

The threat of sequestration is bringing many voices to the table. At the July 17 press briefing releasing the numbers, participants said:

Senator Kelly Ayotte (R-NH): “Military leaders have been clear that defense sequestration will deprive our troops of the resources they need and undermine our national security for generations,” said Senator Ayotte, Ranking Member of the Senate Armed Services Readiness Subcommittee. “This new study underscores that sequestration will also crush our economy, devastate our defense industrial base, and put tens of thousands of Americans out of work. Republicans and Democrats must work together now to find alternate spending reductions that will not add a national security crisis to our fiscal crisis.”

Senator Jeanne Shaheen (D-NH): “I want to thank the AIA for conducting this study, which looks at this question in the proper context of the entire problem. Focusing on only one half of the problem creates the impression that we only need half a solution, but that won’t work,” Shaheen said. “We cannot continue to avoid tough decisions on the future of our debt and deficit. We should continue to work on a comprehensive solution that puts everything on the table. It’s the right thing to do for our national security, for our economy, and for our people.”

Phoenix Mayor Greg Stanton: “The report’s findings are proof that Arizona faces serious job loss – nearly 50,000 high-wage jobs – at the expense of Congress’s failure to deal with looming, indiscriminate cuts to our aerospace and defense industries,” Phoenix Mayor Greg Stanton said. “We can’t afford to take that kind of a hit. We know some cuts will happen, but we need to be strategic, propose a solution and protect jobs to keep our momentum going forward out of the recession, not backward.”

San Diego Mayor Jerry Sanders: “Like every other city in the country, San Diego has been struggling to recover from the worst national recession in nine decades. Arbitrary, politically motivated cuts to the national defense budget are the last thing our city needs right now, given that a quarter of all jobs in this region are tied to the defense industry.”

Press conference coverage:

Archived webcast may be viewed here.

(Click here for higher resolution coverage)

Analysis Projects One Million Jobs at Risk from Defense Cuts

Cuts Would Lower Projected GDP Growth by 25%

Arlington, Va. — An economic impact analysis projects more than one million American jobs could be lost as a result of defense budget cuts if the deficit reduction select committee fails to reach agreement on alternative balanced budget solutions and total cuts to defense reach $1 trillion.

Dr. Stephen S. Fuller, Dwight Schar Faculty Chair, University Professor and Director, Center for Regional Analysis at George Mason University and Economic Modeling Specialists Inc. (EMSI) conducted the analysis on behalf of the Aerospace Industries Association. “Our analysis reveals bleak outcomes for both the defense industry and the economy as a whole if the budget sequestration trigger is pulled and $1 trillion is cut from defense,” said Dr. Fuller.

“Dr. Fuller and EMSI’s study shows the dramatic and devastating impact these cuts would have, not only on our industry but on the economy at large,” said AIA President and CEO Marion C. Blakey. “Congress must find budget deficit solutions that don’t sacrifice the jobs of those who supply the American warfighter.” “We cannot add .6 percent to the current 9.1 percent rate of unemployment, it would devastate the economy and the defense industrial base and undermine the national security of our country,” she added.

Commenting on the findings, Tom Buffenbarger, President of the International Association of Machinists and Aerospace Workers said “the spending cuts of the Budget Control Act enacted last summer place at risk the jobs of highly skilled, highly motivated workers.” “We can ill afford to idle these men and women and the machines they operate indefinitely,” Buffenbarger added.

Dr. Fuller and EMSI concluded that under the scenario of a $1 trillion cut to defense spending, an option under consideration by the budget deficit “Super Committee,” the flow down effect from the aerospace and defense industry to its supply chain and communities is significant, particularly given two factors. The defense industry has a notably high rate of subcontracted work flow and systems with high component volumes, driving job loss directly to program partners and the supply chain.

Dr. Fuller’s analysis was based on an annual reduction of $45.01 billion to the military modernization accounts from which the aerospace and defense industry derives its revenues. “The total impact each year of a $45 billion cut would be to reduce GDP by $86.456 billion.

This is equivalent to 25 percent of the projected annual increase in GDP for 2013 and its loss would reduce currently projected growth for 2013 from 2.3 percent to 1.7 percent,” Fuller said.

Also, given the relatively high wages earned by U.S. aerospace and defense workers, consumer spending in communities in every state would decline significantly. “The multiplied impact of aerospace and defense workers losing their job is very simple – purchase of consumer goods goes down overnight, homes become unaffordable and the housing crisis is compounded, and so forth,” said Dr. Fuller. “The ten year defense budget cut will be felt in terms of layoffs starting in 2012, escalate and conclude by 2014,” he added.

In summary, the key findings of Dr. Fuller and EMSI’s analysis based on the $1 trillion defense budget cut were as follows:

Total potential job losses (direct, indirect, community): 1,006,315
Total potential aerospace/defense and supply chain job losses: 352,000
Total loss of workers’ wages and salaries: $59.4 billion
Impact on national unemployment rate: + .6%
Impact on projected growth of 2013 Gross Domestic Product: - 25%

The analysis by Dr. Fuller and EMSI also provided a hypothetical job loss projection for the states with the largest current base of aerospace and defense workers. If the $1 trillion in defense budget cuts resulted in job losses proportional by state to the location of jobs today, the following states would be most heavily affected:

Iowans tell Obama to Stop Attacking Private Travel and their Jobs

Industry supports 2,000 jobs in the state

CEDAR RAPIDS – Hundreds of workers, state and local officials and aviation enthusiasts gathered in the Rockwell Collins’ hanger at the Eastern Iowa Airport in Cedar Rapids Aug. 17 to send a message to President Barack Obama that he needs to stop attacking private jet owners and by doing so their jobs. Clay Jones, Rockwell Collins’ Chairman, President and CEO, extolled to the crowd that, “General aviation is one of the few manufacturing industries that provides a trade surplus for the United States and supports more than 1.2 million jobs across the country. In Iowa alone, GA contributes $1.4 billion to the economy annually.”

Obama has repeatedly singled out “corporate jet owners” as an example of wealthy individuals who should sacrifice tax breaks. The President has proposed scaling back a tax break for private jet owners to raise about $3 billion over the next decade.

Iowa’s congressional delegation joined Jones on stage, as he told the crowd, “In the current economic environment, it is important that we capitalize on things that are working. Fortunately, you don’t have to look any further than general aviation.”

U.S. Rep. Tom Latham, R-IA, said that he has been troubled by the remarks made by the president and said they must end. U.S. Rep. Leonard Boswell, D-IA, praised Jones for defending the use of corporate jets in congressional testimony in 2009 after auto company executives came under attack for using them to fly to Washington. Boswell detailed how Jones told members of Congress he used his corporate jet to have meetings in New York and Florida that same day, illustrating how such transportation is crucial for business and saves time.

A U.S. government plane, similar to Air Force One, which is used to transport members of Obama’s cabinet, happened to be parked across from the hanger during the event. GAMA’s President and CEO Pete Bunce closed the rally by pointing out that the taxpayer-funded plane to the crowd and noted that government officials use it to conduct business across the globe in the same way that corporate executives use their planes. “It’s a business jet,” he said.

General Aviation in the Crosshairs

With a national debt exceeding $14 trillion, many have been surprised to learn that a leading target for savings is an obscure tax provision on general aviation, including business jets. Experts have pointed out that the amounts involved are relatively small (a “drop in the bucket,” according to Senator Cornyn) compared to the trillion dollar deficits America now runs up each year. And more than one late-night comic has questioned whether the new rules will apply to the most famous (and heavily used) corporate jet in the world – Air Force One.

But as the nation struggles out of the worst recession of the post-war era, making political hay out of a vital manufacturing industry is serious business. According to latest estimates, general aviation adds roughly $150 billion to the national economy each year, and employs over 1.2 million Americans.

Union leaders were especially concerned. International Association of Machinists President Tom Buffenbarger –who has seen 20,000 members laid off general aviation jobs in recent years – criticized the proposal. “What this industry and its workforce requires is more time to recover, a chance to book more orders and the opportunity to recall more workers,” Buffenbarger said. And, according to the Daily Caller website, Aircraft Owners and Pilots Association President Craig Fuller believes that potential jet buyers are now reconsidering purchases: “The industry has suffered terribly in the last two and a half years, and it has just started to recover.”

With budget negotiations dominating the news each day, and the President apparently convinced he’s found a political winner, this issue does not seem likely to go away soon. Unfortunately, for general aviation and the American worker, the economic impact will probably linger on as well.