Patrick O’Grady

Phoenix Business Journal

Arizona’s defense industry could take between a $1.1 billion and $2.1 billion hit, depending on the levels of cuts being discussed, according a report from a Washington public affairs group.

The Washington-based Center for Security Policy says the amounts, based on 2011 federal spending, would mean most states, including Arizona, will face some kind of contract withdrawal as the federal government looks to downsize the money it spends on defense.

That amount could be 9 percent, based on next year’s current budget assumptions, or as high as 18 percent if automatic spending cuts are triggered as a result of Congress and the White House failing to agree on a deficit reduction package. The move, known as sequestrations, were called for in a deficit deal last year and will be automatically triggered next year if Congress can’t agree on new cuts.

The report looks at the industries in terms of how much could be cut, but the exact amounts would be determined by what the U.S. Department of Defense    wants to do with its budget, said Travis Korson, spokesman for the center.

Arizona ranks ninth among states in terms of defense contracts, with companies in the state taking in $11.8 billion in federal money for projects.

“That number speaks to the strong defense presence in the state, and at an average 18 percent sequestration cut of $2.13 billion dollars, it would be devastating for the Arizona economy,” Korson said.

Arizona’s largest industry, according to the center, is guided missile and space vehicle manufacturing, with nearly $3.9 billion in contracts issued to companies such as Raytheon Co.   and Orbital Systems.

Health and medical insurance carriers, which account for $3.1 billion, are the next largest government contract group.

Third is aircraft manufacturing, which accounts for $1.6 billion of the defense contracts. Aircraft engine and parts manufacturing accounts for $212 million, and other aircraft parts account for $394 million.

Large aircraft manufacturers in Arizona include Boeing Co    . in Mesa, Raytheon in Tucson and Honeywell Aerospace in Phoenix.

Other large sectors for government contracts include:

• $166 million for ammunition manufacturing

• $400 million for commercial and institutional building construction

• $457 million for engineering services

• $618 million for computer-related services

• $377 million for pump and pumping equipment manufacturing.

The challenge in figuring the exact dollar amounts of potential cuts is how much work on the contracts may be done in the state. A contract at General Dynamics in Scottsdale, for example, would be subcontracted out to a host of smaller companies, some of which would be in the state and others that wouldn’t.

Arizona has been working to connect smaller companies with larger prime contractors in order to help more of the money stay in the state.

For information on state-by-state breakdowns, click here.

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