Cape Ann might not be considered a hotbed of defense spending.
But a smattering of local companies could face millions of dollars worth of contract cuts with the federal Department of Defense if Congress and the Obama administration fail to reach an alternative to the so-called sequestration cuts, slated to begin slashing contracts in January in an attempt to balance the federal deficit.
Government officials have yet to narrow the cuts to determining which companies across the nation would lose contracts — leaving businesses on Cape Ann and elsewhere worrying and wondering. The White House released an OMB report Friday, estimating which sectors of the industry sequestration cuts would strike at, but the report specified no more.
Nine Cape Ann businesses — from grocery wholesalers to engine parts manufacturers to computer programmers — held a total of 23 contracts with the U.S. Department of Defense, worth at least $9.2 million in 2011, according to data gathered by a nonprofit, non-partisan policy research group called Center for Security Policy.
Gloucester-based engine parts manufacturer Bomco, Inc. held at least $189,000 in contracts with the Defense Department in 2011, according to the data, all of which could fall on the chopping block.
“Cuts hurt, they hurt everyone,” Bomco President Mike McCarthy said Tuesday. “We probably wouldn’t come out completely unscathed (if we lost the contracts).”
But, McCarthy said Bomco has purposefully balanced its customer base, meaning that the company can overcome a great loss in one sector with growth in another group of clientele.
While government officials have left Bomco to wonder what kinds of cuts the company will be balancing, legislators have specified that businesses with defense contracts nationwide will lose, on average, 18 percent per contract. Some contracts could be cut completely, while others could remain intact, and others have partialt cuts of the contract.
“We’re not vested in any one sector or any particular industry to the point where if that industry collapsed we would be in dire straights,” McCarthy said. “We’ve been building for a pretty diverse cross section of industries.”
Bomco added a full new manufacturing building, an 18,000-square-foot expansion, just last year. Inside the garage-style building with cement floors and towering white walls, mechanical engineer Alex Muenzner operates a massive grey pressurized furnace, used to harden and soften metal parts.
Muenzner, a Gloucester native, said he loves working at the company with so many other Gloucesterites.
“There’s guys I grew up with, my parents’ friends, family friends,” Muezner said. “It’s great here.”
Congressman John Tierney, who represents Cape Ann’s district where national defense contracts totaled more than $2.7 billion in 2011, said Congress needs to find an alternative to the sequestration plan.
“Sequestration is not a responsible policy approach for this country,” Tierney said. “Cuts across the board, without consideration of a program’s effectiveness, do not make sense for any industry, including defense, education, and health care.
“We should be working to find solutions that will help create jobs, make crucial investments in education and infrastructure and reduce the deficit in a fair and balanced way,” Tierney added.
Congress could avoid the sequestration cuts by balancing the federal budget by the time the cuts are set to kick in for the 2013 calendar year. The sequestration cuts nationally will equal about $500 billion over a period of nearly 10 years. The sequestration follows a defense budget reduction this year of about $487 billion.
One Cape Ann business — Gorton’s of Gloucester — holds a contract that wasworth about $7.7 million in 2011 for supplying food to the Defense Department, while others, like Renco Corporation in Manchester and Herb Meiselman Services of Rockport, held contracts for as little as $5,861. That’s was the amount of Renco Corp., contracts in 2011, with about $22,000 signed on for Meiselman Services’ consulting work, according to the data.
The Strong Group Inc., which is based at Grove and Maplewood avenues in Gloucester and makes leather badges for federal and municipal workers, could lose the $14, 084 the company has held in defense contracts dating from 2011, according to data.
At any level, Steve Kaity vice president of operations at Strong Group Inc. said the potential cuts are already frustrating to businesses trying to budget for the future. Kaity said that while the potential loss of defense contracts would hardly cripple the company, the cuts could prevent employers from making smaller improvements.
“It puts a strain on our business without a doubt,” Kaity said, “and it makes it that much more difficult to … treat our employees the way they should be treated, as far as increases or health insurance or other services.
“It’s a challenge,” he said, “to say the least.”
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