Karen Dybis
The Detroit News
Defense-industry companies across Metro Detroit are worrying about losing thousands of jobs unless Congress and President Barack Obama reach a deal before year’s end to prevent defense cuts.
If Congress does not act, the Defense Department faces an automatic $50 billion to $63 billion cut in January that would cause an estimated loss of nearly 1.37 million defense jobs nationwide, including 14,641 jobs in Michigan, according to the Center for Security Policy, a Washington, D.C.-based research group that promotes “peace through strength.”
The report was based in part on research by the Center for Regional Analysis at George Mason University.
The defense spending reductions are part of the 2011 budget deal to address the country’s debt ceiling crisis. It triggers across-the-board or “sequestration” defense and nondefense budget cuts unless a new agreement is reached. About $500 billion in defense cuts were involved in the deal as well as another $500 billion in reductions over the next decade.
Both Obama and GOP presidential candidate Mitt Romney said during Monday’s presidential debate that they don’t want to see the next round of defense cuts. Romney and congressional Republicans say they want to avoid $1 trillion in cumulative defense cuts. Obama and Democrats said they want Republicans to agree to tax increases on the wealthy to replace the defense spending reductions.
Comerica Bank chief economist Robert Dye said he thinks Congress and Obama will reach a compromise before the end of the year that would slice in half the defense spending reductions. It still would result in the elimination of 3,000 to 7,000 defense-related jobs in Michigan, or 1 percent to 2 percent of manufacturing jobs statewide, Dye said.
Laid-off workers would no longer spend their paychecks at local grocery stores, restaurants and auto dealerships, he said, and the impact would reverberate throughout the economy.
“Because these cuts represent very high-wage industries, there is likely to be a multiplier of effects throughout the economy,” Dye said. “For every $100,000 job lost, another $100,000 job or combination of jobs that add up to that would be lost as well.”
The Center for Security Policy report puts the reduction in Michigan’s economic output from the full defense cuts at $1.07 billion.
Combine the potential employment losses with job reductions from the peak of the Iraq and Afghanistan wars, and it is a dangerous situation, said Mark Signorelli, vice president and general manager of vehicle systems for BAE Systems Inc., one of the six largest suppliers to the Defense Department.
In Metro Detroit, BAE went from a high of about 600 employees to about 330 now, Signorelli said. The BAE facility in Sterling Heights, which opened in March, has an office complex and prototype facility for the engineering, developmentand program management of military ground vehicles.
The company projects that the possible 2013 defense cuts would eliminate 10 to 30 percent of BAE’s sales, Signorelli added.
Although Sterling Heights could see a significant impact, Signorelli said other BAE facilities across the nation would be hit far worse. Michigan ranks No. 28 in projected job losses from the automatic defense cuts, while Virginia ranks first with 145,198 job losses and California second with 141,130 employment losses, according to the Center for Security Policy report.
“The biggest challenge we have is uncertainty,” Signorelli said. “But the impacts are real, they are significant and they are going to impact the entire industry.”
The impact will flow down to the company’s vendors, subcontractors and suppliers, he said. Often, when companies work with the defense industry, they have difficulty diversifying — getting business in other industries.
So suppliers and subcontractors may not survive the defense spending cuts, Signorelli said. Once they’re gone, he said, it is costly and difficult to find new ones to do the work.
“With the impact of sequestration, we believe that while we can certainly make the numbers work, we’re probably going to go beyond what is a normal flex of the industry. … You can flex a certain amount, but then you start to break,” Signorelli said.
Defense cuts would hit Macomb County the hardest because it has the highest number of defense contractors in Michigan. The center’s report estimates Macomb County would experience an annual defense contractor revenue reduction of $315.5 million.
Macomb County Executive Mark Hackel estimates there are 500-600 defense-related companies in the county, along with sizable groupings in Oakland and Wayne counties.
That is one of the reasons Macomb County’s executive office is working to diversify, marketing the county’s high-technology, advanced manufacturing and information technology industries as well as defense. Hackel said he prefers the area be known as the Arsenal of Innovation rather than the Arsenal of Democracy.
“We don’t want to rely solely on our defense piece,” Hackel said. “Even if there are cuts in defense spending, there are still things going on in that cluster that will keep the economy churning.”
Hackel said he is working with local and federal representatives to ensure they understand how governmental spending affects the county.
“Maybe there will be cuts, but there’s also going to be new jobs” from other industries, he said. “… You can’t worry about it; you just try to raise your profile and get people to want to be a part of what’s happening here.”
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