Automatic defense cuts would affect some contractors in Pittsburgh region
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WASHINGTON -- Allegheny County defense contractors handled $15.2 billion worth of work for the Pentagon over the past decade, but that money soon could dry up.
The recent failure of the federal deficit-reduction Supercommittee has triggered $600 billion in automatic cuts to the defense budget over the next 10 years, plus another $600 billion in cuts to other areas of the federal budget.
Allegheny has more defense contractors than any other Pennsylvania county, and those companies, like their counterparts elsewhere, are hoping for the best while looking to mitigate losses by increasing other lines of business.
"They're definitely concerned," said Petra Mitchell of Catalyst Connection, a trade organization for southwestern Pennsylvania manufacturers in the defense and security industries.
It isn't clear how the cuts -- 23 percent of the overall defense budget -- would be apportioned, but lawmakers and President Barack Obama have said they want to avoid cuts to military personnel. That means less money to go around for outside contractors.
"We're expecting the cuts to be in research and development, new programs and new initiatives -- the kind of areas our clients are working in and competing in," Ms. Mitchell said.
If the cuts are severe enough to warrant layoffs, it won't just be manufacturers who suffer, but the housing market, the food service industry and all the other facets of the economy supported by employees' spending, she said.
"This can become a huge problem, bigger than people know," said David Patti, president of the Pennsylvania Business Council. "There are a lot of firms that people never think about as being defense contractors. ... There are lots of guys who just make screws or rivets or whatever else that are small companies but they're vital to [providing jobs] in their communities."
In Allegheny County, 1,013 defense contractors include every kind of business from metal stamping to propeller assembly, nuclear research and fastener manufacturing.
In some cases contracts have been as a small as a few hundred dollars, but some companies do millions of dollars in defense work annually.
Some of those companies are planning ahead for reductions in government work and compensating by marketing their commercial lines of business.
"I would hope that we would be able to forecast long enough ahead to get some other work in here so we would not have to have layoffs," said Paul Sirney, vice president of Jennison Corp., a Carnegie company that stamps parts for military gas masks. "It's hard enough for us to find workers so I wouldn't think we would lay anybody off."
He said military work accounts for about 10 percent of the company's work.
Meanwhile, Bechtel Corp.'s work is purely government-related. Bechtel, along with affiliates, has done more government defense work than any other contractor in Allegheny County -- at least $8 billion worth since 2001, including $910 million last year, according to the website GovernmentContractsWon.com.
The Bechtel companies are government-owned, contractor-operated research and development facilities. Their work is dedicated entirely to the support of the U.S. Naval Nuclear Propulsion Program, spokesman Ray Pefferman said in an email message. Bechtel provides technical support for nuclear-powered ships and operates the Bettis Laboratory in West Mifflin and the Knolls Atomic Power Laboratory in Schnectady, N.Y.
Mr. Pefferman had little to say about how potential defense cuts could affect Bechtel employees and suppliers.
"As in the past with all budget decisions, [Bechtel Marine Propulsion Corp. and Bechtel Plant Machinery Inc.] will continue to work with the [Navy Nuclear Propulsion Program] to ensure we have the funding we need to support the nuclear Navy," he wrote.
Other defense contractors such as Vivisimo, a Squirrel Hill-based software developer, aren't too concerned because their products help streamline government work, improve productivity and decrease the need for other contracts -- all things the Pentagon will need to do more of if funds are cut. Vivisimo provides secure platforms for the sharing of real-time intelligence information and the efficient coordination of flights and supply chains.
"We're cautiously optimistic" that defense contracts will keep coming, said Bob Carter, general manager of federal operations.
Vivisimo has won $672,000 in military contracts since 2005, and performed other work as subcontractors for other companies in the defense industry. Together that work is about 40 percent of Vivisimo's business, Mr. Carter said.
In McKees Rocks, operators of Ace Wire Spring & Form Co. are considering whether it's worth the time and money -- a few thousand dollars -- to renew registration to comply with International Traffic in Arms Regulations, which is required for certain types of work on weapons. If those contracts don't come, the time and money will have been wasted, said co-owner Linda Froehlich.
Her company's products include heavy-duty antenna springs for tanks, tension springs for military guns and springs that allow barriers around embassies to rise from the ground. That work -- most done as a supplier to other defense contractors -- makes up about a quarter of the company's business.
Some of company's 47 employees are concerned that they could lose their jobs if that work dries up, but Mrs. Froehlich said she's working to promote other lines of business to prevent that.
"These people have lives to live and families to take care of. This economy has already made it tough for them," she said.
Cuts to defense spending can make it difficult for entire communities, she said.
"Anytime they cut anything that's going to affect manufacturers, it's going to hurt everybody from the big guys down to the little guys," Mrs. Froehlich said. "If they're not bringing in money, they they're not paying taxes on it."
Meanwhile, Pittsburgh-based Calgon Carbon Corp. isn't losing sleep over the threat of defense cuts. During the past 10 years, it sold the government $4 million worth of goods including safety and rescue equipment.
Losing that work "would have minimal impact" because of the wide scope of the company's business, said Gail Gerono, Calgon's vice president of investor relations and communications. "We wouldn't close the facility or lay people off. We don't want it to happen of course ... but it would be a minimal impact."
Universities such as Carnegie Mellon and Pitt get a chunk of defense funds for research.
"With decreased resources for basic research, our researchers will have to explore other opportunities for funding from other federal agencies and the private sector," said John Harvit, senior associate vice chancellor of the University of Pittsburgh. "Our faculty members are resourceful in adapting to such challenges, but the transition to new funding sources will slow progress and decrease the level of research activity."
The university received about $30 million in defense contracts during the past decade, including $2.6 million last year. That accounts for just a small percentage of overall research funding, Mr. Harvit said.
Department of Defense funded even more projects at Carnegie Mellon -- $460 million worth, not including contracts for university-affiliated spinoff companies such as Carnegie Group, Carnegie Learning and Carnegie Robotics. The contracts provided for work in software engineering, cyber security, biomedical research and more.
University spokesman Ken Walters said he couldn't speculate on the impact of potential defense budget cuts.
U.S. Rep. Mark Critz, D-Johnstown, couldn't either. His seat was formerly occupied by the powerful John Murtha, who had been chairman of the appropriations subcommittee on defense and was known for steering earmarks to contractors with ties to allies, campaign contributors and relatives. The district includes parts of nine counties where defense contracts totaled $18.4 billion during the past decade.
Mr. Critz, through a spokesman, said it's too soon to say whether the 1,607 contractors in those counties should worry.
"I'm optimistic that we can still achieve meaningful deficit reduction through responsible cuts and revenue-generating measures," Mr. Critz said in an email message.
The cuts don't take effect until 2013, so there's still time for Congress to avoid them, although Mr. Obama said he would veto any legislation that doesn't provide for $1.2 trillion in deficit reduction over the next 10 years. That makes for a difficult job for an ideologically divided Congress.
Republicans will do their part to preserve defense spending, while Democrats would rather sacrifice that to save social service programs.
Sen. Pat Toomey, R-Pa., who served on the Supercommittee, said he will work to reconfigure the cuts into something more palatable.
There are "a number of ... areas where we absolutely should be cutting spending ... instead of weighting these cuts so heavily toward defense," he said during a recent appearance on CNBC.
Contractors such as Curtiss-Wright, operator of a Cheswick plant that produces nuclear pumps and propulsion components for the Navy, are counting on that.
"This isn't going to take effect until 2013, so we're talking about a good year and a half away and potentially a new president and [congressional leadership structure]," said Curtiss-Wright spokesman Jim Ryan. "There's a lot of uncertainty coming out of Washington so you just don't know how much the cuts will be."
With more than 120 plants worldwide and 81 percent of its business from non-defense work, Curtiss-Wright will likely be able to absorb the loss of government contracts, Mr. Ryan said. He couldn't immediately say what proportion of the Cheswick plant's work comes from defense contracts, but said employees there shouldn't be too concerned because the company is expecting a lucrative order from China for reactor parts that will mitigate potential losses from Naval defense work.
Still, the wider business community is concerned about the effect of potential cuts.
"When you get into indiscriminate cuts, that certainly has an impact," said Gene Barr, vice president of government affairs for the Pennsylvania Chamber of Business and Industry.
First Published December 4, 2011 12:00 am