Shipbuilders Worry ‘Devastating’ Job Effects From Sequestration, CR

[UPDATED and CORRECTED Jan. 31 at 3:45 pm Shipbuilders’ Council Says Job Loss Numbers Are Estimates And Not Official Council Numbers] WASHINGTON: For anyone who believed those who have claimed that defense cuts don’t affect “real” jobs or the economy, today appears to be a sobering day. At Tuesday’s general meeting of the Shipbuilders’ Council of America, one attendee told Breaking Defense, members estimated that 100,000 jobs might be lost across SCA member companies, their subcontractors, vendors, and suppliers due to just one of the economy measures to prepare for the dual-pronged possibility of sequestration – those wonderful congressionally-mandated spending cuts – and a year-long continuing resolution — which would keep spending at 2012 levels in the absence of proper 2013 appropriations bills. One estimate went as high as 400,000 jobs, counting indirect impacts. On Thursday, after the original version of this story had appeared, SCA officials anxiously contacted Breaking Defense to say that those estimates did not represent an official council position. “400,00, I don’t know where that came from,” SCA’s senior defense advisor, retired Rear Adm. Joseph Carnevale, said. “There’s going to be implications across the shipyard industry,” said SCA president Matthew Paxton, “but we’re not seeing in any way that there are going to be 400,000.” “In fact,” Paxton went on, “while we think this is a devastating result, we can’t quantify at this point what the exact implications will be for job loss….I don’t want to put any numbers on this.” It’s not the building of new ships that’s at risk, at least in the near term, since those are long-lead contracts in which money appropriated for one fiscal year is actually spent over several: Rather, it’s maintenance work for the Navy, especially regular “availabilities” in which warships are brought into shipyards for repair work in between deployments. Maintenance dollars really and truly are spent in the year for which they’re appropriated, and in fact the Navy can act in the first half of the fiscal year to cancel availabilities in the second half — one of the few ways the service can act quickly to cut back on spending. So, in guidance issued on Jan. 25th, the Chief of Naval Operations, Adm. Jonathan Greenert, said that, on Feb. 15th, the Navy would officially tell the shipyards, including SCA’s members, that the service would “cancel all private-sector FY13 3rd and 4th quarter surface ship maintenance availabilities.” Whatever the job losses end up being, they would come on top of spending cuts that occurred in the last quarter of last year. The federal government estimates defense expenditures fell through the floor by 22.2 percent. The Washington Post’s Brad Plumer offers this trenchant analysis: “According to the Bureau of Economic Analysis, the Pentagonspent significantly less on just about everything except military pay. Had the Pentagon not cut back on spending, the economy would have grown at a weak but positive 1.27 percent pace.” He notes that defense spending often drops in the fourth quarter since the Pentagon, like all US government bureaucracies, operates according to the dictum, “use it or lose it.” Plumer says: “the ups and downs were especially sharp in 2012, soaring 13 percent in the third quarter and dropping 22.2 percent in the fourth quarter. One possible explanation, as Michael O’Hanlon of Brookings told me, was that the Pentagon had been preparing for the sequester budget cuts that had originally been scheduled for January. (They’ve since been pushed back until March.)” So the Pentagon spent money like the end was near before Oct. 1, which it certainly seemed to be Plumer’s conclusion: “It all shows that a sharp contraction in government spending can have a powerful effect on GDP.” Now even the daily media are catching up to the news that sequestration, in some form, is likely to happen, as HASC vice-chairman Mac Thornberry told Breaking Defense this morning. And while it’s true that most of those who are most pessimistic about sequestration are House Republicans, we aren’t hearing many hopeful notes from either Senate Republicans or Democrats, including Carl Levin, who told the Washington Post today that he thinks there’s a 50-50 chance sequestration will occur. If it does, the biggest impact will be on those who used to say they really didn’t want it: Republicans, says one analyst. “Sequestration is a perfect example of what [Louisiana Governor] Bobby Jindal was referring to last week at a GOP conclave when he told his fellow Republicans they have to stop being the stupid party. Last year they said sequestration was a threat to national defense; now they say they’re determined to do it,” defense consultant Loren Thompson said in an email. “If Republicans make good on their sequestration threat, they will hurt their own electoral base in the South and other regions. Military bases tend to be more numerous in ‘red’ states,” said Thompson, who is also a member of the Breaking Defense Board of Contributors and a defense analyst at the Lexington Institute. But Todd Harrison of the Center for Strategic and Budgetary Assessments, one of the most respected analysts of the DoD budget, said he is “skeptical of the explanation that uncertainty over sequestration was the reason for the slowdown in defense spending. Deputy Secretary of Defense Ash Carter put out a memo to the Department last fall (September I think) explicitly instructing managers to not slow down spending in anticipation of sequestration so DoD would not ‘self-sequester’ …. For this explanation to be true it would mean the Department was not following its own guidance.” Harrison writes that he thinks the “more likely explanation is that this is a result of two things: a slowdown in spending that was already in the pipeline due to the end of operations in Iraq and the drawdown in Afghanistan, and normal quarter to quarter variations in spending. We’ve already seen a reduction of 11 percent in the defense budget from FY10 to FY13 due to the reduction in war funding. That is larger than the potential reduction from sequestration. Also remember that defense spending is ‘lumpy; because some payments are rather large and it depends on which quarter they fall into. For example, some quarters have more pay days in them than others because of the quirky rules about when federal pay days fall.” And that, dear reader, is why reporting about the defense budget can seem so frustrating. One moment one has a pat analysis of the problem. And the next one just has to say, hmm. CORRECTION: The original version of this article, entitled “Council Worries 100K Shipbuilding Jobs At Risk; Sequestration Killed GDP Growth,” stated that “The Shipbuilders Council of America now believes that sequestration… will result in the loss of 100,000 jobs,” without making clear that this was an estimate discussed at an SCA meeting, rather than the official SCA position. The revised and amended text is in italics.

Breaking Defense

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Adm. Joseph Carnevale

Shipbuilders Worry ‘Devastating’ Job Effects From Sequestration, CR

Posted on January 30, 2013

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