U.S. States Seek to Contain Harm as Pentagon Plans Defense Cuts

States that stand to suffer most from proposed defense cuts are mobilizing to mitigate economic harm, according to interviews with 10 governors.

President Barack Obama wants to cut $31.8 billion from the $645.7 billion defense budget this year and trim costs by 8.5 percent in the coming decade. It will be reduced automatically by about $500 billion by 2021, or about $55 billion a year, after a Congressional committee failed in November to agree on how to reduce the $15.4 trillion national deficit.

Amid two wars, defense spending increased to $678 billion in 2011 from $290 billion in 2001. Cutting the outlay, the federal budget’s second-biggest expense last year, may raise another hurdle for states fighting back from the longest recession since the 1930s. Estimates show that 29 states face shortfalls for the next fiscal year totaling $47 billion, indicating a long and uncertain recovery, according to a Center on Budget and Policy Priorities report released yesterday.

“A lot of that will play out at Congress, where people will have to decide what’s more important: airplanes for the National Guard or tax cuts for millionaires,” said Maryland (STOMD1) Governor Martin O’Malley, a Democrat whose state received $19.9 billion in defense spending in 2009, the fifth-most in the country, according to a Bloomberg Government analysis.

‘Great Concern’

Perhaps no state is at more risk than Virgina (STOVA1).

The Old Dominion, home to the country’s largest naval base in Norfolk and five of 11 Navy aircraft carriers, relies on defense for 13.9 percent of its gross product, more than any other state, according to the analysis.

Virginia is also top among states in defense spending, with $56.9 billion, according to the study. It and nine other states accounted for 53 percent of the $527.8 billion military dollars spent in the U.S. in 2009, the study said.

“It’s a great concern to us,” Governor Bob McDonnell, a Republican, said Feb. 25 in an interview at a National Governors Association meeting in Washington.

A state commission, led by former U.S. Representative Tom Davis, is planning for possible cuts. McDonnell said he and others have had “multiple” meetings with Defense Secretary Leon Panetta.

McDonnell said he also put $50 million into the state’s new Federal Action Contingency Trust Fund to offset cuts. Another work group, led by Lieutenant Governor Bill Bolling, is creating a strategy for Congress’s automatic reductions.

“We want to make sure Virginia’s great installations and 200-year-plus relationship with the military stay strong,” McDonnell said.

Guarding the Guard

Governors are particularly concerned about the National Guard, state military forces federalized in times of need. Forty-nine signed a letter to Panetta opposing proposed cuts to the Air National Guard, said Christine Gregoire of Washington (STOWA1). The Democrat is co-chairman of the Council of Governors, a panel Obama created to focus on security. It met with Panetta at the Pentagon yesterday to discuss cuts.

“We need to have not only the capacity for the president to call up our Guard, but for us to call up our Guard in the case of a natural disaster,” Gregoire said yesterday at the NGA meeting. “We fear that budget compromises both.”

The governors will get help from the defense industry.

Lockheed Martin Corp. (LMT), Boeing Co. (BA) and other defense contractors spent a combined $33.4 million on lobbying in Washington last year, a 10 percent increase from 2010, according to disclosures.

Defined by Failure

“The impact on industry would be devastating,” Lockheed Chief Executive Robert Stevens said about the cuts on a Jan. 28 conference call with investors.

The company, the biggest U.S. defense contractor, has a “very clear” position, Stevens said.

“We must not let an automatic budget trigger, a default position in effect only due to a committee failure, to become the dominant force for allocating resources in shaping our nation’s security posture,” he said. “And we strongly urge action to stop this process.”

General Craig McKinley, chief of the National Guard Bureau and a member of the Joint Chiefs of Staff, said during the NGA meetings he was often states’ “lone voice in the Pentagon.” He urged governors to keep pressure on the White House and Congress, while remembering that reductions are unavoidable.

“It’s not arbitrary that cuts have had to be made,” McKinley said during a meeting of the NGA’s Special Committee on Homeland Security and Public Safety. The former Joint Chiefs chairman, Mike Mullen, “said our greatest national security challenge is our deficit in our budget.”

Making Friends

Colorado (STOCO1) Governor John Hickenlooper, a Democrat whose state relies on defense spending for 4.3 percent of its output, said states should foot traditional federal expenses.

Hickenlooper pointed to Fort Carson near Colorado Springs (CSPG), which he said has the country’s highest re-enlistment rate. The former Denver mayor and co-founder of Wynkoop Brewing Co. attributed that to family services provided by the community.

“That’s where the military is going to want to maintain their investments, in those places where they have the strongest partnerships,” he said.

Several governors, including Gregoire, Democrat Bev Perdue of North Carolina (STONC1) and Democrat Mike Beebe of Arkansas (STOAR1), said they will ask for reductions that voters will understand.

“It’s disingenuous on some people’s part to say we have to cut the budget, we have to balance the budget, we have to have less government spending and then turn around and raise holy Cain about those cuts,” Beebe said. “I always lobby for my state, but I try not to be a hypocrite about it.”

To contact the reporter on this story: Michael C. Bender in Tallahassee, Florida, at mbender10@bloomberg.net

To contact the editor responsible for this story: Mark Tannenbaum at mtannen@bloomberg.net

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