July 30 (Bloomberg) -- In a campaign year dominated by the economy and jobs, Michael Washington says little matters more in his Virginia community than the flood of layoff notices threatening to stun defense workers days before the November elections.
Washington, who manages employee benefits for companies in Norfolk’s naval shipyards and elsewhere, says southeast Virginia’s economy would be crushed by $500 billion in military cuts that will start in January unless Congress and President Barack Obama stop them. Everything from florist shops to restaurants to his Norfolk firm’s commissions would take a “trickle-down” hit, he said.
While Washington said he won’t back Obama’s re-election, in part because he doesn’t think the president is strong enough on defense, he hasn’t decided whether to support a second term for Republican Representative Scott Rigell, who’s serving in a Congress where partisan gridlock led to the threat of automatic across-the-board budget cuts.
“All politics is local, and when there’s a 10 percent cut to defense, that’s us,” said Washington. “Throw them all out.”
In Virginia, a key swing state in this year’s battles for the White House and both houses of Congress, there are early signs that the threatened defense reductions are becoming a potent political issue.
“This is a conversation that’s happening in board rooms now, but it hasn’t seeped down to the average voter yet,” said Jennifer Duffy, Senate editor of the nonpartisan Cook Political Report in Washington. “It’s going to get baked into the cake sometime in September or October, and I do think it matters.”
The economies of Virginia, Hawaii, and Alaska, in that order, are the most dependent on defense spending, a Bloomberg Government study in November found. Virginia is home to the Pentagon, Naval Station Norfolk, Joint Base Langley-Eustis, Forts A.P. Hill and Belvoir, and major defense contractors. Almost 14 percent of the state’s gross domestic product stems from defense spending, according to the report.
Scaled-back defense spending also would have election-day effects in Florida, Missouri, Pennsylvania and other swing states, those that are closely contested.
Republican senators John McCain of Arizona, Lindsey Graham of South Carolina, and Kelly Ayotte of New Hampshire plan to convene a “town hall” meeting today in Norfolk to rally opposition to the cuts. They also scheduled events in Florida, North Carolina and New Hampshire.
The threatened cuts stem from last year’s partisan clash over raising the federal debt limit. The measure boosting the limit included $1.2 trillion in reductions to federal programs over a decade -- with $500 billion from defense -- if a bipartisan plan to cut spending and boost taxes isn’t reached by Jan. 2. A “supercommittee” assigned to reach an accord collapsed last year without a deal.
Defense companies led by Lockheed Martin Corp., the world’s largest defense contractor, say federal and state laws may require them to send out blanket notices of potential job eliminations before the elections unless Obama and Congress act to avert the initial $55 billion in annual cuts. In Virginia, those warnings may arrive the weekend before the elections.
In Virginia’s Senate race, which could help decide control of the Democratic-controlled chamber, both candidates consider it a pivotal issue.
Former Republican Governor George Allen is citing his early opposition to the legislation that established the cuts because of the risks to Virginia’s defense industry. His Democratic opponent, former Governor Tim Kaine, praised other aspects of the measure that averted a default on the national debt.
“This is seriously threatening jobs in Virginia, and it’s another failure from Washington that I opposed and Tim Kaine supported,” Allen said in an interview. “Now it’s our military and Virginia workers who may have to bear the brunt of the failure.”
Kaine says Allen’s willingness to sign a no-new-taxes pledge to anti-tax activist Grover Norquist means there would be even deeper defense reductions if voters return Allen to the Senate, where he served from 2001 to 2007.
“He has pledged that any effort to reduce the deficit is 100 percent through cuts,” Kaine said in an interview. “An all-cuts approach would be extremely harmful to Virginia and to important national priorities like defense.”
Virginia collected $56.9 billion in federal defense spending in 2009, according to the Bloomberg Government study. As many as 122,800 Virginia jobs that depend on defense spending, directly or indirectly, would be lost if the budget cuts are made, according to a study by George Mason University’s Center for Regional Analysis that was funded by the Aerospace Industries Association.
The industry is richly represented in the Democratic-dominated Northern Virginia suburbs of Washington, where defense contractors including Northrop Grumman Corp., CACI International Inc. and SAIC Inc. have their headquarters close to the Pentagon.
No region of the state is as defense-focused as Republican-leaning southeastern Virginia, home to the Norfolk Naval Station, the world’s largest naval base, and to thousands of workers for companies such as Huntington Ingalls Industries Inc., the Newport News-based shipbuilder, and BAE Systems Plc, the London-based aircraft and shipbuilder.
In the region, which includes Virginia’s second congressional district, 45.6 percent of the economy derived from direct or indirect Defense Department spending last year, according to James Koch, an economics professor and president emeritus at Old Dominion University in Norfolk. He estimates direct defense spending in the region will reach $20.8 billion this year.
Sequestration may cost 26,900 jobs, or 2.7 percent of all those in the region, he said, making the matter a “major, major issue” in November.
Brett Davis, who works at the BAE Systems Ship Repair shipyard in Norfolk, said he hopes that if the cuts occur in January, his 12 years of experience as a welder will outweigh his lack of seniority as a new employee of a BAE subcontractor. He was leaving the shipyard in the evening on July 23, after his first day on the job.
“They’ll pick the most experienced people, those who have been with the company the longest time,” said Davis, who lives in Suffolk and declined to identify his employer.
He said he reminds himself that brinkmanship in Congress is often followed by last-minute deals, and that all sides could delay the cuts. Wall Street also doubts the cuts will really happen, according to Byron Callan, a defense analyst in Washington with Capital Alpha Partners LLC.
“We’re kind of in a state of suspended disbelief,” said Callan, who said investors also may be reassured by the dividends many contractors are paying out.
Northrop Grumman has gained 13 percent in New York trading this year, while Huntington Ingalls has risen 24 percent.
Rigell, the Republican incumbent, is battling Democratic challenger Paul Hirschbiel in Virginia’s second district. A car dealership owner who ousted Democratic Representative Glenn Nye to take the Virginia Beach-area district in 2010, Rigell voted last August for the Budget Control Act that established the sequester.
‘Out of Touch’
Hirschbiel, a partner in Eden Capital, a Virginia Beach consulting firm, said Rigell should have foreseen the possible impact on defense contractors.
“He should never have been for this,” Hirschbiel said. “As a congressman representing this district, he was just totally out of touch.”
Rigell said he backed the legislation as the “best option” to avoid a default on U.S. obligations to debt holders and has been a leader in trying to prevent the defense sequestration. He sponsored an amendment to an annual defense authorization bill that passed the House in May that instructs Congress to find ways to avert the first year of the cuts.
Rigell said Hirschbiel will be hurt by his connection with Obama, who hasn’t said much about the looming defense spending decrease.
Political analysts such as Nathan Gonzales say it’s hard to know which party is most at risk nationally if on election day, Nov. 6, the reductions still appear to be coming.
“It will just feed the sense of government dysfunction in people’s minds,” said Gonzales, political editor of the nonpartisan Rothenberg Political Report. “But there’s a real question of whom voters will blame for that dysfunction.”
At VFW Post 4809 in Norfolk, Ruben Johnson, a retired Air Force master sergeant, said he’s concerned cuts could affect his military health benefits. While he said he’s voting against Obama and supporting Republican Allen in the Senate race, he hasn’t decided in the House race yet. He gives Rigell just a “75 percent approval rating” because of all the partisan sniping in Washington.
“This whole area is built around the armed forces,” said Johnson, 82. The spending reductions, he said, “will be a domino effect on all kinds of businesses.”
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