‘Fiscal cliff’ looms large

CT military industry jobs hang in limbo as deep budget cuts loom

By Howard French  Journal Inquirer Tuesday, October 9, 2012

 

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Connecticut’s major military contractors stand to lose thousands of jobs if Congress doesn’t head off drastic automatic federal budget cuts set to take effect on Jan. 2.

The budget cuts, known as sequestration, would total some $1.2 trillion overall, and the Pentagon’s budget alone would lose $500 billion.

Economists, military industry leaders, and elected officials alike say the cuts, sometimes referred to as a “fiscal cliff,” must be averted if the U.S. is to avoid an economic cataclysm that would cost millions of jobs nationwide.

Donald Klepper-Smith, chief economist and director of research for DataCore Partners LLC in New Haven, says the consequences of sequestration “have the strong potential to tip us back into recession if left unchecked.”

In its present form, the combination of spending cuts and pending tax increases is projected to reduce 2013 real gross domestic product by almost 3 percent, Klepper-Smith says.

“Not only would the nation likely find itself back in recession, but our primary indicators here in Connecticut would turn negative next year as well,” he adds.

“Longer term, we need to find a balance between fiscal discipline and overall economic growth,” Klepper-Smith continues. “The continued lack of fiscal discipline is apt to reduce the value of the dollar in the long term, meaning higher prices for gas and oil in the Northeast — so we’d better make an honest effort in that department starting now.”

If Congress doesn’t before sequestration kicks in, he says, “the options will be less palatable down the road.”

In Connecticut, subsidiaries of Hartford-based United Technologies Corp. — including Pratt & Whitney and Sikorsky Aircraft — employ thousands working on defense-related programs. But when asked about the number of jobs at risk should sequestration occur, UTC’s aerospace companies would not provide even a general number.

In a brief joint statement, UTC’s aerospace businesses point out that the Defense Department hasn’t specified which programs it would cut.

Given the uncertainty, the companies say they haven’t decided whether to issue notices required by law alerting the state Labor Department about pending job cuts linked to sequestration. The notices — known as Worker Adjustment and Retraining Notices, or WARN for short — must be filed 60 days before any major layoffs or plant closings.

“Given the confusion over WARN notices, we have not yet made any decision on whether to file,” they added.

The confusion about how to address the WARN notice requirement without knowing whether sequestration will occur was exacerbated in July when Maryland-based military aircraft maker Lockheed Martin seemed on the verge of filing notice by November that thousands of workers would be cut by Jan. 2.

But in an Oct. 1 notice to his company’s employees, Lockheed Chairman and CEO Robert Stevens demurred.

“After careful review of the additional guidance provided by the Office of Management and Budget and the Department of Defense, we will not issue sequestration-related WARN notices this year,” Stevens said.

He also said that the Pentagon has indicated that it anticipates “no contract actions” on or around Jan. 2, and that “any action to adjust funding levels on contracts as a result of sequestration would likely not occur for several months” after that date.

If contract actions due to sequestration were to occur, Stevens said, the Defense Department has said employees still would be afforded the required two-month WARN notice before job cuts would occur.

“While we work to stop sequestration, we will also continue to petition the government to outline exactly how sequestration will be implemented so that we can responsibly prepare for the impact to our employees and our business,” he added.

Pratt & Whitney President David P. Hess, testifying before the House Armed Services Committee in July, said Congress should consider tax increases to help deal with the sequestration issue. During the committee’s hearing on the effect of the defense cuts on related manufacturers, Hess said spending cuts in other parts of the federal budget also should be considered to avoid damaging the defense industry.

A month later, in a speech to employees at Pratt’s West Palm Beach, Fla., plant, Hess acknowledged that sequestration-related budget cuts would threaten “jobs, the overall economy, and national security.”

Hess said that sequestration threatens 2.14 million American jobs across all 50 states and would cost $109 billion in lost wages and salaries. It would lower the nation’s gross domestic product by $215 billion in 2013, he said, and would raise unemployment by 1.5 percent nationwide.

Connecticut’s Labor Department hasn’t projected how many state jobs might be in jeopardy if sequestration occurs, spokeswoman Nancy Steffens says.

Members of Connecticut’s congressional delegation say they are hopeful that Congress will head off the drastic budget cuts before the New Year, despite the time crunch.

“The impact on national security would be definitely detrimental,” says U.S. Sen. Richard Blumenthal, D-Conn..

“There seems to be strong unanimity among responsible senators,” on both sides of the political divide, that sequestration should be stopped, Blumenthal adds. But he acknowledges that it is “as much a hope as a prediction” that an alternative can be agreed upon by the end of this year.

“It is a real opportunity of finding a way to come together” to find an acceptable middle ground and head off drastic job losses, he says.

U.S. Rep. Joseph D. Courtney, D-2nd District, also says he sees a chance that Congress can come together to find an alternative to sequestration.

Courtney’s district includes thousands of defense workers at Electric Boat in Groton.

“We have to do this,” Courtney says, adding that sequestration was never meant to be “an end in itself.” The measure, instead, was merely intended to prod Congress to finally find a balance between spending and tax revenue.