Sequester: Southland defense contractors scale back even before automatic spending cuts

Military Helicopter

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Nearly half of the 85 billion dollars in automatic spending cuts would come out of the defense budget, mostly from the procurement budget.

Nearly half of the $85 billion in automatic spending cuts scheduled to go into effect Friday would come out of the defense budget.
Some of the savings would come from furloughing civilian Defense Department employees — 64,000 in California alone — but by far the biggest chunk would come out of the DOD’s massive procurement budget.

And that means it’s a very bad time to be a defense contractor.

RELATED: Sequestration timeline

“What sequestration has done is now we have to reassess which programs we’re going to be able to hire people into and what functions we are really going to need,” said John S. Stammreich, a supply chain manager at a major aerospace and defense company in the South Bay.
He asked for his company’s name not to be identified.
Stammreich says many of his colleagues worry about being laid off if lawmakers in Washington can’t get reach a deal, but the biggest impact is on those just graduating from college who hope to be hired.
“Usually I attend college fairs at [Cal Poly] San Luis Obispo, UCLA, USC — and this year me and most of my other hiring managers have been told, ‘Don’t bother. We don’t have a budget for it,’’’ said Stammreich.

Even without the budget mess in Washington, Stammreich’s company has been downsizing – and looking for more commercial business that isn’t at the mercy of politics.

President Barack Obama has proposed hundreds of billions in defense cuts. The sequester makes it even worse for contractors.
“One advantage to doing business with the government is you typically have more certainty because the contract cycle is much longer, especially in the defense sector," said Ross Devol, chief research officer at the Milken Institute in Santa Monica. “California has a very high concentration of jobs in aerospace and defense. There’s not as many as a decade or two ago, but still a lot, especially in Southern California.”

Amid the uncertainly of the budget mess, Devol said all those contractors are hesitant to make the incremental investments they would normally make.
“If you don’t make those investments, you’re not going to be creating incremental jobs,” said Devol.

If the automatic spending cuts lasted a year, Devol predicts that up to 50,000 fewer jobs would be created in California.

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