Looming defense cuts could be devastating, Puget Sound area businesses say
TACOMA, Wash. — National political dysfunction has been damaging business in the South Puget Sound region for some time, some business owners say, but the looming spending cuts called sequestration promise a parade of horribles.
Tens of thousands of jobs lost in Washington state alone. Billions lost from its economy.
If the Army reduces just its purchase orders, approximately 3,000 companies nationwide will be hurt, according to an Army memo published by the Defense News last week. About 1,100 of those businesses face “a moderate to high risk of bankruptcy,” the document read.
“Our company’s been in operation for 29 years. I’ve been through five recessions and I have not had one this bad, ever,” said Guy Stitt, president of AMI International, a Bremerton-based naval analysis firm. “I’m scared. I’m concerned for our future because I see a Congress that to me seems to be more driven by the wealth of large corporations and the condition of the stock market.
“I don’t know if you noticed, the stock market is doing well,” he said. “But the small businesses in our state are hurting.”
AMI International has laid off about a third of its staff since July, leaving it with 15 employees, Stitt said, because of merely the threat of federal budget cuts. Business already had slowed because the Navy’s funding is based not on a budget, but on a continuing resolution. That allows spending at a designated lower level while Congress is supposed to negotiate a final budget. Problem is, that’s not happening either.
“They haven’t passed a budget in four years!” said Stitt, his voice raised, in a phone interview Thursday.
Stitt’s frustration is echoed by businesses across the South Sound.
“Anybody who is involved in a federal contract, where the money isn’t already in place, are really ticked off,” said Bruce Kendall of the Economic Development Board for Tacoma-Pierce County. “They’re saying, ‘We aren’t going to be hiring people. We have great uncertainty whether this will happen or not. We’re not buying supplies to get ready.’?”
Construction projects already under way, like the schools being built on Joint Base Lewis-McChord, will continue regardless of sequestration or a future budget deal.
Tacoma design firm BCRA counts federal contracts as about 20 percent of its income, interim company president Rory Connally said. The company works for most agencies within the Department of Defense, designing buildings across the country.
People with BCRA and with Puyallup’s Absher Construction both said their companies hadn’t made major adjustments yet but are worried.
“They will finish projects,” Connally said. “Our main concern is, will they start new ones?”
Cascadia International, a Tacoma commercial vehicle dealer, invested $50,000 in the past year to becoming certified with the federal government to sell restricted mechanical parts. It’s one of only six such dealers in the nation, and has dedicated one employee to the work.
“We’re sort of just starting out,” company president Jonathan Wyman said. “If sequestration occurs, we will redirect his efforts until such times as the sequestration ends.”
Other businesses already are feeling the sting.
Two weeks ago, Poulsbo-based Paladin Data Systems laid off about 20 people, or a quarter of its workforce. Several software projects Paladin was planning to do for the Department of Defense were put on hold.
“We’ve laid off people one other time, and that was in the dot-com bust,” said Jim Nall, president and CEO of Paladin, which he co-founded in 1994.
Nall recounted a conversation he had last week with a vice admiral, about the consequences of the sequester cuts. The naval officer said the cuts would affect 70 percent of his operational maintenance budget, Nall said.
“So not only will he not have money to support a new data system, but he won’t have money to buy parts for his ships,” he said.
Another continuing resolution will be devastating too. If that happens, the Navy faces a cut of $339 million even before sequestration. The Navy has said it would cancel “ship availability” – stops for maintenance, repair or upgrade – in the Pacific Northwest in the second half of the year to save $65 million. Such “ship avails” already have slowed down, and stopping them likely will drive some companies out of business.
“That’s catastrophic for the industry and our company,” said David Jack, area manager for QED Systems, a national engineering and tech support firm.
“Locally, we have hardly any work going on now,” he said. “I’ve already laid off a third of my workforce. Another third is on reduced hours. The remainder is management staff – my salaried positions that I can’t reduce hours and don’t want to lay them off because we’re trying to find more work.”
Despite the dire business situation, Jack, a 22-year Navy veteran, said the national interest is more important.
“Here’s the deal with the sequester. The sequester affects our nation more than it affects us. Our industry is already hurting,” he said, outlining how the cuts will hurt both national defense and vulnerable people, including those receiving food and medical assistance.
“As a citizen I’m disappointed,” Jack said. “This crisis is manufactured. It’s been manufactured through a bunch of political ideology that doesn’t have a place when it comes to the best interest of the U.S.”