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Congress ended the government shutdown, but sequester continues

When Congress ended the government shutdown by agreeing to fund federal operations through mid-January, lawmakers gave themselves some breathing room to draft a more complete budget for the rest of 2014.

But the extra time is little comfort for those in Hampton Roads whose livelihoods are tied to the defense industry.

That's because Congress has not slowed the forward march of automatic federal budget cuts - known as a sequester - that could mean the cancellation of lucrative ship maintenance or construction contracts, the elimination of base construction and repair projects, and a general slowdown of other military-related work. Defense contracts provide thousands of skilled jobs and pump hundreds of millions of dollars into the region's economy.

With no certainty that a divisive Congress will agree to stop the deep cuts, 2014 "is going to be a very uncertain, high-anxiety year that we're just going to slog through the best we can," said Craig Quigley, executive director of the Hampton Roads Military and Federal Facilities Alliance. "The immediate effect right now is a lot of angst and worry."

The sequester, which started earlier this year, is a 10-year effort to cut $1.2 trillion in spending - half in defense and half in domestic programs - in order to reduce budget deficits.

Navy leaders have said they'll need to trim $14 billion in 2014, their share of $52 billion in Defense Department cuts.

All eyes are on a House-Senate budget committee tasked with hammering out a budget for the rest of the fiscal year, which started Oct. 1. The panel, convening this week, has been told to complete its work by mid-December so the House and Senate can finalize a budget by Jan. 15 - the deadline for averting another government shutdown.

Some committee members, including Virginia's two Democratic senators, Mark Warner and Tim Kaine, want to end the automatic cuts as part of a broader budgeting plan. But there are sharp ideological differences between many Democrats - who favor revenue increases to blunt the automatic cuts - and many Republicans, who oppose raising new revenues.

Tom Epley, president and CEO of Norfolk-based MHI Ship Repair & Services, said he and his 400 employees and hundreds of subcontractors are waiting to hear whether the Navy will be authorizing ship repairs that would begin after mid-January.

The Navy has a schedule of ship overhauls that are part of the life-cycle maintenance of each vessel. Local shipyards, including MHI, are positioned to do the work. But no contracts for work to be done after Jan. 15 can be signed until Congress passes a spending bill.

"I tell my employees that under normal situations, we look out the next six to nine months," said Epley, who doesn't know what's next and can't reassure his workers.

"They're used to the ups and downs of the industry.... Every year it seems like there's something of a funding crisis," he said.

Possible delays or cancellations also threaten the survival of scores of smaller subcontractors who couldn't withstand the loss of work, Epley and other industry officials said. That uncertainty can cause long-term damage if it discourages younger skilled workers - welders, pipefitters and others - from taking shipyard jobs.

"Younger guys look at this and say 'Why would I want to enter a field like this?' " Epley said.

Adm. Jonathan Greenert, chief of naval operations, said during a Norfolk visit Wednesday that nothing has changed since September, when he warned that the sequester would force the Navy to cancel repair work on 34 surface ships next year. An executive of BAE Systems, which also handles Navy vessel overhauls, has said 19 of those projects were to be done in Hampton Roads.

Greenert also warned weeks ago that cutbacks in aircraft maintenance and training may be required. Sailors' pay and benefits won't be affected, nor will retirement benefits.

The admiral said Wednesday that while aircraft carriers remain vital to the national defense strategy, budget constraints may make it difficult to keep intact the 11-carrier fleet mandated by Congress.

"We have to go where the money is. And carriers and air wings are quite expensive," Greenert said to reporters on board the carrier George H.W. Bush. "We need to continue to build nuclear-powered aircraft carriers. How many we retain in the force is a matter of question."

In the short term, Newport News Shipbuilding - Virginia's largest industrial employer and the nation's sole manufacturer of aircraft carriers - wouldn't see immediate major effects if the sequester continues in 2014, said Beci Brenton, spokeswoman for Huntington Ingalls Industries, the shipyard's parent company.

"As we've said before, most of our work is already under contract, so we believe that near-term impacts to HII would be minimal," Brenton said in an email. "However, our supply chain could be at more immediate risk."

Pentagon comptroller Robert Hale warned last week that tight budgets may require layoffs of civilian employees and the involuntary separation of military members.

"We will try to minimize them," Hale told Defense News, noting that if the national economy improves, some military members might leave for more lucrative private-sector jobs.

"But there could definitely be some (force-outs) on the military side and reductions in force on the civilian side," Hale said in the interview.

In response to Hale's comments, a Navy spokesman said the service isn't planning to force sailors to leave.

"Navy leadership has no intention of using involuntary separations this year as a way of offsetting budget cuts," Lt. Cmdr. Chris Servello, spokesman for the chief of naval personnel, said in a statement Friday. "Over time, these cuts will have an impact on the size of our Navy and our ability to be present around the world, but we do not intend to force sailors out as a way of dealing with budget reductions."

Defense analysts and Navy officials have said that the first year of sequester reductions, which began in March, wasn't as severe as Navy leaders feared; they were able to restore programs and reduce civilian furloughs by spending unused funds from past years. But those extra funds aren't to be found in 2014, they said.

Todd Harrison, a defense analyst at the Center for Strategic and Budgetary Assessments, said this is a chaotic time for the Pentagon. Top brass are overseeing a military downsizing as the war in Afghanistan winds down, while also contending with political feuds in Congress, he said.

"This budget battle is not about defense," Harrison said. "It's about all the other things in the budget resolution. It's about taxes, revenues. It's about entitlement programs such as Social Security, Medicare, Medicaid - the level of funding for those programs."

Quigley said he expects Congress will find some middle ground on defense spending that includes cuts. but not as severe as those mandated by sequestration.

Harrison said he isn't convinced legislators will be able to compromise.

"I'm not that confident that this budget committee is going to be successful in bridging this divide," he said.

His advice for military leaders: "Plan for the worst. Hope for the best."

Mike Hixenbaugh / bill.bartel@pilotonline.com

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