Will cuts in defense contracts mean tough times for Northern Virginia?
- August 10, 2010
Reactions in Virginia varied from “deeply concerned” to “not that surprised” a day after Defense Secretary Robert Gates announced plans to cut private military contract spending by 10 percent a year for each of the next three years. The policy shift — following years of growth in defense contracting following 9/11 — along with Gates’ proposal to close the U.S. Joint Forces Command in Norfolk, is expected to slash thousands of jobs in Northern Virginia and Hampton Roads.
While Hampton Roads has suffered from military contractions in the past, Northern Virginia has reigned as Virginia’s job mecca as private defense companies ramped up staffs and operations to compete for rich, multi-million dollar federal contracts. According to Stephen Fuller, director of the Center of Regional Analysis at George Mason University, Virginia received $35 billion in defense contracts in fiscal 2008, accounting for more than 530,000 contracting and related jobs, with about 70 percent of those contract dollars in Northern Virginia.
He estimates that three years of 10 percent cuts could reduce the projected economic growth for Northern Virginia by as much as 50 percent.
That would be a dramatic turnaround for a region that has been job rich. Since January, nearly a third of the 71,500 new jobs announced, or 22,900, have been created in Northern Virginia. “Everyone is asking what exactly does this mean,” said Bobbie Kilberg, president and CEO of the Northern Virginia Technology Council. The trade association represents 200,000 employees, including many defense contractors.
“The economic impact of these decisions on Northern Virginia and Hampton Roads will be particularly devastating,” she said in a statement responding to Gate’s plans. “Statements by defense officials that these cuts are a preemptive strike to forestall further deep cuts in military spending ring hollow, and their impact on Virginia’s economy in time of recession is inexcusable.”
Kilburg said the council is trying to get a handle on whether Gates’ proposed cuts would be in addition to, or just part of, an earlier “insourcing” initiative announced last year by the Obama administration. In March 2009, Obama issued a directive calling on federal agencies to trim 7 percent from baseline contract spending over the next two years, for a savings of $40 billion annually.
That effort already had some private contractors on edge. Monday’s news prompted more concern since federal contractors serve as the largest private employer in Northern Virginia. Fairfax County alone gets more federal government contract money — $17 billion in 2008 — than any other county in the U. S.
While the cuts will hurt, Gerald L. Gordon, president of the Fairfax County Economic Development Authority, isn’t convinced that they will deal a devastating blow. “They won’t devastate the business community,” he said. “There is a bit of concern on behalf of the business community that’s engaged in government defense contracting,” he added. However, government contracting embraces more than defense, he noted, with the government needing an array of goods and services in such areas as IT, homeland security and agriculture.
Plus, Gordon points out that Northern Virginia has become more diverse economically. In recent years, it has attracted the corporate headquarters of such companies as Hilton Worldwide and Volkswagen of America. “We’ll continue to grow in regional product and jobs, but maybe we won’t grow as fast.”
According to Fuller, defense spending has cushioned the region from the economic downturn, keeping unemployment well below the national average — in the 4 percent range.
Gates’ cuts, which do not need congressional approval, are part of an earlier effort to save $100 billion over five years by reducing bureaucratic inefficiencies, so that more dollars can be shifted around for troops and weapons.
Randy Belote, a spokesman for defense contractor Northrop Grumman, said Gates’ announcement “wasn’t a big surprise. The Department of Defense has been open and transparent about its goals and have discussed them with industry leaders over the last couple of weeks.” Belote said it was too early to tell what impact the cuts might have on his company, which plans to move its corporate headquarters from Los Angeles to Fairfax County by next summer. “We don’t know exactly where those cuts will be made. It’s not a blanket. It will be on specific programs.”
Despite the cuts, he said Northrop Grumman is well positioned to move forward in areas that should remain in demand for contractors, such as cyber security and intelligence. And he said the company has no regrets about its upcoming move. The news about the cuts “serves to reconfirm our decision because it’s more important than ever to be located close to the customer when these initiatives are being developed.”
Coming in the September issue: A closer look at the insourcing of federal jobs in Northern Virginia