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Defense accounts for 20% of San Diego GRP, report says

The military and defense sector in San Diego will be responsible for a whopping 20 percent — $38.7 billion — of the region’s total gross regional product in fiscal year 2014, with $25.2 billion in direct spending sent to the county, according to the San Diego Military Advisory Council’s sixth annual Military Economic Impact Study.

These figures, along with the 317,000 total jobs in the region tied to the military — 22 percent of all jobs in the county in 2014 — are higher than forecast in the 2013 report, in large part because of updates in the U.S. Bureau of Economic Analysis methodology.

“The U.S. Bureau of Economic Analysis has revised substantially upward the direct contribution of military payrolls to GRP,” says the report, conducted with the Fermanian Business and Economic Institute at Point Loma Nazarene University. “It has also introduced major changes in its national income accounts and input-output models, which will continue to impact San Diego going forward.”

Another major change that’s particularly relevant in San Diego, home of SPAWAR and Navy Medicine West, is that research and development expenditures are now included in measures of GDP or GRP.

“The impact of recent revisions has been to raise the contribution of the military to San Diego GRP for 2014 to $38.7 billion versus the $31.9 billion of a year ago,” the report said. “This means that the military, through its various ripple effects, accounts for about 20 percent of the region’s GRP versus the 17 percent previously indicated.”

The 2014 report methodology also contains four updates: an estimate of civilian non-wage benefits; estimates of the Basic Allowance for Subsistence (BAS); an expanded value of veterans’ benefits to include education, job training, and health care; and an enlarged definition of tourism to include the effects of business and government officials visiting SPAWAR, the hospitals, and other facilities as well as the impact of military-related conventions.

While the 2014 numbers are higher than forecast in 2014, they are down from 2013 and 2012, and are forecast to continue to drop slightly in fiscal year 2015.

Three large sources of economic impact in San Diego are:

• SPAWAR, which employs nearly 5,000 people and attracts close to $1.8 billion in direct spending and generates $2.5 billion in GRP for the region according to the report;

• 56 ships homeported in San Diego, which receive direct spending of $2.8 billion that will equate to a total economic impact of $4.5 billion in GRP;

• Two Navy hospitals, which employ about 8,000 people and bring in $1 billion from the Defense Department for a $1.86 billion boost to GRP.

Of the $25.2 billion of defense funds expected to reach San Diego in fiscal year 2014, 46 percent will be compensation for the 133,000 personnel the military directly employs and the 184,000 indirectly employed, 37 percent from procurement and other spending, and 17 percent from retirement and veterans benefits, totaling $4.3 billion.

Procurement contracts are expected to account for $9.2 billion this year, a 7 percent decrease from last year due to the steep drop in contract awards from sequestration in 2013. In fiscal year 2013, nearly $2 billion went to aircraft contracting, $1.5 billion to engineering services and nearly $1.1 billion to shipbuilding. The top contractors were General Atomics at $2.1 billion, Northrop Grumman at $1.18 billion, and BAE Systems at $484 million.

A less prominent source of military impact is through tourism, with family and friends coming to San Diego for ceremonies, and several major conferences and conventions throughout the year. Projections for fiscal year 2014 put the impact at $123 million — $57 million to restaurants, $43 million to hotels and $23 million for entertainment.

While San Diego County’s unemployment rate released Friday is at 6.2 percent, the report stated that if Navy and Marine personnel were incorporated, the true jobless rate would be 5.7 percent.

“The strategic value of the San Diego region cannot be overstated,” the report said. “The unique relationship between the military and the San Diego region exists nowhere else in the country.

“The presence of DoD facilities, personnel, and equipment generates a significant economic impact on the San Diego region that far outpaces other industries in the area. At the same time, the military ecosystem that has been built in San Diego represents a core asset vital to the nation’s defense.”

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San Diego Military Advisory Council

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San Diego Military Advisory Council Executive(s):

John Nersesian

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Larry Blumberg

  • Executive Director

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Dr. Lynn Reaser: 'Military most important economic driver'

Sept. 26, 2013 -- George Chamberlin and Dr. Lynn Reaser, chief economist for Point Loma Nazarene University at the Fermanian Business & Economic Institute, talk about the San Diego Military Advisory Council's recent report on the military's economic impact on the San Diego region.