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Report: Defense has mega impact on local jobs, spending

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San Diego’s economy will benefit from a whopping $20.6 billion of direct defense-related spending in fiscal year 2012, which equates to more than $6,500 for each of the county's residents.

The San Diego Military Advisory Council (SDMAC) released its 2012 San Diego Military Economic Impact Study (SDMEIS) on Wednesday, conducted by the Fermanian Business & Economic Institute of Point Loma Nazarene University. (videos)

The report investigates the economic role the military plays in the San Diego region when it comes to the impact on jobs, income and output. SDMAC held a press conference following its monthly breakfast outside the Admiral Kidd Catering & Conference Center in Point Loma on Wednesday morning.

There are three primary channels that money reaches the region, notes the report: $8 billion comes in the form of wages and salaries for active duty and civilian workers; $2.5 billion comes in the form of retired veteran benefits; $10 billion comes in the form of major procurement contracts and smaller purchases made with government credit cards, as well as grants.

“That $20.6 billion is only the starting point for looking at the overall impact of the military on San Diego,” said Lynn Reaser, chief economist at the institute, who gave an overview of the report at the press conference, with an appropriate backdrop of military ships gliding on the water and military helicopters buzzing in the air behind the Naval Mine and Anti-Submarine Warfare Command.

Contracts have a trickle-down effect on the supply chain that results in even more spending. A construction contract, for example, means subcontractors get hired and materials, supplies and equipment get purchased. Employees linked to the contract spend part of their earnings on goods and services produced in San Diego.

“If you roll it all together and look at total direct and indirect effects of military on our region, the numbers are large,” Reaser said.

San Diego houses the largest concentration of military in the world; it is the homeport to more than 60 percent of the ships of the U.S. Pacific Fleet and more than one-third of the combat power of the U.S. Marine Corps.

There are more than 100,000 active-duty Navy and Marine Corps personnel assigned to the ships and bases in the San Diego region.

“The unique relationship that exists between the military and the San Diego region exists nowhere else in the country. The Department of Defense generates a significant economic impact on the San Diego region that far outpaces other industries in the area,” said retired Rear Adm. James Johnson, 2012 president of SDMAC, in the report's preface.

Some 311,000 jobs, or one out of every four jobs in San Diego, are tied to the military sector, according to the report. Those employees have a combined income of $17.7 billion and work in wildly different industries, like engineering, real estate, health care, investment, ship building, financial services and food services.

“A lot of high-paying jobs and middle-income jobs,” Reaser said.

In regards to total output, defense-related activities and spending will generate $32 billion of gross regional product (GRP) for the county in fiscal year 2012, which beats out the total economic output estimated for Colorado Springs, Colo., or El Paso, Texas. (Fiscal year 2012 runs from Oct. 1, 2011 to Sept. 30, 2012.)

“Both are home to major military installations,” Reaser pointed out. “That $32 billion [in San Diego] will be more than the total GRP of those areas.”

Tony Nufer, senior program manager at CSC (NYSE: CSC) in San Diego, said the report is good news for the defense industry.

“To have a source of information to foresee the economic influence by the military in San Diego remaining stable is a benefit,” he said.

The fiscal year 2013 budget calls for national security spending to equal $640 billion, compared with an estimated $670 billion in fiscal year 2012.

Failure of Congress to find ways to cut the budget deficit over the decade could trigger automatic spending cuts or “sequestration” as soon as January. Such cuts would pare national security spending another $60 billion from projected levels for 2013, notes the report.

“This would impose devastating effects on the U.S. military,” said Johnson, who implored the audience at Wednesday's breakfast to contact anyone running for office this election year, whether it’s on a Congressional, statewide or local level.

“As a voter you should ask them what they are doing to avoid this sequestration thing,” he said.

The report warns defense companies about preparing for the potential consequences of sequestration.

“Every defense industry company I know is internally working actions to take and the effects it will have. Right now the unknowns significantly overweigh the knowns,” Nufer said.

Despite potential across-the-board cuts, Reaser expects total spending in the region to remain “relatively steady” in 2013. Backlogs of prior contracts in the shipbuilding and aircraft industries will help with stability, she added.

“We will see defense spending under considerable pressure going forward,” she said. “Still, San Diego retains some significant buffers. Elements of the new defense strategy tend to favor San Diego.”

That plan includes a heavier focus on the Asia Pacific. A heightened reliance on special operations forces will bolster some San Diego-specific military groups, like the Navy SEALs.

In addition, emphasis on unmanned military aircraft and weapons will benefit San Diego-based companies like General Atomics Aeronautical Systems Inc., a major drone manufacturer.

Still, San Diego will not be immune to the planned cutbacks in troop levels and spending by the DOD.

San Diego's U.S. Marine Corps base is expected to shrink by about 3,500 over the next five years as the nation trims 20,000 overall.

“The Navy and Marine Corps consider San Diego County essential to our ability to execute the national defense strategy,” said Rear Adm. Dixon Smith, commander of Navy Region Southwest.

The majority of ranges and air space for training lie in the Southwest region. The largest amphibious training base is Camp Pendleton, noted Vincent Coglianese, Marine Corps Installations West commanding general, who briefly spoke at the press conference.

“As we refocus on the Asia-Pacific, those training installations will have that much more importance,” Coglianese said, explaining that little amphibious training was done in Iraq or Afghanistan.

For fiscal year 2013, an average of 142,200 active duty, civilian defense employees and reserves will work in San Diego, which is slightly up from the 141,500 military and civilian count estimated for fiscal year 2012.

The return of the USS Ronald Reagan in 2013 will help boost the Navy’s total personnel count to an estimated 52,800 in fiscal 2013, compared to the 50,650 individuals in Navy uniforms in fiscal year 2012. The Navy has hinted that a third aircraft carrier could come to San Diego, which would result in more local employment.

Defense-related spending even has an unlikely tie to tourism, notes the report.

The Marine Corps Recruit Depot hosts several graduations a year, with 16,000 people expected to throw a cap in the air in fiscal year 2012. Some 53,000 family members and friends flocking to San Diego to celebrate will spend $14.3 million on hotels, food and entertainment.

From a business standpoint, the report helps companies plan their staffing levels and make future decisions on what locations to maintain, increasing infrastructure and the type of work to emphasize.

For the general public, Smith calls the report an educational tool that communicates what the Navy and Marine Corps bring to the local community.

While one in four jobs in San Diego are linked to the military, Smith noted, that means 75 percent of the community doesn’t necessarily have the appreciation for what the military brings to the table.

When he gave a spring-time tour of the San Diego-based Navy hospital ship USNS Mercy before it deployed to Asia, he said some of the group didn’t realize it was a Navy ship.

“They thought it was the Red Cross,” he said. “If more folks better understand what we do, we will retain what we have.”

Estimates for the impact of defense spending in San Diego County for 2012 indicate a slight decline from 2011. "Incorporating all of the ripple or multiplier effects, the military will be responsible for about 311,000 of the jobs existing in San Diego in fiscal year 2012. These jobs will be accompanied by $17.7 billion in income or earnings accruing to wage and salary workers along with various business proprietors. The impact of national security related spending will be responsible for generating about $32 billion of output, or gross regional product, in the San Diego region during 2012," according to the San Diego Military Economic Impact Study conducted by the Fermanian Business and Economic Institute at Point Loma Nazarene University. Source: Fermanian Business & Economic Institute; Compiled by: Jenny Ross

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