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Defense budget cuts: preparing for the worst

Sequestration to affect all industries

The date Jan. 2 will trigger $1.2 trillion across-the-board spending cuts, threatening to kill businesses and jobs. But that message still isn’t getting through to the general public.

One out of every four jobs in San Diego is tied to the military sector, and chances are those 311,000 people are aware by now of the harsh consequences of sequestration. For many San Diego residents not tied to defense in any way, however, ignorance is a misperceived notion of bliss.

“In my lifetime, I can’t recall something of this magnitude,” said Marcel Becker, CEO of Lemon Grove-based JCI Metal Products. “This is the biggest thing that is affecting our country, region and state. It’s a tragedy how many folks aren’t informed and are unaware.”

Debra Rosen, president and CEO of the San Diego North Chamber of Commerce, says many of her members simply don’t understand what sequestration could mean for their personal communities.

“Unless dollars and cents are tied to how it will impact an everyday business, like a grocery store or dry cleaners or mortgage business, the repercussions won’t come through,” Rosen said.

The chamber is working on an impact study of the unmanned aerial vehicle industry on San Diego, which will be released Oct. 31 during the sixth annual Unmanned Systems Interoperability Conference in Coronado.

San Diego-based General Atomics Aeronautical Systems Inc. and Northrop Grumman Corp. (NYSE: NOC) are two major unmanned aerial vehicle players perched in North County that are vulnerable to both the effects of sequestration and relocating to other states with a cheaper cost of living.

The report examines the industry’s high-paying jobs and its overall impact on San Diego, like how unmanned aerial vehicle employees help keep local businesses afloat. The report uses data from the past few years and provides a negative outlook, should the industry disappear.

“We need to value today what it means to our region,” Rosen said.

Defense stands to feel the brunt of sequestration, or more than $500 billion, over 10 years. Sequestration popped up as the only solution after Congress and President Barack Obama failed to agree last year on a broad way to slash the federal deficit.

Now that the once impossible resort now appears a reality, a flurry of conferences on the topic has been thrown together in the past few months to talk out its implications.

In June, a town hall-style forum was held at the University of San Diego to let the local community share their stories, voice their opinions and ask members of the House Armed Services Committee how defense cuts will impact them.

Rep. Duncan D. Hunter

Last month, an interactive public conference hosted by Rep. Duncan D. Hunter at the University of California, San Diego, dove deeper into the issue. Breakout sections focused on how sequestration could affect small business, housing and education.

“This is a rare occasion — people from such different arenas coming together to talk in this way,” said Jo Marie Diamond, executive director of the East County Economic Development Council, during the conference Sept. 25.

The local outreach efforts to date will culminate on Wednesday in a three-hour event coordinated by the San Diego Military Advisory Council. Mayor Jerry Sanders will give opening remarks on a topic that will affect the entire region.

Also set to speak is Bill Cassidy, former deputy assistant secretary of the Navy and one of San Diego’s newest employees.

His consulting firm, Defense Conversion Resources LLC, was hired in June to lobby in Washington to defend San Diego's strong military position.

A group of San Diego executives, spearheaded by downtown real estate developer and philanthropist Malin Burnham, fronted the money to pay for the contracted services, which run through the end of December — just days before the sequestration cuts would occur.

Cassidy has remained mum about his efforts because he’s a contracted worker, but he’s been in constant contact with officials from the San Diego Regional Economic Development Corp.

“We get updates from Bill daily on what’s going on in D.C. and how San Diego should be positioning itself to deliver key messages,” said Sean Barr, vice president of economic development at the San Diego Regional EDC.

Cassidy will break his public silence at the SDMAC panel, briefing the community on the conversations he’s been having in D.C. and the most current events and details related to sequestration.

To spread the wider word to the general public, Diamond suggested holding a speakers’ bureau and distributing cards listing key facts on how San Diego is critical to the Department of Defense.

“Maybe we should get coffee cups with ‘wake up and smell the coffee,’” Diamond said.

One unlikely sector that will take a hit as a result of the cuts is nonprofits, she said. Sponsorships, charitable donations and volunteerism would plunge if the high concentration of defense jobs in San Diego vanished, or companies closed or moved.

Diamond suggested ways to communicate the dire message to the nonprofit community, such as using The San Diego Foundation as a mouthpiece.

“There will be no philanthropy if nobody is making any money,” Diamond said.

Some economic leaders are holding out hope that the effects of the budget cuts won’t be as bad as they appear.

“We think it’s politically unviable to let these things spiral out of control. That said, they still remain a concern,” said Jordan Levine, economist and director of economic research for Beacon Economics.

He predicts drops in employment to lag behind budget cuts. San Diego could lose between 20,000 and 30,000 jobs as a result of sequestration, according to Duncan Hunter, a former member of Congress, former chairman of the House Armed Services Committee and father of Rep. Duncan D. Hunter, during a press conference in May.

“So even if we start to cut defense today, it’s going to take several years for those cuts to really translate into deep cuts,” he said, referring to the federal cuts in the 1990s and their impact on the local aerospace and defense industries. “Job cuts didn’t show up for several years after the cuts started happening.”

“Ultimately, I think they’re going to find a solution that’s going to keep their jobs and ultimately advert a major crisis on this front,” Levine said.

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1 UserComments
John Burns 10:33am October 10, 2012

I was hoping to learn something of the broader impact of Sequestration from this article. Unfortunately the headline over promises and the article under delivers that story. There as both Military and civilian cuts that will occur and to understand the impact, both need to be explored. Hopefully the next article will try to broaden the discussion so it is not all about Military related cuts, and will assess the impact overall, which is likely to be MUCH MORE DRAMATIC AND NOT AS FOCUSED ON DISGUISED POLITICAL CAMPAIGNING.