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Rough Seas

A congressional committee’s failure to agree on ways to cut the federal deficit raises the specter of large Pentagon budget cuts — possibly $1 trillion in the next 10 years.

That has stirred up concern in San Diego County, where the U.S. Department of Defense spends an estimated $20.6 billion yearly.

Specifics of the automatic budget cuts have not yet been revealed, and what happens next will likely be up for debate during 2012, say local defense industry observers.

“I think the next 14 to 15 months are going to be quite a ride,” said John Pettitt, president of the San Diego Military Advisory Council, a group that brings San Diego military and business leaders together to discuss common concerns.

The budget debate comes at a time when the Pentagon prepares to draw forces out of Iraq and Afghanistan, and reduce the size of the armed forces. The United States may see a repeat of the post-Vietnam and post-Cold War troop reductions, Pettitt said.

The budget situation also has deep roots in the political drive to curb the deficit.

The House-Senate panel known as “the super committee” ended its attempts to cut the deficit in mid-November with a stalemate. Under the law, that means that the Pentagon is in line for $600 billion in cuts. Reductions “would have to be applied equally to each major investment and construction program,” said a letter from Defense Secretary Leon Panetta to Republican senators, released by the office of Rep. Duncan Hunter, R-Alpine.

The $600 billion in cuts would be on top of $450 billion in cuts agreed to previously under former Defense Secretary Robert Gates. Cuts would take place in the next 10 years, starting with a big cut in 2013, said an aide to Hunter.

San Diego “is not going to be insulated” from the cuts, Pettitt said.

Regional Advantages

However, the region may have some advantages over other U.S. cities because it is on the Pacific Ocean, he said.

The Defense Department is putting more emphasis on the Pacific, and deploying more forces there. The San Diego Military Advisory Council’s latest military economic impact study, released in April, notes the trend. The shift from Atlantic to Pacific continues to play out: President Barack Obama announced in November that he plans to station 2,500 U.S. Marines in Australia.

The military leaders who speak before the San Diego Military Advisory Council, or SDMAC, at the organization’s monthly meetings continue to emphasize the importance of the Pacific, said Larry Blumberg, the group’s executive director. These days, the military is less interested in the region around the Mediterranean Sea, and more interested in China, North Korea and the Middle East.

Defense is big business for San Diego County, which is home to major concentrations of U.S. Marines, U.S. Navy ships and commands, and defense contractors. SDMAC estimated in its annual economic study that the U.S. Department of Defense spends $20.6 billion annually in San Diego, and is responsible, directly or indirectly, for 385,000 jobs and a $35.7 billion in economic impact.

SDMAC plans to watch the budget process “very closely,” said Blumberg.

“We intend to keep an ear to the ground and make sure the San Diego region is well-represented” during the debate, he said.

Pettitt said he does not think the country will see any defense budget changes until after the 2012 presidential election.

‘In the Cross Hairs’

“San Diego will definitely be in the cross hairs,” said Joe Kasper, an aide to Rep. Hunter. As yet, the way government officials plan to make their cuts is “nearly impossible” to predict, the congressional aide said.

Each $1 billion cut in defense spending would mean the elimination of 8,000 jobs, said Kasper, noting that the rule of thumb was developed by the Congressional Research Service, which is part of the Library of Congress. The research service’s studies are billed as nonpartisan.

Those who watch San Diego’s defense sector said the next year may see attempts to change the law — or attempts to kill big weapons systems and other technology programs. And most any Pentagon program you can think of will be on the table, they say.

The Pentagon may be forced to save money by killing the Joint Strike Fighter aircraft or the Littoral Combat Ship, according to Panetta’s letter. The letter said the Pentagon may also be forced to kill or delay unmanned spy aircraft programs. Northrop Grumman Corp. develops unmanned aircraft at its facility in Rancho Bernardo.

Tough to Turn Faucet Back On

Cutting large shipbuilding, aircraft, submarine or satellite programs would be tough on industry, executives said. “If you turn a faucet off, it’s hard to turn it back on,” said Pettitt, who emphasized that he was speaking as president of the nonprofit military council and not as Northrop’s lead executive in San Diego.

Big defense contractors will likely feel “a curse and a blessing,” said Eric Basu, CEO of Sentek Global, a small, San Diego-based defense contractor.

Large defense houses will be hit by cuts across the board, Basu said, though they will not see all of their business dry up.

The companies best equipped to survive Pentagon cutbacks have diverse product offerings, he said. One of Sentek’s specialties, for example, is cybersecurity, which the private sector also has a need for.

What seems to be certain is that the Pentagon budget is due for a very thorough examination.

“Everything is going to be on the table,” Pettitt said. “Name a program: It’s going to be on the table.”


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