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Pentagon Spending Shelters Regional Economy From Recession

San Diego County, home to the largest concentration of military forces in the world, continues to experience the benefits of rising Pentagon spending, a new study says.

And while the recession batters other U.S. cities, Pentagon spending offers the regional economy shelter against its ravages, the study asserts.

Military spending has “a leveling effect” in cyclical economic times, said Tony Nufer, president of SDMAC, aka the San Diego Military Advisory Council, which commissioned the study.

The study says the Pentagon will spend $17.3 billion in San Diego this year. That is up from $16.7 billion in 2009.

Both numbers are estimates and both relate to the federal fiscal year, which ends Sept. 30.

In fiscal 2008 — the most recent year for which complete statistics are available — the Pentagon pumped $16.2 billion into the local economy, up from $14.2 billion in 2007.

The San Diego Military Advisory Council is a group of business and military leaders who gather monthly to discuss items of common interest. The council commissioned the Export Access group at UC San Diego’s School of International Relations & Pacific Studies to write the report, issued April 21.

Ripple Effect

U.S. Department of Defense spending includes defense contracts and salaries for military and civilian workers, as well as benefits for military retirees.

The flow of Pentagon spending, however, is only half the story.

The report looks at how Pentagon spending multiplies after it is let loose in the San Diego regional economy.

Like a rock tossed into a pond, the $16.2 billion spent in 2008 made ripples that radiated into the economy, creating more jobs, stimulating more sales and producing an economic output estimated at $26.5 billion.

This year’s estimated $17.3 billion in Defense Department spending will produce a ripple effect of $28.4 billion, the study says.

Study authors applied an economic model called RIMS II, short for Regional Input-Output Modeling System, to estimate the ripple effect. The Bureau of Economic Analysis developed the multiplier.

A Hedge

The study notes that defense spending helped the San Diego region weather two recessions, in part by sending contracts to big local employers such as General Atomics and its units, as well as Northrop Grumman and SAIC.

“Almost one in four jobs in San Diego is directly or indirectly associated with the military in San Diego,” said Nufer.

Some 137,000 people worked for the military in 2008. The study estimates that as a result of money circulating in the local economy, 191,000 jobs were created, for a total of 328,000 jobs attributable to the military. The study assumes total San Diego employment of 1.4 million in 2008.

The study notes that the Defense Department offers both middle-class and blue-collar jobs to San Diegans.

Nufer noted 10,000 construction employees are currently at work at Marine Corps Base Camp Pendleton.

Pacific Rim Construction

The construction reflects the increased emphasis the U.S. military is putting on the Pacific Rim, says Kelly Cunningham, economist with the National University System Institute for Policy Research.

“Our economy would have been much worse off if the military had not been here and in expansion mode,” Cunningham said. “The military has been saving San Diego’s economy — certainly bolstering it at a time we need it.”

The civilian sector has lost 100,000 jobs in the past two years, he noted.

Cunningham commented on the significant growth in military spending — on the order of 10 percent — around fiscal 2008, the most recent year that hard data was available to the study’s authors. If anything, they may have been too conservative in estimating growth in 2009 and 2010.

The new study follows a report commissioned by SDMAC in 2008.

The study attempted to cover all Pentagon spending — including the very small percentage of military spending that goes on government purchase cards. People use the cards at off-base vendors to buy high-priority goods and services that cost less than $3,000. For example, a person might use the card to buy small electrical components needed as soon as possible to allow an on-base project to continue.

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