San Diego Business Journal

A discussion with wide-ranging implications for the San Diego economy, concerning the 2021 Defense Department budget, will occupy Washington for the next several weeks.

Local contractors are cautiously optimistic.

“The budget bill to date looks good for our local defense companies,” said Mark Balmert, executive director of the nonprofit San Diego Military Advisory Council, who said he has spoken with contractors. “However, we still have to wait to see what comes out of the Senate Armed Services Committee and the House Armed Services Committee as they do their markups.” Markups are changes Congress makes to the proposed budget.

Lynn Reaser, economist at Point Loma Nazarene University, said the budget faces “stiff headwinds” as Congress considers other priorities, including COVID-19 and spending on social programs.

President Donald Trump introduced his $705.4 billion Pentagon budget proposal in February. A Senate committee began reviewing its version of the budget, mostly behind closed doors, the week of June 15. A House committee is scheduled to review it June 22-July 1.

Pentagon spending, including salaries and pensions for military members, is credited for generating $51 billion in direct and indirect spending, amounting to one-fifth of the county’s Gross Regional Product, according to Balmert’s organization, known for short as SDMAC. A recent SDMAC study said the Pentagon is expected to buy some $10.8 billion in products and services from San Diego County companies in 2020, up from $10.3 billion in 2019.

The president’s 2021 budget proposal funds unmanned aircraft and related services from General Atomics Aeronautical Systems Inc. and Northrop Grumman Corp. There is a $72 million request for GA-ASI’s Gray Eagle and a $700 million request for its Reaper as well as a $631 million request for Northrop Grumman’s Triton and Global Hawk. Some of the funds go toward research and development.

The budget request calls for $95 million to go toward the John Lewis-class oiler ship program for the U.S. Navy. General Dynamics NASSCO (NYSE: GD) builds the ships in Barrio Logan. Congress allocated $1.1 billion for two oilers in 2020.

Balmert said with the upcoming election, there is a chance Congress may not agree on a budget by the start of the fiscal year on Oct. 1. In that case, lawmakers would pass a continuing resolution, a stopgap spending bill offering limited funding until a final budget is enacted.

“Budget deals tend to be put off until after the election,” he said.

The proposed 2021 budget calls for more ship maintenance and aircraft maintenance — which would benefit many San Diego companies — though Balmert said the increases would be delayed if there is a continuing resolution.

Balmert, a retired rear admiral, said federal spending on the COVID-19 pandemic and associated stimulus may take a priority over defense spending.

Defense industry representatives are more concerned about fiscal 2022 than 2021, Balmert added.