California economy to take hit from defense cuts

SFGate:

Washington --

Tens of thousands of California jobs are at stake as the Pentagon rolls out plans to reduce its budget for the first time since the 1990s.

While California is less dependent on defense dollars than it was two decades ago, when drastic cuts cost the state nearly half a million jobs, communities from the Bay Area to San Diego will feel the pinch.

Nearly 126,000 California jobs could be affected if defense spending shrinks by $1 trillion as anticipated by the Pentagon, according to an economic analysis by the Aerospace Industries Association.

The Defense Department recently announced plans to trim spending by $487 billion over the next 10 years. In addition, a stalemate over how to reduce the debt will trigger up to an additional $600 billion in cuts unless Congress finds a way to circumvent procedures it agreed to last summer.

The reductions, which will be detailed in President Obama's federal budget proposal today, come as more than 2 million Californians are out of work.

State's big stake

More than one in 10 federal defense dollars - nearly $57 billion - is spent in California, the second-largest beneficiary behind Virginia, according to a study by Bloomberg Government.

California installations, such as Travis Air Force Base near Fairfield, are susceptible as the Pentagon shrinks ground forces and delays large-scale military purchases.

Travis, the largest employer in Solano County, is home to almost 15,000 active-duty and civilian personnel and contributes more than $1 billion annually to the local economy. The base handles more cargo than any other U.S. military terminal, making it potentially vulnerable as the Defense Department trims fighter and cargo aircraft.

The Pentagon announced last month that it would seek congressional approval for another round of base closures, but it has not indicated that Travis, or any California military installation, will be targeted.

But the impact of reduced spending could reverberate in communities across the state.

"We aren't just talking about direct uniform jobs or jobs in the defense industry," said Rep. Howard "Buck" McKeon, R-Santa Clarita, chairman of the House Armed Services Committee.

The call for reduced defense spending comes in response to rising budget woes and the recent withdrawal of U.S. troops in Iraq. Defense Secretary Leon Panetta indicated the largest savings could come from cuts to major weapons systems and reducing ground forces, with heightened attention paid to Asia.

While California could lose lucrative contracts, it could benefit if troops are repositioned on the West Coast.

Military spending is key to California, where the 11 percent unemployment rate is the second highest in the nation. Nearly 237,000 defense personnel are spread among 348 military facilities, accounting for nearly $62 billion in annual tax revenue, according to the Census Bureau.

But unlike the mid-1990s, when California absorbed half of total defense personnel cuts from base closures, downsizing is more likely to have a severe impact on heavily defense-dependent states including Virginia, Hawaii and Alaska.

Defense was once California's largest industry, constituting 14 percent of the state's GDP at the height of the Vietnam War and 10 percent during the Cold War. Today it is just 3 percent.

No state was hit harder than California when it lost as many as 375,000 defense-related jobs in the early 1990s, according to a report by the RAND Corporation, a nonprofit think tank.

The state has lost at least 28 major bases - including those in the Presidio, Hunters Point and Treasure Island - since Congress approved the first round of closures in 1988, costing the state billions of dollars in annual revenue.

"The cuts disproportionately hit California," said H.D. Palmer, spokesman for the state's Department of Finance. "The state's economy has been more diversified since then."

Wide range of impacts

Defense spending boosts California's economy in a variety of ways, creating jobs in technology, construction, manufacturing, alternative energy and cybersecurity.

Increased investment in remote warfare, such as cybersecurity programs and unmanned aircraft, where California has a technological edge, could soften the fiscal impact. Southern California could also benefit from increased federal spending in renewable energy programs, according to a recent Department of Defense study that highlights new ways to cultivate solar energy around California's Mojave Desert.

But California's top private contractors - particularly aerospace industries - are cutting jobs and relocating from the expensive coast in anticipation of reduced military spending. Northrop Grumman Corp. and Lockheed Martin have announced plans to cut jobs across the United States and Southern California, in a huge blow to the region's aerospace industry.

The cuts could also trickle down to research universities, many of which rely on federal grants to sustain competitive programs.

"Research programs have huge societal benefits," said Shankar Sastry, dean of the College of Engineering at UC Berkeley. "But the pot of money that we compete for is reduced."

Budget: The White House lays out a plan to gradually reduce deficits with tax increases for the rich, caps on spending. A7


Yousur Alhlou is a student journalist at California News Service, a project of the University of California Washington Center and the UC Berkeley Graduate School of Journalism. cns@ucdc.edu.

This article appeared on page A - 1 of the San Francisco Chronicle