Jobs on the firing line as defense cuts loom

Defense spending means jobs. But when the funding dries up, it can mean a world of pain.

Despite an overall increase in the defense budget, President Barack Obama is proposing to scale back or kill some major weapons programs in the year ahead, including the F-22 fighter and the next-generation presidential helicopter.

His proposed budget leaves many towns and cities across the United States facing the possible loss of high-paying jobs in one of the few industries that has proven recession-resistant — national defense.

As Congress determines the fate of these programs in the next few months, it will be selecting economic winners and losers from California to Maine. To illustrate what’s riding on the vote, msnbc.com visited two communities that stand to be aided — or devastated — by the outcome.

Finding itself — for now — in the winner’s circle is the Elkhart area, which is home to a plant that builds Humvees for the wars in Iraq and Afghanistan.

Among the biggest potential losers is Owego, N.Y., a small, rural community, home of the controversial and endangered VH-71 presidential helicopter.

Likely winners
Unlucky in so many ways in this recession, the Elkhart area is fortunate in being able to rely on a continued flow of Pentagon money to build Humvees at AM General’s plant in Mishawaka, ten minutes down the road from Elkhart.

Workers at the Mishawaka facility, which employs more than 1,500 workers, know they have it good — especially compared to their friends and family members who have lost jobs at recreational vehicle plants nearby.

“I feel pretty stable working here,” he said. “Obama’s been keeping the military contracts.”

Still, the question of what vehicle Defense Secretary Robert Gates will pick to replace the Humvee looms over workers at the plant. AM General, in partnership with General Dynamics, is one of three teams competing for the contract to build the Humvee’s successor – the Joint Light Tactical Vehicle. The winner is expected to be announced in 2011 or 2012.

Humvee-making and other defense manufacturing have held up pretty well despite the recession. According to the Bureau of Labor Statistics, the number of defense-related manufacturing jobs declined by only 4 percent from March 2008 to March 2009, compared to a 10 percent decline in U.S. manufacturing jobs overall.

Gonzalez’s immediate family knows about that decline firsthand. His two sisters, his mother and his in-laws all worked at RV plants, the area’s major industry. All have been laid off.

“They’re having to extend their unemployment benefits,” he said. “I feel I have a good future here. With the war going on in Iraq and Afghanistan, the military’s going to need these vehicles.”

Congress is set to approve nearly $1 billion for purchases of new Humvees and to refit of Humvees worn down by heavy use. The Mishawaka plant helps lift the hard-hit local economy, contributing $200 million in goods and services.

Several smaller firms in Elkhart such as Elkhart Brass, Transhield, and Acousticom also count on Defense Department contracts.

At a plant in Elkhart, 50 workers at Acousticom make headsets for Apache and Blackhawk helicopter pilots. “We do nothing overseas or in Mexico — all of our assembly work is done right here,” said Acousticom executive Doug Cochran. The firm has annual revenues of about $2.5 million, 80 percent of which come from direct sales to the Defense Department.

Possible losers
But while some Elkhart area employees feel safe, workers in Owego and other towns and cities with defense projects on the administration’s “hit list” fear the worst.

The proposed cuts are part of a larger effort by the president and Gates to root out waste in the Defense Department. Late last week, Obama signed a bill that tightens cost controls, saying wasteful spending on defense is “unacceptable” when the nation is fighting two wars and dealing with a massive budget deficit.

A potential loser in the budget scrimmage is Owego, home to a Lockheed Martin facility that had been serving as the primary contractor for the next-generation presidential helicopter until the Pentagon issued a stop-work order in mid-May.

“The whole issue now has become very personal,” said Martha Sauerbrey, president and CEO of the Chamber of Commerce in Tioga County, N.Y., where Owego is located.

Lockheed won the contract to replace the three-decade old helicopters in 2005. But coming out of a fiscal summit earlier this year, Obama blasted the contract — which has doubled in cost from $6.1 billion to more than $13 billion — as defense spending “run amok.” His budget proposes doing away with it altogether.

Sauerbrey, however, thinks the president was worried more about his image than he was fiscal prudence when he criticized the project.

“It was an irresponsible comment made, I think, to appease the everyday working people that he was a regular guy and didn’t need any highfalutin helicopter,” she said.

So far, Lockheed has laid-off 130 employees in Owego, with more reductions likely. Before the cutbacks, the company employed roughly 4,000 people at the facility, with 800 of them working on the helicopter project. An economist with the state of New York said these workers make approximately double the going wage in the area, giving a big boost to the whole region.

For the residents of Owego, worrying about the loss of its most-significant employer is nothing new.

Sedore said IBM, which employed 5,000 in Owego at its height, helped transform the town from a little bit “shabby” to a great place to live. But many of those well-paying jobs disappeared in the 1990s when IBM pulled up stakes. Today, Lockheed owns the former IBM facility and residents are worried about what would happen if mass layoffs were to occur again.

“We’re afraid a lot of the young people are going to be moving out,” Sedore said. “Well, of course they’ll have to if they lose their jobs. There sure aren’t any other places around here where they could get a good quality pay and job.”

Owego, whose village area was recently named the "Coolest Small Town in America" by Budget Travel magazine, is hoping tourism may pick up some of the slack.

Battles rage
Lawmakers representing Owego and other areas targeted for cuts are trying to wheel and deal in Congress to preserve funding for their big employers.

Sen. Charles Schumer, D-N.Y., and Rep. Maurice Hinchey, D-N.Y., whose district includes Owego, argue that it would be wasteful to throw out all the work that’s been done on the VH-71 program. They are working on a compromise that would include delivery of the helicopters, without some of the high-tech bells and whistles that have driven up the cost.

Analysts say this kind of “protect the jobs” mentality makes it difficult to do away with any defense program, even those with significant cost-overruns, like the helicopter project.

“There is no incentive for anyone participating in the process to get costs under control,” said Gordon Adams, a professor at American University and an expert in the defense acquisitions process.

Author of “The Iron Triangle,” a book about the politics of defense contracting, Adams said the various players in the industry tend to reinforce each other’s tendencies: The armed services want the products, the suppliers want the contracts and the elected officials want the jobs in their districts.

He said it shouldn’t come as a surprise to local lawmakers that the F-22 and the presidential helicopter are on the chopping block: “They were just ballooning in cost.”

Congressman Hinchey defends the cost of the helicopter program, saying it shot up because of requests for increasing sophistication in the aircraft’s abilities. What’s more, he said, his constituents don’t understand why this particular program is coming under so much fire when the federal government is spending billions to create jobs elsewhere.

“They certainly will [view this as a jobs-killer], because that will be the effect,” he said. “And the odd thing about it is that it will be completely inconsistent with the economic development package, the so-called stimulus bill, which is funding money to maintain jobs and to create new jobs.”

(Jobs-killer or smart budgeting? Discuss this story)