Manufacturers wait as sequester looms
Tens of thousands of Connecticut residents employed by defense contractors anxiously await Washington’s resolution on more than $500 billion in defense spending cuts scheduled to kick in March 1 as part of the sequester.
Officials of United Technologies Corp. and subsidiaries Sikorsky Aircraft Corp. and Pratt & Whitney — collectively among the state’s largest employers and the region’s largest defense contractors — have warned over the past several months that the cuts could be dramatic and could lead to hundreds, if not thousands, of jobs lost.
However, officials say that without knowledge of what and how much will be cut, it’s difficult to plan ahead.
“We’re trying to assess what the impact will be on us, but of course that’s very hard for us to do when we don’t know how the Department of Defense will be affected,” said Jay DeFrank, vice president of communications and government relations for East Hartford-based Pratt & Whitney, an aerospace manufacturer. “It’s one thing to say that the spending in the Department of Defense must be reduced and another thing to say how and by how much.”
The package of cuts, known as the sequester, would affect both defense and domestic programs. The sequester came about as part of 2011 negotiations in Congress over raising the debt ceiling and was designed to compel lawmakers to agree to a “grand bargain” over spending and entitlement programs.
The cuts, which would decrease funding across budget lines, regardless of importance or effectiveness, were scheduled to have taken effect Jan. 1 but were pushed into March as part of a New Year’s Day tax and spending bill.
During his State of the Union address, President Barack Obama called for closing tax loopholes, higher taxes on the wealthy and a balanced approached to budget cuts to protect defense, education, Medicare and Social Security benefits.
“After all, why would we choose to make deeper cuts to education and Medicare just to protect special interest tax breaks?” Obama asked. “How is that fair? How does that promote growth?”
Rep. Jim Himes, a Greenwich Democrat, has long advocated for a package of spending cuts and tax reforms like those outlined by Alan Simpson and Erskine Bowles, whose draft report calls for a cap on discretionary spending, a simplified tax system and changes in Social Security and health care polices.
Earlier this month, 75 members of Congress voted in favor of a resolution to adopt the Simpson-Bowles recommendations. Himes said he is hopeful Congress will come to a decision on the cuts by the March 1 deadline.
“There’s a more significant sense of urgency today than there was about a week ago,” Himes said. “(The sequester) will have a very significant impact on the day-to-day lives of Americans. It’s not quite shutting down the government, but it will have a real impact.”
Himes said he believes the country needs to make “more than modest” cuts in defense over the long run, but called for a smarter approach than blind, automatic cuts that come with uncertainty month over month.
In terms of the economic impact of defense cuts in Connecticut, Himes said the state would need to eventually adjust, but that the demand for products the state manufactures would still be there.
“Connecticut manufactures weapons needed for tomorrow,” Himes said, citing there will still be a need for helicopters and submarines. “I’m not saying it’s going to be easy, but Connecticut is slightly better insulated than other geographies.”
Pratt and Whitney’s DeFrank agreed and said there are ways the company could work around cuts in defense.
The sequester does threaten the company’s workforce and potential hiring, but DeFrank said about 25 percent of Pratt and Whitney’s products are defense related and shifts could be made. However, as the company sources 80 percent of its work globally, which includes nearly 460 suppliers in Connecticut alone, DeFrank said it’s not necessarily the large manufacturers that would be hit the hardest by cuts, but the small manufacturers who specialize in only one or two areas. For them, the sequester has already impacted further investments and hiring decisions.
“The key point is the sequester, by definition, is a bad answer,” DeFrank said. “It hurts the nation. It was designed to be an unthinkable outcome. …We need to do everything we can to avoid it.”