Washington state military contractors are feeling the pinch as the Defense Department reins in spending after a decade of growth. But industry representatives say they’re positioning themselves to make the most of the Pentagon’s changing priorities.
Defense companies took home $4.9 billion in military contracts for work in the state during the 2010 federal budget year, down from $5.8 billion two years ago, according to an online database that tracks government spending.
They anticipate more competition for defense dollars in the years ahead, even though the Pentagon budget has generally held steady the past two years.
Defense Secretary Robert Gates aims to cut spending by $100 billion over five years, a sum that could eat into local contractors’ bottom lines.
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“There’s a lot of speculation” about which programs might be on the chopping block, said Brice Barrett, executive director of the Pacific Northwest Defense Coalition, a Portland-based trade group.
“When we talk about future defense cuts, we sort of say we all know it’s coming, but we don’t know what it’s going to look like,” he said.
BIG PROJECTS AHEAD
Barrett wasn’t surprised to learn that 2008 was the top year in spending on Washington state defense contracts.
At that time, Joint Base Lewis-McChord was operating at a fast tempo deploying soldiers overseas while the Pentagon was spending heavily to keep two wars supplied.
“Spending got very high, and it definitely makes sense that we would see a return to pre-war spending levels,” he said.
Information available at usaspending.gov, an online database, shows that defense spending hasn’t declined to its pre-war floor. It’s at the same level as 2006.
In 2002 – before the Iraq War – defense contractors earned $2.8 billion for work done in Washington state.
South Sound residents likely won’t notice a reduction in defense spending in 2011. The recently passed $725 billion 2011 defense budget sets aside $171.8 million for construction at Joint Base Lewis-McChord, a sum that continues five years of heavy development at the growing base.
Over the past few years, as the Pentagon prepared for a merger that would create its largest installation on the West Coast, the base has added housing, headquarters and medical facilities. A $3.3 million alternative fuel site has a separate earmark in the defense budget.
“There’s still more to come,” said Gary Brackett, manager of business and development at the Tacoma-Pierce County Chamber. “The Army especially is not finished expanding the facility out.”
He’s looking ahead as the military plans to refurbish schools on the base, as well as a $91.2 million boost to a sewage treatment plant that serves Lewis-McChord.
Moreover, the base is expected to have its largest stateside population since the wars in Iraq and Afghanistan began. Some 18,000 Lewis-McChord soldiers returned from combat zones in 2010. Most are due to remain home this year.
INCREASE IN REVENUE
“If we’re going to start winding down the wars, presumably there will be some adjustments downward, but I understand a lot of soldiers are coming home and staying here,” said Egils Milbergs, executive director of the Washington Economic Development Commission.
Milbergs’ group in September released a study on the state’s defense economy that anticipated cuts in overall military spending but concluded that Washington could emerge with an increase in revenue.
The study pointed to the likelihood that the Defense Department would steer money here to counter threats on the Pacific Rim, invest in sustainable energy, support companies that focus on cyberterrorism and build up contractors working on robotics.
“There are innovation opportunities that are considerable as the DoD adapts itself to new threats,” Milbergs said. “We seem to have a lot of the know-how that can support the new missions.”
“It’s not just a payroll. It has more strategic implications for our economic future,” he added.
Barrett, of the Northwest defense trade group, said he’s optimistic that the region could fare well by leveraging strengths in up-and-coming programs, such as unmanned vehicles.
The Northwest Aerial Robotics Cluster, for example, won a $47 million contract in October to help the Navy develop small, unmanned aerial systems that could be used in harsh environments. The cluster is a coalition of researchers that includes the University of Alaska-Fairbanks and the University of Washington.
“There a lot of us doing different things,” said Bob Miyamoto, associate director of the University of Washington’s Applied Physics Lab. “What we’re trying to do is bring together forums along with the Defense Department. Then we can quickly develop technologies that can be rapidly put in the field.”
He said the Northwest can draw on academic researchers and large and small defense contractors – such as Boeing or the Insitu Group, a developer of drone planes based in Klickitat County – to sustain its presence as a hub for new military technology.
“If you put all that together, it’s a very interesting opportunity for the Northwest to compete,” Miyamoto said.
MORE FOR BOEING
The Boeing Co., Washington’s largest employer, could lose out if Gates succeeds in halting purchases of new C-17 Globemasters, the workhorse cargo plane based at Lewis-McChord that the military uses to deliver materials worldwide.
The Air Force says it has enough with its fleet of 206 C-17s, and it’s struggling to find space for more of the $250 million planes. A cut to that program, however, wouldn’t necessarily hurt Washington’s labor market, because Boeing manufactures the plane in Long Beach, Calif.
Boeing’s defense revenue for work in Washington state bucked the statewide trend and climbed to $2.3 billion in 2010 from $1.8 billion in 2009, according to the government’s spending database.
A Boeing spokesman said the company is positioned to succeed in the Puget Sound area, even with flat defense budgets, especially if it wins a long-delayed contract to build 179 Air Force refueling tankers.
“We’re focused on extending our core programs, moving into new markets and adjacencies and positioning ourselves for growth in international military markets,” Boeing defense spokesman Daniel Beck said.
“Our Washington state operations certainly figure into all of this,” he said.