Md. defense contractors press Congress for details of cuts

Northrop Grumman Corp. says it is already having difficulty attracting bright, tech-savvy workers. The CEO of Lockheed Martin Corp. told Congress this month that his company could have to lay off thousands of employees.

They and other Maryland defense contractors are asking lawmakers for details on the so-called sequester — deep budget cuts, including $800 billion to defense spending, due to strike Jan. 2 because the congressional supercommittee failed last year to reach a deficit-reduction agreement.


Many federal agencies would face an automatic reduction of 10 percent, but it is far from clear how the cuts would be implemented.

Lockheed, headquartered in Bethesda, and Northrop, which employs 9,000 workers in Maryland, have been dealing with tightening defense budgets as the country winds down two wars. Now the sequester has added to their challenges. Without more information, they say, they can do little to prepare for the cuts.


CEO Robert Stevens told the House Armed Services Committee that Lockheed could have to lay off as many as 10,000 workers next year.

"But which 10,000? And when?" Stevens asked. "That is difficult to determine without additional guidance from the government that allows us to narrow the potential impacts."

The cuts over the next 10 years could reshape the regional economy.

"Maryland is really vulnerable," said Professor Stephen S. Fuller, director of the Center for Regional Analysis at George Mason University. He said the state, which has depended on defense contracts, would have to look for other ways to drive the economy.


"It'll still be an important piece, but it won't be the source of growth it has been in the past," Fuller said.

Congress approved the sequester last year to pressure the supercommittee to reach a deal. But the panel never came close to an agreement, and now Republicans and some Democrats are pressing to rescind the automatic cuts.

Rep. Chris Van Hollen, the top Democrat on the House budget committee, was a member of the supercommittee.

"We're working very hard to replace the sequester, to prevent the sequester from taking place," the Montgomery County lawmaker said. "If it were to take place, it would have a negative impact on many Maryland businesses."

The GOP-led House passed legislation this month that would require President Barack Obama to detail how the cuts would fall on agencies and contractors. But some Democrats now are speaking of using the threat of the sequester and the expiration of the Bush-era tax cuts — a double whammy known as the fiscal cliff — to force a grand bargain on deficit reduction.

With the sides far apart, no resolution is expected until after the presidential election — and maybe not then.

"Everybody is kicking the can down the road," said Alan Chvotkin, executive vice president of the Professional Services Council in Northern Virginia, which represents government contractors. "But I don't know what'll change in a post-election environment."

Several organizations have predicted deleterious effects in many states. The National Association of Manufacturers predicted the loss of 1 million jobs in the United States by 2014, more than 40,000 in Maryland.

Fuller, in a report for the Aerospace Industries Association, estimated that job losses in Maryland across federal agencies and contractors could exceed 114,000 over the next two years.

Chvotkin says contractors want to prepare for the cuts, which are less than six months away, but lack key information.

"Many of the companies are saying, 'Please tell us as much as you can about how the law would work, and what actions companies can take between now and when the law goes into effect," Chvotkin said.

Lockheed Martin, the state's largest federal contractor, has said it would send pink slips to each of its 120,000 employees nationwide in early November to comply with federal and state layoff notification laws.

Mike Hayes, the former brigadier general who heads Maryland's state office of military and federal affairs, said contractors would have to reorganize the way they perform government work.

"The feeling is, there'll have to be a complete reordering of business," he said.

Some military bases in Maryland already are feeling the pinch. Civil engineers at Joint Base Andrews in Prince George's County have stopped all nonemergency work orders because of budget constraints.

"I think that's only going to get worse over time," Col. Greg N. Urtso, vice commander of the 11th Wing at the base, told state officials this month.

Barney Michel, president of a business association of contractors to Aberdeen Proving Ground, said larger firms might be able to withstand cuts but smaller firms — dependent on fewer contracts and with more immediate cash flow needs — have expressed frustration and concern.

"The smaller businesses are not quite as well-structured to support this slowdown," said Michel, an executive with the contractor SAIC and president of the Army Alliance.

Already, he said, he's hearing from businesses that government officials are keeping contracts on the sideline and not committing to new deals, just in case sequestration occurs.

But he believes Obama and congressional leaders will reach a deal before the automatic cuts take effect.

"We do not want to be alarmist," Michel said. "While it's a small potential for it occurring, it's a potentially large impact."


Projected job losses

Largest projected job losses from federal budget cuts, for 2012-13*:

California 225,464

Virginia 207,571

Texas 159,473

D.C. 127,407

Maryland 114,795

Florida 79,459

Pennsylvania 78,454

New York 70,010

Massachusetts 60,497

Georgia 54,512

* Projections include public- and private-sector job losses.

Sources: George Mason University Center for Regional Analysis; Chmura Economics & Analysis