Will New Military Budget Prolong Recession?

April 8, 2009— -- Many cities and towns across this country rise and fall with military spending. And with Defense Secretary Robert Gates' announcement earlier this week of new defense spending priorities, many communities are bracing for drastic cuts or a windfall.

From Seattle to St. Louis to Fort Worth, communities are closely watching how the $534 billion spending plan for the 2010 fiscal year plays out in Congress.

The key to the whole process is that Gates and President Obama have to look out for the nation as a whole while individual congressmen are concerned about jobs in their districts.

If Gates' budget stands as is, some of the hardest hit communities would be:

Marietta, Ga. where Boeing and Lockheed Martin assemble the F-22. About 2,000 workers there could lose their jobs.

Seattle could lose 1,200 because the F-22's wings and aft fuselage are build there.

Middletown, Conn. is home to United Technologies' Pratt & Whitney unit, the sole provider of the F-22 engine. The town could lose 2,000 to 3,000 jobs from the discontinuation of the plane.

St. Louis could suffer from the end of Boeing C-17 transport plane production. About 1,800 people in the area work on the C-17 and another 4,000 work on the F/A-18s.

Long Beach, Calif. would also suffer big losses because of the elimination of the C-17. About 5,000 people in the area have jobs working on the plane.

Michael A. Cohen, a senior research fellow at the New America Foundation, said that in the short term -- the next six months or so -- there probably is not going to be an enormous impact.

"You've got places that obviously rely pretty heavily on military spending," Cohen said. "You can't really dictate the Pentagon budget based on just those issues. You really have to make choices about what are the best programs to strengthen American security."

But the big industrial military companies know how politics works and spread out their risk appropriately.

For instance, Lockheed Martin says that its $65 billion F-22 program "directly and indirectly" provides 95,000 jobs across 44 states.

That's a lot of congressmen and senators who would see jobs cut in their districts if the F-22 disappears, as Gates suggests.

"Military contractors are smart. They put their projects all over the country, so they sort of build in political support for them," Cohen said. "If you are a congressman from a district that relies on military spending, you have a responsibility to your constituents to try and protect that funding. It may not be in the national interest, but it's certainly in the constituents' interests."

Sure, you might spend more money in Seattle or St. Louis, but you might end up building something you don't need and wasting taxpayer money.

"It's a very hard conversation because certain people are going to be hurt by this," he said. "What Gates put forward was extremely ambitious and frankly, I think, long overdue. He put the kibosh on a lot of Cold War-style programs that don't further American security."

F-22 Cut, But F-35 Is Ramped Up

To see just how complicated the issue is, take a look at the F-22, which cost $140 million apiece.

Boeing builds the F-22's wings and aft fuselage in Seattle, employing almost 1,200 people. Another 2,000 workers are employed in Marietta, Ga., assembling the planes.

And the engines are supplied by Pratt & Whitney, a United Technologies unit, in Middletown, Conn. About 2,000 to 3,000 workers there could lose their jobs.

None of those communities would be happy if the Pentagon scraps the program, as Gates proposed.

"It is unacceptable that this administration wants to eliminate 2,000 jobs in Marietta and potentially 95,000 jobs nationwide at a time when unemployment rates are rising across the country," Sen. Johnny Isakson, R-Ga., said in response to the announcement.

But not all of the news is bad for Georgia. While he may want to end the F-22, Gates also wants to ramp up production of the F-35 Joint Strike Fighter.

That plane is also assembled in Georgia.

And people in Forth Worth, Texas, could gain as many as 10,000 workers in the long term, also for assembling the F-35.

St. Louis looks like it got hit hard with Gates' announcement that it would no longer buy any more Boeing C-17 transport planes. About 1,800 people in the area work on the C-17 and another 4,000 work on the F/A-18s.

But the C-17's biggest victim might be Long Beach, Calif. where its demise could cost the area about 5,000 jobs.

Gates also announced that plans to build a new helicopter for the president and a helicopter to rescue downed pilots would be canceled. A new communications satellite would be scrapped and the program for a new Air Force transport plane would end.

Wall Street also liked the changes, in part because they weren't as deep and drastic as investors had feared. Many defense stocks jumped Monday even as the overall market fell. Shares of Lockheed Martin and Northrop Grumman each rose nearly 9 percent.

Growing Defense Budget

Todd Harrison, fellow of defense budget studies at the Center for Strategic and Budgetary Assessments, noted that the overall defense budget is not a cut.

"It's actually growing by 4 percent over last year's," Harrison said.

In fact, defense spending accounts for roughly one out of every five tax dollars spent by the federal government. This budget won't reduce that at all.

Harrison said the real factor is deciding which programs -- and, therefore, which communities -- get hit is going to be Congress. Like everything else, some districts will suffer and some will gain. The question remains, which politician is more powerful.

"There are really some tough decisions that have been put off for a while and Secretary Gates was really cleaning up some loose ends," Harrison said. "I think he's sending a really strong message that poor-performing programs are going to be held accountable and that spending is not unlimited. Politically, it looks like the White House has put a lot of confidence in him and the question is whether or not Congress is going to back him up."