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Chamber updated on defense spending

Published 10:56pm Thursday, June 19, 2014

At a Hampton Roads Chamber of Commerce event Thursday on the federal government’s plans for defense spending in fiscal 2015 and beyond, business leaders heard that the region should escape any hard hits.

Keynote speakers were John Simmons and Christopher Goode, founders of Washington consulting firm The Roosevelt Group.

“The next century’s going to be the Navy’s century,” declared Simmons, who explained how allocations are increasingly shifting toward projecting military strength in the Asia-Pacific region and protecting maritime trade.

But Simmons also said that the deal Congress made last year to avoid sequestration, the Ryan-Murray Budget Agreement, “has given us a false sense of what the future cuts of sequestration will look like.”

“It kicked the can down the road,” he said, using a phrase oft-repeated in reference to sequestration, a law that helped broker an agreement on lifting the debt ceiling in 2011 by setting large, across-the-board, automatic federal spending cuts in lieu of any consensus on targeted reductions.

Heavily dependent on federal spending, mostly in defense and in the regions of Hampton Roads and Northern Virginia, the deal sent shockwaves through the Old Dominion.

Sequestration remains “on the books” for fiscal 2016, Simmons said, and while defense spending has been stagnant, with ratcheting tensions or crises in places like the Korean peninsula, Ukraine and Iraq, as well as China’s continual rise, the “demands and requirements have not been.”

The clock is ticking for Congress to act on the President’s proposed budget, Simmons said, with about 31 days remaining for the House this session, while the Senate’s number is less specific. A long-term continuing resolution is the most likely scenario, he said.

Simmons said that defense, which accounted for 18 percent in 2013, would drop to nine percent of federal spending in 2024 under current policy. It was 49 percent in 1962, he said, but that’s because spending in other areas, particularly entitlement program, has grown at a much faster rate.He cited Gallup polling indicating that 37 percent of Americans today think too much is spent on defense, compared to 19 percent at the start of the millennium.

Goode, meanwhile, outlined how Virginia’s growth rate is more vulnerable to budget cuts than the nation’s overall. “Unfortunately, real jobs are leaving,” he said.

Also, according to Goode, government contractors are seeing more stringent contract conditions, although “we are not seeing them blow up — but maybe they will with sequestration.”

“Right now it’s more of a mundane, slow squeeze,” he said, adding that 77 percent of contractors reported flat or declining revenue in 2013.

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