Little Harm to S.D. Seen in Military Cuts : Budget: It is an educated guess at this point, but local military and business officials say Pentagon cutbacks shouldn’t seriously damage the area’s diverse economy.
It’s too early for anything but speculation, but local military and business officials already are downplaying the potential effect on the San Diego economy of the Pentagon’s proposed 3-year, $180-billion budget cut.
San Diego’s economy is too diverse and the probable trickle-down effect too small for a budget cut even of the magnitude called for last weekend by Defense Secretary Dick Cheney to make a serious dent locally, several observers said this week.
And economists say there is little chance of a reprise of the early 1960s, when defense cuts along with General Dynamics’ discontinuance of its Convair commercial airliners pitched San Diego into a severe recession marked, at its 1964 nadir, by a 10% unemployment rate, a population decline and a dip in housing prices.
The Pentagon has not yet determined what programs or jobs will be cut, and its plans are always subject to intense political haggling and Congressional review. In light of that, local military and business officials were reluctant to speculate on how San Diego will be affected.
“There is nothing concrete yet. This is so fresh that it literally came as a shock to the entire Defense Department,” said Senior Chief Bob Howard, a spokesman for Naval Air Force, U.S. Pacific Fleet. Of the four military branches, the Navy by far has the strongest presence in San Diego. “Everyone has regrouped at this point. We’re not willing to say what will happen because no one knows at this point.”
Preliminary indications are that the Navy is considering mothballing two or three of its 15 aircraft carriers and four World War II-era battleships, which have been overhauled and outfitted with modern weapons systems. That raises the possibility that one of the three carriers stationed in San Diego--the Ranger, Independence and Constellation--could be decommissioned. No battleships are currently ported in San Diego.
Depending on the size of the carrier and whether an air wing is removed along with it, the removal of one carrier from San Diego could mean the loss of 5,000 uniformed Navy personnel plus hundreds of civilian workers, Howard said. At the end of last year, there were 144,200 uniformed military personnel stationed in San Diego County, nearly all of whom were Navy.
According to the budgetary rule of thumb applied by Max Schetter, director of economic research at Greater San Diego Chamber of Commerce, about 1% of the spending cut could end up filtering down to San Diego. That would mean a $1.8-billion spending cut over the years 1992 to 1994, or $600 million a year.
Given that defense and military spending represented $9.7 billion or 20% of San Diego’s 1988 gross regional product, the loss of $600 million per year in defense dollars would be a significant but not crushing loss.
“Realistically, I don’t see it as a severe impact to the regional economy” if the 1% rule holds up, Schetter said. About half of the $9.7 billion in defense spending here last year went for payroll and half for contracts for services and goods.
Even under the worst scenario, few envision the defense cuts triggering the economic malaise seen in San Diego during the late 1950s and early 1960s. The local economy has expanded and matured dramatically since then, said Edward J. Neuner, professor emeritus of economics at San Diego State University, to include stronger tourism, construction and non-defense manufacturing.
“You didn’t have all the high technology that has emerged with (the growth of) UCSD as a scientific research center. You have broader based industrial production now.”
Schetter described the economy in the early 1960s as one being heavily dependent on defense that was “in between conflicts,” referring to the Korean and Vietnam wars. “The (local economy) didn’t fare too well in that kind of climate,” he said.
In 1957, about 58,900 or 25% of the 233,000 jobs in San Diego County were in aerospace, most of those defense-related, said Jack Nowell, labor market analyst with the state Economic Development Dept. Now, aerospace jobs total only 26,400 jobs or 2.7% of the 965,000 total jobs in the county.
In addition to uniformed military, there are 34,000 civilian employees of the military in San Diego County. Moreover, about 72,000 workers owe their jobs to locally based prime defense contracts, from ship repair at NASSCO to missile production at General Dynamics’ Convair division.
The reactions of several local defense contractors to the specter of budget cuts ranged from “wait and see” to optimism. A spokesman for Rohr Industries of Chula Vista, a manufacturer of jet components including engine pods and rings, said his company’s “real strength” is now in commercial airliner parts. Rohr, which employs 6,700 workers in Chula Vista, sells 75% of its products to commercial customers and 25% to the military, he said.
Somewhat more dependent on the Pentagon is General Dynamics, which with 17,500 employees is the city’s largest industrial employer. More than 90% of its work is done on defense contracts, including the Tomahawk Cruise missile, automatic test equipment for military aircraft and Atlas missiles.
Cubic Corp. spokesman Jerry Ringer said his company, whose defense contracts include military pilot training systems, hopes the Pentagon sees its contracts as “work that saves the government money.” About 42% of Cubic’s $350 million in revenue last year came from defense contracts. Cubic employs 3,800 in San Diego.
Whatever the result of the upcoming budget cuts, it may take years for them to trickle down, said Raford Boddy, an economics professor at San Diego State University. The San Diego economy’s boom of the last several years, in fact, is a “working off” defense dollars allocated to San Diego early on in the Reagan Administration, he said.
