Defense Cuts May Cost 17,500 More O.C. Jobs

Shivering in the wake of the Cold War, the defense industry in Orange County could lose 11,600 to 17,500 additional jobs over the next four years, according to a forecast to be released today by two Cal State Fullerton economists.

This prediction comes after the county has lost about 27,000 jobs--or more than a third of its defense-related base--between 1987 and 1991, according to the report, which is the first to quantify the severe effect national defense cuts have had in Orange County.

The misery of defense cutbacks will be compounded by the recession and the perception that California offers a poor business climate, the report said.

Because the defense economy generates so many other jobs, the overall impact on jobs could be more severe, affecting everyone from construction workers to white-collar retailers, said Anil Puri, a Cal State Fullerton economist who co-authored the report with economist Robert Kleinhenz.

“The coincidence of these events raises deep concerns about the ability of Orange County to preserve important sectors of its economy, particularly its high-technology base,” the economists said.

“The defense sector has been weak in Orange County for some time, only it seems more painful now,” Puri said. “But while defense is a drag on the overall economy, it is not by itself keeping the economy from recovering.”

Jose Pimental knows the agony of aerospace layoffs. Personally.

The 50-year-old technician has been laid off three times in five years, most recently in July from a $20-per-hour job on a satellite program at Rockwell International Corp. in Seal Beach.

“Defense is just closing out,” said Pimental. “I’m running up my credit card bills to pay a $1,000-a-month mortgage. It’s time to get out of this business.”

Adjusted for inflation, unclassified defense contracts for companies in Orange County have fallen 28% from $3.2 billion in 1987 to $2.3 billion in 1991, the report says. Those losses are expected to be permanent, given the current prospect of federal budget cuts, Puri said.

The toll in lost jobs and dollars for Orange County comes from the end of the Reagan Administration defense buildup and spending cuts in the wake of reduced tensions with the former Soviet Union.

Budget axes have fallen on Cold War programs such as the Seawolf nuclear attack submarine and the Navy’s A-12 attack fighter. That has led to cutbacks at affiliated companies including Interstate Electronics in Anaheim and Parker Bertea Aerospace in Irvine as well as at their subcontractors.

Operation Desert Storm validated the power of high-tech weaponry, but it also persuaded lawmakers that they needed few new weapons programs and could order smaller quantities.

High operating costs and tough environmental standards have prompted dozens of defense companies to move out of Orange County to states where production is cheaper. And those factories that remain must be flexible to accommodate drastic reductions in orders.

The reckoning this year has been high. Loral Corp. cut more than 800 jobs at its plant in Newport Beach earlier this year. BFM Aerospace Corp. in Santa Ana said in June it would close a plant and lay off 280. Last week, SPS Technologies said it would move 300 jobs out of state by the end of next year. And Rockwell International disclosed Tuesday that it laid off 130 more workers in Anaheim last week, bringing its total cuts in the past year to 1,800.

On the plus side, Orange County is less dependent on defense employment than in years past. Jobs directly or indirectly related to defense contracts added up to 48,700 in 1991, or 4% of non-agricultural county jobs. That compares to 75,700 jobs in 1987, or 7.2% of non-agricultural employment.

On a statewide basis, California also is more diverse than it was during the Vietnam War, when defense jobs accounted for 14% of employment compared to only 6% today, according to a separate report issued Tuesday by the State Commission on Finance.

Assuming cuts in inflation-adjusted defense spending continue at 6% a year--the average annual rate of budget cuts for the past five years--Orange County could lose 11,660 jobs by 1995. Most of the loss would come from defense-related jobs in manufacturing, which is expected to fall 23%, while defense-related jobs in the service industry are expected to fall 20%.

But assuming more Draconian cuts of 10% a year in defense spending, the county could lose 17,500 jobs. Puri said numerous defense executives told him that this scenario is more likely.

Thus, by 1995, the remaining 31,200 to 37,040 defense jobs may account for only 2.5% to 3% of non-agricultural employment in Orange County, the report says. Other high-tech sectors such as computer manufacturing, software and medical instrument manufacturing will be hard-pressed to fill the gap, Puri said.

“The myth used to be that if you lost a job in Orange County, you could go down the street to the next aerospace company and find work,” said David E. Anderson, 28, an engineer at McDonnell Douglas Space Systems Co. in Huntington Beach. “Now, almost everyone knows somebody who is out of work.”

Despite its shrinkage, defense spending in 1991 generated a total of $4 billion for Orange County’s economy by producing spinoff benefits in other industries. It also generated $1.5 billion in wages and salaries and $742 million in federal, state and local tax revenue, the report says.

Orange County captures nearly one in every 10 defense dollars spent in California, trailing only Los Angeles and Santa Clara counties.

Within Orange County, the city of Fullerton is the most dependent on defense revenue because it is home to the Hughes Fullerton plant, which received $1.09 billion in contracts in 1991, or more than a third of the county total.

“Anytime you have a company with that many employees then certainly it is extremely important to Fullerton as well as surrounding cities,” Fullerton Mayor Don Bankhead said about Hughes. “Any major cutback in employees ultimately does affect the city budget.”

Bankhead said Fullerton’s sales-tax collections are down more than $100,000 this year and defense cutbacks are partly to blame. Next to Fullerton, the largest recipients of defense contracts in 1991 were Anaheim, Huntington Beach and Seal Beach.

“I don’t think anybody could be surprised by their findings. We’ve seen this trend occur for many years now,” said Dan Reeder, spokesman for Hughes in Fullerton, where employment has fallen to nearly half its 15,000 peak in 1987.

Faced with such a grim employment picture in defense, Anderson at Space Systems said he feels lucky to be working on the proposed Space Station Freedom, a program administered by the National Aeronautics and Space Administration.

“I don’t know if there ever was a golden time to be with certain programs,” said Anderson, who attended an aerospace engineers conference in Anaheim on Tuesday.

Major speakers at the conference offered their own downbeat forecasts. They predicted that programs such as the B-2 bomber, the C-17 military cargo transport and the F-22 fighter would likely suffer from reduced funding, if not outright cancellation. Subcontractors in Orange County make various parts for those programs.

While the prospects for the commercial jet business are expected to improve worldwide over time, the industry’s major customers, the major airlines, suffered $1.9 billion in losses in 1991 and have reduced their orders. No one at the conference believed that a conversion to further non-defense work would be easy.

“The defense industry cannot be converted to make high-tech toasters,” said C. Tom Burbage, a vice president at Lockheed Aeronautical Systems Co. in Marietta, Ga.

Economist Puri said the predictions are based on a computer model that separates the defense-related jobs from the overall high-tech employment, which includes other fields such as computer or medical instrument manufacturing.

Previous estimates relied upon high-tech employment as representative of defense jobs. Puri said defense jobs represent about 60% of high-tech jobs in Orange County in 1991.

No Defense Against Cuts

The defense industry in Orange County is shrinking. Contract awards here have decreased; more than 11,600 additional industry jobs will be lost by 1995.

Defense Awards Dwindling

Since 1984, contracts have decreased 41%. (Dollar amounts in billions, adjusted for inflation.) Year: Awards 1984: $3.9 1991: $2.3 Defense-Related Employment

Last year, one in every 20 jobs in the county was defense-related.

Manufacturing, mining 27,388.1 56.1% Construction 1,997.5 4.1 Transportation, public utilities, finance, insurance, real estate 2,147.6 4.4 Wholesale, retail trade 6,099.5 12.5 Services, government 11,147.8 22.9

Losing Jobs

Projections indicate there will be half as many defense-related jobs here in 1995 as there were in 1987. Year: Jobs 1987: 75,700 1991: 48,700 1995*: 37,040 * Assuming cuts of 6% a year in inflation-adjusted defense spending

Source: Institute for Economic and Environmental Studies, School of Business Administration and Economics, Cal State Fullerton