Bill Would Aid Defense Firms in Switching Gears : Congress: Rep. Jane Harman and co-sponsors propose that contractors get tax credits of up to 10% to help them convert to commercial technologies.

Hoping to reverse sagging employment caused by defense cuts, Rep. Jane Harman (D-Marina del Rey) has introduced a bill that would provide Pentagon contractors with tax breaks and other incentives to help them switch to non-defense business.

Harman, whose district includes much of the economically ailing South Bay, introduced the Defense Reinvestment and High-Tech Job Act of 1993 this week as a way to spur industries, especially aerospace, to take up non-defense manufacturing and research.

Key provisions of the bill, co-sponsored by a bipartisan coalition of California members of Congress, would allow companies to claim a tax credit of 10% of the annual wages paid to workers who switch from defense-related work to commercial duties. Defense companies could also take a 7% to 10% credit against the costs of investing in new equipment related to non-defense business.

“I expect it will generate substantial business activity, and that means substantial employment,” Harman said this week.

It has not yet been determined how much federal revenue would be lost through the tax breaks, but Harman acknowledged that the bill may face opposition from austerity-minded lawmakers.

Still, Harman argued that failing to provide new kinds of technological employment for defense workers would carry a bigger price.

“These are tough times,” Harman said. “This is not a bill to spend money, but it is one to give up potential tax revenue to encourage some industrial activity.”

About 80,000 technology jobs have disappeared from Los Angeles County since 1989, economists have estimated, and up to 100,000 more could be lost by 2001 as the end of the Cold War reduces military spending. In the past two years, at least 21,000 jobs, many of them defense-related, have left the South Bay, according to the Torrance-Carson-Lomita Private Industry Council.

Local aerospace executives, whose advice Harman had solicited for the bill, praised the measure as a step toward easing the transition from warfare to peacetime business. Defense companies have begun applying technology used for weapons systems to more general purposes, such as radar for cars and night-vision equipment for police cruisers.

“It is not a panacea,” said C. Michael Armstrong, chairman of Los Angeles-based Hughes Aircraft, which has 30 to 50 defense conversion projects under way, many of them in the company’s South Bay facilities. “It is not going to be a subsidy. It is going to be an incentive for business to do what business does best.”

Armstrong said he needs to study the bill to determine how it will affect Hughes. But he added: “For a company like Hughes, where diversity is fundamental to growth, it will enable us to more quickly deploy funds and people behind these marketable opportunities.”

The bill is scheduled to face its first test in the House Ways and Means Committee, the tax-writing body. If the legislation wins congressional approval and is signed into law, the incentives would take effect July 31. The wage provisions would remain in force through 1995, and the investment credit would expire at the end of 1999.

Harman said the Republicans and Democrats co-sponsoring the measure have committee assignments or political ties that bode well for the bill.

The co-sponsors, Harman said, are Rep. Robert T. Matsui (D-Sacramento), a member of the House Ways and Means Committee; Rep. George E. Brown Jr. (D-Riverside), who is the chairman of the Science, Space, and Technology Committee; Rep. Jerry Lewis (R-Redlands), who is on the Defense Appropriations Subcommittee; Buck McKeon (R-Palmdale), president of the freshman Republicans, and Duncan Hunter (R-San Diego) who, like Harman, is a member of the House Armed Services Committee.

Rep. William Thomas (R-Bakersfield) originally was a co-sponsor, but an aide said the congressman decided to withhold his sponsorship pending a review of other Democratic tax bills coming before the Ways and Means Committee, of which he is a member.