COLUMN ONE : Big Guns Aren't Sole Casualties : From saxophone sellers to landscapers, small contractors feel the Pentagon's knife, Times study finds. But federal retooling may not help this often overlooked mainstay of the defense economy.

This story was reported and written by Times staff writers Melissa Healy, Glenn F. Bunting and Dwight Morris

Brad Boyajian, a burly, mustachioed landscaper who runs Golden Bear Arborists out of an industrial park in Monrovia hardly fits the image of a typical defense contractor.

Neither does Don Holloway, the manager of Russo's Music Center, a low-slung brick storefront tucked into a strip mall in Trenton, N.J., its walls adorned with rock star posters and its floor packed with musical instruments.

But as the U.S. military budget continues to sink in the aftermath of the Cold War, both men are part of an often-overlooked wave of defense contractors that is beginning to feel the crush.

These smaller service firms and suppliers are spread throughout the country. They represent virtually every segment of American business--from clothing manufacturers, machine shops, hotels and halfway houses to family farms, movie studios and bakeries, a Times computer-assisted study of government procurement data shows.

Although some have client bases outside the Pentagon and could trim operations or expand into private markets, others rely heavily on the military and face more fundamental challenges if they are to survive.

Unlike large aerospace firms that pay handsomely for lobbyists in Washington, most of these smaller businesses cannot spare the time or expense for a well-orchestrated political campaign to save their funding. Chances are that this hidden world of contractors will be largely forgotten as Congress shapes a $1.7-billion conversion program this year to retrain defense workers and help companies shift their technology and know-how to commercial applications.

"Actually, I don't think we've looked at the specific problems of (defense contractors) that are supplying goods and services that in effect are not weapons kind of stuff," said Rep. George E. Brown Jr. (D-Colton), chairman of the House Science, Space and Technology Committee, who has played a leading role in defense conversion legislation. "I guess we just assumed . . . that if they lost that market, they could expand into civilian areas they are already into."

Moreover, the buying decline of defense goods and services threatens to work at cross-purposes with President Clinton's economic agenda: His Administration wants to create 8 million jobs by the end of 1996, but lower Pentagon spending is expected to eliminate nearly 2 million jobs over the next five years, according to the Bureau of Labor Statistics.

Many of those disappearing jobs, including those generated by some of the less obvious defense contractors, are exactly the kind of high-wage, high-skill work that Clinton is hoping to make a staple of the nation's economy.

Last year, the Defense Department spent more than $123 billion on goods and services ranging from ballistic missiles to saxophones to psychological studies, according to The Times' computer analysis, which reviewed more than 1.7 million contract awards issued by the federal government from fiscal years 1989 through 1992.

More than $26 billion--a staggering 21% of money spent on defense contracts nationwide--was pumped through the California economy, the study showed. This is a proportion far larger than the state's population, which is about 12% of the national total.

Predictably, the largest defense contractors nationwide were huge aerospace firms such as McDonnell Douglas, the federal government's No. 1 supplier, which garnered nearly $5.3 billion in prime contracts during 1992, with major aircraft, space and electronics business in Southern California.

But the study found a surprisingly large share of Pentagon spending on enterprises that are not commonly thought of as defense related. Nearly half of the purchases went for non-armament products and services such as food, furniture and janitorial work. About 6.3 million U.S. workers, more than half of them employed in the private sector, owe their livelihoods to Pentagon spending, according to the Bureau of Labor Statistics.

Although the largest cuts will not occur until later in the decade, the early effects are apparent. The Times' study found that after adjusting for inflation, defense purchases last year totaled $24.8 billion less than in 1989, a decline of 18.5%.

In California, defense procurement fell nearly $4.2 billion last year, after adjusting for inflation, from 1989 levels. That is a 15% decrease in a state where total Pentagon spending accounts for 9.5% of total state output, according to the Congressional Budget Office.

Small retailers will feel the pinch acutely, largely because as defense budgets exploded in the 1980s, the Pentagon increased its reliance on small service-related companies to conduct the growing day-to-day business on bases and in military communities.

Golden Bear Arborists is just one example. Boyajian launched the company in 1968 as a one-man operation cleaning yards and garages near Los Angeles International Airport. He expanded into commercial and municipal landscaping, won defense contracts to maintain greenery at four large California military facilities and employed up to 50 people.

Today, Golden Bear operates out of a remodeled, tan steel building on a lot surrounded by a chain-link fence. Inside, towers for tree trimming loom over a large pile of firewood, a small nursery and an array of tree-cutting equipment.

Golden Bear did about $2.5 million in business last year--about 40% of it for the military, Boyajian said. The firm has avoided layoffs, but the future looks grim: no new defense contracts, several already lost and work at El Toro Marine Corps Air Station in Orange County and Mare Island Naval Shipyard in Vallejo in jeopardy since the two facilities were included on the Pentagon's initial list of proposed base closures.

Now, 13 major military installations in California are targeted by an independent base closure commission, which has until July 1 to send its recommendations to the President and Congress. If neither disapproves, the panel's proposals would take effect Sept. 1.

"We are in a position now where (the work) is all going to go away," said Boyajian, who has cut back on pay raises and is searching for municipal work throughout the state. "It is going to hurt us and cost us jobs."

The worst part, Boyajian said, is the uncertainty.

"Part of the problem is they don't tell you anything," he said. "It's hard to forecast and plan when you're in the dark. They can give you 30 days' notice and you're done."

Three thousands miles away in New Jersey, Russo's Music relies on defense contracts for about one-quarter of its sales by providing instruments and amplifiers for military bands and schools.

The decline in Pentagon orders is "not crippling to me," said Don Holloway, Russo's store manager. "But we have to do a lot more work to make up for it. It's a lot harder to sell saxophones one at a time than to do a dozen or more in one shot."

Russo's also has avoided layoffs. But in 1992, the decline in Pentagon business contributed to the Russo family's decision not to give its 21 employees raises and to scrub the annual Christmas party.

With decisions like those come the less visible effects of belt-tightening by the Pentagon, Holloway said. Russo's employees, and thousands others like them, are not buying new cars or adding on to their homes.

Such side effects are detailed in a new report by the Congressional Budget Office. In California, direct Pentagon spending--including purchase contracts, salaries, pensions and grants--totaled $55.8 billion last year. But the overall benefit to the state economy ballooned to $86.7 billion when the indirect effects were taken into account, the report said.

Now that Clinton has announced plans to slash an additional $124 billion from the Pentagon budget through 1997, many defense businesses and their workers are bracing for the worst.

The nation's service sector--a source of stable, middle-class, white-collar jobs--would take a major hit. The Bureau of Labor Statistics estimates that about 286,000 service jobs would be lost in the next five years because of smaller defense budgets, as would another 139,000 retail and wholesale trade jobs that depend on defense spending.

Prospects are the worst for the manufacturing industry, which employs 57% of the 2.9 million private-sector workers who owe their livelihood to Pentagon contracts. Labor Department experts say manufacturing would lose the most jobs, dropping 594,000 positions over the next five years.

The irony is that many are exactly the kind of high-wage, high-skill jobs that Clinton is intent on creating. The number of positions involving precision production or repair, such as aircraft and satellite assembly, are projected to fall from 820,000 at the height of Pentagon spending in 1987 to a little more than half that amount, 442,700, by 1997.

The Times' computer analysis traced the trend, finding that spending on manufactured products represented the fastest-shrinking segment of Defense Department contracts. In 1989, the Pentagon spent $76.1 billion on manufactured goods, 57% of all defense purchases. In 1992, spending had dropped to about $60 billion--49% of the total.

The rate of decline is even steeper among lower-skilled workers, whose jobs nonetheless are highly paid.

Disappearing at a furious rate are jobs for operators, fabricators and laborers, all semiskilled workers who do everything from putting rivets in airplanes to sweeping hangar floors. By 1997, the defense sector will have 437,400 such jobs, down from 890,000 at its 1987 peak. And almost two-thirds of those losses are yet to come, the Bureau of Labor Statistics has estimated.

Consider Harris Manufacturing Co., where women at sewing machines turn out colorful rain gear in a Trenton industrial district across town from Russo's Music. For David Harris, the company's president, the Pentagon's cutback has brought a painful contraction in his work force and a scramble for alternative sources of business.

Even after the shrinkage, defense contracts represent more than three-quarters of his revenue. Three years ago, his company had 150 employees, churning out chemical protective suits and rucksack liners and fluorescent markers to identify friendly tanks during the Persian Gulf War. After taking several unprofitable defense contracts just to keep his workers employed, he has had to lay off about 60 people.

Harris has tried to refocus some of his marketing on other federal agencies, including those involved in environmental cleanup. He has ventured into new commercial markets, including health care, with such products as a doctor's operating smock that will not let blood products seep though.

Conversion efforts also are under study at more typical defense contractors such as aerospace companies. But, like employees thrown out of the auto and steel industries in the 1970s and 1980s, many semiskilled defense workers are unlikely to find similarly high wages elsewhere, experts said.

Other areas, such as engineering and research, also are certain to feel the effects of defense reductions.

The Pentagon spent $2.2 billion on engineering and architecture services in 1992. But more than one-third of the engineers involved in defense sector work will see their jobs disappear by 1995, and tens of thousands have been laid off. Those engineers have lost their jobs not only in manufacturing firms but in thousands of small companies that are dedicated exclusively to conducting research and development.

The Clinton Administration hopes that many of these engineers will seek new commercial clients who can use their innovative spirit to boost productivity and investigate new technologies.

But that will be difficult with manufacturing firms reeling and Pentagon spending for research and development holding steady at best. In 1992 the Pentagon spent $21.7 billion to buy research and development services, up from the previous year but down from the two years before, The Times' study found.

The Pentagon's sponsorship of research and development has been a key engine of innovation, experts said. Private companies, accustomed to the Pentagon's role, have grown conservative in their sponsorship of research and development.

"If you're trying to sell an idea to a big corporation, it's much more difficult than in the government," said David Blair, a Princeton, N.J., engineer who started his own firm out of his 300-year-old home after taking early retirement from Exxon Corp. "Working with Pentagon contracts, you get projects where you work at the absolute limit of what your field can do."

The government also finances research that would not be done if the Defense Department did not pay for it.

Hubbs-Sea World Institute in San Diego received $357,000 last year to conduct defense research that included studying the biological effects of rocket and jet overflight noise on seals and sea lions.

"Definitely, some of that research would not go on without the Defense Department," said Don Kent, senior vice president of operations for Hubbs-Sea World. "The types of contracts we have with the military are ones where we can be scientists, not just bean counters. A lot of very good science gets to be done."

Such research projects will probably feel the impact of reduced defense spending in coming years. So will a wide assortment of mom-and-pop businesses.

Kathy Hammons recently laid off two of her 20 workers after a construction project was canceled at Beal Air Force Base, north of Sacramento. Hammons owns Ben Toilet Rentals Inc., a small company that provides portable toilets and shower facilities to the military.

"Yes, the cuts affect us too," Hammons said. "We support the small town of Gridley. It's where we buy our vehicles, have our tires changed and buy our gas. We have to lay our guys off and we are hurting our townspeople in return."

Times researcher Murielle Gamache contributed to this story.

NEXT: How firms are adjusting to defense cuts.

Defense Dollars: State and National Totals

The federal government awarded prime procurement contracts totaling nearly $729 billion to purchase a wide variety of products and services in the four years ending in 1992. Most of that spending was by the Department of Defense.

DEFENSE: Includes contracts of $25,000 or more awarded by the Department of Defense.

NASA: Includes contracts awarded by the National Aeronautics and Space Administration for projects such as Space Station Freedom.

OTHER NON-DEFENSE: Includes contracts awarded by all agencies of the federal government except the Department of Defense, NASA, the Postal Service and the legislative and judicial branches of government.

The Federal Procurement Dollar

Total: $728,858,975,000

Defense: $529,194,403,000 / 72.6%

NASA: $45,332,133,000 / 6.2%

Other Non-Defense: $154,332,439,000 / 21.2%

The Department of Defense purchases much more than planes, missiles, ships and tanks. Each year, billions of dollars are spent on professional services, research and development and common products such as food and clothing.

R & D: Includes academic, general scientific, space, and economic growth research and development, as well as weapons R & D.

SERVICES: Includes medical lab tests and doctors visits and architectural, engineering, data processing, legal and accounting services.

PRODUCTS: Includes weapons, food, clothing, recreational equipment, tools, computer equipment and office machines.

* NATIONAL DEFENSE PROCUREMENT (In thousands of dollars)

1992 1991 1990 1989 R & D $21,691,501 $20,825,875 $22,319,755 $23,273,638 or 17.6% or 15.2% or 16.5% or 17.4% Services $41,225,637 $42,543,673 $38,089,719 $34,729,268 or 33.5% or 31.0% or 28.2% or 25.9% Products $60,115,516 $73,663,019 $74,662,868 $76,053,934 or 48.9% or 53.8% or 55.3% or 56.7% Total $123,032,654 $137,032,567 $135,072,342 $134,056,840 by Year 100.0% 100.0% 100.0% 100.0%

4-Year Total R & D $88,110,769 or 16.6% Services $156,588,297 or 29.6% Products $284,495,337 or 53.8% Total $529,194,403 by Year 100.0%

*

* DEFENSE PROCUREMENT IN CALIFORNIA (In thousands of dollars)

1992 1991 1990 1989 R & D $5,979,916 $5,352,537 $7,090,294 $7,262,506 or 22.8% or 20.9% or 25.8% or 26.4% Services $7,073,646 $5,818,961 $6,589,592 $5,569,047 or 27.0% or 22.7% or 24.0% or 20.4% Products $13,181,430 $14,451,090 $13,817,211 $14,646,144 or 50.2% or 56.4% or 50.2% or 53.3% Total $26,234,992 $25,622,588 $27,497,097 $27,477,697 by Year 100.0% 100.0% 100.0% 100.0%

4-Year Total R & D $25,685,253 or 24.0% Services $25,051,246 or 23.5% Products $56,095,875 or 52.5% Total $106,832,374 by Year 100.0%

Source: Los Angeles Times analysis of Federal Procurement Data Center records.

How Study Was Conducted

The Times' computer study of military purchasing is based on analysis of more than 1.7 million federal contracts totaling nearly $724 billion for fiscal years 1989 through 1992. Of that total, Department of Defense contracts accounted for more than $529 billion.

The data, which is collected and maintained by the Federal Procurement Data Center, shows the amounts obligated by contract, not actual expenditures. With the exception of contracts awarded by the U.S. Postal Service and by the legislative and judicial branches, the data includes all federal procurement contracts of $25,000 or more, and subsequent contract modifications.

Defense contracts included in the California figures were of three types:

* Contracts awarded to California companies for work performed in California account for 58% of the nearly $107 billion in defense contract awards ascribed to the state over the four-year period.

* Contracts awarded to companies with headquarters in other states for work performed in California represent another 37% of the total.

* Contracts awarded to California-based companies for work performed in other states, which have the least impact on the California economy, account for the remaining 5%.

The federal contracts analyzed by The Times do not include hundreds of millions of dollars in subcontracts, either those awarded to California companies or those given to out-of-state companies by California contractors.

Contracts totaling about $8.7 billion were for classified, or secret, projects. The data lists neither the contractor nor the state in which this work is performed. This $8.7 billion was therefore not ascribed to any state, which means the amount of defense money for California may be underestimated.

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