House Votes Not to Pay Back Defense for Closures

In a major setback to the defense industry, the House swiftly approved an amendment Thursday that would block Lockheed Martin Corp. and other defense contractors from getting billions of dollars in Pentagon reimbursements for plant closures often linked to layoffs.

Critics have branded the Pentagon reimbursements as “payoffs for layoffs,” but defense industry executives have pleaded that the whole issue is badly misunderstood and that their plan will actually save taxpayers money in the long run.

The issue came to a head after Rep. Bernard Sanders (I-Vt.) disclosed in recent weeks that Lockheed Martin is seeking about $1.7 billion in reimbursements for closing plants across the country--a plan that is also resulting in the loss of about 12,000 jobs, including a small number in California.

The measure, an amendment to the $247-billion defense appropriations bill for fiscal 1997, would freeze any restructuring payments going back to Aug. 15, 1994, well before the 1995 merger of Lockheed and Martin Marietta was completed.

Although Lockheed’s restructuring plan is by far the largest, about 32 other defense contractors are planning to seek reimbursements, according to the General Accounting Office, the investigative arm of Congress.

“It is an outrage,” Sanders said after his amendment passed with strong bipartisan support. “It is the reverse of industrial policy. Why, in God’s name, should we be encouraging companies to merge and then lay off workers?”

The appropriations bill must yet pass the House, and the amendment would also have to get through the Senate, where it is likely to face some opposition. But the amendment has picked up support, both among liberals who are traditional antagonists to the defense industry and fiscal conservatives.

Lockheed executives said they are deeply disappointed by the action and that they believe conservative supporters of the measure simply do not understand what is at stake.

“It is baffling why anybody would want to deny the government billions of dollars in savings involved in the consolidation,” said Susan Pearce, vice president of Lockheed. “I don’t think this is well understood.”

Under existing Pentagon regulations, Lockheed could submit a restructuring plan that would demonstrate how it could save money in the long run and then earn the right to receive gradual reimbursements from the Pentagon for the cost of undertaking the restructuring.

The reimbursements are not direct payments but, rather, are folded into complex overhead payments that are part of every defense contract and represent a large portion of total weapons costs.

The Lockheed plan would close spacecraft manufacturing plants in Pennsylvania and New Jersey and then consolidate those operations at a lower cost in Colorado and California.

The company contends that its plan will end up saving $6 billion over the first five years and then $1.8 billion annually thereafter--a contention that critics dismiss as unsupported and unbelievable. Sanders contends that Lockheed has not shown the public any evidence that its plan will save money.

“They have never documented how the savings will be made,” Sanders said. “They say, ‘Trust us and give us your money.’ You have to be very naive to do that.”

But Pearce said the plan must pass the scrutiny of defense auditors before it is approved, and the reimbursements would be structured so that in any future year the government would recoup more in savings than it would pay in restructuring costs.

“We believe this amendment runs counter to the government’s interests,” Pearce said.

The amendment was passed on a voice vote that was declared unanimous. Congressional sources said House leaders opted for a voice vote after it became clear that supporters had enough votes to prevail and to avoid a record of who supported the measure.

The amendment had strong bipartisan support, including sponsorship by two Republicans and two Democrats. Sanders is an independent, the only one in Congress.

Ironically, Sanders has a Lockheed plant in his district, but he added that he has never accepted money from Lockheed or any corporate political action committee.

“Out of the 435 members of Congress, I would probably rank as the 436th on a list that Lockheed would like to contribute money to,” Sanders said.