Looming defense cuts could put half a million small business jobs at risk


The U.S. Capitol dome and U.S. Senate (R) in Washington, August 2, 2011. (JONATHAN ERNST/REUTERS)

A looming package of federal spending cuts could put nearly 1 million small business jobs at risk across the country — more than half of them in defense industries, according to projections in a new study.

The across-the-board “sequestration” cuts are scheduled to go into effect in January in accordance with The Budget Control Act of 2011, which mandates more than $1 trillion in budget reductions over the next nine years. Small businesses in defense-related industries are expected to lose around 520,000 jobs as a result, the Aerospace Industries Association study showed, and around 956,000 across all industries.

On Thursday, several small business owners told lawmakers that the mere possibility of spending cuts is already preventing them from planning effectively for future contracts.

“The threat of sequestration creates uncertainty, which paralyzes small businesses,” Mark Gross, chief executive of Raleigh, N.C.-based Oak Grove Technologies, testified during a House Small Business Committee hearing, later adding that “without reasonable assurances of future business, small businesses cannot plan for the future and are not likely to invest in the company’s growth by acquiring additional equipment, facilities, or personnel.”

Gross’ Alexandria-based firm provides information technology services and training for special forces and other military agencies. Seventy percent of its employees are veterans, including Gross.

In response to the threat of sequestration, Gross said he is consciously cutting back on Oak Grove Technologies’ spending.

“We are putting much of our planned construction on hold, minimizing our marketing campaigns and trade show participation, and in general tightening our belts because of the uncertainty surrounding sequestrations,” Gross said at the hearing.

Department of Defense budget cuts would hit especially hard in Virginia, which could lose 65,000 defense-related jobs, according to the study. California and Texas were next, projected to lose 64,532 and 47,240, respectively.

Aerospace and defense programs in the United States often rely on small businesses for supplies — in 2011, the Department of Defense awarded 20 percent of its prime contracts to small businesses, and NASA awarded 18 percent.

George Mason University economist Stephen Fuller, who collaborated with the AIA on the study, estimated that sequestration could put 2.14 million jobs at risk in 2013 alone, according to the report. Forty-five percent of these losses in the first year of sequestration could come from small businesses, according to Fuller’s analysis.

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Mohana Ravindranath covers IT and small business for the Washington Post and its weekly Capital Business publication.
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