Because of an editing error, a story in yesterday's Business section may have created the impression that the Navy's Seawolf-class submarine program was canceled. Only UNC Inc.'s reactor contract was canceled. (Published 6/4/90)

MONTVILLE, CONN. -- A visibly shaken Bruce Andrews, president of UNC Inc.'s Naval Products division, took the stage at Connecticut College's Palmer Auditorium to deliver the official announcement. As the hundreds of engineers and technicians who build the reactors that power the nuclear Navy listened in stunned silence, Andrews declared that peace had finally come to Montville.

"Our mission, now that this unfortunate decision has been made, is to go out of business professionally and with dignity," Andrews told his colleagues that day in March.

In the face of declining defense budgets and a vastly reduced military threat from the Soviet Union and Eastern Europe, the Bush administration had decided to cancel its contracts for the new SSN-21 Seawolf-class submarines, and with them the nuclear fuel reactors produced here by Annapolis-based UNC. The Navy gave the company about two years to phase out its Montville operations and lay off all 950 of its employees.

These 950 are among the first wave of casualties to result from the End of the Cold War, a wave that includes more than 10,000 people slated to lose their jobs at such blue-chip defense companies as General Electric, Lockheed, LTV, General Dynamics, Northrop and McDonnell Douglas. Over the next few years, as the pace of budget cutting at the Pentagon escalates and more contracts for more weapons are canceled or reduced, hundreds of thousands of additional workers are expected to be let go.

With such massive cutbacks in the offing, UNC's workers here have begun to sound a call that is likely to be taken up by others around the country. It is, simply, that while the United States had equipped itself handsomely for war, cold and hot, it is ill-prepared for peace.

"We have no problem with defense budget cuts. They are going to come. But we need a plan of outreach to help the defense workers," said Bernie McKenna, an electronics technician who has been with UNC for 18 years. "If 900 people were left homeless by a natural disaster, a hurricane or flood, the government would have aid in there immediately. Well, we have a government-made disaster."

After years of regarding the defense budget as the premier federal jobs program, Congress is indeed being forced to shift its focus. Members of the House and Senate, who vied with each other in their support of locally built weapons systems (some of which even the Pentagon did not support), are forming task forces to seek help for defense-dependent communities that must wean themselves from military spending.

Michael W. Martin, a quality control supervisor who worked for 23 years at UNC Naval Products, knows exactly what he would tell the congressional panels if they were to ask.

"Imagine putting our soldiers to work on improving inner-city housing, roads and our drug problem. Think what the defense industry could do if it was turned loose on the environmental problem," he said the other day.

Such radical ideas have been thrown around for decades by exponents of "economic conversion," unionists, peace activists and other liberals who preached that the only way to bring about genuine arms reduction would be to liberate politicians from the political imperative of "saving" jobs in airplane assembly lines, shipyards and missile facilities. The conversion movement gained some visibility as the Vietnam war was winding down, but fell into disrepute during the Reagan era, when any notion of government management of the economy was dismissed out of hand.

Now there is another good reason to dismiss the calls for conversion. With the annual federal budget deficit hurtling past $150 billion this year, lawmakers say they are in no position to consider a program as ambitious as the one Martin and his Montville colleagues have in mind.

Even Rep. Nicholas Mavroules (D-Mass.), one of the more liberal members of the House Armed Services Committee and a member of the House task force, said the government simply can't afford to transfer defense savings into civilian programs. His only consolation to Martin and other advocates of a more radical policy: "I think that ought to be a consideration for the future."

Instead, lawmakers are considering a variety of more modest and less controversial ideas, such as retraining for laid-off defense workers and grants to help communities lure new non-defense businesses. Such programs already exist in limited form and are given a good chance of enactment, perhaps even this year. But other, more ambitious plans are not.

Two of the more unusual proposals come from Connecticut's freshman senator, Democrat Joseph I. Lieberman. One would allow defense companies to divert part of their profits into tax-free accounts that must be used to develop non-defense business. The other would direct the Defense Advanced Research Projects Agency, or DARPA, to pick sectors of the defense industry that could best convert to the civilian sector and target financial support to those companies.

Lieberman acknowledged that his proposals, and other economic conversion measures, smack of industrial policy because they single out the defense industry for special assistance. Supporters of conversion legislation anticipate opposition from the Bush administration.

"You have an administration that believes in leaving this to the free market," said Lieberman. "But if you want this to be a smooth landing instead of a crash landing, you can't leave it to the market."

Opposition has come from other quarters as well. Gordon Adams, director of the Defense Budget Project, a nonprofit research group, has questioned whether it is fair to single out defense workers for adjustment policies not available to other laid-off workers. He also urged Congress to "beware of the reinvented wheel." He said most federal-level adjustment policy tools already exist and merely require more money.

The Pentagon already has a small operation, run by its Office of Economic Adjustment, which attempts to help communities weather defense cuts and base closures. But the office has only $1.5 million for community grants, and those can be used only for planning.

There also is money available under the Labor Department's Job Training Partnership Act to help communities with high unemployment develop retraining programs. But 80 percent of that money is distributed by a formula based on unemployment, leaving states such as Connecticut -- with overall unemployment still at 4.6 percent -- with a very small share of the funds.

Connecticut's Fading Boom For much of the 1980s, Connecticut's economy was booming, and much of that was because of defense spending at companies such as General Dynamics' Electric Boat Division, Sikorsky Aircraft, Pratt & Whitney, Textron-Lycoming and UNC. Even now, defense spending accounts for 8.7 percent of the state's gross product, and about 8 percent of the work force is estimated to work for defense companies. With the bulk of the defense cuts still in the future, "Connecticut is in for some slow times," said Edward Deak, chairman of the economics department at Fairfield University.

A large portion of Connecticut's defense industry, including UNC Naval Products, is concentrated in the congressional district of Rep. Sam Gejdenson. The southeastern Connecticut district has alternated between Democratic and Republican loyalties in recent decades, most recently helping to keep Ronald Reagan and George Bush in the White House, even while sending the liberal Democrat Gejdenson to speak for it in Congress.

During his 10 years in office, Gejdenson has had a difficult balancing act as both a critic of the Reagan arms buildup and a defender of Pentagon programs important to his district. A Gejdenson aide said direct and indirect defense spending account for 50 percent of the jobs in the district.

Gejdenson has asked the General Accounting Office to review the decision to cancel UNC's Seawolf contract, but he has not tried to block the action in Congress. "The chief political instinct is to fight to keep programs, whether they are needed or not," said Gejdenson. But he added that he does not think that strategy will work in these times.

Instead, Gejdenson is focusing most of his energies on pushing for economic diversification -- a cause he took up more than four years ago, before many other politicians or even defense employees were giving much thought to the subject.

Among those who preferred not to listen to Gejdenson's warnings of what would happen if defense spending were cut were many workers at UNC's facility in Montville. Even as recently as last fall, with the hint of peace in the crisp autumn air, workers were confident that the Pentagon would never shut them down. The Montville facility was one of only two U.S. suppliers of nuclear reactors for submarines -- Babcock & Wilcox Co. is the other -- and for years the Navy had set up its procurement policies so that it would not be dependent on only one supplier for systems as crucial -- and as expensive -- as submarine reactors.

Now even that policy seems to be out the window as the military scrambles to cut costs and save as many of its programs as possible. The Navy and the Department of Energy, which administers the nuclear reactor program for the Navy, decided to phase out UNC's work on nuclear reactors for the SSN-21 Seawolf-class over the next two years and consolidate production at Babcock & Wilcox's facility in Lynchburg, Va.

Only three months earlier, UNC Naval Products had lost its other contract. The Navy announced that it would not buy any more nuclear propulsion systems for its SSN-688 Los Angeles-class submarine from UNC, resulting in 117 layoffs at UNC Naval Products last winter.

Unlike some other defense companies, which have waged massive lobbying and public relations efforts to try to reverse Pentagon cancellations, UNC did not launch an effort to fight the government's decision -- a decision that surprised some members of the Connecticut congressional delegation.

"Sure we gave {Navy and Energy Department officials} all the arguments. But to go through the congressional delegation and try to put pressure on these folks to change their mind, after the fact, it seemed like a nonproductive effort," said UNC's Bruce Andrews, adding that UNC officials felt that the government decision had been based on extensive research and cost analysis.

UNC Fights Back UNC executives and workers, however, decided to fight to keep their jobs, not the contract, by trying to convince the government to give the facility other work -- if not defense work, then from some other government agency.

"We are not going out of business because our performance was not good. We were shut down by the U.S. government without consideration for the people they are putting on the street," said Don Wood, a supervisor of metal processing who has worked at UNC for 30 years. "The government should step in and say, 'We are going to take care of defense workers,' because without us they wouldn't have peace today."

Many workers say they are too old to start their careers over. The average employee is 42, has been with UNC 13 years and is highly skilled, according to Robert F. Bonito, vice president of human resources at UNC Naval Products. Bonito expressed confidence that UNC will be able to place many of the employees because of their skills, but he said that most will have to move from Connecticut.

In an effort to avoid unemployment lines, UNC employees have collected 20,000 signatures on petitions, held rallies attended by hundreds of workers and gone on local television and radio talk shows to plead their case. They have protested that funds and assistance should be sent to displaced defense workers before they are given to Panama, Nicaragua and Eastern Europe. And they have demanded that the government give them work on the proposed superconducting supercollider project, which is scheduled to be built in Texas. So far, however, their protests, their suggestions and their demands have fallen on deaf ears.

Robert Rauner, director of the Pentagon's Office of Economic Adjustment, said that while he has sympathy for their plight, he has little for their demands. "There is a tendency for these people to think something is owed them," Rauner said. "That is not the case." He said his office has tried to assist the Montville community in obtaining federal funds for retraining.

UNC officials in the Annapolis headquarters have been far more pessimistic than the UNC Naval Products workers in Montville about the economics of keeping the facility open by switching to non-defense work: Whether for military or civilian use, nuclear reactors are not in demand these days. "For now, we are proceeding with a plan for a closure of the facility," said Nicholas Kaufman, corporate vice president of UNC's technology group.

For years, UNC officials have tried to find non-defense work for the Montville facility, but they ran smack into the problems usually associated with converting a specialized military facility to commercial use. The most obvious such problem is the elaborate security that the Navy has required, which prevents the free movement of other customers and makes overhead costs extremely high. Visitors to Montville are escorted at all times by a heavily armed guard and must be blindfolded while walking through certain areas.

Unlike many other defense contractors, UNC as a whole already has substantial non-defense business, such as commercial jet engine maintenance, telecommunications and environmental services. Only about one-third of the company's revenue comes from defense programs. But the non-defense jobs are being performed in other parts of the country and can provide little work for the specialized work force at Montville.

"I really admire the workers" at UNC Naval Products, Kaufman said. "I would like to find a way we can make a win-win out of this situation. I just don't quite know how."

Gejdenson, however, believes that this is a problem that UNC executives and workers should not have to tackle alone. If defense cuts escalate over the next few years, as expected, the impact will go far beyond the small community of Montville, he argues. And at a time when the United States is fighting for a competitive edge, the country cannot afford to have hundreds of thousands of its most highly skilled workers and advanced factories sitting idle.

"We ought to be using this time as an opportunity to redirect the enormous talent and skills that were directed at the defense budget," Gejdenson said.