MuniLand

The impact of defense cuts

By Cate Long
February 2, 2012

Reductions to our outsize military budget are scheduled to take effect in 2013. Congressional Republicans have vowed to reverse these mandated reductions, but so far organized resistance in Congress has not appeared. President Obama has vowed to veto any legislation that would overturn the cuts.

I previously described the size of the annual reductions:

President Obama proposed spending approximately $924 billion on defense, veterans care and international affairs for 2012. This represents about 24.7 percent of the $3.729 trillion federal budget. The automatic cuts to these areas required by the Budget Control Act of 2011 will equal about $75 billion per year over eight years. This would be on top of already enacted Defense Department reductions of $45 billion per year over 10 years. The combined $120 billion of annual spending cuts will equal about 12.9 percent of the joint budget for defense and intelligence. It’s a big cut, but it would barely dent the capabilities of the biggest military force on earth.

Annual reductions of 13 percent are substantial, but the nation will still spend significantly more than any other on earth. And it’s important to remember we will be spending 25 percent of our federal budget on the military even though, it is hoped, we will not be fighting a war. It’s not clear that the U.S. would have the “fiscal space” to ramp up spending to fight another big war and care for Social Security, Medicare and Medicaid beneficiaries.

Where will these cuts come from, and who will be affected? Politicians, credit-rating agencies and defense contractors have been poring over the bits and pieces of information coming out of the Pentagon. Today the Department of Defense released the following:

The Defense Department needs another round of base realignments and closures if the military is to retain its balance, the chairman of the Joint Chiefs of Staff said here yesterday.

Army Gen. Martin E. Dempsey told the Reserve Officers Association that as the military cuts $487 billion over the next 10 years, infrastructure must change accordingly.

“When we talk about balancing the force and our investment…, there’s manpower costs, there’s modernization and equipment costs, there’s training and maintenance costs, and then there’s this thing called infrastructure — just those things involved with turning the lights on and off,” he said.

The options for cutting are limited, the chairman said. “If we don’t affect those ‘bins’ equally — or at least somewhat equally,” he added, “we will then have to harvest most of the reductions we are looking for disproportionally out of one of those other bins.”

Fitch Ratings is already out with a statement discussing how cuts may affect cities and counties, depending on the proportion of a community that is given over to military activities.

A group that appears to advocate for defense contractors has broken down the projected economic loss of outsourced defense contracts by Congressional district. This appears to be a scare tactic to get members of Congress to oppose military reductions, since the Department of Defense has not decided where the reductions will come from. If cuts were made equally, without considering defense needs, California defense contractors would lose $7.6 billion annually, or 0.4 percent of the state’s $1.7 trillion gross state product.

Military cuts must come, and they will likely have a greater impact on states with a heavy military presence, like Virginia and Maryland. These reductions will lower GDP by approximately 0.8 percent. That’s not insignificant, but our nation will remain strong and plenty prepared for any military aggression that we would face. The impact will be painful for some communities, and support for decommissioned soldiers, such as education grants, should be considered.

Table: Ten California congressional districts with the largest amount of defense contracts. (Source: Coalition for the Common Defense)

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