Shipyard is left high and dry if spending tap turns off

A massive shipyard will be under threat if potential budget cuts are introduced

Tony Hilario complains that business at his TJ’s Sports Bar is down about 10 per cent on last year.

He blames the potential impact of deep cuts in defence spending on the nearby Newport News Shipbuilding, the largest industrial employer in Virginia and one of the biggest shipyards in the world.

The shipyard, which is about 500 yards from his bar, employs 22,000 people in the town of Newport News. This is where the US fleet of 11 aircraft carriers were all built. All were multibillion-dollar and multi-year projects for the yard. The business also prospers from US military contracts to refit the older, decommissioned aircraft carriers and to construct new Virginia-class nuclear attack submarines. Sitting in the largest drydock in the western hemisphere is the latest carrier, the USS Gerald R Ford, which will cost more than $6 billion and take eight years to build.

The automatic, across-the-board spending cuts, known in Washington as the sequester, that kicked in yesterday has raised fears that staff may be put on unpaid leave or laid off. Local businesses also stand to lose out.

“If they cut them, they affect us too,” said Hilario. “They should have done something a week ago about this. It is ridiculous that people don’t know what to think or they think they will lose their job.”

President Obama visited the shipyard on Tuesday to warn staff that their jobs were in jeopardy if Congress, or more particularly Republicans in the House of Representatives, didn’t do something to avert sequestration. It triggers $85 billion (€65 billion) of spending cuts on US defence and domestic budgets this year and $1.2 trillion in total over the next decade. The president’s appearance in the town this week didn’t appeal to everyone.

“He should have stayed in Washington and done his work. What was doing here? Nothing,” said Hilario.

Contracts cyclical

Sitting at the bar is Paul, who recently retired after four decades at the shipyard. Military contracts are cyclical, he says, and there has always been work at the shipyard regardless of the state of the economy. “I have been here 45 years and there has always been work,” he said.

Job losses at the shipyard are among the many dire warnings the White House has sounded in the past week if Congressional Republicans don’t agree to tax increases as an alternative to the indiscriminate spending cuts.

“They are trying to drive fear into everybody and I think people here are apathetic,” says Paul. “The work here has been steady for so long that if something were to happen here, it would be a shock.”

But the potential spending cuts have already delayed the refitting of the Abraham Lincoln carrier at the shipyard and are also likely to delay the construction of the new John F Kennedy carrier. The Lincoln was due to have arrived at Newport News from the nearby vast naval base in Norfolk on February 14th.

The sequester, a byproduct of an earlier fiscal crisis on Capitol Hill and a deal between the White House and House Republicans to raise the debt ceiling in 2011, was considered so awful for the US that Congress would have to agree another deal to prevent them kicking in. The threat has not paid off.

“We are in an environment where the country is basically being held hostage to budget politics,” said Dwight Kirk, a spokesman for the local division of the United Steelworkers trade union, which represents 8,000 hourly employees at Newport News Shipbuilding.

‘Domino effect’

Kirk says legislators had thought that the spectre of defence spending cuts and the “domino effect” on military readiness had made Congress wrongly believe the cuts would never be allowed to proceed.

“That has caused some people to believe that it would never happen – we are dealing with a new reality now,” he said.

Another threat to the shipyard is the next fiscal crisis, a deadline falling on March 27th when the continuing resolution ends. That was a temporary measure that extended government spending from the start of the year to enable a full-year budget for 2013 to be agreed. A polarised Congress has made a budget impossible to negotiate and created political paralysis. This has created what the department of defence has called “budgetary uncertainty” – a spending freeze halting major projects that would continue to maintain thousands of employees at Newport News Shipbuilding in regular work and surrounding businesses in rude financial health.

“The cuts are going to devastate this area if Congress don’t get their act together and start talking to one another,” said Lee Steveson, owner of the Hilton Tavern, another bar popular with shipyard workers, and a 30-year veteran of the shipyard. “The whole state of Virginia relies on our military. There is a big potential for a huge loss in this state.”