Washington — Among the first to fall over the federal government’s looming fiscal cliff will be defense contractors, including those who employ tens of thousands of people in Connecticut.
The impending financial calamity has prompted the defense industry to prepare for layoffs — especially since a federal law requires them to give their employees 60-day notices.
Sikorsky Aircraft Corp. is among the many defense contractors that could soon send out pink slips to their workers.
“We’re in close contact with our customers and government officials, and at this time have not made any decision about … notices,” said Sikorsky spokesman Paul Jackson. “We continue to monitor, review and follow federal agency guidance to ensure we comply with the law and keep our employees informed.”
The fiscal cliff is a popular term used to describe the situation the federal government will face at the end of 2012.
On Dec. 31, last year’s temporary, 2 percent, payroll tax cuts will end, as well as a number of Bush-era tax breaks.
At the same time, because of a budget deal struck in 2011 to raise the national debt, Congress must come up with $109 billion in savings in the federal budget for 2013. If no agreement on cuts can be negotiated, automatic cuts, known as sequestration, would be made on Jan. 2 to as many as 1,000 government programs.
The Pentagon’s budget would absorb half of those cuts.
Unless Congress acts to prevent it, the fiscal cliff would drive the U.S. economy back into recession next year and result in a jump in the jobless rate to 9.1 percent, says a report released Thursday by the Congressional Budget Office.
Another consequence: The U.S. credit rating would likely be downgraded.
The Aerospace Industries Association has estimated that sequestration could put more than 36,000 jobs in Connecticut at risk. The National Association of Manufacturers says there could be more layoffs, as many as 50,000.
But a bitterly divided Congress has been unable to come up with a deal to avoid a fiscal cliff.
When Congress reconvenes next week, it will have another chance.
Although President Obama and House Speaker John Boehner say they want to reach agreement, many think there won’t be enough time in the shortened session, and that the problem may be punted to the new Congress next year.
For defense contractors, the horizon is obscured by a fog of uncertainty. They don’t know what programs would be stopped if Congress fails to act, or which sites would be shut down or who would be laid off.
This uncertainty has already had an impact.
General Dynamics, Northrop Grumman, L-3 Communications, Flir Systems and Raytheon stock plunged this week on concerns about the fiscal cliff. Boeing indicated it would lay off workers.
Rob Doolittle, spokesman for General Dynamics, the parent company for Electric Boat, said it doesn’t have plans to send out pink slips “at this point.”
But that’s only because the company doesn’t know yet how the Pentagon would spread the pain of deep spending cuts and which weapons systems would survive, Doolittle said.
Connecticut lawmakers have mixed feelings about a proposal that’s been floated on Capitol Hill that would put off looming defense cuts for six months.
Under the compromise proposal, fashioned by a bipartisan group of senators, cuts to federal programs would be chosen in a bipartisan manner. They would total $55 billion — but some of those cuts could be offset by revenues derived by closing “tax loopholes” for certain companies and the wealthy.
While the proposal has some appeal on Capitol Hill, several defense contractors, including Connecticut’s Pratt & Whitney, say a permanent solution to the federal budget mess should be found immediately.
“Pratt & Whitney sees no need in delaying action on what all agree should be done,” a statement from the company said. “Congress should act as soon as possible to avert this looming crisis and not kick the can down the road for another six months.”
The support of Connecticut lawmakers, and Democrats from other states with strong defense industries, will be needed for Congress to approve a solution to the sequestration problem — either the one making the rounds of Congress now or a future compromise.
Rep. Joe Courtney, D-2nd District, said he gives “kudos” to the senators trying to find a bipartisan solution, but said the deal has to be “a real down-payment on deficit reduction” to win his backing and to stop the U.S. credit rating from continuing to fall.
“But I’ll definitely support an honest compromise,” said Courtney, who sits on the House Armed Services Committee.
Rep. Rosa DeLauro, D-3rd District, said she hoped there would be a deal in the lame duck session, but she would not support an agreement that would cut anti-hunger and nutrition programs, education, basic research or health care.
“When it comes to avoiding the across-the-board cuts and addressing the deficit, the bottom line is Congress must not balance the budget on the backs of the poor and most vulnerable in our society,” DeLauro said.
For Sen. Joe Lieberman, I-Conn., any further cuts of the defense budget are off the table.
“Because so much has already been taken from the U.S. military, I will oppose any deal that cuts $1 more from our national defense,” Lieberman said last month. “America’s security cannot afford it.”
Sen. Richard Blumenthal, D-Conn., said he’s open to a six-month solution “if it’s a balanced approach,” but he prefers a longer-term plan.
“A short-term solution perpetuates uncertainty,” Blumenthal said. “I meet every day with business people who are postponing hiring decisions because they are uncertain about what Washington will do.”
One thing unites the delegation: All members will look to protect the defense budget from deep cuts.
But Ryan Alexander, president of Taxpayers for Common Sense, an anti-spending group, said the Pentagon’s budget should not be spared.
“Defense has to be on the table for short- and long-term deficit reduction,” Alexander said. “We believe in the bank robber Willie Sutton’s theory when it comes to the budget. Cut where the money is…”