The optimistic case on Maryland and defense cuts

August 15, 2011|By Jay Hancock

Two weeks ago, in a column titled "Budget Deal Marks End of Maryland's Federal Spree," I said this state's economic spark plug was about to misfire.

The end of two wars and Congress' discovery that budget deficits can't go on forever, I said, will significantly diminish the anti-terror and defense spending that kept Maryland ahead of other states since the attacks of Sept. 11, 2001. (For fiscal 2009, defense spending in Maryland, which has been profiting from wars for 70 years, was $18.5 billion.)

Turns out that not everybody agrees. Maybe hope of federal largesse springs eternal. But there's a decent argument to be made that the tightening in defense outlays won't be as bad as portrayed, especially for Maryland. I'm not buying it, but the case is compelling enough that it's worth laying it out and letting you reach your own conclusion.

"It really starts out with cybersecurity," says Daraius Irani, director of applied economics at RESI, Towson University's consulting wing. "Maryland is becoming a hub for cybersecurity and cyberdefense agencies."

Last year's installation of the Pentagon's Cyber Command at Fort Meade in Anne Arundel County will bring jobs and make Maryland the headquarters of a global network of defensive and offensive computer operations, Irani said. Adding to the region's cyberdefense cluster is growing electronic communications expertise at Aberdeen Proving Ground in Harford County.

Irani was the most optimistic of the regional economists I interviewed for the earlier column. He believes the state's expertise in the warfare of the future — waged by computers or airborne robots — will shield it from the worst of any Pentagon downsizing.

The Lockheed Martin F-35 fighter, which is made in Texas and California at a cost of $150 million each, he believes, faces dimmer prospects than, say, the AAI Shadow drone reconnaissance plane, which is made in Hunt Valley and costs $350,000.

At the same time, the thinking goes, maybe the overall tightening in defense spending won't be as bad as feared.

The budget deal reached this month aimed two axes at the Pentagon. The first is a $350 billion cut in security spending over the next decade. The second is the threat of $600 billion more in defense cuts that would be triggered by the failure of a special congressional committee to agree on further deficit reductions.

Defense Secretary Leon Panetta has described the trigger as a "doomsday mechanism" that would do "real damage" to the nation's security. But would it?

Simply ending combat in Afghanistan and Iraq would save the Pentagon close to $1 trillion over a decade — perhaps enough to finance the required cuts and leave plenty for homeland defense, weapons systems and whatever else the agency blows money on when it's not fighting. In any event, most of the cuts wouldn't take effect for years.

What's more, the trigger might not get pulled.

Donna Cassata of the Associated Press notes that many of the dozen members on the congressional "supercommittee" charged with finding deficit reductions represent states with huge defense contracts.

Democratic Sen. Patty Murray is from Washington, stronghold of Boeing. Republican Sen. Rob Portman represents from Ohio, which makes General Dynamics' Abrams tank. Democratic Sen. John Kerry is from Massachusetts, home of Raytheon.

Democratic Rep. Chris Van Hollen is from Montgomery County, home of Lockheed Martin.

Perhaps the committee's architects discovered a force even more powerful than partisan rancor: fear of losing hometown defense pork. Committee members might mend their differences and strike a deal to avoid defense cuts that would hurt constituents and cause political backlash.

"People like the idea of cutting back government spending, but when cutting back government spending means cutting their own jobs, they're a little bit more hesitant," Irani says. "The cynical part of me says these guys are pretty much going to fold like a cheap tortilla."

There is also the chance, heaven forbid, of another terrorist attack. That could reset the defense-spending machine.

None of this, however, changes the fundamental arithmetic of the U.S. budget. Republicans have basically vowed never to raise taxes, even though tax collections as a portion of the economy are very low by historical standards.

At the same time, Congress isn't going to cut the extremely popular Medicare and Social Security programs, which will eat up larger and larger pieces of the budget as baby boomers retire.

And the country's ability to borrow its way toward higher and higher spending, as Standard & Poor's noted recently, is becoming constrained.

That leaves defense spending to get squeezed between limited tax revenue and soaring entitlement spending.

And, along with it, Maryland.

jay.hancock@baltsun.com

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