Defense Contracts Dwindle

As US Attacks its Budget Deficit, New England is Apt to Feel the Economic Pain

By Hiawatha Bray
GLOBE STAFF

Money from defense contracts, a mainstay of the Massachusetts and New England economies, is dwindling as America pulls troops from Iraq and Afghanistan. And military expenditures in the region could drop even more dramatically as the Defense Department confronts $400 billion in budget cuts and Congress seeks more reductions in the massive US budget deficit.

A study by the University of Massachusetts Donahue Institute found that the value of military contracts in the Bay State fell 7.7 percent in 2010, to $14.3 billion, from $15.5 billion the year before.

Regionwide, spending was down 9 percent, to $29.1 billion.

“There’s going to be a continued downward trend across the nation as the efforts in Iraq and Afghanistan wind down,’’ said Christopher Anderson, president of the Massachusetts High Technology Council and the Defense Technology Initiative, a consortium of New England government agencies and defense contractors.

“There are obvious concerns about our regional economy if further cuts are absorbed,’’ he said.

Defense spending accounts for 4 percent of the Massachusetts and New England economies.

A separate study from the Aerospace Industries Association showed that defense budget cuts could lead to sizable job losses in Massachusetts.

That report estimates more than 31,000 Massachusetts workers are directly employed in aerospace- and defense-related industries. A $1 trillion cut in defense spending, for example, would eliminate about 8,200 jobs, with another 17,600 indirect job losses caused by a reduction in economic activity.

Massachusetts is a major producer of high-technology military gear.

Last year’s sales to the Pentagon included $1.3 billion in jet engines and gas turbines; $1.3 billion in guided missiles; and $1.9 billion in defense electronics and communications equipment.

The Defense Technology Initiative commissioned the Donahue Institute study at the request of Senator John F. Kerry, Democrat of Massachusetts, who serves on the 12-member bipartisan congressional supercommittee that is charged with reducing federal expenditures by at least $1.5 trillion over the next decade.

A spokeswoman said the study will help the senator formulate decisions on spending cuts.

“This study from the University of Massachusetts helps equip his team and the New England delegation with new data to consider,’’ said the spokeswoman, Whitney Smith, “and that’s enormously helpful to evaluate as all of Congress faces tough choices ahead.’’

The supercommittee must issue a budget-cutting plan by Nov. 23, and Congress must then pass it within a month. Failure to do so would trigger a series of automatic spending cuts of $1.2 trillion over the next decade, with the reductions to be divided equally between the Defense Department and other agencies.

Those further cuts would be on top of a 12-year, $400 billion reduction in funding that the Pentagon has already accepted. In April, the Defense Department began a “fundamental review’’ of spending priorities in an effort to determine which programs and activities to cut.

If the automatic spending cuts kick in, overall defense spending could be slashed by over $1 trillion. The prospect has alarmed Defense Secretary Leon Panetta, who warned in August that such huge cuts “would have devastating effects.’’

Anderson said the studies show the importance of the defense sector to New England and show that deep budget cuts would cause hardship.

“The hope is that we can use data like this to help shore up the commitment of the supercommittee members around finding a solution that is not the blind $600 billion across-the-board cut,’’ Anderson said.

US Representative Barney Frank, a Newton Democrat who favors large defense cuts, said the biggest savings would come from reducing the number of forces posted in foreign countries, which he said should not lead to major job losses at home.

“I don’t see why we have to protect Germany against Stalin,’’ Frank said.

Frank opposes spending on missile defense systems and on a new jet engine for the F-35 Joint Strike Fighter, projects that employ many in Massachusetts. But he favors continued funding for other high-tech military research, such as the work at the US Army Soldier Systems Center in Natick.

Frank said, failure to cut the Pentagon budget would mean deeper cuts in medical spending, and medical companies are a major part of the state economy.