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Defense industry will be hurt by government shutdown, even if it's brief

  • If a government shutdown happens, military and civilian workers at the Department of Defense could end up going without a paycheck.
  • Analysts say a prolonged shutdown could hit defense contractors and other businesses that rely on the Pentagon for revenue and lead to furloughs.
  • The current continuing resolution to fund the government expires Dec. 8, meaning without a new funding bill a shutdown could happen within days.
U.S. Defense Secretary James Mattis briefs the media at the Pentagon in Washington, U.S., April 11, 2017.
Yuri Gripas | Reuters
U.S. Defense Secretary James Mattis briefs the media at the Pentagon in Washington, U.S., April 11, 2017.

A federal government shutdown is looming after Friday if Congress fails to craft a deal on spending — and it could be bad news for the Pentagon and defense workers.

If it happens, military and civilian workers at the Department of Defense could end up going without paychecks. Analysts say a prolonged shutdown could also hit defense contractors and other businesses that rely on the Pentagon for revenue and lead to furloughs, impacting new projects and potentially costing the American taxpayers more money in the end.

The current so-called Continuing Resolution, or CR, reached in September doesn't cover the entire fiscal year and only funds operations of the federal government through Dec. 8.

"Regular procurement contracts would be paused," said Katherine Blakeley, a research fellow at the nonpartisan Center for Strategic and Budgetary Assessments in Washington, D.C. "For defense, you can't spend money that you're not legally authorized to have."

The Aerospace Industries Association, the trade association representing more than 300 defense and aerospace companies, urged Congress and the Trump administration to do what it can to avoid a shutdown. There could be "negative impacts" even if the shutdown doesn't last long, according to a statement by the association.

"There are a variety of impacts from a government shutdown on the aerospace and defense industry," AIA said. "Some begin immediately, such as when federal facilities that are supported by civilian contract personnel are closed, leaving contractors nowhere to work. Others take longer to manifest, such as when contract payments are delayed as a result of the shutdown, which can cause work stoppages and other ripple effects. The end result is serious disruptions no matter how long the shutdown lasts."

But beyond defense contractors, the impact would be felt by DoD personnel who rely on a paycheck from the federal government.

"One of the biggest categories that would be impacted is people," said Blakeley. "Your uniform and civilian personnel would not get paid, but many of them would have to work anyway."

With rent or mortgages due, utility payments, car bills and families to feed, the immediate financial stress of the shutdown on workers at the Pentagon could be significant if a government shutdown lasts for more than a week.

In sheer numbers, it could affect more than 1.3 million men and women in the active-duty service and a civilian force that numbers in the thousands.

"We treat it like a political game but it's really breaking faith with all of our uniform and civilian people who support the Pentagon," said Blakeley.

Defense Secretary James Mattis warned in September that imposing the continuing resolutions is "a great burden on DoD's foundational capabilities, and immediately manifests itself in impacts on training, readiness and maintenance, personnel, and contracting."

If the shutdown does last longer there also could be impacts at military installations, including furloughs of nonessential workers. That could ultimately have ripple effects on local economies around the country because there are businesses, such as restaurants and dry cleaners, that serve people working at bases.

"In past shutdowns, including the longer shutdown in 2013, those people were paid retroactively," Blakeley said. "But there's no guarantee about that until Congress gets their act together and actually passes either a short-term spending bill or ideally a longer-term budget deal."

Cowen defense analyst Roman Schweizer said he doesn't believe that Republicans or Democrats want a government shutdown. "President Trump may or may not — that's sort of the wildcard in this," he added.

The Democratic leadership wants action taken to protect so-called Dreamers, about 690,000 young undocumented immigrants. The Obama-era DACA (or Deferred Action for Childhood Arrivals) program that protects them will expire in early March after the Trump administration rescinded it in September, and to get support for an end-of-year spending bill the Democrats want a solution on the DACA issue.

Regardless, Reuters reported Monday that House Democratic leader Nancy Pelosi of California and Senate Democratic leader Chuck Schumer of New York finally agreed to sit down this coming Thursday with President Donald Trump and Republican leaders in Congress to avoid a shutdown. Even so, the Democrats continue to insist on protections for the Dreamers and also are seeking financial help for states to fund health insurance programs for low-income children, among other programs.

"We need to reach a budget agreement that equally boosts funds for our military and key priorities here at home," Pelosi and Schumer said in a statement. "There is a bipartisan path forward on all of these items."

The Republicans control both chambers of Congress, but the Democrats could potentially block a new government funding bill using a filibuster in the Senate if they don't get what they want with DACA. The Senate needs 60 votes to stop a filibuster, and the Republicans control 52 seats in the 100-member chamber.

"The positions of all the parties in Congress are so opposed on these bigger issues," said Blakeley, including whether to incorporate DACA into an omnibus spending package and whether to increase or cut defense spending and nondefense discretionary spending.

A group of House Freedom Caucus members is pushing for a stopgap funding measure to extend the government funding to Dec. 30 rather than the Republican plan introduced Monday for a CR to Dec. 22.

"They are concerned about getting jammed with a pre-Christmas tree bill because literally everyone hangs what they want on it," said Cowen's Schweizer. But he added, "I don't believe there's a big appetite for stretching it until the 30th. This is certainly a new wrinkle that the tea party guys have come up with."

Schweizer also said there could be another CR into January or the first week of February.

According to Blakeley, there's a risk in doing some short-term CR extensions that something may trip up the process and lead to a brief government shutdown.

"There's this procedural risk that you just won't get all your ducks in a row in time to have these short-term CRs," she said. "You might have kind of a day or two shut down in between."