Sequester, U.S.A.

They look so young in their uniforms, sitting in neat rows at the front of a hotel ballroom in Norfolk, Va. Family, friends, local business leaders, elected officials—even a beauty queen on active duty—have come to honor America’s military. 

A sizable crowd has shown up at the Waterside Marriott on a Friday in August to celebrate the accomplishments of 120 men and women from every branch of the armed forces. Guests listen politely to the obligatory speeches, then to the patriotic strains of “God Bless America” while officials from the Chamber of Commerce recognize individual honorees. Spontaneous applause erupts periodically, over the steady click of cameras capturing the moment.

This afternoon is about the sacrifice, professionalism and dedication of these women and men, and their families. “You cannot go far in Hampton Roads without running into a military installation or a member of the armed forces,” says the event’s keynote speaker, Democratic Rep. Bobby Scott.

Indeed. The Hampton Roads region, which includes Norfolk, is home to all five branches of the military and the world’s largest naval base. More than a quarter million service members, federal civilian employees, retirees and their families contribute to the area’s economy and culture. With a population of 1.7 million people, Hampton Roads is one of the country’s 50 biggest metropolitan areas. Nearly half of the area’s economy is tied to the federal government. By contrast, tourism and the Port of Virginia, the other two vital industries in the region, together account for 21 percent of its gross regional product. 

Hampton Roads, like many places with a robust federal presence, is proud to be a military and government town. Beneath the pageantry, though, officials worry the area’s economy is too reliant on Washington, a fear stoked by the automatic federal spending cuts known as sequestration that began in March. The federal government, beginning Oct. 1, must reduce spending by $109.3 billion in fiscal 2014 under the 2011 Budget Control Act—half from Defense programs and half from non-Defense spending. Even if sequestration is reversed, federal spending is not likely to continue at its post-9/11 rate, at least in the near term: communities that remain overly dependent on the federal government for jobs, economic growth, grants and other assistance are at risk of having all of their proverbial
eggs in one basket. 

To the business community and elected
leadership in coastal Virginia, the 120 young honorees at the Waterside
Marriott are the future—whether they stay in the military, become civil servants or go to work in the private sector. Simply put, Hampton Roads wants them to stay for a very long time. Local leaders recognize the importance of the federal sector to the economy and health of the region, says Craig Quigley, executive director of the Hampton Roads Military and Federal Facilities Alliance, but they’re also looking to diversify the area’s economic
portfolio. “They get it,” Quigley says. 

Sequestration is forcing communities in states with lots of federal workers—such as Virginia, Maryland, California, Ohio and North Carolina—to evaluate their relationship with Washington. The federal government is the largest employer in many cities across America. But how long will that last, and what happens when the money starts to dry up?

“You know, sequestration kicked in on March 1,” Quigley says. “On March 2, an asteroid did not hit the Earth. A lot of people woke up that morning and said, ‘Well the lights are still on, cars are still moving, people are still going to work. I guess this wasn’t the big deal it was supposed to be.’ ” The long, drawn-out nature of sequestration has been lost on some, even in a place like Hampton Roads, says the retired Navy rear admiral. “I don’t know, people maybe didn’t believe it, or didn’t really internalize the reality of this being a slow motion sort of a thing. But that is the case.”

A Slope, Not a Cliff

The sequester was supposed to mete out pain in an equal, if brutish, fashion across all federal programs, like the monster in a horror flick. The conventional wisdom inside the Beltway was that mandatory, indiscriminate cuts would wreak havoc and immediately slice into everyone’s budget: agencies, businesses, families. If Congress and the Obama administration couldn’t agree on what to cut, then everything would get slashed—except certain exempted programs, of course. If the suffering could not be avoided, at least it would be equitable, the thinking went. But that’s not what happened this year.

Geography, political clout and individual financial situations largely determined where reductions occurred, and how much they hurt. For federal workers, furloughs were the boogeyman. That fear became a reality this spring and summer for roughly 800,000 civilian employees nationwide, who endured pay cuts, uncertainty and a severe blow to morale. But several federal agencies—most of them in fact—managed to avoid putting employees on unpaid leave with help from Congress. For instance, the Agriculture, Transportation and Homeland Security departments received authority from lawmakers to transfer funds between agency accounts, enabling them to cancel planned furloughs.

Security concerns and natural disasters also played roles in determining which agencies got a reprieve. The Food and Drug Administration and Federal Aviation Administration escaped furloughs after fears over food safety and chaos at airports reached a fever pitch. The National Oceanic and Atmospheric Administration scrapped furloughs after the devastating storms this spring in Oklahoma and Missouri. Even the agencies that did put employees on unpaid leave, like the Defense Department, Internal Revenue Service, Environmental Protection Agency and Housing and Urban Development Department, ended up reducing the number of furlough days by the end of August. 

No one thinks furloughs are a good thing. But the fact that the sky didn’t fall in fiscal 2013 has made it difficult for the public to understand the ramifications of budget cuts. It’s more of a slope than a cliff, said Sen. Ben Cardin, D-Md., during a town hall meeting with Defense civilian employees at Fort Meade this summer. Unless, of course, as Cardin pointed out, you’re a furloughed employee or a small business owner who isn’t getting paid. Sequestration is “horrible,” the Democrat said, but “the public hasn’t quite figured it out.” Budget cuts also have starved funds from many social programs, such as Head Start, housing assistance and Meals on Wheels—crucial services for low- and middle-income families in communities across the country.

Laurie Vroman understands firsthand the pain and inequity of sequestration. Vroman is a civilian secretary at the Watervliet Army Arsenal in upstate New York near Albany and is a single mother with three children, all under age 10. She earns $37,000 a year, and because of the sequester, saw her pay cut by $570 this summer. “I didn’t lose as much as I expected to lose,” says Vroman, who was grateful the department reduced employees’ unpaid leave from 11 days to six. But, she adds, “it still hurts, as a single mom, and it might not seem like a lot [of money] to some, but it’s definitely a lot for me.” Vroman cut back on groceries—“my rule was it has to be on sale, or I have to have a coupon, otherwise I am not buying it”—and stayed home as much as possible with her kids to save money on childcare. She spent her furlough days “doing stuff around the house” and the weekends entertaining her kids with inexpensive activities. “Thank God for pools and museums,” she says.

Like many Defense civilian employees, Vroman is a military veteran. She was on active duty in the Air Force from 2000 to 2004. “I am hoping they can get their act together and not furlough us again,” Vroman says of her fears going into fiscal 2014. The 31-year-old mother of Micah, Marissa and Jayson also sells Pampered Chef kitchen products on the side to make ends meet. “I’m trying to do the best I can with what I’ve got to work with,” she says. The arsenal is a huge employer in the area, with roughly 500 civilian workers and more than 2,000 active-duty service members. 

Defense Secretary Chuck Hagel has said the department might have to lay off civilians in fiscal 2014 if sequestration continues. Bloomberg News reported in August that the Pentagon planned to lay off more than 6,000 employees starting in October, and is contemplating significant cuts to procurement and research spending. Places like Watervliet and the much larger Hampton Roads will feel the effects of those cuts. And it’s not just federal employees who will be hurt. Small contractors who do business with the government, like disabled veteran Mark Klett of Hampton Roads, described the domino effect of sequestration on his company. Testifying before a congressional panel in July, Klett said he had to put “nearly 30 percent of my workforce on the bench or overhead for as little as two weeks and as long as two months this year.” The Navy vet is president and chief executive officer of Klett Consulting Group, a small Defense contractor specializing in engineering and cybersecurity. “With no approved budget, or appropriations bill—no government agency, prime contractor or subcontractor can plan beyond a few months,” he told lawmakers. Klett said veterans make up 60 percent of his workforce. 

It’s the small business owners like Klett who are getting squeezed by sequestration. Big Defense contractors like Lockheed Martin and Northrop Grumman can absorb financial losses much better than what Quigley calls the “little guys.” The problem is there are a lot of little guys. 

Is Sequestration Irrelevant?

Prince Books is down the street from the Waterside Marriott in downtown Norfolk. An independent bookstore, reminiscent of Washington’s popular Politics and Prose, it’s a lovely place to wander around: The list of titles is impressive, and the place has the serenity of a library. It’s also completely empty on a late Friday afternoon in August, and the café is closed. Katy, the sole employee in the front of the store, says the lack of customers is probably because people are on vacation. 

That’s a plausible explanation. It also makes you wonder how a place like Prince Bookstore would fare if sequestration continues to eat up paychecks, and inevitably jobs, in the community. From 2000 to 2010, coastal Virginia’s dependence on federal spending grew from 33 percent of its gross regional product to 48.5 percent, according to a 2010 analysis from the Hampton Roads Military and Federal Facilities Alliance. That spending helped buoy the economy in Hampton Roads during the recession. But Quigley believes federal spending is only going to go in one direction for the foreseeable future. Even if the sequester is replaced by some kind of long-term grand bargain on spending and revenue (which seems unlikely), “I still think the federal government’s budget top-line is going to go down, and we will feel that in Hampton Roads a lot,” Quigley says.

The Defense Department already was looking at a smaller budget and fewer troops due to the end of the Iraq war and drawdown in Afghanistan. Sequestration has accelerated and intensified that schedule. Hampton Roads is actively figuring out ways to be less dependent on the federal sector to grow the economy, Quigley says. “I don’t want to see the federal sector go to zero, for heaven’s sake,” he says, but he does want to see the private sector directing more dollars into the region. One way to do that is to capitalize on what’s already there. The Navy has sizable cybersecurity resources in the Hampton Roads area, so why not build on that to help companies in the business of protecting health information or financial data on nongovernment networks? “There is no reason that can’t be developed in Hampton Roads. That is agnostic as to location, so let’s go for it here,” Quigley says.

The Defense Department is the largest government presence in the area, but it’s not the only one. There’s also NASA’s Langley Research Center in Hampton, Va., a city on the peninsula a short distance from Norfolk, and Wallops Flight Facility on Virginia’s Eastern Shore. The latter installation has done extensive research on unmanned aircraft systems and shares controlled airspace with the FAA. The FAA is putting together a program that tests drones for nonmilitary commercial purposes at six pilot sites across the country, and Virginia is vying to host one of the test sites. The government wants to see how useful drones are in geographically and climatically diverse regions for activities such as crop-
spraying, oil spill monitoring and weather forecasting. Virginia has partnered with New Jersey, home to the FAA’s William J. Hughes Technical Center, on its bid. If the FAA chooses the pair, it could bring thousands of jobs to Virginia. 

“This is going to be an explosive area of growth,” Quigley says. 

Preparing for the Worst

Furloughs freaked out federal employees in fiscal 2013. But potential reductions in force are a much bigger threat in fiscal 2014. Even if they don’t materialize, the anxiety their mere mention creates among the workforce is destructive.

“We planned for the furloughs, but we cannot plan for a RIF,” a Defense civilian employee at Fort Meade told Cardin at his town hall meeting. The woman and her husband both work at the installation. Located about 45 minutes north of Washington, it is Maryland’s largest employer, with 56,700 workers—49 percent of them civilians. 
Cardin didn’t know whether fiscal 2014 would bring layoffs, but said the government needs to provide fiscal certainty so agencies and employees can plan and prepare for the worst. “We need to pass budgets, so the agencies don’t have to guess as to how much money they have, and they can give you a predictable guide-path,” he told the audience. The senator expressed confidence that the sequester would be reversed soon, but not before Oct. 1.

Town hall participants, while polite, did not hold back. They expressed frustration and incredulity over how sequestration happened in the first place and why government employees are constant budget-cutting targets. Cardin tried to explain sequestration’s origins with a broad overview of the budget impasse in Washington. But employees mostly wanted to know why they were saddled with a pay cut, whether they’d lose their jobs, and what Congress and the Obama administration were going to do about it.

“Why are you guys on vacation? Why don’t you just sit around a table and try to knock it out . . . Your fellow federal employees are getting furloughed. I’m not even paying my mortgage,” said one participant, to applause from the crowd.