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Following the Currents that Guide Florida's Future
Is 'fiscal cliff' scare hurting Florida defense-related businesses?
Joe Saunders
Facilitator
You've probably heard something by now about the “fiscal cliff” the country's heading for if President Obama and Republican House Speaker John Boehner can't reach some kind of a deal on whether and how to deal with the end of the “Bush tax hikes” set to expire at the end of the year. With military spending on the cutting block automatically if no deal is reached, Florida Voices asked leaders in defense-related industries and military-heavy communities in the Sunshine State what they think could happen here, and what should be happening in Washington and Tallahassee. Joe Moreno, president of the Florida League of Defense Contractors, thinks the uncertain climate could lead defense-related businesses to consider “possibly closing their doors in Florida.” The Legislature, he writes, has an opportunity to help prevent that. State Rep. Lake Ray, a Jacksonville Republican, writes that the state is in danger of losing employment opportunities for its young people. On the other side of the state, meanwhile, Tampa Chamber of Commerce CEO Bob Rohrlack writes that the time is now to get a deal done to keep these possible cuts from happening.
Joe Marino
President, Founder, Florida League of Defense Contractors

Florida defense businesses and workers face a most unique set of circumstances. While they deal with understanding the impact of new regulations, laws, and taxes, like other industries, they must try to understand and navigate the consequences of inaction and confusion in Washington DC. Draw down of the wars, sequestration, and the "fiscal cliff" all add additional uncertainty to their business outlooks.

Why should Floridians care? Defense businesses provide thousands of jobs throughout the state – the kind of high-tech, high-wage, 21st century STEM jobs we all say we want here and bring billions of federal procurement dollars into our state's economy.

Overall, the economic impact of military and defense spending in Florida is over $60 billion a year, and defense contractors contribute at least $13 billion to that figure. Due to Florida's unique geography, great quality of life, and generally business-friendly environment, thousands of small, medium, and large defense businesses call Florida home or have operations here.

But all that is in jeopardy.

Like any business, defense prime contractors and subcontractors must always evaluate their plans to hire and expand. With the level of uncertainty they face, such businesses are naturally inclined to maintain the status quo or to look at possibly closing their doors in Florida.

Our elected state leaders have a unique opportunity this upcoming legislative session to address that and make Florida the premier state in which defense businesses operate and expand. Economic development incentives already on the state's books for the industry are outdated. New incentives are needed, for example, to keep subcontract dollars within Florida.

All across the state, I hear the same thing, prime contractors prefer to keep their subcontracts in Florida, but must go where it is most cost-effective to meet Department of Defense cost savings guidelines. We can make it easier for them to keep billions of subcontract dollars, which benefit small and medium size businesses and their employees, right here in Florida. Such common sense economic incentives will reduce the uncertainty defense businesses face and benefit Florida's economy, maintain a strong defense industrial base, and promote our nation's security.

We saw the effects of NASA budget cuts on Florida's Space Coast. Current projections of job losses for defense businesses and workers in every region of the state eclipse the jobs lost in that one area. If Florida's leaders act, we can mitigate the projected losses and turn the uncertainty into opportunity.

 

State Rep. Lake Ray III
President, First Coast Manufacturers Association, R-Dist. 12

The defense industry is a huge economic driver in the State of Florida. The impact of the fiscal cliff will have devastating effects on a number of sectors of our economy.

For every job in manufacturing, three jobs are created in other industries of the supply chain, such as the movement of goods, the supply of raw materials and related logistical needs.

The defense industry is anticipating a loss of contracts for products and services by refusing to make new hires, also preparing to release current employees. A number of employees have been notified of their impending release.

Failure to reach an agreement and keep the defense industry funded will not only affect aircraft manufacturers, aircraft maintenance shops, shipyard facilities and transportation supply hubs in the state. It will result in a loss of technological advances, developments in hardware and software for military simulators. Manufactures of simulators will necessarily cease production.

In addition to manufacturing jobs being lost, military bases will experience reductions of personnel as well as some base closures around the state further impacting almost every sector of the state's economy.

The rippling impact of reductions or elimination of contracts will have an impact on talent to the state not only at this time but, for many years to come as manufacturing minds will leave our state to seek other employment opportunities elsewhere.

 

Bob Rohrlack,
President, CEO, Greater Tampa Chamber of Commerce

The Greater Tampa Chamber of Commerce represents the interests of 1,300 member businesses and organizations in the Tampa Bay area and supports a bipartisan effort to extend the tax provisions set to expire on Dec. 31 and prevent the negative consequences from the mandatory sequestration provisions of the “Budget Control Act of 2011” before the end of 2012.

We feel that the automatic tax increases will have a chilling effect on economic growth that will jeopardize our recovery.

Sequestration will have significant impacts on many sectors of our economy including the military and defense industry. In Tampa Bay, MacDill Air Force Base accounts for an almost $5 billion positive economic impact and employs over 60,000 people both directly and indirectly. The Budget Control Act has already reduced the Pentagon's budget by $487 billion from fiscal year 2012-21.

The additional cuts that sequestration will impose on the military are nearly $500 billion over the next nine years, bringing total defense reductions under the Budget Control Act to about $1 trillion.

Moreover, if the current tax provisions end, most tax brackets will rise, as will capital gains rates on long-term assets; dividends will be taxed as ordinary income, estate taxes will grow 20 percentage points to 55 percent, employees' payroll taxes will rise by one-third to 6.2 percent and 31 million additional taxpayers will pay alternative minimum taxes.

While we do not have specific, attributable data that our members have approved us to release, we have been told repeatedly that businesses are feeling the hesitation of their customers as everyone waits for the president and Congress to act to avoid the “fiscal cliff.”

The uncertainty of this issue is causing companies to wait to plan their business decisions. Businesses have been willing to start to implement plans to grow slowly, but this issue has caused many to step back and see how they will be affected no matter how the issue is resolved.

While the Greater Tampa Chamber of Commerce believes that long-term fiscal issues should be addressed through comprehensive reform, at this time with the impending “fiscal cliff” it is necessary to take action now to avert these year-end tax increases and sequestration's across-the-board spending cuts.

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