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Wells Fargo: Hawaii most vulnerable to defense cuts

By Star-Advertiser & Associated Press

LAST UPDATED: 01:39 a.m. HST, Feb 19, 2013

<br /><br />U.S. Navy / january 2011<br />The cruiser USS Chosin is the first warship to undergo modernization at Pearl Harbor Naval Shipyard as part of a 10-year, $1.86 billion Navy overhaul program. Next up was the USS Russell, but that work could instead take place on the West Coast to save money.<br />

Hawaii is the state most vulnerable to federal defense budget cuts, according to a report released Monday by Wells Fargo Securities.

The report examines parts of the country that would feel the most pain from $85 billion in cuts that are set to automatically start taking effect March 1 without a bipartisan deal on sequestration. Actual cuts may be around 13 percent for defense and 9 percent for other programs because lawmakers delayed their impact, requiring savings over a shorter period of time. 

The report notes that federal defense spending in Hawaii is 14.6 percent of the state’s 2010 gross domestic product. Total federal spending is 15.8 percent of the state’s GDP. Both percentages are the highest among all 50 states and the District of Columbia.

“Among the states most likely to be impacted is Hawaii, home to the U.S. Navy’s Pacific Fleet, which could see layoffs and reduced income growth, which in turn would weigh on economic growth,” the report said.

Maryland, Virginia and the District of Columbia are also among the most vulnerable to the looming federal cuts, the report said.

“The District of Columbia along with its neighboring suburbs in Northern Virginia and suburban Maryland are particularly vulnerable due to the multitude of defense agencies and contractors located in the region,” said the report by Wells Fargo economists Mark Vitner and Michael Brownsaid.

Defense spending has been estimated to account for 9.8 percent of the combined D.C., Virginia and Maryland economies in 2010, the report noted.

The report cited Huntsville, Ala., and St. Louis as other areas vulnerable to defense cuts. 

“Both have outsized exposure to the aerospace industry and will see growth slow if the military purchases fewer fighter jets, missiles and helicopters,” the report said, noting that smaller towns that host large military bases are probably the most vulnerable.

Georgia, for example, is home to three areas like that, including Columbus, Warner Robins and Hinesville, according to the Wells Fargo report. As for larger metro areas, Navy towns like San Diego and Norfolk-Virginia Beach also could be affected. 

“In addition, Alaska with its Air Force, Army and Naval operations would also be disproportionately impacted from defense cuts,” the report said.

While nondefense cuts will be spread out more across the country, Maryland, Virginia and the District of Columbia ranked at the top for states with a high level of exposure to nondefense spending reductions, which could affect areas ranging from biomedical research to homeland security.

“Cuts in nondefense outlays would likely trigger significant furloughs, layoffs at civilian contractors and generally less business for supporting services, including law firms, caterers, airlines and hotels,” the report said.

The Wells Fargo report noted that while the impact of budget sequestration could be severe, there is some reason to believe that at least some of the cuts may be partially reversed in the months ahead.

“Regardless of the political outcome, we still expect some moderate impact on state economies from the pullback in government spending in the short term, as agencies hold off on major spending commitments and put hiring on hold,” the report said.

In Maryland, the so-called budget sequester negotiations have added uncertainty to the state’s own budget, which state officials say is otherwise in better shape than it has been for years since the recession. Gov. Martin O’Malley noted the uncertainty of the budget sequester when he unveiled his budget plan in January. O’Malley, a Democrat, increased the state’s Rainy Day Fund from 5 percent to 6 percent of the state’s $16 billion general fund. Altogether, the governor’s budget proposal leaves the state with about $1.1 billion in reserves to help adjust to federal cuts.

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Mythman wrote:
What a clever scheme to ultimately accustom us schmucks to paying higher taxes overall. As the "cuts' take effect, governments will compensate by raising more revenue from us in the form of taxes and fees. And later, these will be used in their increased acceptance, to return to former levels of federal government spending on contracts of all types, not just defense. What a world. Washington versus the rest of us......
on February 18,2013 | 12:10PM
1local wrote:
no need worry - Hawaii has Hirono, Hanabusa, Gabbard, Shutz, Abercrombie, Unions, and Public workers....plus Hawaii has tourism....
on February 18,2013 | 05:36PM
saywhatyouthink wrote:
A trillion dollar cut over a 10 year period is peanuts compared to the trillion doallar annual deficit we have been running every year. Military spending should be cut in half, even at that level we would still be spending more than any of country,
on February 18,2013 | 12:11PM
goodday wrote:
PHNSY employs a lot of Oahu's workers.
on February 18,2013 | 12:27PM
HD36 wrote:
Yea, it's too bad they're no better than the rest of us.
on February 18,2013 | 01:49PM
bobbob wrote:
It's not an "us versus them" thing. Military accounts for 15% , tourism around 80%, everything else 5% of hawaii's economy. With a large defense cut, the entire economy will feel the pain, whether you're directly affected or not.
on February 18,2013 | 02:01PM
allie wrote:
true..but Hawaii should have diversified the economy decades ago
on February 18,2013 | 02:53PM
tiki886 wrote:
You should learn why "diversified" is not a viable option. Take econ 101 while you are attending UH.
on February 18,2013 | 08:39PM
HD36 wrote:
Yea but without a cut the world will lose confidence in our ability to repay trillions of dollars and the entire economy will collapse.
on February 18,2013 | 07:01PM
Bobbob, I am not saying your wrong about feeling the effects, but it appears your %'s are a bit skewed. I would estimate (and I dont know the actuals) military more like 40% and tourism 40% and the rest 20%
on February 19,2013 | 11:58AM
Manoa2 wrote:
What the report misses is that there is a lot of spending on military research and development that goes to civilian tech companies. Texas, California, and Massachusetts gets a lot of this kind of defense spending, all of which is at the top of the list for the sequester-- the funds these states get dwarf the direct defense spending Hawaii gets-- not even close.
on February 18,2013 | 01:21PM
entrkn wrote:
Wells Fargo has made Huge misjudgements before, like their part in the recent mortgage crisis fraud... I wonder if they are betting any money against the President's home state?... and since California is the home of Wells Fargo, we all know they are blowing huge amounts of money to hold on to all their interests in California and the West Coast.
on February 18,2013 | 01:42PM
stingray65 wrote:
Correction, you mean Chicago!! Not Hawaii! He never own a home in Hawaii. Obama's home town is Chicago, IL
on February 18,2013 | 04:03PM
I hope Hanabusa and Hirono can do something with Inouy gone.
on February 18,2013 | 01:49PM
allie wrote:
neither one has the first clue hon
on February 18,2013 | 02:54PM
kiwamoto wrote:
Allie, seriously, have you had an intelligent thought in your life?
on February 19,2013 | 10:03AM
vankuren50 wrote:
Don't worry Hanabusa and Hirono will do whatever Harry reid or Nancy Pelosi tells them to do. Neithier of them can come up with a original idea between them or make a decision without being told what to do.
on February 18,2013 | 03:41PM
Maneki_Neko wrote:
When asked how she was working to counter the specific cuts, Mazie replied, "My Mom brought me over on a big boat and now I collaborate with everybody." She then went back to sleep.
on February 18,2013 | 04:03PM
bodysurf_ah wrote:
This comment has been deleted.
on February 18,2013 | 05:24PM
HD36 wrote:
Nice description
on February 18,2013 | 07:52PM
Hawaii_Libertarian wrote:
The only solution the clueless Democrats have is to raise taxes and kill more jobs. Hirono, Schatz, Hanabusa, and Gabbard have no seniority, no influence, and are irrelevant to the national debate. Inouye is gone--turn out the lights, the party's over. Hawaii is among the most anti-business, especially anti-small business, states in the U.S. The cost of doing business here is unnecessarily high due to the extortion of onerously burdensome taxes and fees to fund the bloated state and local governments. At a certain point, most visitors will decide it's too expensive to vacation here and see less costly destinations. No sane high tech business will relocate here because no tax incentives of any significance are offered. In contrast, fly into Dulles International Airport in Northern Virginia near Washington, DC and as you drive out, you'll see the high tech businesses everywhere. Hawaii could be like that, but most of our socialist politicians hate business and capitalism, unlike those in Virginia, and will never expand here because of the politically hostile environment here. Additionally, at a certain point, it will make economic sense to close the Pearl Harbor Naval Shipyard because the work can be done cheaper elsewhere.
on February 18,2013 | 05:48PM
hanalei395 wrote:
Maybe "cheaper" ... but NOT qualitywise. The Pearl Harbor Naval Shipyard will NEVER be "closed".
on February 18,2013 | 06:33PM
HD36 wrote:
The one thing Mitt Romney said he wouldn't cut was the military budget. In fact he said he would expand the military even more. Obama was for expanding government in other areas except the military. Hawaii, the most democratic state, but with the most to lose from military cuts should have realized the man with the smooth tongue was going to put the screws in. Japan is itching to build up its military might and with a quadrillion yen stimulus program from Shinzo Abe, America will be more than glad for him to take the burden off the US. The Military Industrial Complex has always been backing republicans.
on February 18,2013 | 07:22PM
Bumby wrote:
Maryland has a surplus (reserve of 1.1 billion)? Wow
on February 18,2013 | 07:42PM
9ronboz wrote:
I hope this makes all the anti-military happy. We are all going to feel it
on February 18,2013 | 08:21PM
2_centz wrote:
This comment has been deleted.
on February 18,2013 | 09:02PM
hanalei395 wrote:
It was Gen. John Schofield who came to Hawai'i as a spy and reporting back, recommending that the U.S. take the Hawaiian Islands, and use Wai Momi (Pearl Harbor) as a naval base.
on February 19,2013 | 05:05AM
jankenpo wrote:
N. Korea is watching. Maybe they can get scud missile on a row boat and get to Hawaii while defense is weak.
on February 19,2013 | 08:29AM
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