Hawaii still ranked No. 2 in the nation in fiscal 2014 among states with the greatest military spending as a percentage of gross domestic product, but those expenditures slipped to $7.6 billion in 2014 from $8.1 billion the previous year, the Department of Defense said in a new report.
The sky isn’t falling economically, said the Chamber of Commerce of Hawaii, but the signs point to more downturns to come.
National defense spending increased 68 percent from 2000 to 2010, according to the DOD Office of Economic Adjustment’s annual state-by-state spending report released Monday.
However, federal government spending on national defense has been in decline since 2011 as U.S. forces have been drawn down in Iraq and Afghanistan and the Budget Control Act of 2011 — otherwise known as sequestration — forced significant cuts in defense spending, the Pentagon said.
From 2011 to 2019 defense spending is expected to decline 28 percent, the government said.
“The impact of defense spending cuts has been, and will continue to be, uneven across states as it depends in part on the number of defense personnel and amount of defense contract revenue in each state and region,” the new spending report said.
Payment delays and other problems would be a separate headache for defense contractors if there is a government shutdown.
At $7.6 billion in 2014, Hawaii had the second-largest military spending as a percentage of state gross domestic product, with the total accounting for 9.9 percent of Hawaii’s economy. The state again trailed Virginia, home to some large defense contractors including Huntington Ingalls and General Dynamics, and with a whopping $54.7 billion in defense spending in 2014 representing 11.8 percent of its GDP.
A total of 77,163 people in Hawaii were on a $5.6 billion defense payroll in 2014, with an additional $2 billion in contract awards performed. Defense spending dropped to 9.9 percent of state GDP in 2014 from 10.9 percent in 2013.
“We don’t think it’s as bad as it looks, partially because if you go state by state, kind of across the board, with obviously a few exceptions, defense spending is down considerably and (Hawaii), despite the reduction … actually moved from 19 last year to 18 this year (in total spending),” said Kamakana Kaimuloa, vice president of military affairs for the Chamber of Commerce of Hawaii.
The end of projects can lead to some big funding differences year to year, but Kaimuloa said defense payroll has stayed at $5.6 billion while total personnel has dropped very slightly. Research and development accounted for 5 percent of military contracts in 2014, construction 18 percent, service 64 percent, and supplies and equipment 14 percent.
Defense spending fell to $6.7 billion on Oahu from $6.9 billion, but “really, it looks like the hit was actually taken on the neighbor islands,” Kaimuloa said. Spending fell last year to $67.9 million in Hawaii County from $252.9 million, to $111.7 million on Kauai from $183.4 million and to $66.7 million on Maui from $214 million.
“We’re just trying to dig down and find out where exactly all of this is happening,” Kaimuloa said.
The spending report shows that engineering and technology development contractor Pelatron, a Small Disadvantaged Business with a corporate office and main manufacturing operation in Honolulu, received $49.7 million in defense contracts in 2013 and $35.9 million in 2014.
Hawaii general contractor Nan Inc. received $88.2 million in contracts in 2013 and $62.5 million in 2014, the Pentagon said. Officials with Pelatron and Nan could not be reached for comment Monday.
Asked whether there’s worry for defense contractors about the pattern of decreasing military spending, Kaimuloa said, “Yes, I think that’s the most straightforward answer.” For some there is that worry, “but they’ve got enough going on for the next two to three years that although it’s a concern, it’s not the sky-is-falling kind of deal.”
“I think for a lot of them, there’s some stuff out there that they are chasing as well,” Kaimuloa said. “I don’t think we’re in dire straits right now, but obviously, a number of them are concerned.”