New state program tracks military spending in isles

Defense contracts have been running at about $2.1 billion a year in Hawaii as part of an estimated $7.8 billion in direct military spending supporting more than 64,000 jobs.

The defense industry is Hawaii’s second-largest economic driver behind tourism, and as such, the state wants to keep a close eye on contract and grant spending, which has shown some softening in the isles as well as nationally, according to officials.

Total defense spending is 9.8 percent of the state’s gross domestic product, according to the Defense Department.

To better monitor trends, the state has launched the Hawaii Defense Economy website, led by the state Department of Labor and Industrial Relations Office of Community Services, with a focus on enhancing the understanding of Hawaii’s defense industry supply chain. A $500,000 grant for the project came from the Pentagon’s Office of Economic Adjustment.

“Prior to this project, we knew that billions of dollars poured into Hawaii through defense contracts. However, we did not have a great understanding of who was benefiting,” David Carey, chairman of the Chamber of Commerce Hawaii’s Military Affairs Council, said in a release. “The data analysis provided on the HDE website allows us to really see how impactful the defense industry is on our local business community, and hopefully provide opportunities for other businesses to become a contractor or subcontractor with the defense industry.”

Hawaii is home to 64,232 military personnel, according to the state.

In 2016 more than 1,000 small businesses received nearly 2,000 contracts worth more than $1 billion total. Among the findings has been a better picture of the impact of U.S. Sen. Dan Inouye’s death in late 2012.

“It was assumed, or it was our understanding, that as a result of Sen. Inouye’s passing in 2012, that that probably had a big effect on what Hawaii was bringing in every year (in defense contracts),” said Josh Michaels, defense industry adjustment program manager with the labor department. “But when we looked at the contract database and the appropriations, we found that actually wasn’t true.”

There have been fluctuations in contracts and grants in Hawaii, with the amount rising from $2.6 billion in fiscal 2010 to $3 billion in 2011 and then dipping to $2.8 billion in 2012. The year 2013 saw $1.9 billion in investment, followed by $2.4 billion in 2014, $2 billion in 2015 and $2.1 billion in 2016, a state chart shows.

But with the exception of the biggest defense contract states, including Virginia and California, Hawaii’s contract softening has been proportional with the rest of the nation — likely as a result of the Budget Control Act of 2011, also known as sequestration, and the overall tightening of defense budgets, Michaels said.

“We’re hoping to explore that more” in a second phase of the Hawaii Defense Economy study, Michaels said, but for now that rationale is the operating thesis, he said.

Total direct military spending in Hawaii — including salaries — was estimated by the RAND Corp. in 2011 at $6.5 billion for fiscal years 2007-09, compared with $7.8 billion as of 2015 in the new analysis.

The new website provides a range of information through interactive graphs and charts. It’s possible, for example, to see the top contractors by dollars obligated, broken down by county and fiscal year and even by funding agency.

Honolulu’s top defense contractor in fiscal 2016 was BAE Systems, which received $120 million for contracts that included shipyard and Office of Naval Research work, according to the website. Next up was Hawaii Independent Energy, which received $104 million for fuel sales.

Caddell-Nan received $80 million for engineering and construction, while the University of Hawaii System obtained $51 million in grants and contracts.

Defense industry giants Raytheon and Northrop Grumman took in $20 million and $17 million, respectively, for Hawaii contracts in 2016 on Oahu. Fiscal 2017 data are not complete yet. Spending is “still strong, but showing some softening,” the website states.

Michaels said $2 billion annually is “still nothing to sneeze at — and by fortune of our geographic position as well as changing circumstances in the world, we’ll always continue to be relevant to the DOD.”

Pearl Harbor Naval Shipyard remains one of the largest sources of contracts in Hawaii, and cybersecurity with the National Security Agency has been identified as a possible growth area.

Any fluctuation in defense spending will have an impact on Hawaii’s economy, though, and “it is critical that the state proactively prepare for any changes the future may bring,” the new website states.

The state said the website is a “valuable tool for Hawaii-based companies to learn about the DOD’s contracting trends, growth segments and business opportunities.”

“What we’d like to do, moving on, if we can find funding for phase two … is expand beyond contracts and get a sense of the entire defense footprint,” Michaels said. “For example, for every ship that comes in, if that ship brings X people with it as well as X number of contracts to feed the sailors, to do the laundry, etc., what does it mean for dollars for Hawaii?”