Defense spending in Hawaii — about $5 billion annually in payroll and $2 billion-plus in contracts — has been “an incredibly important stabilizing force” in the state with an economy otherwise wracked by COVID-19, Carl Bonham, executive director of the University of Hawaii Economic Research Organization, said Friday.
Capt. Greg Burton, commander of the Pearl Harbor Naval Shipyard, the state’s largest industrial employer, said at the same Chamber of Commerce Hawaii military partnership forum where Bonham appeared that the shipyard remained resilient despite manpower impacts as the pandemic unfolded.
Burton said about 5,900 civilians, 600 military members and 700 contractors work in the shipyard.
“During the COVID (crisis), our workforce has really been blessed to be able to work and continue to earn paychecks. And so there was very little economic impact at the shipyard,” he said.
With its critical national security mission, the shipyard receives about $1 billion a year in funds from U.S. Pacific Fleet, with approximately $731 million of that going to workforce salaries, Burton said.
The overview of Hawaii’s defense economy and opportunities within it was a study in contrast with the state’s mainly tourism-driven income, which has cycled up and down as recovery efforts have been mounted but still remains hugely damaged.
National defense spending, healthy now, may become flat or reduced as the effects of COVID-19 catch up, with a focus on “capability over capacity,” including technology overmatch, as well as a greater emphasis on submarines and their stealth, retired Adm. Tom Fargo said during the virtual forum.
In an economy dominated by leisure travel and hospitality — and the need for personal contact to provide it — “it was inevitable that Hawaii would be hit harder than any other state in the country, and that’s exactly what we saw with job losses in the spring of 140,000 jobs that just went away at sort of the flip of a switch,” Bonham said.
In the second quarter of last year, Hawaii’s real gross domestic product fell in an annualized rate of over 44%, he said.
After the state redoubled efforts in public health and with the launch of the Safe Travels program and pre-arrival COVID-19 testing of travelers, “we saw a recovery of almost a third of the jobs lost, 40,000 to 50,000 jobs recovered” that peaked in November, Bonham said.
But he added that “we expect that it (the recovery) is going to hit a pause button for the first half of 2021” with the surge of COVID-19 cases on the mainland, as Hawaii enters the off-peak “shoulder season” and as the state deals with another spike in coronavirus cases at home.
For 2021, Hawaii “will see recovery (but) it will mostly be in the second half, and it will be very limited, so we will see limited improvement in GDP and in jobs,” Bonham said. “So you know, we’re talking a few percentage points of growth in jobs.”
He said “you think about what the buzz words will be” for economic strategy in 2021 and beyond, and those include recovery, resiliency and diversification.
“People who are pushing these plans often overlook the critical role of (Defense Department) spending in Hawaii, and particularly in terms of the resiliency and diversification,” Bonham noted.
The Chamber of Commerce can play a key role linking the innovation sector with the Defense Department and University of Hawaii, he said.
Of about $2.2 billion to $2.3 billion in military contracts in Hawaii, only about 5% is for research and development, he noted.
“And there’s an opportunity there to grow that number and grow that share without having more troops on the ground, right, or having more ships to repair,” Bonham said. Greater connections can be forged with growth areas such as the National Security Agency and in cyber fields.
Burton, the shipyard commander, recalled the uncertainty he faced with the arrival of COVID-19.
“In the shipyard my biggest fear was that the virus would spread inside the shipyard and I would have to take some kind of drastic measures, including shutting down the shipyard,” he said.
Leadership came together and set priorities to protect the health of the people, stop the spread of the virus and maximize the mission, Burton said.
“Initially, we had to send almost 1,000 of our high-risk individuals home, and then a number went home to telework” so the Navy could minimize the shipyard footprint, he said.
Burton said the Navy also activated a “surge” force of about 190 reservists to help with a backlog.
To meet the increased need for submarine repairs at Pearl Harbor, two major projects are on the horizon: a new $2 billion dry dock that will be the first since World War II, and a huge waterfront production facility next to it.
James Geurts, assistant secretary of the Navy for research, development and acquisition, said during a Feb. 13 visit to Pearl Harbor that the Hawaii plans involve billions in construction that will benefit local workers.
The new dry dock is needed for maintenance on newer and longer Virginia-class attack submarines that are being built.
Dry Dock 3, at only 497 feet, is headed for obsolescence because it can’t accommodate even the current fleet of Virginia-class vessels.
The newest Virginia vessels being built with what’s known as a “Virginia Payload Module” will have an additional 84-foot midbody section — meaning 460 feet in total length — with four vertical launch tubes capable of firing an additional 28 Tomahawk missiles.
Dry Dock 3 is relatively shallow and can support only older Los Angeles-class submarines with the use of “buoyancy assist modules” to lift the submarines to enter the dry dock.
The lift modules do not have capacity or straps suitable for Virginia submarines.
The Navy is preparing an environmental impact statement for the new 650-foot submarine dry dock and adjacent waterfront production facility.
Fargo, a former four-star commander of U.S. Pacific Command, said “all of the strategy talk that I’ve seen coming out of the people that will be running the Department of Defense is to value submarines.” Part of that is a goal is to build three Virginia-class subs a year, he said.
“I think the readiness accounts will be plused up and that I think is advantageous to Hawaii,” Fargo said. “I think it will ensure that the shipyard’s initiatives to build (new dry dock facilities) and the readiness accounts to maintain those submarines will all be well taken care of.”
Pearl Harbor is home to 16 attack submarines that are a mix of Virginia and Los Angeles vessels.
Fargo expects greater investment in unmanned capability “and we (in Hawaii) ought to think about that from the standpoint of how we might be able to play into that particular arena,” he said.
A new Pacific Deterrence Initiative aimed at China received $2.2 billion in funding for fiscal 2021. China is the pacing threat for the United States and the Indo-Pacific is the Defense Department’s priority theater.
Fargo added in one big caveat to that emphasis.
Successive administrations have come in “and made the case that Asia and the Pacific is where our key national security interests are and that’s where we ought to put our resources,” he said. “And in each administration somehow the Middle East pops up, and that (Asia-Pacific effort) gets diluted.”
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