North-central WV especially threatened by sequestration - WOWK 13 Charleston, Huntington WV News, Weather, Sports

North Central WV especially threatened by sequestration

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FAIRMONT, WV -

Looming budget sequestration would cost West Virginia thousands of jobs.

The state could lose 1,047 jobs in fiscal 2013 due to Department of Defense spending reductions for military equipment alone, the Center for Regional Analysis at George Washington University has estimated.

Small West Virginia businesses — those with fewer than 500 employees — could lose more than 4,200 jobs through fiscal 2013, according to another estimate from the same center.

Neither of these is a complete analysis of the implications.

But while the whole state will feel the effects — the estimated military equipment cuts would mean a $90 million reduction in gross state product, for example — observers say the impact will be concentrated in the North Central region.

Sequestration is an automatic, across-the-board budget cut imposed by the Budget Control Act of 2011 as a last resort for deficit reduction.

It consists of about $1 trillion in cuts over the coming decade.

And it starts, if Congress and the administration don't act, with more than $100 billion on Jan. 2 -- about $55 billion from security and defense and about $55 billion from non-defense programs, or around 8 percent of budgets, with a few budget areas such as Social Security exempted.

"Sequestration was a self-imposed threat, a terrible alternative that was never really intended to happen," said lawyer Michael Schrier at a presentation he delivered on Nov. 13 in Fairmont with colleague Eric Whytsell of Jackson Kelly's Washington, D.C. office. The talk was hosted by the Affiliate Leadership Council of the West Virginia High Technology Consortium Foundation.

"The problem is," Schrier said, "now we're looking at the terrible alternative."

What it looks like

What should government contractors and subcontractors expect if Congress doesn't prevent the "terrible alternative"?

Whytsell divided it into three areas.

For one thing, existing contracts are likely to be downsized.

"We should expect non-mission critical stuff to go first," he said. "They'll be forced to make choices about terminating or restructuring programs and contracts, reducing quantities, pushing out delivery schedules."

A second area: less spending on new contracts.

"I think there will be some delays in awards," Whytsell said, along with more sole-source awards, more firm-fixed-price contracts "in situations that simply do not make sense," and more cost sharing.

And, in a third area, contracts are going to become more demanding, with renegotiated rates and heightened ethics enforcement.

In a way, Whytsell observed, this is not new; it's been going on ever since the recession hit. It's just that, with sequestration, it will go from chronic to acute.

Region at risk

"If sequestration were to go into effect, then it could put the operations of our local federal facilities in jeopardy," said WVHTC Foundation President and CEO James Estep.

"I'm especially concerned about the National Energy Technology Laboratory," Estep said, referring to the facility in Morgantown. "It is already on the administration's list to cut. Unfortunately, sequestration would provide a great excuse."

The projected cuts could be crippling to the small business community, he added.

"While larger companies may be able to absorb some level of cuts, small businesses could be put out of business," he said.

John Dahlia, director of corporate communications for D.C.-area contractor Global Science and Technology, agreed.

"We're very concerned," Dahlia said. GST has more than 60 employees in West Virginia, most of them in Fairmont working under contract for the National Oceanic and Atmospheric Administration.

Like Estep, Dahlia expressed concerned for NETL in Morgantown, and also for the NASA Independent Verification and Validation facility in Fairmont and the FBI's Criminal Justice Information Services Division in Clarksburg — agencies that directly employ many in the region and that contract with many more.

And he fears a brain drain from the I-79 corridor if budget cuts go deep enough.

The effect could be a sort of undoing of the slow, organic way in which the high-tech corridor has matured since the late Sen. Robert C. Byrd got the FBI complex located in Clarksburg more than 20 years ago.

Little by little, early, small contractors have grown and split and started new companies, developed expertise, mentored younger entrepreneurs and fostered relationships with numerous university departments.

The corridor has emerged as a tight community of high-tech businesses and researchers and developers with interdependent capabilities. But it still, in many ways, is just beginning to realize its potential for innovation and commercialization.

"If the worst happened, it could set back our efforts by ten years," Estep said.

Advice

Whytsell had some suggestions for how businesses can prepare.

"Figure out which of your contracts are most likely to be what the government wants, and that's where you spend the money and effort to make sure you're performing them top-level," he said.

"Don't give the agency any reason to think that you ought to be culled from the herd. You want to be exemplary."

And be the contractor that offers solutions.

"It's not just doing a good job. You've actually got to think what you can do that will help them," he said.

Melissa Loder, a Clarksburg-based business opportunity specialist with the Small Business Administration, added to the list.

"Watch your cash flow," she said. "Even when you get a nice large bread-and-butter contract, you really need to be lean."

Get very familiar with human resources law in case layoffs are going to be needed.

Above all, don't go into denial and don't be secretive — discuss this with employees.

Can it be prevented?

Many believe lawmakers would not let sequestration happen, although the record of the 112th Congress gives little comfort.

"If you believe all the press coverage and all the prognosticators and commentators and everything else, the current thinking is it won't happen," Schrier said. "But can I sit here and say it won't? No."

There are two schools of thought, Dahlia said: "That it's not going to happen, or that it's going to be pushed further down the road."

Estep said he has to hope Congress will act.

"However, I am concerned that there isn't much time left to put a solution in place," he said.

Asked whether discussions with the state's delegation in Washington would help, Schrier said absolutely.

"I think both parties are looking for the cover with their constituencies to move away from the party lines to try and strike and grand bargain," he said. If enough representatives heard from enough constituents, "maybe some would start listening and we could avoid all this."

Dahlia also suggested communicating with Rep. Frank Wolf, R-Va., who chairs the Commerce-Justice-Science Subcommittee of the House Appropriations Committee, and Sen. Barbara Mikulski, D-Md., who chairs the Commerce, Justice and Science Subcommittee on Senate Appropriations. Both manage processes related to funding for those major federal agencies located in North Central West Virginia.