Bloomberg News

Obama Says Washington Stalemate Over Cuts Puts Jobs on the Line

February 26, 2013

President Barack Obama traveled to the Navy’s sole builder of aircraft carriers to drive home his argument that his political foes and their constituents will be among the hardest hit by across-the-board spending cuts that start March 1.

Obama used the backdrop of the shipyard of Huntington Ingalls Industries Inc (HII). in Newport News, Virginia, to emphasize the effect on defense industry jobs if $85 billion in automatic budget cuts for the remaining seven months of the fiscal year kick in as scheduled on March 1. With 21,000 workers, the facility is Virginia’s biggest manufacturing employer.

“The impact of this policy won’t be felt overnight, but it will be real,” Obama said today. “It’s not just restricted to the defense industry.”

House Speaker John Boehner staged a preemptive news conference in Washington earlier today where the Ohio Republican accused Obama of using the military as a “prop” to promote tax increases. He said the House won’t act until the Democratic majority in the Senate “gets off their ass” to pass a fiscal plan.

With three days to got before the spending reductions known as sequestration begin, there was no public sign that the White House and congressional Republicans are in negotiations on an alternative fiscal plan.

Half of the reductions will affect defense spending, while the rest will be spread over other federal agencies. Obama and Democrats want to replace part of the cuts with higher tax revenue, while Republicans oppose more taxes.

Economic Impact

Unless there’s a resolution in the coming weeks, the nonpartisan Congressional Budget Office estimates that budget reductions will cause a 0.6 percentage-point reduction in growth this year. Federal Reserve Chairman Ben S. Bernanke told the Senate Banking Committee today that “this additional near-term burden on the recovery is significant.”

The cuts are hitting amid signs of public optimism about the economy. The Conference Board’s consumer sentiment index climbed to 69.6, exceeding all forecasts in a Bloomberg survey of economists, from a revised 58.4 in January. Other reports today showed home prices in 20 U.S. cities rose in the 12 months to December by the most in more than six years, and purchases of new homes jumped in January to the highest level since July 2008.

The House passed a proposal to avert the spending cuts last year. The measure expired when the last session of Congress ended in early January.

House Bill

“We have moved a bill in the House twice; we should not have to move a third bill before the Senate gets off their ass and begins to do something,” Boehner said. Obama is more interested in “holding rallies” than negotiating to find a way to avert the spending reductions, he said.

Virginia Republican Representative Scott Rigell, whose district includes the nearby Naval Station Norfolk and has the highest concentration of military personnel in the nation, said he disagrees with his party’s leadership on raising revenue.

Rigell, who accompanied Obama for the flight from Washington, said he’d support closing some loopholes in the tax code to bring more money into the Treasury.

Before Air Force One departed, Rigell said he planned to use the travel time to urge the president to offer a “specific alternative” to the sequester rather than his general call for a package that mixes new revenue with spending cuts.

“I boarded the plane knowing that some would potentially misinterpret” taking the trip with the Democratic president, Rigell said.

Mitigating Impact

While there’s little chance the sequestration can be replaced by the March 1 deadline, Rigell said there is enough time to get a compromise shortly afterward that would mitigate the impact and trim spending.

Also on the flight was Democratic Representative Bobby Scott, whose district includes the shipyard.

The Navy already has delayed the repair and overhaul of its nuclear-powered aircraft carrier Abraham Lincoln at the Huntington shipyard that was supposed to begin this month.

“If the Lincoln doesn’t come here by the end of March or beginning of April, we’ll be letting people go because of that,” Mike Petters, chief executive officer of Huntington Ingalls said in a Bloomberg Television interview today.

Petters introduced Obama at today’s event, saying solving the fiscal challenge like building a ship will require “all the tools in the tool bag.” Repeating a term frequently used by Obama, Petters said a “balanced” approach is needed.

Cutbacks affecting Newport News Shipbuilding would ripple across Huntington Ingalls’ suppliers in all 50 states, according to the White House.

“We’re very concerned,” said Betty Hazelwood, a pipefitter for submarines who has worked at the Newport News shipyard for 13 years. “We’re middle class and we really take pride in what we do. We’re all on pins and needles.”

Virginia has a high concentration of defense installations and about 90,000 civilian employees of the Defense Department would be furloughed if the full effects of the automatic cuts hit, the administration said in a statement.

To contact the reporter on this story: Margaret Talev in Newport News, Virginia, at mtalev@bloomberg.net

To contact the editor responsible for this story: Steven Komarow at skomarow1@bloomberg.net


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