War Gains

Vermont's Pentagon payout: What's our bang for the buck?

by Ken Picard
Seven Days
(11.10.04)

The Pentagon doesn't discriminate between red states and blue states. The spoils of war come in just one color -- green. Like it or not, military spending is on the rise, and the reelection of President Bush all but assures that the trend will continue. Between 1997 and 2003, the U.S. defense budget rose from $296 billion to $379 billion, not including supplemental appropriations; experts say it could surpass $500 billion in 2005. Next year, according to the World Policy Institute, the United States will spend about $1.15 billion per day on the military -- or $11,000 per second.

A rising tide raises all ships, and the flood of money that's flowing from the Pentagon to civilian defense contractors is lifting Vermont, too. Though pacifistic and peace-minded Vermonters prefer not to think about it, the U.S. Department of Defense funnels hundreds of millions of dollars each year into the state's economy, buying goods and services, funding research and development, providing start-up grants to new high-tech firms, and ultimately, creating new jobs.

While Vermont can't hope to compete with larger states like California and Texas in manufacturing or research-and-development money, this state often fares better than others of comparable size and population when vying for defense and homeland-security dollars. Largely, that's due to the influence of Senator Patrick Leahy, a senior member of the Senate Appropriations Committee who sits on the subcommittees on defense and homeland security. Leahy also wrote the rule that requires every state to get at least a minimum share of all homeland-security grants, which in Vermont totaled more than $51 million in 2004.

It's not easy to measure the state's exact slice of the Pentagon pie, since defense dollars can flow through a number of different channels, depending upon what the money is used for: research and development, small-business seed money, direct purchases, and so forth. But according to the Federal Procurement Data System, the Department of Defense is by far the biggest spender among government agencies with civilian contracts in Vermont. It drops more dollars on Vermont than four other big-budget federal agencies combined.

Not surprisingly, the military's Vermont shopping list is growing. In fiscal year 2000, the Pentagon spent about $243 million on defense contracts here; by 2003, the number had jumped to $455 million. In comparison, the second largest federal spender in 2003 -- the U.S. Department of Transportation -- spent just $25.6 million in Vermont; Veterans Affairs spent $7.9 million.

But even a state-by-state breakdown of defense contracts doesn't necessarily paint an accurate picture of where the money ends up or who benefits from it. For one thing, the state in which a company is headquartered -- and thus where a contract may be listed -- isn't necessarily the state where the company or the majority of its employees or performs most of its work.

Goodrich Aerospace of Vergennes is an example. The company manufactures a wide range of high-tech electronic, fuel and utility systems for both military and civilian uses. Goodrich products can be found on everything from Boeing 727s to Black Hawk helicopters and F-16 fighter jets; their products have been on every manned space flight since the Apollo missions. Goodrich, which has been in Vermont for more than 50 years, currently employees about 700 people as engineers, assemblers, technicians and the like, and about 60 percent of its work is for the U.S. government. But because its parent company, Goodrich Corporation, is headquartered in Charlotte, North Carolina, some state-by-state breakdowns don't reveal the millions of dollars that Goodrich contributes to Vermont's economy.

On the other side of that equation --that is, at the top of the local defense-spending list --is General Dynamics Armament Systems of Burlington, the state's largest defense contractor. Between 2000 and 2003, General Dynamics' armament division saw its Pentagon contracts jump from $14.7 million to $437 million.

But looks can be deceiving, explains Art Woolf, an associate professor of economics at the University of Vermont. With 550 employees, the company's impact on the local economy is far less than it was in the late 1970s and early 1980s, when the facility -- then General Electric -- employed nearly 3000 people in Burlington. Plus, Woolf notes, many of the government dollars probably pass right through Vermont to out-of-state plants or subcontractors that now do most of the company's manufacturing.

A better way to assess the impact of defense dollars in Vermont is to look at employment, suggests Burlington policy analyst Doug Hoffer. How many local jobs do defense contractors provide and what do they pay? It's also important to look at where these companies buy their supplies and how much business they do with other Vermont firms. "It's never enough to say how much money goes through the company," says Hoffer. "You have to say how much of it stays in Vermont, to be recycled in Vermont."

In this respect, General Dynamics differs significantly from a smaller, less traditional defense contractor in Vermont: New England Woodcraft of Forest Dale. This family-owned and operated-company on the western edge of the Green Mountain National Forest manufactures institutional wood furniture -- beds, desks, dressers -- that is sold to colleges, universities and the U.S. military. New England Woodcraft has been around for more than 40 years and employs about 100 people full-time, but only began getting defense contracts a few years ago. In 2003, the company landed a $4.2 million contract to build furniture for military barracks. Today, defense contracts account for about half the company's business.

But unlike General Dynamics, New England Woodcraft does all of its manufacturing in Vermont and buys all of its raw materials from local and regional sources. Moreover, when New England Woodcraft adds jobs, most of the workers are hired locally, not through national searches. New England Woodcraft's manufacturing jobs don't pay as well as the high-tech jobs at General Dynamics. But all of the company's profits go to its Vermont owners, not Wall Street investors.

Another factor to consider is how defense dollars "multiply" in the local economy in terms of creating new jobs and earnings for other Vermont businesses. Hoffer cites U.S. Department of Commerce figures showing that two traditional defense-related categories -- aircraft and missile engines, and ordnances and accessories -- don't multiply in the Vermont economy as well as other industries do.

Every $1 million increase in wood-furniture manufacturing in Vermont translates into $1.88 million in total economic output for the state. But every $1 million uptick in ordnance and accessories spending in Vermont translates into just $1.47 million for the Vermont economy.

The same holds true for job creation, Hoffer says. Com-merce Department figures show that every $1 million increase in wood-furniture manufacturing adds 20 new jobs in the state. But a comparable $1 million increase in manufacturing of aircraft or missile engines translates into just 14 new jobs in Vermont; for ordinance and accessories manufacturing, 12 new jobs.

Other concerns are the stability of those jobs, and the company's long-term employment prospects. Does the company produce goods and services that have both military and civilian applications, or does its business rely entirely on a war economy? As Hoffer points out, "if you've got one customer that's 80 percent of your business, you've got a problem."

Mine Safety Appliance employs 120 people at its helmet-manufacturing plant in Newport. In the last year, the Pittsburgh-based company secured three defense contracts totaling more than $78 million to produce more than 230,000 helmets for the U.S. Army. According to a company spokesman, defense contracts account for just 15 percent of the company's global sales, but all the work done in Newport is for the U.S. military.

The Newport plant may seem vulnerable to the ebbs and flows of U.S. military operations overseas, but the helmets produced in Newport also have applications for homeland security and law-enforcement. And the U.S. Army always needs helmets, even in peacetime. Moreover, according to the company's spokesman, the Newport production line can be converted to produce similar products, like fire helmets and riot gear.

Some defense contractors in Vermont produce more obvious "dual-use" technologies. The portable hospital units Mobile Medical of St. Johnsbury builds for the U.S. military have a wide range of domestic applications. Other contractors produce military goods that are needed even after conflicts end. For example, Applied Research Associates of South Royalton builds remote-controlled tractors that deactivate and remove undetonated landmines and other ordnances. For better or worse, this technology will likely be needed throughout the world for years to come.

Even after you've untangled the economic puzzle of local military contracts, that still leaves questions about the ethics of profiting from armed conflict. "If you're asking me if defense spending is good for Vermont, I'll say that it's probably a regrettably good thing for Vermont," Woolf concludes. "It's like saying, is it good for a hardware store when I buy a lock to put on my door? Well, yeah, the hardware store is selling me a lock, but it'd sure be nice to live in a world where I don't have to put a lock on my door."