WASHINGTON – Pentagon leaders need “about $10 billion” in the next pandemic aid program to cover coronavirus-related costs for defense contractors, according to a senior defense official.
But it’s unclear how the large financial aid will match Republican skepticism of new deficit spending after already approving aid packages worth trillions.
On Monday, Deputy Assistant Secretary of Defense for Acquisition and Sustainment Alan Shaffer said the money was needed to cover a slew of defense contractor coronavirus-related expenses. Without this, the Ministry of Defense will have to delve into modernization and preparation funds, potentially jeopardizing small companies in the defense industrial base that are waiting for the money.
“If there is another additional or stimulus package for a realistic economic adjustment, we could be looking at about $10 billion in additional program costs,” Shaffer said on the Government Affairs television program broadcast on Monday.
Last week, executives from Lockheed Martin, General Dynamics, Boeing, Raytheon, BAE Systems, Huntington Ingalls, Textron and L3Harris Technologies sent letters to the Pentagon’s chief acquisitions officer. Ellen Lord and Acting White House Budget Chief Russell Voughtworried about the health of their smaller contractors without additional help.
The CEOs, noting that their sector employs 2 million people, warned that such a disruption to the defense budget “would create a ripple effect across the defense industrial base, leading to less investment in new technologies. and significant job losses in swing states just as we try to recover from the pandemic,” they wrote in the letter to Vought.
That’s potentially a powerful message for the White House, as recent polls show President Donald Trump faces a tougher road to re-election. Trump trails Democratic challenger Joe Biden in six battleground states he won in 2015, according to a New York Times survey, and an average of Real Clear Politics polls showed Biden leading Trump by nine dots on Tuesday.
Section 3610 of the Coronavirus Aid, Relief, and Economic Security Act allows defense companies to seek reimbursement for pandemic-related expenses, which Lord said the DoD would demand in the “lower tier” of “tens of billions of dollars”. But the Democratic-led House Appropriations Committee on Tuesday passed a defense spending bill for fiscal year 2021 that included far less: $758 million.
“We have to do something,” subgroup ranking member Ken Calvert, R-California, told Defense News. “The defense industry is not immune to what is happening with COVID-19, like all other sectors of the economy, and it has suffered in recent months, like any business. They have experienced slowdowns, cost increases, they had to acquire a lot of [personal protective equipment]and implement new security guidelines.
Loren Thompson, a defense industry consultant and analyst at the Lexington Institute, estimates the sector’s pandemic-related spending could total more than $20 billion.
Additional emergency funds are believed to help not only large corporations, but also small and medium-sized businesses whose thin profit margins and minimal cash reserves make them more likely to lay off employees in the blink of an eye. which could trigger production interruptions for large programs.
“As far as I know, the big systems integrators haven’t laid off defense workers, but at the contractor level, some of these shops just don’t have a choice,” he said. declared.
Yet many GOP lawmakers under pressure from conservative groups have been lukewarm in the face of pressure from President Donald Trump for tax cuts and infrastructure spending on top of the $3 trillion in funds approved so far. .
Senate Majority Leader Mitch McConnell, R-Ky., — who has had weeks-long discussions with Treasury Secretary Steve Mnuchin about the next phase of coronavirus relief — presented a proposal last week that focused on a liability shield for companies operating during the pandemic, but without mention of aid to the defense industry.
During a recent appearance in Kentucky, McConnell acknowledged the concerns of GOP colleagues who worry about the growing deficit.
“It raises a lot of concern because we now have debt, cumulative debt, the size of our economy for the first time since World War II,” he said. “Believe me, we wouldn’t have done that under any circumstances.”
Some lawmakers in both parties have been wary of new spending that favors a specific industry, especially after the Pentagon won a timely budget at record highs, an industry source said.
Advocacy companies making their case are asked if they have leveraged other provisions of the CARES Act, such as payroll tax deferrals, the employee retention tax credit, or a $17 billion emergency loan fund. (Many defense companies have resisted the demand for loans, which allow the government an equity stake.)
“You talk to some Democratic offices and some Republicans, and they say the defense bill is already a big boost for the defense industry,” the industry source said. “I think that’s a misinterpretation because taxpayers’ money isn’t being spent on making Lockheed Martin more profitable, it’s for the planes, ships and submarines you need, but it’s is really difficult.”
In May, Democratic lawmakers vehemently questioned Pentagon leaders about why they had spent 23 percent of the $10.5 billion the DoD had received under the CARES Act. The Pentagon responded with its spending plan for Aid, which allocated $688 million to help suppliers of aircraft engine, shipbuilding, electronics and space launch parts.
Last June, the country recorded its biggest monthly deficit ever, $864 billion, which surpassed the previous monthly deficit record of $738 billion in April. As long-term debt stands at more than $26 trillion and the Congressional Budget Office projects the deficit will reach $3.7 trillion for the year, some Republicans have expressed concern over the unpredictable effect that adding more could have on the economy.
“If we’re spending a lot of money, we have to be careful not to break the country,” Senate Appropriations Committee Chairman Richard Shelby, R-Ala, said recently. told the Wall Street Journal.
Fiscally conservative groups have stepped up lobbying Republican lawmakers, many of whom consider themselves tax hawks, but voted to lift budget caps on about $1.5 trillion in defense spending under the deal. two-year budget of 2019. A coalition of conservative leaders sent a letter to Trump and McConnell last month warning that congressional coronavirus spending must stop as the total approaches $10 trillion.
FreedomWorks vice president of legislative affairs Jason Pye said Republican lawmakers are rightly concerned about the alienation of deficit-conscious conservatives ahead of the next election, but they’re also genuinely suspicious.
“Most of the members I’ve spoken to say they want to limit the size of the next phase or they don’t want to spend any more money,” he said.
Joe Gould is a senior Pentagon reporter for Defense News, covering the intersection of national security policy, politics and the defense industry.