Some would have to cut jobs or go out of business if a proposed moratorium on federal earmarks — money directed to specific projects — is approved.

By W.J. Hennigan, Los Angeles Times
November 26, 2010|7:34 p.m.

Hundreds of Southern California defense contractors may have to cut jobs or go out of business if Congress approves a moratorium on federal earmarks, industry executives warned.

More than $3 billion in earmarks — or money directed to specific projects — flowed into California this year for defense work, much of it funneled to Southland aerospace companies.

But with the federal government staring at a staggering $1.4-trillion deficit, the so-called pork-barrel spending has drawn fire from critics who see earmarks as a symbol of pay-to-play politics and wasteful government spending.

The Senate is expected to vote on a moratorium as early as Monday. In a closed-door meeting last week, House and Senate Republicans agreed to a nonbinding two-year moratorium on the use of earmarks. Sens. Claire McCaskill (D-Mo.) and Tom Coburn (R-Okla.) have proposed upping the moratorium to three years.

If either measure is approved, the defense industry would be the hardest hit. Lawmakers steered a total of $16 billion in earmarks to their home states in 2010; of that money, $10 billion was for defense work.

Though tiny compared with the Pentagon’s $140-billion procurement budget, earmarks, analysts said, play a crucial role for small defense firms.

“To a major company, a $1-million earmark is nothing,” said Todd Harrison, a defense analyst for the Center for Strategic and Budgetary Assessments. “But for a small business, a $1-million earmark could make or break them.”

Earmark proponents say smaller companies pitch their research-and-development ideas to legislators often after they’ve been ignored or overlooked by Pentagon officials. Also, chances that a small firm can beat a larger, better-known company for a contract are relatively slim, Harrison said.

“Lawmakers know what’s going on in their districts,” he said. “So they’ll give them seed money to get things going.”

The development of Predator drones that are now ubiquitous in the skies over Iraq and Afghanistan might not have been possible without earmarks, industry executives say.

Fueled by earmarks from local lawmakers such as Rep. Howard P. “Buck” McKeon (R- Santa Clarita) and Rep. Jerry Lewis (R-Redlands), the maker of the Predator, Poway-based General Atomics Aeronautical Systems Inc., has grown from an eight-employee firm to one of the nation’s top drone developers, with 4,500 workers.

“People look down upon earmarks now, but they’re a very important part of the defense industry,” McKeon said in a Times interview last summer about the Predator drone. “We wouldn’t have the Predator without it.”

But McKeon, who has steered tens of millions of dollars to defense companies in his district, said he now supports a ban on earmarks because the government can’t afford them anymore.

Taxpayer groups are supporting the moratorium and have contended that the effect of the ban is not likely to be severe for small defense contractors. In the absence of earmarks, the Pentagon would probably step in and include the spending in its regular budget, said Laura Peterson, a national security analyst for Taxpayers for Common Sense, a government watchdog group.

The moratorium could actually benefit small businesses in the long term, she said, adding that the process would rely more on the merits of a contractor’s work rather than on how the company donated to a politician’s campaign.

“Good programs will still be funded through the base budget, as they should be,” Peterson said. “The difference is that the process will be more transparent and accountable and won’t encourage the sort of pay-to-play jockeying that gives an advantage to big companies.”

Exotic Electro-Optics Inc. in Murietta has received about $7 million in federal earmarks since 2004. The funding has enabled the company to develop its sapphire window-pane technology, which now plays a crucial role in the missile targeting system for the F-35 fighter jet.

Exotic received $2.4 million this fiscal year through an earmark by Rep. Mary Bono Mack (R-Palm Springs) and has just finished construction on a 24,000-square-foot manufacturing plant. It now operates out of an 8,000-square-foot facility.

“Without the support of earmarks, we wouldn’t be where we are today,” said Jim Martinelli, a vice president of II-VI Inc., the Saxonburg, Pa., company that owns Exotic. Since the company received earmark funding, its payroll has jumped more than 20% to 190 people.

“The congresswoman saw that the company’s work benefits national defense and the regional economy with high-paying jobs,” said Frank Cullen, chief of staff for Bono Mack.

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