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Impacts of Decreased Military Spending in Western Massachusetts Communities: Some Preliminary Considerations

The following report addresses how the current changes in defense spending will impact communities in Western Massachusetts. It is evident that military spending will continue to decrease. This decrease, combined with the overall decrease in manufacturing industries is having an adverse impact on many communities. The degree of impact and how to offset, or respond to these changes is a concern of many community planners, and is the subject of this report. The information contained in this report is useful for local planners and citizens who may not necessarily have a background in regional economics or industrial development or military spending. The methods used provide a basic framework for determining first what industries in your community rely on defense dollars and second, how significant that reliance is to your local economy. This report contains a listing of companies within the four Western Massachusetts counties: Berkshire, Franklin, Hamden and Hampshire Counties, which have received prime contract awards from the Department of Defense between FY 1987- FY 1991. Out of the total $378 million awarded to Western Massachusetts companies in 1991, 84% or $381 million went to General Electric of Pittsfield. Of the total prime contract dollars received, 98% went to only 15 companies. The remaining 2% was distributed to 65 other companies. A similar pattern is seen in the previous years. The report identifies the Standard Industrial Code (SIC) of these companies, where possible, and illustrates the diverse mix of industries and service companies which contract with the Defense Department. This information is not complete because many of the companies are small, privately held firms, and information about them is not easily accessible. The report is divided into four sections. It will first examine the results of a decade of increased military spending in the 1980's. Such spending has created a dependency cycle in industry, rather than let market forces run their course. As a result, defense dependent regions are vulnerable since they are so intimately tied to fluctuating foreign policy conditions. Second, the potential local impacts of cutbacks will be discussed. The third part of the report helps in determining what industries are related to the defense industry, and the impacts of those industries on the local economy. The last part of the report will briefly discuss redevelopment potential and the new programs supported by the Clinton Administration to assist communities affected by changes in military spending. Several problems associated with conducting this research will be discussed. An accurate and meaningful assessment of the local impacts of defense cutbacks would require substantial time and funding as well as significant economic expertise. The pathways for military dollars form a virtual labyrinth. Tracing Department of Defense (DOD) Dollars in the Western Massachusetts regional economy is complex and difficult and probably cannot be done with a high degree of accuracy. While it is easy to obtain listings of prime contractors, (that is companies that are awarded contracts of over $25,000 with DOD), it is exceedingly difficult to obtain detailed information about subcontractors. This is critical because, the major contractors farm out 40-60% of their work to subcontractors. There are many articles and studies which look at the Massachusetts economy as a whole, but they do not reflect the conditions in Western Massachusetts. There are volumes of information on the national, regional and state level regarding military spending. Thus, difficulties arise in trying to hone that information down to the local level. While Massachusetts companies received over $6.9 billion in prime DOD contracts in 1991, only $378 million went to companies in Western Massachusetts, with an additional $16.7 million associated directly with the operations at Westover Air Force Base. Additionally, the Western Massachusetts defense related economy is more closely linked to the Western Connecticut economy than to that of Eastern Massachusetts therefore making it more difficult to isolate the economic implications on Western Massachusetts. A large portion of DOD dollars which go to Eastern Mass prime contractors are earmarked for the high tech, research and development oriented side of the defense industry. In Western Mass, many of the DOD dollars are spent on the small manufacturing firms as well a significant number of service industries, construction companies, and a variety of other industries. This is an important difference to recognize. Any generalization about military spending in the Commonwealth will be flawed at the expense of Western Massachusetts because that portion of the state does not have the same degree of high technology military related industries. Another problem is that the terminology used by the Department of Defense and other sources is ambiguous. Most importantly, the term "defense industry" itself is a misnomer, because in fact there is no single industry or group of industries that can be identified as "defense industries." Also there are varied interpretations of what constitutes a "prime contract." The term used by the Department of Defense, means a company awarded a contract directly from DOD of $25,000 or more. The Directorate for Information Operations and Reports (DIOR), which is the primary source for data, defines a prime contract as any contract of over $25,000 regardless of its origin. This means that a company receiving orders totaling $25,000 or more, whether they be subcontracts or direct contracts, are labeled prime contractors. This report is designed to provide a starting point for communities wanting to find out about the impacts of changes in defense spending. It provides some basic information and tools for assessing defense dependency in Western Massachusetts, and also identifies the significant pitfalls in undertaking such an assessment at the community level.