Coming Defense Cuts Will Cost Houston $800M

Last year, the Pentagon spent over $35 billion in Texas, making it one of the biggest markets for defense contracting in the country. Not surprising, given Fort Worth's massive aviation cluster. But the state's second-biggest recipient of defense spending after Fort Worth is Houston. That's about to become a real problem for the city.

It’s called sequestration. Under the deal that ended last year’s budget battle, over $1 trillion in spending cuts kick in automatically on January 2, 2013. Half will come out of domestic spending and half out of defense.

The domestic spending cuts will hit everything from NASA contractors to key services for the poorest Houston residents. The defense cuts?

“In 2011, there was about a little over $4 billion spent by the Defense Department on various contracts in Houston.”

Frank Gaffney is president of the Center for Security Policy in Washington. Gaffney says that when sequestration takes effect, Houston stands to lose about $800 million. That, he says could force about 2,400 contractors in the Houston area to start laying people off.

“The largest one, by far, is Kellogg Brown & Root. In 2011, that company alone earned $2 billion.”

KBR holds contracts ranging from base construction to disaster relief. The company declined to comment for this story. Funding cuts will likely prompt KBR and other large firms to cancel subcontracts, adding to the job losses.

The Pentagon is trying to set guidelines to protect small businesses from the worst effects of the cuts. Jason Miller isn’t holding his breath. Miller runs Red Hill Supply of West Houston, providing industrial supplies and tools for the military.

“Our main concern if those cuts go through would be that, as budgets get tightened down, we’ll stop seeing a lot of the orders coming through for just everyday supplies.”

With just six months to go before sequestration takes effect, Republicans on the House Armed Services Committee are pushing a bill that would shift the burden entirely to domestic programs. For Democrats, it’s a non-starter.

Democrat Gene Green represents North and East Houston in Congress. He says he supported last year’s budget deal, because the alternative was defaulting on the national debt. His refinery-packed district received over $1 billion in defense spending last year, largely from jet fuel sales.

“Obviously, I want our military adequately staffed and supplied. But I also know, are we going to cut Medicare? Are we going to cut Pell Grants for children going to college? Are we going to cut a lot of the other programs on the domestic side to get that? I’m hoping we can come up with a compromise, but if they just want to transfer all the cuts to the domestic side, I can’t support it and I didn’t support it.”

It’s unlikely the bill would gain any headway in the Democrat-led Senate. And President Obama says he’ll veto any bill that would undo last year’s hard-won budget deal.

Bio photo of Andrew Schneider

Andrew Schneider

Business Reporter

Andrew Schneider joined KUHF in January 2011, after more than a decade as a print reporter for The Kiplinger Letter...