California Braces For Deep Cuts From Federal Sequestration
February 26, 2013 1:53 p.m.
Larry Blumberg, Executive Director SDMAC, (San Diego Military Advisory Council)
Frank F. Hewett, IntelliSolutions, Inc., founder San Diego Chapter of the Defense Industry Association
Rick Gentry, president and CEO, San Diego Housing Commission
Related Story: California Braces For Deep Cuts From Federal Sequestration
ST. JOHN: We never thought it would come to this, but here it is. Sequestration seems to be a reality. And soon we could be hearing some real-life stories. Some areas have been preparing for it just in case. But others may be caught unawares, and nobody really knows how dire the cuts will be. They could be affecting meals on wheels for senior, subsidized childcare, scientific research, and food safety inspections. Sequestration is these across the board cuts in funding that are due to go into effect because Congress can't come to a compromise. We have three guests to help us grasp sequestration and how it will hit San Diego in the area of military spending and low-income housing. We'll be speaking with Larry Blumberg and Harry Mack.
But first, Rick Gentry, president and CEO of the San Diego Housing Commission. Thank you so much for joining us.
GENTRY: You're quite welcome.
ST. JOHN: So a letter from the White House this week suggests that 125,000 families around the nation would be at risk of losing their homes if federal rent subsidies were cut. How does that translate in San Diego?
GENTRY: How that translates in San Diego -- we could see as many as 800 families lose their vouchers at some point in time unless we manage to process properly ourselves. So that does have a trickle-down effect and could affect us at some point in the future.
ST. JOHN: So you're talking about vouchers, are those section 8 vouchers?
GENTRY: That's correct. The housing commission is local government, we're basically a subdivision of the city. But we are heavily reliant on federal funding. We carry sufficient reserves in all of our programs to cushion against this sort of thing. So I would describe what's going on right now as not so much a fiscal cliff as more of a muddy slope. If the funding is reduced through sequestration on Friday, you won't see an immediate effect on us because we are well managed, we manage our moneys properly, and we have sufficient reserves established to take care of short-term shocks like this. But what you would see happen to the housing commission over time if a reduction does occur, we would either serve fewer families or we would serve the same number of families less deeply. And we would have to make that determination and those adjustments in the future.
ST. JOHN: So you mentioned 8,000 families. Is that the total number of number who are getting rent subsidies in section 8 right now?
GENTRY: I'm sorry, no, it could be about 800 families that are potentially affected. We are currently serving 14,600-plus families in our section 8 voucher program. And the sequestration reduction number has been moving around a little bit just lately. We were told initially that the reduction could be as much as 8.2% of our funding, we just received a letter in from HUD yesterday which is indicating that we should look to a reduction more -- the order of 6%, but either way, 6% is better than 8.2%, but either way would be a reduction in funding going forward beginning this coming Friday. And at some point, we would need to after we use reserves, to do some initial cushioning, we would have to reduce the number of families we serve, or weeld just serve the same number of families less deeply.
ST. JOHN: Okay, 800. So now your office shared that letter from HUD with us, the U.S. department of housing and urban development, outlining what you should do to prepare. Were they able to offer you any suggestions beyond what you already are doing?
GENTRY: The suggests were basically to be careful and manage our money well.
[ LAUGHTER ]
GENTRY: And that -- I'm trying not to be facetious here, but the instructions from HUD, basically we serve these 14,600 families with a certain amount of money. It's about $160 million per year. And that's the governing number, it's not the number of families but the amount of money, we cannot exceed our budget. So we will need to recalibrate our spending within the reduced budget levels and either serve fewer families or serve the same number of families but less subsidy.
ST. JOHN: Had you already been doing any preparation for this or did you think like many people thought that it would not really happen?
GENTRY: Well, it's interesting you ask. I've been in this this business 41 years now, seem some really crazy things happen. But this one is a little bit on the crazier side. I've never seen this sort of an arbitrary across the board reduction occur before. I've seen budget cuts occur before. I've seen reductions occur before of course, funding tends to ebb and flow over time, and usually there's sufficient time to do more preparation to adjust to it. But this is the most abrupt I've ever seen.
ST. JOHN: So supposing we get the news on Friday starting on Monday, would people who are getting section 8 housing subsidies from you see any change immediately?
GENTRY: Immediately, no. And perversely that may cause -- May mitigate against doing any significant changes. But initially we have reserves built up through prudent management of our budgets so that we can absorb an initial shock like this. But at this extent into our next fiscal year, which begins July the 1st, wield need to spend some time deciding whether to cease adding families to the program or reducing the subsidy per family.
ST. JOHN: Right. And the letter also says that 100,000 homeless folk including veterans could lose emergency shelter funding. Does that affect us here in San Diego too?
GENTRY: It affects us partially. Through the federal homelessness support programs, something like $14 million comes into San Diego City and county per year of which 8 million is apportioned to the city services and about 6 million in county, all of this passes through units of government and goes to local suppliers, services, so that will be affecting exactly the same. For the housing commission, most of the moneys that we spend, we don't spend on ourselves. We are a pass through the private sector of real estate community. As is the homelessness money attached through the local services delivery agencies. So this is not money that is being absorbed publicly. This is also money that supports private sector activities.
ST. JOHN: So it would affect the landlords who are leasing to low income family, and also the agencies, the nonprofit agencies working with the homeless. Well, Rick gentry, CEO of the San Diego housing commission, thank you so much for being with us.
GENTRY: Thank you for having me. I appreciate it.
ST. JOHN: Okay. Now we have our two guests in studio, Larry Blumberg, CEO of SDMac.
BLUMBERG: Happy to be here.
ST. JOHN: And frank Hewitt, a founder and board member of the national defense industry association. Great to have you here.
HEWITT: Thank you very much.
ST. JOHN: The latest reports put out suggest that almost 1-5 jobs in San Diego rely on military and defense spending, right? But since San Diego is a strategic part of the new Asian Pacific focus, we weren't going to be too hard hit by the budget cuts. But is it a different story with sequestration?
BLUMBERG: Well, yes, it is Alison, and by the way, the number is 1-4,
ST. JOHN: You upped it!
[ LAUGHTER ]
BLUMBERG: Ure 2012 report talked about 1-4. But yeah, the sequester is not part of anybody's planning. And I think your previous guest said that. It's crazy. To cut everything arbitrarily, each program, project and activity equally doesn't make any sense.
ST. JOHN: Okay. So just to be specific here, will military paychecks and veterans' benefits be affected?
BLUMBERG: Not at all. The president has exempted military personnel accounts.
ST. JOHN: But according to a letter from the White House this week, veterans' assistance programs could be cut. So services might be affected.
BLUMBERG: Well, yeah, aye seen some things about tuition assistance and stuff like that. But the VA, the basic VA funding for the veterans' administration will not be affected.
ST. JOHN: Okay, well, that's good news. Do we know how many veterans we have in San Diego right now? It's one of the largest --
BLUMBERG: It is a very large population, and you're asking me a question that I don't have at the tip of my tongue here.
ST. JOHN: But it's hundreds of thousands, isn't it?
BLUMBERG: I'm not sure it's hundreds of thousands. But a significant number.
ST. JOHN: Okay. Now, what about employee furloughs? Are civilian employees likely to be affected by this?
BLUMBERG: I'm going to turn that one over to Frank.
ST. JOHN: Okay. So what could we say about the civilians?
HEWITT: Well, civilian contractors are being affected as we sit here today. The sequestration although it's not in effect yet on Friday, the contractors and the government are -- have been directing reduction and force procedures in order to recoup money for the budget. We're already planning for that. So contractors are being tasked today to lay off folks or lay off focus and or put in lower-cost people to do the same jobs. But it's government-directed so we pretty much have to comply with that.
ST. JOHN: So are you saying that some of this is already happening?
HEWITT: Oh, it most certainly is already happening.
ST. JOHN: Is this to do with budget cuts or sequestration?
HEWITT: It has to do with the threat of sequestration.
ST. JOHN: It does, okay.
HEWITT: But the continuing resolution affects the contracting workforce because without an ability to appropriate funds into the contracting community, we come to all-stop. And that is has to be extended by the 27th of March.
BLUMBERG: We probably should talk a little bit about the double chamois, the lack of a 2013 budget coupled with the sequester is basically a double chamois here in San Diego.
ST. JOHN: Okay, Larry.
BLUMBERG: The Navy which is really what we worry about here, the Navy is Marine Corps, they are by -- as a result of the continuing resolution not having an appropriations bill for 2013; they're forced to operate at the 2012 level of spending. On the Navy's case, on the operation and maintenance funding line. Which is over 30% of the Navy's budget, the expectation is there would be an additional $4 billion in 2013. And that didn't happen. The maintenance accounts are things that affect the repair of ships and the secretary of Navy said we're going to have to cancel about eight may not '80s here in San Diego in the 3rd and 4th quarter starting in April.
ST. JOHN: Now, that is depending on whether sequestration goes into effect?
BLUMBERG: Depending on whether we get the CR corrected, the continuing resolution.
ST. JOHN: Okay.
>> If you add the sequester on top of that, you've got a double whammy. Because it has -- follows on things. But just to talk with about the impact of the ship maintenance '80s, 4,000 ship industry jobs could be lost if that is allowed to continue. The Navy is asked for what they cull transfer authority, to move money from
Accounts into the operation and maintenance accounts. So much they haven't gotten it.
ST. JOHN: Okay.
MAUREEN ST. JOHN: And how might that affect military preparedness?
BLUMBERG: It'll snowball. If you don't do maintenance, and another thing they'd have to cancel is ship training. Flight times for aircrafts. The F 35, that's a program the Navy and the marines are really depending on. And it's been beset with problems. Do you think this makes it more vulnerable to being cut? I don't think it's going to get cut. It may get delayed. What do you think, frank?
HEWITT: I don't know about cut. You can end up with downsizing and the number of aircraft on the production line and things like that. But I don't think it'll be cut to zero. We'll lose a lot of our combat capability across service.
BLUMBERG: And it's not only our Navy. There's commitments by our allies to buy that.
ST. JOHN: Here in San Diego, we're home to the space and naval war systems command, and that's very much a strategy of the future, isn't it? Is that going to be affected by the continuing resolution or sequestration?
BLUMBERG: Again, it already is. And some of
HEWITT: And some of the direction that has come out from spa war has been things like cutting program attic support by 50% and cutting some of the other support -- contractor support by percentages as high as 30%.
ST. JOHN: So you're saying this is already happening.
HEWITT: It was reemphasized today at a meeting at the command this morning. And it's come out, publicly, by spa war over the last few weeks. It's just been --
BLUMBERG: Yeah, I don't think we're getting the full numbers yet. Right now, it's individual program managers managing the cuts; is that correct?
HEWITT: That's correct. Each program manager is handling the budget cuts because they have been tasked or reduced by these kinds of percentages. But I think that some of them are waiting to see whether sequestration will actually happen. Some of the cuts are going into effect. We might see a correction if sequestration goes into effect and then some deal during March on the continuing resolution, the sequestration resolves this in some way. Then we may see jobs come back slightly. But our problem is the longer that people are laid off, they have to put bread on the table at their homes. So they're out looking for jobs, and once they get another job, the likelihood they would come back into the defense industry, particularly in this very turbulent unknowing time --
ST. JOHN: Well, they're some of the best jobs around, aren't they?
ST. JOHN: But it sounds like we're having a mixture of pressures, a war is just coming to an end and usually defense military spending is cut after that. So there are some budget cuts anyway. Then there are these others coming down the pipe.
HEWITT: That's correct. Budget cuts -- and the DODGERS has been doing cuts in a very planned way, and the problem is that we have to do these in smart ways, not across the board cuts because when you do them across the board, you can't take vertical cuts in programs you really don't want or recent performing.
ST. JOHN: For example, are there any programs this might be more vulnerable?
BLUMBERG: The problem is that they're equally vulnerable.
HEWITT: Right now they're all being cut equally, and I'm suggesting that they be allowed to sit in there and figure out what should be cut with priority. Some may be cut completely, and some not at all. But right now that's not what we're seeing.
BLUMBERG: What's often forgot here, as part of the budget control act of 2011, the DODGERS agreed as part of that to cut 4 billion dollars out of the defense budget in 10 years. Now we're talking in addition to that.
ST. JOHN: Exactly. This is extra, on top of that. Just in the last few seconds, what about drone programs? That's a big part of San Diego's economy too. The Border Patrol might choose to have to make some cuts, for example.
HEWITT: I think the law requires the cuts to be taken equally across all programs. So by definition of the law, the budget control act of 2011, we're going to see those cuts.
ST. JOHN: Okay, well, thank you very much, gentlemen.