Sequestration starts to hit home in Maryland -- Gazette.Net


The federal budget sequestration is just the latest in a string of hits to federal contractors in Montgomery and Frederick counties.

Officepro, which derives about 80 percent of its revenues from federal contracts, has already seen federal clients either delay making decisions about training or outright cancel planned training, said Judy Stephenson, president of the Gaithersburg software training company.

“It’s having a significant impact on our business,” she said, estimating that revenues could be down from 10 percent to 20 percent at her business because of the latest broad reductions. The sequestration cuts, which started Friday, could reach $85 billion this fiscal year.

Officepro has had to stop working with some of its contractors and could have to retrain people if the work picks up later, Stephenson said.

“It takes more time to find quality people,” she said. “Instructors are not just standing on every street corner.”

Federal budget cuts are nothing new to contractors. The fiscal cliff was averted with a temporary tax deal around New Year’s Day. There is the looming threat of a government shutdown, as the law that funds the federal government expires in late March.

“All this causes uncertainty among those making decisions to fund contracts,” Stephenson said.

Trying to understand impact

Bethesda military and aerospace giant Lockheed Martin is still working with customers to understand how exactly sequestration will affect programs, Jennifer Allen, a company spokeswoman, said this week. Delays in funding for production programs could increase costs and “ultimately weaken our national security posture,” she said.

“We’ll await further guidance from our customers, and if warranted, will provide affected employees the full notice period required by [the Worker Adjustment and Retraining Notification Act] for covered layoff activity at the appropriate time,” Allen said.

In Lockheed’s recently filed annual report, executives said that the sequestration cuts would about double the size of the 10-year, $487 billion reduction in Pentagon spending that began in fiscal 2012.

About 82 percent of Lockheed’s net revenues of $47.2 billion last year came from the U.S. government, including 61 percent from the Pentagon. The company had 120,000 employees worldwide as of Dec. 31, down 12,000 from two years earlier. Some 8,000 workers are in Maryland, according to state figures.

Pentagon officials have said that many as 46,000 civilian employees in Maryland could be furloughed to help meet spending reductions.

Bethesda hotelier Marriott International, the second-largest company in revenues based in Maryland behind Lockheed, could suffer if federal agencies reduce travel by employees and contractors, executives said in its recent annual report. Federal government travel is a “significant part of our business,” they said.

Jeff Flaherty, a Marriott spokesman, said this week that it was “too early to tell” if the company will delay hiring or have any other impact due to the sequester. The company has about 10,000 employees in Maryland, according to the state.

Repositioning process

Many local executives are having to figure out how to “adapt and reposition themselves” in a marketplace that has seen reduced federal spending for several years, said Georgette Godwin, president and CEO of the Montgomery County Chamber of Commerce in Rockville.

Chamber leaders recently heard a presentation from economist Stephen Fuller of George Mason University that forecast the county would lose about 4,000 federal jobs by 2017 but more than make up for that through an increase of some 21,000 jobs in private professional and business services, as well as thousands more in construction, health care and other areas.

Many of those private jobs are expected in health information technology and cybersecurity, Godwin said. Still, the sequestration is a major concern for small and large businesses alike, she said.

Maryland ranks second nationally in federal procurement and third in total federal funds, which also includes grants, federal salaries and other payments, according to a recent state report. In fiscal 2012 alone, the federal government awarded $10.4 billion in contracts and $168 million in grants to Montgomery County companies and organizations. About $5 billion in prime federal contracts held by county businesses last fiscal year could be adversely affected, county officials said.

“We need for Congress and the White House to come to a thoughtful resolution,” Godwin said. “Right now, they are allowing a draconian process that is not supporting the nation’s priorities to make those budget decisions for them.”

The National Institutes of Health in Bethesda could see $1.5 billion cut from its $31 billion budget because of the sequester, according to a federal report.

Diane Frasier, director of NIH’s Office of Acquisition and Logistics Management, sent a letter to NIH contractors this week saying that certain contracts might not have options exercised and lower prices could be negotiated. Plans for new contracts may be delayed or canceled “depending on the nature of the work and the availability of resources,” Frasier said.

In addition, hospitals and physicians offices are expected to see Medicare reimbursements reduced by 2 percent.

Some of Montgomery County’s 47,000 federal workers have already contacted companies such as International Limousine Service seeking part-time chauffeur positions, executives at the Washington, D.C., business said. Most are looking for only a specific day of work to replace their furlough day,

Frederick airport on closure list

Five regional airports in Maryland, including Frederick Municipal Airport and Hagerstown Regional Airport, are on a national list released by the Federal Aviation Administration that could see their air traffic control towers closed due to sequestration.

Most FAA employees face being furloughed for at least one day per pay period through September, Transportation Secretary Ray LaHood said in a recent letter. Travelers should expect delays as some airlines change schedules and even cancel flights, he said.

Officials with the Fort Detrick Business Development Office, which helps companies do business with the Frederick military base, have met recently with some contractors concerned over sequestration. Vendors “should not be discouraged” and should continue to submit contract proposals, officials said in a statement.

Sequestration came about due to a 2011 agreement by Congress and the White House to raise the nation’s debt ceiling, with cuts theoretically designed to be severe enough to force a deal to avoid them.