Few Waves in California


Cuts on overtime for customs inspectors at the Port of Long Beach in Long Beach, California, may hinder its ability to process cargo.

If the sequester had come to California 25 years ago, its effect would have been catastrophic. Today, its effects are decidedly less draconian. Nonetheless, California has a considerably less robust economy than that of the late '80s, and the sequester will cool off the state’s already tepid recovery.

In considering the effects of the sequester, the difference between the California economy of 1942-1992 and its economy today is critical. For the half-century beginning with the attack on Pearl Harbor, California was the centerpiece of the American defense industry. Southern California in particular was a home base for much of the aviation industry even before World War II, but wartime and Cold War spending built up aviation and then aerospace to the point that they employed more Californians than any other industry. When the Cold War ended in the early '90s, however, the state’s defense industry downsized so fast and so permanently that close to half-a-million middle-class jobs were lost in the span of just two years. As the recession of the early '90s began to wane, it hung on in Californiaindeed, by 1995, one-in-four unemployed Americans lived in southern California.

The defense and aerospace firms that were the linchpin of the southern California economy never came backat least, not as the employers of tens of thousands of engineers and hundreds of thousands of unionized aerospace workers. In the early '90s, the middle fell out of the California economy, leaving in its stead a more bi-polar economy of rich and poora primary reason why the state has endured such chronic fiscal distress.

The silver lining on this cloud, however, is that the pain that the sequesterone half of whose cuts come out of the Pentagon’s budgetwould today be inflicting on California were it still capital of the defense contracting industry is much diminished. The great Lockheed factory in Burbank has been shuttered for two decades, though some of its hangers have been converted to sound stages for nearby studios. The huge Douglas Aviation factory in Long Beach, where close to 100,000 Californians worked during World War II and tens of thousands still worked during the Reagan administration’s military build-up, is a vast open field. To be sure, there are a couple of factories manufacturing drones in southern California, and Lockheed (now Lockheed Martin) is still a major company, but it is diversifying into healthcare information systems and energy technologywith a considerably smaller work force.

There’s still enough of a defense industry in California that the sequester will take a tolljust not a mega-toll. This Monday, Northrop Grumman announced the closure of an L.A.-area facility (in Dominguez Hills, the site of the nation’s first air show in 1910) that employed 800 workers. The company didn’t attribute the closure to the sequester per se, but to defense cutbacks generally. Also on Monday, a U.S. Naval Air Station in the San Joaquin Valley announced it would curtail some of its flights to save on fuel and maintenance. Civilian employees at the base, like civilian Pentagon employees everywhere, have been told they could face one-day unpaid furloughs every week. The Defense Department’s furlough policies are likely to have the biggest impact in San Diego, which is home to ships and air wings of the Pacific Fleet. (San Diego, however, has a much bigger and more diversified economy than Virginia’s Hampton Roads, home to the Atlantic Fleet.)

California will, of course, experience more cuts in both defense and domestic programs than any other statebut that’s because California is home to many more people than any other state (roughly 12 million more people live in California than live in the nation’s second largest state, Texas). Some cuts may have more noticeable consequences because they impact programs or installations that are particularly prominent in California. Wednesday’s Washington Post, for instance, reported on cuts to overtime for customs inspectors and the toll that may take on the Port of Long Beach’s ability to move its cargo promptly. (The adjoining ports of Long Beach and Los Angeles are the nation’s main port of entry for Asian imports; together, they handle 42 percent of the country’s imported goods.) But Phillip Sanfield, communications director for the Port of Los Angeles, said that the sequester’s effects to the ports have so far “been minimal, but real.” Officials at both ports have been meeting with government officials to more closely coordinate the hours of operation at the 14 terminals that are housed in the two ports so that the cuts won’t impose delays on the ports’ ability to move their goods. At the much smaller harbor at Port Hueneme, about 75 miles up the coast from the L.A.-Long Beach harbors, the reduction of customs inspectors’ hours will compel the port to close one day every weekend – but Sanfield expressed no apprehensions that such measures would have to be undertaken at L.A.-Long Beach.

The cutbacks to domestic spending will chiefly be felt in California because they come on top of cutbacks to state health and welfare programs that the legislature was compelled to enact in the depths of the recession, and that the state does not have the funds to restore, despite the passage of Proposition 30 last November, which provided an additional $6 billion annually to California’s public schools and universities. The sequester probably means that the state will have to reduce by 10,000 the number of pre-schoolers it can fund through Head Startnot a huge number in a state the size of California, but it comes on top of state budget cutbacks that have already reduced the number of enrollees in Head Start by 110,000, says Chris Hoene, executive director of the California Budget Project. Similar sequestration reductions, he says, will also take a toll on funding for special-needs education and local substance-abuse programs.

Hoene’s main fear, however, is that the state’s fragile economy will grow more fragile still as federal workers are furloughed, consumer spending is correspondingly reduced, and business remain reluctant to hire. California’s unemployment rate still stands at 9.8 percent, the third highest among the states, though it has declined from 12.4 percent in 2010. Inland California was the epicenter of the nation’s housing and sub-prime mortgage bubbles in the first decade of this century, and in those regions joblessness is still staggeringly high. The sequester, and the herky-jerky nature of an economy dependent on “government by continuing resolution,” Hoene says, inhibits the state’s already feeble recovery.

It would be worse, of course, if California were still home to the defense industries of yore. But then, if California were still home to the defense industries of yore, its economy wouldn’t be so shaky to begin with.

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