Oregon gets peanuts from the Pentagon

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Wednesday, August 01, 2007

Is defense in retreat?

PacStar3500.jpg
The PacStar 3500 — essentially a portable office with a ruggedized laptop and satellite modem — was designed by a Portland  company for remote military teams.

STATEWIDE — Despite the efforts of a regional business coalition to increase Pentagon contracts awarded in Oregon, last year the state fell to its lowest ranking in defense spending per state in 10 years.

Military contracts fell to $562 million in 2006, a decline from $589 million the year before. At the same time, Oregon dropped from 40th to 43rd place when compared to federal spending in other states.

However, those behind the Pacific North-west Defense Coalition say Oregon’s low profile in the world of military spending, while less than ideal, isn’t necessarily a bad thing. And as the nation’s military presence in Iraq presumably decreases in the coming years, the state could benefit as the Department of Defense shifts its attention from resupplying the armed forces to developing new technology.

Air crews wear Flightcom’s E-13 ANR headsets to reduce the low-frequency noises that induce fatigue and impede communication.
FlightcomE13.jpg
CrimsonTrace.jpg
Wilsonville-based Crimson Trace’s handgun laser sights are used by all branches of the U.S. Armed Forces.

In 2005, about 20 defense companies in Oregon and southern Washington formed the Pacific Northwest Defense Coalition (PNDC). In April the group hired its first full-time executive director, Brice Barrett.

Focusing on big-picture numbers is important, he says, but not at the expense of what’s actually being accomplished. “We don’t want to get lost. We don’t want to set that [national comparison] as a performance benchmark. Don’t get me wrong, [increasing Oregon’s ranking] is a strategic goal, but trying to manage that number can very dangerous.”

Compared to states with comparable populations — for example, Connecticut ($7.7 billion in contracts in 2006) or Oklahoma ($2 billion in 2006) — Oregon has never seen much defense-industry cash. In the mid 1990s the state’s annual total was sometimes as low as $130,000 for all businesses combined.

Despite Oregon’s national reputation as a blue-leaning state — think former Sen. Mark Hatfield’s anti-Vietnam War stance or President George H. W. Bush’s “Little Beirut” nickname for Portland — a lack of contracts probably has little to do with politics, says Bill Lunch, chair of Oregon State University’s political science department.

The reasons are simpler: no major military bases. No marquee defense companies. No skilled workforce to attract new defense companies. “One thing builds on another,” Lunch says. “In terms of defense spending, Oregon has always been a bit of a backwater.”

With the invasion of Iraq came a little boom in the backwater. In the leadup to the war, the state’s annual defense contracts total exploded past $400 million. It peaked at $589 million in 2005.

In the last two years the PNDC has also grown; it boasts 80 member companies. Officials at those companies laud the coalition for its success in helping businesses learn the intricacies of the contract process. Winning a defense contract is sometimes the easiest part, says Barbara Keepes, division manager at Portland’s Flightcom, which makes aviation headsets. A network of businesses that can answer questions and explain paperwork can be invaluable.

DefenseFundingTable.gif When it comes to the value of defense con-tracts, Barrett has some rosy figures. He estimates defense-related companies employ more than 2,000 Oregonians, who earn more than $122 million a year. But if Oregon businesses increase the amount in contracts they get to $1.4 billion a year, the workforce would jump to 5,000, wages to $300 million and income tax to $16 million.

Is that even possible? Or does the 2006 drop in contracts portend a return to 1990s-era figures?

There’s one thing that may prevent a continued downward slide: Many Oregon companies make products with uses that extend beyond wartime. Consider Wilsonville’s FLIR, which makes infrared imaging systems; Portland’s HemCon, which makes specialty medical bandages; and Clackamas’ Oregon Iron Works, which among other types of work, has a defense contract to work on a wave-energy project.

Bill Sundermeier, senior vice president at FLIR, put it most succinctly. When the military is not at war, he says, its emphasis shifts from re-supplying troops to creating innovative technology.

Chandra Brown, vice president of Oregon Iron Works and vice chair of PNDC, points out that the Department of Defense is looking for sustainable energy sources. “Look at wave and wind energy. That will be an area where Oregon and the Pacific Northwest can play a bigger role in future acquisitions and the greening of the military,” she says.

At the end of the Cold War, the defense in-dustry in California took a major hit. Barrett remembers the fallout; he oversaw the man-agement of defense contracts as a project manager in the Air Force’s space program. He sees parallels with the war in Iraq.

“At the end of the war there will be a whole different kind of spending,” he says. “We’re not building the bombs or the guns or the tanks. Therefore we can provide a whole different kind of product.”

— Abraham Hyatt


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