Tom Colatosti, CEO of Oasis Systems, Christopher Preble of the Cato Institute, and Michael O'Hanlon of The Brookings Institution.

Mass. Defense Industry Awaits Cuts

March 6, 2013

Tom Colatosti has a short commute from his home in Lexington to his office across town on Hartwell Avenue. It’s a sweet-sounding name for a street that’s quietly become an industrial powerhouse, home to pharmaceutical and technology companies.

Colatosti runs Oasis Systems.

“We provide a range of IT services to the Department of Defense, we have a number of contracts with the Air Force, Navy, Marine Corps, and services include command control, surveillance, cyber security,” he said.

Oasis Systems employs 600 people nationwide, 300 in Massachusetts. The possibility of layoffs, and losing employees to other tech businesses, is making Colatosti feel …

“Very anxious,” he said. “There’s a lot of uncertainty, a lot of unknowns.”

The anxiety is related to sequestration, which is an across-the-board cut of 7.5 percent from the defense budget. That means fewer contracts with companies like Oasis. About 7,000 civilian defense employees in Massachusetts and 5,000 in Rhode Island will be furloughed, according to the White House. 

But regardless of sequestration, the spending caps in the Budget Control Act of 2011 are likely to force the Pentagon’s base budget to stay virtually flat over the next decade. It's set to fall to $716 billion this year.

“There are some people who are sympathetic to the idea that we could actually accept some defense cuts now of a deeper magnitude than were already underway, and let’s not forget they were already underway,” said Michael O’Hanlon, senior fellow in foreign policy studies at the Brookings Institution in Washington. He said defense cuts get attention in part because they raise concerns over preserving national security.

“I do think there are some ways we can scale back but let’s not pretend that this is a peaceful world,” O’Hanlon said. “But this is not a good way to carry out that policy because what it essentially does is deprive us of any kind of strategic change. So we wind up just doing indiscriminate, across-the-board, thoughtless defense cuts.”

But the results of the cuts remain a topic of debate. Christopher Preble is vice president for defense and foreign policy studies at the CATO Institute in Washington.

“In every post-war drawdown, going back at least to World War II, resources that were going to the war effort are redirected back to the civilian economy,” Preble said. “We saw that in 1946, ‘47, we saw it after Korea, after the Vietnam War and of course most recently we saw it at the end of the Cold War.”

Preble said claims of job losses are exaggerated.

“In a dynamic economy resources do shift from time to time,” he said. “It’s a little different, of course, when we’re talking about military spending which is driven by political considerations as opposed to consumer needs. But people change jobs, money that is freed up out of tax dollars, or public sector, is redirected perhaps to other public expenditures or to tax reductions that then go back to the private sector.”

So at the moment the biggest problem resulting from sequestration appears to be paralysis. Businesses aren’t hiring, investing or making layoffs – yet. Colatosti said the uncertainty just hangs.

“In person, in writing we give a mixed message of things are very difficult, people should be prepared, but we remain optimistic and hopeful because we think we’re providing quality services having a dramatic impact on our war fighters,” he said.

Because the federal fiscal year runs through October, officials could stretch some of the cuts until then. Moving forward, President Obama's defense budget reflects three goals: protect Americans, improve ways to spend federal money, and invest in innovation.

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