This is one of a series of stories looking at potential local effects of the fiscal cliff. Return to naplesnews.com through Wednesday or pick up copies of the Daily News on Sunday, Monday and Tuesday.
NAPLES — If Congress doesn't halt the impending fiscal cliff, Florida could lose up to 140,000 jobs, with the defense sector and its 82 Naples defense contractors among those hit.
Total job loss estimates across all sectors range from nearly 80,000 jobs statewide, according to George Mason University's Center for Regional Analysis, to as many as 140,000, under an analysis by University of Florida economist David Denslow.
Military bases statewide and the Space Coast would receive the brunt of the reductions, which will affect everything from contractors and suppliers to nearby stores frequented by those employees. The George Mason study, which was commissioned by the Aerospace Industries Association, predicted that in fiscal 2012 and 2013, Florida would lose 79,459 jobs, 41,905 as a result of Department of Defense cuts that will affect suppliers and contractors.
"They are all on hold, waiting to see what will happen with hiring and job loss," said Jim Wall, business development director for Southwest Florida Works, a state-supported agency that matches job-seekers with openings. "That has far-reaching implications because there are manufacturers that are sub-suppliers to different contractors.
"When we think of the military, we think of bullets and bayonets, but the fact of the matter is it affects all parts of the defense budget," Wall said, noting that even Coca-Cola has a defense contract. "What do you cut, bullets or Coca-Cola?"
The "fiscal cliff," created last year as part of a congressional debt ceiling deal, will occur in January if Congress doesn't act and will result in automatic federal spending cuts and increased taxes. Current cuts in the law that begin Jan. 1 also include the expiration of the 2 percent cut in payroll taxes, Bush-era tax cuts, and emergency unemployment benefit insurance that will end benefits for many.
Of $1.2 trillion in discretionary spending cuts, about $500 billion of cuts are expected in defense spending, disproportionately affecting Florida compared with other states due to the importance of the military to its economy, according to a study by Florida's chief economist and Florida TaxWatch Research Institute.
Between 2009 and 2011, Florida lost more than $984 million in defense contract awards, the study says, and further cuts would place even more pressure on the contractors and subcontractors, many of whom operate small businesses.
Eighty-two Naples defense contractors have received Department of Defense contracts from 2000 to 2011, according to governmentcontractswon.com, which gathers public data on government contracts. Nine have won more than $1 million in contracts each. They range from $1.88 million for 15 contracts for Aeroflex Plainview, which manufactures electrical equipment and components, to NewsBank, which won 53 contracts totaling $5.99 million to publish defense periodicals, to Airflyte Electronics Co., awarded $16.3 million for 120 contracts to manufacture search, detection, navigation, guidance, aeronautical and nautical instruments.
For Lou Gaudio, vice president of Quality Enterprises USA, which won $14.44 million for nine highway, street and bridge construction contracts, cuts won't decimate the company because it has local work lined up for its 50 to 60 employees.
"At this point, most of our federal work is wrapping up," Guadio said. "We certainly have a slow down. We're constantly on the lookout for federal work and there hasn't been much for us to bid on."
He didn't know whether to attribute that to the elections or the fiscal cliff.
Also on the website's Naples defense contractor list is Arthrex, a North Naples medical device manufacturer that won $15.77 million for 757 contracts over 11 years. Defense contractors statewide will see $1.56 billion in defense awards for scientific research funding cut, so Arthrex is proceeding cautiously.
"Arthrex does not anticipate a significant change to our near-term hiring and expansion plans in Southwest Florida," Arthrex spokeswoman Lisa Gardiner said. "We will take a prudent, balanced approach as we move forward with hiring, expansion and other aspects of our business to assure the long-term financial health of our company."
Among federal policy changes set for next year are a reduction in Medicare physician payments. Doctors who treat patients covered by Medicare will face nearly 30 percent in cuts, according to a study by the American Institute of Biological Sciences, which noted it would cost $10 billion to delay the scheduled reductions for one year and $270 billion to delay them for a decade.
Jon Cecil, chief human resource officer for Lee Memorial Health System, said most of the hospital's patients receive Medicare or Medicaid, so government spending greatly affects Lee Memorial.
"We've watched reimbursements decline and uncompensated patient care increase for quite some time, so we've been managing our budgets around that," Cecil said.
Part-time help and temporary workers are used during the winter season, he said, and hiring is adjusted based on the number of patients during the slower months.
"Unless we are caught off guard with unexpected action by the federal or state governments, we don't plan to make any changes in the short term to our hiring practices based on whether we do or do not go over the fiscal cliff, but instead are implementing a long-term plan to become more productive and cost-efficient in our operations," he said.
Economists say the combination of tax cuts and rate increases could prompt a new recession at a time when the economy is still struggling to recover from its worst slowdown in decades.
As a Naples business owner and financial planner, James Eastman isn't making any big spending decisions until he gets a better idea of how the fiscal cliff will play out.
Eastman, founder and managing director of Regional Family Offices, has three related businesses in the financial industry with a total of 12 employees. He could use three more, but he's holding off on hiring because of the political and financial uncertainty.
"I've built it up," Eastman said of his businesses. "Now I've stopped. No new hires. I'll just watch and see what happens."
He said he's also holding off on buying any new equipment, such as new computers.
Many businesses are operating with 50-75 percent fewer employees than they had in 2006-07, when the area was experiencing rapid growth, according to Wall, of Southwest Florida Works. They plan to grow their businesses and expand marketing, he said, but they'll look at other options before hiring.
"And when they do hire that person, they are looking at people with multiple skill sets," he said, adding that businesses are going to bounce back, but under a different model. "One person is now going to do what three or four people used to do."
"What I'm hearing from businesses is there is money out there, corporate money," he added. "They're looking at investing in technology, how they can be more competitive, how they can be more green. … People aren't always being green to save the environment. They're doing it to save costs."