THE VIRGINIAN-PILOT
Copyright (c) 1995, Landmark Communications, Inc.
DATE: Wednesday, November 15, 1995 TAG: 9511150197
SECTION: BUSINESS PAGE: D1 EDITION: FINAL
SOURCE: BLOOMBERG BUSINESS NEWS
DATELINE: WASHINGTON LENGTH: Medium: 92 lines
Defense companies will be spared most ill effects of a brief shutdown of the federal government, industry and government officials said.
Unlike other federal agencies, the Pentagon doesn't spend all it receives for a specific fiscal year in that year. Many weapons programs have money remaining from prior budgets, so there's no immediate danger of running out of cash during a short clash between the White House and Congress over the 1996 budget and federal debt ceiling.
``Most contracting activity that is under way, they are probably (spending) dollars that were (approved) in fiscal year 1993 or maybe 1994,'' Pentagon Comptroller John Hamre told reporters. ``They will continue.''
As will most research and development activities.
Newport News Shipbuilding remains unaffected, a spokeswoman said. The giant Peninsula shipyard is building two aircraft carriers and repairing other vessels for the Navy. The shipyard could encounter more difficulties if the shutdown lasts longer than a few days or a week, said Jerri Dyckseski, shipyard spokeswoman.
All the work the shipyard performs must be inspected periodically by officials from the Navy contracts office, but all the office's civilian inspectors have been furloughed. Only a small cadre of military inspectors remain to do the work and they are without their civilian administrative support.
At McDonnell Douglas' St Louis-based F/A-18 program, ``We're conducting business as usual,'' said JoAnne Davis, a spokeswoman. That program has yet to touch most of the $2.3 billion approved during fiscal 1995, said Davis.
However, Hamre said money in the bank doesn't mean the shutdown will have no effect on weapons research and production.
Companies ``will continue to produce, and at the end of the line there's supposed to be (a Pentagon employee) who signs to receive'' each item, Hamre said. ``He can't be at the job because he's been furloughed. And we can't pay the contractor until we have that receiving report.
``We do not have any legal authority to tell a contractor to slow their work. Unfortunately we're not going to be able to pay them promptly until our contract administration people can return to work.''
What's more, if the stalemate between the White House and Congress continues into December, some programs including General Dynamics Corp.'s Seawolf submarine could encounter a cash crunch.
A protracted stalemate would be unprecedented. Past shutdowns brought on by disagreements between the White House and Congress lasted a few days at most.
If the shutdown is brief, as expected, the most contractors would have to contend with would be the delays in being paid.
The federal government ran out of money at midnight after President Clinton vetoed a temporary funding bill which would've avoided the shutdown. ``This legislation would raise Medicare premiums . . . and deeply cut education and environmental programs,'' Clinton said. ``Those are conditions that are not necessary to meet my goal of balancing the budget.''
White House and congressional leaders met again Tuesday on Capital Hill to try to resolve the dispute, which forced federal agencies to send about 800,000 employees deemed ``nonessential'' home.
The Pentagon, which spends about $800 million a day, sent home about 250,000 employees.
While many government operations are being pared back, work on most weapons programs continues without interruption.
Programs including McDonnell Douglas Corp.'s C-17 transport plane and F/A-18 fighter jets aren't in danger of running out of cash unless the budget statement continues well into next year.
The C-17, assembled in Long Beach, Calif., is even more flush with cash than the F/A-18 project. The C-17 group has more than $2.6 billion in the bank, said McDonnell Douglas spokesman Jim Ramsey. ``We'd have (almost) two years to go before,'' running out of money, Ramsey said.
General Dynamics' Seawolf and Lockheed Martin Corp.'s F-22 fighter aren't as secure as the McDonnell Douglas programs.
Seawolf, assembled in Groton, Conn., is most vulnerable to a prolonged hiatus in government funding. Congress hasn't set aside a significant amount of money for the program since fiscal 1992.
What's more, General Dynamic's Electric Boat division, which makes the Seawolf, will submit bills at the end of November, bills which may not be easily paid if the budget situation isn't resolved.
``We won't know (the effects) until we know the details of the shutdown,'' said Neil Ruenzel, spokesman for General Dynamics' Electric Boat division.
Navy officials couldn't immediately explain how they'd respond if the program ran short of cash.
Lockheed Martin's F-22 fighter program, based in House Speaker Newt Gingrich's Georgia congressional district, is funded through the end of this year. If the budget stalemate continues into January, that program might also face problems. The disputed 1996 budget earmarks $2.2 billion for the F-22, some of which would be needed to keep the project alive after Jan. 1.
KEYWORDS: DEFENSE INDUSTRY FEDERAL GOVERNMENT BUDGET SHUTDOWN by CNB