Defense spending crucial to Hawai'i
By Dan Nakaso and Sean Hao
Advertiser Staff Writers
From Barking Sands on Kaua'i to the peaks of Mauna Kea, nearly $4 billion worth of military money flows through the Island economy each year, giving Hawai'i a boost unlike nearly any other state.
Military spending in Hawai'i translates into $3,184 per year for each resident, making it second only to Virginia — home to the Pentagon and the Atlantic Fleet headquarters.
Direct military spending on wages, equipment and services creates thousands of indirect jobs as it multiplies through the economy. Every billion dollars the military brings in, adds about $1.8 billion to the state's economy.
Art Ong certainly knows the benefits.
He is the owner of Magnum Firearms, a small gun shop in Kaka'ako, where military contracts for flashlights, ammunition, body armor and anti-terrorism training have added more than 10 percent to his sales.
"I can give away a little bit more to my church," says Ong.
Margaret McManus also feels the effects.
MacManus, an assistant professor of oceanography at the University of Hawai'i, has been getting military grants since 1996 to study plankton during her summer breaks from teaching. The salary she gets from the grants means she and her husband might be able to buy their own house near the Manoa campus.
It's a story thousands can tell — how the military has helped them financially.
And there's no reason to expect that story will change any time soon.
Some $10 billion worth of work will soon begin to build and renovate portions of 15,000 Army, Navy, Marine Corps, Air Force and Coast Guard homes on O'ahu and manage them for 50 years; The Air Force will get eight C-17 cargo jets at Hickam Air Force Base in 2005, which will be used to transport the Army's planned $1.5 billion Stryker brigade of wheeled armored vehicles.
And a possible aircraft carrier in Hawai'i — not counting its air wing and the rest of its battle group — could bring a crew of 3,217 sailors, 1,018 family members and 606 children, generating $32.3 million in revenue over costs for the city and state.
"The good news right now is it looks like everything is going upward — between Stryker brigade, carrier air wing, and maybe a carrier itself, then the backdrop of (military) housing construction and renovation," said Paul Brewbaker, chief economist for Bank of Hawaii. "Military looks like it's going to be a real positive."
While Hawai'i's economy gets a boost from military spending, there are those who argue the state might be better off with less military spending. It isn't productive spending — no consumer goods are produced — and dependence on it stifles creativity and ingenuity within the private sector, according to Ivan Eland, director of the Oakland, Calif.-based Center on Peace & Liberty, The Independent Institute, a nonprofit that supports smaller government.
Bases such as Pearl Harbor and Marine Corps Base Hawai'i in Kane'ohe are sitting on prime oceanside real estate that could be converted into housing or resorts, Eland added. In some cases the return of bases to nonmilitary use has resulted in creative entrepreneurial activities and people making better use of facilities, he said.
But you won't hear any objection to military spending from Gerry Majkut, senior vice president and general manager of Dick Pacific Construction Co. Ltd.
Dick Pacific, a Hawai'i-based firm and subsidiary of Pennsylvania-based construction giant Dick Corp., has been winning contracts for military construction throughout the history of the 65-year-old company. The bulk of Dick Pacific's military work, however, began in 1996.
Now the company wins an average of five military contracts per year, ranging from $5 million to $85 million each.
Since 1996, military spending has made up about 50 percent to 60 percent of Dick Pacific's revenue, said Majkut.
Efforts by the military to privatize projects such as new military housing on O'ahu will ensure more contracts for years to come for big and small local companies.
"It's very, very important for our economy to have the military here," Majkut said. "The businesses are very, very happy to get the work. ... As long as there's military work in the state, we're all going to be benefit one way or another."
As a percentage of Hawai'i's gross state product, military spending reached its peak in the 1950s at about 23 percent. Military spending still represented about 15 percent of the gross state product during the Reagan-era military build-up. It now accounts for 9.3 percent of total output.
Tourism, on the other hand, went from 3 percent of the gross state product in the 1950s to a peak of 32 percent in 1988 during the height of the Japanese visitor and investment bubble. It now accounts for nearly 22 percent of the state economy.
The drop in military spending as a percentage of the gross state product coincides with a decline in active-duty, shore-based personnel statewide to 34,203 people last year, versus 60,621 people in 1988.
The drop in military employment, coupled with the loss of tourism when Japan's economy stumbled, set the stage for Hawai'i's stagnant economy during the 1990s, said Brewbaker, the economist. Slowing military spending "had huge effects and for O'ahu, in particular, really profound effects on the tone of the economy in the late '90s, the ability of construction and real estate to get any traction."
Even as military spending continues to slip as a percentage of the gross state product, the terrorist attacks of Sept. 11 proved to a tourist-based economy that military money can provide a balance to the often fickle visitor industry.
In addition to direct spending, military dollars have helped the effort to diversify the state's economy away from tourism into technology. Businesses involved in "dual-use" technology — military technology with commercial applications — are pushing the tech sector forward in the Islands, said Mike Fitzgerald, president and chief executive of Enterprise Honolulu, an economic development agency.
"When you look back at the history, I think the defense contracts and the related military activities here in this area called dual use have really been the creator and the driver of technology development in Hawai'i including research at the University of Hawai'i," Fitzgerald said.
The Department of Defense is required to offer many contracts to local, small and minority-owned businesses. But that doesn't mean getting the work is easy, said Christopher Dawson, president of Dawson Group, Inc., which in May was awarded a $30 million contract for environmental cleanup — primarily for soil contamination — for Navy bases in Hawai'i, Guam, South Korea and Japan.
As a Native Hawaiian organization, the Dawson Group has been certified as a disadvantaged enterprise, or Small Business Administration 8(a) firm, making it eligible to win Defense Department construction contracts without going through the typical bidding process.
Winning government contracts only came after the Dawson Group invested hundreds of thousands of dollars in human relations and administrative procedures and policies to comply with government guidelines, Dawson said.
"There's a miscommunication in the 8(a) community that you're going to get flooded with work because you're an 8(a)," he said. "The military's a great client, absolutely awesome. But if you want to get the work, you've got to be quicker, faster, cheaper and better than anybody else."
When you do that, you reap the benefits.
McManus, the oceanography assistant professor at UH, has a Navy grant to study thin, subsurface layers of ocean plankton. The grant allows McManus to buy oceanographic instruments that can be used for further studies around the Hawaiian Islands.
For others on her team, McManus said, "The money comes from the Navy ... and pays for salaries for a full-time technician who lives here and a student."
The Navy money also helps augment McManus' UH salary and helps McManus and her husband, Grieg Steward, another UH assistant professor of oceanography, with their personal finances.
"We're trying to buy a house," McManus said, "but the market's really tough."
Reach Dan Nakaso at dnakaso@honoluluadvertiser.com or 525-8085. Reach Sean Hao at 525-8093 or shao@honoluluadvertiser.com.
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Allen Hunter
Getting military contracts since: 1998 through Trex parent company, Trex Enterprises. Trex Hawaii was formed in 2000 to take advantage of Hawai'i's Act 221 tax exemption for technology companies. Trex has since created other Hawai'i-based subsidiaries, Silicon Kinetics, Loea Corp, Trex Enterprises Advance Materials and e-Phocus. Type of contracts: $30 million involving Trex and its subsidiaries for a wide range of projects, including high-definition television video chips, a mid-infrared adaptive optics system, funded by the Missile Defense Agency, a missile tracking system on Kaua'i and a portable digital X-ray device for use in the field. Percentage of business: "Almost all of it, 90 percent." Personal benefits of military contracts: "Following my four years as a cadet at the Air Force Academy, I spent 12 years on active duty in the U.S. Air Force, leaving the service as a major. I spent all of my military time in research and development in Air Force laboratories or teaching in graduate school at the Air Force Institute of Technology. ... Today I work with military and civilian Air Force personnel that I have known for as long as 31 years of professional life."
Margaret McManus
Getting military grants since: 1996 Type of current grant: Studying subsurface layers of plankton Benefits of military grant: "These layers interfere with visibility in the water. ... The ultimate goal is to predict when they'll occur and where they'll occur." Personal benefits: Salary from Navy grant helps McManus and her husband in their search for a new house around UH.
Art Ong
Getting military contracts since: Sept. 11. Type of contracts: Provide M-16 magazines, flashlights and ammunition for Army; Provide Coast Guard with body armor; Maximum $7 million contract over four years to train Navy personnel in anti-terrorism force protection using 11 full-time and six part-time instructors, all but one of whom are former Department of Defense personnel living in Hawai'i. Recently awarded $10,000 contract to supply under-armor sports bras for female soldiers. Percentage of business: 10 percent to 12 percent. Personal benefits of military contracts: "They do help our business grow. We can pick up more of the lines that the guys want and that supports the men. But it's not something I can count on. There's really a very small profit margin. It's more of a gravy thing. ... I work six days a week and I live a pretty frugal life. But it's nice that I can give away a little bit more to my church, which is the main beneficiary."
Laurence Vogel
Getting military contracts since: 1998. Type of contracts: $22 million for food distribution for Navy ships; $40 million contract to provide food service for the Army, Air Force, Marines and Coast Guard. "Our company was named the best prime vendor in the West, based on the degree of service. We were quite pleased." Percentage of business: 25 percent. Benefits of military contracts: "What it did for us was make us an infinitely better company. The standards, requirements and the overall contractual relationship puts a very high bar of service on the provider. ... The military always says thank you, which is a wonderful way to have a relationship. When you do a good job, you get a note or a medal or a commendation, which makes you want to work all the more harder." Personal benefits: "Personally, I'm heading a better, more exciting company than before this business came our way. I've gotten to interact with generals and admirals and colonels and captains and civilians in the military that leave you feeling very, very proud of our nation and the caliber of the people who have been attracted to serve our nation." |
