Wednesday, March 6, 2013

Businesses trying to limit budget-cut damage

Many small businesses that have contracts with the government are looking for new business elsewhere to blunt the impact of $85 billion in federal budget cuts slated to begin March 1.

Researchers at George Mason University in Northern Virginia, the home of many government contractors, released a forecast of the possible nationwide impact of the cuts and warned that more than 157,000 jobs could be lost at small business contractors.

Many contractors already feel the pain. The cuts are the result of a bill that Congress passed in August 2011, mandating the cuts if lawmakers couldn’t agree to reduce the budget. Federal agencies already have cut back their spending in anticipation of the cuts.

For defense contractors, the impending cuts are particularly troubling because they’re coming on top of an expected drop in defense spending as the U.S. withdraws troops from Afghanistan. Companies with Pentagon contracts began feeling the pinch of impending budget cuts late last year. The Department of Defense cut its spending more than 22 percent during the fourth quarter. While part of that drop was due to troop withdrawals, Small Business Administration head Karen Mills told reporters last week that in December, contracts were put on hold because of the expected budget cuts.

Budget cuts are expected to have a huge impact on small business, with 956,000 jobs lost at companies across the country, according to the study last year by George Mason University and the economic forecasting firm Chmura Economics and Analytics. That includes contractors and subcontractors, their suppliers and companies like retailers that cater to their employees. The study did not estimate how much revenue small businesses might lose due to the cuts.

It’s not known how many small businesses are federal contractors. The SBA roughly estimates there are more than 130,000. The George Mason researchers forecast that more than 81,000 jobs could be lost at small businesses that contract with the Pentagon, and another 76,000 could be lost at companies with contracts at other federal agencies.

Prospecting for business with private companies can potentially replace revenue lost from the government, but there are challenges. Salt Lake Tribune

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