June 13, 2005
Trickle-down economics | With Maine military installations targeted for closure, their suppliers worry about the future
By Sean Donahue
Many Mainers view the state's military installations as valuable employers or important pieces of a community's identity. Brad Norris sees Maine's bases as good customers.
In recent years, his South Portland fire alarm and security system company, Norris Inc., has installed fire and security systems at two new facilities at the Brunswick Naval Air Station. On top of that work, Norris Inc. two years ago received a contract to service and maintain the security cameras that monitor the Portsmouth Naval Shipyard in Kittery.
Now, with both of those facilities on the Department of Defense's Base Realignment and Closure list, Norris could see his contract and future bidding opportunities disappear. Although the changes won't devastate his 36-person business, Norris expects to feel some economic impact that he'll have to either absorb or offset. "We'll have to pick up that business elsewhere, no doubt about it," says Norris. "But that also means the competition in the industrial and commercial markets will get tighter, because there will be other companies out there [that used to supply the bases] trying to fill that void, too."
Norris Inc. is one of dozens, if not hundreds, of Maine business that supply goods and services to local military installations now marked for closure or significant downsizing ˆ PNS, BNAS and the Defense Finance and Accounting Service in Limestone. When those facilities landed on the BRAC list, which was released May 13, concerns about the potential economic impact centered first on the host communities, which stand to lose a large employer whose payroll supports nearby stores, restaurants, services and the like. But the potential impact also includes lost revenues for Maine companies doing business directly with the bases ˆ more than 60 vendors to PNS alone in 2004.
Those vendors range from businesses with recurring contracts like Norris to small machine shops that performed one-off jobs for PNS last year. Together, those companies make up a supply chain that extends far beyond Kittery, Brunswick and Limestone. Now, they wonder just what the BRAC changes would mean for each company's bottom line.
To some degree, the state has begun estimating this potential impact. If enacted, the DOD's BRAC recommendations would cost Maine about 12,000 jobs ˆ both direct and indirect losses ˆ and result in a loss of $465 million in economic activity, according to a study by the State Planning Office. Lost salaries account for most of that potential impact, but the study also estimates that Maine businesses will lose about $120 million in direct procurement from those facilities (see "Dollars and cents," this page).
Still, those numbers don't reveal which companies will be affected and to what degree ˆ something even the vendors and suppliers themselves can't predict. There would be measurable loss from the closure of PNS and DFAS in Limestone in the form of canceled contracts and a lack of future work, which most vendors contacted for this story say will be noticeable but not devastating. But even those vendors wonder how many of their customers also supply the bases, and therefore might cut back their own orders to deal with the loss.
Of course, the question may be moot. Gov. John Baldacci, the state's congressional delegation, local base support groups and area chambers of commerce are lobbying the BRAC Commission to remove Maine's facilities from the list (the commission will make its final recommendation to President Bush in September). But if those efforts fail, the typical six-year timeline for a BRAC shutdown makes it difficult to predict the economic impact on suppliers and vendors, says Charles Colgan, professor of public policy and management at the Muskie School of Public Service in Portland, who's planning a formal analysis of this question later this summer. "Ultimately, the basic question hinges on whether the resources now going to supply the bases can go to supply someone else," says Colgan. "If the economy is in a recession or in a slow growth period [when a closure occurs], it becomes that much harder to find substitute customers. A lot depends on the overall state of the economy as these things occur."
Kittery: The continuing decline of manufacturing
At least one thing is certain to suppliers of PNS: If the facility closes, it will mean the loss of yet another large manufacturer in Maine. For companies like Auburn-based C.W. Hayden, which distributes industrial adhesives, sandpaper and other materials used in manufacturing, that would mean further tightening of an already uncomfortably small market.
C.W. Hayden's relationship with PNS goes back the 1970s, says company president John Hayden. Though the Portsmouth yard didn't offer a high-volume contract ˆ Hayden estimates the value of sales to PNS at less than $100,000 a year ˆ it did provide steady orders. That reliability would be especially missed, he says, given that the 57-year-old company has seen former customers such as shoe makers, metal shops, wood products manufacturers and paper mills dwindle over the decades.
Like Norris, Hayden says his company would have to seek new customers to replace its PNS sales. That's where he expects to see the bigger impact of a potential closing: With fewer large, industrial facilities available to serve, wholesale suppliers like C.W. Hayden are fighting harder than ever to land customers ˆ which often means cutting prices so deeply as to wipe out any profit margin. "It's a race to the bottom," says Hayden. "The first one to the bottom wins, but they also lose, because they're not making enough to keep their lights on."
Mark Goldstein, president of Portland-based Coastal Equipment Corp., echoes Hayden's concerns about the decline of manufacturing in Maine. Though his company, which provides parts and service for industrial conveyors, lifts and other so-called material handling systems, doesn't count PNS as a major customer, it had what he calls several "good runs" with the shipyard in recent years. In the last six months, Coastal Equipment sold about $30,000 worth of parts to PNS, according to Goldstein.
Those orders will be missed, Goldstein says, but it's not an insurmountable loss. Beyond that impact, though, he wonders whether his company might see further losses from other clients who also are PNS suppliers. "The people that service those bases may buy from us," he says. "We might not only be losing the end user, we might be losing their suppliers, too. It's a waterfall effect."
Having dealt with the decline of manufacturing in Maine for years, though, Goldstein says his company has been focusing on custom equipment fabrication to help increase sales, which would help the company weather the loss of PNS.
John Hayden also has a strategy that he says would help deal with the loss of another manufacturer. C.W. Hayden has increasingly looked out of state for potential customers, and is now the largest distributor for 3M's industrial business products division in the Northeast. Recently, the company has been making more sales in Europe, taking advantage of the strong euro that makes U.S. products seem like a bargain there, says Hayden.
Looking beyond Maine's borders will be key to PNS suppliers' ability to offset their losses should the shipyard close, according to Colgan. But it won't be easy. "The real challenge will be for small businesses who operated only locally to all of a sudden ratchet up their whole geographic view of their customer base to find some new customers," says Colgan.
Limestone: Another blow to Aroostook County
Nobody expected to see the Defense Finance and Accounting Service operation at the Loring Commerce Centre on the BRAC list. But when the DOD recommended closing DFAS, Aroostook County had to consider the potential loss of 364 jobs and an anchor tenant in a facility that's still undergoing redevelopment from the 1991 BRAC round.
Though a small outfit compared to the Kittery shipyard and Brunswick air station, DFAS nevertheless has its own team of suppliers and service providers. Because DFAS performs administrative functions such as payroll processing in an office environment, those vendors include local office supply stores and copying centers, communications service providers, electrical contractors and janitorial services.
Aroostook Technologies, which provides wireless communications and security systems to commercial and residential customers, has worked with DFAS since the facility opened in 1995. Over the years, the Presque Isle company has installed and serviced security cameras, card readers and other components at the facility ˆ jobs that company president Kevin Robinson says were more lucrative than the typical commercial contract in the area.
Most recently, Aroostook Technologies received $50,000 to upgrade security cameras at DFAS. The loss of such opportunities would have an impact on his business, says Robinson. "Closing DFAS wouldn't cripple us, but having jobs worth $100,000 or so in sales and service does help," says Robinson. "Up here we need everything we can get."
What's more, despite ongoing efforts by the Loring Development Authority to attract new businesses to the site, an outfit like DFAS would be hard to replace for suppliers like Aroostook Technologies, says Robinson. As a military facility, it requires a level of security that few commercial entities do. "I just think it's preposterous to come up here and close the base, then come back and do this," says Robinson.
Like Robinson, Deanna Whitmore is surprised to find herself back on the BRAC roller coaster. Her company, LND Cleaning Service, had the contract to clean offices at Loring Air Force Base when the base was scheduled for closure. LND survived the shutdown in part by landing cleaning contracts with DFAS and the Loring Development Authority in 1995.
Today, she's less worried about the potential loss of a client. Whitmore and her partner ˆ who do most of the cleaning, along with a few part-time workers ˆ planned to retire once LND finished its current five-year contract with DFAS in 2006. But she is concerned about the potential lost opportunity for another Aroostook County business, because DFAS's long-term contracts offer greater stability and higher pay than work with typical commercial clients. "It's a good contract for any cleaning company to have," says Whitmore. "You make a nice profit ˆ more than you can taking local clients on."
Brunswick: A host of uncertainty
Despite being home to 37 aircraft, Brunswick Naval Air Station doesn't turn to local suppliers for parts and equipment. Most of those goods come from "Mother Navy," according to John James, public affairs director at BNAS. "We might as well be an aircraft carrier out off the Middle East," when it comes to getting those kinds of supplies, he says.
However, BNAS's supply chain stretches through the local service economy. The base taps Maine vendors such as wholesale food distributors, construction and engineering firms, landscaping companies and utilities ˆ anything that's needed to support what amounts to a town within a town.
The best example of that phenomenon is the base's contract with Maine Natural Gas, which supplies the heating source for the base's housing, institutional buildings and hangars. The contract with BNAS made it economically feasible for Maine Natural Gas to build a 14-mile pipeline in 2001 and begin serving the Bath-Brunswick region, says Roy Lane, manager of community relations for Maine Natural Gas. Without BNAS, there likely would be no natural gas service in Brunswick.
The base remains one of the company's largest customers, though Lane says he can't reveal details about any client's gas usage. But now, with BNAS facing a potential realignment that would transfer about half of its military personnel to Florida, Maine Natural Gas can't predict how demand might change in the future. "We really don't know what realignment will mean and what will unfold over the next few months," says Lane, adding that he doesn't expect price increases for other Maine Natural Gas customers no matter what happens at BNAS.
Such uncertainty is common among BNAS suppliers, who are struggling to determine how realignment would affect their own businesses. For example, South Portland-based architecture and engineering firm Oest Associates has worked on several major construction, maintenance and renovation jobs at BNAS over the years, including the design for the base's new $34 million hangar. Government jobs at Brunswick and other facilities have offered stability during slowdowns in the commercial construction market, says president and owner Harvey Oest, and now such contracts account for 50% of the company's business.
The company isn't just facing a potential hit in Maine, either: In January, Oest Associates won a five-year contract to provide design and engineering services to all the Navy installations in the Northeast, through the Navy's Engineering Field Activity Northeast in Pennsylvania. That facility also is targeted for closure on the BRAC list.
Those changes would mean at least 10% to 20% less work for his staff of 53, Oest estimates. But his company's work with BNAS won't entirely disappear, because even under realignment the base would need engineering and design work for ongoing repairs and maintenance.
Oest also is looking for ways to benefit from facilities targeted for expansion under BRAC. "Now that the list is out we can see what is happening and where we can make adjustments," says Oest. "The question we're asking is, 'Where is everybody going, and will there be work in new places?' So we're looking at areas such as Jacksonville [Fla.]."
The migration of military personnel particularly concerns Ben Goodall, owner of Goodall Landscaping in Brunswick. His company has performed landscape installations and ongoing maintenance at BNAS over the years; Goodall says they've been good jobs that allow him to keep a crew busy on the base for an entire day. Under BRAC, he expects demand for those services would decrease.
But he's also worried about the indirect impact of losing 2,300 people in a town of 21,000. For one thing, chain restaurants and stores near the base ˆ many of which are also his landscaping customers ˆ might not find the location attractive anymore. "There might not be as much demand for those businesses, so we might see some of them close as well," says Goodall.
With so much uncertainty surrounding BNAS's proposed realignment, some vendors find the situation worse than if the base were marked for closure. That way, says Brad Norris, at least there would be opportunities for redevelopment and potential new customers at the facility. "The Navy's not going to close it, but they're not going to spend any money there either," he says. "I think that's the worst-case scenario."
Still, at this point all scenarios are hypothetical. Business owners who work directly with the bases say they'll follow the BRAC process closely over the next several months, and be ready to position their businesses to deal with whatever the BRAC Commission decides for Kittery, Brunswick and Limestone. "The only way to handle the situation," says Oest, "is to plan for the worst and hope that a little good comes out of the process."
In recent years, his South Portland fire alarm and security system company, Norris Inc., has installed fire and security systems at two new facilities at the Brunswick Naval Air Station. On top of that work, Norris Inc. two years ago received a contract to service and maintain the security cameras that monitor the Portsmouth Naval Shipyard in Kittery.
Now, with both of those facilities on the Department of Defense's Base Realignment and Closure list, Norris could see his contract and future bidding opportunities disappear. Although the changes won't devastate his 36-person business, Norris expects to feel some economic impact that he'll have to either absorb or offset. "We'll have to pick up that business elsewhere, no doubt about it," says Norris. "But that also means the competition in the industrial and commercial markets will get tighter, because there will be other companies out there [that used to supply the bases] trying to fill that void, too."
Norris Inc. is one of dozens, if not hundreds, of Maine business that supply goods and services to local military installations now marked for closure or significant downsizing ˆ PNS, BNAS and the Defense Finance and Accounting Service in Limestone. When those facilities landed on the BRAC list, which was released May 13, concerns about the potential economic impact centered first on the host communities, which stand to lose a large employer whose payroll supports nearby stores, restaurants, services and the like. But the potential impact also includes lost revenues for Maine companies doing business directly with the bases ˆ more than 60 vendors to PNS alone in 2004.
Those vendors range from businesses with recurring contracts like Norris to small machine shops that performed one-off jobs for PNS last year. Together, those companies make up a supply chain that extends far beyond Kittery, Brunswick and Limestone. Now, they wonder just what the BRAC changes would mean for each company's bottom line.
To some degree, the state has begun estimating this potential impact. If enacted, the DOD's BRAC recommendations would cost Maine about 12,000 jobs ˆ both direct and indirect losses ˆ and result in a loss of $465 million in economic activity, according to a study by the State Planning Office. Lost salaries account for most of that potential impact, but the study also estimates that Maine businesses will lose about $120 million in direct procurement from those facilities (see "Dollars and cents," this page).
Still, those numbers don't reveal which companies will be affected and to what degree ˆ something even the vendors and suppliers themselves can't predict. There would be measurable loss from the closure of PNS and DFAS in Limestone in the form of canceled contracts and a lack of future work, which most vendors contacted for this story say will be noticeable but not devastating. But even those vendors wonder how many of their customers also supply the bases, and therefore might cut back their own orders to deal with the loss.
Of course, the question may be moot. Gov. John Baldacci, the state's congressional delegation, local base support groups and area chambers of commerce are lobbying the BRAC Commission to remove Maine's facilities from the list (the commission will make its final recommendation to President Bush in September). But if those efforts fail, the typical six-year timeline for a BRAC shutdown makes it difficult to predict the economic impact on suppliers and vendors, says Charles Colgan, professor of public policy and management at the Muskie School of Public Service in Portland, who's planning a formal analysis of this question later this summer. "Ultimately, the basic question hinges on whether the resources now going to supply the bases can go to supply someone else," says Colgan. "If the economy is in a recession or in a slow growth period [when a closure occurs], it becomes that much harder to find substitute customers. A lot depends on the overall state of the economy as these things occur."
Kittery: The continuing decline of manufacturing
At least one thing is certain to suppliers of PNS: If the facility closes, it will mean the loss of yet another large manufacturer in Maine. For companies like Auburn-based C.W. Hayden, which distributes industrial adhesives, sandpaper and other materials used in manufacturing, that would mean further tightening of an already uncomfortably small market.
C.W. Hayden's relationship with PNS goes back the 1970s, says company president John Hayden. Though the Portsmouth yard didn't offer a high-volume contract ˆ Hayden estimates the value of sales to PNS at less than $100,000 a year ˆ it did provide steady orders. That reliability would be especially missed, he says, given that the 57-year-old company has seen former customers such as shoe makers, metal shops, wood products manufacturers and paper mills dwindle over the decades.
Like Norris, Hayden says his company would have to seek new customers to replace its PNS sales. That's where he expects to see the bigger impact of a potential closing: With fewer large, industrial facilities available to serve, wholesale suppliers like C.W. Hayden are fighting harder than ever to land customers ˆ which often means cutting prices so deeply as to wipe out any profit margin. "It's a race to the bottom," says Hayden. "The first one to the bottom wins, but they also lose, because they're not making enough to keep their lights on."
Mark Goldstein, president of Portland-based Coastal Equipment Corp., echoes Hayden's concerns about the decline of manufacturing in Maine. Though his company, which provides parts and service for industrial conveyors, lifts and other so-called material handling systems, doesn't count PNS as a major customer, it had what he calls several "good runs" with the shipyard in recent years. In the last six months, Coastal Equipment sold about $30,000 worth of parts to PNS, according to Goldstein.
Those orders will be missed, Goldstein says, but it's not an insurmountable loss. Beyond that impact, though, he wonders whether his company might see further losses from other clients who also are PNS suppliers. "The people that service those bases may buy from us," he says. "We might not only be losing the end user, we might be losing their suppliers, too. It's a waterfall effect."
Having dealt with the decline of manufacturing in Maine for years, though, Goldstein says his company has been focusing on custom equipment fabrication to help increase sales, which would help the company weather the loss of PNS.
John Hayden also has a strategy that he says would help deal with the loss of another manufacturer. C.W. Hayden has increasingly looked out of state for potential customers, and is now the largest distributor for 3M's industrial business products division in the Northeast. Recently, the company has been making more sales in Europe, taking advantage of the strong euro that makes U.S. products seem like a bargain there, says Hayden.
Looking beyond Maine's borders will be key to PNS suppliers' ability to offset their losses should the shipyard close, according to Colgan. But it won't be easy. "The real challenge will be for small businesses who operated only locally to all of a sudden ratchet up their whole geographic view of their customer base to find some new customers," says Colgan.
Limestone: Another blow to Aroostook County
Nobody expected to see the Defense Finance and Accounting Service operation at the Loring Commerce Centre on the BRAC list. But when the DOD recommended closing DFAS, Aroostook County had to consider the potential loss of 364 jobs and an anchor tenant in a facility that's still undergoing redevelopment from the 1991 BRAC round.
Though a small outfit compared to the Kittery shipyard and Brunswick air station, DFAS nevertheless has its own team of suppliers and service providers. Because DFAS performs administrative functions such as payroll processing in an office environment, those vendors include local office supply stores and copying centers, communications service providers, electrical contractors and janitorial services.
Aroostook Technologies, which provides wireless communications and security systems to commercial and residential customers, has worked with DFAS since the facility opened in 1995. Over the years, the Presque Isle company has installed and serviced security cameras, card readers and other components at the facility ˆ jobs that company president Kevin Robinson says were more lucrative than the typical commercial contract in the area.
Most recently, Aroostook Technologies received $50,000 to upgrade security cameras at DFAS. The loss of such opportunities would have an impact on his business, says Robinson. "Closing DFAS wouldn't cripple us, but having jobs worth $100,000 or so in sales and service does help," says Robinson. "Up here we need everything we can get."
What's more, despite ongoing efforts by the Loring Development Authority to attract new businesses to the site, an outfit like DFAS would be hard to replace for suppliers like Aroostook Technologies, says Robinson. As a military facility, it requires a level of security that few commercial entities do. "I just think it's preposterous to come up here and close the base, then come back and do this," says Robinson.
Like Robinson, Deanna Whitmore is surprised to find herself back on the BRAC roller coaster. Her company, LND Cleaning Service, had the contract to clean offices at Loring Air Force Base when the base was scheduled for closure. LND survived the shutdown in part by landing cleaning contracts with DFAS and the Loring Development Authority in 1995.
Today, she's less worried about the potential loss of a client. Whitmore and her partner ˆ who do most of the cleaning, along with a few part-time workers ˆ planned to retire once LND finished its current five-year contract with DFAS in 2006. But she is concerned about the potential lost opportunity for another Aroostook County business, because DFAS's long-term contracts offer greater stability and higher pay than work with typical commercial clients. "It's a good contract for any cleaning company to have," says Whitmore. "You make a nice profit ˆ more than you can taking local clients on."
Brunswick: A host of uncertainty
Despite being home to 37 aircraft, Brunswick Naval Air Station doesn't turn to local suppliers for parts and equipment. Most of those goods come from "Mother Navy," according to John James, public affairs director at BNAS. "We might as well be an aircraft carrier out off the Middle East," when it comes to getting those kinds of supplies, he says.
However, BNAS's supply chain stretches through the local service economy. The base taps Maine vendors such as wholesale food distributors, construction and engineering firms, landscaping companies and utilities ˆ anything that's needed to support what amounts to a town within a town.
The best example of that phenomenon is the base's contract with Maine Natural Gas, which supplies the heating source for the base's housing, institutional buildings and hangars. The contract with BNAS made it economically feasible for Maine Natural Gas to build a 14-mile pipeline in 2001 and begin serving the Bath-Brunswick region, says Roy Lane, manager of community relations for Maine Natural Gas. Without BNAS, there likely would be no natural gas service in Brunswick.
The base remains one of the company's largest customers, though Lane says he can't reveal details about any client's gas usage. But now, with BNAS facing a potential realignment that would transfer about half of its military personnel to Florida, Maine Natural Gas can't predict how demand might change in the future. "We really don't know what realignment will mean and what will unfold over the next few months," says Lane, adding that he doesn't expect price increases for other Maine Natural Gas customers no matter what happens at BNAS.
Such uncertainty is common among BNAS suppliers, who are struggling to determine how realignment would affect their own businesses. For example, South Portland-based architecture and engineering firm Oest Associates has worked on several major construction, maintenance and renovation jobs at BNAS over the years, including the design for the base's new $34 million hangar. Government jobs at Brunswick and other facilities have offered stability during slowdowns in the commercial construction market, says president and owner Harvey Oest, and now such contracts account for 50% of the company's business.
The company isn't just facing a potential hit in Maine, either: In January, Oest Associates won a five-year contract to provide design and engineering services to all the Navy installations in the Northeast, through the Navy's Engineering Field Activity Northeast in Pennsylvania. That facility also is targeted for closure on the BRAC list.
Those changes would mean at least 10% to 20% less work for his staff of 53, Oest estimates. But his company's work with BNAS won't entirely disappear, because even under realignment the base would need engineering and design work for ongoing repairs and maintenance.
Oest also is looking for ways to benefit from facilities targeted for expansion under BRAC. "Now that the list is out we can see what is happening and where we can make adjustments," says Oest. "The question we're asking is, 'Where is everybody going, and will there be work in new places?' So we're looking at areas such as Jacksonville [Fla.]."
The migration of military personnel particularly concerns Ben Goodall, owner of Goodall Landscaping in Brunswick. His company has performed landscape installations and ongoing maintenance at BNAS over the years; Goodall says they've been good jobs that allow him to keep a crew busy on the base for an entire day. Under BRAC, he expects demand for those services would decrease.
But he's also worried about the indirect impact of losing 2,300 people in a town of 21,000. For one thing, chain restaurants and stores near the base ˆ many of which are also his landscaping customers ˆ might not find the location attractive anymore. "There might not be as much demand for those businesses, so we might see some of them close as well," says Goodall.
With so much uncertainty surrounding BNAS's proposed realignment, some vendors find the situation worse than if the base were marked for closure. That way, says Brad Norris, at least there would be opportunities for redevelopment and potential new customers at the facility. "The Navy's not going to close it, but they're not going to spend any money there either," he says. "I think that's the worst-case scenario."
Still, at this point all scenarios are hypothetical. Business owners who work directly with the bases say they'll follow the BRAC process closely over the next several months, and be ready to position their businesses to deal with whatever the BRAC Commission decides for Kittery, Brunswick and Limestone. "The only way to handle the situation," says Oest, "is to plan for the worst and hope that a little good comes out of the process."
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