Business of the military: Base impact

Military presence means thousands of jobs, billions of dollars, business growth

Thousands of cars and trucks travel Cumberland County’s Carlisle Pike every day, and a great many line up to move through the gates of Naval Support Activity Mechanicsburg. The inland Navy base established in 1942 is tucked away behind the pike’s strip malls and fast-food restaurants in Hampden Township.

Regional position

“There would be a significant impact if the kind of work we do here in Mechanicsburg were transferred to another region of the country,” said William Livage, director of the Navy human resources office at the base.

Livage is NSA Mechanicsburg’s top civilian official and oversees the base’s government employees under the Navy and Defense departments. Most of the workers live within a 40-mile radius of the base and primarily in the greater Harrisburg metro area, including Cumberland, Dauphin, Lebanon, Perry, Schuylkill and York counties, he said.

Supplying the Navy takes a lot of people — 4,476 — and has a total direct economic impact of more than $465 million in contracts and local payroll. Include indirect payroll and spending: the impact is at least $800 million in a six-county region.

That makes the base one of the largest economic forces in Central Pennsylvania and beyond, particularly when you consider that purchasing done by commands at the base reaches into the billions of dollars. The numbers place the base at the top of the Central Penn Business Journal’s list of distribution centers in a five-county region and make it one of the largest employers in the midstate.

If the base is counted separately from the U.S. government, it is No. 12 on the Business Journal’s list of largest employers, about 100 workers more than Switzerland-based electronics manufacturer TE Connectivity Ltd. — formerly known as Tyco Electronics — which has U.S. engineering and administrative offices in Dauphin County; and the facility has about 600 fewer people than Harrisburg-based hospital owner Pinnacle Health System.

People and payroll

The largest contributing factor to NSA Mechanicsburg’s impact on the local economy and business is the people who work there, including the 3,448 civilian government employees.

If one adds in 157 civilian employees and interns at self-sustaining operations on the base such as the travel agency, and 719 private contractors, that makes nonmilitary workers at the base 97 percent of total employment.

“We’re a quality employer for this region,” said Capt. James W. Smart, the installation’s commanding officer. “And we’re a preferred employer because of all the amenities that we have.”

In fiscal year 2009, the most recent year for which the base had statistics, NSA Mechanicsburg’s payroll was $328 million, Smart said.

The payroll alone has a large influence on the economy, considering the number of people who spend that money on homes, vehicles, appliances, groceries, medicine and all the other things people need or want to buy.

Some of the most widely used ways to gauge that money’s reach are regional impact models, or RIMs, which calculate that every dollar in earnings generates about 66 percent more earnings in the community, said William Bellinger, an economics professor at Dickinson College in Carlisle.

A similar 2004 study of the U.S. War College in Carlisle found that direct earnings from the school that educates select civilian and military leaders amounted to $96 million across a six-county region, Bellinger said. Secondary earnings in the community were $62 million, for a total of $158 million.

If you apply the same model to NSA Mechanicsburg, the base’s payroll generates more than $216 million in payroll at grocery stores, pharmacies, auto mechanics, restaurants and other retail and service businesses in the midstate. The total payroll impact would be
$544 million.

“(More than) 4,300 people buying $100 of groceries just once a week is a lot of money,” said Ed Messner, former president of the West Shore Chamber of Commerce. “It’s really a stabilizing factor in the local economy.”

Messner, who retired from the chamber in 2009, was part of community efforts over the past two decades to keep the base from being closed as part of changes to military organization through the Base Realignment and Closure Commission, or BRAC.

Business of payroll

NSA Mechanicsburg payroll not only helps individuals working there and retail operations that sell to the public, it also supports businesses, starts new ones and finances others. Members 1st Federal Credit Union, which has a base branch, is a good example of how that happens.

Members 1st was started on the base as NSD Mechanicsburg Federal Credit Union, President and CEO Bob Marquette said. In May 1950, nine base workers each contributed $5 to start the credit union to lend money to other workers at the base, he said.

Over time, more workers and retirees from the base, and their family members, opened accounts with the credit union. In 1982, the National Credit Union Administration began allowing credit unions to serve employees of more than one company. Members 1st followed suit.

“The Navy depot was a large employer and a stable employer, which helped us fuel our success and growth,” Marquette said.

Today, current and former base employees and their families represent 12.4 percent of the credit union’s total 186,415 members, he said. Base-associated members account for $429 million in deposits with the company, or 24 percent of its total deposit sheet, he said. Loans to those members are 11.5 percent of the credit union’s total worth more than $1.4 billion, he said.

If there’s any doubt that the base’s trickle-down effect helps the business community, consider that a quarter of all Members 1st loans — about $350 million — are business loans to local companies that use them to expand, add equipment, buy materials and maintain facilities, Marquette said.

“Our credit union helps consumers with their financial and purchasing needs,” he said, “but it also helps businesses add jobs.”

Contractual obligations

The base also spent $137 million on contracts last year, Smart said.

Companies in the midstate and beyond are the direct and indirect beneficiaries of that money and of doing business with the Navy through the base.

However, finding the money spent locally can require an exhaustive search of records because a lot of the contracting is handled by the 35 individual commands on the base, said Michael Randazzo, a spokesman for the base and his counterparts at the individual commands. At times, contracting is handled by the headquarters of those commands elsewhere in the Department of Defense.

The four largest commands on the base representing most of the workforce and contracts are:

  • Naval Facilities Engineering Command, the base’s public works department.
  • Naval Supply Systems Command, which buys many of the Navy’s supplies.
  • Navy Supply Information Systems Activity, which purchases and manages information technology, computers, servers and other tech equipment.
  • Naval Inventory Control Point, which is responsible for the warehousing and logistics operations on the base.

Naval Inventory Control Point has a $1.35 billion budget to purchase supplies for the Navy, said Debra Dortch, a command spokeswoman. Whether from local companies or others around the country, that’s money that will bolster business, she said.

The command’s largest Pennsylvania contract is worth more than $10.3 million, with Chester County-based Alloy Surfaces Co., Dortch said. The company makes air and naval countermeasures, such as flares, that help military vehicles escape enemy weapons.
Some of the midstate’s largest companies, such as electronics manufacturer TE Connectivity, sell to the Navy directly or through contractors building military vehicles and equipment, spokesman Michael Ratcliff said.

It’s likely NSA Mechanicsburg stores and distributes TE Connectivity repair parts for naval electronics, he said, but he could not confirm that. The company does not release financial data below the segment level.

TE Connectivity had net sales to the aerospace, defense and marine segment of $619.6 million, or about 40 percent of the company’s $1.5 billion specialty products sales, according to its year-end filing with the U.S. Securities and Exchange Commission.

There’s another local business perspective from Naval Facilities command.

“Physically, we don’t have a huge footprint on the base, but we touch everything on the base,” said Thomas A. Kreidel, the command’s public affairs officer.

It spent $38.7 million just maintaining the base in fiscal year 2010, he said. Forty-four percent of those contracts, or $17 million, was awarded to companies within 100 miles of the base. Of the rest of the contracts, an estimated $10 million goes to local subcontractors, he said.

Spending from a base has a similar economic multiplier as that for payroll, Dickinson College’s Bellinger said. With the War College study, secondary spending was about 87 percent of primary spending, he said.

If you apply that to Naval Facilities contracts, its secondary spending — or the money companies spend on supplies, materials and other necessities — in the midstate is about $23.5 million for total spending of $62.2 million.

Do the same math for base contracts and total spending jumps to more than $256 million. Even if it’s indirect spending, local companies benefit.

Allan Bender, regional manager for Bentley World Packaging Ltd. in Shippensburg, said his company relies on the military for about 90 percent of its Pennsylvania work. The Milwaukee-based company does about 60 percent of its national packaging, crating and palette work with the military, he said.

With locations in Chambersburg and Shippensburg, the company is clearly a beneficiary of its proximity — only 48 miles and 36 miles, respectively — to the midstate’s bases. Most of the company’s work goes to the Defense Distribution Center Susquehanna in Fairview Township, York County, but the company also ships to NSA Mechanicsburg, Bender said.

“That’s a piece that our customers look at: what’s our proximity to (the bases),” he said. “If they can ship it here for packaging, then they can save on shipping costs to the bases.”

The company’s Chambersburg and Shippensburg locations employ 35 people on a regular basis, but for large contracts it increases payroll to 60 people, Bender said. In 2010, the midstate operations had sales of $4 million, he said. That involves receiving parts shipped in bulk for the military and repackaging them before shipping to the bases.

Lean warehousing

NSA Mechanicsburg today has a smaller workforce than at one time due to BRAC cuts over the past two decades, said Livage, who’s worked at the base since 1983. That year about 8,000 people worked there, he said.

The base’s employment was halved through BRAC rounds from 1988 to 1995. Congress and President Bill Clinton cut the military dramatically in the 1990s as part of balancing the federal budget. In 2005, the commission recommended to President George W. Bush that NSA Mechanicsburg’s civilian workforce be reduced by 11 people, according to BRAC documents.

The commission recommended the next round of cuts should begin in 2015 following the Defense Department’s 2013 operations review, according to BRAC documents.

The NSA Mechanicsburg workforce reductions have partly been due to the reduced size of the Navy fleet, Livage said. But an even more significant development over the last 20 years is the speed and efficiency of technology, he said. It just doesn’t take as many people to procure, track, move and store products anymore.

“The work that used to be done by hand at a dumb terminal is now done using the Internet,” he said.

Central Pennsylvania companies help make those processes more efficient.

Momentum Inc., a Cumberland County-based business and technology consulting firm, is involved with technical support for IT development and logistical operations at NSA Mechanicsburg, Vice President Bryan Kefer said. The company does a lot of bookends for IT development, such as determining project requirements, testing and training users on new software, he said.

Work with the base is about 25 percent of Momentum’s business, he said. He declined to release financial information.

“Momentum got into that area several years ago,” Kefer said, “which has provided new opportunities in addition to our work with the state and commercial sectors.”

There are many IT and technology companies that work with the military bases because it’s such a large part of its operations, said Tom Johnstin, general manager of Computer Aid Inc.‘s federal systems division. The Allentown company has an office in Dauphin County. It works on applications support, development, network planning and consulting at NSA Mechanicsburg.

Computer Aid’s Harrisburg region is the company’s largest because of the state, federal, military and commercial work available here, he said.

While NSA Mechanicsburg is important to the company’s bottom line, the underlying importance of the work goes beyond one company or region, he said.

“I like to look at it as it’s all in support of the war fighter,” Johnstin said.

Jim T. Ryan

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