10/14/2013 — By: Crain’s Staff
By the time you read this, the U.S. government might be back up and running normally. Or not. The government shutdown was hurting many Ohio workers and employers last week — and those who talked about it were more certain of Washington’s incompetence than they were confident in its ability to resolve the problem quickly.
Among those most affected are workers and contractors tied to NASA Glenn Research Center in Brook Park, said Michael Heil, president of the nearby Ohio Aerospace Institute, or OAI.
“NASA was hit harder than any other federal agency during the shutdown — a very high percentage of their employees nationwide have been furloughed,” Mr. Heil said. “The NASA Glenn Research Center, for all intents and purposes, is totally shut down.”
That means that center’s employees, as well as its civilian contractors, are out of work until the government reopens, Mr. Heil said.
That’s about 3,000 workers, split roughly evenly between NASA employees and its contractors.
OAI, which receives federal money, also could be affected by the shutdown; Mr. Heil estimates he’ll only be able to keep about 20 of his 60 full-time staffers working beyond the end of October if it continues.
Beyond NASA, Mr. Heil said defense contractors statewide are holding their breath to see if the shutdown continues. A couple weeks more probably won’t have a catastrophic effect, Mr. Heil said, but if it goes beyond that the pain could be severe.
Not a ‘non-event’ for all
Some defense contractors already are reacting, while others say they are not yet seeing any effects.
In Akron, for example, about 100 of Lockheed Martin’s 440 local employees were furloughed as of last Monday, Oct. 7, as the company sidelined about 3,000 workers nationwide due to the shutdown.
Others have been more fortunate. In Cleveland, Voss Industries president Daniel Sedor said he’d seen no effects from the shutdown as of last Tuesday, Oct. 8. Voss produces a variety of specialized clamps and couplings that it sells to aerospace and defense contractors, as well as to othersectors.
“We have seen absolutely no pushouts on current orders, and our incoming requirements show no shift either,” Mr. Sedor said. “It’s been a non-event thus far.”
But if the shutdown continues long enough, the entire defense-related supply chain eventually will feel its effects, OAI’s Mr. Heil predicted. And so will other industries, executives say.
Jeremy Flack, president of steel service center Flack Steel Ltd. in Cleveland, said government shutdowns and impasses make purchasing executives reluctant to make commitments. That applies to the weeks leading up to situations such as the shutdown, the fiscal cliff and sequestration, he said — and it takes time to gear back up after it’s all over.
Flack Steel has seen its earnings and volume drop off after these types of events, Mr. Flack said. Just two weeks into the government shutdown, Flack Steel’s order book is soft, he said. The third quarter had been getting better, but now the company is burning through its order backlog, and there aren’t a lot of new orders to replenish it. The company’s annual revenue is about $150 million.
Dennis Meaney, business manager for the International Brotherhood of Electrical Workers Local 38, said about 60 of his union members already are out of work due to the shutdown.
“It’s not a good situation right now,” Mr. Meaney said.
Some of the affected union members had been working on the air traffic control tower at Cleveland Hopkins International Airport, a project thatis on hold because the Federal Aviation Administration inspectors aren’t on site, he said. Others were working at NASA.
Banking on a restart
Even businesses that only have a tangential relationship with the government are feeling at least frustrated with the shutdown.
Those calling the U.S. Small Business Administration’s Cleveland district office in recent days have heard a brief voicemail that concluded: “Due to a lapse in appropriations that began on Oct. 1, 2013, the office is closed.”
The closure’s impact is minimal at present, according to Craig Street, director of SBA lending for Columbus-based Huntington Bank. The “handful” of customers that are impacted are those that have completed the “closing laundry list” for an SBA loan and now must wait for the office to reopen in order to receive final SBA authorization, Mr. Street said.
Both Huntington and KeyBank have continued to originate and underwrite loans, their executives say.
“Every day that goes by is another day of waiting for businesses that are trying to obtain capital using these programs,” said John Moshier, senior vice president and national SBA manager for KeyBank. “This may deter people from even coming to the bank and trying to borrow. I hearfrom people: "Are you guys shut down, too?’”
The answer is no, but the bank is in a holding pattern as it relates to closing SBA loans, Mr. Moshier said. But, like OAI’s Mr. Heil, Mr. Moshier said if the shutdown continues, the problems will become worse.
“You start getting into a month down the road, then the backlog really becomes bigger,” he said. “Maybe you have a business that goes withoutmuch-needed working capital. That can be a lot to a small business.”
Huntington Bank actually accelerated obtaining authorization numbers in September, knowing the potential for a shutdown existed, Mr. Street said.
“That’s how we tried to mitigate the potential impact,” he said.
Healthy, but concerned
One important segment of Northeast Ohio’s economy that so far has gone unscathed is the health care sector. But that’s not to say those in thefield are not concerned.
Medicare and Medicaid payments have not been affected, but a prolonged standoff between congressional Republicans and the White House could hamper the development of medical breakthroughs.
Philip Cola, vice president for research and technology at University Hospitals Case Medical Center, said an extended shutdown eventually could cut the flow of critical grant dollars for research efforts.
“I really can’t tell you what the tipping point is and when we’re going to feel that for the first time,” Mr. Cola said.
Oct. 1 was a critical grant deadline, and Mr. Cola is aware of many physician-scientists who haven’t received confirmations that theirapplications — many of which take a year or more to complete — were accepted.
Mr. Cola stressed that it already takes a long time — decades even — for research to be translated into therapies that ultimately are commercialized for widespread use.
“A shutdown like this is only going to make that worse,” Mr. Cola said. “The effects may not be in the first eight days or so of this, but a year from now, there could be some impacts.”
(Crain’s reporters Michelle Park Lazette, Timothy Magaw, Rachel Abbey McCafferty and Dan Shingler contributed to this article.)