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Military Spending

The reach of military dollars in Hawaii is far greater than you think. But can it protect us from a recession?

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military spending statistics

The above calculations are based on a 2002 state study that estimated every $1 billion in military spending in Hawaii creates $1.6 billion in total sales, $967 million in wages and 18,377 jobs. The most recent numbers available for military expenditures in Hawaii are from 2006 and list the annual total at $6.1 billion.

Now think of the military as one massive company with more than 70,000 employees in Hawaii. Some military business can be done in-house, but a lot of it has to be contracted out, and that means opportunities for local businesses. For example, Environmental Science International, Inc. (ESI) is a full-service environmental consulting and remediation firm, or, in layman’s terms, “We’re digging up and studying how to clean up and how to prevent contamination,” says President Ernest Shih.

Shih says about 45 percent of its $5.5 million annual revenue comes from military contracts. Current work includes environmental assessments for new military housing, which is done before the DoD transfers the property to private developers. In fact, the U.S. Small Business Administration recently recognized ESI as the 2008 Region IX Prime Contractor of the Year. Prime contractors are companies that have a contract directly with the owner, in this case, the federal government. The award honors these kinds of businesses in Hawaii, California, Arizona, Nevada and Guam.

Shih says military contracts are also dependable revenue streams. Because federal projects are contracted years in advance, it helps in long-term planning and keeping a steady backlog for future work, he says. It also gives them opportunities to work at places where they wouldn’t normally work, including Superfund sites. (Superfund is the U.S. Environmental Protection Agency’s program to clean up some of the nation’s most hazardous waste sites.) “Having that exposure to that kind of work sharpens our skills so we can compete with the Mainland companies,” he says.

“The military, they want to try doing things in different ways and usually they’re the first to adapt certain trends in investigation, so we get more experience,” Shih says.

But then there are basic services. Take food. The military certainly has a lot of mouths to feed. Y. Hata & Co. Ltd. supplies many of the state’s restaurants with food and products, and it supplies every branch of the military based in Hawaii as well. “We consider them a great partner,” says Laurence Vogel, president and CEO. He says the contracts account for $10 million annually.

However, in terms of dollars spent, the military consumes more oil than anything else. According to the DoD, Tesoro Petroleum Corp. received the largest dollar volume of prime contract awards, or direct contracts, in Hawaii for FY 2006. With a contract amount near $255 million, it makes up 13 percent of the total dollar amount of all prime contracts in the state.

The next largest federal contractor in the state is the defense and aerospace company BAE Systems ($83.5 million). Other contractors on the top 10 list include Weeks Marine Inc. ($53 million), parent company of marine construction specialist Healy Tibbitts Builders; Nan Inc. ($50.5 million), which is renovating soldiers’ barracks at Schofield Barracks; and Hawaiian Electric Industries ($48.9 million), which is the parent company of Hawaiian Electric Co.

For local companies, good opportunities also lie in military construction. A sizeable portion of the procurement contract pie is appropriated as MILCON (Military Construction) projects. Many of Hawaii’s military bases have had minimal upgrades since World War II. However, new military technology means upgrades need to be made. For example, Pearl Harbor Naval Shipyard will receive three new Virginia-class submarines starting in 2009. To accommodate these subs, many of the dry docks at Pearl Harbor are being renovated and modernized. The same goes for ongoing construction work related to Stryker training areas and the arrival of F-22 fighter jets.

Related to military spending but not included in DoD expenditures are ongoing privatized military housing initiatives on bases across Oahu. Through the Military Privatization Act, private developers finance, build, maintain and manage housing projects on military bases for a 50-year period. In turn, the military provides the land (on their bases) and in a way provides the tenants and funding. Through the Basic Allowance for Housing (BAH), the military is essentially paying its personnel to pay for its rent on its bases.

Hawaii Business magazine invites you to comment on our articles and the issues they raise. Comments are moderated for offensive language, commercial messages and off-topic posts and may be deleted. Some comments may be chosen for inclusion in the magazine on the Feedback page.

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Jun 5, 2008 09:45 pm
 Posted by  gmathol

I don't think that the military bacon works as described in this articles. Think what you have to spent on infrastructure such as streets and also schools.
Most of the contracts go to the mainland anyway.

This has been flagged
Oct 12, 2008 03:56 am
 Posted by  mktggurl

anyone check to see Hoana Medical's revenue per year? or is it an idea that sounds good? When will they raise Series F of private funding under Act 221?

Come on now...an IPO for hospital sensing beds...is that revenue ramp possible.....:)

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