COLORADO SPRINGS — With a heavy concentration of military bases and defense-related businesses, it is not a matter of whether federal budget cuts will hit Colorado’s second-largest city but a matter of how hard.
However, some area business and political leaders, while bracing for economic bleeding, see an opportunity to recast the city’s economic future. Through a combination of nimble strategizing and aggressively targeting competitors for acquisition, a handful of companies operating in the shadow of Pikes Peak are hoping to position themselves and the city on a growth path.
“It is kind of one of those Charles Dickens moments: ‘It was the best of times, it was the worst of times,’ ” said Andy Merritt, chief defense-industry officer for the Colorado Springs Regional Business Alliance.
The pride of Colorado Springs has long been its robust defense industry. With the fallout from budget cuts now happening, the “worst of times” is self-evident.
- The across-the-board trimming of federal spending — ranging from 2 percent to 8 percent among programs and called sequestration — is because Congress and the White House haven’t come up with a deficit-reduction plan. The defense budget is absorbing half of the cuts.
El Paso County receives about 1 percent of the U.S. Department of Defense’s $600 billion budget — a disproportionately high percentage for a single county.
The four largest employers in the city are the military installations at Fort Carson, Peterson Air Force Base, Schriever Air Force Base and the U.S. Air Force Academy.
Thousands of civilian employees are preparing for federal furloughs while several defense and aerospace contractors have made mass layoffs after losing U.S. government contracts.
But in the midst of the discouraging news, several leaders in the Springs see an unusual opportunity afforded by the fiscal constraints.
“This is a very disruptive time. … It is a crossroads; it is a turning point in our industry,” said Jay Jesse, president of Intelligent Software Solutions in Colorado Springs. “I have a ton of optimism that we are part of the solution, not part of the problem.”
Jesse, a vocal critic of Washington’s fiscal habits, is surprisingly optimistic about this moment in time for his city.
“If you look out over the next several years — forget sequestration — we are one of the states that depends on defense and aerospace, and we are proud of that. We were propped up on that during the tough economy, and now the shoe is on the other foot,” Jesse said. “This is bad for the economy and the industry, but it could be very good for a company like ISS in the long run.”
ISS and Colorado Springs-based Braxton Technologies are not the largest defense contractors — ISS has 475 workers in the city and Braxton has 67 — but they are well-positioned to capitalize on the sequester.
“Sequestration is an opportunity for us,” said Braxton CEO Frank Backes. “The work still needs to be done; (the government) just needs to find people who are capable of doing it within the price points of the budget we have.”
Braxton specializes in delivering command-and-control capability and cybersecurity solutions at a lower cost, often bidding a fifth of the cost of its larger competitors.
Based downtown, Braxton is one of 13 companies controlled by the O’Neil Group, which has a Colorado Springs-centric vision for economic growth.
“Basically, the plan is to rebuild Colorado Springs’ economy from the ground up,” said Kenneth O’Neil, president and chief operating officer of Braxton and brother to the O’Neil Group’s co-founder. “It doesn’t have to be large businesses or small businesses — it is basically what is available and what makes sense for the community.”
While many contractors are trying to minimize the money hemorrhage, Braxton plans to acquire as many defense and aerospace companies over the next several years as it can and relocate their headquarters to Colorado Springs.
“Our belief is that you have to start with a solid urban downtown,” Backes said. “Our goal is to partially offset (the losses of sequestration) by acquiring companies.”
While the mission is exciting, it does little to comfort Brian Mills, a recent victim of a mass layoff at Fort Carson Support Services. Mills is looking to move to Kuwait with his wife if he can get a supply-and-maintenance job at a U.S. military camp.
“I’m 53 years old this year. I’ve already done my 20 years in the desert, so I don’t really want to go to another country, but I got to take care of my family,” Mills said.
The International Brotherhood of Electrical Workers provides union representation and job-training support to the men and women losing their jobs at the base. Brian Bradley, IBEW Local 113 organizer, said there aren’t enough jobs in Colorado Springs available for these laid-off workers to fill.
This is the great tension in Colorado Springs: looking forward to a more sustainable future while recognizing that the economy still depends on the services and wages of the workforce now threatened.
“It is not just optimism, and it is not just pessimism. There is some short-term pain; some small companies will shut down and never open up again,” said Jesse, of ISS. “Some of them never should have been open — they were bolstered by a large defense budget.”
Backes and O’Neil recognize they are in a unique position. Several factors aligned to make for a plentiful harvest for Braxton. The company has at least three acquisition deals in the works, with its first official purchase announcement expected Tuesday.
First, Backes said, most small- and medium-sized businesses are currently owned and operated by baby boomers wanting to retire. Second, the difficult economy of the last five years has already distressed many companies. Third, there is the sequester.
“Growth through acquisition is a focus of ours because growth through contract growth is probably not going to happen for at least four more years,” O’Neil said.
Braxton’s leadership says the old way of doing military contracting — slower and costly — is a thing of the past.
“The driving factor behind why we are less expensive is that we are reusing systems over and over and over again in our deployments,” Backes said. “Being able to reuse those is what saves the government a tremendous amount of money.”
Backes, O’Neil and Jesse advocate for a paradigm shift — cheaper, faster, leaner operations — while respecting their fellow Colorado Springs defense contractors that built the local industry on a more expensive, service-based model.
“All the brand names have been optimized to go after those billion-dollar jobs and built their companies around them, and that was a great decision on their part — to build around the bureaucracies,” Jesse said. “They made all the right decisions and they benefited for decades, but they are not in the right place now.”
ISS is not immune to sequestration. The company lost a contract and recently had to lay off 48 workers. Jesse said it was difficult, but that the company is what he calls the “new kind of defense contractor.”
“You still have to be very savvy in the defense sector, you have to have a lot of expertise, but you have to do it in a very cost-effective way,” Jesse said.
These business leaders are trying to enlist others in the region.
“I think that their approach reflects exactly what the state is trying to do across (Colorado), but particularly in the aerospace sector, and that is to leverage our assets to a much more pro-active approach,” said Ken Lund, executive director for the Colorado Office of Economic Development and International Trade.
Braxton executives have been bending the ear of Colorado Springs City Council members, too. Brandy Williams, who is wrapping up her term as a member, sees Braxton’s approach as vital to the city’s success.
“We are really dependent on the military, and that is not something you can control. (O’Neil and Backes) are really delivering a message of taking control of our own destiny,” Williams said. “We have been saying it for quite a while, and, for better or worse, this is really going to be a catalyst and tipping point.”
O’Neil presented a unique thought with his sequestration silver-lining theory that is often overlooked: If the government downsizes, focusing its efforts on critical missions and military functions, it is more likely to consolidate efforts at core locations such as Colorado Springs.
“Not only do the bases and the commanders look to consolidate here, but I also think that these medium and large companies that are not headquartered here also see it as a haven of sorts,” O’Neil said.
In the last six months, numerous out-of-state contractors have reached out to Braxton to suggest possible partnerships.
“Everyone says, ‘Hey, Colorado Springs is going to get theirs, so let’s jump in there and see what we can do together,’ ” O’Neil said. “So, not only is it a haven, it has become a focus.”
Approximate percentage of the U.S. Department of Defense’s $600 billion budget that goes to El Paso County — a disproportionately high percentage for a single county
4 – Number of military installations — Fort Carson, Peterson Air Force Base, Schriever Air Force Base and U.S. Air Force Academy — in Colorado Springs, and they are the city’s largest employers