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Looming federal cuts big risk to small companies

By Joyce M. Rosenberg

Associated Press

Published: Wednesday, Oct. 17 2012 8:20 a.m. MDT

"A lot of these companies don't know they're dependent on federal contracts," says Stephen Fuller, a professor of public policy at George Mason in Fairfax, Va.

Fuller says small businesses would account for nearly 52 percent of the job losses expected from companies. The study forecasts that more than 157,000 jobs at federal contractors would be lost. Nearly 800,000 would be lost at subcontractors, suppliers and the retailers, wholesalers and service providers who sell to contractors or their employees. The exact number of small business federal contractors in the country isn't known, but the Small Business Administration roughly estimates the number at more than 130,000.

Small businesses won't find out on Jan. 2 whether they're losing business. The agencies themselves may not know where they're going to make the cuts, Fuller says. But he has warned in testimony to Congress that small businesses are likely to suffer more than their larger counterparts from sequestration, partly because they have less access to financing and they have fewer products and services.

Many owners who belong to small business lobbying groups are staying in close touch with group leaders, trying to get any information they can about what might happen.

"Contractors are very seasoned business owners. They get the connection more than most business owners of what policy means to their bottom lines," says Barbara Kasof, president of Women Impacting Public Policy, a Washington, D.C.-based group that advocates for women and minority business owners.

"The uncertainty in general is very hard to cope with. How do you make your business plans? How do you hire?" she says.

Although companies across the country could suffer from budget cuts, areas where there are large government facilities or clusters of federal contractors are particularly vulnerable.

"The consequences of sequestration are amplified in North Carolina given our large military footprint and the economic importance of the defense contracting industry in our state," says Sen. Kay Hagan, a Democrat who met with Schoppe, the Fuentek CEO.

Many owners are already looking at how they can cut back their business.

"You try to lower your costs of doing business on a daily basis," says Catherine Giordano, owner of Knowledge Information Solutions in Virginia Beach, Va. About 85 percent of Giordano's business is with the government. She sells high-tech hardware such as computers, printers and photocopiers to federal agencies including the Pentagon, the General Services Administration and the National Institutes of Health. The company has been a government contractor for 10 years.

Giordano has no plans to add to her staff of 44 workers — down from 50 a year ago — and she's looking for cheaper space to rent for her offices. Sequestration would be yet another blow to already challenging times. Any cuts that come in 2013 would be on top of a 25 percent drop in revenue from the government that Giordano has suffered in the past year.

Federal contracts have been vulnerable to budget cuts over the years, even when the government's deficit wasn't seen as a crisis. The White House and Congress have routinely cut funding to some programs while boosting funding to others. Giordano says she's prospecting for new business from companies and colleges and universities.

Amber Peebles' company, Athena Construction Group, has been a contractor and subcontractor on federal construction projects since 2009. She gets 85 percent of her revenue from the government doing everything from carpentry work to helping build hospitals for the Veterans Administration. She and her co-owner, Melissa Schneider, founded the Dumfries, Va.-based company nine years ago. The former Marine was wounded during Operation Desert Storm in 1991, giving her company a special status that gives it preference in winning government contracts. It's also reducing her anxiety over sequestration. Even if Peebles loses some contracts, she expects that competitive advantage to position her company to win others.

"I could go crazy trying to second-guess and prepare for what we don't know," Peebles says.

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