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This electronic copy is for Internal Military use and is not authorized for distribution outside official Navy and Marine Corps Channels. This report is public information and can be purchased by anyone at: http://www.sdmac.org/MilitaryStudies.aspx

5th Annual

MILITARY ECONOMIC IMPACT STUDY San Diego Region 2013


5th Annual SDMAC Military Economic Impact Study | San Diego Region | 2013

Copies of this report may be obtained by visiting the San Diego Military Advisory Council website at: www.SDMAC.org

Copyright Š 2013 by the San Diego Military Advisory Council. All rights reserved.

The material in this report includes forecasts and projections and may, in some instances, be judgmental in nature. PLNU, The Fermanian Business & Economic Institute, and the San Diego Military Advisory Council disclaim any and all liability from the use of this material. Publication or distribution of any portion of this document is prohibited without the express approval of the San Diego Military Advisory Council.

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5th Annual SDMAC Military Economic Impact Study | San Diego Region | 2013

About the San Diego Military Advisory Council (SDMAC) Mission SDMAC is a nonprofit mutual benefit corporation, whose mission is to support, promote, and represent the common business and other interests of the military, their quality of life issues, and the defense industry community in the San Diego area.

Membership SDMAC’s current membership is comprised of 140 corporate members and approximately 250 individual members across the San Diego region. For general information and membership details, go to www.sdmac.org

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5th Annual SDMAC Military Economic Impact Study | San Diego Region | 2013

LETTER FROM THE SDMAC PRESIDENT September 2013 Fellow SDMAC Members and Supporters, The San Diego Military Advisory Council (SDMAC) is proud to present the 5th Annual 2013 SDMAC Military Economic Impact Study (MEIS). This study highlights the mutually beneficial relationship and the significant economic impact that exists between the military and the San Diego region. This year’s study marks the fifth edition since SDMAC first documented the military economic impact in the San Diego region in 2008. San Diego is home to the largest concentration of military forces in the world and represents a vital strategic value to our country. The region plays an even more invaluable role in the National Defense Strategy as the “Pivot to the Pacific” emerges. San Diego is home port to over 60 percent of the ships of the U.S. Pacific Fleet and over one-third of the combat power of the U.S. Marine Corps. There are over 100,000 active-duty Navy and Marine Corps personnel assigned to the ships and bases in the San Diego region and approximately 25,000 Department of Defense civilian employees. The unique relationship between the military and the San Diego region exists nowhere else in the country. The presence of Department of Defense (DoD) facilities, personnel, and equipment generates a significant economic impact on the San Diego region that far outpaces other industries in the area. The 5th Annual SDMAC MEIS provides several new innovations, including the economic impact of individual Navy ship classes, and demographic information on where San Diego’s active duty, retired military, and retired DOD civilians live in our region. The study also includes an update on the region’s military installations and commands. SDMAC has once again engaged the Fermanian Business and Economic Institute of Point Loma Nazarene University to produce the study. The Budget Control Act of 2011 imposed automatic cuts to the 2013 Budget which took effect on March 1, 2013. These cuts imposed via sequestration were preceded by a six-month Continuing Resolution, (CR). These combined actions resulted in a disruptive and unpredictable budget cycle for the Department of Defense and introduced great uncertainty into DoD spending in the San Diego region. This uncertainty severely impacted the ability of the DoD agencies for fiscal planning, which further translated into great uncertainty for the companies, facilities, and agencies in the region whose primary customer is the DoD. Although the short-term and long-term impact of the CR and sequestration are yet to be determined, the 5th Annual SDMAC MEIS incorporates the emerging trend toward declining DoD spending and its impact on the number of jobs and the multiplier effect attributable to DoD dollars in the region. I would like to extend our deepest appreciation to: Rear Admiral Patrick Lorge USN Commander Navy Region Southwest (and his predecessor Rear Admiral Dixon Smith, USN); Brigadier General John W. Bullard USMC, Commanding General Marine Corps Installations West (and his predecessor Brigadier General Vincent Coglianese, USMC); Rear Admiral Patrick Brady, USN, Commander SPAWAR, Rear Admiral Forrest Faison III, MC, USN, Commander Navy Medicine West; and, Brigadier General James Bierman, USMC, Commanding General Marine Corps Recruit Depot San Diego (and his predecessor Brigadier General Daniel Yoo, USMC). These outstanding officers and their staffs provided support to our research team throughout this effort. We thank them for their leadership, insight and contributions to this study. Sincerely,

Earl Wederbrook SDMAC President 2013

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5th Annual SDMAC Military Economic Impact Study | San Diego Region | 2013

LETTER TO THE READER September 2013 Members and Supporters of SDMAC, Point Loma Nazarene University’s Fermanian Business & Economic Institute is pleased to present this research and analysis of the military’s economic impact upon the San Diego Region. Through PLNU’s partnership with SDMAC, the results of this 2013 research extend the multi-year perspective of the military’s significant economic influence on San Diego County. Within the broader context of sequestration, San Diego remains an essential locational asset in the military’s shift toward Asia. With planned deployments in the Pacific Fleet of new and additional ships, the continued footprint of nearly 140,000 active-duty and civilian personnel, together with the generated business activity resulting from the military’s presence, the influence upon the region’s current and future economy remains significant. The 2013 study presents our findings regarding the economic impact of the military’s presence in the San Diego Region. As a key component of the regional economy, the size and significance of the military’s economic presence continues to reflect the strategic importance and mutual benefit that exists between the military and the region. This year’s report presents for the first time an analysis of the economic impact by ship class. This work was supported significantly by research conducted by one of PLNU’s MBA students in his thesis. We believe this underscores both the strength of our business and economics research team and the ability of our graduate students to conduct cutting-edge work. Every effort has been made to carefully collect, analyze, and present our research in a format that is straightforward and accessible for decision-making purposes in our commitment to produce “actionable economics.” On behalf of PLNU’s Fermanian Business & Economic Institute, Chief Economist, Dr. Lynn Reaser, Associate Dean Randy Ataide, and Director Ms. Cathy Gallagher, we are pleased to present to the San Diego Military Advisory Council this 2013 research report for your consideration and use. Positively,

Bob Brower, Ph.D. President

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5th Annual SDMAC Military Economic Impact Study | San Diego Region | 2013

DEDICATION The SDMAC Military Economic Impact Study was first dedicated last year to the memory of John Nersesian, SDMAC President 2009 and long-term SDMAC Board Member who left us on May 29, 2012. It was John’s vision that recognized the need to quantify and document the military’s many contributions to the San Diego region, and it was his initiative, drive, and encouragement that were the forces that resulted in the San Diego Military Advisory Council producing the annual Military Economic Impact Study. John was a patriot and a great supporter of the military and their families. His contributions to the military’s mission and improving the quality of life for the military and their families in the San Diego area were truly significant, and are his legacy.

John Nersesian SDMAC President 2009 (Nov. 1942–May 2012)

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5th Annual SDMAC Military Economic Impact Study | San Diego Region | 2013

ACKNOWLEDGEMENTS SDMAC would like to thank the following individuals who were key players in the preparation of this report:

Military Jason Ashman Business Analyst Navy Region Southwest N55

Jerry Avila Business Analyst Navy Region Southwest N55

Chris Haley External Liaison Navy Region Southwest N00E

Maj. Khieem Jackson Legislative Affairs MCI West

San Diego Military Advisory Council (SDMAC) 5th Annual SDMAC Military Economic Impact Study (SDMAC MEIS) Oversight Group Larry Blumberg, CAPT, USN (Ret.) SDMAC Executive Director

Terry Magee, CAPT, USN (Ret.) SDMAC President 2008 Board Member and Co-Chair of SDMAC MEIS Oversight Group

Annette Peck, J.D. SDMAC Treasurer Board Member and CoChair of SDMAC MEIS Oversight Group

Fermanian Business & Economic Institute (FBEI) Staff Randy M. Ataide, J.D. Associate Dean for Business & Economic Development

Lynn Reaser Chief Economist

Cathy L. Gallagher Director

Jenny Ross Assistant Director

Cameron A. Foltz Assistant

Peggy Crane Economist

Mark Undesser Economic Analyst

Dieter Mauerman Business & Economic Research Associate

Special thanks to the entire FBEI student staff for their assistance. > Luke Hoover > Kristen Raney > Jacy Romero

> Taylor Roy

The FBEI would like to recognize two outstanding individuals for their contributions to the 2013 SDMEIS: PLNU MBA Jose Neto, Contract Specialist, U.S. Navy, whose thesis, "The Economic Impact of Navy Ships on the San Diego Region: An Analysis of How the Presence of Navy Ships Affects the San Diego Economy�, had timely and relevant information pertaining to our study and Evan Hoffman, senior Economics major at Old Dominion University, who conducted detailed research and analysis. The Fermanian Business & Economic Institute (FBEI) is a strategic unit of Point Loma Nazarene University that specializes in expert business and economic consulting, commentary, speeches, studies, research, and related services. The FBEI also provides the San Diego region with economic forecasting events, business and economic roundtables, and special projects. The FBEI represents the academic standards of the university by maintaining an objective approach and has a reputation for authoritative and objective insight regarding issues of business, economics, and policy facing our region.

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5th Annual SDMAC Military Economic Impact Study | San Diego Region | 2013

SPECIAL THANKS SDMAC wishes to thank the following governmental entities and San Diego City Council members for their financial support in producing this study:

The City of Coronado

The County of San Diego

San Diego City Council Members: Todd Gloria, Kevin Faulconer, Lorie Zapf and David Alvarez

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5th Annual SDMAC Military Economic Impact Study | San Diego Region | 2013

SPONSORS Sponsors   SDMAC would like to thank the following companies and organizations for their generous support in SDMAC   would  tolike   to  tthis hank   the   following   companies   and   organizations   for  Study their  gpossible. enerous  support  in  helping  to   helping make 5th Annual SDMAC Military Economic Impact th make  the  5  Annual  SDMAC  Military  Economic  Impact  Study  possible.                        

           

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5th Annual SDMAC Military Economic Impact Study | San Diego Region | 2013

TABLE OF CONTENTS INDEX OF EXHIBITS xi LIST OF ACRONYMS xiii EXECUTIVE SUMMARY 14 STUDY PURPOSE, SCOPE, AND REVISIONS 17 Overview 17

Data Revisions 17

SECTION I: THE ECONOMIC IMPACT 19

The Military’s Footprint in San Diego 19 Mapping the Channels of Defense Spending in San Diego 22 Tracing the Ripple Effects of Defense Dollars 28 Large San Diego Impact in 2013 29 The Effects of Sequestration 30 More Cuts in National Defense Spending Ahead 31 Defense Spending and San Diego in 2014 32 Conclusions 35 Methodology 36

SECTION II: THE IMPACT OF THE NAVY’S SHIPS ON SAN DIEGO

The Fleet’s Structure Ships and People Ships and Dollars Charting the Ripple Effects and Total Economic Impact Conclusions Ship Analysis Methodology

Navy & Marine Corps Installations America’s Navy: “A Global Force for Good” - Executing from San Diego Major Commands Running the Navy from San Diego Marine Corps Installations West Conclusion - The Mutual Benefits of the Military in San Diego

SECTION III: SAN DIEGO MILITARY HISTORY - MAKING A GLOBAL IMPACT

x

40

40 43 44 44 46 46

48

50 51 54 60 67


5th Annual SDMAC Military Economic Impact Study | San Diego Region | 2013

INDEX OF EXHIBITS Exhibit 1

Defense Funds Flow to San Diego Through Different Channels

19

Exhibit 2

Military Directly Employs About 139,000

20

Exhibit 3

Active Duty and DoD Civilians Dispersed Across Various Facilities

20

Exhibit 4

Military Employees Reside Across San Diego

22

Exhibit 5

Defense Dollars Feed Directly into San Diego Region’s Economy

23

Exhibit 6

Military Has Nearly $9 Billion Payroll in San Diego

23

Exhibit 7

Housing Benefits Represent 1/4 of Active Duty Compensation

24

Exhibit 8

Benefit Payments of $3 Billion Support Retirees and Veterans

24

Exhibit 9

Shipbuilding, Aircraft, and Engineering Lead San Diego’s Defense Contracting

25

Exhibit 10

Defense Contracts Bolster San Diego Companies

25

Exhibit 11

Procurement Contracts Disbursed over Time

26

Exhibit 12

Many San Diego Firms Gain from Military’s Credit Card Purchases

26

Exhibit 13

San Diego’s Military Presence Draws Tourist Dollars

27

Exhibit 14

Defense Spending Causes Ripples in San Diego’s Job Market

28

Exhibit 15

Defense Sector is Prime Income Generator for San Diego

28

Exhibit 16

Military Makes Large Contribution to San Diego’s Gross Regional Product

28

Exhibit 17

The Military Remains Key San Diego Driver for 2013 29

Exhibit 18

Military Responsible for 22% of All San Diego Jobs

29

Exhibit 19

Military’s Impact Creates Jobs in Many San Diego Industries

30

Exhibit 20

Jobless Rate Would Be Lower if Military Were Included

30

Exhibit 21

Defense Spending Plays Major Role in San Diego’s Economy

31

Exhibit 22

DoD Sees Falling Budget

32

Exhibit 23

Defense Spending’s Share of U.S. GDP Shrinks

32

Exhibit 24

Military Spending to Dip Slightly in San Diego

34

Exhibit 25

Previous Contracts to Buffer Procurement Spending

34

Exhibit 26

San Diego’s Military Employment to Ease Modestly

34

Exhibit 27

53 Ships Based in San Diego, Led by Destroyers

43

Exhibit 28

Aircraft Carriers Each Employ Over 3,000 People

43

Exhibit 29

San Diego Ships Employ 24,000 Sailors

43

Exhibit 30

Ship Spending Totals $2.4 Billion

44

Exhibit 31

Aircraft Carriers Generate $500 Million Each for San Diego

45

Exhibit 32

San Diego Ships Bring $4.0 Billion to Region

45

Exhibit 33

Destroyers and Aircraft Carriers Lead Ship Economic Contributions

45

Exhibit 34

Ships Bring Jobs and Income to San Diego

46

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5th Annual SDMAC Military Economic Impact Study | San Diego Region | 2013

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5th Annual SDMAC Military Economic Impact Study | San Diego Region | 2013

LIST OF ACRONYMS ACSP C&D CALFIRE CBO CFFR CNRSW CRADA DECA DMDC DoD DoL DoN EMS FBEI FPDS FEDFIRE FIRST FRCSW FY GPC LEED MAG MAW MCAS MCB MCRD MCI MHPI NAB NAICS NASNI NAVSUP FLC NBC NBPL NBSD NMAWC NOSC NEX NMCSD NRSW NWS OMB RDTA&E SCEP SDPTA SPAWAR STEM STEP TSC VA

Audubon Cooperative Sanctuary Program Construction and Demolition California Department of Forestry and Fire Protection Congressional Budget Office Consolidated Federal Funds Report Commander, Navy Region Southwest Cooperative Research and Development Agreement Defense Commissary Agency Defense Management Data Center Department of Defense Department of Labor Department of Navy Environmental Management System Fermanian Business & Economic Institute Federal Procurement Data System - Next Generation San Diego Federal and Metro Fire and Emergency Services For Inspiration and Recognition of Science and Technology Fleet Readiness Center Southwest Fiscal Year (Oct. 1 - Sept. 30.) Government Purchase Card Leadership in Energy and Environmental Design Marine Aircraft Group Marine Air Wing Marine Corps Air Station Marine Corps Base Marine Corps Recruit Depot Marine Corps Installations Military Housing Privatization Initiative Naval Amphibious Base North American Industry Classification System Naval Air Station North Island Naval Supply Systems Command Fleet Logistics Center Naval Base Coronado Naval Base Point Loma Naval Base San Diego Naval Mine and Anti-Submarine Warfare Command Naval Operations Support Center Naval Exchange Service Command Naval Medical Center San Diego Navy Region Southwest Naval Weapons Station Office of Management and Budget Research, Development, Test, Acquisition, and Evaluation Student Career Employment Program San Diego Port Tenants Association Space and Naval Warfare Systems Command Science, Technology, Engineering, and Mathematics Student Temporary Employment Program Training Support Center Department of Veterans Affairs

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5th Annual SDMAC Military Economic Impact Study | San Diego Region | 2013

EXECUTIVE SUMMARY

San Diego’s military community and defense cluster remain San Diego’s most important economic driver, creating large numbers of jobs and income for the region. Changes in global security risks and domestic budget pressures present both challenges and opportunities. This report documents the current impact of overall defense spending in the San Diego Region, the specific contribution of the Military Forces situated here, and the prospects for the year ahead.

Defense spending and strategy could be at a tipping or inflection point and San Diego’s future will be affected greatly by the outcome. How much will the defense budget be cut? How will the decision between maintaining a higher level of troop strength versus a smaller, more technically equipped one, play out? How severe will security risks in the Asia-Pacific region become? What will be the actual outcome and implications for the region of the DoD’s Pivot to the Pacific strategy? These are just some of the issues that make understanding the military’s role in the region so vital.

> An estimated total of $24.6 billion in direct spending related to defense has been sent to San Diego County during fiscal 2013, an amount equal to about $7,800 for each of the County’s residents. > The military sector is responsible for about 302,000 of the region’s total jobs in 2013 after accounting for all of the ripple effects of defense spending. This represents approximately 22% of all of the jobs existing in the County. > The jobs created as a result of defense spending span a wide range, including engineering, food services, construction, shipbuilding, health care, real estate, research, and tourism. > San Diego’s unemployment rate would be about one-half percentage point lower than the number reported by the U.S. Bureau of Labor Statistics if Navy and Marine Corps personnel were included. > Defense-related activities and spending will generate an estimated $32.2 billion of gross regional product (GRP) for San Diego County in fiscal 2013. This represents a volume of economic activity similar to the gross regional products of El Paso, Texas, or Akron, Ohio. > Dollars linked to national security enter San Diego through three primary channels: wages and benefits for active duty and civilian workers; spending on contracts, grants, small purchases, and tourism from family members and friends visiting the military; and benefits for retirees and veterans. > Each defense-related dollar entering San Diego generates additional jobs, income, and output as orders feed through the supply chain and workers employed throughout that chain spend some of their resulting incomes on the region’s goods and services. > The Navy’s ship fleet based in San Diego is responsible for about 12% of the total economic contribution made directly and indirectly from overall defense-related spending in the region. > In fiscal 2013, the 53 ships home ported in San Diego will see direct spending of about $2.4 billion that will translate into a total economic impact of $4.0 billion. The two aircraft carriers home ported here will each add about $500 million to the economy. > San Diego weathered the impact of budget pressures relatively well during the past year, but further budget pressures lie ahead. The ending of the U.S. military commitment in

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5th Annual SDMAC Military Economic Impact Study | San Diego Region | 2013

Afghanistan during the coming year together with reductions in national defense spending will affect the region. > Total direct spending in the region linked to the military may dip only moderately due to budget reductions in fiscal 2014, but most categories of outlays except for benefits are likely to be pared back. After accounting for inflation and cutbacks in such areas as contracts, fiscal 2014 could see the military’s contribution to the region’s total jobs slip to a still sizable 295,000. > San Diego stands to hold an edge in competing for a share of a shrinking defense budget over the next several years. A new national defense strategy calling for a pivot to the Pacific Ocean, greater reliance on rapid-response forces, emphasis on unmanned vehicles and weapons, focus on cyber-security, and need for vital air-training space will all favor San Diego. > San Diego firms and policymakers need to partner with the entire defense establishment to insure that the region retains its supportive role while developing ways to apply defense related technologies and products to new markets. Military Responsible for 22% of All San Diego Jobs Military Responsible for 22% of All San Diego Jobs

The Military Remains Key San Diego Driver he Military Remains Key San Diego Driver for 2013 for 2013

FY 2013 estimate* FY 2013 estimate*

Jobs

Share of total, FY 2013e Share of total, FY 2013 estimate

302,000

Income, billions

$20.9

G ross Regional Product, billions

$32.2

Jobs Supported by Defense Spending, 22%

Other, 78%

*Includes all multiplier effects

Source: FBEI

Defense Funds Flow to San Diego through Different Defense Funds Flow toChannels San Diego through

udes all ripple or multiplier effects

Different Channels Billions of dollars, FY 2013e Billions of dollars, FY 2013e Total = $24.6 billion Total = $24.6 billion

e=estimate

Source: FBEI

Source: FBEI

San Diego Ships Bring $4.0 Billion to Region BillionsBring of dollars, FYBillion 2013e to Region San Diego Ships $4.0 Billions of dollars, FY 2013e 4.5

Retirement & Benefits 13%

4.0

4.0 3.5 3.0 Compensation 45%

2.5

2.4

2.0

1.6

1.5 1.0 0.5

0.0

Procurement & Spending 42% e=estimate

Direct Outlays

Source: FBEI

e=estimate

Multiplier Effects

Total Impact

Source: CNRSW; FBEI

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5th Annual SDMAC Military Economic Impact Study | San Diego Region | 2013

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5th Annual SDMAC Military Economic Impact Study | San Diego Region | 2013

STUDY PURPOSE, SCOPE, AND REVISIONS In the context of changes in global security risks and increasing domestic budget pressures, this year’s study explores two major issues. First, how does San Diego fit into a new national defense strategy? Second, what is the current role of the military and defense spending in the region and how might that role change going forward?

Overview Section I describes and analyzes in detail the dynamics of the defense cluster in San Diego County. It begins with a description of the military’s footprint in terms of the troops and supporting civilian employees based here; defense contracts, grants, and spending benefiting San Diego firms; various benefit and other payments accruing to veterans and retired military and civilian workers; and the effect on tourism linked to the presence of the region’s military concentration. It then traces through all of the various ripple or multiplier effects on the broader economy as defense dollars feed through the supply chain and support household spending on a wide variety of goods and services. The military’s total impact in 2013 is presented in terms of the impact on jobs, income, and gross regional product (GRP) along with comparisons to 2011 and 2012. The budget outlook for fiscal year 2014 is then explored, although uncertainty continues to obscure the outlook. The implications for San Diego in fiscal 2014 under current expectations for defense spending are then discussed. The section concludes with a longer term assessment of the role of the military in the region’s economy and recommendations on how to adapt to that role. Section II examines the contribution made by the 53 Navy ships in nine different classes now home ported in San Diego. This represents the first analysis of the total economic impact of the Navy’s fleet on the region. The section details the direct spending and total economic affect of a typical ship in each class as well as the class as a whole. This framework will enable one to understand the implications of an additional ship coming to the region in the future as well as the implications of any reduction in ship counts. Section III provides a detailed description of what San Diego’s principal Navy and Marine Corps installations and personnel who serve in them contribute to our national defense.

Data Revisions The total for defense-related spending directed to San Diego County for fiscal year 2013 (October 1, 2012, through September 30, 2013) is estimated at $24.6 billion compared with the $20.7 billion in the 4th Annual SDMAC Military Economic Impact Study of June 2012. The difference primarily reflects the inclusion of the value of housing benefits provided to uniformed military personnel in this year’s study. The inclusion of housing as a part of compensation has boosted the total income number for fiscal 2013 from $17.7 billion in last year’s report to $20.9 billion in the current study. Numbers on most

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5th Annual SDMAC Military Economic Impact Study | San Diego Region | 2013

other spending categories have also been revised higher. (See Methodology at the end of Section I for further detail.) Accounting for all of the ripple or multiplier effects of defense-related spending, the total number of jobs linked to military outlays in San Diego County is estimated at 302,000 for fiscal year 2013. This is similar to the 306,000 forecast in last year’s report. The $32.2 billion now estimated for the contribution to the region’s gross regional product (GRP) for fiscal year 2013 is virtually identical to the number in last year’s report ($32.3 billion). The same GRP and slightly lower employment number despite a higher direct spending figure reflect several factors: revised changes in the composition of spending compared with previous figures that had been estimated (e.g., lower procurement numbers for aircraft); revised allocation numbers for procurement contract spending across years, revisions to the various coefficients in the input-output model used; and a relatively low multiplier for the housing allowance factor. The share of jobs directly or indirectly linked to defense spending is estimated at 22% for fiscal 2013 compared with the approximately 25% estimated in last year’s report for fiscal 2012. The difference is due to data revisions and the fact that while military-linked employment has declined slightly in the past year, jobs in the rest of the economy have increased.

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5th Annual SDMAC Military Economic Impact Study | San Diego Region | 2013

SECTION I: THE ECONOMIC IMPACT The Military’s Footprint in San Diego The military and defense spending have long played a dominant role in San Diego. Even as the region has diversified into other areas, including life sciences, telecommunications, alternative energy, and health care, the attention to national security represents a key economic driver. Funds devoted to carrying out the nation’s defense priorities flow into San Diego through three primary channels. First, compensation supports the Navy, Marine Corps, civilian employees, and reserves stationed in the region. Next, outlays on materials, equipment, construction, and research bolster both the local bases and U.S. defense operations worldwide along with the impact of military-linked tourist dollars. Finally, benefit payments flow to individuals who have served the military in some capacity over the course of their lifetimes. For fiscal 2013, $24.6 billion is estimated to have come to San Diego to support these three principal channels. This amount equals more than $7,800 for every San Diego resident. Approximately 45% will represent the payroll for active duty, civilian employees, and reserve members as well as the value of any housing allowances. Another 42% will be the result of various procurement contracts, ongoing smaller amounts of spending obligations of the local military bases, and the expenditures by friends and family members visiting from outside the region. A final 13% will be dedicated for the payment of retirement and other benefits accruing to veterans, retired military, and retired civilian Department of Defense (DoD) employees. (See Exhibit 1.) Exhibit 1

Defense Funds Flow to San Diego Through Different Defense Funds Flow toChannels San Diego through

Exhibit 1

Different Channels Billions of dollars, FY 2013e Billions of dollars, FY 2013e Total = $24.6 billion Total = $24.6 billion Retirement & Benefits 13%

Compensation 45%

Procurement & Spending 42% e=estimate

Source: FBEI

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5th Annual SDMAC Military Economic Impact Study | San Diego Region | 2013

San Diego’s Military Face: The People Approximately 139,000 uniformed Military and Department of Defense civilians currently work in various locations throughout San Diego County. (See Exhibit 2.) This represents 19% of the total nationwide. San Diego thus represents nearly one out of every five individuals employed in the U.S. to carry out the nation’s defense mission. About 51,000 of these are members of the U.S. Navy, which represents about one of every six members of the nation’s total Naval force. The largest share of the region’s Navy (19,000) is at the Naval Base San Diego. (See Exhibit 3.) Marines total over 54,000 in San Exhibit 2

Military Directly Employs About 139,000

Exhibit 2

FY 2013e Military DirectlyThousands, Employs About 139,000 Workers

Thousands, FY 2013e 60 50

54.4

51.1

40 30

25.4

20 8.2

10 0 Navy

*Including recruits

Marines*

Civilian

Reserves

Source: CNRSW; FBEI

e=estimate

Exhibit 3

Active DoD Civilians CiviliansDispersed DispersedAcross AcrossVarious VariousFacilities Facilities Active Duty Duty and and DoD Number of employees, Employees,FYFY 2013* Number of 2013*

Installation

Marine Corps

N avy

Total

9,056

468

10,138

2,829

38,710

4,040

45,579

468

1,529

117

2,114

0

4,550

0

4,550

2,326

148

3,498

5,972

NB CORONADO (IMPERIAL BEACH)

528

0

553

1,081

NB CORONADO (NAB CORONADO)

432

144

3,673

4,249

MCB & MCAS CAMP PENDLETON MCRD SAN DIEGO

MCRD RECRUITS NAVMEDCEN SAN DIEGO

5,006

66

15,531

20,603

NB POINT LOMA (NMAWC)

242

2

1,797

2,041

NB POINT LOMA (OTC)

823

12

282

1,117

NB POINT LOMA (SUBASE)

3,927

0

1,716

5,643

NB POINT LOMA (TOPSIDE)

4,208

0

195

4,403

NB SAN DIEGO

2,755

19

18,728

21,502

576

0

348

924

3

104

45

152

NWS SEAL BEACH DET FALLBROOK

285

12

0

297

OTHER

356

98

65

519

25,378

54,450

51,056

NB CORONADO (NASNI and SCI)

NB SAN DIEGO (Broadway) NOSC SAN DIEGO, CA

Total *Reserves not included

20

Civilian 614

MCAS MIRAMAR

130,884 Source: CNRSW; FBEI


5th Annual SDMAC Military Economic Impact Study | San Diego Region | 2013

Diego, including the average number of recruits located here during the year (about 4,500 in fiscal year 2013). More than one out of every four individuals serving nationwide in the Marine Corps is based in San Diego County. Camp Pendleton is home to nearly 39,000 of San Diego’s Marines. An additional 25,000 civilian employees on the payrolls of the Department of Defense (DoD) support the operations of active duty personnel throughout the region. Personnel conducting high-level research at Space and Naval Warfare Systems Command (SPAWAR) are included in the numbers for the four Naval Base Point Loma Complexes in Exhibit 3. Defense dollars support approximately 8,200 members of the Armed Services Reserves who reside in San Diego County. These individuals take part in various training exercises throughout the year and support crisis situations that may develop either in the U.S. or abroad. While nearly one-third of San Diego residents serving in the Reserves are affiliated with the Navy, sizable numbers are also aligned with the Marine Corps, Army, and Air Force. The 139,000 total employee count includes only DoD employees (active duty, civilian, and reserves). Not included are employees of the Department of Veterans Affairs or members of the Coast Guard who are part of the Department of Homeland Security. Individuals employed as active duty members, reserves, or civilians and their families reside throughout San Diego County. The highest concentrations are in North County in the area encompassing Camp Pendleton, the neighborhoods around the Miramar Marine Corps Air Station, and in the localities that are part of or adjacent to the City of San Diego. The Navy’s large operations at the Navy Medical Center, the Naval Base Coronado, the Naval Base Point Loma, and the Naval Base San Diego mean that large numbers of military personnel and their families reside in the coastal and inland areas of the southern half of the County. (See Exhibit 4.) San Diego’s defense face is also defined by the approximately 240,000 veterans, according to latest U.S. Census numbers, who live here. These individuals have served in various wars, including World War II, the Korean War, and the Vietnam War. A large number of younger veterans also are now in San Diego. The ending of the U.S. military commitments in Iraq and Afghanistan continues to drive increases in our veteran population as San Diego is a primary destination of military personnel returning from these areas.

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5th Annual SDMAC Military Economic Impact Study | San Diego Region | 2013 Exhibit 4

Military Employees Reside Across San Diego Oceanside Bonsall Camp Pendleton Fallbrook Vista

Number of Military, thousands

20 - 40 10 - 20

Oceanside

5 - 10

North County Coastal Cardiff-by-the-Sea Carlsbad Del Mar Encinitas Solana Beach North County Inland Escondido Poway Ramona Rancho Bernardo San Marcos

0-5 North County Inland North County Coastal

Miramar Area East County Alpine El Cajon Jamul La Mesa Lakeside Lemongrove Santee Spring Valley San Diego City La Jolla Ocean Beach Pacific Beach Point Loma

Miramar Area East County San Diego City

Coronado South County Bonita Chula Vista Imperial Beach National City San Ysidro

Coronado South County Š 2013 Google Maps

Mapping the Channels of Defense Spending in San Diego Each of the three principal ways in which defense-related dollars (compensation; contracts and other spending; and benefit payments) enter the region’s economy has distinct characteristics and impacts it in different ways. Because some of these channels have significant tributaries, the dollars entering the region can be further delineated into several distinct streams of influence. (See Exhibit 5.)

22


5th Annual SDMAC Military Economic Impact Study | San Diego Region | 2013 Exhibit 5

Directly into into San Diego Region’s EconomyEconomy Defense Defense DollarsDollars FeedFeed Directly San Diego Region’s Millions of dollars, fiscal years

Millions of dollars, fiscal years 2011 Active Duty Salaries

2012

2013e

2014f

$6,627

$6,335

$6,636

$6,576

$131

$137

$139

$141

Civilian Salaries

$1,837

$1,864

$1,965

$1,971

Housing Benefits

$2,471

$2,353

$2,337

$2,327

Retirement and Veteran Benefits

$3,017

$2,908

$3,166

$3,261

$10,084

$10,391

$10,087

$9,834

Government Purchase Card

$87

$69

$67

$67

Grants

$64

$48

$59

$57

$114

$112

$115

$114

$24,432

$24,217

$24,571

$24,348

Reserves

Procurement Outlays

Tourism Total

Source: CNRSW; USAspending.gov; FBEI

e=estimate; f=forecast e=estimate; f=forecast

Source: CNRSW; USAspending.gov; FBEI

Military and Civilian Salaries The total payroll of Navy, Marine Corps (including recruits), civilian workers, and personnel in the Reserves will total an estimated $8.7 billion in fiscal 2013. The Navy and Marines Corps will have a total payroll of approximately $6.6 billion, while the civilian payroll will total about $2.0 billion. Wages and salaries paid to members of the Reserves will sum to about $139 million. (See Exhibit 6.) Enlisted personnel and officers in the Navy and Marines Corps support a wide range of job categories and skill sets. Excluding the recruits who come to San Diego for 13 weeks of initial training, the average pay for Navy and Marine Corps employees is about $65,000. For civilian workers, who include large numbers of scientists and engineers, salaries average about $79,000 per year. By comparison, the average salary in San Diego County across all sectors averages about $51,000 per year.

Exhibit 6

Military Has Nearly $9 Billion Payroll in San Diego Billions $9 of dollars, 2013e in San Diego Military Has Nearly BillionFYPayroll Billions of dollars, FY 2013e

7.0

6.6

6.0 5.0 4.0 3.0 2.0

2.0 1.0

0.1

0.0 Navy and Marines e=estimate

Civilians

Reserves Source: CNRSW; FBEI

23


5th Annual SDMAC Military Economic Impact Study | San Diego Region | 2013

Housing Benefits Members of the armed forces receive either military housing or additional compensation (termed a Basic Allowance for Housing or BAH) to rent or purchase an apartment or housing off base. Housing allowances vary according to geographic location, pay grade, and whether the active Exhibit 7 duty member has dependents. For 2013, the average housing Housing Benefits Represent 1/4 of Active allowance for a mid-grade Petty Duty Compensation Officer in the Navy or mid-grade Housing Benefits Represent ¼ FY of Active Percent, 2013e Duty Compensation Millions of dollars, FY 2013e sergeant in the Marine Corps is estimated at $1,929 per month. Housing Benefits The value of housing benefits 26% (either implicit or explicit) is significant and represents about one-quarter of the compensation of active duty members (excluding recruits). (See Exhibit 7.) At an estimated $2.3 billion in Salaries 74% fiscal 2013, this value represents a sizable amount of effective compensation or income feeding e=estimate Source: CNRSW; DoD; FBEI into San Diego’s economy. Exhibit 7

Retirement and Veterans Benefits Approximately $3.2 billion will go to various San Diego residents in fiscal 2013 who are retired military members, retired DoD civilian employees, and Veterans. The Department of Defense funds the first two groups, while the Department of Veterans Affairs funds the latter. (See Exhibit 8.) These funds provide a vital base supporting income and spending in the region. In addition, veterans have access to insured and guaranteed loans, which help support San Diego’s real estate and housing sectors.

24

Exhibit 8 Exhibit 7

Benefit Payments of $3 Billion Support Retirees and Veterans

Benefit Payments of $3 Billion Support Retirees and Veterans Billions of dollars, FY 2013e

Billions of dollars, FY 2013e 1.6 1.4

1.4

1.4

1.2 1.0 0.8 0.6 0.4

0.4 0.2 0.0 Retired Military* *Including reserves

e=estimate

Veterans

Retired Civilians Source: CNRSW; USAspending.gov; FBEI


5th Annual SDMAC Military Economic Impact Study | San Diego Region | 2013

Procurement Contracts San Diego has a large cluster of firms that benefit from contracts with various branches of the military. Leading companies and industries involved with such contracts include shipbuilding aircraft, engineering, construction, scientific research, electronics, and wireless providers. (See Exhibits 9 and 10.)

Exhibit 9

Shipbuilding, Aircraft, Engineering Aircraft, Engineering, andand Shipbuilding LeadLead San San Diego’s Defense Contracting Contracting Diego’s Procurement Billions of of dollars, dollars, FY FY 2012 2012 Billions

Shipbuilding Aircraft Engineering Aircraft Parts

Construction Scientific Research Electronic Components Wireless Other Support Services Other Tech Services 0.0

0.5

1.0

1.5

2.0

2.5

Source: CNRSW; DMDC; FBEI

Exhibit 10

Defense Contracts Bolster San Diego Companies Top 10 recipients, FY 2012

Company N ame

D ollars

GENERAL ATOMICS

$ 2,405,720,830

NORTHROP GRUMMAN

$

1,543,890,158

GENERAL DYNAMICS, NASSCO

$

1,158,759,740

BAE SYSTEMS

$

450,422,084

SAIC

$

350,037,491

RAYTHEON

$

238,827,924

VIASAT

$

212,985,797

BOOZ ALLEN HAMILTON

$

154,841,163

CUBIC

$

143,745,492

LOCKHEED MARTIN

$

134,983,682 Source: USAspending.gov; FBEI

Source: USAspending.gov; FBEI

25


5th Annual SDMAC Military Economic Impact Study | San Diego Region | 2013

An estimated $10.1 billion will flow into San Diego County during fiscal 2013 from current and past contracts. Many defense contracts extend over a considerable period of time. For instance, construction projects involve phases of design and engineering, acquisition of materials, hiring of subcontractors, site preparation, and actual building. Many defense contracts take place over time frames that can comprise up to five years or even longer. (See Exhibit 11.) R&D contracts typically are relatively short-term in nature, with much of the work completed within the first two years. Aircraft projects frequently see a peak of activity in the second year, while construction projects peak in the third year. For both of these industry contracts, sizable amounts of work continue into the two or three subsequent years following the peak. Shipbuilding has the most even build-out rates, with about Exhibit 11 10-20% of project funds expended Exhibit 11 Procurement Contracts Disbursed over Time during each of the six years of a Procurement Contracts Disbursed over Time Percent of total spending per year typical project. Percent of total spending per year Other firms contract with the Navy and Marine Corps to provide a wide range of goods and services to carry out the operations and maintenance functions of the facilities based in the County. These include food service, janitorial, telecommunications, logistics, and other facilities support functions.

Government Purchase Cards In addition to the goods and services furnished to military operations based in San Diego County through various procurement contracts, smaller transactions (less than $3,000) are carried out using government purchase cards. These purchases, which are estimated to total about $67 million in fiscal 2013, benefit a wide range of businesses in the region. These include construction companies (frequently hired for repairs), various business services

26

60 50 R&D

40

30

Construction

Aircraft

20 Ships

10

0 Year 1

Year 2

Year 3

Year 4

Year 5

Year 6 Source: DoD; FBEI

Exhibit 12 Exhibit 11

Many GainMilitary’s from Military’s Many San San DiegoDiego FirmsFirms Gain from Credit Credit Card Purchases Card Purchases Millions dollars, 2012 Millions of of dollars, FYFY 2012

Building Materials Business Services Building & Repair Services

General Merchandise Misc. Retail Automotive Parts & Services Lab & Medical Instruments General Services 0

5

10

15

20

Source: CNRSW; NAVSUP FLC; FBEI FBEI Source: CNRSW; NAVSUP;


5th Annual SDMAC Military Economic Impact Study | San Diego Region | 2013

(such as printing), retailing (such as automotive parts), building materials, electronic components, and laboratory instruments. (See Exhibit 12.)

Grants Grants from the Defense Department (the primary source) and VA represent another funding channel for San Diego firms, with the total estimated at about $59 million for fiscal 2012. These underwrite a variety of research efforts related to medical, weapons, alternative energy, intelligence, and other military issues.

Tourism Completing the total procurement and spending stream of the military’s influence on San Diego, tourism injects funds into the area. While not funded by the government as are the other components of defense-related dollars, family members and friends related to military personnel or civilian workers employed by the DoD or VA bring a significant sum of funds from outside the region into San Diego each year. Considerable tourist dollars come to the region because of the numerous graduations that take place each year at the Marine Corps Recruiting Depot (MCRD). In fiscal 2013, about 18,000 individuals will graduate from the facility. Close to 60,000 family members and friends will come to the ceremonies over the course of the year, spending an estimated $17 million on hotels, food, and entertainment. This year’s study also broadens the scope of tourism linked to the military’s presence in San Diego by including individuals visiting those currently employed in San Diego because of the military’s operations here. This impact is estimated at $98 million. Tourism linked to the military’s presence in the region is thus estimated at a total of $115 million in fiscal 2013. Of that amount, restaurants will receive about $49 million, while hotels will see about $42 million in revenues, and entertainment facilities will gain approximately $24 million. (See Exhibit 13.) Exhibit 13 Additional business travel linked to the presence of defense contractors and military conferences in San Diego also take place during the year, which would further raise the totals from the figures presented here.

San Diego’s Military Presence Draws Tourist Dollars San Diego’s Military Draws MillionsPresence of dollars, FY 2013eTourist Dollars Millions of dollars, FY 2013e 60.0 50.0 40.0 Other V isitors

30.0 20.0 10.0

MCRD

0.0 Food

e= estimate

Hotels

Entertainment

Source: CNRSW; San Diego Convention & Visitors Bureau; FBEI

27


5th Annual SDMAC Military Economic Impact Study | San Diego Region | 2013

Tracing the Ripple Effects of Defense Dollars The impact of all of the direct spending of dollars connected to the nation’s security (compensation, procurement, other expenditures, and benefit payments) is only the starting point for measuring the impact on San Diego. Two additional dimensions are important. First, supply chain effects are significant. For example, once a firm receives a contract to complete a construction project on a military base, it will need to purchase building materials and hire workers to carry out the work. Second, consumer spending will receive a boost. Workers employed by the prime contractor plus those benefiting along the supply chain will spend a part of their related earnings on various goods and services produced in San Diego. Accounting for the supply chain and consumption effects means that each dollar of defense-related expenditures goes much further than its face value in creating jobs, income, and additions to the region’s gross regional product (GRP). (See Exhibits 14-16.)

Exhibit 14

Defense Spending Causes Ripples in San Defense Spending Causes Diego’s JobRipples Marketin San Diego’s Job Market Thousands, fiscal years Thousands, fiscal years

350 300 250 Consumption

200

Supply Chain

150 100

D irect

50 0 2011

2012

2013e

2014f

e= estimate; f= forecast

Exhibit 15

Source: FBEI

Exhibit 16

Defense Sector is Prime Income Generator for Defense Sector is Prime Income Generator for San Diego San Diego Billions of dollars, fiscal years Billions of dollars, fiscal years

Military Makes Large Contribution to San Military Makes Large Contribution to San Diego’s Diego’s Gross Regional Product Gross Regional Product Billions of dollars, fiscal years Billions of dollars, fiscal years

35

25

30

20 Consumption

Supply Chain

15

Consumption

25

Supply Chain

20 15

10 D irect

5

10

D irect

5 0 2011 e= estimate; f= forecast

28

2012

2013e

0

2014f

2011 Source: FBEI

e= estimate; f= forecast

2012

2013e

2014f Source: FBEI


5th Annual SDMAC Military Economic Impact Study | San Diego Region | 2013

Large San Diego Impact in 2013 The estimated $24.6 billion of direct defense-related spending is exerting a major impact on San Diego’s economy in fiscal 2013. Incorporating all of the ripple or multiplier effects, the military will be responsible for about 302,000 of the average number of jobs existing in San Diego in fiscal 2013. These jobs are being accompanied by $20.9 billion in income or earnings accruing to wage and salary workers along with various business proprietors. The total impact of defense-related spending is generating an estimated $32.2 billion of output or gross regional product (GRP) in the San Diego region during fiscal 2013. (See Exhibit 17.) The military’s total impact on the region represents about 17% of San Diego County’s total GRP. If San Diego’s military complex were a separate entity, it would rank among the nation’s 100 largest metropolitan areas in terms of gross regional product. Its magnitude is similar to the gross regional products of El Paso, Texas, or Akron, Ohio. To appreciate the importance of the reach of defense spending in the region, consider the influence on the job market. In 2013, the military and its indirect effects will be responsible for 22% of all of the jobs existing in San Diego County. (See Exhibit 18.) Exhibit 17

Exhibit 18

The Military Remains Key San Diego Driver he Military Remains Key San Diego Driver for 2013 for 2013

Military Responsible for 22% of All San Diego Jobs Military Responsible for 22% of All San Diego Jobs

FY 2013 estimate* FY 2013 estimate*

Jobs

Share of total, FY 2013e Share of total, FY 2013 estimate

302,000

Income, billions

$20.9

G ross Regional Product, billions

$32.2

Jobs Supported by Defense Spending, 22%

Other, 78%

*Includes all multiplier effects

udes all ripple or multiplier effects

Source: FBEI

e=estimate

Source: FBEI

The jobs emanating either directly orFBEI indirectly from defense-related dollars represent Source: a large variety of industries. These include engineering, food services, construction, real estate, medical offices, shipbuilding, research, and hospitals. (See Exhibit 19.) The unemployment rate would also be lower in San Diego if the uniformed personnel based in the region were included. Official statistics from the U.S. Bureau of Labor Statistics exclude members of the armed forces from both the labor force and employment counts. The jobless rate would be about one-half of a percentage point

29


5th Annual SDMAC Military Economic Impact Study | San Diego Region | 2013

lower if the military were included. For example, the jobless rate at midyear 2013 in San Diego County was 7.4% based on reported figures after taking into account seasonal trends. The true jobless rate, incorporating the impact of Navy and Marine personnel, was 6.9%. (See Exhibit 20.) Exhibit 19

Exhibit 20

Military’s Impact Creates Jobs in Many Military’s Impact Creates Jobs in Many San Diego Industries

Jobless Would Be Lower if Jobless RateRate Would Be Lower if Military Military Were Included Were Included

San Diego Industries

Thousands of jobs, FY 2013e Thousands of jobs, FY 2013e

Percent, Percent, July July 2013*

10.0

Engineering Food Services

8.0

7.4% 6.9%

Construction

6.0

Real Estate Medical Offices

4.0

Shipbuilding

2.0

Research Hospitals

0.0 0

5

10

15

e=estimate

20

Source: FBEI

Reported Jobless Rate

*Seasonally adjusted

Including Military

Source: FBEI

The Effects of Sequestration The past year has been one of extraordinary challenge for the military as uncertainty and ultimate budget cuts cast their shadows. Overall, San Diego’s defense complex weathered the storm relatively well, but certain segments were significantly and negatively affected. The total number of active duty, civilian, and reserves in San Diego held relatively steady at about 139,000 between fiscal years 2012 and 2013. Although the number of Marine Corps members declined, the return of the aircraft carrier, USS Ronald Reagan, helped to boost the ranks of the Navy. Civilian payrolls also increased, while the number of individuals in the Reserves held constant. Total direct spending in San Diego rose a modest 3% to $22.1 billion, although inflation accounted for most of the rise. The Department of Defense was funded under a Continuing Resolution during much of the first half of 2013 because of the inability of Congress to approve a budget. This meant that spending was held at the same levels of spending approved for the prior year. The Budget Control Act of 2011 provided that if a special congressional panel was unable to agree to a deficit reduction plan through fiscal year 2021 automatic spending cuts would be imposed on defense and nondefense programs that are “discretionary” (require annual appropriations by Congress). Failure to reach such a solution triggered automatic spending cuts, known as “sequestration”, which went into effect on March 1, 2013.

30


5th Annual SDMAC Military Economic Impact Study | San Diego Region | 2013

Those reductions entailed across-the-board cuts of $37 billion in defense spending, excluding military pay and various entitlement programs (including retirement and veterans benefits). The value of contracts awarded to San Diego firms during the year decreased slightly, although work on previous awards kept the value of procurement spending during the year steady. Significant amounts of maintenance and repair on military bases were deferred and spending via government purchase cards declined. Training operations were also disrupted. Civilian employees were furloughed six days towards the end of the fiscal year, which caused about a 2.5% reduction in their total annual pay. The concentration over a short period of time and uncertainty about future pay cuts undoubtedly had a negative effect on personal spending. On balance, after accounting for all of the ripple or multiplier effects, San Diego’s defense-linked sector has generated slightly more total jobs, income, and gross regional product for the region in fiscal 2013 than in fiscal 2012. (See Exhibit 21.) Exhibit 21

Defense Spending Plays Major Role in San Diego's Economy Defense Spending Plays Majoryears Role in San Diego’s Economy Fiscal Fiscal years

2011

2012

2013e

2014f

Direct Spending ($ billions)

24.4

24.2

24.6

24.3

Jobs (thousands)

319

307

302

295

Income ($ billions) Gross Regional Product ($ billions)

21.2

20.6

20.9

20.6

32.7

31.9

32.2

31.9 Source: CNRSW; FBEI

More Cuts in National Defense Spending Ahead Deficit reduction efforts and the removal of U.S. troops from Afghanistan will continue to decrease national defense spending in fiscal 2014. Discretionary budget authority (requiring annual appropriations by Congress) for the Department of Defense (DoD) is estimated to drop to about $606 billion in the fiscal year 2014, covering October 1, 2013 to September 30, 2014. This will be down from the $615 billion estimated for fiscal 2013 and the peak of $692 billion of fiscal 2010. (See Exhibit 22.) e=estimate; f=forecast

Source: CNRSW; FBEI

U.S. troop levels in Afghanistan are projected to fall from 63,000 in the middle of 2013 to 34,000 by early 2014. The U.S. military commitment in that nation by the end of 2014 is expected to be minimal and all troops could be withdrawn by that time. U.S. military numbers will not be reduced commensurately as American troops will still be needed to protect against ongoing threats around the world. Significant numbers of military personnel could be redeployed to either U.S. bases or facilities in other countries. Nonetheless, the completion of exits from both Iraq and Afghanistan imply a lessening of U.S. military troop strength.

31


5th Annual SDMAC Military Economic Impact Study | San Diego Region | 2013

Meanwhile, pressures to address the U.S. budget deficit remain, although Congress and the Administration show little inclination to reach a long-term strategic plan that ultimately will need to slow the growth of major entitlement programs, such as Social Security and Medicare. The Budget Control Act will improse further cuts in defense and nondefense discretionary spending in 2014. However, DoD agencies may be granted more discretion than in 2013 when across-the-board spending cuts were initially prescribed. As a percentage of gross domestic product, total national defense spending (including that funded out of agencies other than the DoD, such as the Department of Energy, is likely to fall to 3.7% in fiscal 2014, the lowest level since 2003 and down more than a percentage point from its recent peak of 4.8% in fiscal 2010. In contrast, during the first half of the 1970s, national defense spending ranged from about 5% to 8% of U.S. GDP. (See Exhibit 23.) Exhibit 22

Exhibit 23

Exhibit 22

DoD Sees Falling Budget

Defense Spending’s Share of U.S. GDP Shrinks

Exhibit 23

DoD authority, Sees Falling Budget Discretionary budget billions of dollars, fiscal years Discretionary budget authority, billions of dollars, fiscal years

Percent, fiscal years Defense Spending’s Share of U.S. GDP Shrinks

Percent, fiscal years

800

700

692

9

687 648

600

615

8

606

7 6

500

5

400

4

300

3

200

2

100

1 0

0 2010

e=estimate; f=forecast

2011

2012

2013e

70

2014f

Source: OMB; DoD; FBEI

f=forecast

74

78

82

86

90

94

98

02

06

10

14f

Source: DoD; FBEI

U.S. DoD personnel counts will also be scaled back significantly in fiscal 2014, with total manpower reduced by about 87,000 to 2.2 million based on early estimates. Active duty members of the Army would see the largest reductions, although the Marine Corps and civilian employees would also experience reductions. Many of the decreases in personnel numbers will be achieved through retirements or attrition. The downward shift in U.S. military manpower will still be sizable, with the expected total DoD employee count projected to be about 105,000 lower than the recent peak of 2.3 million in fiscal 2011.

Defense Spending and San Diego in 2014 Uncertainty about the ultimate outcome of budget negotiations for fiscal 2014 makes forecasts for the coming year particularly difficult. San Diego will not escape pressures to shrink the national defense budget, but the region is expected to fare better than most other areas possessing significant defense clusters.

32


5th Annual SDMAC Military Economic Impact Study | San Diego Region | 2013

Several major elements of current U.S. national security strategy will work in San Diego’s favor:

>

The rebalancing of the nation’s Naval operations with a pivot to the Asia Pacific region. This will see the Navy redeploy its forces from the approximately 50/50 percent division between the Pacific and Atlantic oceans to a 60/40 percent split by 2020.

>

The need for flight training, highlighting the importance of San Diego’s bases since two-thirds of the nation’s military training airspace is in the Southwest.

>

An elevation of resources devoted to cyber security, which will support a rapidly growing cluster in the region.

>

A greater reliance on special operations forces, which will bolster certain military contingents active in San Diego, such as the Navy Seals.

>

A focus on rapid-response forces needed for such situations as embassy attacks, terrorist strikes, or humanitarian disasters will align with the competencies of the Marine Corps.

>

An emphasis on unmanned military aircraft and weapons, benefiting a number of San Diego firms that have developed expertise in the field.

>

An acceleration of efforts to boost efficiency and productivity, which should bring additional business to companies developing software and more cost-effective equipment.

>

Continued efforts to achieve energy savings, which should support firms involved in producing more fuel efficient ships and vehicles.

>

The focus on alternative and “green” energy sources, which should benefit a number of San Diego’s firms specialized in this area.

Overall direct spending on national security through its various channels is expected to dip only about 1% in San Diego County in fiscal 2014 to $24.3 billion. (See Exhibit 24.) The decline will be closer to 3% in real terms or adjusting for inflation. Considerable differences will also take place in the performance of various categories. Procurement contracts are likely to fall considerably, particularly in the area of new construction. The support of backlogs and ongoing work on prior contacts in various industries will mean that the actual outlays for procurement orders will fall by about 2.5% in dollar terms in fiscal 2014. (See Exhibit 25.) The amount of federal grants for research is also likely to be scaled back, while government purchase card purchases are held flat from the significantly reduced level of fiscal 2013.

33


5th Annual SDMAC Military Economic Impact Study | San Diego Region | 2013 Exhibit 24

Exhibit 25

Military Spending to Dip Slightly in San Diego

Previous Contracts to Buffer Procurement Spending Previous Contracts Buffer Procurement Spending

Military Spending Dip Slightly in San Diego Billions oftodollars, fiscal years Billions of dollars, fiscal years

27

24.4

24

24.2

24.6

Billionsofofdollars, dollars,fiscal fiscalyears years Billions

12.0

24.3

Contracts

10.0

21 18

8.0

15

Annual O utlays

6.0

12 9

4.0

6

2.0

3

0.0

0 2011

2012

2013e

2011

2014f

e=estimate; f=forecast

Source: DoD; FBEI

Exhibit 26

2012

2013e

e= estimate; f= forecast

2014f

Source: USAspending.gov; FBEI

In terms of personnel, the average number of active duty, civilian, and Reserve employees is expected to average about 136,000 workers in fiscal 2014 compared with 139,000 in fiscal 2013. (See Exhibit 26.) The number of Navy employees is expected to hold steady as is the count for reserves.

San Diego’s Military Employment to Ease Modestly

Exhibit 26

Number of jobs, fiscal years

San Diego’s Military Employment to Ease Modestly Number of jobs, fiscal years

2011

2012

2013e

2014f

Navy

56,695

50,651

51,056

50,900

Marines*

57,060

56,990

54,450

52,436

Reserves

8,396

8,199

8,200

8,200

Civilian

22,909

23,524

25,378

24,870

Total

145,060

139,364

139,084

136,406

*Including recruits

e=estimate; f=forecast

Source: CNRSW; FBEI

The Marines Corps faces the largest risk of some downsizing based on national plans. The number of new recruits is expected to be scaled back, while full-time positions in the Marine Corps vacated as a result of retirements or other departures could be left empty or filled more slowly. Civilian counts could also be reduced through retirements or other attrition. A reduction in personnel counts will also mean probable reductions in the dollar value of overall payrolls, a reduction of compensation, and e=estimate; f=forecast in the total size of the housing portion *Including reserves Source: CNRSW; FBEI a modest loss in tourism linked to the military’s regional presence. In contrast, benefit payments for retirees and veterans are expected to rise further since Congress shows little inclination to cut major entitlement programs.

34


5th Annual SDMAC Military Economic Impact Study | San Diego Region | 2013

On balance, the combined effects of a reduction in total contract spending, modest declines in military-related payrolls, reduced grant funding, and a small decrease in tourist spending will likely imply a smaller total contribution to San Diego’s economy in fiscal 2014 compared with fiscal 2013. The total amount of income and gross regional product are each projected to fall about 1% to $20.6 billion and $31.9 billion, respectively. The average number of jobs directly or indirectly linked to the defense sector could ease to about 295,000 from the 302,000 estimated for fiscal 2013. Defense and military-related activities will remain San Diego’s most important economic driver in 2014, but if budget cutbacks go forward, that impact could become somewhat diminished.

Conclusions The need for deficit reduction will clash with changing but ongoing and increasingly complex global security risks during the next several years. The outcome of the debate between maintaining a larger military force versus moving to a smaller, technically advanced military will be important. San Diego will experience repercussions of the ultimate outcome of the decisions that are made. While progress in reducing the growth of the national debt will ultimately require slowing increases in spending on entitlement programs, such as Social Security and Medicare, Congress shows little appetite to address those issues. The result is that defense and other discretionary spending (requiring annual appropriations by Congress) could bear the brunt of cutbacks. The rise of China as a major military power and other risks in Asia underpin the pivot in U.S. defense strategy towards the Pacific Ocean. San Diego’s military cluster will be vital to implementing that strategy. The region’s complex of bases and infrastructure manned by the Navy and Marine Corps, its harbor and ship fleet, and its vital air training space all highlight its core strength. San Diego’s network of firms with expertise in shipbuilding, unmanned vehicles and equipment, new defensive and offensive weapons, cyber security, electronics, wireless communications, computer systems, energy, and environmental science all speak to its comparative advantage in meeting the nation’s defense needs. The impact of the military through its bases and personnel located here, defense contracts awarded to local firms, and the income and other benefits accruing to retirees and veterans will continue to play a major role in San Diego’s economy in the period ahead. Nevertheless, the region can be expected to see effects of the military’s downsizing and spending cutbacks going forward. Firms supporting the military either directly or indirectly face enormous uncertainties about the future of various contracts and programs. To mitigate these effects, several strategies will be important:

35


5th Annual SDMAC Military Economic Impact Study | San Diego Region | 2013

>

The region’s political, civic, and business leaders need to fully understand San Diego’s comparative strengths and the importance of the region in implementing the nation’s defense strategy. They also need to be able to articulate to congressional members and other policymakers the value of San Diego’s contribution and the disruptions or risks that may arise because of various spending decisions.

>

Businesses currently dependent on military contractors will need to diversify their customer base by finding new applications for their products and services in commercial or consumer markets.

>

San Diego firms will need to improve their lead in cutting-edge technologies as competition for a piece of a smaller procurement budget pie intensifies.

>

San Diego’s government leaders need to understand the vital support to the region’s economy provided by the military’s presence here and insure that policies support rather than impede operations of the Navy and Marine Corps.

The military and defense-linked activities will continue to represent a major force in San Diego’s economy for many years into the future. That support, however, should not be taken for granted. San Diego firms and policymakers need to partner with the entire defense establishment to insure that the region retains its supportive role while developing ways to apply defense related technologies and products to new markets.

Methodology The methodology of this study entailed two major phases. First, data on the different aspects of the primary channels through which defense-related spending affects San Diego was collected, estimated, and forecast for the four fiscal years, 2011 through 2014. Second, the IMPLAN© V3.0 modeling program was used to estimate the ripple impact on the economy in terms of employment, income, and gross regional product through supply channel and consumption effects. IMPLAN© is a well known economic programming model widely used in economic impact analysis.

Direct Spending Inputs The dollar amounts linked to national security flowing into the region were organized into seven categories. Salaries for Active Duty, Reserve Members, and Civilian Personnel

The numbers of active duty, reserve members, and civilian workers together with total dollar payroll amounts were obtained from records accessed by the Commander, Naval Region Southwest (CNRSW) for 2011 through YTD 2013. Average annual wage rates were calculated for each year. Projected personnel counts for 2014 were then developed based on national plans published by the Department of Defense, consultations with military officials in San Diego, and estimates by FBEI. The accompanying 2014 wage

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5th Annual SDMAC Military Economic Impact Study | San Diego Region | 2013

rates were projected based on expected cost-of-living increases. The President’s 2014 Defense Budget submitted to Congress has indicated that both uniformed and civilian employees are slated to receive a 1.0% increase in 2014, although civilian workers could receive a smaller raise depending on the outcome of budget negotiations. Housing Benefits

The housing portion of active duty compensation was based on the Basic Allowance for Housing (BAH) established by the Department of Defense each year. Working in consultation with CNRSW, the BAH for E5 employees was used as an average with an even split between the BAH given to employees with dependents and those without. The BAH for fiscal 2014 was derived using an annual 1.4% increase, which has been the recent trend of annual raises. The value of housing provided to active members living on base was assumed to be equal to the BAH. The total value of housing benefits each year was then calculated as the product of the number of active duty personnel multiplied by the estimated BAH. Retirement and Veterans Benefits

The numbers of retired and civilian workers together with their total benefits for fiscal 2011 through 2012 were obtained from the CNRSW. Estimates for fiscal 2013 and forecasts for fiscal 2014 of both retiree numbers and benefits were developed based on expected retirement plans, location trends in San Diego, and expected cost-of-living adjustments. Total benefit payments made to veterans in San Diego County were obtained for fiscal years 2011 through 2013 from the government sponsored website, USASpending.gov. The number of veterans residing in San Diego County was estimated for fiscal 2011 through fiscal 2014 based on figures supplied by the U.S. Bureau of the Census, the Department of Veterans Affairs (VA), and FBEI’s expectations for separation rates from the armed forces, demographic trends, and location patterns in San Diego. FBEI then forecast average and total benefit veteran payments for fiscal 2014. Procurement Contracts

Department of Defense and Veterans Affairs Procurement Data for fiscal years 2006 through 2012 was obtained from the government sponsored website, USASpending.gov. FBEI collected data based on location of contract performance and used only zip codes located in San Diego County. The data was next sorted in ascending order of dollars spent by NAICS category to determine the industries receiving the largest amounts of procurement funding. The data was also sorted by corporation to determine which companies receive the largest amounts of procurement funding. Allocation distribution rates (indicating the annual outlay rates on various types of contracts, such as aircraft, shipbuilding, electronics, research, and other procurement orders) over a period of years were obtained from the Comptroller, Office of the Under Secretary of Defense. Specific allocation rates for the Navy were used where available.

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5th Annual SDMAC Military Economic Impact Study | San Diego Region | 2013

FBEI projected procurement contract values for fiscal years 2013 and 2014 based on DoD fiscal 2014 budget estimates and assumptions about congressional final decisions and the impact on San Diego defense sectors. Annual spending totals were then calculated for individual industries for each year by summing amounts accruing from the contracts of the current and preceding years. Government Purchase Cards

Government Purchase Card data was obtained for 2011 and 2012 from CNRSW and the Naval Supply Systems Command Fleet Logistics Center. Estimates for 2013 and 2014 were made by FBEI based on spending plans implemented in the past year, sequestration, projected personnel levels at the various San Diego military facilities, and budget targets. Purchase data was sorted into the various recipient industries of the expenditures. Grants

Department of Defense and Veterans Affairs grant data for fiscal years 2011 through 2013 was obtained through the USASpending.gov website. FBEI sorted the data by county and deleted any samples that were not in San Diego County. This was completed in much the same way as the Procurement data was collected. The data was organized in ascending order of dollars spent by NAICS category and summed for a total in each fiscal year. The industry categories were then matched to the industry codes used in the IMPLANŠ modeling system. Tourism

Tourism related dollars were divided into two categories: visitors for Marine recruits graduating each year and family members and friends visiting active duty and civilian workers employed by the Department of Defense in San Diego County. The number of graduates from the Marine Corps Recruit Depot (MCRD) for fiscal years 2011 through 2013 was obtained from MCRD. Forecasted graduate totals for fiscal 2014 were provided by the Marine Corps. Based on data from the San Diego Convention & Visitors Bureau, an average 3.3 visitors were assumed to travel to San Diego for each graduation and stay in the region for four days. The number of room nights booked for each year, hotel rates, and average spending on food and entertainment was determined for each year based on data from the Convention & Visitors Bureau and estimates by FBEI. Based on guidance provided by the Bureau and CNRSW, it was assumed that 95% of the visitors and money spent over the course of the four-day period comes from outside the San Diego region. For active duty and civilian DoD employees, FBEI assumed that each would attract four visitor days per year (e.g., two individuals staying for two days each or one spending four days) from outside the San Diego region. It was assumed that half of these visitor days

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require a hotel room at the prevailing average $137 San Diego daily rate based on the 2013 number from Smith Travel Research. Food expenditures were estimated at $85 per visitor day for 2013, while average spending for entertainment was assumed at an average of $40 per visitor day. Inflation adjustments and the estimated number of DoD personnel were used to calculate the 2014 figures.

Economic Impact Analysis The IMPLANŠ Model was used to map and analyze the dynamics and total impact of each of the channels of defense spending on San Diego County for each of the years 2011, 2012, 2013, and 2014. The direct effect of military operations in the region was analyzed by inputting the information on total personnel counts and total payroll dollars. The estimated value of housing benefits was included as part of total compensation. Benefit data for retired workers and veterans was analyzed by inputting the benefit dollar totals for different household income groups. Annual spending totals for procurement contract allocations and grants were inputted into the various appropriate industry classifications for each year. Spending for various goods and services from Government Purchase Cards was assigned to various commodity groupings. Spending on hotels, food services, and entertainment was inputted for the appropriate industries to model the impact from the tourism channel. All calculations were performed in current dollars (i.e., before adjustment for inflation). The model produced estimates for each year for the supply chain, consumption, and total impact of the various channels of direct spending in terms of employment, income, and gross regional product. The impact on individual industries was also computed. All results, including implied multipliers, were checked for reasonableness and consistency.

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SECTION 2: THE IMPACT OF THE NAVY’S SHIPS ON SAN DIEGO San Diego is home to a core part of the nation’s vital Pacific Fleet and is critical to defending the interests of the United States and its allies in the Asia-Pacific region. Each ship home ported here can be considered an engine of economic growth, generating jobs, incomes, and output in San Diego County. This section seeks to identify the economic contribution from the different types of ships based here as well as to analyze the total economic impact provided by our area’s total fleet.

The Fleet’s Structure The Naval fleet in San Diego consists of 51 surface ships, two nuclear aircraft carriers, and six nuclear submarines for a total of 59 operations based vessels. The six submarines are not included in the ship analysis of this study because of the classified nature of their mission. An additional six Military Sealift Command (MSC) or classified support ships operate out of San Diego, which are also not included in the ship analysis because they are operated by civilian crews . The Navy’s fleet based in San Diego analyzed in this report spans nine different types of ships, each with specific and distinct characteristics to carry out the nation’s defense strategies. A brief description of each ship class home ported in San Diego along with the number of ships in each class and average personnel counts are given below. CG (7 ships) The Ticonderoga class (guided missile cruiser) is a large combat vessel that was first commissioned in 1978. These ships are capable of performing in air warfare, surface warfare, undersea warfare, and naval surface fire support. They can be operated independently or in support of carrier battle groups or amphibious forces. The addition of Tomahawk cruise missiles gives these cruisers long-range strike warfare capability. These ships utilize a crew of 350. CVN (2 ships) Aircraft carriers are considered the centerpiece of America’s naval forces. They perform the Navy’s core capabilities, including power projection, humanitarian assistance, sea control, and maritime security. The Gerald R. Ford class was commissioned in 2008 to replace the Nimitz class aircraft carriers. According to the U.S. Navy, this new class will be a primary asset in crisis response and early decisive striking power in a major combat operation. New innovations have been introduced to

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reduce the ongoing maintenance requirements of the ship, raise the capability of the air wing, and reduce total manpower requirements. The crew count for an aircraft carrier is about 3,100. This number does not include the typical airwing count, numbering approximately 1,500. DDG (18 ships) The Arleigh Burk class destroyers (DDG 51) are fast, multi-mission warships. The first was commissioned in 1991. These destroyers are capable of operating independently or as part of carrier strike groups, amphibious groups, surface action groups, and replenishment groups. This class features many technological enhancements that greatly improve its versatility. These ships have an average crew of 300. FFG (5 ships) The Oliver Hazard Perry class frigates are warships intended for general-purpose escorting, serving to protect amphibious expeditionary forces, underway replenishment groups, and merchant convoys from submarines. These frigates were first designed in the mid-1970s. Although the guided missile frigates are cost efficient and able to withstand a substantial amount of damage, they lack the multimission capabilities of their CG and DDG counterparts. These ships carry an average crew of 220. LCS (4 ships) The Littoral Combat Ship is a class of fast, small-sized, focused-mission vessels designed for operations in the littoral (near-shore) zone. They are also capable of open-ocean operation. The first LCS was delivered to the Navy in 2008. The LCS class is composed of two variants: the Freedom class and the Independence class. These ships will be equipped with reconfigurable payloads, which are supported by special detachments allowing the use of manned or unmanned vehicles and sensors used in various missions. These ships utilize a total crew of 100 each, with 50 required for operations while the other 50 are involved in training.

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LHA-LHD (4 ships) The Tarawa-class LHAs and Wasp-class LHDs are known to be the largest of all amphibious assault warships. They resemble a small aircraft carrier. The first LHD was commissioned in 1989. Because these vessels are so large and have great storage capacity, they are used to transport and land elements of the Marine Expeditionary Unit as well as other aircraft and landing craft. Many of these ships have a well deck, which adds versatility to the ship and allows the use of other vehicles such as Landing Craft, Air Cushioned (LCAC). These vessels were utilized to transport thousands of Marines and their equipment to Iraq and Afghanistan in 2004. These ships have a total crew averaging 1,200. This count does not include the Marines who embark for deployment. These detachments typically average about 1,800. LPD (4 ships) San Antonio class ships are the Navy’s newest class of Amphibious Transport ships, with the first one commissioned in 2006. In addition to supporting amphibious assault, expeditionary warfare missions and special operations, LPD’s serve as secondary aircraft platforms for amphibious ready groups and can accommodate the USMC, V-22 Osprey aircraft. These ships have a crew of 400. LSD (4 ships) Dock Landing Ships are designed with a well dock to facilitate the transportation and launching of amphibious craft and vehicles. These ships were first deployed in 1995. LSDs have the largest capacity for Landing Craft Air Cushion (LCAC) vessels of any U.S. Navy amphibious platform. The total crew count for these ships is 340. MCM (5 ships) Mine countermeasure ships are designed to clear mines from vital waterways. The development of this force started in the 1980s and included two new classes of ships and minesweeping helicopters. These vessels utilize video and sonar systems, cable cutters, and a mine-detonating device that can be released and activated by remote control. The total crew for one of these ships is 90.

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Ships and People A total of 53 ships are currently based in San Diego, excluding submarines that are also located here. (See Exhibit 27.) Destroyers (DDG) represent the class with the largest number of ships at a total of 18. Two of the nation’s aircraft carriers (CVN) are now based in San Diego: the USS Carl Vinson and the USS Ronald Reagan. Seven cruisers (CG) operate out of San Diego. Other ship classes in San Diego have four to five ships each.

Exhibit 27 Exhibit 1

53 Ships Based in San Diego, Led by Destroyers

53 Ships Based inofSan Diego, Led Destroyers Number ships per class, FY by 2013 Number of ships per class, FY 2013 DDG CG

MCM FFG LSD

LPD LHA-LHD LCS

CVN 0

5

10

15

20 Source: CNRSW; FBEI

Even as ships have become more automated, sizable numbers of personnel are required to make each operate efficiently. The number of people working on each ship varies according to the ship’s size, its complexity, and its specific mission. Fewer than 100 Sailors typically man Littoral Combat Ships (LCS) or mine countermeasure ships (MCM), while an aircraft carrier typically requires over 3,000 people. Amphibious assault ships (LHA-LHD) generally require an average of about 1,200 Navy personnel for operations. Other types of ships frequently have 300-400 personnel on board. (See Exhibit 28.)

San Diego’s total ship fleet employs about 24,000 men and women. Combining the effects of both the number of ships and the average number working on each class, more than 6,000 Sailors, or roughly a quarter of the total, are employed on aircraft carriers. Over 5,000 individuals work on destroyers (DDG), while more than 4,500 personnel are associated with amphibious assault ships (LHA-LHD). (See Exhibit 29.) Exhibit 28

Exhibit 29

Aircraft AircraftCarriers CarriersEach EachEmploy Employ Over 3,000 People Over 3,000 People

San Diego Ships Employ 24,000 Sailors

San Total Diego Ships Employper24,000 Sailors number of employees class, FY 2013e

Average number of employees per ship, FY 2013e Average number of employees per ship, FY 2013e

Total number of employees per class, FY 2013e

3500

7000

3000

6000

2500

5000

2000

4000

1500

3000

1000

2000

500

1000

0

0

e=estimate

Source: CNRSW; FBEI

e=estimate

Source: CNRSW; FBEI

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5th Annual SDMAC Military Economic Impact Study | San Diego Region | 2013

Ships and Dollars The amount of Department of Defense (DoD) dollars flowing into San Diego to operate San Diego’s share of the Pacific Fleet is sizable at an estimated $2.4 billion in fiscal 2013. (See Exhibit 30.) About three-fourths of the total represents employee compensation. That amount includes the wages and salaries of ship personnel together with the value of housing provided to them. About one-fifth of the total spending on ships goes for contracted ship repair, other procurement contracts, and smaller purchases (under $3,000) for various goods and services the ship may need either when docked in San Diego or deployed overseas. Exhibit 30

Expenditures on food and Ship Spending Totals $2.4 Billion utilities represent about 5% of Billions of dollars, FY 2013 the total direct expenditures on San Diego’s naval ships. Food & Utilities Port Services Electricity and water are the 5% 1% primary utility expenses, with Procurement & Purchase Cards electricity representing the 20% dominant one. All ships have the capability of distilling fresh water from sea water when underway. The remaining one percent of direct outlays for Compensation 74% ships represents spending for the removal of hazardous materials, Source: CNRSW; FBEI harbor security, berthing, insurance, logistics, and other port services.

Charting the Ripple Effects and Total Economic Impact In addition to the sizable economic effect from the spending required to operate each ship, considerable “ripple” or multiplier effects take place as those initial dollars start to feed through the region. As discussed in Section I, these secondary and tertiary effects involve both supply chain and consumption components. When a ship purchases goods and services, companies receiving the orders will need to purchase materials and equipment or possibly hire more workers. Much of the consumer spending by Navy personnel employed on the ship plus those employed along the supply chains will also feed into the economy. On average, for every $100 directly spent on a ship, the region’s gross regional product (GRP) sees an additional $65. Ships are deployed an average of about six months, although deployments can be shorter or longer. Wages and salaries of personnel assigned to different ships are spent primarily in the San Diego region either by family members residing here or by those deployed when they return. Sailors retain their local residences when deployed overseas (either base housing or supported by the Basic Allowance for Housing.) The spending on ship repair and other contracts, smaller purchases, food, utilities, and port services also primarily benefits the local economy.

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The average amount of total direct spending on each type of ship ranges from about $13 million per year for mine countermeasure ships (MCM) to nearly $250 million for aircraft carriers (CVN). The total economic impact for various types of ships ranges from an average of about $18 million for an MCM to $471 million, or nearly $500 million, for an aircraft carrier. (See Exhibit 31.) Adding up the total contribution of San Diego’s Navy fleet yields a total economic impact, or contribution to the region’s total output (GRP) of $4.0 billion. This sum is comprised of the $2.4 billion of total direct outlays plus another $1.6 billion of ripple or multiplier effects achieved through the supply channels and induced consumer spending. (See Exhibit 32.)

Exhibit 31

Exhibit 32

Aircraft Carriers Generate $500 Aircraft Carriers Generate $0.5Million Billion Each for for SanSan Diego Each Diego

San Diego Ships Bring $4.0 Billion to Region

Average economic impact, dollars, 2013e Average economic impact,millions millions ofofdollars, FY FY 2013e

Billions of dollars, FY 2013e

D irect Spending

CVN

4.5

4.0

4.0

Multiplier Effect

LHA -LHD

3.5

LPD

3.0

CG

2.4

2.5

LSD

2.0

DDG

1.6

1.5

FFG

1.0

LCS

0.5

MCM

0.0

$0 e=estimate

San Diego Ships $4.0 Billion to Region BillionsBring of dollars, FY 2013e

$100

$200

$300

$400

Direct Outlays

$500 Source: CNRSW; FBEI

The distribution of the total $4.0 billion of total economic impact reflects both the average for each ship class and the number of ships in each class. Destroyers (DDG) and aircraft carriers (CVN) each contribute a total of around $950 million to San Diego’s economy. (See Exhibits 33 and 34.)

Multiplier Effects

Total Impact

e=estimate

Source: CNRSW; FBEI

Exhibit 33

Destroyers and Aircraft Carriers Lead Ship Destroyers and Aircraft Carriers Lead Ship Economic Contributions Economic Contributions Total economic impact by class, millions of dollars, FY 2013e Total economic impact by class, millions of dollars, FY 2013e

DDG

CVN LHA -LHD CG

LPD LSD FFG LCS MCM

$0 e=estimate

$200

$400

$600

$800

$1,000

$1,200

Source: CNRSW; FBEI

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Ships Bring Jobs and Income to San Diego

Exhibit 34

Dollars, FY 2013 Dollars, FY 2013

Ship Brings Jobs and Income to San Diego

Average Per Ship

Ship Class Totals

# of Ships

# of People

CG

7

353

$ 43,784,956

$

65,755,943

2,471

$

306,494,689

$

460,291,598

CV N

2

3,128

$ 245,804,354

$

471,105,398

6,256

$

491,608,707

$

942,210,796

DDG

18

297

$ 34,266,644

$

54,149,783

5,346

$

616,799,596

$

974,696,090

FFG

5

224

$ 25,417,153

$

39,906,325

1,120

$

127,085,767

$

199,531,626

LCS

4

100

$ 19,934,457

$

24,203,679

400

$

79,737,827

$

96,814,715

LH A-LH D

4

1,168

$ 106,822,918

$

186,076,464

4,672

$

427,291,670

$

744,305,854

LPD

4

406

$ 45,207,631

$

71,902,892

1,624

$

180,830,524

$

287,611,567

LSD

4

335

$ 35,466,262

$

57,309,728

1,340

$

141,865,046

$

229,238,910

MCM Average/ Total

5

87

$ 13,356,263

$

18,478,986

435

$

66,781,314

$

92,394,929

53

446

$

$

Spending

46,009,342

Economic Impact

# of People

75,982,945 23,664

Spending

Economic Impact

$ 2,438,495,140 $

4,027,096,085

Source: CNRSW; FBEI

Conclusions Approximately one of every ten dollars of defense-related direct spending in San Diego goes to support San Diego’s fleet of 53 ships. The total economic impact generated by the ships home ported here accounts for about 12% of the total contribution made directly and indirectly from overall defense-related spending in the region. The effect on the region of either losing or gaining a ship is underscored by the example of the close to $500 million of output generated by an aircraft carrier. Despite budget cuts, San Diego’s critical role in helping the nation rebalance its forces towards the Asia Pacific should see the size and value of its ship base expand further during the coming decade.

Ship Analysis Methodology The ship data used for this study was compiled from a number of different sources. The primary source was the PLNU MBA thesis of Jose Neto (“The Economic Impact of Navy Ships on the San Diego Region: An Analysis of How the Presence of Navy Ships Affects the San Diego Economy”, May 2013. Mr. Neto is Contract Specialist for the U.S. Navy. Dr. Lynn Reaser, the primary author of this study, was thesis advisor. Seven major cost components were examined for each ship and ship class. The first cost category involved payroll. This data came from the Defense Joint Management System. The figure includes the total compensation for active duty and civilian employees. FBEI

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estimated the housing component of total compensation based on the Basic Allowance for Housing (BAH). The next two cost components were procurement contracts and purchase card data. Both of these data sets came from the Federal Procurement Data System – Next Generation. Purchase cards were separated from contracts because they are less than $3,000. The fourth cost component examined at the ship and ship class level was utilities, including both water and electricity costs. The source for this data was the Command Navy Region Southwest Port Operations. The food expense was next examined. A formula was used to calculate this component, which came from the Naval Supply Systems Command Fleet Logistics Center. Specifically, this formula used the basic daily food allowance rate, which is $7.66. This figure was then applied to each Sailor per day. Hazardous materials (hazmat) disposal cost was also examined. This data came from Naval Facilities Engineering Command Southwest. The final cost parameter examined was classified as miscellaneous indirect expense. These are expense items that are incurred by the ship when it is in port, including harbor security and port logistics. All of this data was presented on a per ship basis for fiscal year 2011. Some of the expenses were consistent across all of the ships in a given class, while other cost items were unique to each ship. Pay, procurement, including purchase cards, utilities, and hazmat costs were all unique to each ship. An average of each of these cost items was taken and used for each ship class. Some costs, such as pay and food, are dependent on the average number of employees assumed for each ship class. Others, such as procurement, purchase cards, utilities, and port costs, are more dependent on other factors, such as ship size. Fuel expense is not included since precise data allocated by ship was not available. Also, most fuel is brought in by pipeline from outside the region, which means it has little impact on the local economy. Average expenditure levels for various classes were adjusted with different inflation factors to derive spending amounts for fiscal 2013. Once all of the per-ship costs were averaged for the class, the total figures by ship class were calculated. The ship class count figures for fiscal 2013 were provided by the Command Navy Region Southwest (CNRSW). The IMPLANŠ Model was used to map and analyze the dynamics and total impact of each of the ship classes on the value of total output, or gross regional product (GRP), for San Diego in 2013. Nine different models were constructed, reflecting each of the ship classes analyzed. Compensation and employee counts were inputted for the payroll expenditures. All other expenditure items were then allocated across the various industries affected by increases in sales or orders. The model was then simulated for each ship class to derive the supply chain, consumption, and total economic effects for fiscal 2013.

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SECTION 3: SAN DIEGO MILITARY HISTORY - MAKING A GLOBAL IMPACT The History of the Navy in San Diego The U.S. Navy has held a presence in San Diego since the USS Cyane sailed into San Diego harbor in July, 1846. Congressman William Kettner (1913-1921) played a critical role in bringing the Naval base to San Diego by supporting a federal appropriation to dredge San Diego Bay to allow entry into the harbor by large ships. The progression continued with President Woodrow Wilson’s authorization in 1917 to acquire North Island for Army and Navy flight training. Construction began on Naval Air Station San Diego in 1918, which today is recognized as the “Birthplace of Naval Aviation.” The Chief of Naval Operations officially established the position of Commandant of Naval Base San Diego in 1919, welcoming Rear Admiral Roger Welles. The Navy General Order Number 514 stated: “The naval base at San Diego, Calif. is hereby established and shall consist of the naval air station, the naval fuel depot, the naval hospital, the Marine barracks, the radio stations and such other naval activities as are now or may be established in San Diego or in the immediate vicinity.” The Welles family arrived in San Diego on January 25, 1920 after a four-day train trip across the country. Although it was a Sunday, Rear Admiral Welles and his wife, Harriet, were warmly welcomed by the City of San Diego and given accommodations at the U.S. Grant Hotel.

The History of the Marine Corps in San Diego Major General Pendleton's foresight in realizing the strategic value of San Diego, with her proximity to the vast Pacific Ocean, proved to play an important role in the future of both the Marine Corps and the nation. During World War I (1917-18), the Marines from San Diego served as the American Expeditionary Force in France. By 1933 the Advance Base Force had evolved into the Fleet Marine Force; the Marine Corps, through theoretical studies and fleet exercises, had developed an amphibious doctrine that would be used by all U.S. and Allied forces in World War II. During the course of that war the U.S. Marines grew to six divisions and five aircraft wings, with a peak strength of about 485,000, most of whom were trained here in San Diego County. Again, during the Korean War, the Marines of the First Provisional Marine Brigade sailed from San Diego to Pusan Korea and played important roles in active combat operations. The First Marine Division and units of the 3d Marine Aircraft Wing served in Vietnam from 1962 until 1975. In 1983, Marines from San Diego served as part

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of a multinational peacekeeping force in Lebanon. In the 1990-91 Gulf War, I MEF was the Marine Component Commander and Marine forces from San Diego served with distinction. These same formations led the way in Operation Iraqi Freedom, and Operation enduring Freedom in Afghanistan. Today, the Marines stationed in San Diego stand ready to continue in the proud tradition of those who so valiantly fought and died at Belleau Wood, Iwo Jima, Chosin Reservoir, Khe Sanh, Al Anbar, and Afghanistan’s Helmand Province. As stated by the Corps' 31st Commandant, General Charles C. Krulak: "Our warfighting legacy is one of duty, strength, sacrifice, discipline, and determination. These themes are cornerstones of the individual Marine and of our Corps. Indeed, they are woven into the very fabric of our battle color. However, while we reflect on our past, let us also rededicate ourselves to a future of improvement. For, as good as we are now, we must be better tomorrow. The challenges of today are the opportunities of the 21st century. Both will demand much of us all." San Diego shares a long and proud heritage of faithful service that has kept the Marine Corps the nation’s premier expeditionary force.

San Diego and the Military: Synergistic Partners Each installation supports a unique set of requirements. The specific combination of tenant commands, geography, proximity to other commands, and training opportunities provides an environment that cannot be duplicated anywhere in the world and supports the global effort of our national defense strategy. Because the land, air, and sea ranges as shown below are within practical traveling distance from these home bases, our Sailors and Marines can train as they fight, maximizing their time home with their families and in our communities.

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San Diego also benefits from the Navy’s strategic rebalance to the Pacific - locating 60% of ships in the Pacific with an Asia-Pacific focus. San Diego is a fleet concentration area providing support services, coordination among units, and training synergy. The Asia-Pacific focus includes: > 40 nations > 60% of the world’s population > More than half of the world’s surface > 30% of the world’s GDP > 70% of the world’s oil transits through the Strait of Malacca Top 4 trading partners: > Canada > Mexico

> China > Japan

6 largest militaries: > China > India > North Korea

> U.S. > Russia > South Korea

Navy & Marine Corps Installations Navy and Marine Corps installations are responsible for base operating support functions and management of installation land, buildings, and facilities. Support provided is designed to assist tenant commands and activities in achieving their operational mission. Installation Commands: Naval Base Coronado, Naval Base Point Loma, Naval Base San Diego, Marine Corps Base Camp Pendleton, Marine Corps Air Station Camp Pendleton, Marine Corps Air Station Miramar, and Marine Corps Recruit Depot San Diego are the Navy and Marine Corps installations in the San Diego geographic area. Tenant Commands: Tenant commands and activities that operate on these installations include Naval Air Forces, Naval Surface Forces, U.S. Third Fleet, Navy Special Warfare Command, Space and Naval Warfare Systems Command, Fleet Logistics Center, Fleet Readiness Center Southwest, Naval Medical Center, Third Marine Air Wing, 1st Marine Expeditionary Force, and 1st Marine Division.

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5th Annual SDMAC Military Economic Impact Study | San Diego Region | 2013

Marine Corps Recruit Depot

Space and Naval Warfare Systems Command Third Fleet Headquarters

Naval Mine and AntiSubmarine Warfare Command

Naval Air Systems Command

Naval Medical Center San Diego

Naval Air Forces Command

Naval Supply Systems Command Global Logistics Support

Special Warfare Command

Naval Surface Forces Command

America’s Navy: “A Global Force for Good” - Executing from San Diego Navy Region Southwest San Diego is home to headquarters of the Commander, Navy Region Southwest (CNRSW); the largest concentration of naval facilities and personnel in the world. CNRSW’s relationship with various tenant commands operating on or from region installations is a landlord-tenant relationship, with the primary focus to support tenant commands with the infrastructure and services necessary to efficiently and effectively train and execute their missions. Navy Region Southwest comprises the 6 Southwest states with 10 installations covering 1.4 million acres of land with buildings and structures valued at $29 billion. 9,400 employees operate a $1.3 billion budget in support of the 325,000 Sailors, dependents, civilians, and retirees. The three CNRSW installations in San Diego are: > Naval Base Coronado > Naval Base Point Loma > Naval Base San Diego

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Other installations within Navy Region Southwest are: > > > >

Naval Weapons Station Seal Beach Naval Base Ventura County Naval Air Weapons Station China Lake Naval Support Activity Monterey

> Naval Air Station Lemoore > Naval Air Station Fallon > Naval Air Facility El Centro

Note: total population counts listed throughout Section III include Non-Appropriated Funds (NAF), other non-DoD tenants, etc., resulting in higher figures than presented in the direct employment counts in Exhibit 3.

Naval Base Coronado Naval Base Coronado (NBC) has a long history of serving as a home base for Naval Aviators, Navy SEALS, Fleet Sailors and their families and is home to eight major air, surface, special warfare and training commands, two aircraft carriers, 16 helicopter squadrons, two fixed wing squadrons, and more than 120 other military units and commands. Airfields, piers, air, surface and subsurface training ranges and support facilities provide critical operational and training functions for West Coast Navy and Marine Corps operating forces. This diverse and expansive number of operational and training resources provides naval operating forces the support needed to achieve and maintain military readiness and contribute to national security. Operating as a consortium of eight geographically separate locations, NBC encompasses 60,000 acres extending throughout San Diego, Riverside and Los Angeles counties including 1,565 non-housing buildings and structures, 21 piers and wharfs, 3 airfields, more than 45 miles of shoreline and a total population of 27,000. Installations located on Coronado Island include Naval Air Station North Island, Naval Amphibious Base Coronado and the Silver Strand Training Complex. Also located near Coronado is the Navy Outlying Landing Field Imperial Beach. Other outlying locations supported by NBC in the San Diego and Los Angeles Counties include Mountain Warfare Training Center Camp Michael Monsoor, Camp Morena, Remote Training Site Warner Springs and Navy Auxiliary Landing Field San Clemente Island.

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Naval Base Point Loma The Point Loma peninsula is home to Naval Base Point Loma (NBPL) Main Base Complex, Cabrillo National Monument, Veterans Administration’s Fort Rosecrans National Cemetery, Point Loma Nazarene University, U.S. Coast Guard and the Point Loma Wastewater Treatment Plant. Together in partnership they help preserve the habitat and cultural resources of this historical location which include three endangered species, two pre-historic aboriginal sites, Spanish heritage sites, WWI and WWII military forts, bunkers and two National Register eligible historic districts. Spread beyond Point Loma and throughout the County of San Diego, Naval Base Point Loma maintains six complexes and 41 special areas, comprising 1,869 acres of land to include Old Town Complex, Taylor Street Complex, Naval Mine Antisubmarine Warfare Complex, Point Loma Topside Complex, Commander Third Fleet Complex, Point Loma Main Base Complex, Mt. Soledad, Fleet Intelligence Training Center Complex, Balboa Complex and the Naval Consolidated Brig Miramar. With over 71 tenant commands, NBPL supports a variety of fleet, flag headquarters, training and Research, Development, Testing and Evaluation (RDT&E) commands and has a total population of 17,000. NBPL is considered the technical hub of San Diego’s naval activity, hosting some of the nation’s premier research centers for communications and weapons technology including Command, Control, Communications, Computers, Intelligence, Surveillance and Reconnaissance (C4ISR) at SPAWAR Systems Center Pacific. Additionally, NBPL is the primary home of fast attack submarines on the west coast, home porting all six of Squadron Eleven’s SSN submarines, as well as their entire shore support requirements of logistics, maintenance and ordnance handling which includes the floating drydock, ARCO ARMD 5, for depot level repairs. NBPL also provides the largest Fuel Supply Center and the only Magnetic Silencing Field in the Pacific, supporting the requirements of the surface Navy as well.

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Naval Base San Diego As the Navy’s premier Pacific Fleet surface force installation, Naval Base San Diego (NBSD) encompasses the NBSD main-site, the Broadway Complex in downtown San Diego, the Mission Gorge Recreation Center, Naval Medical Center San Diego, and 16 family housing sites. NBSD occupies 2,930 acres of land and 326 acres of San Diego Bay, with 12 Piers and two channels offering 56,616 feet of berthing. NBSD has an on-base population of 31,090 military, federal civilian and contracted employees. NBSD is divided into two distinct areas: the maintenance and repair area along the shoreline (wet side) and the community facilities complex east of Harbor Drive (dry side). NBSD supports 57 ships, 12 Piers, 182 tenant commands and a total population of 34,000. NBSD is also home to Military Sealift Command, Maritime Administration and U.S. Coast Guard ships, as well as numerous other U.S. vessels. In addition, NBSD provides services including housing, security, public works, environmental, supply and administrative facilities for tenant units.

Major Commands Running the Navy from San Diego Commander, U.S. Third Fleet Third Fleet leads naval forces in the eastern Pacific from the west coast of North America to the International Date Line, commanding fleet operations and providing maritime homeland defense. Sea lines of communication within the Third Fleet Area of Responsibility (AOR) are critically important to the economic health of the United States and nations throughout the Pacific, making Third Fleet a key component of the nation’s defense. Our sea-going force includes four carrier strike groups, each consisting of a combination of cruisers and destroyers. Third Fleet also has more than 30 submarines and 11 supply ships to support the strike groups. Third Fleet's air forces comprise more than 400 Navy aircraft, including the F/A-18 Super Hornet, E-2C Hawkeye, AV-8B Harrier, AH-1 Super Cobra, SH-60 and MH-60 Seahawk, MH-53E Sea Dragon, EA-6B Prowler, EA-18G Growler, P-8A Poseidon and P-3C Orion. Third Fleet trains, certifies, and deploys combat ready naval forces prepared to face a full range of missions—from humanitarian and peacekeeping operations, to major regional conflicts, to ballistic missile defense—around the globe. In fulfilling that role, Third Fleet is able to provide realistic, relevant training necessary for an effective global navy due to

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the incomparable training ranges available within the AOR. Third Fleet conducts numerous multi-lateral exercises, including the world’s largest maritime exercise, Rim of the Pacific (RIMPAC). Through joint, interagency and international relationships, Third Fleet strengthens our ability to respond to crises and protect the collective maritime interests of the U.S. and its allies and partners. Third Fleet enhances regional security through Theater Security Cooperation- interacting regularly with forces from other nations. Additionally, Third Fleet’s mission includes Defense Support of Civil Authorities (DSCA), supporting state and local authorities in the event of natural and man-made disasters, and routinely interacting and training with civilian agencies to build relationships to rapidly respond should the need arise.

Commander, Naval Air Forces Aviation formally became a part of the Pacific Fleet in October 1919 when Air Detachment, Pacific Fleet, came into existence in San Diego on what was then known as Naval Air Station San Diego (North Island), located on North Coronado Island. Subsequently, the creation of a single all-encompassing Pacific Fleet aviation command was a direct outgrowth of the rapid expansion of the Navy and Naval Air Forces during World War II. On July 29, 1942, the Navy established Commander, U.S. Naval Air Forces, Pacific Fleet – COMNAVAIRPAC, resulting in a more efficient command structure and economical use of men and material. In 1949, COMNAVAIRPAC moved its headquarters from Pearl Harbor, Hawaii to Naval Air Station North Island. Today, Commander, Naval Air Forces is the headquarters command for all operational naval aviation assets; it is responsible for manning, training, and equipping the Navy’s aircraft carriers, aircraft, and Sailors who serve in naval aviation, which includes 10 aircraft carriers, 9 carrier air wings, 12 type wings, 168 fleet, reserve, and training squadrons, with more than 3,600 aircraft and 100,000 personnel. As the Navy’s force provider for aviation assets, Commander, Naval Air Forces ensures that all squadrons, wings, and aircraft carriers are ready and able to deploy in support of U.S. national security objectives. The Naval Air Forces staff monitors and provides guidance regarding the maintenance of aircraft and aircraft carriers to ensure they are available through their entire lifespan and beyond. Additionally, Naval Air Forces oversees the training and development of the professional core of Naval Aviators, maintainers and aircrews that operate around the world. Naval Aviation remains rooted in the concepts of sea control and the projection of

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power, influence, and deterrence from the sea. The aircraft carrier and its embarked air wing have been key naval and joint enablers since the Battle of Midway in 1942 and will continue to be so for decades into the future.

Commander, Naval Surface Force, U.S. Pacific Fleet Commander, Naval Surface Force, U.S. Pacific Fleet (COMNAVSURFPAC) oversees the “Man, Train, Equip” efforts of the Surface Navy and is also designated as Commander, Naval Surface Forces (COMNAVSURFOR), which provides executive oversight and policy for all Surface Navy. The command is located onboard Naval Base Coronado’s Naval Amphibious Base. The surface force is comprised of surface ships and support and training commands, and provides operational commanders with well-trained, highly effective and technologically superior surface ships and Sailors. > 40,000 Sailors and civilians > 90 of 160 surface ships are based in the Pacific > Nearly 50% are underway at any given time either preparing for or executing a maritime deployment. The force consists of amphibious ships; guided missile cruisers and destroyers, including some with ballistic missile defense capabilities; guided missile frigates; mine countermeasure ships; and the Navy’s newest ship class, the Littoral Combat Ship, a high speed, shallow draft, multi-mission ship designed to operate near coastlines. The force also includes deployable tactical air control squadrons, fleet surgical teams, and amphibious craft, as well as an enormous training organization based in four geographically dispersed fleet concentration areas. Surface Force ships are deployed in support of Commander, US Third Fleet; Commander, US Fourth Fleet; Commander, US Fifth Fleet; and Commander, US Seventh Fleet.

Naval Special Warfare Command Naval Special Warfare Command (NAVSPECWARCOM) is the Navy’s special operations force headquarters and the maritime component to United States Special Operations Command (USSOCOM). Naval Special Warfare (NSW) traces its roots back to when America had officially entered World War II and aimed to liberate its Allied nations beginning with the coasts. In 1942, the Navy created Underwater Demolition Teams (UDT) and the frogman was born. In 1962, President John F. Kennedy, who realized the value in unconventional warfare, passed a directive that transformed the UDTs of the past into the first Navy SEAL Teams. Though originally developed for naval counter-guerilla warfare, the Teams’

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directive quickly grew to include “a specialized capability for sabotage, demolition, and other clandestine activities conducted in and from restricted waters, rivers, and canals, specifically to be able to destroy enemy shipping, harbor facilities, bridges, railway lines, and other installations in maritime areas and riverine environments.” With the Congressionally-mandated growth of Special Operations Forces since 9/11 (up by 2,450 people) has also come the need to expand and increase training capabilities and capacity. NSW developed and is executing a significant Military Construction (MILCON) investment strategy to improve and expand operational training ranges, and logistical and administrative support facilities across the force, particularly at its major centers of gravity in San Diego, Little Creek, Virginia, Stennis, Mississippi, and Hawaii. The mission of Naval Special Warfare Command is to man, train, equip, deploy and sustain NSW forces for operations and activities abroad, in support of Combatant Commanders and U.S. national interests. Major Component Commands > > > >

Naval Special Warfare Group ONE, San Diego (SEAL Teams, Logistical Support, Training Detachments and Mobile Communication Teams) Naval Special Warfare Group THREE, San Diego (Undersea proponent) Naval Special Warfare Group ELEVEN, San Diego (Reserve Force) Naval Special Warfare Center, San Diego (Basic and Advanced Training)

NSW is organized around 8 SEAL Teams, 3 Special Boat Teams, 1 Seal Delivery Vehicle Team and supporting commands including 5 overseas units. The enterprise is comprised of approximately 9,350 total personnel, including more than 2,600 active-duty SEALs and 700 Special Warfare Combatantcraft Crewmen (SWCC), nearly 725 reserve personnel, 4,625 support personnel, 1,150 civilians and 250 contractors. NSW constitutes a small investment, but provides tremendous strategic military value.

Space and Naval Warfare Systems Command (SPAWAR) As the Navy’s Information Dominance systems command and Information Technology technical lead, SPAWAR (pronounced spā-wôr) provides the hardware and software to connect our Nation’s warfighters at sea, on land, and in the air. SPAWAR is one of three major Department of Navy acquisition commands. SPAWAR’s total budget in FY12 was $9.3 billion, with $7.8B (84%) going to contracts with private industry. In San Diego, SPAWAR experienced steady growth over the past decade with annual orders exceeding $2.6 billion in FY12. More than 50 percent of that amount directly supported partnerships with industry and small businesses. As a major acquisition command, SPAWAR’s presence in San Diego attracts a large number of advanced technology and

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defense industry companies to maintain offices or set up headquarters nearby. With a space support activity, two system centers and three program executive offices, SPAWAR provides the hardware and software needed to execute Navy missions. SPAWAR consists of 9,764 active duty military and civil service professionals (9,191 civilian + 573 military) located around the world, keeping SPAWAR close to the Fleet and at the forefront of research, engineering, and acquisition. Nearly half of all SPAWAR employees (4,588) work in San Diego with $701 million going directly toward salaries and total benefits in the San Diego economy. SPAWAR’s Information Technology products and services transform ships, aircraft, and vehicles from individual platforms into integrated battle forces, delivering and enhancing information dominance and awareness among Navy, Marine, joint forces, federal agencies, and international allies. SPAWAR supports the full product lifecycle from the initial research and development to acquisition and deployment to operations and logistics support. SPAWAR develops, delivers, and sustains communications and information capabilities for warfighters, keeping them connected anytime and anywhere. SPAWAR Headquarters and SPAWAR Systems Center Pacific (SSC Pacific) are at the forefront of research, engineering, acquisition, and support services providing vital decision superiority to our forces. The technical nature of SPAWAR’s work equates to a highly educated and innovative workforce. When compared to other sectors, SSC Pacific typically ranks in the top ten organizations for new patents filed annually in San Diego. SPAWAR is dedicated to helping nurture the next generation of science, technology, engineering, and mathematics (STEM) professionals and hosts a wide variety of K-12 education outreach events including: classroom demonstrations and presentations, international robotics competitions, community events, science fairs and festivals, internships, and mentorship activities. SPAWAR is highly engaged with local colleges and universities. In addition to research and academic partnerships, SPAWAR offers a wide array of student employment programs including the Student Temporary Employment Program (STEP), the Student Career Employment Program (SCEP), and the San Diego State University (SDSU) Research Foundation program. SPAWAR is proud to be an integral part of every community and school district in San Diego County.

Naval Supply Systems Command (NAVSUP) Fleet Logistics Center San Diego NAVSUP Fleet Logistics Center San Diego (NAVSUP FLC San Diego) provides logistics, business and support services to fleet, shore and industrial commands of the Navy, Coast Guard and Military Sealift Command and other joint and allied forces. NAVSUP FLC San Diego delivers combat capability through logistics by teaming with regional partners and customers to provide supply chain management, procurement, contracting and transportation services, technical and customer support, defense fuel products and worldwide movement of personal property.

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In the early 1900s, Pacific Fleet ships routinely anchored in the harbor at the foot of Broadway making it a natural site for a supply depot. In 1922, the Naval Supply Depot, San Diego was formally established. A small pier was constructed and the first materials were moved into the Depot’s warehouse in February 1923. The significant growth in the Naval Supply Depot’s customer base resulted in its recommissioning as the Naval Supply Center San Diego in 1959 and FLC in 2011. In the last year FLC San Diego administered 104 Task Order contracts worth over $23 million; procured more than $50 million in materials for NAVFAC SW facilities maintenance; and provided support to more than 300 Fleet Operational activities of Commander, Third Fleet and tenant activities of Commander, Naval Region Southwest. FLC San Diego has 7,000 average annual contract actions valued at over $1 billion. For household goods, FLC assisted 17,256 walk-in customers and processed 3,506 personally procured moves. FLC handled 2,906,562 pieces of postal mail which saved $303,486 in mailing costs and also handles hazardous materials and provides Integrated Logistical Support for ships and missile systems. The Defense Fuel Support Point (DFSP) Point Loma is operated by Navy’s FLC San Diego and through 1,500 fueling evolutions a year delivers an annual throughput of 208 million gallons of jet fuel (JP-5) and diesel (DFM) to customers. Construction of a new replacement storage facility started in March 2009 and will be completed later this year. This will replace the aging existing fuel facility storage capacity for jet fuel and diesel with eight 5,250,000 gallon above ground fuel storage tanks (total capacity 42,000,000 gallons).

Naval Medical Center San Diego Naval Medical Center San Diego (NMCSD) operates in the highly competitive health care industry for personnel. NMCSD has a staff of more than 6,400 military and civilian professionals providing health care for a population of more than 92,000 active duty, family members and retired military personnel. NMCSD attracts these top performers because of patient case volume and complexity, the command’s emphasis on research, as well as access to cutting edge equipment such as femtosecond lasers for refractive ophthalmologic surgery and the most technologically advanced radiological equipment available. NMCSD is a 277-bed multi-specialty hospital and ambulatory care complex with 13 Branch Health Clinics and 10 Dental Clinics around San Diego. On any given day, NMCSD staff fills an average of 7,000 prescriptions, conducts more than 4,000 outpatient visits, administers 1,000 vaccinations, and delivers nine babies. In 2012, NMCSD deployed more than 500 personnel to Iraq, Afghanistan, Kuwait, Individual Augmentees deployed to various locations, and in support of Pacific Partnership 2012 aboard USNS Mercy (T-AH-19).

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NMCSD supports ten local Schools of Nursing through the provision of 500 annual student clinical rotations. NMCSD’s efforts help aid the San Diego community to address the shortage of qualified registered nurses, while contributing to the addition of mid-level income earners. NMCSD’s unique quality culture and patient base attract not only physicians, but research projects and dollars as well. The medical center maintains more than 300 active research protocols and more than 80 cooperative research agreements with non-military organizations. These partner organizations have contributed approximately $6.5 million to the studies. As one of the three Department of Defense (DoD) centers for amputee care, the medical center has provided state-of-theart prosthetic technology and rehabilitation services to 242 amputees who have lost a total of 327 limbs. In addition, the medical center has established a broad spectrum of health and wellness programs to enhance physical and psychological recoveries, ranging from surf and other sports clinics in the local area to the use of acupuncture, music, art, yoga, equine, and other therapies in the treatment of chronic pain and post traumatic stress conditions. NMCSD’s Project C.A.R.E. (Comprehensive Aesthetic Restorative Effort) is in place to optimize the appearance, function, and self-esteem of those who have been traumatically injured through the provision of state-of-the-art surgical and non-surgical aesthetic therapies and integrated comprehensive behavioral health support services. To date, it has treated over 360 patients who have sustained some type of physical appearance disfigurement and/or functional impairment due to trauma and resulting scarring. In addition to psychological counseling, it employs the latest surgical skin graft and wound care techniques and the use of state of the art laser technology to improve appearance and treat scars.

Marine Corps Installations West Since 1911, the U.S. Marine Corps has maintained a continuous presence in San Diego. Early temporary encampments were established at North Island and later at Balboa Park. In 1921, a permanent operating base was established at Dutch Flats and was officially commissioned as Marine Advanced Expeditionary Base San Diego. Much of the land was later converted to an air field, (now Lindbergh Field) and the remainder became the current location of Marine Corps Recruit Depot San Diego. Between the 1930s and the 1980s additional Marine Corps bases were established and disestablished throughout San Diego—Camp Holcomb, Green Farm Camp, Jacques Farm Camp, which were later incorporated into Camp Elliot; Camp Gillespie, a WWII parachute school named for a Marine Captain who participated in Kearney’s expedition to San Diego in the Mexican War and is currently Gillespie Field;

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Camp Matthews, now the site of the University of California San Diego; Camp Pendleton and MCAS Camp Pendleton and MCAS Miramar, which was returned to the Marine Corps in 1997 after fifty years as a Naval Air Station. Currently, the USMC has eight (8) bases and stations located within the Southwestern United States. Marine Corps Base Camp Pendleton, Marine Corps Logistics Base Barstow, Marine Corps Air Stations Miramar, Yuma, and Camp Pendleton are subordinate installations of Marine Corps Installations West. Their primary function is to provide the operational, logistic, and training sites for the Marine Corps largest operating force, the First Marine Expeditionary Force (I MEF). Three other bases, MCRD, the Marine Corps Combined Arms Training Center Twenty-nine Palms, and he Marine Corps Mountain Warfare Training Center at Bridgeport are part of the service level training establishment and are aligned under the Marine Corps Training and Education Command. San Diego is the hub of U.S. Marine Corps training on the West Coast. Sixty-five percent of DoD’s military use airspace and eighty-five percent of the live-fire training ranges are in the three Southwestern states of California, Arizona, and Nevada. Each of the bases is a vital link in this chain, providing unique training opportunities to prepare elements of I MEF, and other Marine Corps units, to carry out their assigned expeditionary and joint war fighting missions. In addition, MCIWEST maintains a close working relationship with Commander, Navy Region Southwest to coordinate training and activities in the San Diego region. For example, San Clemente Island is part of Navy Region Southwest, but both Navy and Marine Corps units use it for training. In order to comply with environmental laws and regulations, Camp Pendleton maintains an award-winning, extensive environmental management and regulatory compliance program. The base is built on a wide swath of coastal land that supports an estuary at the mouth of the Santa Margarita River, the last free-running river in California, and extensive salt marsh habitat. Outlying land within the base is made up of floodplain, oak woodlands, coastal dunes and bluffs, coastal sage scrub, chaparral, and several types of wetlands, including ephemeral wetlands such as vernal pools. Pro-active management and ecological research takes place in undeveloped areas of the base, which contain numerous types of endangered habitat and animals. Land within the base still includes breeding habitat for birds such as the Western Snowy Plover and California Gnatcatcher. The coastal bluffs have many of the few existing specimens of the Pendleton buttoncelery, which was named for the base. Rare mammals on the base include the Pacific pocket mouse and Stephens' kangaroo rat. The base’s aggressive management program enables these endangered species to coexist with realistic Marine Corps combat training. By the end of fiscal year 2016, the Marine Corps will cut the size of its overall force by 20,000 Marines, reducing the force from around 202,000 to around 182,000. Because

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of the strategic pivot to the Pacific, most of the reductions will fall on East Coast units. It is estimated that the Marine Corps population in the San Diego region will fall by approximately 3,500. Reductions will be gradual and will be accomplished mostly through attrition. Marine Corps aviation is in the final stages of the introduction of the MV-22, which replaced the Vietnam-era CH-46. MCAS Miramar has completed that transition. In the near future, the last CH-46’s at MCAS Camp Pendleton will also be replaced by October 2013. Preparations for the introduction of the F-35 Joint Strike Fighter to MCAS Miramar are in the final stages. These innovative war-fighting platforms require sophisticated logistics, which will result in the importing of greater technological development to stimulate and support San Diego’s economic growth.

Marine Corps Base Camp Pendleton Since its purchase in 1942, Marine Corps Base (MCB) Camp Pendleton has occupied 125,000 acres of largely undeveloped land with more than 17 miles of coastline. Located in the northwestern corner of San Diego County, it is the Marine Corps’ only West Coast expeditionary/amphibious training center. Camp Pendleton is home to more than 10 operational tenant commands including: > > > > > > > > > >

I Marine Expeditionary Force (I MEF) 1st Marine Division 1st Marine Logistics Group, The School of Infantry (West) Assault Amphibious Vehicle School Marine Corps Tactical Systems Support Activity, a systems command organization The Navy’s Assault Craft Unit Five Field Medical Training Battalion Naval Hospital Camp Pendleton Weapons Field Training Battalion (MCRD San Diego)

With more than 125,000 acres of varied terrain and 17.1 more miles of shoreline, and terrain that rises to more than 3,000 feet, Camp Pendleton is one of the Department of Defense's busiest training installations. The base's varied topography, combined with its amphibious training areas, inland training ranges and airspace, offers maximum flexibility for Marine Air Ground Task Forces and other service units that require a realistic combat training environment. Each year more than 40,000 active-duty and 26,000 reserve military personnel from all services use Camp Pendleton's many ranges and training facilities to maintain and sharpen their combat skills. The proximity to a variety of military units, including air elements and naval forces, allows for frequent and sustained training of this nature. The mild weather of the region provides an ideal environment for training for amphibious, ground, and joint operations.

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In addition to the over 40,000 active duty service members who report to units within MCB Camp Pendleton daily, Camp Pendleton employs 2,800 civilian employees at various operational, training, Navy, and administrative commands aboard the base. Daily visitors include construction and service contractors, product vendors and delivery personnel, military family members who live in off-base residences, military retirees and their family members, as well as other base guests and visitors. It is estimated that daily population of Camp Pendleton is approximately 80,000. MCB Camp Pendleton is in the final stages of a $7.6 billion construction program, one of the largest at any DoD installation. Currently, more than $1.7 billion in active construction projects are under way. In late 2010 a new 512,000 square foot Naval Hospital was begun. Located near the main gate and commissary, the hospital, which should be completed in 2013, will serve more than 150,000 Marines, family members and retirees and allow for growth in the beneficiary population. In addition to the new hospital, the military construction program consists of a wide range of facility types and infrastructure improvements which include roads, utilities, renewable energy, operations and training ranges, administrative, maintenance, warehousing, galley, retail and troop housing. There are currently 39 new Bachelor Enlisted Quarters nearing completion as well as up to 924 new family housing units aboard the base. MCB Camp Pendleton continues to make numerous training enhancements a top priority. Phase II of the Infantry Immersion Trainer is complete, at a cost of $30 million, and provides the operating forces a small-unit training range that consists of urban structures furnished and decorated to replicate specific geographic locations. The stateof-the-art Improvised Explosive Device (IED) Training Lanes are also complete, at a cost of $9 million, and help Marines identify and neutralize IEDs. The enhancements to the Combat Convoy Simulator, Tactical Video Capture System, Live-Fire Convoy Course, Combined Arms Raid Facility, Close Air Support urban target sites, combat towns, industrial urban training site, as well as numerous smaller urban training sites, are additional examples of further training systems that Camp Pendleton currently operates in order to support today’s fight while preparing for tomorrow’s future. In addition to providing the home of I MEF, Marine Corps Base Camp Pendleton is primarily a training base. Camp Pendleton has 95 live fire ranges, 38 training areas, five training beaches, three sea space areas, nine impact areas, thirteen urban training facilities, and four separate blocks of airspace. MCB Camp Pendleton also provides one of the last stretches of undeveloped land on the southern California coast to support expeditionary amphibious operations for the Marine Corps, Navy, and Army Joint Logistics Over The Shore. A lease for 2,000 acres belonging to MCB Camp Pendleton, leased to the State of California since 1970, will expire in 2021. Currently under the National Environmental Policy Act review process, an environmental assessment is set for release to restore a former agricultural area located at the northern end of the base to a training area that will house several new urban training facilities.

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Marine Corps Air Station Camp Pendleton Marine Corps Air Station (MCAS) Camp Pendleton is a major helicopter base for Marine Aircraft Group 39, a subordinate unit of the 3rd Marine Air Wing (MAW) based at MCAS Miramar. MCAS Camp Pendleton houses 8 active squadrons, 1 maintenance and logistics squadron, 1 support squadron, and 1 headquarters squadron under Marine Air Group (MAG) 39. The Air Station hosts the only training squadrons for both CH-46E and H-1 helicopters. Within its 458 acres, MCAS Camp Pendleton conducts training, testing and maintenance, as well as environmental and facility maintenance functions. Squadrons at MCAS Camp Pendleton benefit from its proximity to the First Marine Division units it supports, and training ranges within MCB Camp Pendleton. Over the past few years, MCAS Camp Pendleton has introduced the UH-1Y and the AH-1Z, upgraded versions of the UH-1N Huey and AH-1W Super Cobra, respectively. UH-1Y fielding was completed in fiscal year 2010 while the AH-1Z fielding will continue through this decade. In addition, MCAS Camp Pendleton will receive the MV-22 Osprey replacement for the CH-46E Sea Knight. Fleet Introduction Teams will maintain a longterm presence at MCAS Camp Pendleton to ease the transition to these new aircraft, thus bolstering San Diego’s defense service industry. With the transitioning of aircraft and their crews and the construction of a new hangar there will be a temporary increase to nearly 6,000 people working on MCAS Camp Pendleton within the next five years. In addition, taxiway improvements, repair and expansion of hangars and buildings, expansion of the Combat Aircraft and Loading Area and construction of aviation training and avionics communications facilities have occurred or are scheduled to occur within the next few years. Aviation technical training will increase from 600 to 900 students over the next five years. MCAS Camp Pendleton plans a 20% increase in personnel and a 50% increase in students undertaking technical training over the next four years.

Marine Corps Air Station Miramar The MCAS Miramar is home to the 3rd Marine Aircraft Wing, the Marine Corps largest aircraft wing. Its major subordinate units include Marine Aircraft Group (MAG) 11’s fixed wing F/A-18 Hornet and KC-130J Hercules squadrons as well as MAG 16’s MV-22 Osprey and CH53E Super Stallion helicopter squadrons. In addition, MCAS Miramar houses a variety of support commands including Marine Air Control Group 38, Marine Wing Support Squadrons 371, and the 3rd Marine Aircraft Wing Band. In addition to active duty units, MCAS Miramar hosts elements of MAG 46 and the 4th Tank Battalion, both Reserve components. A U.S. Army Reserve Regional Support Center is planned in the coming years.

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The MCAS Miramar location is the key to its strategic importance to the Marine Corps. Located at the hub of two-thirds of the nation’s military use airspace, units based there can train to perform nearly every possible mission from their home base. Moreover, MCAS Miramar is a crossroads that provides flexibility for training on land as well as in the air. East Miramar, comprised of parts of old Camp Elliot, offers more than 15,000 acres of hilly desert terrain, provides a location for five small arms ranges, a facility for nuclear, biological and chemical training, and an aircraft fire rescue training site, as well as ground training in land navigation and convoy operations. Besides active duty Marine units in the San Diego area, U.S. Army, Army National Guard, Navy, Marine Reserve and Reserve Officer Training Corps units all utilize MCAS Miramar’s facilities and training areas. In support of local civilian law enforcement, the San Diego Sheriff’s Department operates firing ranges and a canine training facility at MCAS Miramar. Community Outreach: MCAS Miramar Community Plans and Liaison Office (CPLO) continually engages with the local community, private and public projects. CPLO representatives attend local community planning group meetings to ensure that public infrastructure and private developments are consistent with AICUZ guidelines. Additionally, MCAS Miramar hosts monthly Community Leaders Forums (CLF), which fosters a working relationship between MCAS Miramar and civic leaders in adjacent communities to discuss any concerns or issues. The Miramar Technical Advisory Committee (MTAC) works with MCAS Miramar to educate local communities about Marine Corps training activities and operational needs. Upcoming Changes : Up to six squadrons of the MV-22 Osprey, which is the replacement for the CH-46E Sea Knight, will be stationed at MCAS Miramar. In addition, MCAS Miramar will receive up to six squadrons or 96 of the F-35B Joint Strike Fighters. Over $167 million in construction was awarded in FY 2011 with runway/taxiway expansion, aircraft hangar modifications, and sustainable/ renewable energy projects. The MCAS Miramar Air Show, due to cuts in DoD funding in 2013 under sequestration, will only have stationary military aircraft displays for the 2013 show. However, there will be civilian flight demonstrations. Typically, the event has attracted up to 700,000 visitors to watch the spectacular aeronautic performances and to explore the static displays and vendor booths. The weekend event brings in gross revenues averaging $9.25 million and is the largest weekend event in the County. MCAS Miramar also provides tours to visiting groups and brings educators from west of the Mississippi River to San Diego area bases.

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5th Annual SDMAC Military Economic Impact Study | San Diego Region | 2013

Marine Corps Recruit Depot, San Diego Marine Corps Recruit Depot (MCRD) San Diego is home to the Recruit Training Regiment and the Western Recruiting Region headquarters. Aboard the Depot, male recruits from the western two-thirds of the United States come to earn the title, Marine. Its 388-acre area was selected as a site to establish a Marine Corps base in the early 1900s. In fact, the Depot is the first purpose-built Marine Corps installation with a 110-acre historic district which is listed on the National Register of Historic Places. MCRD San Diego was built in 1921 and was originally home to the 4th Marine Regiment. Marine recruits have been training here since 1923 - a mission that became a primary function during World War II. At MCRD San Diego, Marine drill instructors currently transform more than 18,000 recruits into Marines each year. A basically trained Marine undergoes nearly 13 weeks of the most demanding training in the country. The recruits’ physical and mental endurance are tested daily as they train hard to acquire the knowledge, discipline, teamwork, and fitness level required of a Marine. During their training, recruits travel to Weapons and Field Training Battalion, located 40 miles north of the City of San Diego at Edson Range, Marine Corps Base Camp Pendleton, California. During their three weeks at Edson Range, recruits undergo marksmanship training, martial arts sustainment training, and field training introducing them to a variety of basic infantry skills. In addition to training recruits, the Depot employs over 2,500 active duty Marines, Sailors, Coast Guardsmen and civilians. Facility Renovations: In 2007 MCRD San Diego began updating and expanding its facilities to support 5,000 additional U.S. Marine Corps recruits per year entering recruit training at the Depot. One additional standard barracks and one special training company facility for injured recruits have been added. The latter facility is the first stand-alone Marine Corps funded sports medicine facility dedicated to the prevention, assessment, and rehabilitation of injuries related to recruit training. The 33,476 square foot, two-story building serves as a sports medicine hub for the Depot. It houses the Marine Corps Sports Medicine and Injury Prevention Program and the Navy Sports Medicine and Reconditioning Center. The staff includes two sports medicine physicians, orthopedic trained physicians’ assistants, and ten certified athletic trainers. It features a state-of-theart diagnostic ultrasound machine as well as a cutting edge rehabilitation gym equipped with antigravity treadmills and a dedicated therapy pool. It has earned a platinum certification from LEED for its design and strategies aimed at achieving high performance in clean and efficient energy, water savings, and

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recycled building materials. Additionally, current academic instruction classrooms are being updated and a new logistics support building is being constructed to replace older less energy-efficient buildings. Over $61 million has been spent on the construction of new facilities. Tourism Industry Support: Over 50,000 friends and family members from throughout the western United States and the Pacific visit San Diego annually to see their Marines graduate from MCRD San Diego. In addition, MCRD San Diego hosts reunions of veterans’ groups, attracting groups of visitors who stay in local hotels and explore the unique sights of San Diego. One of three Marine Corps command museums is located at MCRD San Diego, which is a major attraction and welcomes 128,000 visitors per year. Twenty-five buildings at the installation are listed on the National Register of Historic Places.

Conclusion - The Mutual Benefits of the Military in San Diego The strategic value of the San Diego region cannot be overstated. The unique relationship between the military and the San Diego region exists nowhere else in the country. The presence of DoD facilities, personnel, and equipment generates a significant economic impact on the San Diego region that far outpaces other industries in the area.

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2013 sdmac economic impact study