The 3rd Stocks Essay Contest – Youngstown State University – Copyright Barbara Neiswanger (2011)
THE SOCIOECONOMIC IMPACT OF FORCE REDUCTION AND
MILITARY INSTALLATION CLOSURE
By Barbara Neiswanger
Introduction
“Bigger” is not necessarily the efficient “better,” or is it? When the United States was at war
with the Soviet Union, the belief of who had the biggest arsenal and largest ground force was
imperative to strategizing during the conflict. However, the tit-for-tat tactic held during the Cold
War is no longer an efficient approach. With the national debt increasing, installations have
been eliminated in order to utilize taxpayer’s dollars more resourcefully. The system the
Department of Defense (DOD) has developed to eliminate surplus military infrastructures is
known as the Defense Base Closure and Realignment Commission (BRAC). The Commission
first convened in 1988 with a total of four separate BRAC rounds, one in 1988, 1991, 1993, and
1995. “A total of 261 stateside activities, to include 97 major installations1, were identified for
reduction or closure (Siehl and Knight, 1996). Closing military installations leave a number of
economic considerations which impact each of the communities that surround them.
Determining whether base closure is a good socioeconomic decision or not is a major
concern when establishing public policy. “The Department of Defense used eight criteria for
base selection under the four BRACs: four related to ‘military value,’ one related to ‘return on
investment,’ and three concerning local ‘impacts’” (Poppert and Herzog, 2003). This may
suggest that the probable socioeconomic impacts are not the highest valued when considering the
closures, more so military cost is. Unfortunately, this may lead to flawed judgment as policy
makers are not considering the overall externalities which result from a force reduction. “In fact,
8 of the 61 major facilities designated under BRAC 1993 and 1995 were located in “highly
vulnerable” communities (Siehl and Knight, 1996). This paper will examine: the direct and
indirect effects of military base closures, the federal assistance endowed in the conversion of
facilities for reutilization, suggestions as to what policy-makers should consider, and a
theoretical analysis as to what the socioeconomic effects would be on the Youngstown-Warren
Metropolitan Statistical Area (MSA) if the Youngstown Air Reserve Station in Vienna, OH were
to close.
Direct and Indirect Effects
The direct effects following a force reduction is equal to the loss in military and defense civilian
personnel that are no longer employed at that installation. “At major BRAC bases, the mean
(net) loss of military and defense civilian employees was 4,109 per base through September
1998, for a total of 398,592 personnel (and 464,000 acres) across the 97 installations” (Poppert
and Herzog, 2003). However, because these resources are usually not isolated elements there are
ripples that trickle into the communities that surround them, known as indirect effects.
Calculating these effects are challenging, which is why they are usually measured in income
1
A major installation is one that has employed at least 300 military and civilian personal as of 1987 or thereafter
(Poppert and Herzog, 2003).
terms, assessed as off-base employment (which can be induced or reduced by the closure—to
include the effects triggered by altering patterns in consumption). For the sake of this
assessment, I will focus on the indirect effects associated with income and then later will propose
the additional considerations policy makers should take into account.
Although direct effects are easily obtained through unemployment rates and other
government documents, the indirect effects are obtained through qualitative assessments. Recent
closures, due to the inadequate time period for proper adjustment and analysis, are unable to
clearly assess the full impact. However, several studies have been performed on the earlier base
closures and have all generally “concluded that BRAC impacts were less negative than
expected” (Poppert and Herzog, 2003). In fact, Mark A. Hooker and Michael M. Knetter,2
projected the job-loss multipliers to be less than one in most of their findings (2001). They
further stated that, “this implies that nonbase [sic] employment in closure counties, on average,
actually grows faster than under the counterfactual. Rather than job loss spilling over from the
base to other sectors, as is typically assumed in ‘impact analysis,’ job creation is induced, as one
might expect if the base’s resources are well deployed in alternative uses” (Hooker and Knetter,
2001). Some studies propose these findings by generating a hypothetical regression chart which
calculates the counterfactual county and state growth, had the base not closed. One flaw in these
studies may be that the results were calculated on samples which were not random, yet counties
that were beforehand cited for closure, which in any case, may distort the actual results. A lot of
coastal region bases actually are being slotted to close do to urban sprawl and the encroachment
on the base land; in which case the economy is profoundly better off3. Also it is plausible, by the
considerably large employment losses two years prior to the closures, that an anticipation effect
may have preceded the force reduction affecting the magnitude of the multiplier results.
Many forecasters perceived adverse economic consequences stem from the thought that
the income and employment generated by military bases are generally from outside of the area
and represent a large portion of the local economy. However, oftentimes major military
installations are self-sustaining by themselves and may be thought of as “little cities”. With the
presence of many conglomerates within the base grounds—at a cheaper and tax-free rate—
consumption is more appealing to defense personnel within the confinement. Expenditures of
normal goods from the surrounding communities are then reduced—which may be one reason
the multiplier effect appears to not be significantly different than one. Also remember, that
although some communities could be listed as highly vulnerable to the closures, they become
outliers in the total average analysis. Geographically, 40 percent of closures have occurred in
California where natural amenities, as well as regional factor specialization, are more likely to
occur and recover from the reduction4. Even though, the areas must be cleaned of environmental
contamination before it is authorized for redevelopment projects or sold into the general public.
2
Hooker: Principal, State Street Global Advisors, Knetter: Professor, Amos Tuck School, Dartmouth College.
This is also a current issue with Luke Air Force base west of Phoenix AZ, and Nellis Air Force Base in Las Vegas
NV, which for example can no longer takeoff from one of its runways (based on the negative externality of the
excess noise and disruption of the civilian population) due to the encroachment from urban sprawl.
4
Presidio Army Base, in San Francisco, and Moffett Field Naval Air Station, in Silicon Valley are just two
examples.
3
Land Re-Utilization
The DOD is responsible for the completion of this project; however, because of the allocation of
funds the process is regularly a lengthy endeavor. “Approximately 10% of the property from
bases closed in prior BRAC rounds has yet to be cleaned for transfer” (Cowan and Gonzales,
2010). One imposition that is imposed by environmental cleanup is that the DOD is only
obligated to clean up the land to an industrial standard. The community is then responsible for
further redevelopment if they desire the property for means of housing, schools or other uses.
This more stringent decontamination level has potential costs that are burdensome on
communities and will often increase the probability that the property will then remain vacant.
Rural communities struggle much more than urban communities5. To develop the base
into a new source of a comparative advantage takes an entire community effort. The strengths
these sites hold over other pieces of property is: the pricing is usually steeply discounted, liability
for environmental protection is indemnified, and federal grants and other incentives exist to aid
in these efforts of redevelopment, as well as create new jobs (Cowan and Gonzales, 2010).
Some weaknesses to these programs are: they establish dead weight loss areas, it is difficult for
communities to support, and environmental cleanup can be extremely costly over and above the
federal assistance.
Federal Assistance
Federal assistance comes in many forms but is not always effective. One type of assistance is
direct assistance intended for military families for relocation. If military members are involved
in a force reduction, the government has agreed to purchase their housing at fair market value.
This was an oversight I found in most studies. These costs could be looped into relocation
expenses in most cases; however, with the increased supply of government housing in low
demand a negative externality within the community is produced. Significant sections of
housing abandonment occur, home prices are decreased and the true costs to those communities
are underestimated. There are agencies that are more efficient, however. The DOD’s Office of
Economic Adjustment (OEA) will coordinate with 22 major agencies to grant technical and
financial assistance to affected regions in order to lessen the impact. “So far, from 2005 to 2008,
OEA already has distributed $108 million to communities nationwide” (OEA). The aid,
nonetheless, disguises the true costs in the reutilization of the land.
The Youngstown-Warren MSA
Hypothetically, if the Youngstown Air Reserve Station were to close, what would the impact be
on the surrounding Youngstown-Warren MSA? I believe a multiplier effect of slightly more
than one but slightly less than two would exist. The reason for this proposed theory is based on a
number of assumptions and assessments. The base is a major installation, yet only a minimal
convenience store and hotel are established on-site, lacking most necessities for self-sufficiency.
This implies the housing market, as well as other necessities for a household induce the
5
Rural communities such as Minot and Grand Forks Air Force Bases in North Dakota, which do not have the urban
sprawl growing their communities would struggle recouping their loses from the direct effects, without dispensing
monies for redevelopment projects.
consumption rate in the immediate localities, comparable to that of similar base communities.
The base is also located next to a major highway and strategically placed in the middle of
Pittsburgh and Cleveland MSAs, which creates an ideal location for an industry looking to
decrease transportation costs. Uses for base property that have been successful in other areas, in
contrast, may not be appropriate for the Youngstown Air Reserve Station. The marginal cost vs.
the marginal benefit is difficult to assume, however, the labor pooling in this area consists of
factory and steelworker industries. To re-develop the Air Base into another factory area would
be unlikely and it may be more probable that in a declining MSA such as Youngstown, the Air
Base may become yet another brown field. It would be unlikely that the small municipality of
Vienna would have the resources to support a re-development project of this size.
Conclusion
To conclude that bases should be closed because the opportunity cost of the land can be utilized
for higher economic consumption, would be like saying there should be no taxes because people
would consume more normal and luxury goods had their income not been taxed. This fallacy
would eliminate public goods as well as national protection. Even after the Cold War, it is
economically necessary to have established some level of a tit-for-tat strategy for the
psychological protection of the country we all live in. The socioeconomic impact on the
community and alternative economic opportunities are effects that policy makers should take
into consideration. Presidio Army Base in San Francisco is a socioeconomic success story in
base closure history. Since the base was closed, the area has become transformed into the David
Letterman Complex, the George Lucas Headquarters, and luxurious real estate, among other
alternative uses that have induced consumption and economic growth. However, a non-metro
base, such as Kincheloe Air Force Base located in the Upper Peninsula of Michigan, before
closure was part of a county with a 1990 population of 34,800 and covered over a million acres,
is now part of a community with fewer than 2,000 (Stenberg, 1993).
A determination of a closure is based on eight criteria in which only three of the eight
consider the impacts on society. Overall, however, the research suggests that the aggregate data
creates, on average, a multiplier of less than one. Although this evidence in general suggests that
base closures have not caused a significant socioeconomic impact, there are other considerations
we must keep in mind. First, the samples of bases in most studies are not random, so closing a
base in a highly vulnerable area may cause a greater net loss to society. Also, without federal
assistance programs, most communities would not have survived the direct and indirect impacts
from job losses and the market adjustment in consumption. Each community has its own
individual challenges, and rural areas may experience substantially greater and longer-term
economic dislocation from the realignment process than urban and suburban areas. The
propensity of economic opportunities across regions should be a consideration for policy-makers.
If policy-makers were to choose bases with the highest economic return, over vulnerable ones,
the nation’s economy would benefit the greatest.
References
"Base Realignment & Closure (BRAC)." U.S. Department of Defense Office of Economic
Adjustment (OEA). N.p., 29 Sept. 2010. Web. 7 Apr. 2011.
<http://140.185.104.240/index.php?option=com_content&view=article&id=52&Itemid=
47#oeahelp>.
Cowan, Tadlock, and Oscar R. Gonzales. "Military Base Closures: Socioeconomic Impacts."
Congressional Research Service 7-5700 (2010): 1-6. Congressional Research Service.
Print.
Hooker, Mark A., and Michael M. Knetter. "MEASURING THE ECONOMIC EFFECTS OF
MILITARY BASE CLOSURES." Economic Inquiry 39.4 (2001): 583-598. Print.
Poppert, Patrick E., and Henry W. Herzog Jr.. "FORCE REDUCTION, BASE CLOSURE, AND
THE INDIRECT EFFECTS OF MILITARY INSTALLATIONS ON LOCAL
EMPLOYMENT GROWTH." Journal of Regional Science 43.3 (2003): 459-481. Print.
Siehl, George H., and Edward Knight. "Military Base Closures Since 1988: Status and
Employment Changes at the Community and State Level." CRS Report for Congress 17
June 1996: 1-65. Print.
Stenberg, Peter. “Rural Communities and Military Base Closures.” Rural Development
Perspectives. Vol. 13, No. 2. 1998.