Defense Industry Economic Impact Study

This study examines the size, growth, features, and economic impacts of the defense industry for the Charlottesville Region. Charlottesville’s defense industry has grown over the last decade and includes more than 100 local entities involved in defense intelligence and research, military education, and defense contracting. Statistics from public data sources indicate that Department of Defense (DoD) military and civilian employment grew by 15 percent from 2011 to 2021. These publicly available figures, however, vastly underestimate the size and actual growth of DoD employment in the region because employment for two major military employers is excluded
from the regional data. When estimated employment figures for these entities are added, the tabulated growth rate increases to 67 percent. Federal employment data on defense industry procurement is not available. However, using public procurement data, the Weldon Cooper Center estimates that, over the same period, employment grew an estimated 50 percent in work related to contracts and research grants. Lastly, DoD and Veterans Administration (VA) expenditures connected to the presence of retired military veterans, Armed Forces students, and DoD-funded university spinoffs also suggest that the defense industry’s regional economic footprint is growing.

For purposes of this study, the “defense industry” is understood to encompass several major entities and components that account for DoD and military veteran spending in the region, including: (a) Rivanna Station, (b) The US Army Judge Advocate General’s Legal Center and School, (c) Veterans, (d) the University of Virginia, (e) Defense contracts made with other private businesses and non-profit organizations in the region, (f) Virginia National Guard and Reserves, and (g) A residual category referred to as “Other sources” consisting of smaller spending and employment items not included elsewhere. The study region consists of the area encompassing the City of Charlottesville, Albemarle County, and Greene County in Virginia.

This study uses input-output analysis to gauge the contribution of the defense industry to the region. Input-output analysis produces industry economic multipliers that show how changes in employment or expenditures affect a regional economy. Defense industry expenditures made in the region are counted as direct injections into the local economies. All the expenditures from the DoD and VA budgets accounted for in this study originate from outside the community. Linkages with other industries in the area means this initial injection has further stimulative effects that result from the purchases of goods and services and payments to employees. The stimulus causes a “multiplier effect” that results when money is re-spent in the local economy. The impact analysis for this study used IMPLANTM, an industry standard input-output model that has been used in many state and regional studies of the defense industry and individual military installations.

Results are presented for four different economic measures (employment, labor income, value-added, and output) and one fiscal measure (local government revenue) in 2021. The total economic impact is also disaggregated into three parts that describe the sources  of the economic impact: a “direct effect,” “an indirect effect,” and an “induced effect.” The direct effect or impact consists of economic activity, such as employment, output, and income directly attributable to the expenditures of the DoD. The “indirect effect” consists of impacts attributable to purchases of production inputs (such as services and supplies) by defense industry entities within the region. The final component of total impact (the “induced effect” or “induced impact”) is attributable to worker household, veteran household, and active-duty military student household income and spending.

Economic impact results indicate that the defense industry directly accounts for 3,972 jobs, $421 million in labor income, $501 million in value-added, and $642 million in output. When indirect and induced impacts stemming from this activity are accounted for, the total regional economic impact is 7,347 jobs, $618 million in labor income, $831 million in value-added and $1.2 billion in output. This represents 5.9 percent of Charlottesville region employment, 7.5 percent of labor income, 6.2 percent of value-added, and 5.7 percent of output.

A breakdown of economic impacts by regional defense industry component shows that Rivanna Station is the largest single component, accounting for approximately half of the total regional defense industry employment impact. Its total regional economic impact is 3,790 jobs, $395 million in labor income, $513 million in value-added, and $643 million in output. Next in order is DoD contracts for military equipment and services with businesses, such as Northrop Grumman and over 70 other area businesses, representing 18 percent of the total economic impact. The total economic impact of DoD contracting is 1,307 jobs, $101 million labor in income, $139 million in value added, and $278 million in output. The University of Virginia is the third largest economic impact component, representing 14 percent of the total employment impact. Its regional economic impact is 946 jobs, $57 million in labor income, $74 million in value-added, and $131 million in output. After UVA, veterans and the Judge Advocate General’s School and Legal Center had the fourth and fifth largest economic impacts respectively. Veteran spending accounts for 8 percent of the total defense regional economic impact. Its total regional
economic impact is 553 jobs, $52 million in labor income, $57 million in value added, and $90 million in output. The JAG Legal Center and School and Center accounts for 6 percent of the total defense industry regional impact. The final two components of economic impact by regional defense industry are Reserves and National Guard (4 percent of the total regional employment impact) and a miscellaneous category that includes military recruitment stations (less than 1 percent). The former has a total economic impact of 289 jobs, $8 million in labor income, $9 million in value-added, and $9 million in output while the latter produces a total economic impact of 32 jobs, approximately $3 million in labor income, $4 million in value-added, and $5 million in output.

An ongoing Rivanna Station capital project is another source of regional economic impact. It will provide a temporary boost to area economic activity during the 2022-2024 period. The project is estimated to create a direct economic impact of 523 jobs, $29 million in labor income, $35 million in value added and $68 million in output. Once indirect and induced effects are accounted for, the total  regional economic impact is 687 jobs, $39 million in income, $53 million in value-added, and $96 million in output.

The regional defense industry also may have an impact on the local community through improved safety, increased volunteerism, better social and economic distributional outcomes, and greater innovation. Some research suggests that military members exhibit high rates of community engagement. Several examples from the largest defense industry organizations illustrate the range and depth of military members’ commitment to sponsored community activities, including community service activities undertaken by the JAG School as part of a 15-week course; Rivanna Station personnel involvement in local school science and technology education activities; and ROTC program volunteer activities for veterans and disadvantaged residents. Several academic studies indicate that federal military facilities improve community perceptions of safety and decrease regional crime rates. One recent study also found that DoD spending has a positive effect on local social outcomes, such as lower rates of poverty, divorce, health insurance, disability, and mortality; and an increase in homeownership and job quality. Lastly, DoD-funded university patent activity has increased in the last two decades and is associated with an increase in university startups.