* Layoff notices could galvanize Congress into action
* Effect on smaller companies said area of concern
* Critics say companies trying to hold onto profits
By Andrea Shalal-Esa
WASHINGTON, June 26 (Reuters) - Senator Kelly Ayotte, a top contender for a vice presidential post with Republican presidential candidate Mitt Romney, on Tuesday urged Congress to act quickly to avert an additional $500 billion in devastating defense budget cuts.
Ayotte, who serves on the Senate Armed Services Committee, said lawmakers could not wait to resolve the issue until after the 2012 presidential election since defense contractors must start warning hundreds of thousands of workers about possible layoffs as early as October.
The New Hampshire senator said the layoff notices, required under the Worker Adjustment and Retraining Act (WARN) that took effect in 1989, could help galvanize U.S. lawmakers into action.
“I wouldn’t want to be ... up for reelection in a district with thousands of WARN act notices coming out right before my election when as a member of Congress I didn’t take the responsibility to resolve this,” she told an event hosted by TechAmerica, a group that represents U.S. technology companies.
She said possible job losses could also be a “sleeper issue” in the presidential election.
Ayotte said the additional cuts, which would come on top of $487 billion in cuts already being implemented by the Pentagon over the next decade, would undermine U.S. national security and have a devastating impact on the defense industrial base.
Lockheed Martin Corp, the Pentagon’s largest supplier, and other big weapons makers say uncertainty about the cuts is already spurring layoffs and plant closings.
The National Association of Manufacturers last week released a new report which said the automatic budget cuts would knock about 1 percent off U.S. gross domestic product by 2014 and could result in the loss of 1 million jobs.
Ayotte also cited concern about the effect the threatened additional budget cuts would have on smaller firms that supply components to big defense contractors, many of which build just a single component for weapons systems.
“They’ll do something else and then we have to recreate that capacity, and that cannot happen overnight,” she said.
Ayotte told reporters after her speech that she disagreed with Senate Majority Leader Harry Reid and House Majority Leader Eric Cantor, who have suggested putting off budget discussions until after the election, or possibly next year.
“I think that they’re wrong on this,” Ayotte said, adding that a growing number of lawmakers appeared to be getting engaged on the issue. “We can’t wait until after the election.”
Ayotte called for working groups in both the House and Senate to find alternate ways to cut federal deficits, noting that Congress could postpone the cuts by one year by reaching agreement on around $109 billion in other deficit reductions.
One option would be to refrain from filling one out of every three federal jobs that came open, she said. She said she was also open to looking at closing some tax loopholes and other measures to boost revenues, but felt that spending also needed to be cut and entitlement programs needed to be reformed.
In Washington, conservative and liberal think tanks that seldom see eye to eye, including the Heritage Foundation and the Brookings Institution, oppose the additional defense cuts, which would be applied indiscriminately across the board.
But some critics say defense companies are just looking for a way to justify continued military spending even though the war in Iraq is over and U.S. troops are moving out of Afghanistan.
“Simply put, defense contractors are using their own workers as pawns -- threatening them with massive layoffs -- to scare up political opposition to any attempt to rein in runaway spending at the Pentagon,” wrote William Hartung and Stephen Miles in a blog on the Huffington Post.
They said Lockheed generated nearly $4 billion in profit last year and $81 billion in orders on backlog, while Lockheed Chief Executive Bob Stevens got $25.8 million in compensation, more than all by two Wall Street CEOs.