
DATE: Wedneaday, November 19, 1997          TAG: 9711180414

SECTION: FRONT                   PAGE: A1   EDITION: FINAL 

SERIES: Future of the Fleet 

SOURCE: BY DAVE MAYFIELD, STAFF WRITER 

DATELINE: PORTSMOUTH                        LENGTH:  371 lines

NAVY'S NEW BUSINESS STYLE BRINGS ECONOMIC PAIN, GAIN

Never one to miss a good show, Lt. Cmdr. Dan Zeise stationed himself behind a construction fence at the Navy's Craney Island fuel depot and watched as the ``can opener'' rolled toward its target.

A few yards away, a Korean War-vintage jet-fuel tank was about to meet its end.

The 210,000-gallon tank, its paint fresh-looking, its skin unblemished by rust, looked hardy enough. But upgrading it - and four others like it - to meet tougher environmental standards would cost $1.1 million.

So, calculating that it had enough storage capacity without them, the Navy chose a cheaper option: demolishing them. For that it will pay $300,000, after reaping revenues from the recycling of the scrap steel.

In the overall scheme of things, the tanks were minor victims of the ``rightsizing'' and cost-efficiency trends that are dramatically reshaping the sea service as it sails toward the new millennium.

But the same logic that sent an excavator's claw plunging into the last of the big steel cylinders, that saw the tank rent with a metallic groan, is changing the face of commands across Hampton Roads, the Navy's largest port.The business approach Increasingly, Zeise and other officers are being pressed to think like business executives: ``What is the cheapest way to accomplish the Navy's mission?'' they are asking themselves. ``What is the return on investment?''

The answers to those questions are the keys to understanding why the economic pain caused by the service's near-decade-long drawdown is still far from over here.

For while Hampton Roads is getting a larger slice of the Navy pie, that pie is shrinking so quickly that the bigger slice amounts to less pie overall.

More importantly, within the region there are mounting pressures on Zeise and his colleagues to empty the fat from that remaining slice, by whatever means necessary.

At Craney Island, the result is that the decision to destroy the tanks will be one among many aimed at shrinking the Navy's expenses - and, most likely, its work force - at the grassy 900-acre complex.

Sometime in the next year, the service plans to decide whether to ``out-source'' to a private contractor the entire Craney Island operation. Down the road, some say, this largest of the Navy's stateside fuel facilities could even be sold to a private operator.

``I can't explain enough the pride I have for the guys who have worked here,'' Zeise said of his civil-service work force. ``They have done a tremendous job for me.

``But we've now got to look at what's best for the taxpayer,'' he said, noting that the bottom line is: ``What is the best thing to do for the long run?''

First, the good news.

It is true that as the Navy shrinks, it is increasingly centralizing operations in the region. The service's plan to base all of its F-14 Tomcat fighters and all of its East Coast F/A-18 Hornet attack jets at Oceana Naval Air Station in Virginia Beach is the best example of this trend.

And even with 30 fewer ships than its peak of about 130 a decade ago, Hampton Roads' share of the fleet - approaching one-third - is bigger than it was back then.

It is true, also, that the drawdown is showing signs of tapering. In terms of ships and sailors, the Navy is more than 85 percent of the way toward its projected bottoming-out point around the turn of the century. Four of the five to 10 ships Hampton Roads now stands to lose over the next five years are submarines, which are among the Navy's least sailor-intensive.

Still, the Navy's economic impact in Hampton Roads almost certainly will continue to decline.

``We have a lot of infrastructure sitting out there that, candidly, if we looked at it in a comprehensive manner, we probably don't need,'' said Rear Adm. David R. Ruble, the Atlantic Fleet's supply officer and director of logistics.

He and other Navy officials use an acronym to sum up their intentions: COPE. It stands for consolidation, outsourcing, privatization and, as Ruble puts it, ``out and out elimination'' of facilities or skills deemed unnecessary.

Defense Secretary William Cohen invoked the acronym last week in announcing plans to eliminate more than 31,000 Defense Department jobs over the next five years, in still another reorganization of Pentagon offices and business practices.

With or without that initiative, Navy leaders said further job cuts in Hampton Roads are inevitable.

How many? No Navy official interviewed for this story would hazard a guess. But John Whaley, chief economist for the Hampton Roads Planning District Commission, said he doesn't believe future cuts will be as dramatic as during the first part of this decade.

Since 1990, Whaley noted, the Navy has already cut its active-duty force in Hampton Roads by more than 22,000. Its local civilian work force has been slashed by nearly 11,000 in that same period. And Navy contractors have eliminated thousands more - 10,000 at Newport News Shipbuilding alone.

Multiply the job cuts throughout the local economy - from restaurants to gas stations - and it's no wonder Hampton Roads has become one of the nation's slowest-growing metropolitan areas, Whaley said.

After soaring among the top 50 in percentage job growth during the height of the Navy buildup in the mid-'80s, it fell to as low as 254th out of 271 metro areas in 1995, he said.

Meanwhile, the region's population growth has plummeted from about 40,000 a year a decade ago to about 7,500 annually now, he has calculated. When births and deaths are taken out of the equation, Whaley's figures show that more people are actually moving out of Hampton Roads than in.

``We are still heavily influenced by what happens in the Navy,'' he said. ``In fact, among metro areas, we would be one of the least diversified at all. No question about it.''

Whaley expects coming cuts in the Navy's local ranks to be less dramatic than during the early '90s, largely because of the infusion of people that will accompany the buildup at Oceana. About 5,000 uniformed personnel are to be added to the air station's roster over the next several years.

Still, he said, the Oceana expansion won't be enough to offset the bigger Navy downsizing trend - a trend he said will likely keep Hampton Roads an economic laggard until other sectors of the gradually diversifying local economy gain more clout.

More pain than gain? Probably so, Ruble conceded, at least in the near term. But he said the Navy has no choice but to root out inefficiencies. In a tighter and tighter budget environment, he said, the Navy's vitality depends upon doing so.

``Unless we solve this problem,'' he said, ``the impact will be far worse, let me tell you.''

Its corporate challenge

For Hampton Roads businesses, governments and other organizations, the new Navy way will require some adjustment.

It could mean, for example, that Navy officials will play harder ball when it comes to deliberations over how the region divvies its dollars on roads, water systems and other public necessities. Some Navy officials complain that the service hasn't adequately used its status as the region's largest economic player to influence such key issues as whether to build a light rail system in South Hampton Roads.

On an individual basis, the Navy's people will likely be more demanding, too, Whaley said, noting that the typical sailor is growing older and better-educated.

``They're going to want more amenities. They're going to demand better schools,'' he said. ``They're not going to tolerate sitting in traffic, because their time is more valuable. They're going to demand a lower crime rate and more police protection.''

On the other hand, a more ``out-of-the-box'' Navy would open promising new opportunities to capitalize on the service's extensive assets.

The recently announced proposal to berth the idled battleship Wisconsin near Nauticus in downtown Norfolk is an example. It promises to let the region capitalize on the Navy's long-underexploited tourist appeal.

The service is considering an arrangement with the Virginia Port Authority that could be another boon: If the deal were sealed, the port would get use of Navy land and warehouses in exchange for loading and unloading Navy supply ships.

``When I first came here 20 years ago, the Navy had a wall around it and that was it,'' recalled Joseph A. Dorto, chief executive of Virginia International Terminals Inc., which operates the port authority's bustling facilities.

``We never had these kinds of conversations. There's just a lot of potential there.''

For contractors, the remaking of the Navy is a mixed bag. As it strives to reduce ``life-cycle maintenance'' by improving the reliability of the products it buys, there likely will be less demand for repairs to its ships and other equipment.

And because the Navy will rely more on commercial off-the-shelf products, particularly in computers and electronics, there may not be as much demand for the customization work on which so many local service contractors have relied.

But these trends will be offset by other opportunities. The Navy's growing investment in information technology will mean more work for companies that help keep computer networks running or sharing data with each another. And from warehousing to electrical-power distribution, huge Navy operations could be out-sourced to contractors for the first time.

Some outcomes of the Navy's overhaul will be harder to measure.

Its increasing business-mindedness may spur entrepreneurship as sailors accustomed to a more free-wheeling atmosphere leave the service to start businesses.

And Hampton Roads cities, wracked by inefficiencies and duplicative services, may discover in the Navy's streamlining a model for some of their own fledgling efforts to regionalize operations.

Reducing duplication

The spacious office of Rear Adm. R. Timothy Ziemer is a good place to start to learn how change is coming.

Trained as a helicopter pilot and hardened by 550 combat missions in Vietnam, Ziemer is now the Navy's unofficial mayor of Hampton Roads. As commander of the Norfolk Naval Base, he oversees half of the region's 12 naval installations, along with the public works center that provides maintenance and utility services to all of them.

Ziemer is not what one would think of as``mayoral.'' Intense and crisp-mannered, he bores through small talk to get to the heart of issues.

``We don't have enough money to run the bases in the manner in which they're being run today,'' he declared during a recent interview. ``I'm trying to reduce costs so I can balance my checkbook.''

Ziemer's main theme is regionalization. He is convinced that there are dramatic efficiencies to be gained by eliminating overlaps among the naval installations in Hampton Roads.

``If you look at the chief of naval operations' strategic plan,'' Ziemer said, ``it's real simple: If the tenant is doing something that the base commander is doing, he shouldn't be in that business. If the base commander is doing something that is being done somewhere else in the region, he shouldn't be doing it.''

And, he added, ``If the region is doing something that exists in the community, we probably ought to let the private sector do it.''

Part of the reason Navy leaders are pushing so hard along these lines is the Clinton administration's failure to win congressional approval for more base closings. In previous rounds through the Defense Base Closure and Realignment Commission, dozens of major bases were closed. But to Navy officials - like their counterparts in the other services - that wasn't enough to slash a top-heavy infrastructure that they say drains money from weapons and warfighting personnel.

They were heartened that Cohen has renewed his call - rejected by Congress earlier this year - for another another two rounds of closings by 2005. The defense secretary noted that base-support costs have declined far less over the past decade than the cost of troops or weapons.

Still, Ruble conceded, ``Our ability to run another BRAC process is going to be very politically contentious. So we have to find alternative methodologies to deal with our infrastructure costs.''

One means of accomplishing the goal locally is envisioned by Adm. J. Paul Reason, commander-in-chief of the Atlantic Fleet. He has advocated reinstating the Navy's district commandant structure, giving power to a commander overseeing all naval facilities in Hampton Roads ``to push down the infrastructure to match to needs.''

Ziemer, who reports to Reason, is the closest thing to that now - and his reach has been widening. The Yorktown Naval Weapons Station moved under his control in the last year, when it was transferred to Atlantic Fleet. Navy officials say the Norfolk-based Fleet and Industrial Supply Center, which owns such operations as Craney Island and the Cheatham Annex supply depot near Yorktown, likely will be the next to move over.

Such major installations as the Norfolk Naval Shipyard, the Portsmouth Naval Medical Center and the Fleet Combat Training Center at Dam Neck in Virginia Beach may continue to fall outside the Atlantic Fleet's ownership - reporting through separate stovepipes to commands elsewhere. That would make the job of ferreting out duplication more difficult.

Still, Ziemer plans to press ahead. On Oct. 1, he consolidated the comptroller shops of the six bases he oversees into a single office. He has been following through with efforts to regionalize maintenance, warehousing and civilian personnel functions.

Local Navy officials said operations ranging from base police to firefighting and from public affairs to recreation may also be reorganized on a regional basis.

``There's so much going on that you can't keep up with it,'' said Richard J. Higgins, president of the American Federation of Government Employees Local 22, which represents about 7,000 Hampton Roads Navy civilians.

One thing is clear, however: The Navy's initiatives, he said, would likely mean further cuts in personnel, particularly civil-service workers - a group that has already borne a disproportionately large percentage of the Navy's personnel cutbacks over the past decade.

An example of change

Few operations in Hampton Roads better illustrate all the changes in the service's business practices than the Navy Public Works Center.

From a fortress-like building at the Norfolk Naval Station, the center's top officers run a lunch-bucket assortment of operations ranging from the maintenance of streets, sidewalks and buildings to the distribution of steam and power to local naval installations.

A year ago, its $500 million annual budget supports about 3,300 civil servants. That number has shrunk by about 150, and will be further reduced to about 2,800 over the next year, said Capt. Walter ``Len'' Dillinger, the center's executive officer.

He's hoping the cutbacks can be accomplished without layoffs; the Navy is offering bonuses as incentives for employees to resign or retire. But one way or another, the work force must be cut.

``We believe it's the way that we can remain competitive, the way that we can save those 2,800 remaining jobs,'' Dillinger said, ``because if we're not competitive, we're out of business.''

It's not hard to understand why the center's officers view their operation as vulnerable. Over the past decade, nearly a third of the work that it formerly performed in-house - everything from grass-cutting to exterior painting - has been turned over to contractors.

And over the next five years, Dillinger said, every one of its remaining operations will be subjected to an out-sourcing review. ``Virtually everything that Public Works Center does . . . can be done by somebody else,'' Dillinger explained. ``The theory is . . . let's take a look; let's find out if we do it most efficiently.''

In a lot of cases, his crews are cheaper than the private sector, Dillinger said, flopping open a booklet of photocopied slides to prove the point. One page compares the center's prices for such things as truck and van rentals, auto repairs and appliance maintenance, against the charges of Hampton Roads businesses. In each of the cases, the center beat its private-sector competition.

But, Dillinger said, that may not always be the case. ``The pressure to continuously review,'' he said, ``is going to affect how we do business from now on.''

This push to out-source is widespread throughout the Defense Department. Indeed, Cohen said last week that there will be a ``dramatic increase'' in competition for defense work that has traditionally been done in-house. He predicted that half of the future competition will be won by the private sector.

For opportunistic companies such as Virginia Beach-based S3 Ltd., the trend is turning the military's downsizing into an out-and-out bonanza. Practically all of the company's $10 million in revenues last year came from running operations that the government formerly performed in-house, said William Casanova, S3's president.

He predicted his company's Hampton Roads work force, dedicated almost entirely to Navy contract work, will grow to about 300, from 230, by March. By that time S3 expects to have another 1,200 employees elsewhere performing work that will be out-sourced by dozens of other federal agencies.

``We have tooled ourselves, basically, as a staffing-services firm,'' Casanova said. ``We move in when there is downsizing, rightsizing, consolidating of activities.''

In most cases, he said, S3 pays similar wages. Its benefits tend not to be as generous. But the biggest difference is manning: S3 and out-sourcing specialists typically take over the work with fewer employees. And with profits at stake, they are more relentless in using automation and other technologies to continue to drive down employment.

Consider S3's takeover of some warehousing operations at the Norfolk Naval Air Station: After winning the job from another contractor several years ago, it chopped the crew from 49 to 33, Navy officials said. While the workload has declined, it hasn't fallen by nearly that percentage.

Outsourcing can be a painful process, Dillinger conceded. But it's one of the options he said the Navy must explore under pressure to ``drop our old paradigms.'' And it is, by no means, the most radical.

Is the ``P-word'' next? For really dramatic change, Navy officials say, look to the ``P-word'' - privatization.

It means turning over ownership of military assets to the private sector.

That's just what Navy leaders are talking about doing with the complex grid of electrical cables that criss-cross Norfolk Naval Base and the other naval installations in the area.

It's part of a militarywide effort that Cohen said last week will lead to the privatization of nearly all utilities on military bases by January 2000.

Retired Adm. William J. Flanagan Jr., who pioneered Navy privatization initiatives as Reason's predecessor at Atlantic Fleet, said in many cases it's the only way for the military to go.

``Look at the economy of scale that Virginia Power has available to it,'' said Flanagan, who is now a senior managing director for a Wall Street brokerage firm. ``That's a core business for it.

``Is that a core business as an extension of battle groups? No, it's not. Does it have to be done? Of course, it has to be done. But why does it have to be done by other than the utility?''

Dillinger said there is no telling how far the privatization trend will go. ``We're starting with the easy things,'' he said. ``Water, wastewater, steam.

``But then you can start looking at other potentials. How about airfields? How about piers? How about roads? How about buildings? The potential is not limited.''

To retired Vice Adm. Richard C. Allen, the Navy's very survival as an effective fighting force demands such changes in the way it handles its resources.

Allen, who formerly headed the Atlantic Fleet's air arm, spent nearly three years in the early '90s as director of the Navy's assessments division - a job that put him smack in the middle of decisions to sharply cut the number of attack submarines, eliminate the A-6 Intruder, and phase out frigates and older amphibious ships.

``God-awful days,'' he recalled. ``I didn't create any friends working on that project.''

Getting rid of or even cutting the hierarchy of shore-based infrastructure was the ``toughest part to wrestle with,'' he said.

``Most of the low-hanging fruit has already been picked. Now we've got to get up in the tree and saw off some limbs.'' ILLUSTRATION: Color photo by Mark Mitchell/The Virginian-Pilot

Lt.Cmdr. Dan Zeise leads Craney Island...

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These 210,000-gallon tanks...

Photo by Motoya Nakamura

Rear Adm. R. Timothy Ziemer says regionalization...

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Beth Bergman Nakamura/The Virginian-Pilot

William Casanova's goal is to help his company...

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Yard in decline

Number of employees at Newport News Shipbuilding

Civil Servants takes a hit