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Some federal spending in Wisconsin is already falling off a fiscal cliff, with big defense contractors and their suppliers standing to lose billions of dollars in federal contracts in large part because the U.S. military is winding down the war in Afghanistan.

Federal contract awards in Wisconsin in the fiscal year that ended Sept. 30 were down roughly 52% to $3.4 billion from $7.2 billion in fiscal 2011, according to preliminary figures from the Wisconsin Procurement Institute, a Milwaukee-based organization that helps businesses get federal contracts.

The 2012 figures could be adjusted higher in the next month or so, the institute said, because of routine delays in federal reporting of contract awards. But the overall trend is down.

The biggest hit has come from the U.S. Army, whose spending in Wisconsin is down more than 75%, according to the early figures.

Looking ahead, more cuts are probably coming as Congress seeks ways to trim the budget.

"There's a lot in play right now, in terms of what dollars are going to be available and what Wisconsin gets," said Aina Vilumsons, Wisconsin Procurement Institute director.

According to the institute's preliminary figures, Wisconsin ranks 28th among states in federal contract dollars - down from 22nd in fiscal 2011.

Oshkosh Corp., one of the world's biggest makers of military vehicles, accounts for a large percentage of the federal contract dollars in the state. Its sales figures do not mesh with the institute's figures at least partly because of the delays in federal reporting, the institute said. But the company's defense sales figures also show declines, from $7.1 billion in fiscal 2010 to $4.36 billion in 2011 to $3.95 billion in 2012.

In October, the company said it would lay off 450 production workers in January, although after the layoff it will still employ 3,500 in its defense division.

The company supports hundreds of suppliers that make parts and provide services for its defense division.

"It is the elephant in the room," Vilumsons said.

As the U.S. winds down the war in Afghanistan, combined with other Pentagon spending cuts, Oshkosh's defense business is vulnerable.

The U.S. left hundreds of military vehicles in Iraq when it left the country, and it will probably do the same when it pulls out of Afghanistan, said David King, a military procurement expert and business professor at Marquette University. And there won't be a pressing need to refurbish thousands of war-damaged vehicles, he noted, unlike in the past when a significant portion of Oshkosh Corp.'s business involved refurbishing vehicles back from the battlefront.

Oshkosh is competing for a military contract to build Joint Light Tactical Vehicles that could be worth billions of dollars and years of business. But there's no guarantee it will win the bid.

Much of the upcoming military business will focus on high-tech products including unmanned vehicles, cyber security and other equipment for advanced warfare, according to Vilumsons.

State firms see less cash

Among federal contracts awarded in 2012, the Army was the largest buyer of Wisconsin goods and services, with roughly $1.1 billion in purchases, according to the institute's preliminary figures. That's down about 75% from $4.7 billion in fiscal 2011.

The Navy's spending in the state is down, too, from $603.8 million in 2011 to $405.3 million in the preliminary 2012 numbers.

Marinette Marine, in Marinette, has contracts worth billions of dollars to build Navy combat ships, but that work is not recorded in the Wisconsin figures because the contracts are with Lockheed Martin Corp., of Bethesda, Md.; Marinette is the subcontractor.

The ships under construction now in Marinette are not likely to be axed in the budget cuts, according to King. But work that hasn't started yet and is part of contract extensions is at risk, he added.

Competition for federal dollars is intense, and profit margins can be thin. Some companies refer to government business as "factory fillers" that keep production lines going during slow times.

"As the economy improves, companies will have a tendency to shy away from government contracts," said Alphonso Cooper, manager of the Business Procurement Assistance Center at Madison Area Technical College.

Smaller companies will sometimes get in and out of defense work depending on the economy.

"But the major players don't move from it because there's a lot of capital investment required to manufacture those products," Cooper said.

As federal dollars become more scarce, though, some of the larger contractors will outsource less work to their suppliers.

"There's going to be less of a trickle-down effect," King said, adding it will hurt the smaller companies. "You are going to see more competition for less work, and the profit margins are probably going to be squeezed."

Wisconsin had 2,395 federal contractors in 2012, down from 2,944 in 2011, according to the Wisconsin Procurement Institute.

Some federal contractors in Wisconsin were not eligible for awards in fiscal 2012 because the communities they're located in were no longer considered economically disadvantaged, a criteria the government uses when awarding contracts.

Still, companies in the state supply hundreds of products and services to the Department of Defense and other federal agencies. And when the big contracts taper off, there are still hundreds of millions of dollars at stake for supplying such things as food for commissaries, renovations of government buildings and maintenance services.

"It's not glamorous, but it's still good work," said Gary Nagel, owner of Nagel Architects, an Elm Grove firm that's done a variety of projects for the Army and the Department of Veterans Affairs.

Wisconsin's ranking in federal contract dollars

Fiscal 2012: 28th

Fiscal 2011: 22nd

Federal contractors in Wisconsin

Fiscal 2012: 2,395

Fiscal 2011: 2,944