Okaloosa County is the most military-dependent county in the state, with 68 percent of the local job market being made up of military and defense contractors, according to local economist David Goetsch.

With military cuts expected to happen this year, Goetsch and other economic development leaders in the area are trying to bring more diversification to the county’s job market.

“March 2 is sequestration, huge cuts if that goes through,” Goetsch said. “Even without sequestration, in the Obama administration the military is going to get cut. It’s a turning down industry, not a growth industry. If you have your manufacturing, engineering base 100 percent dependent on government contracts and government contracts go down by 25 percent, then we go down by 25 percent. Can you find enough new business in other new sectors to replace that 25 percent or even grow a little?

“We’re trying not to have all of our eggs in one basket,” he added. “As good as the military is at giving us a good stable economy, it’s just not as dependable any more as it used to be.”

Jim Heald, general manager of InDyne and 2013 chairman of the Okaloosa County Economic Development Council, had intended to make business diversification his priority this year while overseeing the EDC. However, the resignation of longtime president Larry Sassano late last year and the ongoing search for a new president has forced him to delay the creation of a diversification subcommittee.

“The defense department side is not as stable as it used to be,” Heald said. “There’s that threat that’s out there on the defense side. The thought is, if you could get the third leg to the stool, you could kind of protect yourself no matter what’s happening.”

Fort Walton Machining’s business had been focused almost exclusively on defense and aerospace for decades when the business decided about three years ago to branch out and go after contracts in the oil and medical industries.

As part of its diversification, Fort Walton Machining created a new metal finishing division in 2011, which is projected to make up 10 to 15 percent of the company’s business this year and grow by more than 5 percent a year in the next three years, said company CEO Greg Britton.

Military contracts currently make up about 70 percent of Fort Walton Machining’s portfolio, with the other 30 percent coming from the oil and gas and medical industries. Britton said the company is trying to increase its non-military contracts to make up 40 percent of its total business.

Britton said the uncertainty around sequestration and future military cuts are already impacting local businesses.

“Businesses have money to spend; they’re just afraid to spend it because they’re uncertain about what’s going to happen,” Britton said. “What are the risks? They can’t project those risks because nobody’s telling them what they’re going to do.

“That’s been our biggest challenge,” Britton added. “Do I invest in more equipment or do I not invest in more equipment? Do I hire more people or do I not hire more people? Right now I don’t know.”

Contact Daily News Business Editor Dusty Ricketts at 850-315-4448 or dricketts@nwfdailynews.com. Follow him on Twitter @DustyRnwfdn.