The States That Benefit the Most from Federal Spending

A new report shows federal spending accounts for nearly one-fifth of the nation's economic activity, but its impact varies wildly from state to state.
by | December 3, 2014

Federal spending totaled $3.1 tillion last year -- the equivalent of about one-fifth of all economic activity across the states, a new analysis has shown.

The impact varied wildly from state-to-state. Mississippi potentially benefited the most from federal money -- the $34.3 billion spent there was equal to a full third of that state’s Gross Domestic Product in 2013, according to report released Tuesday by the Pew Charitable Trusts. California received the most federal money last year, nabbing a little more than $1 out of every $10 spent by Uncle Sam on the states. On the other end, federal spending in Wyoming was equivalent to just 12 percent of that state’s GDP. It was also the state where the fewest amount of federal dollars ($5.2 billion) was spent.

Tuesday’s report by Pew is the first in a new annual series that will study federal spending in the states. The series is meant to replace the Consolidated Federal Funds Report (CFFR) produced by the U.S. Census Bureau and discontinued in 2012. For nearly three decades, the CFFR provided an annual look at the geographic distribution of federal spending, helping lawmakers understand the full impact of federal budget policy decisions.

“It’s really important for policy makers at both levels to understand how that spending is playing out across the states,” said Kasia O’Neill Murray, a co-author of the report.

Over the past decade, total inflation-adjusted federal spending in the states has increased by one-quarter across five categories: salaries/wages, retirement benefits, nonretirement benefits (the largest of which is Medicare), contracts and grants. Grants spending fell by 5 percent but all other categories increased. Retirement and nonretirement benefits grew the most (37 percent and 62 percent, respectively), followed by contracts (10 percent) and salaries and wages (9 percent).

Grants to states have decreased significantly as a share of all federal spending -- a sore point with many governers, who complain that the feds are trying to balance the ever-growing U.S. budget on the backs of states. In 2003, grants accounted for one-fifth of all money spent in states; in 2013 they accounted for just 16 percent of spending. Overall last year, payments to individuals accounted for about two-thirds of federal dollars spent in the 50 states and the District of Columbia.

The total spending in states varies but so does the type of spending. In Mississippi, for example, federal spending on retirement and nonretirement benefits alone equaled a full 20 percent of that state’s GDP -- a result of Mississippi’s aging population. In Virginia, home to some of the largest defense contractors in the country, federal contract spending was equivalent to 11 percent of that state’s economy. That’s second only to -- not surprisingly -- Washington, D.C., where contract spending equaled 15 percent of its GDP.