Fiscal Federalism IX: Federal Procurement

Following on my four previous blogs (Grants to State and Local Governments, Other Direct PaymentsRetirement and Disability and All Federal Spending) . . . this blog shows federal “procurement” spending as percent of personal income. What is this?

According to the Consolidated Federal Funds Report (pdf) from which this data is drawn from, “procurement” constitute federal dollars that: “[are] covering federal government procurement contracts, are provided by [the United States Postal Service] USPS for Postal Service procurement and by the Federal Procurement Data System (FPDS) within the General Services Administration for procurement actions of nearly all other federal agencies, including the Department of Defense.”  In  a nutshell, everything from staplers to B2 Bombers.

The table below shows the wide range of federal “procurement” dependency by state. The states that are most dependent are: Virginia (17.4 percent), New Mexico (10.7 percent), Alaska (10.2 percent), Maryland (10.1 percent) and Missouri (6.5 percent).  Of note is the District of Columbia at 35.5 percent.

On the other hand, the states that are least dependent are: Delaware (1.2 percent), Arkansas (1.3 percent), New York (1.5 percent), Montana (1.6 percent) and Minnesota (1.6 percent)

However, there is one important caveat to keep in mind with this particular category of federal spending.  As noted above, Washington, D.C., Virginia and Maryland are the biggest recipients of federal procurement dollars due to their proximity to the Federal Government.  Yet, not all of those dollars stay in those states/areas.

For example, take a large defense contractor whose headquarters is located in the Dulles corridor.  The check from the Department of Defense will be cashed in Virginia, but the manufacturing may, and most likely, take place in other states.  As a result, Virginia’s procurement is overstated while that in other states is understated.  Unfortunately, this problem currently lacks a viable solution.

Federal Procurement Spending as a Percent of Personal Income for 2008