Midwest reliant on federal spending, but not as much as some other regions

For better or worse, federal spending makes up a large portion of state economies — a point underscored by the recent federal government shutdown as well as recent data released by The Pew Charitable Trusts. Just how reliant are states on federal expenditures?

The answer can vary significantly from state to state and region to region, at least when using Pew’s measurement tool: total federal spending in each state relative to each state’s gross domestic product. Percentages range from a high of 35.8 percent in New Mexico to a low of 12.3 percent in Delaware, Pew found.

In the Midwest, no state ranks near the top. South Dakota comes first at 23rd, while Minnesota has the third-lowest percentage in the nation. Instead, states in the South and West tend to be where federal spending accounts for the highest percentage of a state’s total economic activity.

This spending enters state economies in one of five ways: direct payments for retirement and disability benefits; Medicare and other direct payments to individuals; grants; procurement (contracts with nongovernmental entities); and wages and salaries. Federal expenditures also account for a large part of spending by states themselves: 34.0 percent in fiscal year 2011, according to the National Association of State Budget Officers.

As political scientist Gary Moncrief notes, too, the nation has entered an era in which federal spending will likely be scaled back. This, in turn, could strain state budgets and economies.

In the most recent edition of CSG's Capitol Ideas magazine, Anne Stauffer, director of fiscal federalism for The Pew Chartible Trusts, writes in detail about fiscal federalism in an article titled "A Marriage of Money."


Stateline Midwest ~ November 20131.73 MB