Md. economy bolstered by U.S. millions

Census figures show state is third-highest recipient

October 10, 2007|By Jamie Smith Hopkins | Jamie Smith Hopkins,SUN REPORTER

It's lucrative to be within shouting distance of the nation's capital.

Maryland ranked third among states in per person federal spending in the 2005 fiscal year, the U.S. Census Bureau said yesterday. That added up to $11,936 for every man, woman and child.

In total, the federal government pumped nearly $67 billion into the Maryland economy, the Census Bureau said. That includes everything Uncle Sam spent here, from salaries for the 125,000 federal jobs in the state to grants for various programs.

By far the biggest chunk - about $22 billion - went to the vast number of federal contractors, such as defense manufacturers, technology firms and consultants, that have set up shop here to be near the nation's capital.

That works out to be the second-highest per capita spending among the 50 states and more than triple the national average.

That level of spending for goods and services, called procurement, means that the state's economy is ever more increasingly tied up with the fate of the federal budget.

Even accounting for inflation, the federal dollars flowing to contractors in Maryland increased 80 percent between fiscal 2001 and 2004 in the spending ramp-up for homeland security and the Iraq and Afghanistan wars.

The state also stands to benefit far more than most in the coming military base restructuring, which is expected to send thousands of jobs to the Baltimore area in the next several years.

"We have become a state that is more - not less - dependent upon the federal government," said Richard P. Clinch, director of economic research at the University of Baltimore's Jacob France Institute.

The federal largess helped make Maryland the richest state in the union last year, but there's a downside.

Economists warn that when the federal government restrains spending to deal with the budget deficit, the state will feel it more keenly than most. Even in fiscal 2005, the growth in procurement spending here slowed to just 1.5 percent.

"The federal government's not a bad thing to hitch your wagon to, certainly better than being an automotive supplier right now," Clinch said. "But clearly this does come at a cost."

Maryland got a taste of that in the recession of the early 1990s. Because of a cutback in defense spending, the state got hit harder than most, with the impact rippling to companies such as home builders, Clinch said.

"Defense is definitely more important to Maryland than it would be to most states," said Loren Thompson, chief operating officer of the Lexington Institute, a think tank that focuses in part on military issues.

Now, after big increases in defense spending in recent years, change is on the horizon. The Bush administration expects that growth in defense spending will begin leveling off in the fiscal year that began this month, Thompson said. The plan calls for spending to be flat from fiscal 2010 through 2013, other than increases to account for inflation, he said.

But that pain could be deferred locally - or at least blunted - by the national military restructuring. Many of the jobs for the base realignment and closure process, known as BRAC, will cluster around Fort Meade in Anne Arundel County and Aberdeen Proving Ground in Harford.

"Whatever happens to federal government will be mitigated somewhat by BRAC," Clinch said. "You're going to be adding 10 to 20 percent to the Maryland economy above quote-unquote normal growth."

There's a bit of a fudge factor in the federal spending numbers. The budgets of the National Security Agency and other classified federal activities are not included, to the best of the Census Bureau's knowledge, and the Fort Meade-based NSA is a major employer and spender.

"It's a safe bet that hundreds of millions of dollars are being spent there every year," Thompson said.

On the other hand, he said, it is likely that some of the procurement dollars that Maryland gets credit for are really getting funneled by local companies to offices or subcontractors in other states. The Census Bureau agrees, though it says it tracks to the best of its ability where government money ultimately ends up.

After procurement, retirement and disability payments make up the largest category of federal spending in Maryland, accounting for a little more than one dollar in every five. Salaries and wages add up to one out of every six dollars.

Virginia was No. 1 in money to contractors, with $5,104 in federal spending per person - about $1,200 per person more than Maryland. Washington, which the Census Bureau does not rank, would be far and away the top recipient if it were a state, with federal spending on goods and services at nearly $23,000 per person.

Federal largess

The top five states by per-capita federal spending:

1. Alaska, $13,916

2. Virginia, $12,572

3. Maryland, $11,936

4. New Mexico, $10,698

5. North Dakota, $10,413

[Source: U.S. Census Bureau]

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