NM No. 1 in Dependency on Federal Funds

When the federal government sneezes, New Mexico catches cold.
A new ranking of states based on their economic dependence on federal spending identifies New Mexico as the number one most dependent state, which is not altogether surprising given the presence of two national laboratories, four military bases and federal ownership of just over a quarter of the land in the state.
Other factors in the state’s dependency on federal spending are likely the high rate of poverty, a growing elderly population, agricultural subsidies and the success of the congressional delegation in lobbying for federal dollars over the years.
New Mexico ranks ahead of Mississippi, Kentucky and Alabama as the most dependent, while the least dependent states were New Jersey, Delaware and Illinois, according to Washington, D.C.-based WalletHub.com.
Federal spending often fills the role of smoothing differences between states with strong economies and states going through tough times by transferring resources from one to the other, said James Feigenbaum, an associate professor at Utah State University.
The fact that some states perennially get more in federal spending than they pay in federal taxes, New Mexico chief among them, is arguably “problematic,” he noted.
Feigenbaum is one of seven academicians who provided WalletHub.com with statements providing insight into how and why federal spending works differently among states.
“(Federal) spending is concentrated on areas with high poverty and elderly, and areas that are centers of federal employment,” said Vanderbilt University professor David C. Parsley. “This last creates incentives for our congressional legislators to try and direct federal spending to their states.”
New Mexico looks like a sweet spot for federal spending on social programs like Medicare, Medicaid and Social Security.
At 21.9 percent, New Mexico had the second-highest poverty rate in the country in 2013, according to the Census Bureau. Another census report projects the state’s percentage of senior population could grow to fourth highest in the country by 2030.
The labs and military bases, plus agencies with a big presence, like the U.S. Forest Service and Bureau of Indian Affairs, require a steady flow of funding that seems as though it could go on forever. The truth is that the flow could drop with a base closing, budget cuts to research programs or the downsizing or relocation of an agency office.
“Some states receive federal funds, expecting that the flow of funds will continue indefinitely,” said Thomas B. Cooke, a professor at Georgetown University. “They establish or expand programs without reasonable consideration of what can happen if the federal funds decrease or cease. This is a very risky way to conduct business and there can be dire consequences.”
The federal government’s oversized presence in New Mexico was long considered a kind of economic ballast, holding the state steady when the rest of the country was buffeted by economic storms. The stabilizing effect stemmed from a high level of federal spending relative to the state’s low gross domestic product, data indicate.
While that largesse has propped up New Mexico’s economy in the past, cuts in federal spending over the past several years have slowed the state’s recovery from the Great Recession.
The rallying cry to move New Mexico forward has become economic diversification.
“The overall economic impact of the federal facilities and jobs has been a very good thing for the state. They’re high point makers for what it takes to build an economy,” said Steve Vierck of New Mexico Partnership. “Clearly, now we need to build up and grow the private sector side of things.”
WalletHub’s ranking uses four metrics:
• The ratio of incoming federal funding to outgoing federal income taxes, which placed New Mexico at fifth highest, at $2.19 in funding for every $1 in taxes. In addition to direct payments, incoming money includes federal contracts, grants and insurance payments (hurricane damage in Florida, for example).
• Federal funding as a percentage of state revenue, which placed New Mexico at ninth highest, at 38 percent. The range among states is a low of 19.5 percent in North Dakota to a high of 44 percent in Mississippi.
• Ratio of federal employees to the total population, which placed New Mexico at sixth highest with a ratio of 0.01850 federal employees per capita. The range among states was a low of 0.00296 per capita in Wisconsin to a high of 0.05437 per capita in Hawaii.
• Ratio of federal civilian employees not working for a military branch or the Defense Department to total population, which placed New Mexico at third highest, with a ratio of 0.00903 per capita. The range among states was a low of 0.00175 per capita in Connecticut to a high of 0.01519 per capita in Maryland.
WalletHub is a financial website oriented to consumers and small-business owners.
By: Richard Metcalf (Albuquerque Journal)
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