Spending on Contracts Drives Growth in Federal Defense Dollars to States

These data have been updated. For the latest research on this topic, please see Budget Agreement Continues to Drive Overall Increase in Defense Dollars to States.

The U.S. government spends defense dollars in every state through purchases of military equipment, wages for service members and civilians, pension payments, health care services, and grants to states. In fiscal year 2018—the most recent year for which data is available—the federal government spent a total of $579 billion on defense in the states and the District of Columbia, or $1,772 per capita.

On a state-by-state basis, per capita defense spending ranged from $565 in Oregon to $7,455 in Virginia. The District of Columbia received the highest amount in the country at $10,779 per person. (See Figure 1.)  

In part because of the increase in spending caps allowed by the Bipartisan Budget Act of 2018, federal expenditures on national defense increased by $63 billion, a jump of 12%, from fiscal 2017 to 2018. That amounts to a boost of $186 per capita nationwide. But those additional dollars were not distributed evenly across the states—primarily due to the type of funds received.

The federal government spends money on national defense in every state, and, according to the National Conference of State Legislatures, defense dollars are a major economic driver for many communities across the nation.

Federal defense spending in states and D.C. varied widely by category in fiscal 2018

Defense spending falls into five major categories: contracts, salaries and wages, retirement benefits, nonretirement benefits, and grants (see below for more information on each). Because each state’s level and mix of defense spending is unique, the effect of a federal budget change will vary by state.

Contracts for purchases of goods and services, such as military equipment, information technology, and operations and maintenance programs, accounted for 62% of all spending in the states. This was the largest category in 38 states and the District of Columbia; for 16 states and the District, it made up more than two-thirds of total defense spending.

Salaries and wages for active-duty military, civilian, reserve, and National Guard personnel made up 24% of total spending and was the largest category in 13 states. In three—Hawaii, Kansas, and North Dakota—salaries and wages made up more than half of all defense spending.

Retirement benefits, which are payments to individuals for military pensions, accounted for 10% of spending in the states. More than a third of the total went to only four states: California, Florida, Texas, and Virginia.

Nonretirement benefits, which for the purpose of this analysis are payments for health care provided through the military’s Tricare Management Program, accounted for 3% of spending. These benefits ranged from 8% of spending in Idaho and Tennessee to 0.5% of spending in Connecticut.

Grants, which include funding to state and local governments for programs such as National Guard activities, medical research and development, and basic and applied scientific research, accounted for 1% of spending. Among all states, Idaho received the largest proportion of its funds from grants at 6%.

Each state received a different mix of funding from each of these categories in fiscal 2018. (See Figure 2.)

Mix of defense dollars in states drove unequal distribution of spending growth

On Feb. 9, 2018, Congress passed the Bipartisan Budget Act of 2018, which, among other actions, increased the discretionary defense spending caps for fiscal 2018 by $80 billion. In part because of this change, defense appropriations increased in fiscal 2018, leading to growth in actual spending of $63 billion from fiscal 2017 to fiscal 2018, or $186 per capita nationwide (See Figure 3.)

This additional funding in fiscal 2018 went primarily to contracts, which saw a $164 per capita jump nationally. The second-largest boost was for salaries and wages with a $18 per capita increase nationwide, followed by a $3 per capita increase in retirement and a $0.60 per capita increase in nonretirement spending. Grants were the only category to see a decrease, though small, at $0.03 per person, or just 0.2% of total grants spending.

Because year-over-year changes in the different spending categories ranged from significant to negligible, states experienced varying impacts depending on the mix of dollars they received. In fact, some states saw overall decreases.

With the biggest changes occurring in contract spending, the states with relatively larger shares of funds from contracts saw the biggest fluctuations. For example, Missouri saw the greatest overall bump in funding at 68%; the state has the third-largest share of overall spending from contracts at 83%. Maine, which saw the greatest overall decrease at 39% of defense dollars, lost significant contract spending in fiscal 2018. More than half of the defense dollars the state received—53%—came from contracts that year.

Contract spending saw an 18% per capita increase from fiscal 2017 to fiscal 2018. Missouri experienced the greatest increase at 97%, while Maine saw the largest drop with a 55% slide in contract spending. These distinctions can be attributed largely to changes in contracts received during the period: Missouri’s largest defense contractor, Boeing, received $3.8 billion more in contract spending in fiscal 2018 than the prior year, while in Maine, General Dynamics, which builds naval ships in the state, received $717 million less.

Salaries and wages had the second-largest increase, with a 4% increase in overall spending from fiscal 2017 to 2018. Vermont saw the largest increase at 34%, while Arkansas experienced the largest decrease at 6%.

Retirement benefits saw an overall 2% increase in spending nationwide. This ranged from a 4% boost in Wyoming to a 0.4% decrease in California.

Nonretirement benefits increased 1% from fiscal 2017. This ranged from a 7% increase in Wisconsin to an 8% decrease in the District of Columbia.

Grants were the only category of spending that saw an overall decrease, with a 0.2% decline from fiscal 2017 to fiscal 2018. The range was expansive, however, from a 119% increase in Alabama to a 67% decrease in Wyoming.

Anne Stauffer is a director, Colin Foard is an associate manager, and Laura Pontari is a senior associate with The Pew Charitable Trusts’ fiscal federalism initiative.