Defense Spending and Employment

Both the post-Cold War reduction in military spending and efforts to balance the federal budget have affected the size of the defense budget. Moreover, the difficulties of determining the impacts and outcomes of budget decisions add to existing challenges. Congress and other policymakers have a practical and continuous need for information on defense expenditures and employment in states. This report focuses on defense and other federal spending in New Mexico. GAO discusses the (1) characteristics of New Mexico's economy and changes in it; (2) amount of direct defense-related and nondefense-related federal spending in the state and the direct federal employment associated with both, over time; and (3) extent to which available government data can provide reliable information on defense spending and employment.

GAO noted that: (1) New Mexico is home to two Department of Energy (DOE) national laboratories and four Department of Defense (DOD) military installations, among other federal activities; (2) state officials indicate that New Mexico's economy is "heavily dependent" upon federal expenditures; (3) in 1996, New Mexico was fourth among states in the per capita distribution of federal dollars and first in return on federal tax dollars; (4) while parts of the state have relatively strong economies, in 1994 New Mexico's poverty rate was the second highest in the country and its per capita income was 48th in the country; (5) although defense-related spending has been declining, New Mexico's gross state product and total per capita income have been increasing, indicating that the economy is growing and that efforts to diversify the economy may be having a positive effect; (6) one can learn several things from the available federal government expenditure and employment data for New Mexico; (7) DOD and DOE expenditures have consistently represented the largest share of all federal expenditures for procurement and salaries and wages in New Mexico; (8) defense-related employment has also consistently represented the largest share of total federal employment in New Mexico, including retired federal workers; (9) DOD and DOE do not contribute equally on types of defense-related spending or defense-related employment, revealing relevant distinctions between the types of direct economic contributions made by these agencies; (10) DOE contributes most in federal procurement expenditures and private contractor employment; (11) DOD contributes most in federal salaries and wages and federal employment, namely active duty military and retired employees; (12) existing government data, however, contributes to only a partial understanding of the type of federal dollars that enter a state's economy and the employment supported by the expenditures; (13) GAO's research based on New Mexico shows that the data have limitations that severely restrict the ability to determine the total amount and distribution of federal funding and jobs in the state; (14) key limitations include: (a) reporting thresholds that exclude millions in procurement expenditures; (b) the reporting of the value of an obligation, rather than the money actually spent; (c) the absence of any comprehensive source of primary data that systematically identifies private sector employment associated with federal contracts; and (d) DOD's lack of data on subcontracts; and (15) since these data sources are not unique to New Mexico, these limitations would also apply to assessments of other states.