Federal Dollars Contribute to New Mexico Economy, but Economy Is Diversifying

DOE and DOD military activities have contributed substantially to the economy of New Mexico for about 50 years. Government data show that between 1988 and 1996, New Mexico was ranked second, third, or fourth, among U.S. states in per capita distribution of federal dollars. The state was also ranked first in return on federal tax dollars in 1995. A comparison of the percent change in New Mexico’s per capita income and total defense-related spending (DOE and DOD) in the state during 1990-94 shows that real growth occurred in per capita income, while total defense expenditures declined (see fig.1). A comparison between percent real growth in New Mexico’s gross state product and total defense-related federal expenditures reveals the same pattern, suggesting that efforts to diversify the state’s economy may be having a positive effect (see fig. 2). 3). Among the most notable limitation in the data is the lack of a central or official source of data on private-sector employment associated with DOD contracts. Conclusions

The available data indicate that the state of New Mexico receives relatively large amounts of federal dollars. The best available data indicate that in New Mexico DOE and DOD account for about 90 percent of all federal procurement spending (1993-96), 54 percent of expenditures for federal worker salary and wages (1988-96), 72 percent of all federal jobs in the state (1988-96), and 68 percent of all retired federal workers living in the state (1990-96). The largest component of DOE employment is private contractor employment, while the largest component of DOD employment is federal employment, namely active duty military members. To determine the characteristics of the New Mexico economy and recent changes in the economy, we reviewed and analyzed economic data and information we obtained from interviews with New Mexico state officials, federal government officials, and available federal and state data sources, including the Bureau of Economic Analysis and the Bureau of Business and Economic Research at the University of New Mexico. To determine the extent to which available government data provides reliable information on defense spending and employment, we evaluated the qualities of the existing federal data. Copies will also be made available to others upon request. Direct Federal Expenditures and Employment in New Mexico

This appendix presents 1988-96 (1) trends in total direct federal expenditures and employment in New Mexico and within specific spending categories, (2) defense-related and nondefense-related expenditures and employment, and (3) the Department of Energy’s (DOE) and the Department of Defense’s (DOD) share of the defense-related expenditures and employment. Federal salary and wage trends are marked by small increases over time with periods of stability following an increase. But both types of expenditures have been declining (see fig. DOD and DOE Share of Defense-Related Employment in New Mexico

Defense-related federal employment in New Mexico is higher than nondefense-related employment. DynCorp did not have information on its subcontractors prior to 1993.
Why GAO Did This Study

Pursuant to a congressional request, GAO examined defense and other federal spending in the state of New Mexico, focusing on: (1) characteristics of New Mexico's economy and changes in it; (2) the 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) the extent to which available government data can provide reliable information on defense spending and employment.

What GAO Found

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.