2008 Federal Spending in Maine


Last Thursday the U.S. Department of Commerce’s Census Bureau released their 2008 Consolidated Federal Funds Report which details federal spending by state.  Surprisingly, in Maine federal spending only grew 1 percent from Federal Fiscal Year (FFY) 2007 to FFY 2008 and, since FY 2000, spending is up 52.5 percent.  This is below the growth rate nationally at 9.3 percent and 71.3 percent, respectively. (click “continue reading” to view chart).  Why is federal spending slower in Maine than the rest of the country?

There are five categories of federal spending to examine.  First, “retirement and disablity,” which is mostly Social Security, increased 4.8 percent between FFY 2007 and FFY 2008–higher than the national average of 4.6 percent.

Second, “other direct payments,” which is mostly Medicare and other welfare, increased 15 percent between FFY 2007 and FFY 2008–significantly higher than the national average of 7.9 percent.

Third, “grants to state and local government,” which is mostly Medicaid but also transportation spending, increased 4.4 percent between FFY 207 and FFY 2008–below the national average of 16.2 percent.

Fourth, “salaries and wages,” which is both military and civilian federal employment, increased 0.4 percent between FFY 207 and
FFY 2008–below the national average of 0.6 percent.

So far we have gone through 4 of the 5 categories and all of them collectively are growing far faster than the 1 percent growth in overall federal spending.  I think you know where I’m going with the last category.

The last category is “procurement.”  Mainers will not be surprised to note that most federal procurement is done through the Department of Defense.  Not only has Maine historically been home to numerous military bases, but also to significant defense contractors such as Bath Iron Works in Bath or the Portsmouth Naval Shipyard in Kittery.  However, the Brunswick Naval Air Station is slated for closure.

Given the importance of federal defense spending to Maine’s economy, it is rather distressing to see that declined by a whopping 31.7 percent from FFY 2007 and FFY 2008.  In dollar terms, procurement spending fell by $525 million to $1.13 billion in FFY 2008 from $1.655 billion. 

However, as shown in the chart, federal procurement has been on a roller-coaster ride as far back as the chart goes.  Yet, this volatility has worsened in the last few years.  Some of this could be attributed to the closure of several bases both in Maine and New Hampshire as well as the pending closure of Brunswick.  Another source of volatility has been the uncertain future of ship production at BIW.  For a brief synopsis behind this saga, see this post at Behind Blue Lines.

Overall, federal spending in Maine is clearly shifting away from real production, such as naval ships, and toward a growing reliance on transfer payment–most notably other direct payments which grew at a blistering 15 percent rate.  Since this is mostly Medicare spending, this reflects both the rapid aging in Maine as well as inflation in the price in healthcare (ironically caused in part by excessive Medicare spending).  These are disturbing signs for the future viability of Maine’s economy.