Defense Spending as Share of State Economies is Shrinking |

Defense spending is playing a smaller role in state economies across the U.S. as the military shrinks and budget caps remain in place, the Pentagon said in a new report.

The Defense Department spent $418 billion on payroll and contracts in the U.S. between October 2013 and October 2014, or about 2.4 percent of the nation’s gross domestic product, according to the report, released Monday by the Pentagon’s Office of Economic Adjustment. That’s down from the previous year, when the department spent $461 billion, or about 2.4 percent of nationwide GDP.

Five years ago defense spending totaled $528 billion, or about 3.8 percent of nationwide GDP, according to a report compiled by Bloomberg Government, using similar data from fiscal 2009

States are seeing a similar shift. In Virginia, where military spending represents a greater share of the economy than in any other state, defense dollars accounted for 11.8 percent of GDP in fiscal 2014, down from 13.5 percent in fiscal 2009.

The report shows how a combination of fewer defense dollars and stronger state economies is reversing past trends, when heavy military spending for two wars coincided with an economic recession and state budget cuts.

Defense spending grew 68 percent in inflation-adjusted dollars between fiscal 2000 and 2010; it is expected to fall 28 percent between fiscal 2011 and 2019.

The end of operations in Iraq and the drawdown in Afghanistan have meant less training at home, fewer contracts and troop reductions in the Air Force and Army. Budget caps passed in 2011 hit defense spending hard in fiscal 2013, leading to reductions in exercises, training and installation services. Meanwhile, Defense Department contract spending has fallen from $336 billion in fiscal 2009 to $280 billion in fiscal 2014, according to the report.

Defense still represents a significant share of many states’ economies and serves as a major employer, which causes concern about further troop reductions in years ahead. Many state officials are wary of a future round of base closings, which defense officials have requested from Congress since 2012.

Some states benefited from the growth to installations and contracts over more than a decade of war. They include Texas, where Fort Bliss tripled in size, and Kansas, which saw the growth of Fort Riley with the return of the 1st Infantry Division.

After Virginia, the states whose economies were most reliant on defense spending in fiscal 2014 were Hawaii (9.9 percent of GDP), Alabama (5.9 percent), the District of Columbia (5.8 percent) and Alaska (5.7 percent). The states with the least reliance on defense spending were Oregon (0.5 percent), West Virginia (0.7 percent), New York (0.7 percent), Illinois (0.8 percent) and Tennessee (0.8 percent).

Fairfax County, Va., received the most defense money in fiscal 2014 of any one locale, with $19.1 billion. San Diego County, Calif., received $15.1 billion. Lockheed Martin received the most contract money — $30.6 billion — followed by Boeing, which received $20.9 billion.

Defense Spending as Share of State Economies is Shrinking |