Handful of area codes capture most federal spending while rest get welfare

If you strip out entitlements to retirees and the poor, federal spending per capita is overwhelmingly concentrated in a handful of area codes surrounding military installations and federal agencies.

That’s the finding in a new “federal dependency” index released by Pioneer Institute, a Boston-based think tank.

The picture of a dual economic system that on the one hand creates high-income federal jobs for a few states, and low-income entitlements and welfare for the rest of the country, is unmistakable.

Virginia, Maryland, Hawaii and Alaska dominate Pioneer’s dependency rankings because those states receive an inordinate proportion of spending in several key federal categories.

When you isolate just those direct federal spending categories, while stripping out entitlement transfers entirely, Virginia ranks first nationally at $11,432 of federal spending per capita.

Hawaii ranks second at $10,686, while Maryland ranks third at $10,533 and Alaska fourth at $8,335.

Connecticut comes in fifth at $6,091.

Those categories include civilian federal payroll, defense spending and federal obligations for research and experimental development (R&D), according to the data.

The rest of the top 10 include:

• Alabama — $4,606 
• New Mexico — $4,581 
• Maine — $4,556 
• Kentucky — $3,934 
• Massachusetts — $3,781 

Missouri ranks in the middle at 26^th, and Kansas near the back at 48^th.

Pioneer’s public policy analyst Liam Day noted that the federal budget “has grown from just under $2 trillion to almost $7 trillion annually in just the last 25 years.”

That represents a jump from 17% to 23% of GDP.

As that spending grew, the people geographically positioned to capture it, such as the federal workforce and its private sector contractors, enjoyed a disproportionate share of the increase.

“As it has grown, much of that money has flowed into the states surrounding Washington, D.C., where so many federal civilian and military employees live,” said Day. “That helps explain why Maryland and Virginia emerge as among the most federally dependent state economies in the country.”

Pioneer’s index is sourced through the institute’s USDataLabs platform and ranks all 50 states on how deeply federal dollars are embedded in their economies through a standardized per capita approach.

“We picked these dependency measures because they could be quantified in a way that allows apples-to-apples comparisons between states,” the think tank said about its methodology.

The index departs from conventional rankings by including all federal budget items alongside the standard welfare and entitlement programs such as SNAP, Medicaid, Medicare and Social Security that other dependency rankings use.

“We strove to be as comprehensive as possible,” said Pioneer’s senior fellow for policy analytics, Michael Walker. “If we could attach a federal dollar amount to it, we included it.”

The states that dominate more conventional dependency rankings, such as Kentucky, West Virginia, Mississippi and Louisiana, barely register on this metric.

Their elevated standings in traditional studies reflect Social Security payments to aging populations and Medicaid spending on the poor, not structural integration into the federal economic machine.

Pioneer’s index, by allowing users to toggle between spending categories, produced a dataset that makes the distinction between total federal economic impact and federal subsidies visible.

The think tank argues that most dependency rankings are built around a political grievance between the “donor” versus “recipient” state debate, rather than an honest accounting of where federal dollars actually flow.

Donor states claim they pay more into the federal government than they receive, while recipient states take more out of the federal government than they pay.

But leaving out major spending streams, such as federal pay, produces a distorted picture, Pioneer said.

The geographic concentration is stark.

Virginia and Maryland together – essentially the suburbs of Washington – capture the top two spots on the direct federal spending metric at a combined average of roughly $11,000 per capita.

The entire economic identity of Northern Virginia has been built around federal payroll and contracting since World War II.

Even more concerning is the concentration of income.

Only 20% of the federal workforce works in the Washington, D.C., metro area, while it enjoys a huge income disparity over 90% of the other states.

The intelligence community, the Pentagon and a contractor ecosystem spanning hundreds of firms from Tysons Corner to Chantilly have created a regional economy that stretches from Baltimore, Maryland, to Richmond, Virginia, known as the Greater Washington area.

At least 20 of America’s 500 largest companies are now headquartered in either D.C., Virginia or Maryland.

Meanwhile, Idaho, ranked least dependent in Pioneer’s composite index, receives $5,157 per capita in total federal spending, including all entitlements.

Virginia’s, Hawaii’s and Maryland’s contractor and federal employee class alone pulls more than twice that in direct non-entitlement federal dollars.