Maine prides itself on its rugged individualism. The state, however, is much more dependent on payments from the federal government than most others, which could spell trouble as the state works to improve its economy. The crux of the problem, as numerous other economic reports and indicators have pointed to, is Maine’s aged population.
A report from Pew Charitable Trusts ranks Maine sixth in the nation for dependence, per capita, on the federal government. Maine ranked fifth for retirement benefits as a share of gross domestic product in 2013. This is the latest in a string of indicators showing Maine’s economy is headed in the wrong direction, with a shrinking workforce and declining youth population.
Between contracts, retirement payments, benefits, salaries and grants, more than $16 billion in federal money was passed on to Maine in 2013. The state ranked sixth nationally for federal spending per person, estimated at $12,104 per resident.
From 2004 to 2013, total federal spending in the states, adjusted for inflation, grew 26 percent, from $2.5 trillion to $3.1 trillion, the Pew report found. Spending on non-retirement benefits grew the most, at 62 percent, and retirement benefit spending rose 37 percent. Only spending on grants declined.
In Maine, this spending is equivalent to nearly 30 percent of the state’s gross domestic product, ranking the state fourth by this measure. The national average is 19 percent. Only seven states exceed 27 percent. With the exception of Virginia and Maryland — which are home to hundreds of federal government offices and employees — these states, including Maine, rank at the bottom of Forbes Magazine’s list of the best states for business. They get especially low marks for economic growth prospects.
A paper for the conservative Mercatus Center warned a heavy reliance on federal spending can crowd out private enterprise. “Although the studies are not all consistent, historical evidence suggests an undesirable, long-run effect from government spending: it crowds out private-sector spending and uses money in unproductive ways,” the 2010 paper said.
The bulk of federal spending in Maine is for retirement and other benefits. Defense spending also plays a significant role. Maine was the recipient of more than $2 billion in federal defense spending in 2011, according to a Bloomberg analysis. This ranked Maine 39th in the country. Equivalent to a percent of state GDP, however, Maine ranked 15th in the country, again showing the lack of other economic activity in the state. Further, more than a third of that spending was for shipbuilding at Bath Iron Works. Health care for military retirees and military family members, provided through Martin’s Point HealthCare, was the second largest federal defense contract expenditure. The military payroll, including pensions, in Maine was a little less than $850 million in 2011.
The Pew report was not surprising to State Economist Amanda Rector. Maine is the oldest state in the nation, so federal spending for Social Security, Medicare and other programs for seniors naturally would be high.
The solution, according to Rector and countless other economists and policymakers, is to bring more workers into the state. To do this, Maine needs more jobs.
The problem is well documented, but solutions have been in short supply. Is the answer improving Maine’s schools? Increasing international trade? Building an east-west highway?
The Bangor Daily News is conducting a survey to find out what Maine residents think should be the state’s top priorities for spurring economic growth. Take the survey at bit.ly/growmaine.