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Business
AN EIGHTH DISTRICT PERSPECTIVE
FALL 1987

Federal Expenditures Exceed Payments in
Eighth District States
Federal Expenditures Per Dollar of Tax Payments, FY 1986

Federal government expenditures play an important role
in state economies. In the four District states discussed in
this article—Arkansas, Kentucky, Missouri and Tennessee—
the federal government spent $56.5 billion in fiscal year 1986,
or $3,538 on a per capita basis.
Since federal expenditures are largely financed through
taxation of individuals and businesses in states, it is necessary
to consider each state’s federal tax payments to generate its
net measure of federal inflows. This article describes the
flows of federal funds in District states in fiscal year 1986.

Overview
More than four-fifths of federal revenues were derived
from personal income taxes or from social insurance
contributions (primarily Social Security). Both sources
depend directly on personal income earned within the state.
Consequently, differences in state payments to the federal
government per capita reflect per capita income differences.
On the expenditures side, 45 percent of domestic federal
spending in FY 1986 was for direct payments to
individuals—primarily Social Security and Medicare.
Procurement contracts, mainly awarded by the Department
of Defense, accounted for 23 percent of the total. Most of
the remainder was spent for salaries and wages (15 percent)
and grants to state and local governments (14 percent). Farm
subsidy payments represented less than 2 percent of total
federal expenditures.
Due to the difficulty of attributing all
federal expenditures and revenues to specific
states, the summary measure of a state’s
federal funds flow is computed by comparing
the federal expenditures in a given state as
a percentage of the nation’s total domestic
expenditures with the state’s percentage share
of total federal tax receipts. For example,
Arkansas received 0.894 percent of total



federal expenditures in FY 1986 while paying 0.677 percent
of the nation’s total revenues. The ratio of the percentages,
1.32, summarizes the net federal funds flow in the state,
indicating that Arkansas received $1.32 in federal
expenditures per dollar of federal payments.

Differences Among States
In FY 1986, the federal funds flow ranged from $1.89 of
expenditures received for every dollar of payments in New
Mexico to $.65 in New Jersey. The map above shows that
many states in the mid-South and Rocky Mountains received
more than $1.10 per dollar of payments, while several
Midwest states received less than $.90 per dollar of
payments. Each of the four District states received a positive
federal funds flow. The table on the following
page shows that Kentucky enjoyed the highest
net gain, $1.38 for each dollar sent to the
federal government, eighth among the 50
states. Tennessee ranked the lowest among
the District states, but still ranked 13th among
all states with $1.23 received in federal
expenditures per dollar of payments.
Although all four District states enjoyed

FALL 1987

FEDERAL RESERVE BANK OF ST. LOUIS

Federal Tax Payments and Expenditures in Fiscal Year 19861
U .S .
E xpenditures/P aym ents
Population (thousands)
Incom e Per Capita
Paym ents Per Capita
Expenditures Per Capita
D irect P aym ents
Procurem ent C ontracts

1.0 0
2 4 1 ,0 7 8
$ 1 4 ,6 4 1

Arkansas

Kentucky

Missouri

Tennessee

1 .32

1.38

1.31

1.23

2 ,3 7 2

3 ,7 2 8

5 ,0 6 6

4 ,8 0 3

$ 1 1 ,0 7 3

$ 1 1 ,2 3 8

$ 1 3 ,7 8 9

$ 1 2 ,0 0 2

3 ,1 0 8
3 ,3 3 1

2 ,1 3 7

2 ,2 6 6

2 ,9 4 7

3 ,0 2 6

3 ,3 5 7

4 ,1 2 4

2,5 1 1
3 ,3 1 4

1,4 9 7

1,6 6 9
431
374

1 ,4 9 6
885
144

57

741

D efen se

775
563

N on -d efen se

212

1,6 0 6
1,3 0 9
1,095
214

1,451
947
237
710

‘Expenditures and population exclude U .S. territories and those not distributed by state.
SOURCES: Congressional Research Service, The Library o f Congress, 1987 and U .S. Department o f Commerce, 1987.

a positive net inflow, the reasons differed from state to state.
To understand these differences, it is helpful to compare
payments and expenditures separately for each state.
Arkansas
Arkansas paid $5.1 billion in federal taxes in FY 1986
and received $7.2 billion. On a per capita basis, both federal
expenditures and payments were considerably less than the
national average (see table). The state’s positive federal funds
flow—indicated by the 1.32 summary measure—resulted as
payments were relatively lower than expenditures. The
below-average federal tax payments per person mirrored the
state’s low per capita income.
Federal expenditures per person in Arkansas were $3,026.
Relatively high Social Security and Medicare payments
boosted direct payments to individuals in the state, but
spending for procurement and for most other functions was
below the national average.
Kentucky
Kentucky paid $8.4 billion to the federal government in
FY 1986 and received $12.5 billion. The state received $1.38
for every dollar sent to Washington. The positive inflow was
due to relatively low per capita tax payments—reflecting
Kentucky’s low per capita income—combined with federal
expenditures near the national average. The state’s greatest
strength in attracting federal funds was in non-defense
procurement contracting, which totaled $2.8 billion, a
substantial increase from previous years. Coal purchases by
the Tennessee Valley Authority for electrical generation were

largely responsible for the increase.
Missouri
Missouri received more in federal expenditures ($20.9
billion) and paid more ($14.9 billion) than the other District
states in FY 1986. As Missouri’s per capita payments to the
federal government were similar to the national average,
Missouri’s positive federal funds flow (1.31) was largely due
to higher-than-average inflows. Direct payments to
individuals and farm subsidy payments were above the
national average. The state’s primary strength, however, was
in defense contracting, which was concentrated in aircraft
production in the St. Louis area. The $5.5 billion awarded
to Missouri defense contractors ranked sixth among all states.
Tennessee
Tennessee paid $12.1 billion to the federal government in
FY 1986 while receiving $15.9 billion. The state received
$1.23 in federal expenditures per dollar of payments. As was
true in Kentucky, the positive inflow was due to relatively
low tax payments per capita combined with federal
expenditures near the national average. Per capita tax
payments were $2,511, well below the national average.
The composition of federal spending in Tennessee also
was similar to that in Kentucky. Direct payments per person
approached the U.S. average while strong non-defense
contracting boosted procurement well above the national
level. Tennessee’s $3.4 billion received in non-defense
contracts was exceeded only by California.
—Thomas B. Mandelbaum

Business—An Eighth District Perspective is a quarterly summary of business conditions in the area served by the Federal Reserve
Bank of St. Louis. Single subscriptions are available free of charge by writing: Research and Public Information Department,
Federal Reserve Bank of St. Louis, P.O. Box 442, St. Louis, Missouri 63166. Views expressed are not necessarily official
positions of the Federal Reserve System.
2



FEDERAL RESERVE BANK OF ST. LOUIS

FALL 1987

EIG H TH D IS T R IC T B U S IN E S S D A T A
Rates of Change1
C urrent Quarter
G en eral B usiness In d e x e s 2

Arkansas
Kentucky
Missouri
Tennessee
P a y ro ll E m p lo y m e n t

United States
District
Arkansas
Little Rock
Kentucky
Louisville
Missouri
St. Louis
Tennessee
Memphis
M a n u fa c tu rin g E m p lo y m e n t

United States
District
Arkansas
Kentucky
Missouri
Tennessee
R etail S a le s 3

United States
Arkansas
Kentucky
Missouri
Tennessee
P erso n al In co m e

United States
District
Arkansas
Kentucky
Missouri
Tennessee

1986

3.5%

0.0
- 2 .9
3.1

0.2%
0.6
1.8
3.9

1.0%
0.6
3.0
2.9

2.90/o
4.4
4.8
5.4

2.0%
2.5
2.5
0.7
2.3
2.9
1.5
1.2
3.6
4.2

2.7o/o
2.5
1.7
2.9
2.3
2.4
2.1
2.3
3.2
3.1

4.5%
4.5
3.8
3.6
5.3
4.0
4.7
4.3
4.2
5.1

11/1987

2.3%
-0 .1

0.0
- 1 .9
- 1 .0
2.0
- 2 .0
- 2 .5
- 0 .3
- 2 .9
11/1987

0.8%
- 3 .5
- 2 .4
- 0 .5
- 5 .8
- 3 .6

-0 .9 %
- 0 .2
2.4
- 0 .4
- 3 .0
1.1

-1 .8 %
- 1 .6
- 1 .6
- 2 .0
- 1 .4
- 1 .6

3.2%
3.3
2.6
4.7
3.5
2.6

6.3%
2.2
- 2 .4
2.6
6.5

6 .40/0
2.2
12.6
3.3
9.4

7.3%
2.4
0.1
9.6
10.5

4.4%
3.6
3.2
2.2
3.0
5.6

6.2%
5.7
4.8
4.2
6.2
6.6

8.4%
8.7
8.2
8.1
8.9
9.2

11/1986

10.2%
16.0
1.2
8.3
38.2
1/1986

7.0%
9.1
18.5
5.4
6.4
11.0

District Employment1
K ey In d u s trie s

Fabricated Metal Products
Electrical and Electronic Equipment
Nonelectrical Machinery
Transportation Equipment
Food and Kindred Products
Textile and Apparel
Printing and Publishing
Chemicals and Allied Products
Construction




1984

1985

11/1987

Prices1

C urrent Q uarter

Current Year

C urrent Q u arter

11/1987

11/1986 - 11/1987

11/1987

-1 .1 %
0.6
- 2 .0
- 8 .3
3.6
1.9
- 0 .7
- 0 .2
5.1

2.3%
- 0 .3
0.7
1.3
9.6
2.5
2.1
9.3
1.8

2.1o/o
0.6
- 0 .3
- 9 .8
8.4
5.7
2.9
1.9
39.3

C urrent Year
11/1986 - 11/1987

1.0%
1.2
1.3
2.4
4.3
1.1
3.9
3.6
0.7

3

EIG H TH D IS T R IC T B U S IN E S S D A TA

U n e m p lo y m e n t R a te
United States
District
Arkansas
Little Rock
Kentucky
Louisville
Missouri
St. Louis
Tenn essee
M em phis

C o n s tru c tio n C o n tra c ts 4
(millions of dollars)

Current
Quarter

Previous
Quarter

Average
1986

Average
1985

11/1987

1/1987

6.20/o
7.4
8.2
7.2
9.5
7.4
6.2
7.3
6.9
5.9

6.70/o
7.4
8.1
7.1
9.7
7.5
5.8
6.7
7.2
6.0

7.0%
7.7
8.8
6.9
9.2
7.0
6.1
7.0
8.0
6.8

Current
Quarter

Previous
Quarter

Same Period
1986

Same Period
1985

11/1987

1/1987

11/1986

11/1985

$526.2
53.4
114.4
161.1
197.2

$584.4
52.1
113.8
213.6
204.9

$409.3
55.9
105.6
145.6
183.3

$463.5
65.9
97.9
115.7
184.0

$468.8
60.1
100.6
167.3
140.8

$388.7
30.7
120.7
108.0
129.3

$338.3
35.3
70.7
115.8
116.5

$346.9
41.7
87.8
122.4
95.0

7 .20/0
7.9
8.7
6.4
9.5
8.0
6.4
7.5
8.0
6.6

R e s id e n tia l C o n s tru c tio n
District
Arkansas
Kentucky
Missouri
T ennessee
N o n re s id e n tia l C o n s tru c tio n
District
Arkansas
Kentucky
Missouri
T ennessee

NOTE: With the exception of employment and prices in key industries, all data are seasonally adjusted. Data for Arkansas,
Kentucky, Missouri and Tennessee are used to represent the District.
1 All growth rates are compounded annual rates of change. The 1984 through 1986 growth rates compare the fourth quarter of
the year listed with the fourth quarter of the previous year.
2Although each index is a comprehensive measure of economic activity, the Arkansas and Missouri indexes, computed by Southwestern
Bell, are not strictly comparable to the Kentucky and Tennessee indexes, which are computed by South Central Bell.
3Sources: Arkansas from Southwestern Bell, Kentucky from the Kentucky Revenue Department, Missouri and Tennessee from the U.S.
Department of Commerce.
4Excludes nonbuilding construction. Source: F. W. Dodge Construction Potentials, proprietary data provided by special permission.




Federal Reserve Bank of St. Louis, One Federal Reserve Bank Plaza, St. Louis, MO 63102