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State budget efficiency rankings: Federal aid and all-funds budgets

The U.S. Census Bureau released its report on federal aid to the states in September, 2011. Aside from individual data on states of interest, some of the more useful Census data revolves around state budget efficiency. This census data is combined and compared with Deltek’s own state budget data in the analysis below.

Contractors are always looking for a crystal ball view of future opportunities. Aside from predictive analytics based on past budgets and data, budget efficiency also provides some vision into what lies ahead. Simply, when states are efficient with budgets, they are able to do more with less. States able to do more with less are more likely to have future procurement opportunities due to the surplus and growth potential created from this efficiency. These same efficient states are also less likely to need future budget cuts.

In terms of per capita federal aid, the top ten most efficient states are no surprise (see figures 1 and 2, below). Virginia leads the pack, with efficiency offset by massive federal involvement in the state (military and homeland security) that is not counted in this figure. Others in the top ten (Florida, North Carolina, Georgia, and Texas) also benefit from significant federal funding through other areas not included in this aid. All of this indirect federal aid allows these state economies to achieve an additional level of stability not afforded other states. Virginia, North Carolina, Georgia, and Texas’ economies have fared relatively well during the recession, which also offset their need for federal funding. Look for excellent contracting opportunities in these states moving forward. Additionally, sixty percent of the top ten states most efficient with federal aid (Nevada, Florida, Utah, Indiana, Georgia, and Texas) are also in the top ten in terms of overall all-funds state budget efficiency (subscribers have access to a detailed data comparison of federal and state per capita budgets,
here). With this sort of combined budget efficiency, these states are on solid ground and should provide for excellent contracting opportunities looking ahead.

Figure 1: Federal Aid to States, Per Capital Ranges FY 2010

Click on image above for full-sized version

Figure 2: Federal Aid to States, Per Capita Amounts by Agency FY 2010

Looking at the least efficient states, the underlying reasons for inefficiency are complicated. Both Mississippi and Louisiana have two of the worst performing economies, with low per-capita income. Traditionally, both have needed significant federal aid to function. Natural disasters also necessitated increased federal aid. North Dakota, Wyoming, Alaska, New Mexico, and other states with sparse populations have also needed greater per capita federal funding to function. Simply, it is difficult to fund all basic government functions through such low population (and related tax base) spread over large land masses. However, Vermont, Delaware, and Alaska also have some of the least efficient all-funds state budgets. Complicating matters further, both Alaska and North Dakota have had relatively well-performing economies. Also, Alaska, North Dakota, and Wyoming have benefitted from natural resource incomes that have made operating at less efficient levels possible. Of all these least efficient budgetary states, Alaska, North Dakota, and Wyoming may provide the best contracting opportunities moving forward.

Table 1: Per Capita Federal Aid to States and State All-Funds Budgets FY 2010
Subscribers have access to the full table,

Click on image above for full-sized version

Analyst’s Take

While no metric is perfect for finding clues of business prospects lying ahead, state budget efficiency provides some picture into the current and future fiscal health of individual states. When looking to do business with states, consider how efficiently they provide services. Currently efficient states are more likely to be well-positioned for future growth. Some of these penny-pinching states may also be looking to cut further, however. On the other hand, currently inefficient states may also have future opportunities, as they may be awash with cash. Some of these less efficient states may also be set for future steep cuts. In terms of IT, efficient states have demonstrated commitment to cost-savings and will surely be looking for additional efficiency through technology. Similarly, less efficient states will be open to cost-saving IT solutions.    

For the full article, with detailed comparison data of federal and state per capita budgets, go here (subscribers only).

Stay tuned for additional analysis on state budget efficiency.

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Sources: Deltek and U.S. Census Bureau

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