United States General Accounting Office

GAO Report to the Chairman, Committee on

the Budget, U.S. Senate

January 1998 DEFENSE SPENDING

AND EMPLOYMENT

Information

Limitations Impede

Thorough Assessments

GAO/NSIAD-98-57

GAO United States

General Accounting Office

Washington, D.C. 20548

National Security and

International Affairs Division

B-276819 

January 14, 1998

The Honorable Pete V. Domenici

Chairman, Committee on the Budget

United States Senate

Dear Mr. Chairman:

The size of the defense budget is a pressing issue in the wake of the

post-Cold War reduction in defense spending and the priorities of

balancing the federal budget. Moreover, the difficulties of determining the

impacts and outcomes of budget decisions add to existing challenges.

Congress and other decisionmakers have a practical and continuous need

for information on defense-related expenditures and employment in states.

In response to your request, and discussions with your office, we

examined defense and other federal spending in the state of New Mexico.

Specifically, we examined (1) characteristics of New Mexico’s economy

and changes in it; (2) the amount of direct defense-related and

nondefense-related federal spending in the state and the direct federal

employment associated with both, over time; and (3) the extent to which

available government data can provide reliable information on defense

spending and employment. The last issue became a major component of

our study, since the quality of the data directly affects what can be

concluded about defense spending and employment.

Background In 1996, the federal government spent $1.4 trillion in U.S. states and

territories to procure products and services, to fund grants and other

assistance, to pay salaries and wages to federal employees, to provide

public assistance, and to fund federal retirement programs and Social

Security, among other things. Some states rank relatively high on the per

capita distribution of different types of federal dollars. Government

reports indicate that in 1996, Maryland, Virginia, and Alaska were the only

three states to rank among the top five in each of the following categories:

(1) total federal expenditures, (2) total federal procurement expenditures,

and (3) total salary and wage expenditures for federal workers. The only

other state that ranked among the top 10 states in all these categories was

New Mexico.

Interest in the economic magnitude of defense and other federal

expenditures in states has been amplified by concerns over anticipated

outcomes of the post-Cold War drawdown. In hearings before the Joint

Page 1 GAO/NSIAD-98-57 Defense Spending and Employment
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Economic Committee of the 101st Congress, 12 state governors1 submitted

to the leadership of the Senate and House a plan for responding to

expected adverse economic impacts in states that were believed to be

particularly vulnerable to reductions in defense spending. In 1992,

President Bush issued Executive Order 12788, requiring the Secretary of

Defense to identify the problems of states, regions, and other areas that

result from base closures and Department of Defense (DOD)

contract-related adjustments. The Office of Economic Adjustment is DOD’s

primary office responsible for providing assistance to communities,

regions, and states “adversely impacted by significant Defense program

changes.”

The federal government tracks defense-related and other federal spending

and associated employment through various sources. Centralized

reporting of this information is done by the Census Bureau in its

Consolidated Federal Funds Report (CFFR) series. The CFFR includes the

Federal Expenditures by State (FES) report and a separate two-report

volume that presents information at the county and subcounty level. The

FES report presents the most comprehensive information on federal

expenditures at the state level that can actually be attributed to specific

federal agencies or programs. Agencies involved in collecting and

reporting various types of employment information include the Office of

Personnel Management (OPM) and the Bureau of Labor Statistics.

Expenditure information reported in the CFFR also appears in

agency-specific publications or data sources. DOD reports information on

its total procurement expenditures and the salaries and wages paid to DOD

personnel, by state, in the Atlas/Data Abstract for the United States and

Selected Areas. In compiling information for the CFFR, DOD’s procurement

data are first sent to the Federal Procurement Data System (FPDS) and then

sent to Census. Therefore, Census, DOD, and the FPDS can and do report

DOD procurement expenditures.

Federal expenditure and employment data are available to users in and

outside the government and are regularly used in policy formulation and

evaluation. DOD contractors, including the Logistics Management Institute,

have used federal government data in support of their work for DOD on the

economic impacts of base realignment and closure actions. The Office of

Economic Conversion Information, a collaborative effort between the

Economic Development Administration of the Department of Commerce

1

Governors from Arkansas, Colorado, Connecticut, Louisiana, Maryland, Massachusetts, Michigan,

Mississippi, New Jersey, New York, Ohio, and Washington.

Page 2 GAO/NSIAD-98-57 Defense Spending and Employment
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and DOD, uses existing federal data to provide information to communities,

businesses, and individuals adjusting to the effects of defense downsizing

and other changing economic conditions. The Congressional Budget Office

and the Congressional Research Service have also used DOD procurement

expenditure data in examining the expected effects of planned reductions

in the national defense budget. DOD uses its prime contract award

expenditure data to track the status and progress of goals associated with

contracts made to small businesses. Researchers at think tanks,

universities, and state government offices also use government data in a

wide array of research projects and publications.

Results in Brief New Mexico is home to two Department of Energy (DOE) national

laboratories and four DOD military installations, among other federal

activities. State officials indicate that New Mexico’s economy is “heavily

dependent” upon federal expenditures. In 1996, New Mexico was fourth

among states in the per capita distribution of federal dollars and first in

return on federal tax dollars, receiving $1.93 in federal outlays for every

$1.00 paid in federal taxes. While parts of the state have relatively strong

and growing economies, in 1994 New Mexico’s poverty rate was the

second highest in the country and its per capita income was 48th in the

country. Although defense-related spending has been declining, New

Mexico’s gross state product and total per capita income have been

increasing, indicating that the economy is growing and that efforts to

diversify the economy may be having a positive effect.

One can learn several things from the available federal government

expenditure and employment data for New Mexico. DOD and DOE

expenditures have consistently represented the largest share of all federal

expenditures for procurement and salaries and wages in New Mexico.

Defense-related employment has also consistently represented the largest

share of total federal employment in New Mexico, including retired federal

workers. DOD and DOE do not contribute equally on types of defense-related

spending or defense-related employment, revealing relevant distinctions

between the types of direct economic contributions made by these

agencies. DOE contributes most in federal procurement expenditures and

private contractor employment. DOD contributes most in federal salaries

and wages and federal employment, namely active duty military and

retired DOD employees.

Existing government data, however, contributes to only a partial

understanding of the type of federal dollars that enter a state’s economy

Page 3 GAO/NSIAD-98-57 Defense Spending and Employment
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and the employment supported by the expenditures. Our research based

on New Mexico shows that the data have multiple limitations that restrict

the ability to determine the total amount and distribution of federal

funding and jobs in the state. Key limitations that generally apply include

reporting thresholds that exclude millions in procurement expenditures;

the reporting of the value of an obligation, rather than the money actually

spent; the absence of any comprehensive source of primary data that

systematically identifies private sector employment associated with

federal contracts; and DOD’s lack of data on subcontracts. Since these data

sources are not unique to New Mexico, these limitations would also apply

to assessments of federal funding and employment in other states.

Existing data are not without value, but those who rely on federal data

need to be alert to their drawbacks and exercise discretion when using

them.

Federal Dollars

Contribute to New

Mexico Economy, but

Economy Is

Diversifying

DOE and DOD military activities have contributed substantially to the

economy of New Mexico for about 50 years. Government data show that

between 1988 and 1996, New Mexico was ranked second, third, or fourth,

among U.S. states in per capita distribution of federal dollars. In terms of

per capita federal procurement expenditures only, New Mexico was

ranked first among U.S. states during 1988-94 and second in 1995-96. In

1996, New Mexico was ranked first among states in return on federal tax

dollars, receiving $1.93 in federal outlays for every $1.00 in federal taxes

paid. The state was also ranked first in return on federal tax dollars in

1995. In 1996, 5 of the 6 major federal facilities were among the top 

10 employers in the state.

This federal revenue comes largely from the six major federal facilities in

New Mexico, including two DOE national laboratories, Los Alamos National

Laboratory and Sandia National Laboratory; Cannon, Holloman, and

Kirtland Air Force Bases; and White Sands Missile Range, a test range that

supports missile development and test programs for all the services, the

National Aeronautics and Space Administration (NASA); and other

government agencies and private industry. New Mexico’s geography and

climate, including relative isolation from major population centers,

year-round good weather, and open airspace, have made the state

attractive for some military activities. In May 1996, the Secretary of

Defense and the German Defense Minister activated the German Air Force

Tactical Training Center at Holloman Air Force Base in Alamogordo. The

training opportunities provided by the vast airspace in and around

Holloman and its proximity to Fort Bliss, Texas—the headquarters

Page 4 GAO/NSIAD-98-57 Defense Spending and Employment
B-276819 

location for German air force operations in North America—were factors

in Germany’s decision to invest in a tactical training center at the base.

State officials estimate that the training center will result in a population

increase to the Alamogordo area of about 7 percent and investment by

Germany of $155 million by 1999.

Services and trade are distinct components of New Mexico’s economy. In

1993, the largest employment sectors in New Mexico were services,

government, and trade: these were reported as accounting for

approximately 76 percent of the total average annual state employment.2

Businesses involved in trade and/or services accounted for 67 percent of

all businesses in New Mexico in 1993. Revenue from the gross receipts tax

is the highest source of tax revenue in New Mexico, and in 1996, gross

receipt taxes from services and trade accounted for more than half of all

gross receipts tax revenue. DOE reports show that between 1990 and 1995,

it made more expenditures in the services and trade sectors of the New

Mexico economy. New Mexico Department of Labor projections indicate

that by 2005, the services sector will alone account for about 41 percent of

total employment while employment in the trade sector is projected to

remain stable and government employment is expected to decline. The

projections indicate that jobs in services and trade will account for

70 percent of the new jobs between 1993 and 2005.

New Mexico state officials have been focusing on “achieving economic

diversification to protect against dramatic negative changes in the state’s

economy,” believed to be linked to changes in federal spending in the

state. Efforts in 1996 to recruit select industries to the state have initially

resulted in at least 7 businesses locating to New Mexico, creating 230 new

jobs. In terms of other efforts, New Mexico was 8th among U.S. states in

high-technology employment growth between 1990 and 1995.3

 The single

leading high-technology industry in the state is semiconductor

manufacturing, which accounts for 34 percent of total high-technology

jobs. Intel Corporation has three advanced computer chip manufacturing

sites that employ at least 6,500 people making it the state’s second-largest

2

The service sector includes employment associated with hotels and other lodging places, personal

services, business services, health services, legal services, educational services, and others. The trade

sector includes wholesale trade of durable and nondurable goods and retail trade at general

merchandise stories, food stores, automobile dealers and service stations, eating and drinking places,

and other retail trade. The government sector includes federal, state, and local government

employment.

3

Cyberstates: A State-By-State Overview of the High-Technology Industry. American Electronics

Association, Washington, D.C., 1997. There is no conventional, standard accepted definition of

high-technology or high-technology industry. Thus, definitions of high-technology industries can vary

greatly depending upon what combination of products and services are selected.

Page 5 GAO/NSIAD-98-57 Defense Spending and Employment
B-276819 

private sector employer and contributing to the growth in New Mexico’s

high-technology employment. In 1995, Intel was also the leading

manufacturing employer in the state. High-technology exports account for

the largest percentage of New Mexico exports to other countries, with

exports to Korea leading other nations.4

 Currently, about 10 percent of all

New Mexico manufacturers are exporting. The leading exporters in New

Mexico are Intel, Motorola, and Honeywell Defense Avionics.

A comparison of the percent change in New Mexico’s per capita income

and total defense-related spending (DOE and DOD) in the state during

1990-94 shows that real growth occurred in per capita income, while total

defense expenditures declined (see fig.1). A comparison between percent

real growth in New Mexico’s gross state product and total defense-related

federal expenditures reveals the same pattern, suggesting that efforts to

diversify the state’s economy may be having a positive effect (see fig. 2).

Based on the average rate of growth in the gross state product during

1987-94, the Bureau of Economic Analysis identified New Mexico as the

third-fastest-growing state.

4

The Trade Division of the New Mexico Economic Development Department defines high-technology

industry as the composite of all exports originating from three industry sectors: electronic and other

electric equipment and components, except computer equipment; industrial machinery and computer

equipment; and measuring analyzing and controlling instruments, photographic, medical, and optical

goods, and watches and clocks.

Page 6 GAO/NSIAD-98-57 Defense Spending and Employment
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Figure 1: Change in Per Capita Income and Defense-Related Expenditures in New Mexico (1990-94)

1990-91 1991-92 1992-93 1993-94

-4

-3

-2

-1

0

1

2

3

4

Percent Real Growth

Defense Spending Per Capita Income

Source: Our analysis of data from the Bureau of Economic Analysis, Census Bureau, Department

of Defense, and the Department of Energy-Albuquerque Operations Office.

Page 7 GAO/NSIAD-98-57 Defense Spending and Employment
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Figure 2: Change in New Mexico’s Gross State Product and Federal Defense Expenditures in New Mexico (1990-94)

1990-91 1991-92 1992-93 1993-94

-5

0

5

10

15

Percent Real Growth

Defense Spending Gross State Product

Source: Our analysis of data from the Bureau of Economic Analysis, Census Bureau, Department

of Defense, and the Department of Energy-Albuquerque Operations Office.

DOE Spends More on

Procurement; DOD

Spends More on

Workforce and

Retirement

Available federal data provides a segmented and rough snapshot of federal

money spent in states and the employment linked to those expenditures

that is relevant to gauging some trends and patterns. For example,

government data indicates that in 1996, the federal government spent

about $12 billion in New Mexico. Direct expenditures for procurement,

salaries and wages for federal workers, and grants accounted for 

60 percent, or about $7.3 billion, of the total. Direct payments to

individuals, the single largest category of federal expenditures, accounted

for approximately 37 percent, or about $4.4 billion, of total 1996 federal

expenditures (see fig. 3).

Page 8 GAO/NSIAD-98-57 Defense Spending and Employment
B-276819 

Figure 3: Federal Expenditures in New

Mexico (1996)

Grants

Salary/Wages

Direct Payments

Procurement

Other

16.1%

14.0%

36.7%

30.4%

2.8%

Source: Our analysis of Census data.

Appendix II includes additional descriptions of federal spending and

employment in New Mexico.

Defense-Related

Expenditures

The top five agencies making procurement expenditures in New Mexico

during 1993-96, were DOE, DOD, the Department of Interior, NASA, and the

Postal Service. The defense-related agencies (DOE and DOD), compared to

the nondefense-related ones,5

 accounted for 90 percent, or $14.1 billion, of

the $15.5 billion total spent during 1993-96.6

 Specifically, DOE accounted for

80 percent of the total federal defense-related procurement expenditures,

or about $11.2 billion of the 1993-96 total of $14.1 billion.

5

Agencies included in the nondefense category are the Departments of Agriculture, Commerce,

Education, Health and Human Services, Housing and Urban Development, Interior, Justice, Labor,

State, Transportation, Treasury, Veterans Affairs, and other nondefense offices.

6

The primary time period that we report on is 1988-96. However, data for the complete time period was

not always available. Therefore, in some cases we report data only for the years it was available.

Page 9 GAO/NSIAD-98-57 Defense Spending and Employment
B-276819 

Between 1993 and 1996, the top five federal agencies that accounted for

the largest dollar amount of expenditures to pay salaries and wages of

federal workers in New Mexico were DOD; the Postal Service; and the

Departments of Interior, Health and Human Services, and Veterans Affairs.

Salaries and wages paid to federal employees of the defense-related

agencies account for about $7 billion, or 54 percent, of the total $13 billion

spent in New Mexico. Specifically, between 1988 and 1996 DOD accounted

for about $6.5 billion, or 93 percent, of the $7 billion total defense-related

federal salaries and wages. Payments to workers retired from

defense-related agencies also accounted for more of the total annuities to

retired federal workers living in New Mexico during 1990-96. Payments to

retired defense-related federal workers accounted for $3.2 billion, or 

68 percent, of the total $4.7 billion in annuitant expenditures. Payments to

former DOD workers accounted for 98 percent of the total payments to

retired defense-related workers. Figure 4 shows the percent of

defense-related expenditures for procurement, federal workers’ salary and

wages, and retirement payments accounted for by DOE and DOD,

respectively.

Page 10 GAO/NSIAD-98-57 Defense Spending and Employment
B-276819 

Figure 4: Defense-Related

Expenditures Accounted for by DOE

and DOD

80%

20%

Procurement

7%

93%

Salaries

2% 98%

Retirement

DOE DOD

Note: Procurement expenditure data is the total during 1993-96, salary expenditure data is the

total during 1988-96, and retirement payment data is the total during 1990-96.

Defense-Related

Employment

Between 1988 and 1996,7 the Departments of Defense, the Interior, Health

and Human Services, Veterans Affairs, and Agriculture were the top five

agencies in terms of total federal employees in New Mexico.8

 Between

1988-1996, defense-related jobs were about 72 percent, or 300,000 jobs, of

the total 420,000 federal jobs in New Mexico.9

 Specifically, DOD accounted

for 97 percent, or about 292,000 of these jobs, over the period 1988-96.

Thus, DOD federal jobs were more of the total federal jobs and more of the

defense-related federal jobs in New Mexico. Federal retirees of

defense-related agencies also comprised more of the retired federal

7

Data for 1989 was not available. Government employment data includes part-time and full-time

workers.

8

We did not include Postal Service employment data in calculating the top five because data for the

Postal Service were only available in 1988, 1990, 1992, and 1994. If we calculated the top five for only

the years that Postal Service data were available, it would consistently rank second.

9

On a yearly basis, there were approximately 52,500 total federal jobs and 37,500 defense-related jobs.

Page 11 GAO/NSIAD-98-57 Defense Spending and Employment
B-276819 

workers living in New Mexico: 68 percent of the total between 1990 and

1996. Specifically, DOD accounted for 99 percent of all retirees from the

defense-related agencies. Figure 5 shows the percent of defense-related

jobs and retirees in New Mexico accounted for by DOE and DOD.

Figure 5: Defense-Related Jobs and Retirees Accounted for by DOE and DOD (1990-96)

3%

97%

Federal Jobs

1% 99%

Federal Retirees

DOE DOD

The existing data provides information on federal employees only. This is

an important point because although the overall ratio of DOD federal

workers to DOE federal workers was 44:1 between 1988 and 1996, our

research also shows that more of the DOE employment is linked to private

contractors that manage and operate the laboratories and other DOE

facilities than to the number of DOE federal employees. Private contractors

working on government contracts are not considered or counted as

federal employees. However, even when we compared the total DOE

employment, which included direct DOE prime contractor, subcontractor,

and federal employees, to the total DOD federal employment DOD’s direct

federal employment was higher than DOE’s in each year between 1990 and

1996.

Page 12 GAO/NSIAD-98-57 Defense Spending and Employment
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Of the DOD employment, more of the federal jobs were DOD military than

DOD civilians. Between 1988-96 about 42 percent of the total DOD federal

jobs in New Mexico were held by active duty military members, 33 percent

were held by inactive duty military (national guard and reserves), and

25 percent were held by DOD civilians.10 Similarly, more of the federal

wages were associated with active duty military. Active duty military

members accounted for 55 percent, inactive members accounted for

5 percent, and DOD civilians accounted for 40 percent of the total salaries

and wages between 1988-96.

Figure 6: DOD Military and Civilian

Jobs and Salaries in New Mexico

(1988-96)

75%

25%

DOD Jobs

60%

40%

DOD Salaries

Military Civilian

A comparison of the occupations represented by the defense-related

federal jobs in New Mexico indicates that during 1988-96 the largest

number of jobs were blue-collar and technical. This finding, however,

10The available DOD data did not make distinctions between full-time and part-time DOD federal

employees in New Mexico. Inactive duty military members, that is the reserve and national guard, are

typically employed less than part-time in these jobs.

Page 13 GAO/NSIAD-98-57 Defense Spending and Employment
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largely represents the patterns for the DOD active duty employment in New

Mexico, for which technical and blue-collar jobs comprise about

70 percent of the total jobs. Among DOD civilian employees, the two

categories that accounted for the largest number of jobs over the period

1988-96 were professional (23 percent of the total jobs) and blue-collar

(20 percent of the total jobs).11 The two occupational categories that

account for more of the DOE direct federal employment in New Mexico are

administrative (30 percent of total jobs) and professional (37 percent of

total jobs).12

Federal Expenditure

and Employment Data

Are Incomplete

Official federal data sources are useful for gaining a preliminary

understanding of the composition of federal expenditures in states.

However, fundamental characteristics of the federal data make it difficult

to determine the direct economic impact of federal activities on states. For

example, our analysis of defense-related expenditures and employment

did not include information on DOD contractor employment because there

is no official DOD or other federal source of such information. Federal

government data sources provide insufficient evidence for determining

where federal dollars are actually spent, how much is actually spent, and

the number or type of jobs that the federal dollars directly generate

because of numerous limitations in scope and coverage and in reporting

requirements or procedures. Our related findings that pertain to the data

sources used and reviewed in our work are summarized in tables 1 and 2.

11Occupational categorizations are based on OPM definitions. At New Mexico military installations,

examples of occupation titles in the blue-collar category include general aircraft worker, ammunition

repair worker, general construction worker, electrician, and missile mechanic, among others.

Examples of occupation titles in the technical occupational category include air traffic control,

medical care and treatment worker, operators/analysts, flight operations, general nuclear weapons

equipment repair, and auditing and accounting, among others. Examples of civilian occupation titles in

the professional category include general engineering, contracting, operations research, physics,

accounting, computer engineering, social science, and aerospace engineering, among others.

12Examples of occupation titles in the professional category for DOE employees include general

engineering and general physical science, among others. Examples of occupation titles in the

administrative category include security administration and management program analyst, among

others.

Page 14 GAO/NSIAD-98-57 Defense Spending and Employment
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Table 1: Qualities of Data on Direct Federal Expenditures in States

Source

Type of direct

expenditure

Tracking

system/officea Key limitations known or reported

Federal

expenditures by

state report

(Census Bureau)

DOD

procurement

DD350 to

DOD/DIOR/

WHS to FPDS

DD350

•Dollar values are obligations, not expenditures.

•Reporting threshold includes only obligations over $25,000.

•Classified data is masked or unreported.

•DOD/IG study found data integrity and reliability problems with DD350.

•DD350 records differed from GAO survey-based results of total DOD contract

awards to New Mexico contractors during 1988-96.

•Does not include data on subcontracts.

Non-DOD

procurement

Multiple

agencies to

FPDS

FPDS

•Most dollar values are obligations, not expenditures.

•Reporting threshold includes only obligations over $25,000.

•It is unclear whether data represent actual in-state expenditures.

DOD grants DD2566 to

DOD/DIOR/

WHS to FAADS

FAADS

•FAADS dollar amounts are obligations, not actual expenditures.

Non-DOD grants Multiple

agencies to

FAADS

FAADS

•FAADS dollar amounts are obligations, not actual expenditures.

DOD salary and

wages

DFAS to

DOD/DIOR/WHS

DFAS:

•Defense finance and accounting systems have reliability problems.b

DOD/WHS/DIOR

•Does not include salaries for undistributed personnel.c

•Estimates made for other personnel whose location cannot be exactly

determined; unknown how many or what areas may be most impacted.

•No information on nonappropriated fund staff.

•Only includes federal employee data; no information on private contractor

employees.

Non-DOD

salary and

wages

Multiple

agencies to

OPM/CPDF

OPM/CPDF

•Wages for federal workers are estimated for state reports.

•Includes some federal workers. Not included are CIA, DIA, NSA, judicial and

legislative branches, TVA, and Postal Service. FBI does not report duty stations

for employees.

•Part-time and seasonal worker salaries are annualized.

•Wages for workers who get piece-rate, hourly rate, or other nonsalary rates

include only unit-rate compensation, not total compensation. 

Office of the

Actuary (DOD)

Retired military

pay

Multiple

services to

DMDC

DMDC

•Obtained different figures from Actuary and DMDC for New Mexico sample.

Data from Actuary and DMDC were different from a third DOD source, raising

questions about reliability of information.

(continued)

Page 15 GAO/NSIAD-98-57 Defense Spending and Employment
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Source

Type of direct

expenditure

Tracking

system/officea Key limitations known or reported

Annuities roll

(OPM)

Retired DOD

civilian pay and

all other

non-DOD

retired pay

Multiple

agencies

None reported.

Legend:

CIA—Central Intelligence Agency

DD350—Department of Defense [Form] 350

DFAS—Defense Finance and Accounting Service

DIA—Defense Intelligence Agency

DIOR/WHS—Directorate for Information Operations and Reports, Washington

Headquarters Service

DMDC—Defense Manpower Data Center

DOD/IG-Department of Defense, Inspector General

FAADS—Federal Assistance Awards Data System

FBI—Federal Bureau Of Investigation

NSA— National Security Agency

TVA—Tennessee Valley Authority

aThis column identifies the database or office that provides the original data, which is “fed” to the

source listed in the first column. For example, DOD’s procurement expenditures reported in the

Federal Expenditures by State report are generated through the tracking system that starts with

the collection of information on the DD350, which is centrally reported through DOD’s Directorate

for Information Operations and Reports, Washington Headquarters Services, to the Federal

Procurement Data System and then finally reported to the Census Bureau. The DD350 is the

official DOD form used to record individual DOD contract actions (obligations or deobligations) in

excess of $25,000. Contract offices complete DD350s according to instructions detailed in the

Defense Federal Acquisition Regulations supplement. The dollar value of contracts is recorded

along with information on the name and location of contractors, the location where the work will be

performed, products or services purchased, contract solicitation procedures used (competitive or

other than competitive), and the type of business contracted with (large, small, small

disadvantaged), among other things.

bWe previously reported on these problems in our report entitled DOD Infrastructure: DOD’s

Planned Finance and Accounting Structure Is Not Well Justified (GAO/NSIAD-95-127, Sept.

1995).

cDOD’s definition of undistributed personnel includes military personnel in a transient status, for

example, personnel on travel, proceed, leave en route or in a temporary duty status while on

permanent change of station (PCS) orders, or for which an exact location is classified. In 1996,

undistributed personnel were 2.6 percent of all military personnel.

Page 16 GAO/NSIAD-98-57 Defense Spending and Employment
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Table 2: Qualities of Data on Direct Federal Employment in States

Source

Type of direct

employment

Tracking

system/office Known limitations

Atlas/data

abstract

for the U.S. and

selected areas

(DOD)

Number of DOD

active, inactive,

and civilian

employees

DFAS/other

DOD offices to

DOD/DIOR/WHS

DFAS:

•Defense finance and accounting systems have reliability problems.a

DOD/WHS/DIOR

•Does not include undistributed personnel.

•Estimates conducted for other personnel whose location cannot be exactly

determined; unknown how many or what areas may be most impacted.

•No information on nonappropriated fund staff.

•Only includes federal employee data; no information on private contractor

employees.

•No program/system-level contractor employment.

Office of the

Actuary (DOD)

Number of

retired military

personnel

receiving pay

Multiple

services/

agencies to

DMDC

DMDC

•Obtained different figures for total retirees from Actuary and DMDC for New

Mexico sample, raising questions about reliability of information.

Annuities Roll

(OPM)

Number of

retired DOD

civilians and all

other non-DOD

retired

personnel

receiving pay

Multiple

agencies

None reported.

OPM/CPDF Number of all

non-DOD

civilian federal

employees

Multiple

agencies

OPM/CPDF

•Includes only the number of federal employees; no data on private contractor

employees.

•Includes only some federal workers. Does not include CIA, DIA, NSA, judicial

and legislative branches, TVA, and Postal Service. FBI does not report duty

stations for employees.

Office of Worker

and Community

Transition (DOE)

Number of DOE

prime

contractor

employees

Multiple DOE

field offices or

facilities

Office of Worker and Community Transition

•Employee counts are not provided by specific location but by major employer,

so actual number at specific locations must be assumed.

•Some contractor employment is “work for others” and “other work,” not part of

funded DOE major program activities.

aWe previously reported on these problems in our report entitled DOD Infrastructure: DOD’s

Planned Finance and Accounting Structure Is Not Well Justified (GAO/NSIAD-95-127, Sept.

1995).

To gain further insights into the reliability of the federal government’s data

we focused on characteristics of existing DOD data. Although DOD’s

procurement expenditure data (DD350) is used in broad policy contexts

and used to evaluate the status of programs that are believed to be

important to economic security, the form is not designed to provide

Page 17 GAO/NSIAD-98-57 Defense Spending and Employment
B-276819 

information on all DOD expenditures in a single state or at the national

level. Procurement contracts under $25,000 are not included, no

information on DOD subcontracts of any value are included, and financial

data related to classified programs may or may not be reported or be

accurate.

DOD acknowledges that the DD350 does not completely account for all

procurement expenditures, and although this limitation is generally

understood and acknowledged by informed users, the possible

implications are not. We surveyed the top five DOD contractors in New

Mexico to determine how much money they received in DOD prime

contracts and subcontracts and compared their responses to DOD’s records

(the DD350 data) of their total contracts.13 The comparisons revealed that

in no case were the DOD records of the dollar value of contracts awarded

to these companies the same as the contractors’ records. Differences

between DOD and contractors’ records ranged from $20 million for prime

contracts to $80 million for total contracts. In some cases, the DOD records

appeared to overstate the amount the contractors received, while in other

cases the DOD records appeared to understate the amount.

Our research suggests several possible reasons for the inconsistencies

between contractor records and DOD records. For example, expenditures

associated with procurement contracts can leak from a state’s economy if

a company subcontracts part of the work elsewhere. One study reported

that of $5.2 billion in DOD prime contracts received by McDonnell Douglas

in St. Louis, Missouri, less than 3 percent, or $156 million, stayed in

Missouri due to out-of-state subcontracting.14 However, from our survey of

contractors in New Mexico we determined that leakages were more

prevalent for certain types of procurement contracts. While our survey

showed overall that more than 80 percent of the total DOD prime contract

dollars remained in the state, for every year between 1988 and 1996, it also

showed that the businesses that predominantly received service contracts,

rather than supply and equipment contracts (i.e., major hard

goods/weapons), kept nearly all of the DOD contract money they received

in the state. This is particularly relevant because other DOD data indicate

that in every year between 1988 and 1996, DOD procurement contracts for

13In order, the top five contractors in New Mexico in 1996 were Lockheed Martin, Honeywell Defense

Avionics, DynCorp, EG&G, and Kit Pack Company. We obtained complete survey data from four of the

top contractors. Lockheed Martin was unable to provide reliable information on the value of DOD

contracts they received for work performed in New Mexico. See appendix III for a complete

discussion of the contractor survey methods and results.

14R. Atkinson, “Defense Spending Cuts and Regional Economic Impact: An Overview. “ Economic

Geography, 69(2), (1993), pp. 107-122.

Page 18 GAO/NSIAD-98-57 Defense Spending and Employment
B-276819 

services account for the largest dollar volume of contracts to New

Mexico.15

Also, service contracts may more likely be under DOD’s $25,000 reporting

threshold16 and therefore excluded from total expenditures as officially

reported by DOD. Furthermore, injections of dollars from subcontracts with

out-of-state firms or with other in-state firms are not tracked by DOD, yet

would have been included in the contractors’ records.

Finally, the DOD Inspector General reported in 1989 that the DD350 data

had reliability problems due to instances of unreported contract

obligations and other errors in reported data. The Inspector General made

no recommendations and has not assessed the reliability and validity of

the DD350 contract tracking system since then.

The existing data that track defense-related employment are limited in

their scope, coverage, and reliability. Among the most notable limitation in

the data is the lack of a central or official source of data on private-sector

employment associated with DOD contracts. Information on the number of

jobs associated with particular defense contracts or weapon programs are

repeatedly discussed in the media and in Congress. Further, DOD has stated

that defense procurement dollars promote the creation of jobs. However,

DOD officials have also indicated that they do not collect information on

the job impacts of particular DOD budget decisions.

To obtain information on the employment associated with defense

contracts or the employment linked to particular defense programs, it is

necessary to contact individual defense contractors and/or DOD system

program offices directly. The contractor employment data we obtained

from our survey of defense contractors in New Mexico is summarized in

appendix III, along with other survey findings. The responses from the top

four contractors who provided us data indicated that the total number of

direct jobs associated with DOD contracts was approximately 19,200 during

15DOD categories of service contracts include the operation of government-owned facilities; automatic

data processing and telecommunications services; architect and engineering services; social services;

medical services; and lease or rental of facilities, among others. Other broad categories of DOD

contracts include supply and equipment contracts (e.g., weapons) and research, development, testing,

and evaluation contracts.

16J.R. Crump, “Sectoral Composition and Spatial Distribution of Department of Defense Services

Procurement,” Professional Geographer, 45(2), (1993), pp. 286-296.

Page 19 GAO/NSIAD-98-57 Defense Spending and Employment
B-276819 

1988-96.17 The total DOD federal employment (active duty, inactive, and

civilians) in the state for the same period (1989 data included) was

approximately 328,000.18 A comparison of employment data from three top

DOE prime contractors to the data from the top four DOD prime contractors

indicates that, over the period 1994-96, DOE had about eight prime

contractor employees to every one DOD prime contractor employee in New

Mexico.19 We also obtained employment and expenditure data for a

sample of specific defense programs that were known to have some

involvement with New Mexico contractors (see table 3).20

17This is approximately 2,100 defense contractor employees on a yearly basis. In its 1996 review of the

New Mexico economy, Sunwest Bank lists New Mexico’s 132 largest employers. Of the top five New

Mexico defense contractors we contacted for our survey, only Honeywell appears on the list with a

ranking as the state’s 45th largest employer.

18This is approximately 36,000 DOD federal employees on a yearly basis.

19This includes DOE prime contractor employment at the Los Alamos and Sandia National laboratories

and at the Waste Isolation Pilot Plant in Carlsbad.

20DOD’s public affairs office publishes summaries of each contract it awards that exceed $5 million.

These DOD summaries, referred to as Blue Tops, are distributed to Congress, the public, the media

and industry. The contract summaries include information on who the contract was awarded to, the

total amount of the contract, what the contract is for, and where the work will be done. These

summaries can be useful for current event information; however, the information reported can also be

misleading if one is attempting to determine the DOD contract dollars directed to specific states. For

example, a summary from September 1996 indicated that the Navajo Refining Company in Artesia,

New Mexico was awarded an $86-million contract. Although the summary indicated that the work

would be performed in Roswell, New Mexico and El Paso, Texas, data we obtained from other DOD

offices indicated that $36,000 of the work was done in New Mexico, whereas $85 million was done in

Texas.

Page 20 GAO/NSIAD-98-57 Defense Spending and Employment
B-276819 

Table 3: New Mexico Expenditures and

Employment for a Sample of Defense

Programs

Program

Total FY 96

program fundinga

FY 96 expenditures

in New Mexicob

FY 96

employment in

New Mexicoc

Airborne laser (ABL)

(Air Force research

and development)

$19,000,000 $4,409,000 24

C-17 (Air Force

procurement)

$2,270,000,000 $8,818,000 28

Echelon Above Corps

(EAC) Communication

Program (Army

procurement)

$44,500,000 $5,283,825 63

Kiowa Warrior

helicopter (Army

procurement)

$64,300,000 $20,000,000 115

Sense and destroy

armor (SADARM)

submunition (Army

procurement)

$41,100,000 $383,542 3

Stinger missile (Army

procurement)

$16,900,000d $157,876e Not available

TOW2B missile (Army

procurement)

$12,000,000 $5,500,000f 20

aSource of funding for the airborne laser is DOD Comptroller 1997 R-1 budget tables. For all

procurement programs, the 1997 P-1 is the source.

bData was provided by the DOD system program offices and/or the prime contractors for the

systems.

cData was provided by the DOD system program offices and/or the prime contractors for the

systems.

dThis is the amount of the fiscal year 1997 Stinger program funding.

eThis is the amount of the fiscal year 1997 Stinger-related expenditures made in New Mexico.

f

Estimate.

Conclusions The available data indicate that the state of New Mexico receives relatively

large amounts of federal dollars. Defense-related federal activities in the

state have contributed to the development of the economy, and recent

efforts to diversify the economic base appear linked to continued growth.

The best available data indicate that in New Mexico DOE and DOD account

for about 90 percent of all federal procurement spending (1993-96),

54 percent of expenditures for federal worker salary and wages (1988-96),

72 percent of all federal jobs in the state (1988-96), and 68 percent of all

Page 21 GAO/NSIAD-98-57 Defense Spending and Employment
B-276819 

retired federal workers living in the state (1990-96). Specifically, DOE

accounts for 80 percent of the defense-related procurement expenditures,

and DOD accounts for 93 percent of the defense-related salary and wage

expenditures, 97 percent of the defense-related federal jobs, and

99 percent of the federal workers retired from defense-related agencies

and living in New Mexico. The largest component of DOE employment is

private contractor employment, while the largest component of DOD

employment is federal employment, namely active duty military members.

On one hand, determining the full and complete economic magnitude of

federal expenditures in states, whether defense or nondefense, and the

related employment is not possible with existing data. Trying to reconcile

differences among data sources and account for gaps or questionable data

is very resource-intensive and does not necessarily yield benefits in

precision or accuracy. On the other hand, the existing data are not without

value, nor should the government necessarily strive for increased data

collection that could actually entail more costs than benefits. The

limitations in federal data may, in part, reflect the fact that data collection

trails behind changes in federal policy or shifts in policy relevance. Those

who rely on federal data need to be alert to their drawbacks and exercise

discretion when using them.

Agency Comments In oral comments on a draft of this report, DOD concurred with our findings

and conclusions. It also provided several technical comments, which we

incorporated in the text where appropriate.

Scope and

Methodology

In conducting our work, we contacted and interviewed officials and

experts from federal and state government offices and the private sector.

Because the scope of the work covered all federal expenditures and

related employment in New Mexico over an 8-year period, there was a

large range and number of contacts and outreach efforts we made in

completing our work. We made over 50 contacts throughout federal and

state governments and the private sector. Our final results were produced

from databases from four separate federal agencies; our survey of New

Mexico defense contractors encompassing 8 years of financial and

business information; information obtained from a review of more than 

30 publications; and information we obtained from numerous documented

interviews with key officials. A list of the offices we contacted is in

appendix I.

Page 22 GAO/NSIAD-98-57 Defense Spending and Employment
B-276819 

To determine the characteristics of the New Mexico economy and recent

changes in the economy, we reviewed and analyzed economic data and

information we obtained from interviews with New Mexico state officials,

federal government officials, and available federal and state data sources,

including the Bureau of Economic Analysis and the Bureau of Business

and Economic Research at the University of New Mexico.

To determine the direct defense-related and nondefense-related federal

expenditures and employment in New Mexico over the period 1988-199621

we contacted multiple federal offices and obtained official data from DOD

and DOE. We obtained data on all other nondefense-related federal

expenditures from the Census Bureau. All available data on DOD and DOE

expenditures were categorized as defense-related.22 We obtained total

nondefense-related employment data from OPM’s Central Personnel Data

File. All expenditure figures were adjusted for inflation and are presented

in constant 1996 dollars. Appendix II contains the complete overview and

figures depicting our findings related to direct federal expenditures and

employment in New Mexico.

To determine the extent to which available government data provides

reliable information on defense spending and employment, we evaluated

the qualities of the existing federal data. We reviewed technical

documentation for the sources used, interviewed agency officials about

the data sources, conducted crosschecks of data that appeared in multiple

sources but had been derived from the same source, and in the case of DOD

procurement expenditures, compared the results of DOD data to our survey

results. Survey results are discussed in appendix III. Given the outcome of

our review, federal data limitations and data reliability concerns are

discussed in our findings and reflected in the report’s conclusions.

Our work was conducted between November 1996 and October 1997 in

accordance with generally accepted government standards.

21We did not report on indirect or induced effects of federal expenditures. Direct expenditures include,

for example, the actual amount of a contract awarded to a business, and direct employment includes

the actual number of jobs created by that contract. Direct expenditures and employment produce

some indirect and induced effects. Indirect expenditures include, for example, purchases of supplies

or services that support the contract or the initial direct expenditure. Indirect employment includes

the number of jobs that are created from the indirect expenditures. Induced expenditures and

employment include the effects created by spending from wages earned on retail purchases, housing,

and restaurants, among others.

22Some DOD expenditures may be for civil functions not directly related to national defense. DOE

programs include defense, environmental management, and energy research, among others. The

predominant mission of the national laboratories in New Mexico focus on nuclear weapons research

and engineering. Since the predominant mission of the DOD programs and the DOE programs in New

Mexico are defense-related we categorized all the expenditures and employment as defense-related.

Page 23 GAO/NSIAD-98-57 Defense Spending and Employment
B-276819 

As agreed with your office, unless you publicly announce its contents

earlier, we plan no further distribution of this report until 14 days from its

issue date. At that time, we will send copies of this report to other

interested congressional committees and members. Copies will also be

made available to others upon request.

Please contact me at (202) 512-3092 if you or your staff have any questions

concerning this report. Major contributors to this report were Carolyn

Copper, John Oppenheim, and David Bernet.

Sincerely yours,

Kwai-Cheung Chan

Director, Special Studies and Evaluations

Page 24 GAO/NSIAD-98-57 Defense Spending and Employment
Page 25 GAO/NSIAD-98-57 Defense Spending and Employment
Contents

Letter 1

Appendix I 

Offices We Contacted

30

Department of Defense, Washington, D.C. 30

Department of Energy, Washington, D.C. 30

Department of Commerce, Washington, D.C. 30

Congressional Agencies, Washington, D.C. 30

Federal Facilities, New Mexico 30

State Government Offices 31

Universities 31

Defense Contractors 31

Others 31

Appendix II 

Direct Federal

Expenditures and

Employment in New

Mexico

32

Federal Expenditures in New Mexico 32

Defense-Related and Nondefense-Related Federal Expenditures

in New Mexico

36

Defense-Related and Nondefense-Related Federal Employment in

New Mexico

41

DOD and DOE Share of Defense-Related Expenditures in New

Mexico

42

DOD and DOE Share of Defense-Related Employment in New

Mexico

47

Appendix III 

Survey of Top Defense

Contractors in New

Mexico

53

Survey Methods 53

Contractor Background 53

Key Limitations 55

Survey Findings 56

Survey Results Compared to DOD Records 62

Summary 64

Tables Table 1: Qualities of Data on Direct Federal Expenditures in

States

15

Table 2: Qualities of Data on Direct Federal Employment in

States

17

Table 3: New Mexico Expenditures and Employment for a

Sample of Defense Programs

21

Page 26 GAO/NSIAD-98-57 Defense Spending and Employment
Contents

Figures Figure 1: Change in Per Capita Income and Defense-Related

Expenditures in New Mexico (1990-94)

7

Figure 2: Change in New Mexico’s Gross State Product and

Federal Defense Expenditures in New Mexico (1990-94)

8

Figure 3: Federal Expenditures in New Mexico (1996) 9

Figure 4: Defense-Related Expenditures Accounted for by DOE

and DOD

11

Figure 5: Defense-Related Jobs and Retirees Accounted for by

DOE and DOD (1990-96)

12

Figure 6: DOD Military and Civilian Jobs and Salaries in New

Mexico (1988-96)

13

Figure II.1: Federal Expenditures in New Mexico (1988-96) 33

Figure II.2: New Mexico Federal Employment (1988-96) 34

Figure II.3: Total Federal Spending on Procurement, Grants,

Federal Employee Salaries and Wages, and Direct Payments in

New Mexico (1988-96)

35

Figure II.4: Defense-Related and Nondefense-Related Federal

Procurement Expenditures in New Mexico (1993-96)

36

Figure II.5: Defense-Related and Nondefense-Related Federal

Grant Expenditures in New Mexico (1988-96)

37

Figure II.6: Salaries and Wages to Defense-Related and

Nondefense-Related Federal Workers in New Mexico (1988-96)

38

Figure II.7: Distribution of Federal Direct Payments in New

Mexico, by Federal Program (1988-96)

39

Figure II.8: Total Annuities for Federal Workers Living in New

Mexico and Retired From Defense-Related and

Nondefense-Related Agencies (1988-96)

40

Figure II.9: Defense-Related and Nondefense-Related Federal

Employment in New Mexico (1988-96)

41

Figure II.10: Federal Retired Workers from Defense and

Nondefense-Related Agencies Living in New Mexico (1988-96)

42

Figure II.11: DOD and DOE Procurement Expenditures in New

Mexico (1993-96)

43

Figure II.12: Annuities to Workers Retired From DOD and DOE

and Living in New Mexico (1990-96)

44

Figure II.13: DOD and DOE Retired Federal Workers in New

Mexico (1990-96)

45

Figure II.14: DOD and DOE Federal Employee Salary and Wage

Expenditures in New Mexico (1988-96)

46

Figure II.15: DOE and DOD Employment in New Mexico

(1988-96)

47

Page 27 GAO/NSIAD-98-57 Defense Spending and Employment
Contents

Figure II.16: DOD Active, Inactive, and Civilian Employment in

New Mexico (1988-96)

48

Figure II.17: Salary and Wages for DOD Active and Inactive Duty

Members and DOD Civilians in New Mexico (1988-96)

49

Figure II.18: Job Occupations of DOD Active Duty Military in New

Mexico (1988-96)

50

Figure II.19: Job Occupations of DOD Civilians in New Mexico

(1988-96)

51

Figure II.20: Job Occupations of DOE Federal Employees in New

Mexico (1988-96)

52

Figure III.1: DOD Contracts Awarded to the Top Four New

Mexico Defense Contractors (1988-96)

57

Figure III.2: Contract Dollars Received by the Top Four New

Mexico Defense Contractors That Stayed in-State (1988-96)

58

Figure III.3: Differences in Percent of Prime Contract Dollars

That Remained in-State (1988-96)

59

Figure III.4: Subcontract Dollars That Stayed in-State (1988-96) 60

Figure III.5: DOD Prime Contract and Subcontract Jobs That

Stayed in-State (1988-96)

61

Figure III.6: Wages for DOD Prime Contract and Subcontract

Work That Stayed in-State (1988-96)

62

Figure III.7: DOD Records of Total Contract Awards Received

Compared with Our Survey Results of Contractor Records

63

Abbreviations

CFFR Consolidated Federal Funds Report

DOD Defense of Defense

DOE Department of Energy

FES Federal Expenditures by State

FPDS Federal Procurement Data System

FTE full-time equivalents

HHS Department of Health and Human Services

NASA National Aeronautics and Space Administration

OPM Office of Personnel Management

Page 28 GAO/NSIAD-98-57 Defense Spending and Employment
Page 29 GAO/NSIAD-98-57 Defense Spending and Employment
Appendix I 

Offices We Contacted

Department of

Defense, Washington,

D.C.

Directorate for Information Operations and Reports, Washington

 Headquarters Services

Office of Program Analysis and Evaluation

Office of the Comptroller

Office of Economic Adjustment

Defense Manpower Data Center

Office of the Actuary

Secretary of the Air Force

Industrial Affairs and Installations

Office of Nonappropriated Fund Personnel

Defense Finance and Accounting Service

Public Affairs

Inspector General

Department of

Energy, Washington,

D.C.

Office of Worker and Community Transition

Office of Human Resources and Administration

Office of the Budget

Department of

Commerce,

Washington, D.C.

Bureau of the Census

Bureau of Economic Analysis

Congressional

Agencies, Washington,

D.C.

Congressional Budget Office

Congressional Research Service

Federal Facilities,

New Mexico

Cannon Air Force Base, Clovis, New Mexico

Holloman Air Force Base, Alamogordo, New Mexico

Kirtland Air Force Base, Albuquerque, New Mexico

White Sands Missile Range, White Sands, New Mexico

Albuquerque Operations Office, Department of Energy,

 Albuquerque, New Mexico

Bureau of Land Management, Department of the Interior, Las Cruces and

 Albuquerque, New Mexico

Page 30 GAO/NSIAD-98-57 Defense Spending and Employment
Appendix I 

Offices We Contacted

State Government

Offices

Santa Fe, New Mexico

Department of Economic Development

Department of Taxation and Revenue

Albuquerque, New Mexico

Department of Labor

Richmond, Virginia

Economic Development Partnership, Department of Business Assistance

Annapolis, Maryland

Federal Response and Technology Commercialization

Universities Bureau of Business and Economic Research, University of New Mexico,

 Albuquerque, New Mexico

Department of Economics, University of Maryland, College Park, Maryland

Defense Contractors Honeywell Defense Avionics, Albuquerque, New Mexico

Laguna Industries, Laguna, New Mexico

McDonnell Douglas, Long Beach, California

Aeroparts Manufacturing and Repair, Rio Rancho, New Mexico

SBS Technologies, Albuquerque, New Mexico

Physics, Mathematics, and Computers, Socorro, New Mexico

Kit Pack Company, Las Cruces, New Mexico

EG&G Management Systems, Albuquerque, New Mexico

Lockheed Martin, Bethesda, Maryland

DynCorp, Reston, Virginia

Others Professional Aerospace Contractors Association of New Mexico,

 Albuquerque, New Mexico

Intel Corporation, Albuquerque, New Mexico

American Electronics Association, Santa Clara, California

Logistics Management Institute, McClean, Virginia

Academy for State and Local Governments, Washington, D.C.

National Council of State Governments, Washington, D.C.

National Legislative Council, Washington, D.C.

National Governors Association,Washington, D.C.

RAND, Washington, D.C.

Page 31 GAO/NSIAD-98-57 Defense Spending and Employment
Appendix II 

Direct Federal Expenditures and

Employment in New Mexico

This appendix presents 1988-96 (1) trends in total direct federal

expenditures and employment in New Mexico and within specific

spending categories, (2) defense-related and nondefense-related

expenditures and employment, and (3) the Department of Energy’s (DOE)

and the Department of Defense’s (DOD) share of the defense-related

expenditures and employment.

We used existing databases and a survey on how much money is directly

spent and how many people are directly employed to determine

expenditures and employment. We did not assess the indirect or induced

effects of federal expenditures and employment. All expenditure data

were adjusted for inflation and are presented in constant 1996 dollars.

Data for all years were not always available.

Federal Expenditures

in New Mexico

Federal expenditures in New Mexico fluctuated between about $10 billion

and $12 billion, 1988 through 1996. The highest level of spending occurred

in 1996 (see fig. II.1).

Page 32 GAO/NSIAD-98-57 Defense Spending and Employment
Appendix II 

Direct Federal Expenditures and

Employment in New Mexico

Figure II.1: Federal Expenditures in New Mexico (1988-96)

1988 1989 1990 1991 1992 1993 1994 1995 1996

$0

$2

$4

$6

$8

$10

$12

$14

Dollars in Billions

Source: Our analysis of Census data.

This increase in federal expenditures for New Mexico is consistent with

nationwide trends.1

Total federal employment in New Mexico generally increased between

1988 and 1994, then declined to 1996. Total employment in 1996 is the

lowest level of any year in the period (see fig. II.2). The decline in federal

employment in New Mexico in the last several years is consistent with

trends in declining nationwide federal employment.

1

Federal Fiscal Trends: Fiscal Years 1971-1995 (GAO/AIMD-97-3, Nov. 1996).

Page 33 GAO/NSIAD-98-57 Defense Spending and Employment
Appendix II 

Direct Federal Expenditures and

Employment in New Mexico

Figure II.2: New Mexico Federal Employment (1988-96)

1988 1990 1991 1992 1993 1994 1995 1996

0

10,000

20,000

30,000

40,000

50,000

60,000

Total Employment

Source: Our analysis of OPM and DOD data. Postal Service employment is not included.

Figure II.3 shows the specific expenditure trends in procurement, grants,

salaries and wages for federal workers, and direct payments to individuals.

Page 34 GAO/NSIAD-98-57 Defense Spending and Employment
Appendix II 

Direct Federal Expenditures and

Employment in New Mexico

Figure II.3: Total Federal Spending on Procurement, Grants, Federal Employee Salaries and Wages, and Direct Payments in

New Mexico (1988-96)

1988 1989 1990 1991 1992 1993 1994 1995 1996

$0

$1

$2

$3

$4

$5

$6

Dollars in Billions

Procurement Grants Salaries Direct Payments

Procurement expenditures in New Mexico have generally declined over

time but did increase between 1989 and 1992. In the 1988-96 time frame,

procurement expenditures were at their lowest in 1996. Expenditures on

grants and direct payments have increased over time and have not shown

periods of decline. This is consistent with national trends. Federal salary

and wage trends are marked by small increases over time with periods of

stability following an increase.

Page 35 GAO/NSIAD-98-57 Defense Spending and Employment
Appendix II 

Direct Federal Expenditures and

Employment in New Mexico

Defense-Related and

Nondefense-Related

Federal Expenditures

in New Mexico

Defense-related procurement expenditures far exceeded

nondefense-related procurement expenditures during 1993-96.2

 But both

types of expenditures have been declining (see fig. II.4). The decline in

defense-related expenditures is consistent with overall trends in declining

DOD and DOE budgets.3

Figure II.4: Defense-Related and Nondefense-Related Federal Procurement Expenditures in New Mexico (1993-96)

1993 1994 1995 1996

$0

$1,000

$2,000

$3,000

$4,000

$5,000

$3,940

$3,491 $3,392 $3,334

$400 $277 $383 $342

Dollars in Millions

Defense-Related Nondefense-Related

Nondefense-related agencies accounted for more of the expenditures for

federal grants to New Mexico (see fig. II.5). The top five agencies in terms

of expenditures on federal grants to New Mexico were the Departments of

Health and Human Services (HHS), Transportation, Interior, Agriculture,

and Education. Expenditures on nondefense-related grants were

2

Procurement expenditures identified by all specific federal agencies were not reported by Census

until 1993.

3

See Defense Industry: Trends in DOD Spending, Industrial Productivity and Competition

(GAO/PEMD-97-3), Jan. 1997) and Department of Energy: Funding and Workforce Reduced, but

Spending Remains Stable (GAO/RCED-97-96, Apr. 1997).

Page 36 GAO/NSIAD-98-57 Defense Spending and Employment
Appendix II 

Direct Federal Expenditures and

Employment in New Mexico

99 percent of the total grant expenditures in each year between 1988 and

1996.

Figure II.5: Defense-Related and Nondefense-Related Federal Grant Expenditures in New Mexico (1988-96)

1988 1989 1990 1991 1992 1993 1994 1995 1996

$0

$500

$1,000

$1,500

$2,000

$2,500

Dollars in Millions

Defense-Related Nondefense-Related

Defense-related agencies accounted for more of the total salaries and

wages for federal workers than nondefense-related agencies between 1988

and 1996 (see fig. II.6).

Page 37 GAO/NSIAD-98-57 Defense Spending and Employment
Appendix II 

Direct Federal Expenditures and

Employment in New Mexico

Figure II.6: Salaries and Wages to Defense-Related and Nondefense-Related Federal Workers in New Mexico (1988-96)

1988 1990 1991 1992 1993 1994 1995 1996

$0

$200

$400

$600

$800

$1,000

Dollars in Millions

Defense-Related Nondefense-Related

Between 1988 and 1993 total expenditures on salaries and wages for

nondefense-related workers increased steadily, slowly declining in the last

4 years. On the other hand, salary and wage expenditures for

defense-related workers generally declined between 1988 and 1993 but

increased slightly between 1995 and 1996. Salaries and wages were at their

highest in 1996 for defense-related workers were and at their highest in

1993 for nondefense-related federal workers.

It is not possible to make clear federal agency distinctions in direct

payment expenditures. These expenditures are commonly reported by

federal program, not by federal agency. Given the reporting criterion used,

we determined which federal program accounted for most of the direct

payments in New Mexico. In some but not all cases, this information is

sufficient to determine which federal agency accounted for most of the

expenditures.

Page 38 GAO/NSIAD-98-57 Defense Spending and Employment
Appendix II 

Direct Federal Expenditures and

Employment in New Mexico

Programs administered by HHS accounted for over 50 percent of the total

direct payment expenditures in New Mexico in each year between 1988

and 1996: the average was 63 percent (see fig. II.7). The programs included

in the HHS roll-up include Social Security, Medicare, and Supplemental

Security Income.

Figure II.7: Distribution of Federal Direct Payments in New Mexico, by Federal Program (1988-96)

1988

1989

1990

1991

1992

1993

1994

1995

1996

0 20 40 60 80 100 120

Year

Percent

HHS Programs Federal Retirement & Disability Agriculture Program All Others

Note: Totals may not always add to 100 percent due to rounding.

Payments for federal retirement and disability made up the second largest

category of direct payments in New Mexico in each year between 1988 and

1996. On average, these payments accounted for 18 percent of all direct

payments made in New Mexico during 1988-96. The Food Stamp Program,

administered by the Department of Agriculture, on average, accounted for

Page 39 GAO/NSIAD-98-57 Defense Spending and Employment
Appendix II 

Direct Federal Expenditures and

Employment in New Mexico

5 percent, and direct payments to individuals associated with all other

programs, on average, accounted for 14 percent of the total direct

payments over the same time period.4

We could not determine the breakdown between the defense-related and

nondefense-related distribution of federal retirement payments directly

from the Census data. Therefore, we obtained additional data from DOD

and the Office of Personnel Management (OPM). Figure II.8 shows that

payments to workers retired from the defense-related agencies account for

the majority—on average 68 percent—of the total annuities for retired

federal workers in New Mexico, between 1988 and 1996. Total annuities

for defense and nondefense-related retired federal workers have increased

over time.

Figure II.8: Total Annuities for Federal Workers Living in New Mexico and Retired From Defense-Related and

Nondefense-Related Agencies (1988-96)

1990 1991 1992 1993 1994 1995 1996

$0

$100

$200

$300

$400

$500

$600

Dollars in Millions

Defense-Related Nondefense-Related

4

All other programs include unemployment compensation, veteran’s benefit programs, payments to

railroad workers, housing assistance programs, Pell Grants, earned income tax credits, National

Guaranteed Student Loan interest subsidies, federal workers’ compensation, black lung disease

payments, and other programs.

Page 40 GAO/NSIAD-98-57 Defense Spending and Employment
Appendix II 

Direct Federal Expenditures and

Employment in New Mexico

Defense-Related and

Nondefense-Related

Federal Employment

in New Mexico

Federal workers from the defense-related agencies accounted for the

majority of the total federal employment in New Mexico during 1988-96

(see fig. II.9). Federal jobs in the defense-related agencies, on average,

accounted for 72 percent of the total federal jobs in New Mexico. Total

federal employment declined by approximately 4,000 jobs between 1992

and 1996; about 84 percent of these jobs were in defense-related agencies.

Figure II.9: Defense-Related and Nondefense-Related Federal Employment in New Mexico (1988-96)

1988 1990 1991 1992 1993 1994 1995 1996

0

10,000

20,000

30,000

40,000

50,000

Number of Employees

Defense-Related Nondefense-Related

Source: Our analysis of DOD and OPM data. Postal Service employment not included. OPM

sources do not include 1989 data.

Defense-related agencies in New Mexico account for about 68 percent of

the federal retirees, on average, between 1990 and 1996. The number of

federal workers retired from defense and nondefense-related agencies and

living in New Mexico has increased over time.

Page 41 GAO/NSIAD-98-57 Defense Spending and Employment
Appendix II 

Direct Federal Expenditures and

Employment in New Mexico

Figure II.10: Federal Retired Workers From Defense and Nondefense-Related Agencies Living in New Mexico (1988-96)

1990 1991 1992 1993 1994 1995 1996

0

5,000

10,000

15,000

20,000

25,000

30,000

Number of Retirees

Defense-Related Nondefense-Related

DOD and DOE Share

of Defense-Related

Expenditures in New

Mexico

The defense-related agencies in New Mexico accounted for the majority of

procurement expenditures, total annuities for retired federal workers, and

salaries and wages for federal employees. In figures II.11, II.12, and II.14,

we show the trends in the DOD and DOE share of the expenditures in each

of these categories. We also show the number of DOD and DOE federal

retirees in New Mexico (see fig. II.13).

Between 1993 and 1996, DOE accounted for more of the defense

procurement dollars that went to New Mexico than DOD (see fig. II.11).

Consistent with overall declining DOE and DOD budgets, DOE and DOD

procurement expenditures in New Mexico have declined in the last several

years.

Page 42 GAO/NSIAD-98-57 Defense Spending and Employment
Appendix II 

Direct Federal Expenditures and

Employment in New Mexico

Figure II.11: DOD and DOE Procurement Expenditures in New Mexico (1993-96)

1993 1994 1995 1996

$0

$500

$1,000

$1,500

$2,000

$2,500

$3,000

$3,500

$4,000

$867

$691 $669 $680

$3,073

$2,799 $2,723 $2,654

Dollars in Millions

DOD DOE

Figure II.12 shows that payments to DOD retired federal workers living in

New Mexico account for most of the total annuities to federal workers

retired from defense-related agencies between 1990 and 1996. On average,

annuities to retired DOD workers accounted for 98 percent of total

annuities between 1990 and 1996.

Page 43 GAO/NSIAD-98-57 Defense Spending and Employment
Appendix II 

Direct Federal Expenditures and

Employment in New Mexico

Figure II.12: Annuities to Workers Retired From DOD and DOE and Living in New Mexico (1990-96)

1990 1991 1992 1993 1994 1995 1996

$0

$100

$200

$300

$400

$500

$600

$423.3 $440.1 $452.4 $446.9

$465

$482.6 $496.8

$6 $6.6 $7 $7.5 $8.3 $9.8 $11.2

Dollars in Millions

DOD DOE

Also, more former DOD than DOE federal employees were living in New

Mexico between 1990 and 1996 (see fig. II.13).

Page 44 GAO/NSIAD-98-57 Defense Spending and Employment
Appendix II 

Direct Federal Expenditures and

Employment in New Mexico

Figure II.13: DOD and DOE Retired Federal Workers in New Mexico (1990-96)

1990 1991 1992 1993 1994 1995 1996

0

5,000

10,000

15,000

20,000

25,000

30,000

35,000

24,095 24,751 25,393 26,194 26,885 27,512 27,885

275 296 308 328 354 402 447

Number of Retirees

DOD DOE

The increase in retired DOD workers in New Mexico is consistent with an

overall increase in the number of retired active duty military members and

DOD civilians.

Figure II.14 shows that DOD also accounts for nearly all of the salary and

wage expenditures for federal employees of defense-related agencies.

Page 45 GAO/NSIAD-98-57 Defense Spending and Employment
Appendix II 

Direct Federal Expenditures and

Employment in New Mexico

Figure II.14: DOD and DOE Federal Employee Salary and Wage Expenditures in New Mexico (1988-96)

1988 1990 1991 1992 1993 1994 1995 1996

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$845.5 $838.6 $848.3

$798.2 $797.9 $797.4 $798.2

$848.6

$45.8 $48.4 $52.9 $58.2 $60.2 $56.7 $60.3 $57.7

Dollars in Millions

AAA AAA

AAADOD DOE

Source: Our analysis of Census and OPM data.

On average, DOD accounted for 93 percent of the defense-related salaries

and wages for federal employees. The total amount of DOD and DOE salary

and wage expenditures has fluctuated some over the years, but no sharp

increases or decreases have occurred.

DOE mostly employs prime contractor employees, who are not counted as

federal employees, thus, their numbers are not included in federal data.

DOE data we obtained indicates that the salaries and wages for DOE prime

contractor employees in New Mexico are greater than those of DOD federal

employees in the state. For example, between 1990 and 1994 the total

salaries and wages for DOD federal employees were about $4 billion and,

for DOE prime contractors were about $6 billion.5

 Comparable figures on

5

On a yearly basis, this is approximately $800 million in DOD federal employee salaries and wages and

$1.2 billion in DOE prime contractor salaries.

Page 46 GAO/NSIAD-98-57 Defense Spending and Employment
Appendix II 

Direct Federal Expenditures and

Employment in New Mexico

the total compensation to DOD prime contractor employees in New Mexico

were not available. However, the data we obtained from our survey of the

top New Mexico contractors shows that the total compensation to their

employees was $332 million between 1990 and 1994, or about $6.6 million

per year.

DOD and DOE Share

of Defense-Related

Employment in New

Mexico

Defense-related federal employment in New Mexico is higher than

nondefense-related employment. In this section, we show the DOD and DOE

portions of defense-related employment over time, including DOD’s and

DOE’s numbers and types of occupations.

On average, DOD accounted for 97 percent of the total defense-related

federal employment in New Mexico between 1988 and 1996 (see fig. II.15).

Figure II.15: DOE and DOD Employment in New Mexico (1988-96)

1988 1990 1991 1992 1993 1994 1995 1996

0

10,000

20,000

30,000

40,000

50,000

36,544 35,946 36,865 37,462 37,470 37,858

35,789

34,199

1,062 1,057 1,142 1,237 1,236 1,147 1,181 1,097

Number of Employees

DOD DOE

Source: Our analysis of DOD and OPM data.

Page 47 GAO/NSIAD-98-57 Defense Spending and Employment
Appendix II 

Direct Federal Expenditures and

Employment in New Mexico

In each year between 1988 and 1996, active duty military members were

the single largest group of DOD federal employees in New Mexico. Inactive

duty military and DOD civilian employees, respectively, accounted for the

second and third largest component of DOD federal employment (see 

fig. II.16).

Figure II.16: DOD Active, Inactive, and Civilian Employment in New Mexico (1988-96)

1988 1989 1990 1991 1992 1993 1994 1995 1996

0

5,000

10,000

15,000

20,000

Number of Employees

Active Military Inactive Military Civilian

Active duty and inactive duty military members, and DOD civilians ranked

first, third, and second, respectively, in accounting for the largest share of

salary and wages for DOD federal employees in New Mexico from 1988 to

1996 (see fig. II.17).

Page 48 GAO/NSIAD-98-57 Defense Spending and Employment
Appendix II 

Direct Federal Expenditures and

Employment in New Mexico

Figure II.17: Salary and Wages for DOD Active and Inactive Duty Members and DOD Civilians in New Mexico (1988-96)

1988 1989 1990 1991 1992 1993 1994 1995 1996

$0

$100

$200

$300

$400

$500

$600

Dollars in Millions

Active Military Inactive Military Civilian

Between 1988 and 1996 more of the DOD active duty military jobs in New

Mexico were blue collar and technical compared to administrative,

clerical, white collar, or professional job occupations (see fig. II.18).

Page 49 GAO/NSIAD-98-57 Defense Spending and Employment
Appendix II 

Direct Federal Expenditures and

Employment in New Mexico

Figure II.18: Job Occupations of DOD Active Duty Military in New Mexico (1988-96)

1988 1990 1992 1994 1996

0

1,000

2,000

3,000

4,000

5,000

6,000

Number of Jobs

Administrative Blue Collar Clerical Other White Collar Professional Technical

Note: Reserves and National Guard not included.

Source: Defense Manpower Data Center.

The job occupations of DOD civilians were more evenly dispersed across

categories than DOD military jobs. Professional job occupations accounted

for the most DOD civilian jobs in New Mexico between 1988 and 1996 (see

fig. II.19).

Page 50 GAO/NSIAD-98-57 Defense Spending and Employment
Appendix II 

Direct Federal Expenditures and

Employment in New Mexico

Figure II.19: Job Occupations of DOD Civilians in New Mexico (1988-96)

1988 1990 1992 1994 1996

0

500

1,000

1,500

2,000

2,500

Number of Jobs

Administrative Blue Collar Clerical Other White Collar Professional Technical

Source: Defense Manpower Data Center.

The majority of DOE federal jobs in New Mexico between 1988 and 1996

were professional and administrative (see fig. II.20).

Page 51 GAO/NSIAD-98-57 Defense Spending and Employment
Appendix II 

Direct Federal Expenditures and

Employment in New Mexico

Figure II.20: Job Occupations of DOE Federal Employees in New Mexico (1988-96)

1988 1991 1993 1995

0

100

200

300

400

500

Number of Jobs

Administrative Blue Collar Clerical Other White Collar Professional Technical

Page 52 GAO/NSIAD-98-57 Defense Spending and Employment
Appendix III 

Survey of Top Defense Contractors in New

Mexico

The principal purpose of our survey was to determine and characterize the

flow of defense dollars to contractors and to illuminate and quantify the

limitations of existing data sources that document defense spending in

states.

Survey Methods For our survey sample, we selected contractors who were among the top

five in terms of the total dollar amount of DOD prime contracts awarded in

fiscal year 1996. Time and resource constraints prevented us from

surveying every business that was awarded a defense contract and

performed work in New Mexico. For example, in 1996 alone, 471

businesses were awarded DOD contracts exceeding $25,000 for work

principally done in New Mexico.

We obtained DOD’s DD350 data to determine the total value of DOD prime

contracts awarded to all businesses in 1996 with the principal place of

work in New Mexico. From this population we selected five contractors:

Honeywell, DynCorp, EG&G, Kit Pack Company, and Lockheed Martin. In

1996, prime contracts to these businesses accounted for 26 percent of the

total value of all DOD prime contracts awarded to businesses in New

Mexico. In the period covered by our survey, that is, 1988-96, the

percentage of total DOD prime contract awards accounted for by the top

five New Mexico contractors ranged from 26 to 46 percent. Different

companies have been in the list of the top five over the years. However,

over the survey period, Honeywell and DynCorp were consistently among

the top five.

Contractors were asked to complete several questions about DOD contracts

they were awarded as a prime and subcontractor between 1988-96. We

asked them to indicate the total value of all DOD contracts received, the

dollar amount of contract work that was subcontracted or was

interdivisional work, the amounts subcontracted in-state and out-of-state,

the amount of salary and wages for all contracts completed by the

contractor and by subcontractors, and the number of full-time equivalent

(FTE) positions for work completed by the contractor and for

subcontractors.

Contractor

Background

As a group Honeywell, Lockheed Martin, DynCorp, and EG&G are large,

diversified corporations with business establishments physically located in

New Mexico but actual corporate headquarters located elsewhere in the

Page 53 GAO/NSIAD-98-57 Defense Spending and Employment
Appendix III 

Survey of Top Defense Contractors in New

Mexico

country. Kit Pack is a relatively smaller company, with its business

headquarters and all operations located in New Mexico.

During the period of time covered by our survey, Honeywell’s principal

DOD work in New Mexico was research, development, and testing and

evaluation services for military aircraft and the manufacturing of aircraft

avionics components. In 1996, DOD awarded prime contracts to Honeywell

to provide automatic pilot mechanisms; flight instruments; and research,

development, and testing and evaluation services related to aircraft engine

manufacturing, among other things. Its survey data was completed by staff

at Honeywell’s business establishment in Albuquerque.

DynCorp is a large professional and technical services firm. DynCorp’s

principal work in New Mexico is providing business services, which

include aircraft maintenance and repair at military bases, and operations

services provided at government-owned facilities. In 1996, DOD awarded

prime contracts to DynCorp to provide maintenance and repair services to

equipment and laboratory instruments, telecommunications services, and

other services associated with operating a government-owned facility at

White Sands Missile Range, among other things. DynCorp’s survey data

was completed by staff at the corporate headquarters in Reston, Virginia.

DynCorp’s responses were based on financial data for DynCorp and its

subsidiaries that also operate in New Mexico (e.g., Aerotherm).

EG&G’s principal DOD work in New Mexico is providing communications

equipment; operating radar and navigation facilities at Holloman Air Force

Base; and doing advanced research, development, testing and evaluation

work. In 1996, DOD awarded prime contracts to EG&G to provide advanced

development and exploratory research and development (including

medical) services at Kirtland Air Force Base and to operate radar and

navigation facilities at Holloman Air Force Base, among other things.

EG&G’s survey data was completed by staff at the Albuquerque office and

includes data only for EG&G Management Systems.

Kit Pack Company is located in Las Cruces, south of Holloman Air Force

Base near White Sands Missile Range. Kit Pack’s principal DOD work in

New Mexico is providing aircraft spare parts and modification kits. In

1996, DOD awarded prime contracts to Kit Pack to provide aircraft

hydraulics, vacuum and deicing system components, airframe structural

components, and torque converters and speed changers, among other

things. After it completed and returned the survey to us, Kit Pack officials

informed us that it was currently operating under Chapter 11 bankruptcy

Page 54 GAO/NSIAD-98-57 Defense Spending and Employment
Appendix III 

Survey of Top Defense Contractors in New

Mexico

due to the termination for default of an Army contract. Kit Pack had filed

an appeal of the termination, which was pending when we completed our

work. The company indicated that it has seen a severe reduction in the

number of DOD contracts awarded since it filed for bankruptcy. Kit Pack

staff in Las Cruces completed our survey.

We were unable to obtain survey information from Lockheed Martin.

Company officials indicated that they did not have the type of information

we requested broken out by states or geographical locations. In a

follow-up meeting, company officials provided us with information on

their total expenditures to New Mexico suppliers, annual payroll for their

employees in New Mexico and the number of employees in the state

between 1992 and 1996. The information was developed by staff in

Lockheed Martin’s Washington operations office.

We could not use Lockheed Martin’s information because it was not

broken out by specific federal agencies, nor could we determine whether

the total expenditures, payroll, or employment were associated with

government-funded work or whether they were part of the company’s

commercial business. Over the course of several meetings and

conversations with Lockheed Martin officials, we obtained detailed

supplier expenditure information from the Lockheed Martin Consolidated

Procurement Program which was broken out by specific Lockheed Martin

business units. Company officials said that this would provide an

indication of the type of business activity (e.g., DOD, DOE, NASA, and

commercial) that the expenditures were made for. In addition, we were

given information on corporate sales and payroll by staff in Lockheed

Martin’s tax department.

We discovered several discrepancies in the company’s financial

information. When we discussed these with company officials, they

indicated that the data provided by the Washington operations office were

“less reliable” than other data. Company officials also indicated that their

record-keeping had been challenged by the recent merger/acquisition

activities (i.e., Lockheed and Martin Marietta in 1995 and the Loral

acquisition in 1997). Lockheed Martin officials said that different

companies had different information systems and that some information

may have been lost during the recent merger.

Key Limitations Our survey was not designed to specify or measure the exact amount of all

DOD contract dollars that flow into New Mexico. Rather, its purpose was to

Page 55 GAO/NSIAD-98-57 Defense Spending and Employment
Appendix III 

Survey of Top Defense Contractors in New

Mexico

reflect the nature of the flow of DOD prime and subcontract dollars to a

sample of top New Mexico contractors and to compare these results to

existing DOD data.

Among the four contractors that completed the survey, none indicated that

they could not provide reliable responses to the survey items. The most

common limitation was the lack of information on FTEs and wages for

subcontracted work. Specifically, contractors indicated the following

limitations in their responses to us.

• Honeywell provided information on the dollar amount of the orders it

received during the calendar year and estimates of subcontracted work

and employees and wages associated with subcontracted work.

• Kit Pack did not have FTE or wage information on its subcontractors and

indicated that it no longer had payroll records for its own staff for 1988,

1989, or 1991.

• EG&G did not have records for FTEs and wages associated with

subcontracted work.

• DynCorp did not have information on its subcontractors prior to 1993. To

report fiscal year information, DynCorp had to convert some company

financial data that was not identified by fiscal years.

Survey Findings We treated all survey data received from contractors as proprietary.

Therefore, in discussing survey findings, contractor names are not used

and data is aggregated to protect business-sensitive information. All

dollars were adjusted for inflation and are constant 1996 dollars. All of the

contractors surveyed were DOD prime contractors. Two of the four

contractors we surveyed indicated that they were also DOD subcontractors.

The total amount of DOD prime and contract subcontract awards has

declined over the 9-year period.6

 The totals reported for 1996 were the

lowest of all the years. For the 9-year period of our survey, expenditures

for DOD prime contracts ($1.5 billion) were roughly the same as for

subcontracts ($1.4 billion). However, in 5 of the 9 years, the contractors

received more subcontract than prime contract dollars (see fig. III.1).

6

This is consistent with the general decline in total DOD procurement budgets. See Defense Industry:

Trends in DOD Spending, Industrial Productivity and Competition (GAO/PEMD-97-3, Jan. 1997).

Page 56 GAO/NSIAD-98-57 Defense Spending and Employment
Appendix III 

Survey of Top Defense Contractors in New

Mexico

Figure III.1: DOD Contracts Awarded to the Top Four New Mexico Defense Contractors (1988-96)

1988 1989 1990 1991 1992 1993 1994 1995 1996

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Dollars in Millions

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Prime Contracts Subcontracts Total

Between 1988 and 1996, the percent of prime contract dollars that

remained in-state was consistently greater than 80 percent (see fig. III.2).

The 9-year average was 83 percent.

Page 57 GAO/NSIAD-98-57 Defense Spending and Employment
Appendix III 

Survey of Top Defense Contractors in New

Mexico

Figure III.2: Contract Dollars Received by the Top Four New Mexico Defense Contractors That Stayed In-State (1988-96)

1988 1989 1990 1991 1992 1993 1994 1995 1996

0

20

40

60

80

100

83 83 82 84 82 83

86

81 83

17 17 18 16 18 17

14

19 17

Percent

Percent in-State Percent out-of-State

Although the average percent of prime contract dollars that remained in

New Mexico was high, examination of specific contractor data indicates

important exceptions. For two of the contractors, the survey results

indicated that nearly 100 percent of the prime contract dollars they

received remained in-state between 1988 and 1996. However, one

contractor’s data shows that less than 50 percent of prime contract dollars

received remained in-state each year between 1988 and 1996.

Approximately 70 percent of the total prime contract awards received by

another contractor remained in-state for all years (see fig. III.3).

Page 58 GAO/NSIAD-98-57 Defense Spending and Employment
Appendix III 

Survey of Top Defense Contractors in New

Mexico

Figure III.3: Differences in Percent of Prime Contract Dollars That Remained In-State (1988-96)

1988 1989 1990 1991 1992 1993 1994 1995 1996

0

10

20

30

40

50

60

70

80

90

100

110

Percent

Contractor 1 Contractor 2 Contractor 3 Contractor 4

For the two contractors that were also DOD subcontractors, a slightly

smaller percentage of their subcontract dollars remained in-state

compared to the percentage of their prime contract dollars (see fig. III.4).

On average, 75 percent of subcontract dollars remained in-state between

1988 and 1996.

Page 59 GAO/NSIAD-98-57 Defense Spending and Employment
Appendix III 

Survey of Top Defense Contractors in New

Mexico

Figure III.4: Subcontract Dollars That Stayed In-State (1988-96)

1988 1989 1990 1991 1992 1993 1994 1995 1996

0

20

40

60

80

100

69 69

66 68

75

72

98

79 81

31 31

34 32

25

28

2

21 19

Percent

Percent in-State Percent out-of-State

The contractors indicated that the majority of jobs supported by their DOD

prime contracts remained in-state. On average, 73 percent of the jobs

remained in-state during 1988-96. The lowest yearly percentage was

66 percent in 1989 and 1990, and the highest was 83 percent in 1996 (see

fig. III.5).

Page 60 GAO/NSIAD-98-57 Defense Spending and Employment
Appendix III 

Survey of Top Defense Contractors in New

Mexico

Figure III.5: DOD Prime Contract and Subcontract Jobs That Stayed In-State (1988-96)

1988 1989 1990 1991 1992 1993 1994 1995 1996

0

20

40

60

80

100

69

66 66 67

79

74

80

77

83

31

34 34 33

21

26

20 23

17

Percent

Percent in-State Percent out-of-State

On average, 73 percent of the total wages for employees working on DOD

prime contracts and subcontracts remained in-state between 1988 and

1996 (see fig. III.6). From 1988 to 1996 the percent of wages that remained

in-state generally increased.

Page 61 GAO/NSIAD-98-57 Defense Spending and Employment
Appendix III 

Survey of Top Defense Contractors in New

Mexico

Figure III.6: Wages for DOD Prime Contract and Subcontract Work That Stayed In-State (1988-96)

1988 1989 1990 1991 1992 1993 1994 1995 1996

0

20

40

60

80

100

63 64 64 64

98

72

76 76

82

37 36 36 36

2

28

24 24

28

Percent

Percent in-State Percent out-of-State

Survey Results

Compared to DOD

Records

We compared our survey results to DOD’s records of the total amount of

contract awards received by the contractors between 1994 and 1996. DOD

sources collect and report information only on prime contracts while our

survey collected information on DOD prime contracts and subcontracts.

Thus, we expected that DOD’s records and the contractors’ would be

different as was revealed in the survey. Therefore, we compare DOD’s

records of total prime contracts to our survey results on the amount of

prime contracts received by the contractors in New Mexico and that

remained in the state. However, to shed further light on and quantify,

where possible, the limitations in existing DOD data, we also compared the

amount of total contracts, defined as in-state prime contracts and

subcontracts, to the DOD totals, defined as prime contracts (see fig. III.7).7

7

When reporting the total value of prime contract awards for specific companies, DOD reports

information according to the “ultimate” owner of the company. For example, DynCorp has a subsidiary

named Aerotherm that also performs work in New Mexico. Therefore, DOD’s records of contract

totals for DynCorp includes awards to Aerotherm. We accounted for this DOD reporting procedure

when conducting the comparisons between DOD records and the contractors’ records.

Page 62 GAO/NSIAD-98-57 Defense Spending and Employment
Appendix III 

Survey of Top Defense Contractors in New

Mexico

Figure III.7: DOD Records of Total Contract Awards Received Compared With Our Survey Results of Contractor Records

1994

DOD Records GAO Survey

Contractor 1 $ 60.4 

Contractor 2 $ 1.3 

Contractor 3 $ 70.1 

Contractor 4 $ 13.1

Total $144.9

Prime Contracts

DOD Records GAO Survey

Total Contracts

1995

1996

Year

Contractor 1 $44.8

Contractor 2 ($393,625)

Contractor 3 $46.7

Contractor 4 $ 1.8

Total $93.6

Contractor 1 $133.2

Contractor 2 ($393,625)

Contractor 3 $ 49.6

Contractor 4 $ 1.8 

Total $184.9

Contractor 1 $ 66.8

Contractor 2 ($269,425) 

Contractor 3 $ 38.7

Contractor 4 $ 1.5

Total $117.2

Contractor 1 $ 47.3 

Contractor 2 $ 20.3

Contractor 3 $ 33.6

Contractor 4 $ 2.8

Total $104

Contractor 1 $113.3 

Contractor 2 ($494,023) 

Contractor 3 $ 27.7

Contractor 4 $ 1.9

Total $143.3

Contractor 1 $ 42.5

Contractor 2 ($383,926)

Contractor 3 $ 29.5

Contractor 4 $ 12.2

Total $ 84.5

Contractor 1 $165.0

Contractor 2 ($494,023)

Contractor 3 $ 29.4

Contractor 4 $ 1.9

Total $196.7

Contractor 1 $104.9 

Contractor 2 ($382,926)

Contractor 3 $ 30.2

Contractor 4 $ 2.2

Total $147.6

Contractor 1 $ 60.4 

Contractor 2 $ 1.3 

Contractor 3 $ 70.1 

Contractor 4 $ 13.1

Total $144.9

Contractor 1 $ 66.8

Contractor 2 ($269,425) 

Contractor 3 $ 38.7

Contractor 4 $ 1.5

Total $117.2

Contractor 1 $ 47.3 

Contractor 2 $ 20.3

Contractor 3 $ 33.6

Contractor 4 $ 2.8

Total $104

Note: Dollars in millions, except where indicated. Our prime contract data includes total prime

contract awards that remained in the state and our total data includes prime contracts and

subcontracts that remained in-state. All DOD data is from the DD350 database.

The overall comparison between the contractors’ records and DOD’s

records of total prime contract amounts shows that DOD records can both

overstate and understate the total amount of prime contracts that actually

end up in a state’s economy. In 1994, the contractors’ records show that

$93.6 million in DOD prime contract work was done in New Mexico. On the

other hand, DOD’s records indicate that the contractors received

$144.9 million in prime contracts, representing a possible $51 million, or

Page 63 GAO/NSIAD-98-57 Defense Spending and Employment
Appendix III 

Survey of Top Defense Contractors in New

Mexico

about a 54-percent overstatement. However, in 1995, the contractors’

records showed that $143.3 million in DOD prime contract work was done

in the state, whereas DOD’s records show that the businesses received

$117.2 million, representing a possible $26-million, or about an 18 percent

understatement.

As expected, a comparison of the contractors’ records of the total

contracts (in-state prime contracts and in-state subcontracts) to the

existing DOD records of total prime contracts shows that the totals

reported by the contractors were consistently greater than the totals

reported in DOD’s records.

Summary Between 1988 and 1996, more than 70 percent of the DOD prime contract

and subcontract dollars and associated jobs and wages for the top four

contractors in New Mexico remained in the state. However, a notable

exception in one contractor’s data, combined with the fact that the

principal type of contract awarded to firms in New Mexico generally is for

services, suggests that the survey findings may be explained, in part, by

the nature of the contracts that are awarded to the top New Mexico

defense contractors.

The responses of one contractor showed that about one third of the DOD

prime contract dollars received remained in state between 1988 and 1996.

This pattern is an outlier relative to the data for the other three

contractors. Further, the DOD prime contracts this company received

between 1994 and 1996 were exclusively for hardware and equipment. On

the other hand, nearly 100 percent of two contractors’ prime contract

dollars remained in the state and all of the contracts were for services

(e.g., operation of military facilities, technical services). Data for the single

remaining contractor indicate that 70 to 80 percent of its DOD prime

contract work remained in the state between 1988 and 1996. This

contractor received DOD contracts for services and for some hardware

procurement between 1994 to 1996.

The presence of four military installations in New Mexico (Cannon,

Holloman, and Kirtland Air Force Bases and White Sands Missile Range)

drives the need for services to support the operation and maintenance of

the installations. DOD’s data show that in each year during 1988-96, the

largest dollar amount of DOD prime contracts awarded to all businesses in

New Mexico was for services. Further, DOD’s data shows that between

1994 and 1996 the four military installations consistently received the

Page 64 GAO/NSIAD-98-57 Defense Spending and Employment
Appendix III 

Survey of Top Defense Contractors in New

Mexico

largest dollar amount of DOD prime contracts compared to all other cities

or locations in the state. Given that these installations generate service

contracts, it is reasonable to expect that the dollars received by these top

four contractors for performing the service contracts would remain in the

state. However, the survey data indicate it would be inappropriate to

generalize that expectation to all types of DOD contracts (e.g., major

hardware, equipment, and supplies).

DOD’s official data on prime contracts for the top four contractors

overstated as well understated amounts reported by the contractors. Our

research suggests at least three reasons for this. First, DOD’s data does not

account for leakages of DOD prime contract dollars from the state’s

economy that may occur through the subcontracting process. All of the

contractors we surveyed indicated that they subcontracted out of state at

one time or another or did it consistently. Second, DOD is required to report

only on prime contracts greater than $25,000. This reporting threshold may

be very inclusive for certain types of DOD purchases (e.g., major weapon

systems). However, for other types of DOD purchases 

(e.g., service contracts), this reporting threshold may mask a large

proportion of actual DOD expenditures. And third, the existing DOD data

sources do not account for injections into a state’s economy from

subcontracts that companies receive from other DOD contractors.

(713003) Page 65 GAO/NSIAD-98-57 Defense Spending and Employment
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