WASHINGTON — Businesses, universities and other entities in the state are profiting from doing business with the federal government, especially with the Pentagon.
According to a MinnPost analysis of data provided by USASpending.gov, there were more than 40,000 active federal contracts in Minnesota last year that could be worth a total of nearly $25 billion. The potential value of each of those contracts ranged from millions of dollars to a few hundred.
The Pentagon is by far the biggest federal purchaser of goods and services in Minnesota. About 27,000 military contracts were in force last year, worth nearly $11 billion.
The Defense Department is buying a wide variety of goods from businesses in the state – from small arms, ammunition, rocket launchers and parts for jet fighters to generators, portable toilets and office supplies.
Like other federal contracts, some Pentagon contracts are fulfilled in a year. But they are more likely to be in force for several years.
The billions of dollars spent by the Pentagon in Minnesota may not be readily apparent. Other than National Guard facilities, Minnesota does not have a military base, nor is it home to the headquarters of a major defense contractor.
But defense contractors like to spread their facilities across the United States in efforts to increase the number of their political allies in Congress. So they have a presence in Minnesota. And the Pentagon, which has the largest budget of any federal agency, needs to buy a lot of stuff besides weaponry to support its bases and fleets of planes, tanks and ships and soldiers, sailors and airmen.
Still, weapon systems dominate Pentagon spending in Minnesota.
For instance, with nearly $3 billion in open federal contracts, BAE Systems in Minneapolis is one of the top military contractors in the state, producing small arms, ordinance and marine equipment as well as providing the Navy with ship repairs. BAE Systems employs about 500 people and the company has been in the state for 80 years.
“BAE Systems remains aligned to the U.S. National Defense Strategy and modernization priorities of our U.S. military services,” the company said in a statement. “We continue to design, develop and manufacture innovative solutions that are in strong demand to keep warfighters safe in battle and support our national security.”
The Alliant Techsystems facility in Plymouth had about $1.5 billion in potential Defense Department contracts. A subsidiary of Northrup Grumman, Alliant Techsystems provides the military with small arms, ordinance, explosives, ammunition and aircraft parts, among other things.
Honeywell’s facilities in Minnesota also do a lot of business with Uncle Sam, providing computers and high-tech services to the military.
But even companies in Minnesota that are not usually considered defense contractors do business with the Pentagon. For instance 3M had about $25 million in Department of Defense contracts, providing the military with material for headsets, microphones and speakers as well as safety equipment and medical supplies. 3M also had many contracts with other federal agencies and is one of the top recipients of federal contracting dollars.
The Pentagon also spends millions of dollars each year on research and development at the University of Minnesota, the Mayo Clinic and other colleges and research facilities in the state.
But the largest federal contractor in the state was U.S. Bancorp, headquartered in Minneapolis. It had more than $8 billion in contracts to process financial transactions for a number of federal agencies, including the Department of Homeland Security, Department of Defense and Department of Education.
Bancorp’s federal contracting is related to the provision of credit cards used by federal agencies. The money cited in their contracts is not revenue but rather an estimate of how much the federal government will ring up in purchases on those cards.
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Other federal agencies also purchase goods and services in the state. The Department of Health and Human Services (HHS) had contracts in the state last year worth potentially about $1.3 billion and the U.S. Department of Agriculture had contracts worth about $1 billion.
The Mayo Clinic has HHS contracts worth potentially more than $100 million for research into aging, diabetes and other chronic ailments, heart disease and cancer treatments. The University of Minnesota also receives millions of dollars in HHS contracts.
“Federal contracts, including research awards and support for students, mean a great deal to the University of Minnesota, and account for hundreds of millions of dollars of revenue to the university each year,” said Pamela Webb, the university’s associate vice president for research. “These contracts provide researchers and their teams with resources to support cutting-edge research directions, advancing the knowledge in researchers’ fields of study and training the next generation of researchers to work in those areas, in academia and the broader economy.”
Meanwhile, Minnetonka-based Cargill is a big USDA contractor, with about $263 million worth of potential contracts with the agency last year. Most of those contracts were to provide commodities for USDA food distribution programs, both in the United States and overseas as part of the U.S. foreign aid effort.
And dozens of other federal agencies also do business in the state.
University of Minnesota economics professor V.V. Chari said he is not surprised that the federal government contracts for such a variety of goods and services in Minnesota.
“That’s what happens when you have such a diverse, high-tech and agricultural economy,” he said. “It goes with the territory.”
While federal contracts funnel billions of dollars to the state, helping bolster local economies, it represents a fraction of what the federal government spends in Minnesota.
The federal government funnels billions and billions of additional dollars to the state in grants and formula funding to state and local governments, and to individuals through a number of entitlement programs, including Medicare and Social Security and food stamps and veterans’ benefits.
According to the Rockefeller Institute, federal spending, helped by a boost in that spending during the worst of the pandemic, turned Minnesota into “recipient” state, which means it gets more money from Washington, D.C. than the state’s businesses and individuals pay in federal taxes. In 2020, the state received $1.59 for each dollar paid in federal taxes, the Rockefeller Institute study said.
But pandemic spending has largely ended and there are new pressures to reduce other types of federal spending.
While entitlement programs may be spared as Congress considers cutting the federal budget, other federal spending considered “discretionary” could be affected. That includes federal contracting dollars and other federal spending in Minnesota.
“When you decide entitlement programs are out of bounds, you have a much smaller base on which to cut,” Chari said.
House Republicans, led by Speaker Kevin McCarthy, R-California, want to cut discretionary spending as part of a deal to lift the federal borrowing limit in the coming months. But the GOP is divided over whether the Pentagon should be spared from the chopping block.
Editor’s note: This story has been updated to clarify that U.S. Bancorp’s federal contracting is related credit cards, and the money cited in the contracts is not revenue but an estimate of how much the federal government will ring up in credit card purchases.