Military Spending Remains a Major Force in Shaping San Diego’s Economy

San Diego’s economy continues to be powered in a big way by the military, according to the newly released 2025 Military Economic Impact Report (MEIR). The report—produced each year by the San Diego Military Advisory Council (SDMAC) and UC San Diego’s Rady School of Management—lays out just how deeply the defense sector influences the region’s financial health, workforce, and innovation landscape. This latest edition, released on November 12, 2025, reveals an enormous economic footprint, a few notable declines, and several emerging areas where military-academic collaboration is rapidly expanding.

A Breakdown of San Diego’s Defense-Driven Economy

The MEIR shows that the military supports nearly 357,000 jobs throughout the region. That includes 143,000 people directly employed as active-duty personnel, reservists, and civilian workers, plus 214,000 additional jobs supported indirectly through contracting, supply chains, logistics, and local businesses that thrive because of military activity.

Overall, defense-related activity contributes US$ 61.3 billion to San Diego’s total economic output, representing 22.2% of the region’s entire Gross Regional Product (GRP). Few regions in the country have an economic anchor this large and consistent.

The report breaks down the US$ 39.3 billion in direct defense spending into specific components that show where the money goes:

US$ 19.8 billion in defense contracts awarded to more than 2,000 companies in the region
US$ 15.1 billion in payroll for active-duty, reserve, and civilian employees
US$ 4.3 billion in retirement and veterans’ benefits flowing into the local economy

These numbers highlight how deeply woven the military is into San Diego’s financial structure. From tech firms to shipbuilders to small local suppliers, thousands of businesses rely on defense dollars to sustain operations and employment.

A Small Decline in Spending but Continued Stability

The 2025 report does note a slight decrease compared to last year. Total defense spending declined by about 3%, and defense-supported jobs fell by around 4.4%. Local observers estimate this represents 16,000+ fewer jobs and a US$ 1.9 billion reduction in economic activity compared to 2024.

However, the report makes it clear that despite this dip—caused primarily by federal budget constraints—the defense sector remains one of San Diego’s most stable economic engines. Even modest fluctuations in federal budgets don’t significantly undermine how essential the military is to the city and surrounding areas.

San Diego’s Expanding Role in Military Innovation

One of the most interesting sections of the MEIR focuses on San Diego’s increasing relevance in defense-related innovation. The city’s combination of military bases, top-tier research universities, and technology startups creates an ecosystem where new ideas can quickly move from academic labs to defense applications.

The report highlights several fast-growing fields where San Diego is making a name for itself:

Autonomous systems
Artificial intelligence (AI)
Cybersecurity
Advanced communications technologies

The Rady School’s Innovating for National Security (i4NS) initiative is helping strengthen collaboration between tech entrepreneurs, researchers, and the Department of Defense. Despite the fact that only 0.5% of California’s 2025 venture capital investment went to defense startups in San Diego, the region is working to build stronger pathways for innovation funding and commercialization.

Energy Resilience Projects Strengthen Operational Readiness

The report also highlights major improvements in military energy infrastructure. These projects not only boost operational reliability but also align with California’s clean energy goals.

Key examples include:

The Haybarn Energy Reliability Center at Camp Pendleton
New microgrid systems at Naval Base San Diego

A microgrid provides localized, independent power capability, which is crucial for maintaining essential operations during outages, emergencies, and increasingly unpredictable climate events. San Diego’s efforts in this area are positioning the region as a leader in resilient military energy infrastructure.

Why the MEIR Matters for Policymakers and Local Investors

For almost two decades, SDMAC and UC San Diego have partnered to produce this annual report. Local leaders rely on MEIR insights to understand how policy changes, federal budget decisions, and regional planning can affect the economic landscape.

State and federal decision-makers often refer to MEIR findings when debating topics such as:

Base modernization
Defense contracting priorities
Infrastructure investments
Workforce development programs
Veteran support initiatives

The report’s data-driven approach helps highlight how national security decisions translate into direct economic effects for San Diego communities.

The Rady School’s Unique Involvement and Veteran Support

The Rady School of Management continues to play a major role in shaping the MEIR. This year’s report was developed with the help of eight current Rady MBA students, all of whom are connected to the military community—either active-duty service members, veterans, or military spouses.

The school’s involvement isn’t limited to economic analysis. Rady actively supports veterans and service members through:

The Yellow Ribbon Program
Dedicated military/veteran fellowships
Personalized academic advising
Career pathways in tech, consulting, operations, and more

For 2025, 30% of Rady’s incoming class consists of military-affiliated students across various programs. This reflects how deeply the region’s identity is tied to the armed forces and their families.

Additional Context: San Diego’s Long-Standing Military Ecosystem

Beyond what the MEIR covers, it’s helpful to understand why San Diego is such a unique hub for military activity. The region’s defense presence includes major installations like:

Naval Base San Diego — the principal homeport of the Pacific Fleet
Marine Corps Base Camp Pendleton — one of the largest military training facilities in the U.S.
Naval Air Station North Island — a major aviation center
Marine Corps Air Station Miramar — home to several aircraft units

San Diego also has one of the largest veteran populations in the nation, and thousands of retired service members choose to stay in the area due to the climate, community, and employment opportunities.

The strong overlap between the military, tech sector, and higher education creates an environment where:

Research labs can partner directly with military units
Startups can engage with defense contracts early
Service members transition into high-tech careers smoothly
National defense priorities shape regional innovation trends

Looking Ahead: What Future MEIR Reports May Highlight

While the 2025 report emphasizes stability, innovation, and energy resilience, future editions may spotlight emerging themes such as:

The growing influence of AI-driven defense systems
Climate-driven military infrastructure changes
Workforce shortages in cybersecurity
Federal budget shifts in response to geopolitical tensions
The rise of dual-use technology companies

San Diego is likely to remain one of the most important defense ecosystems in the U.S., and each annual MEIR will continue to act as a roadmap for tracking this evolution.