State aid put back into local area (7)
I believe the answer is:
indiana
'state' is the definition.
(US state)
'aid put back into local area' is the wordplay.
'put back' says the letters should be written in reverse.
'into' means one lot of letters goes inside another.
'local' becomes 'inn' (local can mean someone's local pub).
'area' becomes 'a' (maths abbreviation).
'aid' written backwards gives 'dia'.
'dia' placed inside 'inn' is 'indian'.
'indian'+'a'='INDIANA'
(Other definitions for indiana that I've seen before include "member of 2 [THE STATES]" , "___ Jones, action hero created by George Lucas" , "Part of US" , "State of southern US" , "American state" .)