Analysis

Federal Funds Provide 30 Cents of Each Dollar of State Revenue

As the nation emerged from the Great Recession, federal dollars made up a bigger proportion of states’ revenue from fiscal year 2009 to 2012 than at any other time in the past 50 years. After peaking at 35.5 percent in fiscal 2010, however, the share fell back within its historical range in fiscal 2013, dropping to 30.0 percent.

Even at 30.0 percent, the federal share of 50-state revenue was above its 10-year prerecession average of 28.5 percent. Federal dollars remained the second-largest source of states’ money, accounting for approximately $513.5 billion of the $1.7 trillion collected by state governments in fiscal 2013.  

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The federal share fell for the third straight year in fiscal 2013. The decline reflected both the final phaseout of temporary economic stimulus funds from the federal government and the continuing recovery of states’ tax collections, their leading revenue generator. Changes in either revenue source affect the ratio of federal to total dollars.

Data going back to 1961 show that the federal government historically has provided about one-quarter to one-third of states’ general revenue, which includes tax collections and other funds such as public university tuition, tolls, and lottery income. States use federal funds for a range of programs, particularly health care, education and training, and transportation and other infrastructure.

Federal shares vary across the country. Fiscal 2013 data show that:

  • Mississippi had the largest proportion of revenue from federal dollars at 42.9 percent, and North Dakota had the smallest, 19.0 percent.
  • Mississippi and Louisiana were the only states in which federal funds made up more than 40 percent of state revenue. Federal dollars accounted for 30 to 39.9 percent in 28 states, and 19 to 29.9 percent in the remaining 20.
  • In nine states, the percentage of revenue from federal funds was below its 10-year prerecession average. North Dakota, where an oil boom drove record tax collections, saw the greatest change. The federal share of its revenue averaged 34.4 percent before the recession but was 15.4 percentage points below that threshold in fiscal 2013. The next-biggest differences were in New York (5.3 percentage points below), Wyoming (4.1 points below), and Kansas (3.4 points below).
  • Among the 41 states where the federal shares exceeded their 10-year prerecession averages, Louisiana’s was most above its average—by 7.3 percentage points. The next-biggest differences were in Massachusetts (7.0 percentage points above), Michigan (6.8 points above), Indiana (6.7 points above), and Georgia (6.5 points above).

The federal share of state revenue indicator measures the combined effects of swings in state and federal funding. A higher or lower percentage does not necessarily indicate a problem for state budgets. Between fiscal 2010 and 2013, for example, federal shares dropped largely because states’ own funds generally increased while federal funds generally decreased. But a decline could spell budget challenges for states that lose federal funds before their own revenue has fully recovered.

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