Pandemic Drives Federal Share of State Revenue to Record High
Aid to tackle public health and economic challenges have shaped current trends
Editor’s note: This analysis was updated on November 4, 2022, to correct the percentage of funds that states received in federal dollars in fiscal year 2020 compared with fiscal 2019.
The share of states’ total revenue made up of federal grants reached a record high—nationally and in most states—during fiscal year 2020. In response to steep drops in state revenue due to the COVID-19 pandemic, the federal government infused billions of dollars to help stabilize state budgets and limit the virus’s spread. Despite a swifter-than-expected state tax revenue recovery, the share of federal funds is expected to remain elevated through fiscal 2024, bolstered by subsequent rounds of federal aid.
In fiscal 2020, 35.9% of states’ revenue came from federal dollars—a new high. It was 31.4% in the year prior, and 37 states had seen that share decline from fiscal 2018. Nationwide, states received an additional $137 billion, or 20% more, in federal dollars in fiscal 2020 compared with fiscal 2019, while total state revenue—including taxes and other sources, such as public university tuition, road tolls, and lottery receipts—fell by 2%. This coincided with the initial economic fallout from the pandemic, including a brief but sharp recession that lasted from February to April 2020, and the subsequent federal fiscal response.
The federal share of state revenue reflects how much funding states receive from the U.S. government to help pay for public services, such as health care, education and training, transportation, and infrastructure. (See “Pandemic-Related Funding Boosts Federal Grants to States.”) The indicator measures the combined effects of swings in state and federal funds. A higher or lower percentage does not necessarily indicate a problem for state budgets.
Historically, the federal share of 50-state revenue has ranged from about one-quarter to one-third. The highest share prior to fiscal 2020 occurred just after the 2007-09 recession, when a temporary influx of federal economic stimulus dollars and falling state tax revenue caused the federal share of states’ revenue to reach 35.5% in fiscal 2010 and 34.7% in fiscal 2011. Outside of the federal response to recent economic downturns, Medicaid—which accounts for about two-thirds of federal grants to states—has been a major driver of the long-term growth of the federal share.
Looking ahead to fiscal 2021 through 2024, the share is poised to increase as funding provided by the American Rescue Plan Act (ARPA), the Infrastructure Investment and Jobs Act, and other legislation flows to states. In response to the pandemic specifically, preliminary Pew analysis indicates that states have been awarded more than $800 billion in aid from the U.S. government—more than what states received to address the Great Recession. Since March 2020, federal COVID-19 aid to states has included enhanced support for Medicaid costs, pandemic-related expenses, and flexible funding in the form of ARPA’s Coronavirus State and Local Fiscal Recovery Funds program, which was designed to provide fiscal support for both public health and economic challenges resulting from the pandemic.
While the influx of federal funds in fiscal 2020 was unique, it builds on an ongoing trend: an expanding federal role in state finances. The 35.9% share was 4.7 percentage points higher than the 20-year average of 31.2% for fiscal 2001-2020, and 10.9 percentage points greater than the fiscal 1981-2000 average, which was 25%.
Federal shares vary across the country. Fiscal 2020 data shows:
- Wyoming reported the highest percentage of state revenue from federal funds (56.3%).
- Comparatively, Hawaii had the lowest percentage, with less than one-quarter of its revenue (24.4%) from the U.S. government.
- In addition to Wyoming, the percentage of state revenue from federal funds was roughly twice as great in the states where federal shares were highest—Alaska (50.7%), Louisiana (50.6%), and South Dakota (50.2%)—as it was in the states where the shares were lowest—Hawaii, New Jersey (27.2%), and Utah (27.2%).
- Federal funds—rather than state tax dollars—accounted for the largest source of revenue in 18 states, a four-fold increase from the number of states in 2019.
- Thirty states reported their highest percentage of revenue from federal funds over the last 50 years.
- South Dakota had the biggest percentage-point gain in the federal share of state revenue, up 16.6 percentage points from fiscal 2019. While every state saw an increase from fiscal 2019 to 2020, New York saw the smallest increase—a 1.3 percentage point jump.
Federal dollars remained the second-largest source of states’ revenue in fiscal 2020, accounting for roughly $828 billion, or about 35.9% of the $2.3 trillion collected by state governments that year. Tax collections remained states’ leading revenue generator in fiscal 2020, reaching nearly $1.1 trillion and making up nearly half of state revenue.
Download the data to see individual state trends. Visit Pew’s interactive resource Fiscal 50: State Trends and Analysis to sort and analyze data for other indicators of state fiscal health.
Rebecca Thiess and Laura Pontari work on The Pew Charitable Trusts’ fiscal federalism initiative, and Justin Theal works on Pew’s state fiscal health project.
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