Emergency funding to address the COVID-19 pandemic caused the largest increase in federal grants to states since 2009, when Congress approved the American Recovery and Reinvestment Act (ARRA). In fiscal year 2020, pandemic-related spending made up the largest share of federal grants in eight states, and was the second-largest in the rest. COVID-19 assistance—which states spent to meet a diverse set of urgent needs, including coronavirus testing and housing assistance—was in addition to the federal grants that states normally receive. Those grants typically make up about a third of state revenue and help pay for education, transportation, public safety, social services, environmental protection, and other programs.1 Before the pandemic, total federal grants had been slowly but steadily rising for years, mostly because of Medicaid (the federal and state health insurance program for people from low-income households and people with disabilities) and other health spending.
COVID-19 funding led to a spike in federal grants to states
From fiscal 2008 to fiscal 2020, federal grants to states increased by 93%, when adjusted for inflation. However, much of that growth occurred in just the final year of that span—fiscal 2020—when the federal pandemic response, including the Coronavirus Relief Fund, public assistance funding, and Centers for Disease Control and Prevention (CDC) grants, caused grants to rise 37% from what they were in 2019. By comparison, grants rose an average of just 4% annually during the previous five fiscal years (2014 through 2019). Although pandemic-related funding was largely responsible for the past year’s rise, Medicaid and other health spending fueled the steady growth in grant funding to states before the pandemic and remains a major driver of increasing grant funding.2 (See Figure 1.)