Pandemic-Related Funding Boosts Federal Grants to States

Health spending jumped in response to COVID-19 after years of moderate growth

Issue Brief Updated:   January 31, 2022 Read time:
Projects: Fiscal Federalism & Managing Fiscal Risks

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Pandemic-Related Funding Boosts Federal Grants to States
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Note: These data have been updated. The latest information is available here. 

Overview

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.)

Figure 1

COVID-19 Aid Caused a Sharp Rise in Federal Grants to States in 2020

Percentage change in funding relative to federal FY 2008, adjusted for inflation

Line chart showing the percentage change from 2008 for fiscal years 2008 through 2020. The total percentage change spikes in 2009 at 55% and in 2020 at 93%. The percentage change decreases from 2010 through 2012 to 10% of 2008 funding levels before gradually increasing from 2013 to 2019. Line chart showing the percentage change from 2008 for fiscal years 2008 through 2020. The total percentage change spikes in 2009 at 55% and in 2020 at 93%. The percentage change decreases from 2010 through 2012 to 10% of 2008 funding levels before gradually increasing from 2013 to 2019.

Note: The data accounts for funding from the American Recovery and Reinvestment Act of 2009; Coronavirus Preparedness and Response Supplemental Appropriations Act; Families First Coronavirus Response Act; Coronavirus Aid, Relief, and Economic Security Act; and Paycheck Protection Program and Health Care Enhancement Act and reflects enacted funding, meaning the amount appropriated. Because of data limitations, COVID-19 grant data includes some funding that went to localities or hospital associations. The Federal Funds Information for States grants database, the primary source of the data, accounts for more than 90% of federal funds going to state and local governments.

Sources: R. Rudowitz, B. Corallo, and R. Garfield, “How Much Fiscal Relief Can States Expect From the Temporary Increase in the Medicaid FMAP?” Kaiser Family Foundation; Federal Funds Information for States, “FFIS Estimated State Funding for Coronavirus Pandemic”; Federal Funds Information for States, “FFIS Grants Database”; Medicaid.gov, “Expenditure Reports from MBES/CBES”; Bureau of Economic Analysis, “Gross Domestic Product”; U.S. Department of Education, “Education Job Funds”

© 2021 The Pew Charitable Trusts

Spending for health care, including for Medicaid, the Children’s Health Insurance Program, and other programs, propelled the increase in federal grants to states from 2008 to 2019. Health grants grew 73% over that span, while nonhealth grants—which include money for transportation, education, and other services—declined.3 (See Figure 2.) 

Federal policy decisions, such as the limits on discretionary spending set by the Budget Control Act of 2011, contributed to the divergent trends seen in health and nonhealth grant investments. Between 2012 and 2017, overall nonhealth grants fell to as low as 6% below 2008 funding. However, higher spending limits established in the bipartisan budget acts of 2018 and 2019 contributed to increases in these grants, which brought them near 2008 levels by fiscal 2019, after adjusting for inflation. And spending trends differed across policy areas within the nonhealth category as well: In 2019, education grants were 10% lower than in 2008, while those for income security were 6% higher.4

Figure 2

Health Programs Accounted for Most of the Rise in Federal Grants to States Since 2008

Percentage change in health, nonhealth, and total funding relative to federal FY 2008, adjusted for inflation

Line chart showing percentage change since 2008 in total grant funding, health funding, and nonhealth funding for fiscal years 2008 through 2020. The 2009 spike in total funding was largely for nonhealth spending. After fiscal 2009, health grants experienced more growth compared with 2008 than did nonhealth grants, which are between 4% and 6% lower than 2008 from 2012 to 2017.