State Budgets

Federal Aid to States Dips Slightly, But Remains High

Money from the federal government still generates over 30% of the general revenue in the majority of states, according to numbers recently released by the Census Bureau in its Annual Survey of State Government Finances. State Budget Solutions found that, taken in aggregate, all states have relied on the federal government for revenue at a reduced rate in 2013, down to 30% from 31.6% in 2012.

Though these numbers show an overall decrease nationwide, only nine states can claim to have a quarter or less of their general revenue paid from the federal government’s coffers. Only one state, North Dakota, has less than 20%.

Some of the decline may be attributed to a lowered reimbursement for Medicaid as the nations economy slowly improves. The Federal Medical Assistance Percentage, used to calculate the federal government’s reimbursement for Medicaid spending in a state, decreased in most states from 2012 to 2013.

Mississippi still tops the list, relying on the federal government for nearly 43% of their general revenue. The top seven most-reliant states remain the same from last year: Mississippi is followed by Louisiana, Tennessee, South Dakota, Missouri, Montana, and Georgia.

Backed by a booming economy, North Dakota is now the state with the lowest amount of federal support. In 2012, North Dakota was 45th overall and counted on the federal government for just under a quarter of its general revenue. The five spot improvement was only bested by New York, which moved seven spots to 34th overall.

North Dakota had the largest drop off in federal financial support from 2012 to 2013, 23.4%, falling to 19% of all general revenue, making it one of the lowest totals of any state in the last decade.

This is a far cry from North Dakota’s past, when it heavily relied on federal funding. In the early 2000s, the state was in or near the top 10, climbing as high as ninth in 2004, with 38.4% of its general revenue coming from the federal government.

North Dakota’s improvement is all the more impressive because it resulted from a nearly $1 billion increase in general revenue and a $200 million decrease in federal dollars from 2012 to 2013.

On the other end of the spectrum of states is Indiana, which jumped into the top 20 most-reliant states in 2013, up from 29th in 2012. In 2006, Indiana was in the top 10 least-reliant states, ranking 41st overall. Indiana’s 3.4% increase was the second highest in 2013, trailing only Alaska, which increased by 12%.

Indiana’s federal funding will likely increase in future years due to its expansion of Medicaid. The FMAP for the expansion population will begin at 100% and will eventually reduce to 90%.

Other factors that weigh on these rankings may go unseen. For western states, there may be difficulty in generating revenue due to large swaths of land that are controlled by the federal government. According to the American Lands Council, the federal government controls only 3% of the land in least-reliant North Dakota, while almost half the land in Wyoming, the 11th most-reliant state, is controlled by the federal government.

Changes made to the tallying of the Census data make this year’s results the most accurate year-to-year review. In the past, the Census survey combined local and federal revenue into a category known as “intergovernmental revenue.” This resulted in some anomalies where local revenue is a significantly larger portion in some states, such as New York, than it is in others.

“General revenue” includes all tax revenue but excludes utility revenue, liquor store revenue, and investment income from state pension funds.


In Depth: State Budgets

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