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Washington Post: State Reliance on Federal Dollars Near All-Time High

After years of declining tax revenues and federal stimulus payments, states find themselves relying more on the federal government for cash infusions than ever before. But thanks to the budget sequester, much of that money is about to vanish.

Federal grants accounted for more than one-third of state budget revenues in fiscal year 2011, according to data compiled by the Pew Charitable Trusts' Fiscal Federalism Initiative. That’s down slightly from the percentage of federal dollars that flowed into state coffers in fiscal year 2010, but it’s far above historical precedent.

The increasing share is a function of two factors, said Anne Stauffer, director of the Fiscal Federalism Initiative. The 2009 American Recovery and Reinvestment Act pumped billions of dollars into state budgets to help them keep teachers and other employees on the payroll and to pay for infrastructure investments at the height of the recession. At the same time, the recession severely undercut state tax bases, reducing home-grown revenue and inflating the portion of state budgets that came from federal coffers.


Areas where federal government employees live and work will be especially hard-hit. In the Washington area, federal spending accounts for about 20 percent of the region’s gross domestic product. More than 15 percent of Hawaii’s gross domestic product comes from federal contracts and salaries. In Alaska, 8 percent of state revenues come from federal salaries and wages.

“There’s a lot of focus on budget cuts and direct impact to states, but what we hear from a lot of states, and when we look at it, the economic impact [of federal employee salaries] for states can be large too,” Stauffer said.

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Fiscal Federalism Initiative
Federal Impact

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