Federal Funds Provide $1 of Every $3 in State Revenue

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The share of states’ revenue coming from the federal government surged in the wake of the Great Recession. The 50-state share peaked at 35.4 percent in fiscal 2010, well above the prerecession 10-year average of 28.5 percent. The percentage is now dropping as federal stimulus funds decline and state tax revenue recovers.

After the Great Recession, increased federal stimulus money and reduced state tax revenue meant federal dollars made up a bigger portion of states’ revenue than at any time in at least 50 years.

The federal share peaked in fiscal 2010 and then fell slightly to a still historically high level of 34.7 percent in fiscal 2011, the year with the most recent data. Overall, the federal government has provided about one-quarter to one-third of states’ money, according to data dating back to 1961. States use federal dollars for a range of programs, particularly health care, education and training, and transportation and other infrastructure.

The federal share of state revenue increased in every state between fiscal 2008 and fiscal 2010 but varied across the country:

• Mississippi had the largest proportion of revenue from federal dollars in fiscal 2011, at 48.8 percent, while Alaska had the smallest at 24 percent.
• Arizona saw the greatest increase in its share of revenue from federal dollars in fiscal 2011 compared with its 10-year prerecession average, from fiscal 1998 to fiscal 2007. Federal funds as a share of revenue jumped almost 13 percentage points, from 29.8 percent to 42.4 percent. The next-largest increases were in Louisiana, New Mexico, Michigan, and Florida.
• Federal funds in fiscal 2011 made up more than 40 percent of state revenue in nine states, 30 to 39.9 percent in 31 states, and 20 to 29.9 percent in 10 states.

The federal share of state revenue indicator measures the combined effect of swings in state and federal funding. A lower percentage does not necessarily indicate a problem for state budgets. The overall drop in fiscal 2011, for example, was largely because states’ own funds increased faster than their federal funds. But for some states, a drop could spell budget challenges if they lose federal funds before their own revenues have fully recovered.

Analysis by Anne Stauffer and Sam Rosen-Amy

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