State governments get most of their funding from the taxes and fees the levy within their borders, but that’s not their only source of revenue. Federal grants-in-aid also provide substantial support to state coffers. A new blog from the Tax Foundation breaks down the share of each state’s budget that comes from the feds.
Nevada is one of the least-reliant states in the nation, coming in 47th place and deriving 24.8% of its general revenue from federal aid. Mississippi comes in first place with 40.9% of its funding coming from the feds. The West is a mixed bag, with California and Utah joining Nevada on the lower end while Idaho, Oregon, and Arizona come in at the higher end. See the details in this great map produced by the Tax Foundation:
According to the Tax Foundation, over 60% of federal spending in the states goes to benefits payments like Social Security and Medicare. Education, transportation, housing, and agriculture are other major subsidy sectors. Total federal aid grew by 25% between 2004 and 2014, after adjusting for inflation.
States with high reliance on federal funds tend to have modest tax collections and a large population of low-income people. States with a low reliance trend toward higher tax revenues and a smaller low-income population. Nevada is noted for bucking this trend through the power of its tourism industry. Our state can effectively export its sales and other taxes to visitors from across the country and world. This allows our state to collect a relatively modest amount of taxes from residents while still having a reduced reliance on federal aid.
States must attempt a careful balance here. An over-reliance on vulnerable federal funding could severely impact some states. Meanwhile, others may be leaving federal dollars on the table that could augment their programs and boost their economies.