In 2020, the US government provided over $1 trillion to state and local governments through federal grants after adjusting for inflation. These grants made up a quarter of states’ total revenues, funding various essential programs like healthcare, education, social services, infrastructure, and public safety.
Federal aid to state and local governments has risen since 2020 due to the pandemic’s impact on healthcare and social programs.
According to the Office of Management and Budget, federal grants to state and local governments have been increasing annually since 2013 when adjusted for inflation.
Federal assistance for various state programs is typically allocated through grants.
Of the more than $1.2 trillion the federal government granted to states in 2022, most went toward health-care programs.
Federal grants are divided into two categories: formula grants and competitive grants.
The federal government uses a blueprint to calculate formula grants for each state or locality. This formula typically considers factors such as population size, poverty rates, or specific needs of the area.
For example, federal Medicaid funds are distributed through formula grants based on the healthcare needs of each state.
On the other hand, competitive grants require state and local governments to submit proposals or applications to the federal government. These proposals outline their plans for using the grant money effectively to achieve specific goals. The government then selects the winners based on the proposals’ merits.