Home / Economy / Articles / Which states rely the most on federal aid?

In 2020, the US government provided over $1 trillion to state and local governments through federal grants after adjusting for inflation.[1] 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.

How do states receive federal funding?

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.

A bar chart depicting which state and local government programs receive the most federal funding, highlighting the large amount allocated to Medicaid and CHIP.

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.

Which states received the most money from the federal government?

The federal government provides funds through various overlapping programs. As a result, the proportion of federal aid in state revenues is determined by the combined funding received by both state and local governments.

In terms of overall aid, the five states which received the most federal aid were:

  • California ($116.0 billion)
  • New York ($79.2 billion)
  • Texas ($68.2 billion)
  • Florida ($41.7 billion)
  • Pennsylvania ($41.0 billion)

In 2020, Vermont, West Virginia, and Alaska received the highest proportions of federal funding relative to their overall budgets. Vermont relied on federal grants the most: 35.8% of its budget came from the federal government. West Virginia followed at 34.1%, and Alaska at 33.9%.

Colorado relied on federal grants the least, with 15.9% of its total budget coming from the federal government. Washington State and Utah also relied little on grants, at 16.0% and 16.1%, respectively.

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When evaluating federal funding on a per-person basis, Washington, DC, stood out, receiving the most federal funding per person:

  • Washington DC ($6,983 per person)
  • Wyoming ($6,894 per person)
  • Alaska ($6,495 per person)
  • Vermont ($5,463 per person)
  • Delaware ($4,373 per person)

Using this metric, Washington DC, Wyoming, and Alaska received $1,000 more per person in federal funding than the next closest state.

Georgia received the least federal funding per person, with $1,807 in 2020. Florida and Utah also had relatively lower distributions, with per-person funding of $1,937 and $1,957, respectively.

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Five states and territories receiving the most federal funding per capita, 2020
State or territory Federal Funding in dollars per person
Washington DC $6,983
Wyoming $6,984
Alaska $6,495
Vermont $5,463
Delaware $4,373

The total federal aid each state receives varies based on the number of low-income families in each state, the frequency of natural disasters, economic volatility, whether the state has recently expanded Medicaid, and more.

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State and Local Government Finances
Financial Analysis Methodology
[1]

Each year in this article refers to the fiscal year.