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MANAGEMENT UPDATE.

FEDERAL FUNDS AND STATE VULNERABILITY

Last week, to the great dismay of many leaders in state and local government, it appeared as though the Trump Administration was planning on freezing billions of dollars of grant money, until agencies could prove that they were in alignment with the new administration’s policies.


Soon thereafter a federal judge blocked the order and last Wednesday in the face of a huge amount of pushback, the federal government rescinded the order. According to the Washington Post, “The Trump Administration withdrew the order a day after a federal judge in Washington D.C. temporarily halted its implementation until February 3, allowing public-health advocates, nonprofits and business . . . more time to challenge the directive’s legality. Separately, roughly two dozen state attorneys general filed their own lawsuit against the administration on Tuesday.”


But even though the administration has backed off for now, the specter of a return to any kind of reductions could be a significant blow to states’ ability to keep any number of programs alive, notably those in health care, education and training, transportation, and infrastructure.


With that in mind, a September report from the Pew Charitable Trusts has become particularly consequential. It pointed out that “total federal grants to states topped $1 trillion for the first time in 2022 and speculated that they were likely to stay “elevated through fiscal 2024 as the temporary factors that have lifted state tax revenue in recent years fade and the remaining pandemic aid and other aid packages buoy federal grants.”


Some of the key findings of the report, which were based on fiscal 2022 data:


  • “Louisiana reported the highest percentage of revenue from federal funds (50.5%).”


  • “North Dakota reported the lowest percentage (22.2%).”


  • “Federal funds, rather than state tax dollars, accounted for the largest source of revenue in 16 states, up from five states in fiscal 2019 and 15 in fiscal 2021. In fiscal 2020, federal funds made up the largest share in 18 states, the most on record.”


  • “California and Montana were the only states where the federal share of state revenue was lower in fiscal 2022 than in fiscal 2019.”


  • “20 states reported their largest share of revenue from federal funds of any year in the past 50 years.”


  • “South Dakota experienced the biggest annual percentage-point growth in the federal share of state revenue, up 11 percentage points from fiscal 2021. This swing was related to the timing of receiving and spending federal pandemic aid.”


  • “North Dakota experienced the biggest annual percentage-point decline, with the federal share falling 17.5 percentage points from fiscal 2021.”


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