Fiscal Federalism: A Marriage of Money

Source: Anne Stauffer, Capitol Ideas, November/December 2013

The relationship between federal and state finances is complex, not well understood and vital to almost every aspect of Americans’ lives. Federal and state tax dollars jointly support schools, roads, health care, public safety and other key programs. This partnership, however, is under pressure from the enormous fiscal challenges of the past several years and the ongoing fiscal uncertainty at the federal level. An informed conversation using real data on the state impact of federal policies could help policymakers make the tough choices required to put all levels of government on a path to fiscal stability.

A dialogue is critical because federal and state finances are closely intertwined. Federal grants for health care, education, transportation and other programs make up roughly a third of state budgets, ranging from 24 percent in Alaska to 49 percent in Mississippi in 2011, the last year for which complete data are available.

Beyond that, total federal spending levels in states—on grants, contracts, salaries and direct payments to individuals for programs such as Social Security—are significant relative to the states’ overall economies, equivalent to between 12 percent of state gross domestic product in Delaware to 36 percent of state GDP in New Mexico, in 2010. In addition, many state-level fiscal policies piggyback on federal policies. …
Related:
Health Care and Federalism – Medicaid Expansion Decisions: Federalism, Politics or Both?
Source: Debra Miller, Capitol Ideas, November/December 2013

States More Reliant on Federal Dollars
Source: Capitol Ideas, November/December 2013