Economy

This Is the State Most Dependent on the Federal Government

The federal government distributed over $700 billion to states in 2019. That is about 25% of the average state’s government budget, according to the Tax Policy Center. This money is largely used for health, education and transportation, and to aid residents who need financial and medical aid. The COVID-19 pandemic increased these sums to fight the effects of the disease, largely financially. Much federal aid is “downstreamed” to local governments.

Most of the federal aid for the impact of COVID-19 has ended. However, prior to that, 26 states unilaterally ended supplemental unemployment insurance benefits to cajole Americans back to work. According to research by economists at Columbia University, Harvard University, the University of Massachusetts Amherst and the University of Toronto, these states “saw a much larger drop in federal transfers than gains from job creation.”

To identify the state that depends the most on the federal government, 24/7 Wall St. reviewed data from WalletHub, which compared states in two dimensions: the state residents’ dependency score and the state government’s dependency score. Other than the state’s overall score, the other scores are relative to other states, with 1 being most dependent and 50 least.

For the state’s residents’ dependency score, WalletHub calculated the return on taxes (federal funding divided by Internal Revenue Service collections) and the share of federal jobs. For the state government’s dependency score, WalletHub calculated federal funding as a share of state revenue for 2018. Population figures are from the U.S. Census Bureau’s American Community Survey for 2019. Among the 10 most dependent states on the federal government are Arizona, Kentucky, Louisiana, New Mexico and West Virginia.

The most federally dependent state is New Mexico. Here are the details:

  • Wallethub score: 86.57
  • State residents’ dependency score: 1 (the highest)
  • State government’s dependency score: 6 (sixth highest)
  • 2019 population: 2,096,829

Click here to see all the most and least federally dependent states.