2021's Most & Least Federally Dependent States

SIPA Professor Allan Rosenbaum recently interviewed by major national media outlet.

A national media organization, WalletHub, which provides expert opinion on matters of current governmental and political concern to business leaders across the country recently featured the views on intergovernmental relations in the United States of SIPA Distinguished University Professor Allan Rosenbaum. Given the series of historically unprecedented massive Covid relief bills passed by Congress during the past year, the manner by which, and the purpose for which, federal funds are distributed to the states has become a matter of increasing policy concern and political controversy. The article , which is reprinted below, provides extensive data on how federal funds are distributed among the states currently. It then provides Professor Rosenbaum's response to four very critical questions put to him by the WalletHub reporter.

Federal assistance to states has come into the spotlight recently during the coronavirus pandemic, where some states have received far more money per case than others. For example, in the initial $150 billion given to states from the stimulus package, which was allocated by population, New York got less than $24,000 per positive case while Alaska received over $3.3 million. While the second stimulus package passed in December didn't include any direct assistance to states, the government still faces questions about whether its initial distribution was truly equitable and efficient, and whether any future aid will be as well.

For years, Americans have looked at federal assistance programs with growing scrutiny, and the number of people dependent on government assistance was decreasing prior to the coronavirus crisis. Regardless of overall trends, though, it is clear that some states receive a far higher return on their federal income-tax contributions than others.

In order to find out exactly how big the difference in federal dependence is from state to state, WalletHub compared the 50 states in terms of three key metrics. Read on for our findings, commentary from a panel of experts, and a detailed explanation of our methodology.

Source: WalletHub

Red vs. Blue States

Correlation Analysis

Source: WalletHub

Source: WalletHub

Ask The Experts

For further clarity on the problems contributing to federal-funding disparities, we talked to a panel of economics and public policy experts. Click on the experts' profiles to read their bios and responses to the following key questions:

1. Should federal resources be allocated to states according to how much they pay in federal taxes, or should some states subsidize others?
2. Which programs should be a state/local responsibility, and which should be a federal responsibility?
3. What is the fairest way to redistribute federal resources back to the states?
4. What more can the current administration do to help reduce the impact of revenue shortfall in state budgets during this economic downturn?

President-elect, American Society for Public Administration; Distinguished University Professor, Department of Public Policy and Administration and Director, Institute for Public Management and Community Service and Center for Democracy and Good Governance, Steven J. Green School of International & Public Affairs – Florida International University

Should federal resources be allocated to states according to how much they pay in federal taxes, or should some states subsidize others?

Especially given the interdependence of national and international economies, it is both appropriate and necessary for the national government to engage in some degree of compensatory redistribution efforts. However, state effort as regards drawing upon its own resources and the nature of its system of taxation should also be a factor in federal allocation formulas.

The reality is that while one state may be poorer than another in terms of average personal income, all fifty states have substantial sources of income and wealth. Poorer states that make greater efforts at utilizing their own revenue sources, especially in terms of tax rates, and particularly in taxing those individuals and entities within their borders that possess more resources, should be significantly advantaged in any federal level redistribution efforts.

Which programs should be a state/local responsibility, and which should be a federal responsibility?

Certainly, a much greater federal role in the providing of health care -- especially in terms of ensuring the access of all residents of the US to adequate, high-quality health care -- is very greatly needed. Most likely this should be through a national health insurance program or, at a minimum, the federal government acting as an affordable insurer of last resort. The only other major change that the current system would especially benefit from would be some measure of greater local control over revenue raising and service delivery vis a vis their state governments.

While there are frequent calls for a restructuring of the federal system in such a manner as to have a more formal and distinct distribution of responsibilities, there are several advantages to the current system that are often not recognized. The current system provides multiple options to address needed issues and policy problems and stimulates substantial local initiative, while at the same time dispersing political and institutional power and resources, a critical matter in terms of democratic governance. Moreover, the reality is that, despite frequent political complaints of federal control and interference, in most instances, federal program implementation at the state and local level is either very positive in terms of encouraging needed innovation and reform or is so limited as to allow local manipulation of policy and program goals.

What is the fairest way to redistribute federal resources back to the states?

Please note the first item above. However, structuring distribution formulas in such a manner as to lessen state inclination to maintain low tax rates and anti-union organizing policies as a means of luring business and industry from other states would be an important positive step. The most significant point is that federal fund distribution and grant-in-aid programs have generally had very positive impacts, but they can have even more positive ones if well targeted.

What more can the current administration do to help reduce the impact of revenue shortfall in state budgets during this economic downturn?

Obviously, the Biden administration infrastructure proposals could be of huge help in this regard. Deteriorating state and local infrastructure is a major issue in virtually every state. When combined with the impact of climate change and sea-level rise, the need for a dramatic increase in infrastructure investment will be even more severe.

Also, expanded and highly targeted increased school aid would be very helpful, as would a significant increase in federal research and development funding to stimulate state and local economic development. Finally, a program of required one or two-year national service for all high school graduates which would provide subsequent financial assistance for post-high school education could go a long way torch solving local unemployment issues.

Methodology

In order to determine the most and least federally dependent states, WalletHub compared the 50 states across two key dimensions, “State Residents' Dependency” and “State Government's Dependency.”

We evaluated those dimensions using three relevant metrics, which are listed below with their corresponding weights. Each metric was graded on a 100-point scale, with a score of 100 representing the highest level of federal dependency.

We then determined each state's weighted average across all metrics to calculate its overall score and used the resulting scores to rank-order the states.

State Residents' Dependency – Total Points: 50

• Return on Taxes Paid to the Federal Government: Triple Weight (~37.50 Points)
  Note: This metric was calculated by dividing federal funding in U.S. dollars by IRS collections in U.S. dollars.
• Share of Federal Jobs: Full Weight (~12.50 Points)

State Government's Dependency – Total Points: 50

• Federal Funding as a Share of State Revenue: Full Weight (~50.00 Points)
  Note: This metric reflects the proportion of state revenue that comes from the federal government in the form of intergovernmental aid in 2018.

The following metrics were included in the infographic above for context only. They represent subsets of federal funding and are reflected in the first two metrics.

• “Federal Contracts” divided by “IRS Collections”
• “Grants” divided by “IRS Collections”
• “Other Financial Assistance” divided by “IRS Collections”

Sources: Data used to create this ranking were collected from the Internal Revenue Service, U.S. Census Bureau, USAspending.gov and Bureau of Labor Statistics. Unless noted otherwise, the statistics underlying this report are from 2019 and 2020.