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It’s all connected: State and local governments significantly depend on federal dollars 

October 13, 2020

The federal government can no longer be considered unsustainable only “in the long run.” It is clearly experiencing sustainability problems now. And, there are no organized segments of American life that are at more risk from an unsustainable federal government than the governments of the 50 states. 

Infrastructure, health care, social programs, education … The list of areas in which state and local governments rely on federal funds is vast. But what happens when the federal government relies more and more on deficit spending and accumulating significant amounts of publicly held debt? Key state and local stakeholders must understand and address fiscal dependency, according to a report by VSCPA members Ed Mazur, CPA, and Mary Scott, CPA. 

The 2019 edition of "Intergovernmental Financial Dependency: An Annual Study of Key Dependency Measures for the 50 States” breaks down the latest fiscal data available from 2017. Findings include: 

  • State governments received, on average, 31.7% of total revenue directly from the federal government. 
  • On average, 22.6% of the GDP for the 50 states came from federal dollars flowing both directly into state coffers and indirectly into state economies in the form of: 
    • Purchases from state businesses.
    • Disbursements to local governments. 
    • Payments and benefits to state residents.
  • Federal payments to individuals in the states totaled $2,751.6 billion, including:
    • Social Security Retirement Insurance benefits ($698 billion) 
    • Medicare benefits ($685.9 billion) 
    • Direct student loans ($455.9 billion) 
  • Federal debt and financial obligations as of Sept. 30, 2018, totaled $85 trillion, equating to 419% of GDP and representing 79% of the $107.9 trillion in national household and nonprofit net worth. 

Read the full report for more details and state-by-state analysis here.