Federal Government Grants to State Governments: A Closer Look

In recent years, the federal government has significantly increased its financial support to state and local governments through grants. According to the Government Accountability Office, the federal government awarded hundreds of billions of dollars in grants to state and local governments in 2022, with the total reaching approximately $570 billion. These grants are intended to fund a wide range of services, including healthcare, education, social services, infrastructure, and public safety.

The distribution of federal grants to state and local governments varies significantly across the United States. In 2022, Vermont relied on federal grants the least, with only 12.8% of its total budget coming from the federal government. In contrast, California received the most federal funding in dollar terms, but it was the second-least reliant state on a percentage basis, with 14.5% of its revenue coming from the federal government.

Federal grants to state and local governments can be divided into two categories: mandatory and discretionary. Mandatory grants are set in ongoing federal law and depend on formulas and eligibility requirements. In federal fiscal year 2017, mandatory grants to state and local governments totaled $474 billion. Discretionary grants, on the other hand, are awarded through a competitive process and are subject to annual appropriations.

The federal government’s grants-in-aid system has evolved over time, with significant growth occurring during the Roosevelt administration in the 1930s and the Johnson administration’s Great Society initiative in the 1960s. In recent decades, federal aid to state and local governments has soared, increasing their reliance on federal aid for the financing of certain government functions.

While proponents of increased federal aid to state and local governments argue the need to address issues such as crumbling infrastructure, the majority of federal grants are used to finance payments for individuals. This includes programs such as Medicaid, which accounted for a significant portion of federal grants to state and local governments in 2017.

The federal government’s role in providing grants to state and local governments has been a subject of debate. Some argue that federal aid should be used to address national priorities and provide swift fiscal relief during economic downturns. Others believe that the federal government should allow state and local governments to compete for grants to promote better management practices and the implementation of programs that matter to their specific states or localities.

As the federal government continues to provide significant financial support to state and local governments, it is important to understand the distribution and impact of these grants. The evolving nature of the federal grants-in-aid system and the ongoing debate surrounding its role in the nation’s fiscal federalism highlight the complex relationship between the federal government and state and local governments.