Economy

This Is the State Most Dependent on the Federal Government

Douglas A. McIntyre

Published: February 22, 2022 11:30 am

Last Updated: February 22, 2022 11:58 am

The federal government made a huge effort to help states over the course of the COVID-19 pandemic. The American Rescue Plan provided tens of billions of dollars. Much of this went to homeowners, renters and the CARES Act. According to the National Conference of State Legislators, “To ease the financial strain of state spending on COVID-19 mitigation and response measures, the federal government passed the Coronavirus Aid, Relief and Economic Security (CARES) Act, which included $150 billion in direct assistance for state governments, local and tribal governments.” Cities with populations over 500,000 could apply for direct aid.

Prior to the pandemic, some states received federal aid at a rate much higher than most. Even before the federal government ended the emergency aid, 26 states unilaterally ended supplemental unemployment insurance benefits to cajole Americans back to work. However, 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.”

One issue raised here is the relationship between the states and the federal government. Federal programs like Medicaid and this supplemental pandemic assistance operate under cost-sharing agreements with states. Conservative lawmakers and governors often try to avoid making commitments that could force them to raise state revenue through taxation.

Interestingly, though, blue states are generally less dependent on federal funds than red states, according to a WalletHub investigation that compared federal assistance states received to federal income tax contributed by states. Many states receive more support from the federal government than they pay in federal income taxes. Some of the least dependent states have among the best economies, and some of the most dependent have among the worst economies.

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.

The state with the most dependency on the federal government 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.