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Which States Rely the Most on Federal Aid?

Taxes are perhaps the most apparent source of state revenue, as they constitute the vast majority of each state’s general fund budget. But state governments also receive a notable amount of assistance from the federal government. In fiscal year (FY) 2016, roughly 33 percent of all state revenues consisted of federal grants-in-aid.

Federal aid is allocated to states for a variety of purposes, primarily to supplement state funding for programs or projects deemed to be of national interest.

States that rely the most on federal aid:

  • Mississippi
  • Louisiana
  • New Mexico
  • Arizona
  • Kentucky
States that rely the least on federal aid:
  • Virginia
  • Hawaii
  • Kansas
  • North Dakota
  • Utah

States that rely heavily on federal grants-in-aid tend to have sizable low-income populations and relatively lower tax revenues.

On the other hand, states with relatively lower reliance on federal aid tend to collect more in taxes and have smaller low-income populations, although some exceptions exist.

Notably, although North Dakota and Alaska impose relatively modest taxes on residents, both are resource-rich states that export much of their tax burdens through severance taxes, yet their reliance on federal aid differs greatly.

Read more: Which States Rely the Most on Federal Aid?

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Judy Vorndran can be reached at jvorndran@taxops.com or 720.227.0093. Follow Judy on LinkedIn.

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