17 States That Rely on Federal Funds to Keep Their Economies Going
Federal assistance is a lifeline for many American states. These funds are spent on public services and construction, making sure they run smoothly.
Ever wondered how reliant your state is on federal funds? A recent study focused on the figures to reveal exactly how much each state relies on federal aid. The analysis takes different rates into account and identifies which states would be most vulnerable to funding cuts.
Let’s see which U.S. states depend on federal investment the most. Is your state on the list?
Methodology
Research from MoneyGeek developed an overall score to assess states’ dependence on the federal government in 2024. The two main metrics are the return on taxes paid to the federal government and the percentage of each state’s revenue sourced from federal funds. Using Internal Revenue Service (IRS) data, they calculated how much each state paid in taxes and matched it against federal payments, excluding Medicare.
The percentage of each state’s revenue from federal sources was determined using U.S. Census data on revenue sources. These metrics were weighted and converted to a 100-point scale.
1. New Mexico
New Mexico gets $3.42 in federal funding for every $1 it pays in taxes. Close to 31% of its total income comes from the government. This is because the state has significant federal installations and a high poverty rate, which makes it heavily dependent on these grants.
Due to these factors, New Mexico relies on federal funding to support basic functions like healthcare, education, and welfare.
2. West Virginia
Federal funds make up about 27% of West Virginia’s revenue, while the state receives $2.91 for every tax dollar paid. Due to the problems with the economic situation and low rates of health among the population, West Virginia needs this funding.
These funds go to development programs in sectors such as health, education, and infrastructure. They are essential to mitigate the state’s economic and health problems.
3. Alaska
Alaska depends on federal grants for more than 29% of its revenue. For each dollar that has been paid in federal taxes, Alaska gets $2.65 back. Its extensive, unfriendly environment and low-density population make its infrastructure expensive to maintain.
Around one out of every 20 people in Alaska’s workforce is a federal civilian employee. This high rate of federal employment underscores the state’s reliance on grants.
4. Mississippi
Mississippi relies heavily on federal aid, which accounts for almost 26% of its revenue. The state receives $2.66 for every dollar paid in taxes because of high poverty rates and frequent natural disasters.
Federal support is vital for maintaining medical facilities, schools, and emergency response efforts. It also sustains Mississippi’s core operations and capital assets.
5. District of Columbia
Federal funds make up a significant portion of the District of Columbia’s revenue. For every dollar paid in taxes, the state gets $1.71 back. As the nation’s capital, it hosts numerous federal agencies and departments, which leads to federal employment and related spending.
This includes funding for infrastructure, public services, and security measures. Additionally, D.C. requires investments to support its government operations, such as public safety and infrastructure.
6. Alabama
Federal aid constitutes 28% of Alabama’s total revenue. The state receives $1.90 for every tax dollar paid. This is because Alabama has some of the highest poverty levels, so federal support is needed for healthcare and education.
Furthermore, the state has large rural areas that require capital investment in infrastructure. As a result, federal funds play a big role in Alabama’s economy.
7. Kentucky
Kentucky relies on federal grants, which make up 30% of its total revenues. Residents receive $1.68 for every dollar paid in taxes. This dependency on the government is driven by economic challenges in the health and welfare sectors.
Federal employment, particularly in military bases, also contributes to this issue. This support makes sure Kentucky can provide essential services and facilities to its residents.
8. Arizona
Federal grants make up nearly 29% of Arizona’s total budget. The state receives $1.62 for each dollar in taxes. The health, education, and infrastructure sectors need federal funding to thrive.
Moreover, the funds contribute to the requirements for border protection and healthcare programs in the state.
9. Montana
Montana is supported by federal grants, which account for 32% of its revenue. Residents see a $1.43 return on every dollar paid in taxes. The state’s rural areas and low population result in higher per capita federal spending, particularly in infrastructure and service delivery.
These funds are also allocated for Montana’s agriculture and to maintain its extensive road network. Federal assistance helps manage issues linked to large, sparsely populated areas.
10. Maine
Maine gets $1.78 in federal funding for every $1 paid in taxes, with federal funds comprising 23% of its revenue. The state’s aging population requires increased federal spending on healthcare.
Additionally, Maine’s rural nature leads to substantial investment in social services and infrastructure. Federal support helps sustain the state’s economic stability.
11. Hawaii
Hawaii depends on federal funds for 21% of its revenue, with residents a tax return of $1.94 for every dollar. The state’s remote and strategic military location calls for support for its military bases.
Additionally, federal funds allow essential services and programs to thrive, given Hawaii’s geographic position and higher cost of living.
12. Louisiana
Louisiana’s economy receives $1.33 in federal funding per tax dollar. Federal aid represents around 30% of its revenue sources. Major disasters such as hurricanes lead to high federal expenditures in disaster management and rebuilding.
This also indicates high poverty levels and significant social needs. These federal funds are necessary for Louisiana’s economy and recovery from disasters.
13. Maryland
About 21% of Maryland’s revenue comes from the federal government. The return on taxes is $1.79 per dollar. Its proximity to Washington D.C. fuels the federal job market, making the state reliant on federal funds.
Additionally, federal investments support Maryland’s healthcare and education sectors, particularly in its urban and suburban areas.
14. Virginia
Federal funding constitutes 18% of Virginia’s revenue. Residents receive $1.91 for every dollar paid in taxes. The state benefits from federal contracts since it’s near Washington, D.C.
This funding strengthens Virginia’s economy through its defense, technology, and public service sectors. Federal agencies and military installations in the state also drive federal investment.
15. South Carolina
Federal revenue constitutes approximately 20% of South Carolina’s revenue. For every dollar paid in taxes, South Carolina gets $1.60. The state benefits from federal military spending due to the installation of large military facilities.
Also, it requires funds for health care and social services because its income is relatively low. They assist with income inequality and improve the quality of healthcare.
16. Idaho
Idaho receives $1.15 in federal funds for every dollar it contributes. These funds (21.8% of revenue) support its agriculture, technology, and relatively small economy.
Idaho’s views influence support for its farms and public services. In this case, a more diverse economy and a bigger population can lessen reliance on federal aid.
17. Michigan
Michigan accepts $0.99 in federal funds for every dollar it contributes to taxes. Federal funds (30% of total revenue) boost its manufacturing and automotive sectors despite a substantial GDP of $658,992 million.
Michigan’s economy is quite dependable, but it still benefits greatly from federal investment, particularly in infrastructure and job creation.
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