Report: Half of State Revenue from Feds

By Jonathan Reid         

Cronkite News

WASHINGTON – Almost half of Arizona’s general revenues came from federal funds in fiscal 2011, the third-highest share in the nation, according to a recent report from the Tax Foundation.

The late-June report said that 45.7 percent of Arizona’s general revenue came from federal aid, lower than only Mississippi and Louisiana, and well above the national average of 36 percent.

But some analysts called the high percentage misleading because it does not take into account the state’s relatively low taxes and spending. Arizona didn’t get more than other states, they said, it just got more in relation to what it spent.

It’s “not because we’re spending a lot more than other states, but in fact because we’re spending less,” said Byron Schlomach, chief economist at the Goldwater Institute.

Dennis Hoffman, an economics professor at Arizona State University, pointed to the state’s low tax burden.

“Quite simply, it’s because we are a very low-tax state,” Hoffman said of the relatively high share of federal funds.

When you compare federal spending in the state “with the low revenue that we ask our own citizens to pay, you find that the share of our revenue paid for by the federal government is pretty high in comparison with other states,” he said.

The Tax Foundation is a Washington-based nonpartisan, nonprofit research group that analyzes federal and state tax policy. To determine the federal share of state revenues, it compared general revenues for each state in 2011 as reported to the Census Bureau and the amount of “intergovernmental revenue” – federal funds – sent to the state.

The 2011 budget figures are the most recent available from the Census Bureau.

While state spending shrank in recent years, federal spending remained steady because of growth in unemployment benefits and federal programs such as Medicaid, said Richard Greene, operations analyst in the governor’s Office of Strategic Planning and Budgeting.

Federal aid could increase as the state embarks on an expanded Medicaid program, he said.

There are other factors that drive Arizona’s relatively high share of federal funding, said Joe Henchman, vice president of state projects at the Tax Foundation. He pointed to the vast federal lands in the state, the large Native American population and high transportation costs.

Analysts said other states have also seen their budgets’ share of federal aid increase in recent years because of the recession.

But some remain stubbornly low. Alaska, like Arizona, has large federal land holdings and a significant Native American population, but it got just 24 percent of its revenue from federal funds in 2011, the lowest in the nation.

Nick Kasprak, programmer and analyst at the Tax Foundation, expects the national average for federal funding to state budgets to decrease if the U.S. economy continues to recover.

Federal Funding Levels

States with the largest and smallest amounts of their general revenues coming from federal sources, according to the Tax Foundation.

1. Mississippi: 49 percent; $8.7 billion federal funds of $17.8 billion state general revenues 2. Louisiana: 46.5 percent; $12.5 billion of $26.9 billion 3. Arizona: 45.7 percent; $12.4 billion of $27 billion 4. South Dakota: 45.6 percent; $1.9 billion of $4.1 billion 5. Missouri: 44.4 percent; $12 billion of $27.1 billion

NATIONAL AVERAGE: 36 percent; $593.7 billion of $1.65 trillion

45. Connecticut: 27.9 percent; $6.6 billion of $23.5 billion 46. Nevada: 27.1 percent; $2.8 billion of $10.4 billion 47. Virginia: 26.8 percent; $10.5 billion of $39.2 billion 48. North Dakota: 26 percent; $1.7 billion of $6.7 billion 49. Delaware: 25.9 percent; $1.9 billion of $7.3 billion 50. Alaska: 24 percent; $3 billion of $12.7 billion

“During the height of the recession, a lot of state governments were hurting for cash and saw a lot of their revenue collapse,” Kasprak said.