Intergovernmental Financial Dependency - 2025 Edition

Major Issues:

Fiscal Sustainability of the Federal Government

The final paragraph of Secretary of the Treasury Scott K. H. Bessent’s Message preceding the Financial Report of the United States Government dated March 19, 2026, was as follows:

A government that lives beyond its means ultimately erodes the foundations of its own strength. Getting our fiscal house in order is not only an economic imperative, it is also essential to preserving the strength and credibility of the United States at home and abroad.

The Challenge to State Leaders

The Secretary’s message is not hyperbole. As this Study shows, it is essential that elected and appointed state officials use this Study to:

• Evaluate and quantify the extent to which their respective state and its citizens are reliant on federal funding, and
• Gauge the risk of loss of that funding and the quantify the impact of such loss on specific state programs and services, and on segments of the state’s economy.

As state officials know, governments have minimal options to deal with fiscal crises:

• Raise revenues,
• Cut spending,
• Issue debt to be repaid from future revenues (if they have the debt capacity), or
• Sell assets.

An Unsustainable Condition

The Federal Government is in the same predicament on a far larger scale and is in the process of taking all these measures, each of which has an impact on the 50 states.

The 2025 Financial Report of the United States Government...states:

The debt-to-GDP ratio was approximately 99 percent at the end of FY 2025. Under current policy and based on this report's assumptions, it is projected to reach 576 percent by 2100. The projected continuous rise in the debt-to GDP ratio indicates that current policy is unsustainable. (See EXECUTIVE SUMMARY TO THE FY 2025 FINANCIAL REPORT OF THE U.S. GOVERNMENT)

The Report's included Statement of the Comptroller General, beginning on page 40, echoed these sentiments.

Assessing Future Risks To The States and Their Citizens

Over the past 55 years, state and local governments have come to significantly rely on federal dollars to fund infrastructure, health care, social programs, education, research, and a host of other vital services. This is called intergovernmental financial dependency (IFD). However, the continuation of these important federal funds flows is now in question and at significant risk due to:

• Budget, appropriation, and program policy changes enacted or considered by the Congress, and organizational, administrative, and regulatory changes made by the Executive Branch , and
• The federal government's decades long reliance on deficit spending and the resultant accumulation of significant amounts of publicly held debt, which is compounded by the mounting level of unfunded obligations associated with providing pensions to federal civilian and military personnel, and providing Social Security and Medicare benefits to citizens.

How Users of This Study May Benefit

This study will assist elected and appointed leaders of state governments to:

1. Quantify each federal flow, assess risk of change, and estimate the fiscal and program performance impact of known or projected changes.
2. Strategically plan for organizational and budget changes linked to known or projected changes in intergovernmental flows, and
3. Plainly report the actual and/or anticipated impact of intergovernmental financial dependency (IFD) to citizens and other stakeholders.

Key Findings from the Study

The Study uses the last closed fiscal year for the States at the time of the analysis (2023). Key findings for Fiscal Year 2023 include:

• On average, the 50 states receive 34.3% of their total revenue from the federal government.
• On average, 25.7% of the GDP of the 50 states comes from federal dollars flowing directly to State governments and indirectly to their economies.
• The three highest federal payments to individuals were for Social Security Retirement Insurance, Medicare, and Social Security Disability Insurance,
• There are over 3,000 separate military bases and facilities within the States, employing 2.6 million military and civilian personnel, adding to the States’ economies.
• On average, the 50 states receive $14,719 per capita in direct and indirect federal dollars.
• On average, federal tax dollars collected within the 50 states amounted to $13,770 per capita
• Federal liabilities, intragovernmental debt, and social security obligations on September 30, 2024, totaled $131 trillion, which equated to 449% of GDP, and represented 77% of the $169.4 trillion in national household and non-profit new worth (see Figure E)

Important Figures and Illustrations included in the Study

• FIGURE A - Direct Federal Revenues as a % of Total State Revenues: See page 13.
• FIGURE B - Direct and Indirect Federal Flows as a % of State GDP: See page 14.
• FIGURE C - Schedule of Direct Payments to Individuals-For the 50 States: See page 15.
• FIGURE D - Direct / Indirect Federal Flows Received Per Capita and Federal Taxes Paid Per Capita: See page 17. and
• FIGURE E - Analysis of Federal Liabilities, Intragovernmental Debt, and Social Insurance Obligations ($ Billions): See page 18.

Page 19 introduces various approaches for On-going Monitoring of the Financial Condition of the Federal Government.

Conclusion

Based on the data and information presented within the Study, the authors assert that there are no organized segments of American life that are more at risk from an unsustainable federal government that the governments of the 50 States.

It is the hope of the authors that the information in this study will help state and local government leaders to better understand the degree to which their governments are dependent on funding flows from the federal government and the risks associated with that dependency and begin to exert sustained leadership in concert with their state’s congressional delegation to address the unsustainability of federal funding flows.

Individual State – Specific information is linked as follows:

• Direct Federal Dollars Flowing to Individual States, Including their Component Units, as a Percentage of Total State Revenues-Table 2, page 34
• Indirect and Direct Federal Dollars Flowing to States as a Percentage of State GDP-Table 4, page 38, where Indirect Dollars Include Separately Reported:
  • Direct Federal Grants to Local Governments Within the State, totaling $119.3 billion
  • Federal Purchases from State Businesses, totaling $652.9 billion
  • Federal Payments to Individuals Within the State, totaling $2,944.5 billion
• Direct Federal Payments to Individuals Within Each State, under the following 6 categories-Table 5 - Part 1, page 40
  • Social Security-Retirement Insurance
  • Social Security-Disability Insurance
  • Social Security-Survivors Insurance
  • Veterans Compensation-Service - Connected Disability
  • Supplemental Security Income
  • Other Direct Payments
• Direct Federal Payments to Individuals Within Each State, under 7 additional categories-Table 5 - Page 42
  • Federal Retirement and Disability-Civilian
  • Federal Retirement and Disability-Military Retirees and Survivors
  • Medicare Payments
  • Federal Pell Grants
  • Payments for Excess Earned Income Tax Credits
  • Civilian Salaries and Wages
  • Military Active Duty, National Guard and Reserve Salaries and Wages
• Other Key Measures of Intergovernmental Financial Dependency-Table 6 - Page 44, to include:
  • Number of Military Facilities
  • Present Replacement Value of Military Facilities
  • Number of Military and Civilian Personnel Stationed at Military Facilities
  • Federal Leased and Owned Buildings for Civilian Agency and for Non-Civilian Use in millions of sq. ft.
• Federal Direct and Indirect Flows per Capita and Federal Income Taxes Collected per Capita-Table 9, page 50.

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