Intergovernmental Financial Dependency - 2025 Edition
A Study of the Dependency of the 50 States on Financial Flows from the Federal Government
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 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:
- Quantify each federal flow, assess risk of change, and estimate the fiscal and program performance impact of known or projected changes.
- Strategically plan for organizational and budget changes linked to known or projected changes in intergovernmental flows, and
- 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 are presented in Figure E and 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 $169.4 trillion in national household and non-profit net worth.
Important Figures and Illustrations included in the Study
- FIGURE A - Direct Federal Revenues as a % of Total State Revenues: See page 13.
- FIGURE B - Direct and Indirect Federal Flows as a % of State GDP: See page 14.
- FIGURE C - Schedule of Direct Payments to Individuals-For the 50 States: See page 15.
- FIGURE D - Direct / Indirect Federal Flows Received Per Capita and Federal Taxes Paid Per Capita: See page 17. and
- FIGURE E - Analysis of Federal Liabilities, Intragovernmental Debt, and Social Insurance Obligations ($ 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.
Recommended Actions – Highlights
Governors, State legislators, other elected officials, standards-setting bodies, regulatory agencies, and professional associations can play a vital role in reducing the federal government's reliance on deficit financing, with its accompanying growth in publicly held debt and unfunded long-term financial obligations. The following are excerpts of recommended actions from the Study, which if initiated soon and executed over the coming years, can have a positive impact in slowing, then halting, the further worsening of the federal government's fiscal condition.
Individual Governors can:
- Request the Secretary of the Treasury to provide an electronic copy of the annual Financial Report of the United States Government within 14 days of its release, and bound copies sufficient in number to permit distribution among key state officials.
- Request timely briefings by a senior U.S. Treasury official on changes in the reported financial condition.
- Appoint a permanent working group of senior state officials, and other advisors, who would provide sustained focus, from a state perspective, on ways to rebalance federal spending and revenues to slow and reverse the growth in publicly held federal debt.
- Request quarterly meetings with the state's Congressional delegation to discuss the fiscal condition of the federal government, trends in direct and indirect federal funding received by the state, and the budgetary and programmatic needs of the state that rely on federal support.
- Request the Secretary of the Treasury to brief NGA members during national conferences on the fiscal condition of the federal government with emphasis on long-term fiscal projections and the ongoing and projected capacity of domestic and foreign investors to purchase the publicly held debt of the United States.
- Call upon the National Association of State Budget Officers to coordinate information sharing among working groups appointed by governors to address the federal fiscal condition
- Request the Secretary of the Treasury to brief NCSL members during national conferences on the fiscal condition of the federal government with emphasis on long-term fiscal projections and the ongoing and projected capacity of domestic and foreign investors to purchase the publicly held debt of the United States.
- Request the Secretary of the Treasury to issue electronic and bound copies of the annual Financial Report of the United States Government, within fourteen days of its release, to a listing of senior elected legislative officials of each state.
- Establish a permanent NCSL committee to provide sustained focus, from a state perspective, on ways to reduce federal deficit spending and slow and reverse the growth in publicly held federal debt.
- Encourage the senior legislative officials to meet quarterly with the state's Congressional delegation to discuss the fiscal condition of the federal government
Create an “active project” designed to result in the issuance by the Board of a Statement that will strengthen the reporting of intergovernmental financial dependency and related risks by state and local governments—on an expedited basis.
- Establish, as required supplemental information in the Financial Report of the United States Government, additional reporting requirements that address the vulnerabilities associated with the growing burden of publicly held debt, to include:
- The year-end maturity distribution of public debt
- A two-year schedule of month-to-month changes in the outstanding balances of publicly held debt illustrating both issuances and redemptions by major maturities of debt.
- A two-year schedule of changes in ownership of publicly held debt by major holders to illustrate the comparative reliance on various domestic and international holders of debt and open inquiries into long-term risks of changes in lending capacities.
- A two-year schedule of changes in holdings by individual "Foreign and International" investors
Study and act upon the adequacy of offering documents that accompany the issuance of municipal securities, and ongoing disclosure requirements, considering the reported unsustainable fiscal condition of the federal government and the known key measures of intergovernmental financial dependency pertaining to state governments.
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Modify the requirements of the USAspending.gov database to enable states to access, for each federal fiscal year, the spending within each state on:
- Civilian Salaries and Wages paid to federal employees
- Military Active Duty, National Guard & Reserve Salaries and Wages
- Federal Retirement and Disability Payments - Civilian
- Federal Retirement and Disability Payments Military Retirees and Survivors
- Payments of Excess Earned Income Credit
- Improve methods for assessing the economic impact on the states of alternative federal legislative proposals and administrative actions impacting federal programs that flow dollars directly to state coffers, or that indirectly impact the economies of the states.
- Create an on-going forum, in cooperation with organizations such as NASBO, NASACT, and AGA, for the assessment of information regarding federal programs and activities that have been identified as duplicative, ineffective, or non-productive from a cost versus benefit point of view.
- Modify the Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards to require within the notes each state’s report the current year’s total reported federal expenditures of each department, agency and other organizational unit issuing a separate audit report to the federal government.
Support meetings between governors and their state's Congressional delegation to discuss the fiscal condition of the federal government, trends in direct and indirect federal funding received by the state, and the budgetary and programmatic needs of the state that rely on federal support.
Appoint a high-level committee of the NASACT to request of the U.S. Treasury an opportunity to collaborate in the development of alternative methods for preparing long-term (i.e. ten year) projections of the lending capacity of current and future investors in U.S. publicly held securities.
Provide concentrated, and on-going, attention to the reported financial condition of the federal government and the key measures of intergovernmental financial dependency of the 50 states and their local governments.
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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