Federal Share of Total State Revenue Increases

April 15, 2014 11:00 am

by Jon Richards · 6 comments

A new study by a nonprofit called State Budget Solutions shows Georgia as having the second highest percentage point increase between 2001 through 2012 in the amount of revenue being funded by federal dollars. In 2001, 29.09% of state revenue came from the federal government, while in 2012, it was 38.06%, a difference of 8.97%. Only Louisiana had a higher percentage increase of 12.54%.

The average over the period had 35.48% of state revenue coming from the federal government. That’s enough to put the Peach State at 14th when compared to the other 49 states. Mississippi, Wyoming and South Carolina had the highest percentage of federal dollars, while Nevada, Virginia and Delaware had the lowest.

The Washington Examiner takes this a bit further, showing that on a per-capita basis, federal revenue went from $878 in 2001 to $1,424 in 2012.

Georgia’s state government receives less federal money per capita than 43 other state governments, but it’s rapidly losing its budget autonomy.

Federal dollars made up up 38 percent of the Peach State’s budget in 2012, up from 29 percent in 2001. The state received $5.6 billion for public welfare programs and $2.9 billion for education in 2012, along with $1.2 billion for highways.

The Republican Governors Association rightly notes Governor Deal’s leadership in keeping state taxes low and promoting economic growth. If voters approve a constitutional amendment in November, the state will be prevented from raising income taxes.

By keeping state taxes low, the amount of federal funding of the state’s budget is likely to increase, and that poses risks. As the State Budget Solutions study states,

Growing reliance on federal funding in state budgets is a dangerous trend. It threatens the financial stability of all 50 states, as well as the federal government. As federal debt skyrockets, Congress must look for ways to reduce spending. In the many states that count on the federal government for over one-third of their general revenue, every congressional spending reduction proposal puts the state at risk of a serious financial shortfall.

States must recognize that this funding arrangement also harms fiscal federalism. Federal funding usually comes with strings attached, and that means less chance for local control. When states cannot stand firmly on their own financial footing, they will lose the ability to make the best, locally-based, independent decisions for their residents.

Would you be willing to trade an increase in state tax revenue for a reduction in federal funding of state operations?

{ 6 comments… read them below or add one }

The Last Democrat in Georgia April 15, 2014 at 2:57 pm

“Would you be willing to trade an increase in state tax revenue for a reduction in federal funding of state operations?”

It is highly-preferred that we just reduced (if not outright eliminated) federal funding of state operations with no increases in state tax revenues. I would prefer that the shrinkage of the federal government and federal spending not be used as an excuse to grow the size of state government and increase state spending.

I possibly would be reluctantly willing to trade an increase in state tax revenue for a reduction in federal funding of state operations…but likely only if the state income tax was eliminated and many (if not most) functions of state government were privatized.

(…Some notable examples of state government services that could and should be privatized include the Georgia Department of Driver Services, the Georgia Ports Authority, huge chunks of the Georgia Department of Transportation and all of the State Road and Tollway Authority (including the entire Interstate highway system), the Georgia Regional Transportation Authority (and any future intercounty regional transit/passenger rail network), etc.)

George Chidi April 15, 2014 at 4:26 pm

Every once in a while, we hear of arrests of drivers’ services clerks who had been issuing under-the-table licenses to illegal immigrants. Now, imagine what that looks like privatized.

Privatized ports is a license to smuggle. Most of the DOT is private right now as it stands — the work is contracted out. A private interstate highway system? Really? Roads are the quintessential public good. You’re railing against government for its own sake, even though what you’re arguing as its replacement is measurably, empirically worse.

The Last Democrat in Georgia April 15, 2014 at 5:29 pm

“Every once in a while, we hear of arrests of drivers’ services clerks who had been issuing under-the-table licenses to illegal immigrants. Now, imagine what that looks like privatized.”
….Actually it looks infinitely much better privatized as the state would be relegated to an oversight role and not the role of a funding and operating entity (and service provider) as it is now.

The government doesn’t necessarily have much incentive to provide good service because it is the only provider when it comes to important functions like the DDS. When overseen properly, of course, the private sector has a heckuva lot more incentive to provide better service because the private sector makes more money when they provide good service, unlike the government which collects public money no matter how bad the service.

“Privatized ports is a license to smuggle.” ….Not if the government properly fulfills its role as an oversight entity, a role which is infinitely much easier for the government to fulfill than as a funding and operating entity.

“Most of the DOT is private right now as it stands — the work is contracted out.” ….That’s an excellent point. Though, the current system of just simply contracting out design and construction work does not generate anywhere near enough of the revenue that is needed to effectively fund the operational and maintenance needs of the state’s severely-underfunded transportation network. Many aspects of GDOT may be private, but nowhere near private enough.

“A private interstate highway system? Really? Roads are the quintessential public good.” ….I completely agree with your assertion that roads are the quintessential public good. But our current system of funding the state’s expressways with the dwindling revenues of an incomplete fuel tax and extremely-heavy borrowing is just simply not working as evidenced by Georgia’s rapidly-evaporating transportation funds.

With a privatized Interstate highway and expressway system, the public still owns and controls privatized roads, it’s just that privatized roads are no longer a government expense.

Privatizing a road just basically takes that road and turns it from a money-sucking liability that is incapable of funding its own operating and maintenance needs to a financial asset that is capable of fully funding its own operational and maintenance needs.

“You’re railing against government for its own sake, even though what you’re arguing as its replacement is measurably, empirically worse.” ….No one is railing against government. What most people are against are lazy and bloated ineffective bureaucracies and inefficient governance. When put in that context, government-overseen, privately-operated public functions will be a vast improvement over the bloated mess we have today. Privatizing important public functions also means that many of our public services will actually have the revenue available to operate at an adequate level.

Dave Bearse April 16, 2014 at 11:44 pm

Yeah. I’m looking forward to the competition of privatized interstate tolls. I’m going to choose among the competing toll companies the one that charges the least per mile on each of the interstate that I travel.

saltycracker April 15, 2014 at 7:57 pm

Feds got $65.5 billion from Georgians in 2012 – rank #11
http://en.wikipedia.org/wiki/Federal_tax_revenue_by_state#Fiscal_Year_2012

And the chances of a Fed opt out option along with a reduction in Fed mandates and taxes ?

Or is the idea double taxation for local control ?

Harry April 16, 2014 at 7:29 am

“South Carolina had the highest percentage of federal dollars, while Nevada, Virginia and Delaware had the lowest.” I bet when federal payroll by state is factored in, that Nevada and Virginia are the highest percentage.