Federal aid accounts for about a quarter of state and local government revenues, helping fund everything from disaster recovery and food assistance to healthcare and transportation. But these grants are not guaranteed: Washington retains full discretion over federal transfers and has often used them as leverage to sway state policy.
This practice has received more attention recently as President Donald Trump has sought to withhold funds from states that fail to comply with certain priorities. While the scale and breadth of the Trump administration’s use of federal funding to pressure states are unusual, the federal government has long used the promise of new funding and the threat of losing existing grants to influence state policy. The nationwide adoption of the 21-year drinking age and mandatory seatbelt laws, for example, came only after Congress tied both to eligibility for federal highway funding.
Not all states feel this federal pressure equally. While all states receive federal aid, reliance varies. In some states, federal funds make up a modest share of government revenue, while in others they represent 40% of state and local budgets.
A brief history of federal aid
In absolute terms, federal aid to state and local governments has grown substantially over the past few decades, even after adjusting for inflation. In 2025 dollars, federal transfers in 1980 amounted to about $300 billion, while in 2023, they amounted to $1.1 trillion.
Though the dollar value of federal aid has grown, its share of state and local revenue has held steady. That is because overall state and local revenues have grown alongside the broader U.S. economy. As economic output grew, so did state and local government spending and taxation. On average, federal aid has represented 19% of state and local revenues from 2000–2022.
The relative consistency in federal aid’s overall share of state and local budgets, however, masks a significant shift in its composition. In earlier decades, federal aid flowed largely through discretionary programs: agriculture, transportation, disaster assistance, and education. But over the last few decades—like almost every other aspect of government—federal transfers have become increasingly dominated by entitlement programs.
Today, Medicaid accounts for 57% of federal transfers to states. As eligibility expanded and health care costs rose, Medicaid became the primary channel through which federal funds flow into states.
This rise of Medicaid aid shifted the nature of federal transfers. A growing share of transfers now flows through mandatory programs, rather than through discretionary grants that Congress appropriates annually. By 2023, 73% of federal transfers to state and local governments flowed through mandatory programs, up from 42% in 1980.
Ranking states by reliance on federal aid
The following rankings measure state and local governments’ reliance on federal grants—not whether residents of each state receive more from the federal government than they pay in federal taxes. Some analyses subtract the federal taxes paid by a state’s residents from the federal grants and other federal spending in that state, labeling states with negative balances “net donor states” to the union. That measures interstate redistribution, but not reliance on the federal government. Residents of a state can be net donors overall, even as its state and local governments remain materially dependent on federal aid, since Washington may reduce or condition intergovernmental grants at any time.
This analysis, therefore, uses gross federal grant revenue to measure how much state and local governments receive from the federal government and how exposed their budgets are if those transfers are delayed, conditioned, or withdrawn.
Additionally, we include the District of Columbia (D.C.) alongside the states because, although it is a federal district with unique circumstances, its position in the rankings is of public interest.
The states that receive the most federal aid
In total, state and local governments in California ($162 billion), New York ($118 billion), and Texas ($89 billion) received the most federal aid in 2025, while those in Wyoming ($3.9 billion), South Dakota ($3.8 billion), and North Dakota ($2.8 billion) received the least.
In 2023, the median U.S. state received $18.4 billion from the federal government.
Total federal aid received says little about fiscal reliance. The largest states, of course, receive more because they have larger populations. In fact, the seven states receiving the most federal aid are also the seven most populous states, with only New York appearing out of order, ranking second in aid and fourth in population. For this reason, it is important to examine federal aid relative to state and local finances and to population size.
The states that receive the most federal aid as a share of their budgets
States differ in the share of their budgets financed by federal transfers. In North Dakota (19%), Virginia (21%), and Utah (22%), federal transfers account for less than a quarter of state and local revenues. In Alaska (39%), Kentucky (38%), and Vermont (38%), federal transfers account for almost 40% of state and local revenues.
In 2023, the median U.S. state received 27.7% of its revenues from the federal government.
The states that receive the most federal aid per capita
The states that have the highest federal aid as a share of their budgets are not necessarily the ones receiving the most federal funding in absolute or per-capita terms.
In 2023, the median U.S. state received $3,815 per resident from the federal government. The District of Columbia ($11,030), Alaska ($8,389), and Wyoming ($6,772) received the most federal aid per capita, while Tennessee ($2,783), Virginia ($2,699), and Georgia ($2,397) received the least.
Fiscal discipline and autonomy
Federal aid is one of the largest revenue sources for state and local governments, but its importance varies. Some states receive large transfers simply because they are large, while others depend on federal funding to finance nearly half of their budgets.
As national debt rises and federal spending becomes more politically contentious, these differences become more consequential. Understanding which states rely most heavily on federal transfers and which programs those transfers are tied to is increasingly relevant to assessing fiscal risk.
Recent actions by the Trump administration illustrate how federal aid can be used as leverage in policy disputes. States that are already burdened by high debt and legacy costs—such as unfunded pension liabilities or retiree health obligations—often have little room in their budgets to absorb shocks.
This fiscal vulnerability is unfortunately not limited to highly indebted states. In states with leaner budgets, federal aid can account for an outsized share of revenue. In the absence of strong reserves, threats to those transfers can also put their finances under pressure.
It is therefore prudent for state and local governments to document precisely how they rely on federal aid, including which programs, agencies, and budget functions depend on those funds. They should also develop contingency plans for delays or reductions of federal transfers, especially discretionary transfers.
Federal transfers will always undermine state autonomy and federalism. States and local governments must understand the precise role that the federal government plays in their finances.
The states, cities, counties, and school districts that don’t have excessive debt and have strong fiscal reserves may be able to absorb disruptions in federal funding without surrendering policy autonomy. Those burdened by debt, unfunded liabilities, and weak reserves may not.