Fiscal Federalism 12: Federal Aid by Agency

In yesterday’s post on Federal Aid to the States, I asked if anyone knew why states such as New Hampshire and Texas received so much less federal aid, on a per capita basis, than their surrounding neighbors. Table 1 below reveals the answer.

To hunt down the culprit I decided to turn to my favorite two-state comparison–New Hampshire and Maine. One reason why I like to compare the two states, besides the fact they are economically and politically opposites, is that they have nearly identical populations right now. As such, I can show the dollar amounts without having to adjust them into per capita terms since the relative difference won’t change.

So let’s dive into the data. First, notice just how long the list is of federal agencies that dole out aid to the states. ¬†If you are into pork, there is a federal agency out there for you. The obvious question from this list is . . . are there no limits to what the federal government can do?

Despite having identical populations, Maine receives $1.4 billion more from Uncle Sam than New Hampshire–$3.4 billion versus $2 billion, respectively. Where does this “Maine subsidy” come from? The vast majority of the difference is under the Department of Health and Human Services: Centers for Medicare and Medicaid Services to a tune of $1.1 billion.

So Medicaid is the single largest driver of the difference in Federal aid to the states accounting for $256 billion of the total $552 billion doled out. It dishes more aid than the Department of Agriculture ($31 billion), Department of Education ($45 billion), Department of Housing and Urban Development ($47 billion), Department of Labor ($10 billion) and Department of Transportation ($57 billion) COMBINED!

So the key to freeing your state from federal dependency, um, aid, is to control your state’s Medicaid program. Doing so will also reduce the “crowding out” of the private sector by the public sector which I’ve discussed previously– meaning a¬†larger private sector will also result in greater economic prosperity.

Table of Federal Aid to State and Local Governments by Agency for Fiscal Year 2009