Arizona’s high utilization of federal funding as a source of state revenue was a key factor in its recent low ranking in a study which looked at state-by-state dependence on the federal government.
The study, which was conducted by WalletHub.com, used four metrics to produce its determinations:
1. Return on Taxes Paid to the Federal Government (Federal Funding in $ Divided by Federal Income Taxes in $): Weight = 1
2. Federal Funding as a Percentage of State Revenue (Federal Funding in $ Divided by State Revenue in $ then Multiplied by 100): Weight = 1
3. Number of Federal Employees per Capita (Number of Federal Workers Divided by Number of State Residents): Weight = 0.5
4. Number of Civilian Non-Defense Federal Employees per Capita (Total Federal Civilian Employment Minus Total Civilian Employment of Army, Air Force, Navy & Defense Department): Weight = 0.25
With lower scores indicating lesser government dependency, Arizona ranked 44th overall, ahead of only West Virginia, Montana, Alabama, Kentucky, Mississippi and New Mexico.
Arizona’s return on federal taxes and need for federal funding in state revenue generation ranked 39th overall.
New Jersey, Delaware, Illinois, Minnesota and Kansas came out as the least-dependent states.
The study found that “blue states” were generally less dependent on the government than “red states.” The democratic states carried an average ranking of 18.3 while the traditional conservative states had a respective 33.2 average ranking.
One expert tried to explain what, exactly, made states more or less dependent on the feds’ dollars and whether such dependence was good or bad.
From WalletHub’s interview with Santanu Chatterjee, a business professor at the University of Georgia:
States depend on the federal government in a variety of ways, which include funding for infrastructure, education, healthcare, unemployment insurance, etc. In fact, most aspects of our daily lives includes an array of “public goods” provided by both the state and federal governments.
The need to balance state-level budgets at the end of each fiscal year creates incentives for state legislatures to depend more heavily on federal dollars to help close their books. This is especially binding in difficult economic times when state and local tax revenues (sales, income, property, etc.) are on the decline.
State dependence on federal dollars for important public services and goods is inevitable in a democracy. However, any lack of oversight or proper evaluation of need, costs, and benefits may lead to a significant wastage of federal resources.