Dire financial conditions facing many state and local governments have prompted some calls for federal assistance. This prospect has sparked, in turn, concern in other quarters. Legislation has been introduced in Congress designed to keep the Treasury or the Federal Reserve from providing explicit or implicit financial assistance.
Questions arise, however, whether some form of federal bailout is already underway. For example, some believe that the Affordable Care Act (also known as “Obamacare”) provides a generally-funded special cushion for relatively weak state and local governments, effectively a form of bailout.
State and local governments receive federal money under a wide range of programs. With the recent Census Bureau “State Government Finances” release (of 2014 data), we can take a look at whether federal grants have grown more rapidly for troubled states.
The chart below shows the growth in federal grants tor Truth in Accounting’s 5 “Sinkhole” states compared to TIA’s five “Sunshine” states. The “Sinkhole” states are the five worst off, among the 50 states, and the “Sunshine” states are the five states in the best financial condition.
Federal grants to especially-troubled states grew at an accelerating pace from 2013 to 2014, while they declined in both years for the five “Sunshine” states. In dollar terms, the "Sinkhole" states received $63 billion in federal revenue in 2014, up from $56 billion in 2012.
Note that the latest year for which we have this data is fiscal 2014, which is two years old, given the lags in government financial reporting. Anyone trying to stay on top of things in this area faces a challenge in data timeliness.