Bloomberg’s Chart of the Day shows the growth in federal payouts to state and local governments, also known as grants-in-aid, in the past half century:

They have increased almost three times as fast as overall spending during the period, according to data compiled by the Commerce Department. Funds were provided at a $525 billion annual rate in the second quarter, a 33 percent jump from two years ago. Most of the money went to pay health-care expenses under the Medicaid insurance program and to cover educational costs. . . .

The federal government provided $131.25 of state and local aid last quarter for every dollar spent 50 years ago. For total expenditures, the second-quarter figure was only $45.75, as the chart illustrates.”

That’s just great . . . Now I have another book to write.


Soaring Federal Aid Bails Out U.S. States, Cities: Chart of Day
David Wilson
Bloomberg, 2010-08-11 14:36:57.821 GMT

Category: Bailouts, Economy

Please use the comments to demonstrate your own ignorance, unfamiliarity with empirical data and lack of respect for scientific knowledge. Be sure to create straw men and argue against things I have neither said nor implied. If you could repeat previously discredited memes or steer the conversation into irrelevant, off topic discussions, it would be appreciated. Lastly, kindly forgo all civility in your discourse . . . you are, after all, anonymous.

41 Responses to “Bailout Nation States & Municipalities”

  1. jack says:

    i look forward to reading that book, BR. i would imagine that the projected needs for the medicaid program is pretty scary, as the front end of the baby boomers start getting into their 70′s and begin to swell the nursing home facilities in the country. i believe that less than 5% of our generation has long term care policies. the rest are assuming that a. they won’t get sick, or b. someone will else will pay for it.

  2. this is a good pick, covered on BBR yesterday afternoon..

    was noted as: “the Federalization of the States..”

    “That’s just great . . . Now I have another book to write.”


    did you really believe that this was going to be ‘a One Shot-deal’? ;)

  3. wally says:

    “Most of the money went to pay health-care expenses under the Medicaid insurance program and to cover educational costs”

    Since those programs include lots of expenses put on State and Local governments by Federal mandates, they really are Federal programs so I don’t think the description as “bailouts” to States is correct.

  4. JustinTheSkeptic says:

    For the past two and a half of years I look at a greater distance, and that greater distance has made me realize what a joke financial markets have become. They no longer support the entrepreneur class. Oh, lets do an IPO today – GM. No, they think that big bussiness is going to care for the local needs in a way that when all they are about is winning the deferential between struggling people in China, and dissalocated homeys in the hinterland.

  5. JustinTheSkeptic says:

    BR, where does it end? Louisiana Purchase?

  6. So, the Feds impose unfunded mandates on states, then take some of the money they collect (or borrow) from the citizens of the states and send it back to them, presumably to help pay for their unfunded mandates.

    Why not we just eliminate the middleman? All it serves to accomplish is to keep employed a vast array of bureaucracies emanating from Washington.

  7. James says:

    States can’t run deficits . . . so the buck is passed to the federal level, and our Congressional “leadership” gets to crow back home how they brought home the bacon on the campaign trail even while the country slowly goes bankrupt.

    The whole thing is frickin’ insane asylum.

  8. davidsiegel says:

    I have no problem with this. As long as we think it is important to have public services, like health and education, then paying for it at the federal level with a progressive income tax is better than relying on regressive state sales taxes or local property taxes.

    Or we can just let the poor kids stay sick, the old folks waste away at home, and let the future generations fend for themselves with no skills.

  9. ACS says:

    The irony is that many of the states with the biggest problems are the ones that get the least money back per taxes paid to Washington.

  10. wally says:

    “I have no problem with this. As long as we think it is important to have public services, like health and education, …”

    I have no problem either with those things. You need to get things done; you need to pay.
    But is it coincidence that medical and educational costs are the two areas that have gone up and up and up over the years? Does the government underwriting of those things somehow enable cost increases that could not be sustained in private markets?

  11. franklin411 says:

    Agreed. Another possible explanation is the rise of block grants during the mid 1990s. Block grants were one of the “innovations” that really took off under the Republican Revolution under Newt Gingrich. Before the 1980s, if the Feds identified a problem that they wanted to address, they would create a program on the Federal level to deal with it. The problem for right-wingers was that such programs tended to be administered in such a fashion as to actually benefit the people. Naturally, this could not be tolerated.

    So the GOP advanced block grants to the states. Instead of setting up a program that might fund teacher training or student aid, the Feds simply handed the states big piles of money, said the equivalent of “spend it on education,” and then walked away. So right-wing states could use the money to found madrasas if they wanted to.

    This chart is misleading because we don’t know its methodology. I’ll wager that what we’re seeing is not “bailouts,” but rather right-wing handouts to their pet projects. Try keeping track of 50 different “education” programs under a block grant scheme. It’s impossible–and ripe for abuse. Thus, Newt Gingrich loved them!

  12. call me ahab says:


    did you see your name being dropped by David Weidner from the Wall Street Journal in this article today-

    A Nation That Won’t be Fooled Again

    Understandable as it may be, cynicism is a damaging and unhealthy way of analyzing Wall Street . . .Take, for instance, a recent report by Alan Blinder and Mark Zandi that examines the impact of the government’s response to the financial crisis. “How the Great Recession Was Brought to An End” suggests that government policies saved about 8.5 million jobs, staved off deflation and boosted gross domestic product — hardly a radical assessment.

    The report was released July 28, and in the two weeks that have followed the response has been nothing short of spiteful.

    . . .But the most telling criticism and the one which characterizes the current climate of criticism of government came from the usually even-keeled fund manager and financial blogger, Barry Ritholtz. An exasperated Mr. Ritholtz scolded, “That is now our standard — what was done versus doing nothing? That is truly the wrong counter-factual.”

    FWIW- I think you make an excellent point. Do you actually know thig guy?

  13. tenaciousd says:

    Consider my more state-centric opinion. I’ve represented state government leaders in policy dealings with the federal government.

    We all know that there is limited tax tolerance among any population. State and local governments do most of the useful work in America–that is, schools, roads, prisons, garbage collections, policing, etc. Yet, the federal government comes through every April and sucks up most of the available tax tolerance to launch wars, subsidize agriculture/energy sectors, and provide retirement incentives to people over 65. The states and localities are only getting back some of what they would collect in revenues on their own if the fed didn’t capture it in the first place. This leaves the states and localities to rely mostly on regressive and nuisance taxes levied at the margins rather than on income taxes and other less volatile revenue streams.

    I’m not saying the states and localities are blameless. But, the dumbest governor is smarter than the average U.S. Senator–and there’s been some pretty dumb governors. Never forget…at the end of the day…governors, mayors, and county commissioners have to keep the lights on. That’s more than most federal officials could do.

  14. tenaciousd says:

    Let me clarify: That’s more than most federal officials could do…without a printing press.

  15. Rescission says:

    franklin411 should be moderated out.

    Are we to take him seriously? Good discussion until we start seeing the name calling and ridiculous statements about people’s intent. My goodness, let’s discuss issues as adults here and use reason please.

  16. DL says:

    And how much $$ is going to the “blue” states versus the “red” states?

  17. I think the discussion here hits the major point. It’s not that the Federal Government is “bailing out” the states. While I haven’t run the numbers, I’d guess that on the whole the opposite is true: The Federal Government hits the states with mandated expenses, then “saves the day” by paying part of the cost of programs that the states didn’t even want to administer in the first place.

    All of this and much of the other outrageous growth in Federal spending has its root cause in one simple decsion: The presumption — which can only be justified in by the most tortured logic — that “regulating interstate commerce” really means “regulating all economic activity” and in fact, by even more tortured logic, the presumption that “all economic activity” includes private non-commercial activities and the actions of state governments.

    Until we address that core problem, there will be no limits on such crap continuing.

    I had been hopeful that the more conservative bent of the SCOTUS might actually address this, but they seem more concerned with expanding the rights of the “singular executive” vs. congress than in putting any checks on Federal power overall.

    Someday soon, some governor will say “no” and dare the president to do something about it. I doubt there will be another Eisenhower in the White House, ready to act as he did. In fact, this is already happening behind the scenes. On everything from pot to guns to (now) immigration, states are telling the Federal Government what to do with itself.

  18. DL,

    Here’s the last data available from the Tax Foundation. It’s five years old but if you look at the historical trends also available on a state-by-state basis on their website, it’s not something that changes much over time:


    There’s definitely a “red/blue” divide, but I actually think that’s somewhat incidental. What there really is, seems to be a “rich/poor” divide. States with more high-income owners and large corporations tend to pay more and get less. “Poor” states tend to pay less and get more. That’s actually pretty intuitive given a progressive tax rate. Same is probably true for rich vs. poor neighborhoods within a city, cities within a state, etc.

    Small populations and large Federal installations tend to skew thingsas well. NM scores as high as it does because of the combination of a small, relatively poor population who don’t pay much taxes and a disproportionate number of very expensive military and Department of Energy facilities that generate spending in the state, much of which has very limited local impact.

    Then there’s Alaska, again with a small and not especially rich population, where a huge amount of the spending is Forest Service road building, to allow lumber companies to get into the National Forests, where they then harvest the lumber and pay us “market rate” for it, usually no more than pennies on the dollar compared to the cost of us building access for them. Essentially a subsidy for Alaskan jobs that would not be economically viable if the lumber companies had to pay the true full cost of harvesting lumber.

    Leaving aside some of the “small population” outliers, there’s still a definite picture: the richer your state is, the more it pays. And yes, the richer states tend to be disproportionately blue.

  19. DL says:


    “Never forget…at the end of the day…governors, mayors, and county commissioners have to keep the lights on. That’s more than most federal officials could do”

    And what a wonderful job they’ve done in CA, NY and IL. Good thing they didn’t need any federal bailouts.

  20. DL says:

    Michael Gat @ 3:59

    I haven’t looked at the link you provided, but my interest is in understanding what the Obama/ Pelosi/ Reid axis has been up to lately.

  21. brianshall says:

    This chart doesn’t help me as much as it should — and, yes, I’ll tell you why.
    It shows this big pile of money going to Medicare (old people) and education (children).

    BUT — we know that nearly all Medicare is geared to old people. How much of that education spending is *not* geared to youth? How much is for pensions for the already retired old people? For (private) lifetime medical care for teachers, for example, and not children.

    Before we start messing around with spending, let’s first see who is really getting the bulk of the loot.

  22. Joe D says:

    Does anyone have a clue WTF Brianshall is saying?

    I sure as hell don’t

  23. rktbrkr says:

    Do you think the federal gov would let a state go BK?

    If they let one go bad then the financing costs afor all states & munis would zoom.

    A friend of mine says they “deserve it” but I don’t think he’s thought through the ramifications. Save the banks but not individual states?

  24. DL says:


    Yes, they “deserve it”.

  25. JustinTheSkeptic says:

    Hint: the federal government tied with the states, tied with wallstreet (oh, I missed to capitalize it), has sold everyone else down the drain. The only question a thinking man has is: was it for a reason? Thinking men everywhere know that they couldn’t be further from the truth. But then again? So after everything is put in perspective. The French, the Chinese, the English, and Russians…thank God in such a universe the U.S. after all their crimes of trying to help the rest of the world, which they financially are totally expended more than Johnny Holmes ever was. And we know what happened to him.

  26. tenaciousd says:


    Ah, yes. Another run of the mill government hater.

    As you well know CA, NY and IL contain some of the largest and most productive economic centers in the nation. MS might not be bankrupt, but that’s only because they aspire to nothing and achieve it well. CA has 10% of the nation’s population and produces 1/6th of the GDP. So, that means somebody is riding on their coattails. Probably a lot of subsidized states like NE (King Corn), AK (oil tariffs), and MS (welfare recipients). You post your blather on an Internet perfected by a lot of folks educated in California’s university system. Enjoy.

    Class dismissed.

  27. DL says:


    “Another run-of-the-mill government hater”.


    I’d like to see the state governments have a lot more power, and the Federal government to have a lot less power.

    I can see from your “blather” that you don’t agree.

  28. Maseratij says:

    I would love to see this data in all sorts of ways.

    Per citizen, per state, by city ….etc. Almost any way you slice this stuff it is Juicy !

    There is no future.

  29. plantseeds says:

    “Probably a lot of subsidized states like NE (King Corn), AK (oil tariffs), and MS (welfare recipients). You post your blather on an Internet perfected by a lot of folks educated in California’s university system. Enjoy.”

    I’m not sure what you are talking about here however I do know this..
    CA has 22x the amount of welfare cases than does MS in raw numbers.
    About 3% of the population of CA.

    1.5 % of the population of MS are wefare cases.
    SOURCE: Administration of Children and Families
    thats about half on a per capita basis if you need help with that. so…who is posting balther? That would be you.
    Then you write “class dismissed”.
    More like your comments are “dismissed.”

    I won’t even get into the fact that almost 20% of CA GDP is housing and real estate rents and leasing and 12 % is government…how’s that working out?

  30. DL says:

    Joe D @ 4:11

    I’m not sure, but I think he wants to “pull the plug” on grandma.

  31. brianshall says:

    Nah. Just cut off her meds.

  32. cyaker says:

    In responding to David Stockman’s New York Times OP ED Warren Mosler concludes.

    “No, we need a full payroll tax holiday, $500 per capita revenue sharing for the states, and an $8 transition job for anyone willing and able to work. See my proposals at http://www.moslerforsenate.com

    I would also refer anybody who wishes to see what the other side ( those who didn’t get it wrong during the recent meltdown) thinks should also read Mosler’s new book The Seven Deadly Innocent Frauds available for free in PDF at his web site http://moslereconomics.com/2009/12/10/7-deadly-innocent-frauds/

  33. Thor says:


    “I’m not sure what you are talking about here”

    You should have left it at that

  34. Thor says:

    DL – You’re being as cryptic as Meh tonight ;-)

  35. Edoc says:

    Some analysis/insight would be nice, since there’s obviously a lot more behind that chart than that quote and your soundbite. Also, feeding the meme of calling everything a bailout is growing tedious. Apparently this bailout has been going on for more than 3 decades…

  36. constantnormal says:

    I gotta say, I’m pretty disappointed by this piece, as I am by all “second-derivative” chart articles, that throw up a chart of the rate of change in a couple of things, without a corresponding chart showing the MAGNITUDES of the tow items being charted.

    This is almost always a guaranteed recipe for deception, and I am surprised to see BR, as a fan of a data-centric view of this Reality, getting pulled into such a thing.

    So what can we learn from this chart? Not all that much, as it turns out. Mainly, it seems to show the growing dependence on the states and municipalities to the Federal goobermint, starting in the late 1960s, a trend toward “bigger goobermint” that should surprise no one who has been awake during this time.

    Does it portend a bubble in federal spending to the states and municipalities? HOW can you possibly tell or make that assertion, without looking at the magnitudes of the spending when compared to other spending? This chart doesn’t do it, and the Bloomberg piece that it refers to (without a link, shame, shame) only provides a few data points and not a matching chart of spending amounts.

    One might use this chart to make the assertion that the states and municipalities are becoming increasingly dependent upon handouts from Big Goobermint, and one might just as easily make the assertion that the goobermint is merely acting as a collection agency and spinning funds back to the states and municipalities, and thus promoting “smaller government” (albeit in a back-handed deceitful sort of way).

    The answer is just not in the data presented. Barry, I think you better not sign the contract for that next book just yet. Do the research, or at least a tiny bit of it, first.

  37. plantseeds says:

    thor – birthday johnny walker blue will do that to me.
    but… the idea that CA tax dollars are going to pay for MS welfare is rediculous. Despite the sterotype that some ignorantly stand behind…. it simply isn’t the case. Things just move a little slower down in the delta.
    That’s what i was trying to slur.

  38. constantnormal says:

    “The federal government provided $131.25 of state and local aid last quarter for every dollar spent 50 years ago. For total expenditures, the second-quarter figure was only $45.75, as the chart illustrates.”

    Are these numbers in constant dollars? No? Then exactly what is being demonstrated here? Inflation or the rise in federal dominance in national spending, the federalization of Bananamerica?

    Again, more deception.

  39. DeDude says:

    That is good. You should tax globally (so nobody can hide) but administrate and spend locally (where the needs are better known).

  40. not to be, too, ‘cryptic’..

    let us forget that We pretend to be Governed by the Principles set forth, in part, here:

    “Scope and Purpose

    “The Tenth Amendment was intended to confirm the understanding of the people at the time the Constitution was adopted, that powers not granted to the United States were reserved to the States or to the people. It added nothing to the instrument as originally ratified.”1 “The amendment states but a truism that all is retained which has not been surrendered. There is nothing in the history of its adoption to suggest that it was more than declaratory of the relationship between the national and state governments as it had been established by the Constitution before the amendment or that its purpose was other than to allay fears that the new national government might seek to exercise powers not granted, and that the states might not be able to exercise fully their reserved powers.”2 That this provision was not conceived to be a yardstick for measuring the powers granted to the Federal Government or reserved to the States was firmly settled by the refusal of both Houses of Congress to insert the word “expressly” before the word “delegated,”3 and was confirmed by Madison’s remarks in the course of the debate which took place while the proposed amendment was pending concerning Hamilton’s plan to establish a national bank. “Interference with the power of the States was no constitutional criterion of the power of Congress. If the power was not[p.1510]given, Congress could not exercise it; if given, they might exercise it, although it should interfere with the laws, or even the Constitutions of the States.”4 Nevertheless, for approximately a century, from the death of Marshall until 1937, the Tenth Amendment was frequently invoked to curtail powers expressly granted to Congress, notably the powers to regulate commerce, to enforce the Fourteenth Amendment, and to lay and collect taxes…”

    too bad, We have, already forgot that the ‘Bill of Rights’ (Thank You, ‘Anti-Federalists’) was intended to Proscribe the Power of the Central Authority(Federal Government).
    “If the federal government has the exclusive right to judge the extent of its own powers, warned the Kentucky and Virginia resolutions’ authors (Thomas Jefferson and James Madison, respectively), it will continue to grow – regardless of elections, the separation of powers, and other much-touted limits on government power.”
    –Thomas E. Woods

    Index to the Antifederalist Papers

    the ‘Anti-Federalists’, even, more unknown, under loved, and ‘un- learned from’, than Bastiat (if, that was even possible~)