Fueled by Federal Aid, State Spending Rises by Most in Decades

Fueled by Federal Aid, State Spending Rises by Most in Decades


Spending by U.S. states rose 16.2% in fiscal year 2021, the fastest pace in at least 35 years, according to a report released Friday by the National Association of State Budget Officers.

Total state spending reached $2.65 trillion last year, up from $2.28 trillion in fiscal year 2020.

The surge was driven by federal pandemic relief funds. Spending from states own funds rose by 5.7%, while spending of federal funds soared by 35.7%. States reported spending nearly $322 billion in federal Covid-19 aid in fiscal 2021, lifting the two-year total for federal pandemic aid spent by states to $427.9 billion.

“States tapped funds to pay for programs ranging from public assistance to Medicaid, transportation and education,” Bloomberg’s Nic Querolo reports. “The largest increase was in a category that includes Covid-specific expenditures such as public-health programs, unemployment insurance and emergency management. States have until the end of calendar 2024 to allocate money from their Coronavirus State and Local Fiscal Recovery Funds.”

States also saw revenues rise sharply in fiscal 2021, climbing 12.8%. That reversed a decline from the year before, the first time state revenues had fallen since fiscal 2010. Federal aid played a part in that reversal, the state budget officers’ report says:

“Several factors help explain recent improvements in states’ revenue outlooks, including: federal stimulus measures infused additional money into the economy, which helped to lessen state revenue losses; high-income earners have been relatively insulated from the COVID-19 pandemic’s economic effects, which has limited impacts on personal tax collections; the types of consumption most curtailed by the pandemic comprise a relatively small portion of states’ sales tax bases; and the greater ability to tax online sales following the Supreme Court’s decision in Wayfair v. South Dakota. Fiscal 2021 revenue collections were also impacted by the shifting of the 2020 tax deadline from April 15 to July 15.”