What happens in Washington impacts Pennsylvania, from state to local governments, and from the Governor to individual citizens. It's an alliance worth monitoring and nurturing, for a whole lot of reasons.

(May 2006) The federal government plays a big role in how policies are developed and implemented in Pennsylvania. For example, the federal No Child Left Behind law has a lot of influence over what public schools teach and who teaches it. State participation in the federal Medicaid program has had a profound impact on state budgets in every state. And where federal facilities are located can be an economic boost to states and regions.

So it’s obvious – state and local governments must pay attention to what’s going on in Washington.

How does Pennsylvania fare?

The federal government sends over $2 trillion back to states each year in the form of grants, program payments, salaries and more – about $7,223 per person. Pennsylvania bettered that return by getting $94 billion or $7,649 per person. This total also exceeds the amounts received by all but two states comparable to Pennsylvania. That sounds like a good deal for taxpayers until you look behind the numbers.  For more detail, see the IssuesPA Scorecard.

Pennsylvania’s better-than-average return on investment in the federal government is due mainly to its high ranking for direct payments to individuals (such as Social Security, federal pension) – three-fifths of the total received. Pennsylvania ranks behind only North Dakota, West Virginia, and South Dakota in this category. Florida is just behind Pennsylvania.

What do these states have in common? The elderly represent a higher than average portion of their populations, and the vast majority of direct payments are Social Security and Medicare. For these two programs only, Pennsylvania receives the second highest per capita, trailing only West Virginia.

Pennsylvania ranks 19th for grants to state and local government. Nationally, 58% of these funds come from the Department of Health and Human Services and the majority of that money is from the Medicaid program. Grants from the Department of Transportation account for 10%. Formulas drive most of this money.

Pennsylvania does less well among states receiving money through procurement contracts and salaries and wages of federal employees -- 16% and 10% of the total federal spending respectively.

So is there a lot of federalism in the state budget?

A fair amount. Pennsylvania spent over $41 billion from its General Fund in Fiscal Year 2004-05. While most was from state revenues, more than a third – or $15.8 billion – was money flowing from the federal government. Almost every state department received at least some federal funding.

Almost three-fourths of all federal funds pass through the Department of Public Welfare. Not surprisingly, based on the national distributions cited above, Medicaid is by far the biggest user of federal funding. About half ($7.6 billion) of all federal funding received by Pennsylvania’s state government went to the state’s Medical Assistance program (Medicaid) in 2004-05. Cash assistance to low income people totaled the second highest amount ($1.4 billion), with children the largest number of recipients.

The Department of Education processed the second largest amount, receiving federal funds for a variety of purposes. Most funding supported Title I programs (reading and math support), special education, and food and nutrition. Other major state-administered functions using federal funds include workforce investment, public health preparedness and preventive health, domestic preparedness, children’s health care insurance, elections, abandoned mine and other environmental functions, crime and delinquency, and community programs. For more detail, see the IssuesPA Scorecard.

Federal, state and local governments – who’s left holding the bag?

The availability of federal funds is often a double-edged sword. On one hand, $15 billion is a lot of money to add to your budget, especially if it pays for functions the state probably would perform anyway. On the other hand, federal funding often comes with strings attached, strings which dictate how the money must be spent.

What raises bigger concerns is the size of the bag state and local government is left holding. For example, in education much of special education spending requirements are rooted in federal law. While the federal government contributes a portion of the cost to comply with these requirements, state and local governments pay the vast majority of costs.

Similarly, complying with Medicaid requirements is expensive. It gets even more expensive when costs accelerate dramatically and, concurrently, the federal government reduces its share.

Bottom line? Policy redirection at the federal level invariably will have strong implications for state and local policies – and, ultimately, spending levels. It’s worth repeating – pay attention to what’s happening in Washington.