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What are the main sources of federal funding for states in 2025?
Executive summary
Federal grants—especially Medicaid—are the dominant source of federal funding to states in 2025: healthcare allocations are projected to be nearly 59% of federal grants to state and local governments, with Medicaid the single largest program and accounting for roughly 68.8% of federal grants to states in FY2024 reporting [1] [2]. Beyond health, major federal funding streams to states include income-security programs (SNAP, TANF), education and transportation grants, and large formula and competitive grants tied to disaster relief, defense, and infrastructure [2] [1] [3].
1. Big picture: how large a slice of state revenue is federal money?
Federal dollars are a central part of state budgets—historically about a quarter to a third of state revenue, and in many states far higher—meaning shifts in federal policy quickly affect state finances; Pew finds federal funds have at times been the largest revenue source in multiple states and that federal funding made up 40% or more of state revenue in nearly half of states in recent data [2] [4] [5].
2. Health care (Medicaid): the single largest line item
Health-care allocations dominate federal grants to states in 2025. Analyses project healthcare will represent nearly 59% of federal grants to state and local governments in FY2025, with Medicaid singled out as the largest grant-in-aid program and responsible for the lion’s share of federal aid to states—Pew reported Medicaid was 68.8% of total federal grants to states in FY2024 [1] [2].
3. Income security and nutrition: SNAP, TANF and related programs
After Medicaid, income-security programs—Temporary Assistance for Needy Families (TANF), the National School Lunch Program and SNAP—are major federal flows, comprising roughly double-digit shares of federal dollars to states in recent breakdowns; Pew cites income-security grants at about 11.3% of total federal dollars to states in its policy-area accounting [2].
4. Education, transportation, and public works: formula and competitive grants
Education (K‑12 and higher education grants), transportation (highways, transit), water and environmental projects and other infrastructure come via a mix of formula and competitive grants. These programmatic grants vary year-to-year—some cyclical or supplemental, like infrastructure packages—but remain substantial components of state federal funding portfolios [2] [3].
5. Defense, federal wages and special purpose funding: state by state variance
States that host large federal installations or defense contractors often receive high per‑capita federal dollars from defense and federal payrolls; analyses from the Rockefeller Institute and Axios note that a handful of states send more to Washington than they receive and that defense/federal employment patterns explain significant cross‑state differences in federal receipts [6] [7].
6. One-off and supplemental dollars: pandemic, infrastructure bills, disasters
Recent years’ large, temporary infusions—COVID relief, infrastructure and disaster aid—pushed total federal grants to states above $1 trillion in some years and raised the federal share of state budgets. Pew and other analysts emphasize that these supplemental flows can mask longer-term reliance and create fiscal cliffs for states when they expire [5] [8].
7. How policymakers and analysts track these flows
Nonpartisan trackers—FFIS, Pew, the Tax Policy Center, OMB tables compiled by CRS, USAspending and state-level studies—are principal sources for aggregating grants by program and state; FFIS says its grants database covers over 90% of funds to states and localities, and the Treasury/FiscalData and USAspending provide granular outlay/obligation data [9] [10] [11] [3].
8. Political flashpoints and practical impacts in 2025
In 2025 federal grant policy became politically contested: the Trump Administration temporarily froze some grant funding in January 2025, and debate over continuing resolutions, program freezes and a later 2025 shutdown disrupted SNAP and other programs—illustrating how federal action or inaction quickly ripples to state budgets and services [3] [12] [13]. Analysts warned states could face gaps because one-time COVID-era and infrastructure funds were phasing out and executive or congressional choices could curtail ongoing flows [8] [2].
9. What this means for states going forward
States heavily dependent on Medicaid and income‑support flows face the biggest exposure to federal policy changes because those programs are the single largest shares of federal grants; states with diversified revenue or large non‑federal revenue bases are less exposed, but nearly all states will feel impacts if healthcare allocations or SNAP payments are cut or delayed [1] [2].
Limitations: available sources provide program‑level shares and analyses but do not supply a single exhaustive ranked list of every federal funding source for 2025 in one table; for granular dollar-by-state, program-level outlays consult FFIS, Pew’s breakdowns, OMB tables and USAspending as cited above [9] [2] [3] [10].