Utah’s Fiscal Dependence Upon the Federal Government

In a report published last year, a firm of accountants analyzed the degree to which states have become financially dependent upon the federal government. The report’s authors found, using audited financial reports from 2010, that “the percentage of total state revenues sourced directly from the federal government averages 40 percent.”

Touted as a limited government state, Utah came in 14th in the list—45.3% of its total state revenues coming from the federal government, far more than such big government states as New York and California. When totaling indirect and direct federal dollars coming from the feds to Utah, the total amounts to 25.2% of the state’s gross domestic product (GDP).

A 2011 financial report produced by the federal government states that “there is little question that current fiscal policies cannot be sustained indefinitely.” The Comptroller General similarly said in the report that “the current structure of the federal budget is unsustainable over the longer term.”

Once known for its self-reliant, industrious, and independent people, Utah has become somewhat indistinguishable from other states who similarly feed at the federal trough. Unwilling to make hard decisions that would cut funding for popular programs, elected officials in the state have historically tolerated if not openly cheered the diversion of tax dollars to state coffers.

Of course, it is problematic for a people to expect more from their government than they are willing to expect from themselves. According to one study, “Nearly 44% of American households are one emergency away from financial ruin.” The same may hold true for state departments and agencies whose funding is heavily subsidized, directly or indirectly, by the federal government. (Though unlike individuals, the state claims the authority to be able to force others to bail it out by imposing more taxes.)

Elected officials in Utah have expressed a desire to see things improve. The Senate President, House Speaker, and State Auditor jointly authored an op-ed calling for “fiscal responsibility in an era of federal irresponsibility.” Several bills in the most recent legislative session were drafted to better work toward that end, all of which passed.

In the 2011 session, Rep. Ken Ivory sponsored a bill, later signed by the Governor, which required certain state agencies to disclose how much money they were receiving from the federal government, and how their budget would be impacted by both a 5% and 25% reduction in those federal funds. The resulting report in December 2011 to the Executive Appropriations Committee details the degree to which these agencies have profited from taxpayer dollars funneled through the federal government. $5 million for agriculture, $111 million for human services, $17 million for the environment, $50 million for community and culture, $38 million for natural resources, $466 million for education, $259 million for transportation, $613 million for workforce services, and a staggering $1.5 billion for health—these and a lengthy list of other agencies and government programs are heavily reliant upon Washington, D.C. When combined, these specific agencies would lose out on $800 million in federal dollars under a 25% reduction in funds. It takes little imagination to ponder the wailing and gnashing of teeth (and calls for increased taxation to compensate) that would accompany such a cut.

While we applaud efforts to help the various agencies and departments of Utah’s government prepare for a potential reduction in federal funds as part of their budgets, we nevertheless feel that this conversation is superficial at best. It is important to contemplate how state operations will be impacted by a significant reduction in such funds, but it is better to address whether the programs and policies supported by this redistribution of wealth should be occurring at all. Unfortunately, that is a conversation few politicians in Utah seem willing to have.

Budget concerns provide an opportunity to have a broader discussion about what the money is being spent on, and if it is necessary at all. The primary factor in any discussions regarding management of the budget should consider this fundamental point, rather than simply determining how the status quo will be maintained, or funding increased. Of course, government officials are incentivized to protect their own interests and those of their associates, therefore one can rarely count on deferential lawmakers to make steep cuts. Only a groundswell of taxpayer opposition can effectively accomplish such sweeping change in government. Despite the mythical perception of Utah representing limited government and self reliance, this state does not appear to be home to such a movement—yet.