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Blue-State Benefits: How Federal Grants Fail to Consider Population Shift

Perspectives on Opportunity

October 12, 2023

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Abstract The federal government annually awards hundreds of billions of dollars in grants to states. In this report, I examine funding for the largest federal grant programs for 2020–22, focusing on grants-in-aid that do not fully adjust for population change. For states losing population, I calculate “avoided reductions,” the difference between the grants a state received in 2022 and what it would have received had grant funding been reduced proportionate to population loss. I find that the sums of avoided reductions differ greatly among states, with California, Illinois, and New York spared the most.

Every year, the federal government distributes grants to states for some 1,274 programs, including programs that serve some of government’s most important purposes: public education, income support for the poor, highway maintenance, nutritional assistance for new mothers, and health insurance for low-income households (Lawhorn 2019, 10–11, Table 4). Such grants-inaid reflect the belief that communities of differing fiscal capacities—that is, poor and not—should be able to provide vital services for their citizens. Such grants, not surprisingly, vary by state. States with larger populations receive larger grants; the opposite is also true, although some programs guarantee a minimum for any state, no matter its size. What’s more—as common sense would dictate—when a state’s population declines, that may influence the magnitude of the federal aid it receives.

This approach mirrors representation in Congress; because the total number of seats in Congress is capped (at 435), when a state loses population, it can lose congressional seats. Indeed, in light of the 2020 federal census’s findings, California, Illinois, and New York each lost population and one seat in Congress. Because of population gains, Colorado, Florida, Montana, North Carolina, and Oregon each gained one seat; Texas gained two seats.

In contrast, some major federal grant programs do not consider population change—or do so only slowly. That can mean less aid for states with growing populations and a larger share for states with falling populations whose public policies may encourage out-migration. What’s more, this is not just a theoretical possibility. Over the past few years—and especially in the aftermath of the COVID pandemic—the US has seen major population shifts, to an extent not fully clear until after the most recent federal decennial census. Lag in adjustments based on population and grants fixed at historic dollar levels can shield states that have shed population from out-migration’s effects, at least those related to federal assistance.

This report reviews the 12 largest federal grant programs and the extent to which they adjust, expeditiously or at all, for population change. In addition, it calculates how much states with declining populations— including California, Illinois, and New York—would have seen federal assistance reduced if budget levels had reflected their population decline. The report concludes that some states with large but declining populations are disproportionately buffered from the effects of that decline and, as a result, receive increasing per capita assistance, notably cash public assistance. The annual “avoided reductions” are not large, to date, but will over time mount up, absent a stronger tie between assistance and population.

Here follows discussion of (1) program-by-program aid formulas and how they do or do not reflect population change; (2) population trends by states; (3) per capita changes in federal aid for the largest income aid program for the indigent, Temporary Assistance for Needy Families (TANF); (4) an overall sum of what I call avoided reductions in aid, defined as reductions that would have occurred if population declines were considered for select programs; and (5) further details on small-state minimums, which inflate the grants that low-population states receive.