Elon Musk and Vivek Ramaswamy were tasked by President-elect Donald Trump to lead an effort to find and cut federal spending. One budgetary item impacting all 50 states are federal dollars transferred to state budgets to spend implementing parts of federal entitlement programs Medicare and Medicaid, disperse federal law enforcement grants to state and local law enforcement agencies for training, equipment, apply Environmental Protection Agency project grants, implement discounted and free public school lunch programs, etc. Each state government employs and pays people to administer, transfer and spend these federal dollars for these federal programs.
The state of Texas government does budgets biennially and not annually. Thirty-two percent of the projected 2024-2025 state of Texas biennial budget is receiving federal tax dollars to implement numerous federal programs in the state. The budget report pie chart is shown below.
Roughly 39 percent of the 2020-2021 and 37 percent of the 2022-2023 state of Texas budget was projected federal tax dollars received to implement numerous federal programs in the state. The budget report bar chart is shown below.
Roughly 34 percent of the 2018-2019 and the 2020-2021 state of Texas budget was projected federal tax dollars received to implement numerous federal programs in the state. The budget report bar chart is shown below.
The 2020-2021 biennial federal percentage is high from coronavirus money sent to the state and the federal percent dropped in the 2022-2023 and 2024-2025 budget cycle as federal coronavirus money decreased over time.
The percentage of each state’s annual budget from federal dollars received varies. Some states participate in the federal Medicaid program and must provide a percent match from their state treasury in order to receive federal dollars. If the federal Medicaid dollars cease then the state money match moves to zero.
One overlooked budget impact if any federal spending is cut from the Musk and Ramaswamy effort, Congress passes legislation followed by a President Trump signature is federal spending that goes to state budgets, which would decrease accordingly. The downstream impact will be real and its magnitude will vary per state. Fewer state employees, reduced state government financial dependency on federal program dollars could mean greater freedom in daily life for many state residents.
Many state government budget officials and accountants are annually lulled to sleep by the almost automatic yearly federal dollars transferred to implement federal programs. If these annual federal dollars fly away then federal programs in states will flee in time and state taxpayers are subject to less fleecing.
The five most recent consecutive state of Texas biennial budget charts show its addiction to federal tax dollars being injected into its budget bloodstream at a minimum of 32 percent per year. Weaning almost one-third of your state biennial budget from federal dollars is not easy and budget detoxification will be painful in the short term. In the long run, this should lead to fewer state of Texas employees and lower expenses, benefitting the state’s taxpayers and economy to better allocate tax revenue into the pockets of its residents.
This annual budget adjustment downward in other states from possible future reduced federal funding will differ and benefit that state’s residents. This possible future state budget reality in our lifetime seems too good to be true.
