10 States Most Dependent on the Federal Government

Newly redesigned $100 notes lay in stacks at the Bureau of Engraving and Printing on May 20, 2013 in Washington, DC. The one hundred dollar bills will be released this fall and has new security features, such as a duplicating portrait of Benjamin Franklin and microprinting added to make the bill more difficult to counterfeit. (Photo by Mark Wilson/Getty Images)

Newly redesigned $100 notes lay in stacks at the Bureau of Engraving and Printing in Washington, DC – Mark Wilson/Getty Images

The true genius of America’s political organization lies partially within the way the states and the federal government form a cohesive bond. Essentially, the states themselves act as individual laboratories, all separate and able to take self-direction and action, yet all tied together under a unified central government.

Individuals in each city, county and state are free to elect their own representatives, whether to local governmental bodies or federal ones. In this way, we are all able to get a glimpse into how competing ideologies or methodologies for governance work for different groups of people in different situations, and cherry pick from a variety of different perspectives.

As a result, each state has a certain amount of natural competition with its counterparts. States compete with each other in order to attract businesses and investment dollars, for example, or to attract students to their universities. However, given the major demographic, economic, political, and geographical differences between different states, some carry unique burdens while others have unique advantages. Border states, for example, are much more concerned with immigration policies than central states are, and Gulf Coast states are much more concerned with the health and viability of the Gulf of Mexico than those located in the northeast, who may be more concerned about political tensions with Europe and Canada.

Because of differences like these, as well as differences in policy and fiscal decisions, states depend on support from the federal government to vastly different degrees. The folks at WalletHub assumed the burden of digging into the data to find out definitively which states lean the most-heavily on Uncle Sam for support. For more on their methodology, please read on through the last page.

Per WalletHub’s research, here are the ten states that depend the most upon the federal government.

Source: Justin Sullivan/Getty Images

A banner hangs in a Maine restauarant – Justin Sullivan/Getty Images

10. Maine

  • Return on Taxpayer Investment: $1.58
  • Funding as Percentage of Revenue: 35.42
  • Federal Employees Per Capita: 8.73

Maine is one of two Democratic-leaning states to appear on the list, though it arrives mainly due to the same reasons the other states do. Maine is a border state, and has a low population. Being a border state, Maine requires federal funding for securing the border itself, yet it’s also adjacent to the Atlantic Ocean, which requires funding for ports and maritime infrastructure. The U.S. Coast Guard and Navy both have a presence in the state, also on Washington D.C.’s payroll.

In essence, the combination of a low population and the need to fund infrastructure and border-control projects helps make Maine one of the country’s most federally-dependent states in the country.

Source: Scott Olson/Getty Images

An old, isolated home stands in a South Dakota field – Scott Olson/Getty Images

9. South Dakota

  • Return on Taxpayer Investment: $0.80
  • Funding as Percentage of Revenue: 39.78%
  • Federal Employees Per Capita: 8.69

South Dakota is home to some of the poorest counties in the nation. It also plays host to large amounts of Native American land, and some of the country’s most spectacular national parks and monuments. For a state with such a low population, those two factors alone can quickly skew the numbers. There is also a large military establishment near Rapid City, Ellsworth Air Force Base, which provides federal jobs to many servicemen and women.

These major factors — Indian reservations, national parks, and a military presence — coupled with a low population state wide, play a big part in making South Dakota appear to be heavily-subsidized by the federal government.

Source: Mario Villafuerte/Getty Images

Men fish on the Louisiana coast – Mario Villafuerte/Getty Images

8. Louisiana

  • Return on Taxpayer Investment: $1.37
  • Funding as Percentage of Revenue: 42.21%
  • Federal Employees Per Capita: 8.4

Louisiana has shown some real resiliency over the past year, climbing from the number four spot to number eight on 2015’s list. States along the Gulf Coast are susceptible to many things others states don’t have to deal with. For example, Louisiana does provide the federal government with substantial tax revenues from the off-shore drilling industry, but is also in harm’s way when it comes to devastating natural disasters, like Hurricane Katrina. Many parts of the state have yet to recover, and lots of citizens were displaced as a result.

The state also has lots of infrastructure to maintain, as it is a rather complicated engineering feat to keep cities like New Orleans from ending up under water. There are also a lot of socio-economic issues that Louisiana has to deal with, as the state has the second-highest poverty rate in the country.

Source: Scott Olson/Getty Images

The U.S-Mexico border – Scott Olson/Getty Images

7. Arizona

  • Return on Taxpayer Investment: $1.47
  • Funding as Percentage of Revenue: 36.26%
  • Federal Employees Per Capita: 9.34

The southwestern state of Arizona — up three spots on this year’s list — has several big reasons that play into its dependence on federal money. For one, the state is situated right on the Mexican border, and has become a hotbed of illegal immigration and drug activity. Thus, the state receives a lot of funding for border control and drug enforcement causes from the federal government. Arizona is also home to some of the biggest Indian reservations in the country, which receive money from the government but remain sovereign and autonomous in their own right.

The state is also home to lots of federally-controlled land — including national parks like the Grand Canyon — which are unable to be developed for commercial use. There is an opportunity cost to preserving those lands which can’t be overlooked, particularly from an investment standpoint, as there are potentially millions or billions in natural resources that are being left in the ground.

Source: Jeff Swensen/Getty Images

A coal mining and production facility in West Virginia – Jeff Swensen/Getty Images

6. West Virginia

  • Return on Taxpayer Investment: $1.91
  • Funding as Percentage of Revenue: 34.91%
  • Federal Employees Per Capita: 8.91

Up two spots this year is West Virginia, located in the heart of Appalachia, and populated by an increasingly conservative-leaning voter base (though that wasn’t always the case). Due to its relatively low population — totaling less than 2 million residents — there is not an incredible amount of tax dollars flowing to Washington D.C. from West Virginia to begin with. Obviously, that can skew things right from the start.

West Virginia’s residents are also some of the country’s most impoverished. Many people earn low wages, work dangerous jobs, and are forced to handle  a rather difficult socio-economic environment. For this reason, lots of aid in the form of government assistance is returned to West Virginia residents. The land is rough and the people are tough, but West Virginia does end up on the receiving end of more federal tax dollars than they put in.

Source: Don Emmert/AFP/Getty Images

The misty Rocky Mountains in Montana – Don Emmert/AFP/Getty Images

5. Montana

  • Return on Taxpayer Investment: $1.24
  • Funding as Percentage of Revenue: 37.49%
  • Federal Employees Per Capita: 13.51

States out west get a rough shake from the federal government, as seen previously with Arizona. Montana is one of those states, but doesn’t have the advantage of a relatively high population or major cities that Arizona does. In fact, the state’s largest city is Billings, with a population of roughly 165,000 — around 1.3 million less than Phoenix.

Montana sits on the Canadian border, requiring federal funding to remain secure, and is also home to some of the country’s most incredible national parks, like Glacier National Park. There are huge amounts of federally-controlled land and a handful of considerably large Indian reservations that take in federal dollars. A number of factors play into Montana’s current state of being, but freeloading residents don’t appear to be one of them. All told, Montana is up one spot in this year’s rankings from 2014.

Source: Justin Sullivan/Getty Images

People march on the Edmund Pettus Bridge in Selma – Justin Sullivan/Getty Images

4. Alabama

  • Return on Taxpayer Investment: $2.46
  • Funding as Percentage of Revenue: 36.64%
  • Federal Employees Per Capita: 10.36

Another state located along the Gulf Coast, Alabama is one of the deepest-red, yet also one of the most poverty-stricken in the nation. The state is home to five military bases, and a major port city in Mobile. Alabama is also ranked highly in terms of it’s population of the economically-disadvantaged, with some reports pegging it as high as the sixth-poorest in the nation.

With a poverty-stricken population, many people are not able to pay much — if any — in taxes, and tend to get substantial government assistance. There are a lot of reasons that Alabama has reached its current situation, and that has led to the state is highly dependent on Washington at the current time.

Source: Mario Tama/Getty Images

A boy plays with toys at table in his Kentucky home – Mario Tama/Getty Images

3. Kentucky

  • Return on Taxpayer Investment: $2.18
  • Funding as Percentage of Revenue: 35.26%
  • Federal Employees Per Capita: 15.38

Kentucky is a newcomer to the list this year, having not been in the top ten in 2014. Having seemingly supplanted its neighbor, Tennessee, Kentucky residents have a tough go in terms of socio-economic conditions, particularly in the rural eastern part of the state. There are some large cities, like Lexington and Louisville, that have plenty of successful businesses and wealthy residents, but many of the state’s citizens still lag well-behind, as evidenced by the the leaps in the poverty rate over the past few years. That, naturally, leads to high levels of government assistance to those in need.

Also of note, there are several military bases and installations in Kentucky that employ thousands, as well as portions of government-controlled land that require federal funding. Not to mention Fort Knox.

Source: Mario Tama/Getty Images

Oil tankers move up a Mississippi river – Mario Tama/Getty Images

2. Mississippi

  • Return on Taxpayer Investment: $2.34
  • Funding as Percentage of Revenue: 43.68%
  • Federal Employees Per Capita: 10.61

Along with its neighbors Louisiana and Alabama, Mississippi is heavily-dependent on federal dollars. So much so that WalletHub’s calculations placed them at the top of the list for the most dependent on Washington for subsistence in 2014, and in second place this year. Mississippi suffers from some serious socio-economic issues, including having the highest poverty rate and one of the lowest income rates in the country.

These are problems that have plagued the state for a long time, and there doesn’t appear to be any hope for change in the near future. There are a few things that capture federal funding that add to the state’s total, including several military bases, but the major issue appears to be the lack of jobs and opportunity suffered by the state’s citizens. Natural and man-made disasters in the Gulf of Mexico haven’t helped either.

Source: Andrew Lee/U.S. Air Force via Getty Images

A UAV is guided into a hangar – Andrew Lee/U.S. Air Force via Getty Images

1. New Mexico

  • Return on Taxpayer Investment: $2.19
  • Funding as Percentage of Revenue: 37.89%
  • Federal Employees Per Capita: 18.5

New Mexico is 2015’s most dependent state on the federal government, but that’s not without good reason. New Mexico shares a lot of the same issues that its neighbor Arizona does: it’s a border state — with a lot of immigration issues to tend to — and one that houses a lot of federally-controlled land.

There are also some major science and military installations that call New Mexico home, including the White Sands Test Facility and Los Alamos National Laboratory, both requiring substantial federal funding. Add on to that a handful of military installations as well. Large portions of the state are also designated as Indian reservations, placing an even greater amount of federal dollars in New Mexico’s jurisdiction.

Methodology

WalletHub takes the three following metrics into account to develop their methodology, and assigns a specific weight as such to develop their rankings:

  • “Return on Taxes Paid to the Federal Government – Weight: 1
    (Federal Funding in $ / Federal Income Taxes in $) This metric illustrates how many dollars in federal funding state taxpayers receive for every one dollar in federal income taxes they pay. We have excluded from the Federal Funding the Loans/Guarantees component because it does not represent permanent transfers from the Federal Government to a state.
  • Federal Funding as a Percentage of State Revenue – Weight: 1
    (Federal Funding in $ / State Revenue in $) * 100 This metric shows how much of a state’s annual revenue, and theoretically its spending, is provided by the federal government. Without this money, revenue would have to be found elsewhere – perhaps via tax hikes – or else key state services would suffer.
  • Number of Federal Employees Per Capita – Weight: 0.5
    (No. Federal Workers / No. State Residents) This metric speaks to the federal government’s role as a nationwide employer, indicating the percentage of a state’s workforce that owes its very livelihood to Washington.”

The inevitable conclusion that WalletHub arrives at by weighing these factors? That blue states — or those that tend to vote more democratic during the 2012 presidential election — are far less dependent on the federal government. This makes it easy for those with competing ideologies to point and say “see, I told you so” in response to WalletHub’s findings, but the truth truly does lie in the details.

There are a multitude of factors that are not taken into account that have a real-world effect on the states as well. For example, illegal immigration, border control costs, transportation and infrastructure costs all require that states receive large amounts of funding from the federal government, which could skew the results.

Also, for some states, Indian reservations, military bases, highway funds, national parks, non-productive federal land, and large populations of retirees also play an important role. It’s also important to note that states with higher populations — like California and New York — will tend to get more federal funding, as it will be needed to go towards infrastructure and other essential societal needs.

This can easily boil down into an argument between blue and red states, or liberal and conservative ideologies. But the fact is that it goes deeper than that. Most states have not always been deeply entrenched in one side or the other for their entire history. Many southern states used to lean towards the democratic party decades ago, and have seen ideological changes more recently.

The truth is, it’s difficult to paint an accurate picture of an entire state’s financial state with this amount of data, and there are a lot of things not taken into account. It’s both unfair and inaccurate to paint the citizens of any one state as ‘moochers’ or ‘freeloaders’ based on this data, as several factors play heavily into the circumstances individuals face across the country.

Follow Sam on Twitter @SliceOfGinger

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