The Impact of Federal Transfers on State and Local Spending

Executive Summary

Executive summary

National, state and local politicians often boast to their constituents about federal funds secured for their state or local communities. “Bringing home the bacon,” it’s called. Likewise, local governments routinely lobby for increased federal monies for local projects.

Nothing, however, is ever “free.”

In 2012, Nevada state and local governments secured $3.6 billion from the federal government for a variety of projects and programs. Then, for each dollar Nevada taxpayers saw from the federal government, they also saw a $0.56 increase in new taxes, fees and other state and local revenue collection. In most other American states the rate of tax increase was even higher — averaging from 74 to 88 cents.

In other words, as lawmakers have successfully milked Washington, D.C., for allegedly “free” money, taxpayers in Nevada and all across America have watched an accompanying “ratcheting” effect drive up the costs of their state and local governments. 
Hypothetically, a 10 percent increase in federal transfers to Nevada would amount to about $360 million more money to the state. Actually, however, it would be associated with approximately $200 million more in spending from state and local sources — translating into an additional $70 per person in taxes and charges.

Almost certainly, more such tax increases are in Nevada’s pipeline. That’s because of the Obamacare Medicaid expansion that Nevada’s governor and legislature embraced when the federal government promised short-term increases in associated federal grants.

The late economist Milton Friedman titled one of his books “There’s No Such Thing as a Free Lunch.” How wise he was.

Download file The Impact of Federal Transfers on State and Local Spending