Federal Funding in Local Communities: Understanding the Impact

Considering the recent OMB memorandum “Federal Funding Freeze,” and the continuing claw back of federal funds from the administration, there has been much discussion over the benefits these funds provide. While most of the talks have taken place over larger institutions such as universities or medical centers, what about our own hometowns?  Often overlooked, these federal funds heading towards state and local governments have huge impacts in local communities.  

The federal government spent about $6.8 trillion in Fiscal Year 2024, with approximately $1.1 trillion of those funds allocated to state and local governments. While this was a 1.6% decrease from Fiscal Year 2023, the percentage administered to state and local governments has generally trended upward. While 16.2% of the budget going to state and local governments is in line with the annual averages, it is still a surprisingly high percentage of the total budget. So, where do these funds go, and how do they impact local governments and their respective communities? 

Healthcare: 

By far, the biggest impact that federal funds have on our local communities is through healthcare. While the exact figure varies, the Congressional Budget Office estimates the federal government spent just over $600 Billion on state-administered Medicaid and Children’s Health Insurance Program (CHIP) services.  

Highways: 

Federal funds have impacted and improved local communities’ roads and highways, with over $50 billion administered in 2024. The vast majority of that comes from the Highway Trust Fund; however, certain federal grants, such as Safe Streets and Roads For All, also contribute. 

Income Security: 

Income Security programs account for a vast amount of federal dollars transferred to state and local programs, with over $160 billion going to those programs. This includes programs such as Temporary Assistance for Needy Families and Tenant-Based Rental Assistance, among many others. 

Education: 

In 2024, approximately $65 billion was administered via federal funding to impactful state and local government educational programs. These include programs such as the Individuals with Disabilities Education Act and Career and Technical Education Grants, among others. 

While these four categories make up the largest chunks of the federal budget administered through state and local government programs, there are many more unlisted that are impactful to local communities. Despite a general trend upward over the last 20 years in the total federal funds administered through state and local government programs, drastic changes in the federal funding landscape place some of these programs at risk. While it has yet to be determined how these program changes will eventually impact local communities, state and local governments will have to quickly evolve to newly shifted priorities to maintain positive services for their communities.