States Addicted to Federal Spending? Rhetoric Against Spending Far From Reality

April 14, 2011— -- As debates over the budget and the deficit escalate and the small-government, cost-cutting Tea Party gains more clout in Washington, federal programs are coming under fire. But at the same time, federal dollars increasingly are in demand, according to an ABC News analysis.

For all the rhetoric against federal spending and encroachment on states' autonomy, governors rely heavily on federal funds, especially given the weak economy. Not one governor turned away all the federal stimulus money offered to their states and, despite opposition to the Democrats' health care plan, governors continue to take in the money that law allocated.

Sen. Rand Paul, R-Ky., founder of the Senate Tea Party caucus, has advocated for the abolishing of the Department of Education. But doing so could have heavy consequences for the Bluegrass State. Federal funds accounted for about 20 percent of public school funding in fiscal year 2010, according to the Kentucky Department of Education, and cutting the department could take away more than $1 billion from Kentucky's schools.

Even in other areas, Kentucky is heavily dependent on federal funds, even though Paul and the state's other outspoken Republican, Senate Minority Leader Mitch McConnell, have railed against government spending.

Per capita federal spending amounts to more than $11,500 in fiscal year 2009, making Kentucky the 12th-ranked state for dependence upon federal funds, according to the Census bureau.

Other conservative states whose leaders have assailed federal money also rely heavily on dollars from D.C.

Arizona, facing a projected budget shortfall of $763.6 million in fiscal year 2011, plans to use $101 million from federal funds to overcome part of that deficit, even though Gov. Jan Brewer has railed against the "fiscal manipulation" and interference of the federal government that she says is enroaching on Arizona's rights.

Texas Gov. Rick Perry has led Republican governors in denouncing what he says is federal government stepping on state sovereignty, even going as far as to suggest Texas independence. But the state, despite its oil and state industry, is dependent on federal funds, given its $23 billion deficit.

Texas took more than $12 billion in stimulus funds alone in 2010. Appropriated federal funds for 2010-2011 year jumped 19 percent from the previous year.

Federal dollars make up about one-third of the state's budget, and in 2009, Texas received more than $35 billion from the federal government, second only to California and New York. In 2010, that figure jumped to more than $40 billion because of stimulus funds, which Perry said he opposed.

Even as voices against federal spending grow louder, states are more heavily relying on federal funds, given their own tight budgets.

In 2008, federal funds accounted for about 26.3 percent of state government spending, according to the National Association of State Budget Officers. In 2009, that figure jumped to about 30 percent and in 2010, to 34.7 percent, because of Recovery Act funds.

Today, through about 1,200 grant programs, the federal government allocates about $600 billion annually to states, representing close to one-third of the typical state's budget, including Republican-leaning ones like Texas and Tea Party-heavy states like Arizona and Oklahoma.

"The number of grants and dollar amounts have generally risen over the years," said Richard Cole, a professor at the University of Texas at Arlington.

At the same time, the proportion of money that states give back to the federal government in the form of taxes relative to what they get in return has shrunk. Virtually all states -- whether red or blue -- get more than $1 per capita back for every tax dollar paid to Washington, D.C.

Conservative lawmakers acknowledge that the reality and rhetoric may not match each other all the time, but argue that given the hefty federal budget deficit, it's time to cut spending, even if that means less money for states.

"When you start cutting, everybody says ... 'Don't cut you, don't cut me, cut that guy behind the tree,' and that's where everybody is on this issue," GOP Rep. John Carter of Texas, whose district includes Ft. Hood, told ABC News. But "I believe, very honestly, we are going to wake up one day if we don't address this issue and the cuts are going to be the smallest problem we have."

The Tea Party momentum has pushed lawmakers to ratchet up rhetoric against government spending. But outside of Washington, it remains to be seen how cutting programs will be received by the public.

Despite calls to cut spending, most Tea Party activists are against cutting the defense and military budget, one of the heaviest expenses incurred by the U.S. government.

Virginia, for example, represents only about 2.5 percent of the country's population but receives nearly 5 percent of total federal spending because of the slew of military bases.

Many say that figure, despite being disproportionate, is justified because of defense.

"I support spending cuts to live within our means, but I'm not going to cut off my nose to spite my face," said Daniel Cortez, a Tea Party activist in Virginia and member of the Prince William Tea Party.

Federal funding to states is expected to taper off with the end of the stimulus program and pressure on lawmakers to eliminate earmarks and rein in the deficit.

If the rhetoric on Capitol Hill calling for spending cuts translates into action, observers say, grant money to states could decline for the first time since President Reagan's era.

"Not only will grant funding decline -- led by the cessation of additional Medicaid funding -- but procurement and salaries could also take a hit," according to a Census bureau report.

On the one hand, it would ease up the burden of federal mandates on states. On the other hand, it could be financially even more cumbersome for states that are embroiled in a fiscal crisis, experts say.

Many Republicanrs "are not happy with the increasing number of mandates attached to the programs. If the federal government actually does reduce its budget seriously, the dollars available to state and local governments through the grant programs will probably decline proportionally," Cole said. "The concern is that, freed from federal oversight, states' policy simply would not be adequate to the need."

That decline would have even more of an adverse impact on local governments that stand to lose both federal and state dollars, he added.

Republicans argue that the cuts are needed to stop the country from drowning in debt.

"We've gotten a psychological attitude that Santa Claus lives in Washington, and he's going to dole out money to everybody and every project, including the states," said Carter, a member of the House Appropriations Committee and the House Tea Party Caucus. "Some states are hooked like heroin on that one. Some states aren't, and that's part of the painful process we've got to go through.

"You have to look your state legislatures in the eye," Carter added, "and say, 'Santa Claus died. He's not giving you any money on that issue.'"

ABC News' Amy Bingham and Kristina Bergess contributed to this report.