July 1, 2024
In its seventh annual analysis, the Rockefeller Institute of Government examines the amount of Federal funding that every state generates and receives and the respective net difference between the two, referred to by the late Senator Daniel Patrick Moynihan as a state’s balance of payments. This report strives to shed light on both the source of these differences and how they have changed over time.
The Rockefeller Institute’s annual balance of payments analysis is designed to aid policymakers as they deliberate whether there is too much redistribution of funding or too little. The consequences of budgetary decisions can have a profound impact on the economies of their states and the lives of their constituents. This report presents detailed preliminary estimates of revenue and spending data for Federal fiscal year (FFY) 2022 and revised estimates for FFY 2021.1 While the analysis presented herein is national in scope, it places the focus squarely on New York.
As speculated in last year’s report, the results of this year’s analysis for FFY 2022 represent a dramatic break from the prior two years. With a net negative total dollar balance of payments (BOP) of $19.4 billion, New York’s ranking relative to other states dropped 41 places from fifth most favorable based on revised estimates for FFY 2021 to 46th for 2022, four rungs above the state’s pre-pandemic place as worst in the nation. On a per capita basis, New York’s BOP fell from a net positive $7,750 and $6,178 in 2020 and 2021, respectively, to a net negative $984 in 2022.
The results for 2020 and 2021 confirm that the Federal emergency spending programs designed to address the economic impact of COVID-19, comprised in large part of direct payment to individuals, represented a more equitable distribution of aid—one more commensurate with the size of the state’s population and need—than those that have been used in the recent past. However, the 2022 results confirm that the auspicious impact of these programs proved to be only temporary. New York’s negative balance of $19.4 billion put the state among the ranks of the 11 states estimated to be posting negative BOPs for 2022 based on preliminary data.
The 2022 shift is largely rooted in the evolving fiscal impact of COVID-19. To address the impact of the pandemic on the national economy, the Federal government authorized spending programs totaling $2.3 trillion in FFY 2020 and another almost $3 trillion in FFY 2021.2 Expenditures under these programs are estimated to have totaled $1.6 trillion and $1.7 trillion for FFY 2020 and FFY 2021, respectively. These Federal programs were designed to disburse the largest sums of relief funding to the states with the greatest volume of need, resulting in a singularly large share of the funding going to the most populous states in both years.
As a direct consequence of the design of these programs, New York’s net BOP position ranked fifth most favorable for both FFY 2020 and FFY 2021. This was a monumental improvement from its rank of 50th for every year for which the Rockefeller Institute had conducted this analysis prior to FFY 2020, starting from FFY 2015. Even on a per capita basis, FFY 2020 and FFY 2021 represented the only years for which New York did not rank among the bottom five states in the history of the Rockefeller Institute’s analysis.
With the widespread distribution of vaccines and the most harrowing days of the pandemic behind us, the economic impact of the pandemic receded and the Federal spending that kept much of the economy afloat in 2020 and 2021 began to wind down. COVID-19 emergency relief spending fell to an estimated $391 billion in FFY 2022, a reduction of almost $1.4 trillion from 2021, based on preliminary data. In turn, the Federal budget deficit narrowed by $1.4 trillion in 2022, signaling a return to prepandemic fiscal trends, with New York accounting for a disproportionately high share of Federal receipts and a falling share of Federal expenditures.
Thus, FFY 2022 appears to represent the start of a return to business as usual for both US fiscal policy and New York’s net balance of payments position. Key findings from this year’s report include:
The extraordinary size and impact of Federal COVID-19 emergency spending lead us to examine New York’s evolving balance of payments position both with and without the approximately $3.7 trillion estimated to have been spent over three fiscal years. This analysis highlights the extent to which 2022 looks more like 2019 than either 2020 or 2021. Of the funding authorized under the six major COVID-19 emergency spending bills and spent in 2020 and 2021, New York received a percentage allocation above its population share, indicative of the state’s disproportionately severe level of need at the height of the pandemic.4 But with the winding down of pandemic-related spending, New York’s share of Federal expenditures is shrinking. Based on preliminary data, New York’s 2022 share of a declining pot of pandemic funding fell to just above its 5.9 percent population share, indicating a transition toward pre-pandemic distributional patterns.
This year’s analysis also revises the preliminary analysis for FFY 2021 by using the Internal Revenue Service’s 2021 Statistics of Income series. Based on updated data for the 2021 tax year, New York’s share of total Federal personal income tax collections was revised modestly upward from 8.4 percent to 8.5 percent. As a result, New York is estimated to have paid $1.63 billion more in income tax than originally projected, but $1.37 billion less in other taxes, resulting in a small upward revision to the state’s contribution to Federal receipts overall. In addition, updated Federal expenditures and allocation data increased New York’s estimated Federal funding allocation by $7.7 billion. These were the primary factors behind the upward revision to the 2021 balance of payments estimate from $115.2 billion to $122.7 billion.
As the overall distribution of tax burdens and Federal budgetary spending across the nation change over time, understanding how these changes impact states provides critical input to evaluating the distributional consequences of fiscal policy.
