Will U.S. cities face a knock-on fiscal crisis from the feds?
Federal money flows to cities in three flavors: direct transfers, indirect transfers, and what we call fiscal dark matter. Direct transfers are exactly what they sound like — money sent directly from the federal government to various localities. These include funds disbursed through programs like the Community Development Block Grant (CDBG), which supports things like […] The post Will U.S.…
Federal funds reach U.S. cities in three distinct forms: direct transfers, indirect transfers, and a category known as fiscal dark matter. Direct transfers, such as the Community Development Block Grant (CDBG), are straightforward payments from the federal government to localities for infrastructure and neighborhood services. In 2022, these direct transfers totaled $146.3 billion.
Indirect transfers, however, are less visible and occur when federal funds are first given to state governments before being allocated to municipal programs. In 2022, federal transfers to state governments amounted to $1.1 trillion, comprising 36% of overall state revenue and ranging from 22% to 50% per state. Establishing the extent of this fiscal dark matter – federal spending that doesn't show up in local budgets – is challenging, as it includes housing subsidies and food support programs.
When this funding diminishes, the consequences fall directly on city leaders, often without the public connecting the dots to federal agencies.
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