Iowa’s strong fiscal foundation was recently reinforced by Jack Salmon, a Gibbs Scholar and Research Fellow at the Mercatus Center at George Mason University. Salmon examined the fiscal resilience of the states. Specifically, he examined how states would handle the potential loss of federal funds.
Salmon developed a “Fiscal Resilience” index to measure the fiscal foundation of the states. The index examines six different categories related to state finances, including taxes, spending, debt, pensions, budget reserve levels, revenue volatility, and federal dependency.
Based on these criteria, Iowa ranked in the top 10 states that are most fiscally prepared, or resilient. Iowa ranks 8th in the index. The state’s high ranking provides further reassurance that conservative fiscal policies are responsible for Iowa’s solid fiscal foundation.
“State governments today operate within a fiscal environment that is increasingly shaped by decisions made in Washington,” wrote Salmon. Salmon is correct that both state and local governments have become more dependent on federal funds, while federal policy has become increasingly expansive.
In Fiscal Year 2025, Iowa received $13.6 billion in federal funds, which exceeds the state’s $9.6 billion Fiscal Year 2027 budget. A majority of Iowa’s federal funds are directed toward Medicaid, SNAP, education, transportation, and infrastructure. However, the federal government influences numerous other policy areas as well.
Salmon correctly notes that “the traditional conception of American federalism emphasizes a clear division between federal and state responsibilities, the modern reality is far more intertwined.”
The federal government, especially since the New Deal, has expanded greatly into policy areas that were originally intended to be handled by state or local governments. The result, as Salmon argues, is that “over time, federal financial support for state and local governments has expanded dramatically, both in scale and scope, leaving states more exposed to federal fiscal conditions than at any point in recent history.”
For Salmon, this is where the problem for states begins. States have become dependent upon the federal government for funding. Reliance on federal funds is becoming increasingly unstable because of the federal government’s broken budget process, as demonstrated by multiple shutdowns, as well as changes in federal policy. The federal government is also facing a debt crisis, with the national debt surpassing $39 trillion.
This creates a situation in which federal funding could be reduced or lost at any time. “In such an environment, federal policymakers will be forced to make difficult choices about how to close the gap between spending and revenues,” stated Salmon. Federal funds could become a target for spending reductions.
This is why having a strong and stable fiscal foundation is so crucial. Salmon argues that the states best prepared for the potential loss of federal funds are those that have “built stronger fiscal foundations, maintaining lower spending levels, better-funded pension systems and larger budget reserves.”
Preparation for how the federal government doles out funding also includes increasing transparency by inventorying federal funds, publicly disclosing federal guidance, and exercising legislative oversight over matching funds and spending commitments. These measures not only preserve state sovereignty but also strengthen the principles of federalism. Ultimately, the Founders envisioned a system in which states were the primary units of governance and central to the nation’s political power.
Iowa’s strong performance in Salmon’s Fiscal Resilience Index is more than just a favorable ranking. It is evidence that sound budgeting, spending restraint, low debt levels, and responsible policies matter. As uncertainty surrounding federal finances continues to grow, states that have prioritized fiscal discipline will be better positioned to navigate potential disruptions. Iowa’s experience demonstrates that maintaining a strong fiscal foundation not only protects taxpayers but also preserves the flexibility and independence necessary for effective self-governance.
Source: https://www.theunseenandtheunsaid.com/p/state-fiscal-resilience-rankings
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