Federal Transfers Top State and Local Revenues

USA Today reports that the federal government has overtaken sales, property, and income taxes to be the largest source of revenue for state and local governments:

The shift shows how deeply the recession is cutting. Federal stimulus money aimed at reviving the economy and a sharp drop in tax collections have altered, at least temporarily, the traditional balance of how states, cities, counties and schools pay for their operations.

The sales tax had been the No. 1 source of state and local revenue since the mid-1970s, according to the Bureau of Economic Analysis. Before that, property taxes were the primary source. That changed in the first three months of 2009.

Federal grants — early stimulus money plus conventional federal aid — soared 15% in the first quarter to a seasonally adjusted annual rate of $437 billion, eclipsing sales taxes, which fell 2%.

Here’s Len Gilroy on this story. Here are data from the Tax Policy Center on state revenues by category (albeit from 2006). Here are Eileen Norcross and Frederic Sautet on the longer-term ramifications of increasing intergovernmental transfers.