This is the last of seven papers Texans for Fiscal Responsibillity has published on the growth of Texas government over the last ten years. The other papers have focused on state and local spending funded by state and local funds paid for by Texas taxpayers. It is important to maintain this focus because Texans can have the greatest influence over this spending because they directly elect the officials responsible for it.
However, this does not mean we should ignore federally-funded spending in Texas. The size and scope of Texas government can increase just as easily using federal funds as it can when using state and local funds.
And many Texas politicians are happy to take federal funds to do this.
| Figure 1. Federal Funds Spending | |
| Legislative Session | Amount Spent |
| 2015 | $68,001,500,000 |
| 2025 | $102,041,100,000 |
| Increase | $34,039,600,000 |
Figure 1 shows this is happening in Texas. Over the last decade, use of federal funds in the Texas budget has increased 50%, up $34 billion. And this does not tell the entire story. In the wake of the COVID-related government shutdowns, spending of federal funds exploded. In 2021, the Texas Legislature appropriated $119.7 billion in federal funds. In 2023, the amount was $106.9 billion.
Some may think the recent decline in federal funding is a good thing. However, the reality is more complex. Now that federal funding has declined somewhat from the post-COVID highs, many of the programs that received federal funds are now being paid for with state taxpayer money. One example of this is the Texas Department of Criminal Justice. Over $4 billion of the department’s funding came from federal funds during the 2024-25. When that ran out, in 2025 the Texas Legislature had to replace the $4 billion with state funds.
This type of shell game happens every legislative session.
By far the largest expenditure of federal funds in Texas is for health and human services. In 2025, the Legislature appropriated $59.7 billion for these programs, which include Medicaid and CHIP. The next largest expenditure of federal funds is for public and higher education at $16.4 billion, followed by transportation spending at $12.1 billion. Figure 2 shows the growth of federal spending in these areas over the last decade.
| Figure 2. Federal Funds Spending by Type 2015 to 2025 | |||
| Spending | 2015 | 2025 | Increase |
| Healthcare | $43.2 billion | $59.7 billion | $16.5 billion |
| Education | $10.4 billion | $16.4 billion | $6.0 billion |
| Transportation | $8.4 billion | $12.1 billion | $3.7 billion |
| Natural Resources | $1.7 billion | $3.9 billion | $2.2 billion |
Another problem with federally funded state spending is that much of the money comes with requirements that drive long-term government growth. Medicaid is the clearest example. Medicaid operates as a joint federal–state program, meaning Texas must spend state dollars in order to draw down federal funds. For federal fiscal year 2025, Texas’ Federal Medical Assistance Percentage (FMAP) is 60 percent, requiring the state to contribute roughly 40 percent of the cost of most Medicaid benefits. As Medicaid enrollment grows, or benefit and provider costs rise, Texas’ required share rises automatically, even if those changes are driven by federal policy decisions.
Participation also obligates the state to follow detailed federal rules governing eligibility, covered services, and program administration. The combination of mandatory state matching funds and federally prescribed program structure makes Medicaid a major driver of Texas spending growth and a key mechanism through which federal funding increases translate directly into a larger, more intrusive state government.
This is the seventh and final paper in a series examining the growth of Texas government over the last decade.
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