The federal government has a direct impact on the creation and operation of departments, agencies and programs within the state government, even if the final form and reporting structures of those departments are largely determined by elected state officials. Much of the money allocated by Congress is distributed to state agencies, which actually spend the money Congress approves for specific purposes.

Not surprisingly, the states (or their localities) rarely receive money without strings attached, and state officials frequently must go to great lengths to meet federal requirements regulating how federal money is spent. Grumbling about federal requirements abounds, but the amounts of money that are transferred from the federal to the state governments make it very rare for state governments to say "no thank you." Nonetheless, politics and political culture at the state level can confound the incentives built into federal funding, as the Texas experience in recent years with the federal government's State Children's Health Insurance Program illustrates.