State arts agencies now provide more than half of public-sector funding for arts and culture. This paper explores the factors that drive the state government to decide to fund the arts. We find that high state government revenues, a sophisticated government and strong economic growth are all associated with a relatively high level of arts funding. There remain idiosyncratic state specific factors which also drive arts funding. One implication is that a strong and active local government with a growing economy and a thriving arts community can all co-exist.