State and Local Expenditures

State and local governments spent a combined $2.59 trillion on direct general expenditures in fiscal year 2012. States spent roughly $1.17 trillion and local governments spent $1.42 trillion.

Direct general expenditures do not count intergovernmental transfers or grants between state and local levels of government. As a result, local governments direct general expenditures are higher than states direct general expenditures because they administer programs using funds received from state governments (and indirectly from federal funds). In FY 2012, total state expenditures (direct spending plus intergovernmental grants) were 1.98 trillion. Total local expenditures were $1.66 trillion.

All expenditure data come from the U.S. Census Bureau’s Government Finance Statistics.  In addition to state government, the Census recognizes five types of local government: counties, municipalities, townships, special districts (e.g. a water and sewer authority), and school districts.

What are the largest expenditures for state and local governments?

State and local governments spend most of their funds on education, health care, and social safety net programs (figure 1).

About one-third of combined state and local direct general expenditures in 2012 were dedicated to elementary and secondary education and higher education.

Another 28.1 percent of combined expenditures went toward public welfare and health and hospitals (both categories include Medicaid, the joint federal-state health insurance program).

The two other major categories for state and local expenditures, as identified by the U.S. Census Bureau, are highways (6.1 percent) and police protection (3.7 percent). The remaining 30.2 percent of state and local direct general expenditures paid for numerous other services, such as sewerage and solid waste and parks and recreation. 

Figure 1: State and Local Direct General Expenditures

How do state and local government expenditures differ?

States and local governments provide different mixes of services, which are reflected in their direct general expenditures (figure 2).

Figure 2: Categories as a Percentage of Direct General Expenditures, 2012

States spend much more than local governments on public welfare programs. In 2012, states allocated 37.1 percent of direct general expenditures to that function, versus 3.7 percent for local governments. This difference stems mostly from this category’s inclusion of Medicaid, a state-run program and by far the largest part of public welfare expenditures.

States also spend much more than local governments on higher education: 18.9 percent of state direct expenditures versus only 2.8 percent of local direct expenditures.

On the other hand, local governments spend far more on elementary and secondary education than states: 39.9 percent of local government spending versus 0.6 percent of state spending in 2012. But a significant share of that local spending is paid for with transfers from states for this purpose.

Police protection is also primarily a local government responsibility, claiming 5.9 percent of local direct expenditures compared with just 1.1 percent of state spending. Note, however, that states dedicated 3.9 percent of their direct general expenditures to corrections in 2012. This is included in “all other” expenditures.

How have state and local expenditures changed over time?

Over the past 35 years, state and local spending—measured as a percentage of combined state and local direct general expenditures—changed dramatically for the two largest expenditure categories (figure 3). 

Figure 3: State and Local Direct General Expenditures

Outlays for elementary and secondary education fell from 26.2 percent of direct expenditures in 1977 to 21.9 percent in 2012 (the most recent year for which data are available).

In contrast, public welfare expenditures increased from 12.7 percent of combined state and local direct general expenditures to 18.8 percent over the same period. Most of the increase resulted from higher spending on Medicaid.

The remaining budget activities were far more stable over the period as annual spending in each category fluctuated by only a few percentage points over the past 35 years, For example, higher education moved up and down between 8 to 10 percent of direct general spending and health and hospitals shifted between 6 to 8 percent.  Police protection was roughly 4 percent of direct expenditures every year from 1977 to 2011.