State and local governments spent $3.5 trillion on direct general government expenditures in fiscal year 2020.1 States spent $1.7 trillion directly and local governments—cities, townships, counties, school districts, and special districts—spent $1.8 trillion directly.2
While state governments raised more revenues than local governments in 2020, local governments' direct expenditures were larger than states' because localities often administer programs with funds transferred from state governments. In 2020, states transferred over $581 billion to local governments.
This total includes indirect funds from the federal government, often referred to as pass-through grants. For example, the federal government sends elementary and secondary education funds to state governments, the state governments transfer the money to local governments, and local governments then directly spend the dollars on education programs.
Most state and local government spending falls into one of seven categories: elementary and secondary education, public welfare (which includes most Medicaid spending), higher education, health and hospitals, highways and roads, criminal justice (which includes spending on police, corrections, and courts), and housing and community development.
- What do state and local governments spend money on?
- How does state spending differ from local spending?
- How have state and local expenditures changed over time?
- How and why does spending differ across states?
State and local governments spend most of their resources on education and health care programs. In 2020, about one-third of state and local spending went toward combined elementary and secondary education (21 percent) and higher education (9 percent).3 Another 23 percent of expenditures went toward public welfare in 2020. Census counts spending on means-tested programs, such as Medicaid, Temporary Assistance for Needy Families, and Supplemental Security Income as public welfare expenditures.4 Spending on health and hospitals was another 10 percent of state and local direct expenditures.
Medicaid constitutes a large and growing portion of state spending. However, Census does not separate Medicaid spending into its own category. Instead, most Medicaid spending is accounted for under the public welfare category with some spending counted as hospital expenditures.5
The National Association of State Budget Officers (NASBO) estimates that in fiscal year 2020 Medicaid accounted for nearly 28 percent of total state spending—up from 20 percent in 2008. Both of these totals also include the federal share of Medicaid spending.6
Highway and road spending was another 6 percent of state and local direct general expenditures in 2020.
Looking at criminal justice expenditures individually, police spending was 4 percent, corrections spending was 2.5 percent, and court spending was 1.5 percent.
Housing and community development expenditures accounted for roughly another 2 percent of state and local direct general expenditures.
Most of the remaining 22 percent of state and local direct expenditures in 2020 went toward these programs:
- financial administration and central staff services (4 percent)
- interest on debt (4 percent)
- fire protection (3 percent)
- sewerage (3 percent)
- parks and recreation (2 percent)
- air transportation (2 percent)
- solid waste management (2 percent)
- natural resources services (1 percent)
- libraries (1 percent)
- public buildings and water transportation (each expenditure accounted for less than 1 percent)
The rest was mostly miscellaneous expenses not elsewhere classified by Census.
States and local governments provide different mixes of services, which are reflected in their direct general expenditures.
Elementary and secondary education is a far larger share of direct local government spending than state spending. In 2020, 40 percent of direct local government spending went to elementary and secondary education versus less than 1 percent of direct state spending. However, while local governments overwhelmingly directly spent these dollars, much of that money came from state and federal funds.7 In total, states provided 47 percent of overall elementary and secondary education funding, local governments provided 45 percent, and the federal government provided 8 percent.8 (See our elementary and secondary expenditure backgrounder for more information.)
Meanwhile, higher education was a far larger share of state direct spending (17 percent) than local government direct spending (3 percent) in 2020.
Similarly, states also directly spent a far higher percentage of their budgets on public welfare expenditures than local governments. In 2020, 44 percent of states' direct general expenditures went toward public welfare, the largest expenditure as a share of direct state spending, while local governments spent 6 percent of their direct expenditures on public welfare. Public welfare spending is largely Medicaid spending, which is jointly funded by states and the federal government but administered by state governments (and local governments in a few states).
State governments also spent more directly on highways and roads (7 percent) than local governments (4 percent), while local governments spent a larger share of their budgets on police (3 percent) than state governments (1 percent). Direct spending on health and hospitals was equal at the two levels of government (roughly 10 percent for both).
From 1977 to 2020, in 2020 inflation-adjusted dollars, state and local government spending increased from $1.2 trillion to $3.5 trillion, a 200 percent increase. Real per capita expenditures increased from $5,302 to $10,540, a 99 percent increase, over the same period.
Although spending in all major categories increased over the period, the percentage change in expenditure categories varied. For example, state and local government spending on public welfare, in 2020 inflation-adjusted dollars, grew 437 percent between 1977 and 2020, by far the largest increase among the major expenditure categories. Medicaid is responsible for most of that increase, but the federal share of Medicaid spending also increased over this period, from 55 percent to 64 percent.9 Related, health and hospital spending grew 251 percent from 1977 to 2020. Meanwhile, elementary and secondary education spending grew 138 percent between 1977 and 2020.
Higher education spending grew 189 percent, but changes in higher education spending are complicated by the increasing share of tuition payments as a funding source. Police spending also grew 189 percent between 1977 and 2019. While corrections and housing spending have consistently accounted for a relatively small share of overall state and local spending, both expenditures experienced significant growth between 1977 and 2020 (363 percent and 309 percent, respectively). Among these major expenditure categories, highway and road spending grew at the slowest pace, 107 percent, from 1977 to 2020.
State and local governments spent $10,540 per capita in 2020, but per capita direct spending varies widely across states.
Among the states, Alaska had the highest per capita state and local spending in 2020 at $17,374, followed by Wyoming ($15,641) and New York ($15,373). As is typical, the District of Columbia’s per capita spending exceeded all states at $23,100.10 Georgia ($7,565) and Tennessee ($7,793) had the lowest per capita spending in 2020.
Differences in spending arise from variations in geography, demographics, history, and other external factors. But they can also arise from state policy choices, such as generosity of service levels, eligibility rules for social services, or tax policy.
For example, New York has relatively high elementary and secondary education spending even though it has relatively few school-age children for its overall population and a larger share of kids in private school than most states.11 New York’s per capita spending is relatively high because it has more teachers per student and higher teacher salaries than most states.12 In contrast, Idaho has a relatively large number of school-age children to educate for its overall population and a high rate of attendance in public schools, but it has relatively low per capita education spending because it employs fewer teachers per student and has lower payroll costs than most states.13
Interactive Data Tools
Fiscal Democracy in the States: How Much Spending is on Autopilot?
Tracy Gordon, Megan Randall, C. Eugene Steuerle, and Aravind Boddupalli (2019)
Follow the Money: How to Track Federal Funding to Local Governments
Megan Randall, Tracy Gordon, Solomon Greene, and Erin Huffer (2018)
Assessing Fiscal Capacities of States: A Representative Revenue System–Representative Expenditure System Approach, Fiscal Year 2012
Tracy Gordon, Richard Auxier, and John Iselin (2016)