State and Local Expenditures

State and Local Backgrounders Homepage

State and Local Spending

State and local governments spent $2.9 trillion on direct general government expenditures in fiscal year 2016.1 States spent $1.4 trillion, and local governments, such as cities, townships, counties, school districts, and special districts, spent $1.6 trillion.2

While state governments raised more revenues than local governments, local governments direct expenditures were larger than states because localities often administer programs with funds transferred from state governments. States transferred over $500 billion to local governments in 2016. A portion of state funding comes indirectly from the federal government in the form of pass-through grants.

Most state and local government spending falls into one of six categories: elementary and secondary education, public welfare (which includes Medicaid), higher education, health and hospitals, police and corrections, and highways and roads.

What do state and local governments spend money on?

State and local governments spend most of their resources on education, health, and social service programs. In 2016, about one-third of state and local spending went toward combined elementary and secondary education (21 percent) and higher education (10 percent).3 (Census's data include both public revenues and student tuition and fees. See our higher education backgrounder for more information.)

Another 22 percent of expenditures went toward public welfare. Public welfare includes spending on means-tested programs, such as Medicaid, Temporary Assistance for Needy Families, Supplemental Security Income, and others.4 Spending on health and hospitals were 10 percent of expenditures. 

Medicaid constitutes a large, and growing, portion of state spending. The National Association of State Budget Officers (NASBO) estimates that in fiscal year 2018, Medicaid alone accounted for nearly 30 percent of total state spending.5 If considering state funds only (i.e., no federal transfers), K–12 education still constitutes the largest portion of state spending with 25 percent, and Medicaid is second with 17 percent..

Although much of Medicaid spending is accounted for under the public welfare category, public hospital expenditures also include Medicaid funds.6

Police and corrections, combined, were 6 percent of state and local spending in 2016. Highway and road spending was also 6 percent. The remainder of state and local spending (25 percent) went toward other functions, such as general administration (4 percent); interest on debt (4 percent); sanitation (3 percent); sewerage (2 percent); housing and community development (2 percent); local fire protection (2 percent): parks and recreation, natural resources services, air transportation, and public buildings (each about 1 percent); and other miscellaneous expenses not elsewhere classified.

How does state spending differ from local spending?

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

States spend more than local governments on public welfare programs. In 2016, 42 percent of states’ direct general expenditures went toward public welfare, the largest source of state direct spending, while local governments spent only 4 percent on public welfare. Medicaid is jointly funded by states and the federal government and administered by states.

States also spent more directly than local governments on higher education: that category comprised 18 percent of state direct expenditures versus only 3 percent of local direct expenditures in 2016.

On the other hand, local governments spent far more on elementary and secondary education than states in 2016: 40 percent of direct local government spending versus 0.5 percent of direct state spending. Much of that local spending, however, came from state funds. In total, states provided over $361 billion, including pass-through federal funds, to local governments and school districts in the 2014-2015 school year, constituting over half of all local spending on elementary and secondary education. States do vary in spending, however, and exceptions exist. In Hawaii, for example, the state administers K–12 education directly, so all elementary and secondary education spending is counted at the state level. 

Corrections are more of a state responsibility and local governments dedicate a larger percentage of funds to police. States dedicated 4 percent of their direct general expenditures to corrections (e.g., spending on prisons and rehabilitation programs) in 2016, while local governments dedicated only 1 percent. Local governments put 6 percent of their direct spending toward police, while states allocated only 2 percent of their direct general spending to this function.

How have state and local expenditures changed over time?

State and local direct general expenditures increased from approximately $1.1 trillion in 1977 (in inflation-adjusted 2016 dollars) to $2.9 trillion in 2016—a 172 percent increase over 39 years. Similarly, per capita expenditures increased from $4,917 a person to $9,081 a person, an increase of 85 percent.

Although spending in all major categories has increased over the period, the share of spending on specific programs as a percentage of general spending has varied. For example, public welfare expenditures increased from 13 percent of state and local general spending in 1977 to 22 percent in 2016. Medicaid is responsible for most of the increase in public welfare spending.8 In part because of this increase, outlays for elementary and secondary education fell from 26 percent of state and local general spending in 1977 to 21 percent in 2016. 

Spending on other categories has remained more stable as a percentage of general expenditures. For example, since 1977, spending on higher education and spending health and hospitals both fluctuated between 8 and 10 percent of general spending, while spending police protection and corrections has fluctuated between 5 and 7 percent.

How and why does spending differ across states?

On average, state and local governments spent $9,081 per capita in 2016, but state and local government spending varies widely across states.

Alaska had the highest per capita state and local spending in 2016 at $18,499, followed by Wyoming ($15,006) and New York ($13,324). As is typical, the District of Columbia’s per capita spending exceeded most states’ at $18,648. Idaho ($6,571) and Georgia ($6,661) had the lowest per capita spending in 2016. 

Differences in spending arise from variations in geography, demographics, history, and other external factors. They can also arise from state policy choices, such as generosity of service levels, eligibility rules for social services, or tax policy. For K–12 education spending, for example, New York had one of the highest per capita spending rates even though it has relatively few school-age children and a bigger share of kids in private school than most states.9 Its high K–12 spending is in part because it has more teachers per student enrollment, higher salaries on the payroll, and declining student populations.10 On the other hand, although Idaho has many school-age children to educate and a high rate of attendance in public schools, it employs fewer teachers per student and has lower payroll costs than other states, leading to low per capita K–12 spending.11

States may spend more or less than one would expect based on national averages and need as measured by demographics and costs. These differences may be because of revenue capacity as well as state policy choices and limited federal funds. For example, Idaho spent the least per capita of any state overall in 2016. However, Idaho’s level of need, or what it would spend if it matched national averages adjusted for demographics and costs, exceeds its capacity to bring in revenues even after accounting for transfers from the federal government. 

Data: View and download each state's per capita direct general expenditures

Interactive Data Tools

What everyone should know about their state’s budget

Further Reading

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)

Governing with Tight Budgets: Long-Term Trends in State Finances 

Norton Francis and Frank Sammartino (2015)

Notes

1 Unless otherwise noted, all data are from the US Bureau of the Census, Survey of State and Local Government Finance, 1977-2016, accessed via the Urban-Brookings Tax Policy Center Data Query System, January 9, 2017, http://slfdqs.taxpolicycenter.org. The census recognizes five types of local government in addition to state government: counties, municipalities, townships, special districts (e.g., a water and sewer authority), and school districts. All dates in sections about expenditures reference the fiscal year unless explicitly stated otherwise.

2 State and local general expenditures include spending on schools, health care services, and general administration (among other activities in the general government sector) but exclude government-run liquor stores, utilities, and insurance trusts, which are accounted for separately in the census. For more information about how the US Census Bureau classifies government expenditures, see the US Bureau of the Census, Government Finance and Employment Classification Manual (Washington, DC: US Bureau of the Census, 2006), https://www2.census.gov/govs/pubs/classification/2006_classification_manual.pdf.

3 The census counts state expenditures on scholarships and other educational subsidies under a separate category that includes subsidies for higher and K–12 education combined. The code (J19) includes, for example, individual scholarships for higher education and institutional assistance to private K–12 charter schools.

4 For more information about how the Census classifies government spending, see the US Bureau of the Census, Government Finance and Employment Classification Manual (Washington, DC: US Bureau of the Census, 2006), https://www2.census.gov/govs/pubs/classification/2006_classification_manual.pdf.

5 The National Association of State Budget Officers (NASBO) classifies spending differently from the US Bureau of the Census. For example, NASBO includes government-run liquor stores and utilities in total spending, whereas these expenses are excluded from the census classification of general government expenditures that we use on this page. See NASBO, State Expenditure Report: Examining Fiscal 2014-2016 State Spending,” 2016, http://www.nasbo.org/mainsite/reports-data/state-expenditure-report.

6 The Medicaid and CHIP Payment Access Commission estimates that payments to hospitals account for only 17 percent of total Medicaid spending, suggesting that the portion of Medicaid accounted for under the Health and Hospitals census classification is likely minimal. See MACPAC, “MACStats, Exhibit 17,” accessed May 12, 2017, https://www.macpac.gov/wp-content/uploads/2015/01/EXHIBIT-17.-Total-Medicaid-Benefit-Spending-by-State-and-Category-FY-2015-millions.pdf.

7 See William A. Fischel, School Finance Litigation and Property Tax Revolts: How Undermining Local Control Turns Voters Away from Public Education, Working Paper WP98WF1 (Washington, DC: Lincoln Institute of Land Policy, 1998), https://pdfs.semanticscholar.org/9989/d1ae5fa3cb6e7240dbf8ec5a5203aaf08eb8.pdf?_ga=2.141913271.426876618.1494615563-1317821938.1494615563; also Sheila Murray and Kim Rueben, School Finance Over Time: How Changing Structures Affect Support for K–12 Education, Policy working paper WP07SM1 (Cambridge, MA: Lincoln Institute of Land Policy, 2007).

8 For more information on sources of state spending growth, see National Association of State Budget Officers, State Expenditure Report: Fiscal Years 2016-2018, 2018, accessed January 9, 2019, 2017, http://www.nasbo.org/mainsite/reports-data/state-expenditure-report.

9 For per capita K–12 spending data, see the K–12 Education dropdown menu in the Urban Institute’s interactive data tool, “What everyone should know about their state’s budget,” accessed May 15, 2017, http://apps.urban.org/features/what-drives-state-spending/.

10 An analysis of components of state and local spending is publicly available using 2012 data on the Urban Institute’s interactive tool, “What everyone should know about their state’s budget.”

11 See the K–12 dropdown menu in the Urban Institute’s interactive data tool, “What everyone should know about their state’s budget,” accessed May 15, 2017,  http://apps.urban.org/features/what-drives-state-spending/.