PROJECTState and Local Backgrounders

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  • State and Local Expenditures

    State and local governments spent $3.7 trillion on direct general government expenditures in fiscal year 2021.1 States spent $1.8 trillion directly and local governments—cities, townships, counties, school districts, and special districts—spent $1.9 trillion directly.2

    While state governments raised more revenues than local governments in 2021, local governments' direct expenditures were larger than states' because localities often administer programs with funds transferred from state governments. In 2021, states transferred $621 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?

    State and local governments spend most of their resources on education and health care programs. In 2021, about one-third of state and local spending went toward combined elementary and secondary education (21 percent) and higher education (8 percent).3 Another 23 percent of expenditures went toward public welfare in 2021. 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. 

    figure_1

    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 Medicaid accounted for nearly 27 percent of total state spending in fiscal year 2021—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 2021.

    Looking at criminal justice expenditures individually, police spending was 4 percent, corrections spending was 2 percent, and court spending was 1 percent.

    Housing and community development expenditures accounted for roughly 2 percent of state and local direct general expenditures. 

    Most of the remaining 23 percent of state and local direct expenditures in 2021 went toward these programs:

    • financial administration and central staff services (4 percent) 
    • interest on debt (3 percent)  
    • sanitation (3 percent)
    • fire protection (2 percent) 
    • sewerage (2 percent) 
    • parks and recreation (1 percent)
    • air transportation (1 percent)
    • solid waste management (1 percent)
    • natural resources (1 percent)
    • libraries, public buildings, and water transportation (each than 1 percent)

    The rest was mostly miscellaneous expenses not elsewhere classified by Census.

    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.

    figure_2

    Elementary and secondary education is a far larger share of direct local government spending than state spending. In 2021, 39 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 46 percent of overall elementary and secondary education funding, local governments provided 44 percent, and the federal government provided 11 percent.8 (See our elementary and secondary expenditure backgrounder for more information.) 

    Meanwhile, higher education was a far larger share of state direct spending (15 percent) than local government direct spending (2 percent) in 2021.

    Similarly, states also directly spent a far higher percentage of their budgets on public welfare expenditures than local governments. In 2021, 45 percent of states' direct general expenditures went toward public welfare, the largest expenditure as a share of direct state spending, while local governments spent only 3 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 (6 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).

    How have state and local expenditures changed over time?

    From 1977 to 2021, in 2021 inflation-adjusted dollars, state and local government spending increased from $1.2 trillion to $3.7 trillion, a 202 percent increase. Real per capita expenditures increased from $5,551 to $11,087, a 100 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 2021 inflation-adjusted dollars, grew 485 percent between 1977 and 2021, 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 69 percent.9 Related, health and hospital spending grew 266 percent from 1977 to 2021. Meanwhile, elementary and secondary education spending grew 136 percent between 1977 and 2021. 

    figure_3

    Higher education spending grew 168 percent, but changes in higher education spending are complicated by the increasing share of tuition payments as a funding source. Police spending grew 189 percent between 1977 and 2021. Corrections and housing spending both experienced significant growth between 1977 and 2021 (346 percent and 329 percent, respectively), but both expenditures remained a relatively small share of overall spending during the period. Among these major expenditure categories, highway and road spending grew at the slowest pace, 100 percent, from 1977 to 2021. 

    How and why does spending differ across states?

    State and local governments spent $11,087 per capita in 2021, but per capita direct spending varies widely across states.

    Among the states, Alaska had the highest per capita state and local spending in 2021 at $18,719, followed by Wyoming ($17,175) and New York ($15,899). As is typical, the District of Columbia’s per capita spending exceeded all states at $25,061.10Georgia ($7,971) and Tennessee ($8,062) had the lowest per capita spending in 2021.

    figure_4

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

    Differences in spending arise from variations in geography, demographics, history, and other external factors. But they can also be the result of 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

    State and Local Finance Data: Exploring the Census of Governments

    State Fiscal Briefs

    What everyone should know about their state’s budget

    Further Reading

    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)

    Notes

    1 Unless otherwise noted, all data are from the US Bureau of the Census, Survey of State and Local Government Finance, 1977-2021, accessed via the Urban-Brookings Tax Policy Center State and Local Finance Data tool, October 5, 2023, https://state-local-finance-data.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 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 December 20, 2022, https://www.macpac.gov/publication/total-medicaid-benefit-spending-by-state-and-category/.

    6 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: Fiscal 2020-2022 State Spending,” 2022, http://www.nasbo.org/mainsite/reports-data/state-expenditure-report.

    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); 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 US Department of Education, National Center for Education Statistics, Digest of Education Statistics 2020, Table 235.10, 2018–2019. 

    9For more information on sources of state spending growth, see National Association of State Budget Officers, State Expenditure Report: Fiscal Years 2020-2022, accessed December 20, 2022, https://www.nasbo.org/reports-data/state-expenditure-report.

    10 The District of Columbia is often an outlier because, although it functions as a state and a locality, it most closely resembles a central city in terms of its population and economic activity, much of which comes from nonresidents. Its ranking among states should be interpreted within this context.

    11For 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 December 20, 2022, http://apps.urban.org/features/what-drives-state-spending/.

    12 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.”

    13 See the K–12 dropdown menu in the Urban Institute’s interactive data tool, “What everyone should know about their state’s budget,” accessed December 20, 2022,  http://apps.urban.org/features/what-drives-state-spending/.

    Research Areas State and local finance
    Policy Centers Urban-Brookings Tax Policy Center