State and Local Expenditures

State and Local Backgrounders Homepage

State and Local Spending

State and local governments spent $3.2 trillion on direct general government expenditures in fiscal year 2018.1 States spent $1.5 trillion directly and local governments—cities, townships, counties, school districts, and special districts—spent $1.7 trillion directly.2

While state governments raised more revenues than local governments in 2018, local governments' direct expenditures were larger than states' because localities often administer programs with funds transferred from state governments. In 2018, states transferred over $543 billion to local governments. However, a portion of state funding comes indirectly from the federal government in the form of pass-through grants. For example, the federal government sends elementary and secondary education funds to state governments, and then state governments transfer the money to local governments.

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, health, and social service programs. In 2018, about one-third of state and local spending went toward combined elementary and secondary education (21 percent) and higher education (9 percent).3 (Census's data on higher education expenditures include both spending funded by tax revenues and student tuition and fees. See our higher education backgrounder for more information.)

Another 22 percent of expenditures went toward public welfare in 2018. Public welfare includes spending on means-tested programs, such as Medicaid, Temporary Assistance for Needy Families, and Supplemental Security Income.4 Spending on health and hospitals was another 9 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 alone accounted for nearly 29 percent of total state spending—up from 20 percent in 2008. (Both of these totals include the federal share of Medicaid spending.)6

Highway and road spending was 6 percent of state and local direct general expenditures in 2018. Looking at criminal justice expenditures individually, police spending was 4 percent of state and local direct general expenditures, corrections spending was 3 percent, and court spending was 2 percent. Housing and community development expenditures accounted for another 2 percent of state and local direct general expenditures. 

Most of the remaining 22 percent of state and local direct expenditures in 2018 went toward these programs:

  • general administration (4 percent) 
  • interest on debt (3 percent)  
  • sewerage (2 percent) 
  • local fire protection (2 percent) 
  • parks and recreation (1 percent)
  • natural resources services (1 percent)
  • air transportation (1 percent)
  • solid waste management (1 percent)
  • public buildings, libraries, and water transportation (each expenditure accounted for less 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.

Local governments directly spent far more on elementary and secondary education than states in 2018: 40 percent of direct local government spending went to K-12 education versus less than 1 percent of direct state spending. However, while local governments overwhelmingly spent these dollars, much of that money came from state and federal funds.7 In total, during the 2017-2018 school year, states provided 47 percent of overall K-12 education funding, local governments provided 45 percent, and the federal government provided 8 percent.8 

Meanwhile, states spent a higher percentage of their direct expenditures on higher education (17 percent) than local governments (3 percent) in 2018.

Similarly, states also directly spent a far higher percentage of their budgets on public welfare expenditures than local governments. In 2018, 44 percent of states' direct general expenditures went toward public welfare, the largest direct expenditure at the state level. Local governments spent only 4 percent on public welfare. Much of public welfare spending is Medicaid spending, which is jointly funded by states and the federal government but administered by state governments (and local governments in a few states).

Local governments spent a larger share of their budgets on police (6 percent) than state governments (1 percent), while spending on health and hospitals (9 percent of state budgets and 10 percent of local budgets) and highways and roads (7 percent of state budgets and 4 percent of local budgets) were roughly equal at the two levels of government.

How have state and local expenditures changed over time?

From 1977 to 2018, in 2018 inflation-adjusted dollars, state and local government spending increased from $1.1 trillion to $3.2 trillion, a 183 percent increase. Real per capita expenditures increased from $5,144 to $9,801, a 91 percent increase, over the same period.

Although spending in all major categories increased over the period, the percentage change in state and local direct general expenditures has varied. For example, state and local government spending on public welfare, in 2018 inflation-adjusted dollars, increased by 402 percent between 1977 and 2018, by far the most of any major expenditure. Medicaid is responsible for most of the increase in public welfare spending, but the federal share of Medicaid spending also increased significantly over this period, from 55 percent to 64 percent.9 Related, health and hospital spending grew 215 percent from 1977 to 2018. 

Meanwhile, elementary and secondary education spending grew 132 percent between 1977 and 2018. Over the same time period, real per capita and per pupil spending on K-12 education also increased.

Police spending grew 226 percent between 1977 and 2018, faster than all other major expenditures except for public welfare. Higher education spending grew 180 percent, but changes in higher education spending are complicated by the increasing share of tuition payments as a funding source. Among these major expenditures, highway and road spending grew at the slowest pace, 95 percent, from 1977 to 2018. 

How and why does spending differ across states?

State and local governments spent $9,801 per capita in 2018, but per capita direct spending varies widely across states.

Among the states, Alaska had the highest per capita state and local spending in 2018 at $19,699, followed by New York ($15,217) and Wyoming ($15,055). As is typical, the District of Columbia’s per capita spending exceeded all states’ at $20,418.10 Arizona ($6,983) and Georgia ($7,103) had the lowest per capita spending in 2018.

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. 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 K–12 education spending even though it has relatively few school-age children and a bigger share of kids in private school than most states.11 Instead, it has high K–12 education spending because it has more teachers per student enrollment and higher teacher salaries than most states.12 In contrast, although Idaho has many school-age children to educate and a high rate of attendance in public schools, it has relatively low K-12 education  spending because it employs fewer teachers per student and has lower payroll costs than most states.13

States also 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’s level of need, or what it would spend if it matched national averages for spending adjusted for demographics and costs, exceeds its capacity to bring in revenues even after accounting for transfers from the federal government. 

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)

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, 1977-2018, accessed via the Urban-Brookings Tax Policy Center Data Query System, April 5, 2021, 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 May 12, 2017, 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: Examining Fiscal 2018-2020 State Spending,” 2020, 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 2018, Table 235.10, 2017–2018. 

9For more information on sources of state spending growth, see National Association of State Budget Officers, State Expenditure Report: Fiscal Years 2018-2020, accessed April 5, 2021, 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 May 24, 2021, 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 May 24, 2021,  http://apps.urban.org/features/what-drives-state-spending/.