PROJECTState and Local Backgrounders


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  • State and Local Expenditures

    State and local governments spent $3.3 trillion on direct general government expenditures in fiscal year 2019.1 States spent $1.6 trillion directly and local governments—cities, townships, counties, school districts, and special districts—spent $1.8 trillion directly (the numbers do not sum to the combined total because of rounding).2

    While state governments raised more revenues than local governments in 2019, local governments' direct expenditures were larger than states' because localities often administer programs with funds transferred from state governments. In 2019, states transferred over $568 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, and then state governments transfer the money to local governments which spend the dollars on local 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, health, and social service programs. In 2019, about one-third of state and local spending went toward combined elementary and secondary education (22 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 2019. 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 10 percent of state and local direct expenditures. 

    State and Local Direct General 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 2021 Medicaid alone accounted for nearly 27 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 2019. 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 2019 went toward these programs:

    • financial administration and central staff services (5 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.

    State verse Local Expenditure

    Elementary and secondary education is a far larger share of direct local government spending than than state spending. In 2019, 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 spent these dollars directly, 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 elementary and secondary education funding, local governments provided 45 percent, and the federal government provided 8 percent.8 

    Meanwhile, higher education was a far larger share of state direct spending (17 percent) than local government direct spending (3 percent) in 2019.

    Similarly, states also directly spent a far higher percentage of their budgets on public welfare expenditures than local governments. In 2019, 43 percent of states' direct general expenditures went toward public welfare, the largest direct expenditure as a share of state spending. 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).

    State governments also spent more directly on highways and roads (8 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 (9 percent of state budgets and 10 percent of local budgets) was roughly equal at the two levels of government.

    How have state and local expenditures changed over time?

    From 1977 to 2019, in 2019 inflation-adjusted dollars, state and local government spending increased from $1.2 trillion to $3.3 trillion, a 190 percent increase. Real per capita expenditures increased from $5,238 to $10,161, a 94 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 varied. For example, state and local government spending on public welfare, in 2019 inflation-adjusted dollars, increased by 411 percent between 1977 and 2019, by far the most of any major expenditure. Medicaid is responsible for most of the increase in total state and local public welfare spending, but the federal share of Medicaid spending also increased over this period, from 55 percent of Medicaid spending to 65 percent.9 Related, health and hospital spending grew 231 percent from 1977 to 2019. Meanwhile, elementary and secondary education spending grew 138 percent between 1977 and 2019. 

    State and Local Expenditures

    Higher education spending grew 184 percent, but changes in higher education spending are complicated by the increasing share of tuition payments as a funding source. Police spending grew 179 percent between 1977 and 2019. Among these major expenditures, highway and road spending grew at the slowest pace, 108 percent, from 1977 to 2019. 

    How and why does spending differ across states?

    State and local governments spent $10,161 per capita in 2019, but per capita direct spending varies widely across states.

    Among the states, Alaska had the highest per capita state and local spending in 2019 at $17,596, followed by New York ($15,667) and Wyoming ($15,107). As is typical, the District of Columbia’s per capita spending exceeded all states at $21,066.10 Arizona ($7,251) and Georgia ($7,280) had the lowest per capita spending in 2019.

    State and Local Expenditures

    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 elementary and secondary education spending even though it has relatively few school-age children for its overall population and a bigger share of kids in private school than most states.11 But New York’s per capita spending is relatively high because it has more teachers per student enrollment and higher teacher salaries than most states.12 In contrast, Idaho has a relatively high 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)

    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, 1977-2019, accessed via the Urban-Brookings Tax Policy Center Data Query System, January 5, 2022, 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 2020, 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/.

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