What is the largest portion of the federal governments budget spent on?
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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 Show 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. 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:
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.  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. 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. 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 ToolsState and Local Finance Data: Exploring the Census of Governments State Fiscal Briefs What everyone should know about their state’s budget Further ReadingFiscal Democracy in the States: How Much Spending is on Autopilot? Follow the Money: How to Track Federal Funding to Local Governments Assessing Fiscal Capacities of
States: A Representative Revenue System–Representative Expenditure System Approach, Fiscal Year 2012 Governing with Tight Budgets: Long-Term Trends in State Finances Notes3 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. 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). What is the largest expense of the government?Major expenditure categories are healthcare, Social Security, and defense; income and payroll taxes are the primary revenue sources.
What are the 3 largest components of federal government spending?The federal budget comprises three primary components: revenues, discretionary spending, and direct spending.
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