Where Do Our State Tax Dollars Go?

Understanding where state tax dollars go ― and the trends in state spending ― can help state policymakers make good decisions about how to pay for important services now and in the future.

States help educate the nation’s children, build and repair its roads and bridges, provide health coverage to low-income families and their children, and much more.  Many of these services are essential to building strong, healthy communities and the nation’s long-term economic vitality.

By far the largest areas of state spending, on average, are education (both K-12 and higher education) and health care.

In total, the 50 states and the District of Columbia spent $1.2 trillion in state revenues in fiscal year 2015, according to the most recent survey by the National Association of State Budget Officers. (This figure does not include the federal funds that states also spent that year.)

By far the largest areas of state spending, on average, are education (both K-12 and higher education) and health care. But states also fund a wide variety of other services, including transportation, corrections, pension and health benefits for public employees, care for persons with mental illness and developmental disabilities, assistance to low-income families, economic development, environmental projects, state police, parks and recreation, housing, and aid to local governments (see chart).

As a share of state spending, education has remained fairly constant in recent decades. The share of state budgets devoted to Medicaid and corrections has grown, the share devoted to transportation has fluctuated some, and the share for cash assistance to low-income families has declined.

Most State Dollars Go Toward Education and Health Care

Three areas of spending make up over half of state spending, on average:

K-12 education

States are one of the main funders of the nation’s public elementary and secondary schools, which some 50 million students — nine out of ten enrolled school-age children — attend. One-fourth of state spending on average, or about $308 billion, goes toward public education. States generally provide grants to local school districts (or to cities or counties, where those entities are responsible for administering schools) to fund schools, rather than paying teacher salaries and other school costs directly. Local governments are the other primary funder of public schools. The federal government provides only about 9 percent of public school revenues.

Higher education

States play a large role in funding higher education through their support of public community colleges, university systems, and vocational education institutions. This support accounts for about 13 percent of state spending, or some $156 billion.

Health care

Along with the federal government, states fund health insurance for low-income families through Medicaid and the Children’s Health Insurance Program. These programs provide health coverage or coverage for long-term care to roughly 74 million low-income children, parents, elderly people, and people with disabilities in a typical month. Together, they constitute about 17 percent of state budgets, or about $207 billion.

States spend the remainder of their budgets on a wide variety of programs.

For example:

States are one of the main funders of the nation’s public elementary and secondary schools, which some 50 million students — nine out of ten enrolled school-age children — attend.


State funding for transportation totals some $66 billion, accounting for around 5 percent of state spending, on average. These funds are used primarily to build and repair roads and bridges and for public transit systems.


Prisons, juvenile justice programs, and parole and other corrections programs make up about 5 percent of state budgets, or $55 billion. These costs grew significantly over recent decades as states sent more people to prison and left them there longer.

Assistance for struggling families

Cash assistance to low-income individuals through Temporary Assistance for Needy Families and some smaller programs, such as general assistance, makes up only a tiny share of state spending — about 1 percent or $11 billion.

Other spending

Comparable national data do not exist for the individual areas of spending that make up the remaining 34 percent of state budgets. But some of the larger items in this “Other” category are contributions to public employees’ pension and health benefits and general aid to local governments.

The Spending Mix Varies From State to State

Though the [spending] mix varies from state to state, tax dollars raised in states fund essential services — and tax cuts at a time when revenues are weak place those services at risk.

The figures above show how states spend their tax dollars on average for the entire country. But the specific mix of spending varies from state to state, depending on such factors as how the state and its localities share funding responsibilities for public services and how much state policymakers choose to invest in health care, education, and other areas.

In some cases, this variation is significant. For example, Wyoming spends 11.5 percent of its budget on K-12 education, while Vermont, at the other end of the spectrum, spends nearly 48 percent. Similarly, Medicaid makes up only 7 percent of the state budget of Alaska but 36 percent in Ohio.

Though the mix varies from state to state, tax dollars raised in states fund essential services — and tax cuts at a time when revenues are weak place those services at risk.


Federal Aid to State and Local Governments

Federal grants to state and local governments help finance critical programs and services across the country. These grants provide roughly 31 percent of state budgets and 23 percent of state and local budgets combined, according to the most recent data. They support health care, public education, housing, community development, child care, job training, transportation, and clean water, among other programs, which are vital to residents of every state — particularly those with low or moderate incomes. Many states are experiencing revenue shortfalls and struggle in most years to find adequate revenues to support services; without federal aid, they would likely cut or eliminate many of these programs.

Mandatory Grants Outside Major Health Programs at Historically Low Levels

Some federal grants to state and local governments are in the “mandatory” part of the federal budget. Mandatory programs are set in ongoing federal law that remains in place until changed; their funding depends on formulas and eligibility requirements set in the law. Mandatory grants to state and local governments totaled $474 billion in federal fiscal year 2017. The vast majority of this funding — $391 billion, or 83 percent — was for Medicaid and the Children’s Health Insurance Program (CHIP). The rest, $83 billion, funded numerous other programs for families and children.

Mandatory grants support programs of particular importance to low- and moderate-income households, including children, seniors, and people with disabilities. Also known as entitlement programs, their benefits or services are available to anyone who meets their strict eligibility criteria, and funding increases automatically and immediately to respond to increased need. Federal Medicaid and CHIP spending as a percent of the economy has grown significantly over time, due largely to enrollment growth and the rise in per-person health care costs. But mandatory grants to state and local governments other than for Medicaid and CHIP are at a lower percentage of the economy than when President Reagan left office.

Discretionary Grants Also at Historic Lows

Other grants to state and local governments are in the “discretionary” part of the federal budget. Congress sets funding levels for discretionary programs each year through the appropriations process. Discretionary grants to state and local governments totaled an estimated $201 billion in federal fiscal year 2017. The largest discretionary grant areas are transportation (including grants for highways, airports, and mass transit), education (including support for low-income students and students with special needs), and programs to subsidize housing for low-income families and seniors and foster community development. Discretionary grants rose sharply due to temporary increases in the 2009 Recovery Act but have since fallen and are at their lowest level as a percent of the economy since 1989.

Grants Support Wide Range of Programs

Many mandatory and discretionary grants are important to low- and moderate-income families and communities. Among the programs they support are:

Mandatory Grants to States and Localities
Grant Description
Medicaid Provides health coverage to low-income families and individuals.
Children’s Health Insurance Program (CHIP) Covers uninsured children up to age 19 in families with incomes too high to qualify for Medicaid.
Child nutrition programs Provide breakfast and lunch to low-income students in schools.
Supplemental Nutrition Assistance Program (SNAP) Formerly the Food Stamp Program, provides food-purchasing assistance to low-income families and individuals.
Child support enforcement programs Provide grants to states and tribes for outreach, referral, and case management to increase parents’ ability to support their children.
Child Care and Development Block Grant Finances high-quality child care for children with very low incomes whose parents work, are training for work, or attend school, and for children with special needs. It consists of both mandatory and discretionary funding.
Adoption and Foster Care Program Helps to provide safe, stable out-of-home care for children until they are safely returned home, placed permanently with adoptive families, or placed in other permanent arrangements.
Temporary Assistance for Needy Families (TANF) Provides cash assistance or other services such as child care assistance to poor families with children, and helps support related programs such as foster care.
Social Services Block Grant Provides flexible funds states may use to support a variety of social services activities. Child care, foster care, and special services for people with abilities are the largest categories of expenditures under this grant
Discretionary Grants to States and Localities
Grant Description
Title I funding to high-poverty schools Provides formula grants for schools with high numbers or proportions of disadvantaged children to help such children meet academic standards.
Special education in schools (Individuals with Disabilities Education Act, or IDEA) Provides formula grants to help schools pay for the additional costs associated with teaching students with disabilities.
Head Start Offers pre-kindergarten to children from low-income families.
Special Supplemental Nutrition Program for Women, Infants, and Children (WIC) Provides nutritious food and nutritional education to expecting low-income mothers and those with children under age 5.
Low Income Home Energy Assistance Program (LIHEAP) Helps people in need pay their home energy bills.
Section 8 housing vouchers (Housing Choice Voucher Program and Project-Based Rental Program) Defray part of the rent on a modest apartment or other home in the private market. Roughly half of the low-income households benefiting include seniors or people with disabilities; most of the rest are families with children.
Community Development Block Grant Provides grants to states, cities, and counties to revitalize neighborhoods, create jobs through the expansion and retention of businesses, improve water and sewer systems, and build community centers, youth centers, and libraries, as well as other public infrastructure projects.
Training and employment services Provide employment assistance, labor market information, and job training through programs such as the Workforce Investment and Opportunity Act, Job Corps, and apprenticeships.
Public safety grants Support state and local law enforcement, juvenile justice programs, community-oriented policing programs, prevention and prosecution of violence against women, and combating drug trafficking.

States Rely Heavily on Federal Grants

Federal mandatory and discretionary grants account for a large share of state revenues.

Federal Grants to States, State Fiscal Year 2017
State Federal Grant (Millions) Share of State Spending
Alabama $9,911 37.9%
Alaska $3,830 38.0%
Arizona $14,924 36.0%
Arkansas $7,697 31.4%
California $96,195 35.6%
Colorado $9,121 26.9%
Connecticut $6,153 19.9%
Delaware $2,171 20.3%
Florida $26,777 32.5%
Georgia $13,677 27.8%
Hawaii $2,571 17.5%
Idaho $3,004 34.1%
Illinois $16,387 24.4%
Indiana $12,580 39.2%
Iowa $6,664 28.8%
Kansas $3,834 24.0%
Kentucky $12,353 36.6%
Louisiana $12,255 38.2%
Maine $2,603 31.5%
Maryland $12,876 31.1%
Massachusetts $11,490 18.5%
Michigan $22,874 41.9%
Minnesota $10,868 27.6%
Mississippi $9,195 41.1%
Missouri $8,186 32.0%
Montana $2,810 40.4%
Nebraska $3,030 25.5%
Nevada $4,476 32.8%
New Hampshire $2,221 37.1%
New Jersey $16,143 26.7%
New Mexico $7,635 41.4%
New York $52,985 33.7%
North Carolina $13,274 28.4%
North Dakota $1,886 26.1%
Ohio $12,528 18.3%
Oklahoma $7,144 30.7%
Oregon $10,189 25.5%
Pennsylvania $29,406 36.4%
Rhode Island $3,185 34.2%
South Carolina $8,184 33.3%
South Dakota $1,419 33.6%
Tennessee $13,420 39.8%
Texas $46,870 37.1%
Utah $4,312 29.0%
Vermont $1,914 34.4%
Virginia $10,308 20.5%
Washington $12,034 27.1%
West Virginia $4,406 27.5%
Wisconsin $10,993 23.4%
Wyoming $1,008 20.0%
United States $619,976 31.3%

Source: CBPP calculations and NASBO data from State Expenditure Report, March 2018.

The Center on Budget and Policy Priorities is a nonprofit, nonpartisan research organization and policy institute that conducts research and analysis on a range of government policies and programs. It is supported primarily by foundation grants. www.cbpp.org

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