About State & Local Government Fiscal Conditions

How much money do state and local governments receive from the federal government?

In calendar year 2011, state and local governments received $493 billion in federal grant funding. This amount includes the infusion of funds provided by the American Recovery and Reinvestment Act of 2009 and is based on data from the Bureau of Economic Analysis’s National Income and Product Accounts.

What are the key categories of federal grant funding to state and local governments and how has this funding to state and local governments shifted over time?

Key categories of federal grants to state and local governments include: health, income security, education, housing and community services, general public services, economic affairs, and other. Health care grants (including Medicaid) have increased as a share of federal grants to state and local governments and grew from 24 percent of federal funds provided to the sector in 1980 to 58 percent in 2010 (the most recent year of data available by category). Federal grants ranged from 2 to 4 percent of GDP during this time.

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Federal Grants to State and Local Governments, 1980 and 2010

Source: GAO analysis of historical data from the Bureau of Economic Analysis's National Income and Product Accounts.

Note: Medicaid grants comprised 91 percent of health grants in 2010. ‘Other’ includes national defense, public order and safety, and recreation and culture.

Federal Grant Revenues 1980 and 2010: TXT PDF

What are the key sources of state and local government revenues and how have they shifted over time?

The state and local government sector’s key sources of revenue include personal income, sales, and property taxes (these sources total about 63 percent—or $1.3 trillion—of the sector’s 2010 receipts). Federal grants-in-aid is a larger source of receipts than personal, sales, and property taxes for the sector, providing about $ 532 billion (about 26 percent of current receipts) to the sector in 2010. The sector received about $ 225 billion in other receipts in 2010 (about 11 percent of current receipts), including income on assets and contributions for government insurance. Total state and local government receipts increased from $ 338 billion in 1980 nominal dollars ($785 billion adjusted for inflation using 2010 dollars) to more than $2 trillion in 2010.

State and Local Revenues, by Type, 1980 and 2010

Source: GAO analysis of historical data from the Bureau of Economic Analysis's National Income and Product Accounts.

Note: Federal grants as a percentage of state and local revenues decreased from 21 percent in 1980 to 15 percent in 1990 1989 and then gradually increased to 26 percent in 2010.

Total State and Local Revenues 1980 and 2010: TXT PDF

How have overall levels of state and local government revenues changed over time?

Growth in state and local government tax revenue slowed around the start of the recession that began in December 2007 (see figure below). State and local governments’ current tax receipts declined for four consecutive quarters, starting in the third quarter of 2008. Tax receipts totaled $1.27 trillion in calendar year 2009, down about 5 percent from the $1.33 trillion collected in 2008. In the third quarter of calendar year 2011, state and local tax revenues were higher than in the same period in 2010.

Source: GAO analysis of historical data from the Bureau of Economic Analysis's National Income and Product Accounts.

Year-over-Year Percentage Change in State and Local Government Tax Receipts: TXT PDF

What are the key categories of state and local government expenditures and how have they shifted over time?

Education is the largest category of state and local government expenditures, followed by health care expenditures. During the last 30 years, education expenditures declined as a share of all state and local government spending, from 39 percent in 1980 to 33 percent in 2010. However, inflation-adjusted spending on education increased over this time period, so this decline in education spending as a share of all state and local government spending largely reflects shifts resulting from faster growth in spending on health care. Health care spending has increased as a share of state and local spending, growing from 13 percent of overall state and local expenditures in 1980 to 22 percent in 2010 (see figure below).

State and Local Expenditures, by Category, 1980 and 2010

Source: GAO analysis of historical data from the Bureau of Economic Analysis's National Income and Product accounts.

Note: The Other category includes Housing and Community Services and Recreation and Culture. Economic affairs includes transportation, space, agriculture, and natural resources. Health includes Medicaid. General public services includes interest payments and tax collection and financial management services. Income security includes disability, welfare, and social services. State and local government pension contributions are considered part of employee compensation and accounted for within the categories.

Total State and Local Expenditures 1980 and 2010: TXT PDF

How have overall levels of total state and local government expenditures changed over time?

Total state and local expenditures totaled $2,090 billion in calendar year 2010, up slightly from the $ 2,032 billion expended in 2009. In the third quarter of calendar year 2011, state and local expenditures were higher than in the same period in 2010. These amounts include the infusion of funds provided by the American Recovery and Reinvestment Act of 2009.

Source: GAO analysis of historical data from the Bureau of Economic Analysis’s National Income and Product Accounts.

Year-to-Year Percentage Change in State and Local Government Expenditures: TXT PDF