About State & Local Government Fiscal Conditions

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

In 2015, state and local governments received $531 billion in federal grant funding. This amount 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 33 percent of federal funds provided to the sector in 1985 to 69 percent in 2015 (the most recent year of data available by category). Federal grants ranged from approximately 2 to 3 percent of GDP during this time.

Federal Grants to State and Local Governments, 1985 and 2015

TypePercentage
Health31
Housing and community service6
Economic affairs8
General public service7
Other1
Income security37
Education10
TypePercentage
Health66%
Housing and community service4%
Economic affairs2%
General public service<1%
Other2%
Income security18%
Education8%

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

Notes: Medicaid grants comprised approximately 97 percent of health grants in 2015. ‘Other’ includes national defense, public order and safety, and recreation and culture.

Federal Grant Revenues 1985 and 2015: 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 sales, property, and personal income taxes (these sources total about 59 percent—or $1.4 trillion—of the sector’s 2015 receipts. Federal grants-in-aid are a large source of receipts for the sector, providing about $531 billion (about 23 percent of current receipts) to the sector in 2015. The sector received about $236 billion in interest and other receipts in 2015 (about 10 percent of current receipts), including income on assets and contributions for government insurance. Total state and local government receipts increased from $517 billion in 1985 nominal dollars ($992 billion adjusted for inflation using 2015 dollars) to around $2.3 trillion in 2015.

State and Local Revenues, by Type, 1985 and 2015

TypePercentage
Income taxes14%
Sales taxes25%
Property taxes21%
Corporate income taxes4%
Other taxes6%
Federal grants-in-aid15%
Interest receipts9%
Other revenue5%
TypePercentage
Income taxes16%
Sales taxes24%
Property taxes20%
Corporate income taxes3%
Other taxes6%
Federal grants-in-aid22%
Interest receipts3%
Other revenue7%

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 increased from 15 percent in 1985 to 23 percent in 2015.

Total State and Local Revenues 1985 and 2015: 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 fourth quarter of 2008. In the second quarter of calendar year 2016, state and local tax revenues were slightly higher than in the same period in 2015.

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?

In 2015, education was 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 state and local government spending, from 36 percent in 1985 to 33 percent in 2015. 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 12 percent of overall state and local expenditures in 1985 to 25 percent in 2015 (see figure below).

State and Local Expenditures, by Category, 1985 and 2015

TypePercentage
General public service19
Public order and safety11
Economic affairs10
Health12
Education36
Income security10
Other2
TypePercentage
General public service15
Public order and safety13
Economic affairs8
Health23
Education33
Income security6
Other2

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, 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 1985 and 2015: TXT PDF

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

Current state and local expenditures totaled $2.5 trillion in calendar year 2015, up from the $2.4 trillion expended in 2014.

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 Current Expenditures: TXT PDF