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State Government Expenditures

State Government Expenditures

What would you do with $4.1 trillion if you were a governor? Well, that's how much the state governments and the local governments spent in the year 2019.1 Each state allocates money the way they see fit, but allocation can be a tough job. How much of it goes to who and for what? How do you even begin organizing and classifying the different types of expenditures? To learn the answers to these questions, as well as to go through some examples and learn the importance of government expenditures, keep reading on.

State Expenditures Examples

As far as the state budget is concerned, state expenditures are usually split into six categories: K-12 education, university education, social welfare, healthcare, public safety (like police officers), and public transportation. Let's go over an example to see what the breakdown looks like.

Imagine the state of Florida puts out its state budget breakdown for the year 2021 and it looks like this:

Category$ spent
K-12$25 million
Higher Education$15 million
Social Welfare$17 million
Healthcare$35 million
Public Safety $10 million
Transportation$10 million

Table 1: Florida State Budget 2021 Breakdown, StudySmarter

What can you tell just by looking at the chart?

With a quick glance, it's easy to see that healthcare, K-12 education, and social welfare make up a large portion of the total state expenditure. That means that the priorities of the state of Florida lie with healthcare, K-12 education, and social welfare for its citizens. Not to say that small amounts of money were allocated to the other sectors, but far less was allocated to them, meaning they're seen as a lower priority. But Florida is not alone in this. Overall, these three sectors are known to be the top three expenditures of state governments.

State and Local Government Expenditures

Local governments and state governments offer a variety of services that are shown by their direct spending. For example, both spend the majority of their resources on schooling, healthcare, and social services. In fact, over 22% of both local and state spending together went towards K-12 spending in 2019.1 Also in the year 2019, roughly 22% of expenditures went to public welfare. Spending on public welfare includes programs like Medicaid, SSI (Supplemental Security Income), and TANF (Temporary Assistance for Needy Families). Health‐care spending accounted for an additional 10% of local and state expenditures.

The difference? The amounts that are given. For example, schooling accounts for a far higher proportion of local investment than state spending. In 2019, education accounted for 40% of local government expenditure, compared to less than 1 percent of total state expenditure.1 On the other hand, states spent a much larger amount on public welfare than the local governments. For instance, social welfare accounted for 43% of state expenditures in 2019 while the local governments in the same year spent roughly 4%.

Importance of State Government Expenditure

States have an essential role in executing federal programs and determining how exactly to use federal dollars, such as establishing health services or choosing in which location to allocate federal highway and public transportation dollars. State funding is also used to give cash to regional communities for things like shelter, medical services, and community safety.

State expenditures have the power to affect and perhaps save lives. The expenditure of a state is crucial in meeting inhabitants' needs and providing chances for communities and families to prosper. It can also help to eliminate economic gaps and racial gaps in employment, accommodation, and education. Essentially, the consequences of state expenditure affect everyone.

Benefits of State Government Spending

In almost every state in America, the majority of all state spending ends up going to welfare, education, and intergovernmental expenditures. This money is used to pay for educators and other personnel, much-needed classroom materials, and after-school programs. It offers employees, kids, and families (who would alternatively go without insurance at all or be pushed to depend on expensive emergency treatment) inexpensive medical insurance. Public transport, care for those with mental health issues and mental handicaps, aid to impoverished families, state police, and public parks are examples of what the state funds. Without the state government spending on these, the people within the community would have to depend on only the federal government or on private donations for every specific issue.

Classification of Government Expenditure

The degree of government spending has a significant impact on a nation's economy. It's among the most important procedures for ensuring people's well-being. Government spending is divided into six groups: current expenditure, capital expenditure, transfer payments, subsidies, interest payments, and hidden expenditures. Each category of government spending has one or more objectives, such as budget management, economic expansion, and so on.

Current

Current expenditure is defined as spending on products and services for immediate use in order to meet the necessities of community members. Current expenditure covers things like salaries, wages, and products and services.

Salaries/Wages

Wages and salaries are paid to government personnel like army personnel, law enforcement officers, teachers, and healthcare providers. Out of all of the bills, the salary bill is usually the largest. Because the government's the biggest employer, its workers and pay policies have a direct impact on the labor market.

Products/Services

This covers all government purchases of products and services. These items could be for private purposes or for use in the manufacture of fixed capital investments. Purchases of textbooks, teaching aids, pens and paper, and other necessary items are a few examples. Other costs might include expenditure on research centers, hospital machines or devices, and upkeep of public roads and transportation.

Capital

Capital expenditure refers to paying for items that will provide advantages or rewards in the future. This is money spent on fixed assets like property, gear, or intangible goods. It's vital for economic growth since it adds to aggregate national investments.

Lending

Within capital expenditure is another type of spending called lending. By lending, the government can provide educational loans for college students, loans to small businesses, and crisis lending to public firms.

Transfer Payments

Another type of government expenditure is transfer payments. Transfer payments are classified as a current expenditure in several nations. Such spending does not include the purchase of goods or services. Rather this form of expenditure involves a transfer of funds, like pensions, and benefits for the unemployed. These payments include transfers to other branches of administration, non-profit organizations, and individuals to supplement their income.

Subsidies

Subsidies are intended to drive the manufacturing of specific commodities or services. They're granted to certain firms or industries in order to affect product pricing and production. They can be either a fixed sum of dollars per unit of product or service or a certain percent of the item price.

Interest Payments

Governments borrow funds from the public sectors, as well as from foreign lenders. The compensation for the usage of borrowed funds is known as interest. Interest is paid by governments on funds borrowed from citizens, corporations, and international banks. The money is used to pay for government operations and the government must pay interest on the loans so as to prevent default and retain public trust.

Interest is the compensation a borrower of funds pays to the lender.

Hidden

There are occasions when government spending is not visible. Social security, subsidized loans, and federal loan guarantees are all examples of things that might be classified as hidden expenditures. Furthermore, laws that could skew estimates of public spending, like currency exchange rate regulations, may belong to the category of hidden expenditure as well. Of all the types of hidden expenditures, it seems that tax expenditure (government financial losses resulting from tax exemptions, discounts, credits, postponements, etc.) is the one most typically known and used around the globe.2


State Government Expenditures - Key takeaways

  • In almost every state in America, the majority of all state spending ends up going to schooling. welfare services, and intergovernmental expenditures.
  • Government spending is divided into six groups: current expenditure, capital expenditure, transfer payments, subsidies, interest payments, and hidden expenditures.
  • State expenditures are usually split into six categories: K-12 education, university education, social welfare, healthcare, public safety (like police officers), and public transportation.
  • The expenditure of a state is crucial in meeting inhabitants' needs and providing chances for communities and families to prosper.
  • Interest is paid by governments on funds borrowed from citizens, corporations, and international banks.

References

  1. US Census Bureau, Annual Survey of State and Local Government Finances Summary Report 2019, 2020 https://www.census.gov/data/datasets/2019/econ/local/public-use-datasets.html
  2. Tax Expenditures - The Hidden Side of Government Spending https://voxeu.org/article/tax-expenditures-hidden-side-government-spending

Frequently Asked Questions about State Government Expenditures

State expenditure is the amount of money that a U.S. state government spends.

K-12 education, university education, social welfare, healthcare, public safety (like police officers), and public transportation

States have an essential role in executing federal programs and determining how exactly to use federal dollars, such as establishing health services or choosing in which location to allocate federal highway and public transportation dollars. The expenditure of a state is crucial in meeting inhabitants' needs and providing chances for communities and families to prosper.

Intergovernmental expenditures, social welfare, and education. 

Current, capital, transfer, subsidies, interest payments, and hidden. 

Final State Government Expenditures Quiz

Question

What's state expenditure?

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Answer

State expenditure is the amount of money that a U.S. state government spends.

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Question

What are the categories of state expenditure?

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Answer

K-12 education, university education, social welfare, healthcare, public safety (like police officers), and public transportation

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Question

What are the 3 biggest state expenditures?

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Answer

Education, intergovernmental expenditure, and social welfare.

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Question

States are responsible for executing federal programs and determining how exactly to use federal dollars.


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Answer

True

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Question

State expenditures have the power to affect and perhaps save lives. 


Show answer

Answer

True 

Show question

Question

The expenditure of a state is crucial in meeting inhabitants' needs and providing chances for communities and families to prosper.


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Answer

True

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Question

Into how many categories is government spending split?

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Answer

6

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Question

What are the 6 categories of government expenditure?

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Answer

Current expenditure, capital expenditure, transfer payments, subsidies, interest payments, and hidden expenditure.

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Question

What are capital expenditures?

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Answer

They are the expenditures on items that might prove useful in the future.

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Question

What's interest?

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Answer

Interest is extra money that a borrower gives a lender for the usage of funds. 

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Question

Each category of government spending has one or more objectives, such as budget management, economic expansion, and so on.


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Answer

True

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Question

What are transfer payments used for?

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Answer

Transfers to other branches of administration, non-profit organizations, and unemployment benefits.

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Question

When state money is spent on education, what specifically does that cover?

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Answer

It covers the teachers' paychecks, the technology used in the classroom, after-school programs, etc. 

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Question

Currency exchange rate regulations belong to which of the government spending categories?

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Answer

Hidden expenditure

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Question

State funding is also used to give cash to regional communities for things like shelter, medical services, and community safety.


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Answer

True

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