A Complex Tale

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  State taxes, like federal and local taxes, come from a variety of sources. Once collected, however, their destination may not be in state government at all. Some taxes that are paid to local governments, like property taxes or income taxes, may even be paid to the state and then returned to a local government unit like a library or school district. However it's collected, it is recorded on the "revenue" side of the official budget and is dispersed on the "expenditure" side. Most states have a department responsible for the development of the budget and a treasurer who's responsible for keeping track of actual expenditures. Most states issue bonds that must be repaid (plus interest) to bondholders who have essentially loaned money to the state. In addition, most states maintain an insurance trust fund for pensions, health and unemployment expenses, just like any employer would. Other than these continuous investment expenses, general expenditures fall into two categories: direct and intergovernmental.
  
  

Direct Services

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  The majority of general expenditures are direct: salaries for officials, state police, other employees and their expenses. Many states have health plans, and most provide social support for the poor, especially the children of the poor. Many operate job services and training programs for citizens and administer federal unemployment programs. State governments build and maintain roads, prisons and hospitals. State police provide laboratory, investigative and emergency management support for counties, parishes, towns and municipalities. Each state also maintains its own militia, also known as the National Guard, that stands ready to respond to disasters and to supplement the national armed forces in times of national emergency or war. Emergency services must be maintained and ready to serve all the time, not just when they're "called up." In addition to personnel and services, the state must maintain the buildings and physical plants used by them: capitol, offices, hospitals, armories, state park facilities, colleges and universities are all part of "capital outlay" expenditures made with state taxes.
  
  

Intergovernmental Expenditures

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  Intergovernmental expenses may be "revenue sharing" payments to counties or municipalities, or they may be made to local school, park, library or sanitary districts. States also make "grants"---often as part of federal programs---to police departments, schools, community development programs and scholarships. State crime laboratories that provide services to law enforcement agencies prorate them, pass along a portion of the cost and count the cost of the service as an intergovernmental expense; the same is true of any state health or welfare program that provides services. Utilities, such as gas, water and electricity may even be counted as intergovernmental expenses if the company is a public utility or special district. Garbage pickup and environmental services may also be listed as either direct or intergovernmental expenses, depending on the nature of the supplier. Every expense must be classified. In the end, costs for many services and programs are broken into direct and intergovernmental expenses.