Policy debates often focus only on major decisions made in Washington, DC. But for many Americans, the decisions made much closer to home have just as large, if not larger, effects on day-to-day life. In important respects, the United States remains true to its original system of federalism: states and localities play a prominent role in setting policies that affect the economy more broadly.
State and local government total expenditures amount to $2.9 trillion in the United States. While this is less than the federal government’s $4.3 trillion of expenditures, nearly two-thirds of federal total expenditures are transfers (either to individuals or state and local governments). This means that state and local governments have in some respects a more prominent role in decision-making than the federal government. Indeed, state and local governments make key investment decisions—about infrastructure, education, and many other areas—that help determine the long-run capacity of the entire economy.
State and local governments also enact laws and regulations that define how economic activity takes place. These range from labor market rules to tax policy to environmental regulations to zoning rules. In addition, policymakers’ decisions about how to allocate resources—to education, transportation, or other public goods—are crucial to the U.S. economy. Although the federal government, either by law or by general practice, is required to do extensive analysis of the rules and regulations it makes, this is not always true at the state and local levels. The choices made across states—and sometimes local jurisdictions in the same state—often vary widely.
For housing and transportation policy in particular, decisions made at the local level can have dramatic effects on how and where people choose to live and work. Mobility across states has declined sharply in the United States, and one reason appears to be that land-use restrictions in economically successful regions make it difficult for many workers to move to these locations. Similarly, transportation resources are not always efficiently allocated, making it more difficult for workers to access high-quality jobs.
For the economy to grow and living standards to rise, it is crucial to have successful policy at all levels of government. A set of state and local policy proposals released in January 2019 is the latest in a series of efforts by The Hamilton Project to support broadly shared economic progress through the careful analysis of local, state, and federal policies. This document provides context for those policy proposals in the form of nine economic facts about how state and local policies matter for growth. These facts highlight how rigorous cost-benefit analysis, optimal transportation policy, and land-use rules can affect access to opportunity.
 State and local governments account for a substantially higher share of economic output than does the federal government. Government contributions to 2017 GDP—as opposed to total spending, which includes transfers—were 6.5 percent at the federal level and 10.8 percent at the state and local levels.
 Intergovernmental transfers make up about 39 and 33 percent of local and state government revenue, respectively (BEA 2017; authors’ calculations). For local governments, this estimate includes transfers from states.
 For more granular analysis of state and local revenues and expenditures and in figure 2, we rely on estimates of direct general expenditures (expenditures that exclude government-run liquor stores, utilities, and social insurance trusts) from the U.S. Census Bureau’s Annual Survey of State and Local Government Finances (Census 2016b).
 Although New Hampshire and Oregon collect no sales taxes, they do collect excise taxes.
 Direct general expenditures are not directly comparable to the total expenditures figures presented in fact 1 and figure 1, as they come from different surveys. See endnote 3 for more details.
 Medicaid, which accounts for nearly 30 percent of state budgets, falls under both public welfare and hospitals and health (MACPAC n.d.).
 The 2017 school year is defined as September 2016 through June 2017, and the data are identified using NAICS code 6111 (employment in elementary and secondary schools). The average for these months is 7.5 million. Note that this number includes all staff employed by local governments in elementary and secondary schools; for teachers, specifically, public employment is around 3.2 million (National Center for Education Statistics 2017).
 The Colorado Department of Regulatory Agencies has a particularly important role in assessing occupational licensing policies (Kleiner 2015).
 This index is based on rules that were in place in 2009. In particular, it does not incorporate subsequent reforms carried out in states like Illinois and Massachusetts that limited the use of non-compete agreements or those in Georgia that made enforcement more employer friendly. See the Hamilton Project proposals by Marx (2018) and Krueger and Posner (2018) for details on these agreements and suggestions for how to reform their use.
 This pattern remains even when adjusting for differences between metropolitan areas, and also when restricting survey samples to commuters who travel by car.
 Data from the 1950 census are only available for certain counties and census tracts. However, when comparing census tracts that are unavailable in 1950 with those for which data are available in 1960, we still see low population densities in outlying census tracts.
 The introduction of subway systems resulted in similar population dispersion (Gonzalez-Navarro and Turner 2018). At the same time, increases in density around defunct streetcar infrastructure have been extremely persistent (Brooks and Lutz 2016).
 Mobility has declined in the United States for a variety of reasons, ranging from population aging to declining start-up rates that diminish job-to-job transitions to declining labor market returns to job transitions (Molloy et al. 2016), as well as possible shifts in the jobs available to lower-skilled workers in large, expensive cities (Autor 2019).
 However, construction costs do seem to have risen since the mid-2000s (Romem 2018).