Financial History of the United States: Fiscal, Monetary, Banking, and Tariff, Including Financial Administration and State and Local Finance

By Paul Studenski; Herman E. Krooss | Go to book overview

CHAPTER 26: STATE AND LOCAL FINANCE, 1900 TO 1930 1

The expansion of government activity which characterized the new century expressed itself even more on the state level than on the Federal. Moreover, the technological revolution wrought in transportation and industry by the invention of the automobile called for government services beyond the capacity of local governments. The public, therefore, turned more to their state governments, and the states became more important service and fiscal agencies than they had ever been before.

Expansion of State Expenditures and Revenues . During the first three decades of the twentieth century, Federal expenditures increased sixfold and local expenditures sevenfold, but state expenditures increased fifteenfold. The contrast was especially marked after World War I, when state expenditures almost tripled, Federal expenditures became stabilized, and local expenditures increased by only 50 per cent.

The most rapid increase in state expenditures was for roads, which rose from practically nothing to more than a billion dollars a year. Prior to 1900, except for the brief period 1830 to 1850, state governments left this field to local governments--the towns and the counties. But the advent of motor transportation changed this. Existing roads had to be completely reconstructed, and new hard-surface highways connecting the urban centers had to be built. The job was beyond the administrative and fiscal capacities of the localities, and major highways had to be planned, financed, built, and maintained entirely by the states. Even in the case of feeder roads, the states had to provide financial aid and administrative supervision, and later they had to assume responsibility for the application of Federal aid.2

State expenditures for education rose from less than $50 million in 1902 to more than $600 million in 1932. The greater part of these expenditures represented state aid to local school districts, which increased from $30 million to $400 million, one-fourth of total local school expenditures. As

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1
For a consecutive development of state and local finance, see Chaps. 5 ( 1775 to 1800), 12 ( 1800 to 1860), 17 ( 1860 to 1900), and 28 to 30 ( 1930 to 1950).
2
New Jersey, in 1891, was the pioneer in the movement. New York established aid to towns for road construction and maintenance in 1898. In 1906 to 1908 it established a state highway system and a state highway commission. During the 1920's it created a state department of public works uniting the care of canals, highways, and public buildings.

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