Services provided by state government are financed by a combination of revenues generated from both state and federal governments. However, many state programs are funded exclusively by the state using state taxes. In addition, some state services and programs are mandated by the federal government but are not fully paid for with federal money; these are called "unfunded mandates."
Police
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State police forces are paid for almost exclusively by state governments through the use of state taxes. While local police departments, such as those headquartered in cities and counties, are considered local agencies and therefore are funded primarily by local income taxes, state troopers are a state service. However, state police forces may receive limited grants from the federal government.
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Corrections
In the United States, there are two sets of prison systems: the federal system, administered by the Federal Bureau of Prisons, and the state system, administered by state departments of correction. State taxes finance the building of prisons and the housing of inmates. In some states, prisons can be owned and operated by private companies, but these companies are paid with state taxes.
Infrastructure
States are responsible for building and maintaining much of the state's infrastructure. This can include roads, telecommunications and facilities that provide water and power. In many cases, infrastructure is maintained with the aid of money from the federal government. In addition, many states may regulate utility companies but not pay for the water- and power-generating facilities, only some of the distribution equipment, such as pipes, sewer lines and power grids.
Higher Education
Local governments generally pay for elementary and high school through local taxes, giving them considerable autonomy in how they use funding. However, higher education--state colleges and universities--are typically paid for through state taxes. The quality of a state's university system differs widely from state to state, in part due to the fact that states vary widely in the funding allotted them.
Environmental Regulation
While the federal Environmental Protection Agency is responsible for some forms of environmental regulations, each state has its own environmental regulatory agency as well. There are a number of unfunded federal mandates related to the environment, such as the Clean Air Act, that the federal government expects states to enforce, but for which it provides no set funding.
Health Care
Most hospitals and clinics are generally funded by local taxes, although states may allot money to help local governments. However, health care programs initiated by state governments are funded through state taxes. In addition, the federal Medicaid program, which provides health care to low-income individuals, is partially funded by state governments.