How do cities and states decide how to spend taxpayer money?
How do cities and states decide how to spend taxpayer money? - 
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Our tax dollars pay for things like pensions, police and firefighters, services that uphold our safety and maintain the peace. But when it gets down to the day-to-day decisions about where our tax dollars should go in a tough economy, how exactly do cities prioritize their spending of our hard-earned cash? Kevin Klowden has tracked this. He's a managing economist at the Milken Institute, where he serves as director of the California Center.

So after we pay taxes, where does all the money go?

"Depending on the state you live in, it can be very, very different. Some states, a lot of it will stay more locally. A lot of states -- like here in California -- because property taxes are limited, most of the money actually goes to the state government who then cycles it around and then sends a bunch of it back locally," says Klowden.

Different parts of the government decide where taxpayer money goes. City councils at the city level or the state legislature at the state level decide what the budget priorities are and how to divide the money, says Klowden. Usually, cities spend taxpayer dollars to fund essential public services, but the amount that's doled out can vary. For example, one municipality might have a larger discretionary fund for their parks than a neighboring city.

"Most of the money tends to go to city salaries or city services or maintaining parks and roads and things we expect from year to year to year," says Klowden. "Then you have that discretionary budget, that certain amount of money, that goes to either fixing problems that they've let sit for years or building or doing something new and interesting."

Problems do arise when cities decide to over-reward employees at a much faster rate than inflation -- especially when it comes to salaries, pensions, and health care benefits. And of course, in bankrupt cities like Stockton, Calif., services like police and firefighters will often go by the wayside because the municipality's focus is paying off its creditors.

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