Final answer:
The correct answer is option 1. Elementary and secondary education is the largest category of local government spending, making up about one-third of the total expenditures.
Step-by-step explanation:
The largest category of spending for most local governments is elementary and secondary education. This accounts for about one-third of total local government spending, far surpassing other expenses such as hospitals and public protection. While local governments also allocate funds to police protection, fire protection, housing and community development, and public utilities, education remains the primary expenditure.
All states, with the exception of Vermont, have balanced budget laws which necessitate that any financial shortfalls be addressed by adjusting taxes, reducing expenditures, or utilizing savings.