Trends in Local Government Revenues

This paper by J. Edwin Benton examines the response of diverse local fiscal structures in the U.S to economic stress with the aim to determine whether small and large municipalities across regions can adjust in a similar way. Revenue data from 1962 to 2002 for counties, special districts, school districts, municipalities, and townships were analyzed. The data illustrates percentage of local government revenues from intergovernmental transfers as opposed to own-source revenues in the form of taxes and user fees. The percentage of general revenue is compared in different regions across the country as well as different population thresholds.

Based on his analysis, Benton suggests that local governments in general should use charges for services to generate additional revenues. This is especially true for cities in the North Central, South, and West, where user fees and charges have been the main sources of local public funds. State governments in these regions have also been more amenable to allowing local governments to expand the use of local sales and income taxes and user fees. Cities in regions where anti–property tax sentiment is strong should renew their efforts to secure more state aid and/or utilize local sales, gasoline, and income taxes. With constitutional limits on property tax collections, rate increases, and assessed values, the possibility of expanding this revenue source is low. Finally, if revenues from user fees falter as the economy remains weak, cities may have to contract out more services to private and non-profit vendors, renegotiate service responsibilities with the state and other levels of government, or utilize more volunteer labor. To enhance productivity in the future the author proposes local government management practices will need to be overhauled.

This paper was presented at the Lincoln Institute’s Land Policy Conference of 2009 and is Chapter 4 of the book Municipal Revenues and Land Policies.