Sources of Revenue for Local Government

11 Key excerpts on "Sources of Revenue for Local Government"

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  eBook - ePub

  Managing the Fiscal Metropolis

  The Financial Policies, Practices, and Health of Suburban Municipalities

  • Rebecca M. Hendrick(Author)
  • 2011(Publication Date)
  • Georgetown University Press

    (Publisher)

  Own-source revenues are generated from resources within the local government’s jurisdiction, although they can be collected by other governments and distributed to the owner government at regular intervals. Local own-source revenues include property taxes, user fees, and other charges and in some states may include sales and income taxes. Local governments meet most of their service and financial obligations with own-source revenue, but much of their revenue can be intergovernmental in the form of general assistance from state government based on a formula or a share of state taxes and grants from state and federal government.

  A local government’s economic base represents the set of economic resources from which it draws own-source revenue. Its revenue base is that portion of the economic base it has access to through specific revenue-raising mechanisms as established by state statute and other legal and institutional constraints. Most local governments have access to property values (property tax), and some have access to sales receipts (sales taxes), resident and nonresident income (payroll tax), and other sectors of the economy (e.g., utility usage and development). Income per capita is also considered to be a good measure of total revenue base wealth in governments with few revenues generated from businesses or nonresidents (Berne and Schramm 1986). The value of many specific revenue bases also are greatly affected by population growth and economic development, which, over time, may increase property values and the revenue generated from fees (e.g., building permits).

  Own-source revenue capacity reflects that portion of the revenue base the government can collect, which also is established in most cases by state statute. For instance, state governments often limit the maximum property tax rates local governments can levy. Thus a local government’s revenue-raising capacity for a particular type of revenue is the maximum level of revenue it could raise from that source. Actual revenues are the amount of revenues it actually collects and revenue reserves

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  Municipal Finances

  A Handbook for Local Governments

  • Catherine Farvacque-Vitkovic, Mihaly Kopanyi(Authors)
  • 2014(Publication Date)
  • World Bank

    (Publisher)

  It is better to err on the safe side and underestimate rather than overestimate expected revenues. Local gov- ernment revenues fall into different groups that are important for both planning and analysis pur- poses. Finance officers need to be aware of the characteristics of a good local tax: predictability, buoyancy, equity, and local control. Ideally, local revenues are controlled locally and proceeds are stable, predictable, buoyant, equitable, and usable without constraints. However, very few revenues pass this test; property taxes and fees may be the closest ones. Some local government revenues are very sta- ble and predictable (property taxes); others show wide variations (sales tax). Some are restricted for specific uses (road charges), and others have no restrictions. Depending on the country, some local revenue sources are established by the local coun- cil, but many others may be beyond local control. For example, in the United States the constitution of the state of Wyoming (Wyoming 2011) gives local officials very little decision-making author- ity with respect to taxes and fees. The same is true for Mexico and many developing countries. Municipal revenues can be classified in dif- ferent ways, notably own revenues, intergovern- mental transfers, and external revenues. Good revenue management also requires distinguish- ing between current (or recurrent) and capital (or nonrecurrent) revenues, although that is not mandated in many developing countries. Table 4.3 and figure 4.4 show the classification of local revenues used in this chapter. Revenues are classified into current and capital. Within current revenues are own revenues, transfers, and other revenues. Shared taxes (collected by the central government and shared with subna- tional entities) sit at the border of own revenues and transfers.

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  Financial Planning and Management in Public Organizations

  • Alan W. Steiss, Emeka O. Nwagwu, Alan W. Steiss, Emeka O. Nwagwu(Authors)
  • 2001(Publication Date)
  • Routledge

    (Publisher)

  Special assessments , like taxes, are imposed on a property. They are compulsory, for public purposes, and require formal assessment. They differ from taxes in that they are related to a specific benefit, need not be uniform throughout the jurisdiction, and generally allow no exemptions. 52 Chapter 2 While no one of these sources is very large, taken together charges and miscellaneous revenues account for nearly 30% of all general revenue received by state and local government. Further, these sources of local revenue increased by over 213% in the period for 1980 to 1992, outpacing the growth in all other sources of general revenue. 3.7 Intergovernmental Revenues Intergovernmental revenues can be categorized as to source and function. Local revenues in this category may be derived from either the federal or the state gov­ ernment. The reporting system of the Census Bureau does not provide data as to the amount of state aid to local governments, which in fact is flow-through fed­ eral funds conveyed to the state and then passed on to local governments. There­ fore, the fact that state intergovernmental transfers often are 3 to 4 times that of the federal government is somewhat misleading. Intergovernmental revenues may be given in the form of grants-in-aid or shared revenues. The function of grants-in-aid is twofold: (1) to assist disadvan­ taged municipalities in the provision of needed public services in an attempt to effect stabilization, equalization, and support of such governments and (2) to provide impetus for the expansion of particular functions. Such grants usually are provided for specific purposes, and the receiving government is required to meet a set of minimum standards. Such categorical grants often seek to encour­ age local government units to shift expenditures to particular functions or to pro­ vide certain public services in a manner and at a level consistent with national/state interests.

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  Handbook of Governmental Accounting

  • Frederic Bogui(Author)
  • 2008(Publication Date)
  • Routledge

    (Publisher)

  Census Bureau, Government Division. http://www.census.gov/govs/www/ Expenditures and Revenues in U.S. Governments  139 services and income maintenance” is another major item in local budgets. In recent years, local governments have spent more on welfare programs, mostly though intergovernmental grants. In addition, many local governments own hospitals or other health care facilities and administer many public health programs locally. 3.3 Revenues 3.3.1 Overview: Revenue Sources in the United States U.S. governments collect most of their “general” revenues from taxes that are levied on income, purchases or sales, or property (ownership or transfer). In addition, they collect revenues from user charges and from miscellaneous sources, such as lotter-ies, interest on invested funds, royalties, etc. (Mikesell, 2003). While governments also receive revenues from business-like activities such as liquor stores, utility opera-tions, or insurance programs, these revenue sources are traditionally categorized as “special” revenues. Although all levels of government collect revenues from a variety of sources, generally speaking, the federal government relies primarily on income taxes, state governments on sales taxes, and local governments on property tax. In addition, the federal government relies on taxes to a greater extent, while state and local governments raised a higher portion of revenues from user charges or other sources. Of all general revenues collected in fiscal year 2003, the federal government col-lected 57%, the states 23%, and local governments 20% (Office of Management and Budget, 2006). In terms of direct expenditures, however, the percentage is 45 for federal government, 25 for states, and 30 for local governments (Office of Management and Budget, 2006). The difference occurs because a substantial frac-tion of state and local government expenditures is financed by intergovernmental grants, which will be discussed separately.

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  Fiscal Health for Local Governments

  • Beth Walter Honadle, Beverly Cigler, James M. Costa(Authors)
  • 2003(Publication Date)
  • Academic Press

    (Publisher)

  Accountability for performance, including strategic planning processes, benchmarking, performance monitoring, and consul-tative processes with citizens are being increasingly stressed over processes and inputs. Similarly, greater attention is being paid to impact analysis, risk assessment, user design, and information disclosure to citizens. L  R  S  As local officials face the macro trends discussed in this chapter and in Chapter  , they must be aware of local revenue sources and options for increasing a local government’s revenue flexibil-ity all within the limits of the state-local relationship. The remaining sections of this chapter address these issues and are  F  H   L  G  condensed primarily from Cigler (  ,  a), with the major works of others noted in the publications cited here. A local government’s fiscal capacity and flexibility depend on the appropriateness, variety, and productivity of its revenue sources. Flexibility results from having authority over revenue sources that can be varied in response to new and changing demands for services. Extensive use of earmarked taxes, charges, or special assessments and tightly drawn tax bases reduce fiscal flexibility. Whether local governments need more revenues or should have more revenue flexibility is less an issue than are ques-tions about the appropriate mix of revenues for financing services and meeting policy-making responsibilities in an equitable manner. Questions about who pays what and how, to which level of government, and for what services are fundamental to deter-mining fairness in the cost of public service provision. Intergovernmental fiscal transfers are an important source of local revenues, although such transfers have declined in recent years.

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  Public Finance in Theory and Practice Second edition

  • Holley H. Ulbrich, Holley Ulbrich(Authors)
  • 2013(Publication Date)
  • Routledge

    (Publisher)

  Part 3 Funding Government Taxes, Fees, and Grants

  The next seven chapters address the revenue side of government: the funds to pay for public programs, the distribution of the burden of paying for government, and the use of revenue instruments as means toward specific policy ends. The primary revenue source for government is taxes. Taxes are the focus of the next five chapters.

  The first two chapters explore the theory and practice of tax system design. The next three discuss each of the broad categories of taxes—income, sales, and property. The final two chapters in this part examine two other important revenue sources, fees and charges and intergovernmental grants.

  According to Justice Oliver Wendell Holmes, taxes are the price we pay for a civilized society. That dictum still leaves room to argue over whether the taxes are too high relative to the amount of civilization that citizens want or need or actually receive in return. It does mean that taxes are an inevitable part of living in society. Given the necessity of taxes, it is the economist’s task to provide some guidance in designing a tax system that minimizes the undesired side-effects of collecting them (efficiency) and apportions the burden in some way that addresses the equity concerns raised in Chapter 5 .

  Although taxes are still the primary form of revenue for governments at all levels, they are not the only source. Fees and charges, discussed in Chapter 16 , are a second and increasingly important way of paying for services that have some advantages in terms of both efficiency and equity. In both unitary and federal systems, intergovernmental grants represent an important supplement to own-source revenues for lower levels of government, a subject addressed in Chapter 17

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  Public Finance

  A Contemporary Application of Theory to Policy

  • David Hyman(Author)
  • 2013(Publication Date)
  • Cengage Learning EMEA

    (Publisher)

  Finally, it could be that this community, because of either geographic or demo-graphic characteristics, requires more per capita expenditure than the national average to meet the basic demands for government-provided services by its populace. The chief shortcoming of the revenue effort measure is the fact that it ignores the expenditure side of the budget. The extent to which citizens in a community wish to tax themselves depends on the collective choices made concerning the allo-cation of resources between government and private uses. Revenue effort statistics must be used in conjunction with data on per capita expenditure and per capita tax base values to provide useful information on the need for fiscal equalization of the capacity to finance goods and services. 648 PART FIVE State and Local Government Finance Copyright 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s). Editorial review has deemed that any suppressed content does not materially affect the overall learning experience. Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it. INTERGOVERNMENTAL FISCAL RELATIONS Variation in fiscal capacity among states and local governments provides a basis in intergovernmental aid to ensure minimum levels of certain public services in all regions of a nation. Intergovernmental aid is also a way to help achieve a more efficient allocation of resources in the government sector by internalizing interjurisdictional externalities. In fiscal year 2011, federal aid was a major source of revenue to state and local government, accounting for 23.3 percent of revenue. Local governments also rely heavily on grants from state governments to finance their expenditures.

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  Local Government in West Africa

  • Ronald Wraith(Author)
  • 2023(Publication Date)
  • Routledge

    (Publisher)

  A large proportion of it may come from the administration of the local courts, in fines and fees, though the expenses of the court have to be set against this and it is quite possible for there to be a deficit instead of a surplus. It is not a good principle that the revenue of the courts should come to be relied on as income for local government, and it is something of an anomaly that while the personnel of the courts has been separated from that of the councils their finances are still so closely intertwined. Obviously the local authorities must be reimbursed for the cost of maintaining the courts, which is one of their statutory duties, but the principle of financing local services from the profits of crime is open to question and could lead to abuses.

  Another source of revenue is from fees charged for specific services, which ought to be paid for by the individuals who use them rather than by the whole community in the form of rates. Examples are the fees for car or lorry parks, for the use of slaughter houses or for market stalls (although these could more properly be called rents). These, however, should not be regarded as a significant source of revenue, as the real purpose of charging fees is to defray the cost of providing the service, e.g. paying the wages of supervisors, attendants or cleaners; in principle the object should be to provide the service at the lowest cost rather than to think of it as a source of general revenue. The same principle should apply to the larger undertakings of the big cities e.g. the fares charged for a municipal bus service should be as low as is consistent with maintaining and improving the service and setting aside enough money for depreciation and replacements; some bus services can be highly profitable, and there is a temptation for the authority to regard them as a source of revenue for general purposes instead of a service to the people who use them.

  Then there are various kinds of ‘licences’, which may be for such varied purposes as bicycles, carts, canoes, palm-wine shops, bakeries, slaughter houses, firearms, drumming or entertainments. Here again there is apt to be a confusion of principle. The purpose of making people take out licences ought to be either because it is undesirable to have too many of a certain thing, e.g. palm-wine sellers or hawkers; or because there is something potentially dangerous or insanitary which ought to be inspected and controlled, like firearms on the one hand or bakeries and slaughter houses on the other. While it is convenient to treat these as sources of income there needs to be a sense of moderation. There is a temptation to want to licence, for the sake of the fees, certain things which are really helping to develop the country, and which ought to be encouraged rather than taxed. In countries with very little public transport bicycles are an advantage, as are any forms of vehicle which can replace the inefficient system of head-loading. The licencing principle, when applied to these, is more open to question, for it may amount to a tax on progress.

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  Budgeting for Local Governments and Communities

  • Douglas Morgan, Kent S. Robinson, Dennis Strachota, James A. Hough(Authors)
  • 2017(Publication Date)
  • Routledge

    (Publisher)

  Intergovernmental revenues reflect the principles of federalism and local autonomy that are built into the U.S. and state constitutions. Governments at any level—federal, state, or local—may independently raise revenues and may, within their authority, transfer or grant revenues to other levels of government to further the public good. From a budgeting perspective, revenues transferred from one governmental entity to another governmental entity on the same or on a different level are categorized as intergovernmental revenues. Intergovernmental revenues are roughly structured in the following forms:

  • Direct grants or payments for the performance of a specific service or defined program of services under a voluntary intergovernmental agreement or a contract.
  • Reimbursement payments to another level of government to offset the costs of providing statutorily delegated or mandated programs and services, allocated by formula, lump sum, or entitlement.
  • Revenue sharing between one level of government and another.3

  State governments are the largest source of intergovernmental revenues for local governments. These revenues range from the direct return of shared tax collections to reimbursements granted for the operation of specific programs or services. Federal transfers typically provide an important but smaller source of intergovernmental revenues for cities, towns, and special districts. Federal funds often become the final source of several complementary revenues for a project, thus making it achievable. Local governments must carefully document intergovernmental revenues both for legal and financial compliance purposes, and to enhance transparency and public trust.

  Direct Grants and Payments

  Direct grants and payments for services are voluntary exchanges between governments. These types of grants and payments often exchange the performance of services for payment. For example, a small city might purchase law enforcement services from the local county sheriff’s department. The purchase would be structured under an intergovernmental agreement, similar to a contract that would specify the services provided, staffing and performance criteria, and payment amounts and schedules. The city would make regular payments, and the county sheriff’s office would register those payments as intergovernmental revenues. Programs to make intergovernmental grants may be structured on a competitive or noncompetitive basis, but the final decision to enter into agreement is voluntary. Federal grants in this category would typically include project grants, cooperative agreements, and direct federal payments for a specific use of local services (CFDA 2011

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  State and Local Politics

  Institutions and Reform

  • Todd Donovan, Daniel Smith, Tracy Osborn, Christopher Mooney(Authors)
  • 2020(Publication Date)
  • Cengage Learning EMEA

    (Publisher)

  344 6. Analyze how different sources of revenue affect who bears the burden of funding state and local government. 7. Explain when taxes go up or down. 8. Describe some effects of taxes. 9. Recognize the major programs that state and local governments spend money on. 10. Discuss how state and local budgeting differs from budgeting the federal government. LEARNING OBJECTIVES 1. Explain why states experience boom and bust budgeting. 2. Apply criteria to evaluate the strengths and weaknesses of different sources of government revenues. 3. Discuss why some places tax and spend more than others. 4. Describe and evaluate the major sources of state and local revenues. 5. Recognize how state governments make use of different mixes of revenues. CHAPTER 10 Fiscal Policy Bloomberg/Contributor/ Getty Images Copyright 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s). Editorial review has deemed that any suppressed content does not materially affect the overall learning experience. Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it. Fiscal Policy Boom and Bust Budgeting Fiscal politics is often about figuring out what to do when things go bust, as they did spec-tacularly in late 2008. With the banking sys-tem in crisis, businesses stopped investing, and millions lost their jobs. Consider Arizona. It was an engine of economic growth since 2000 with a construction boom generating thousands of jobs. Jobs and spending pumped revenue into state and local governments, and public spending increased. The amount of funds that Arizona State University received from the state per student enrolled increased each budget year from $5,900 in 2002 to a record $8,000 per student in 2008.

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  Fiscal Administration

  • John Mikesell(Author)
  • 2017(Publication Date)
  • Cengage Learning EMEA

    (Publisher)

  Because of that diversity of choice, state and local governments have an important and independent role in providing and financ-ing government services. That includes the power to spend, as well as the responsibil-ity to raise revenue adequate to support that spending. 1 In contrast to the case with subnational governments in many countries, U.S. state and local governments have considerable responsibility for raising the revenue that they spend. In some countries, these subnational units operate mostly as departments of the national government and have only limited independent authority for either service or revenue decisions. Completely independent and uncoordinated operation of these levels would, most argue, produce unacceptable results. Such a posture would undoubtedly leave the public without desired and affordable services, inflict severe burdens on some unluckily placed individuals and businesses, and leave some lower-level governments Chapter Contents Correspondence and Subsidiarity Is Bigger Better? Fiscal Disparity Coordination and Assistance: Tax Systems Coordination and Assistance: Grants Categorical Grants 1 The analysis of the vertical structure of public finance and the practice of government finance across tiers of governmental entities in a nation is called “fiscal federalism.” Copyright 2018 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. WCN 02-300 644 Part Two: Revenue Sources, Structure, and Administration in chronic fiscal crisis. Those problems highlight the importance for regularized fis-cal interrelationships among governments. 2 Subnational governments allow fiscal diversity and choices about which govern-ment should provide which services. Although the federal government continues as sole government provider of national defense and postal services, other significant government functions are divided among federal, state, and local governments.

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