User fees make up an increasing portion of many local government budgets.
Most local governments depend on property taxes and sales taxes to raise revenue. Although property taxes are a stable source of revenue for local governments, property taxes have decreased. Municipalities have replaced them with sales taxes, hotel taxes, or income taxes which are more vulnerable to economic downturns. State initiatives to limit local governments’ options to fund their communities have also turned them towards regressive revenue sources such as fees and fines. This report is the first step of the Rethinking Revenue initiative to show that local government revenue collection practices are not aligned with modern economic realities and that their outdated policies contribute to unfairness for taxpayers. Rethinking Revenue is a joint project created to provide local governments with the ability to raise revenues fairly and in a way that is consistent with community values for the services their communities need. The authors offer recommendations to make local government more cost-effective.
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- From 1977 to 2017, local governments’ revenue from property taxes has decreased from 31 percent to 26 percent.
- Property valued in the bottom 10 percent pays two times the effective rate of the property in the top 10 percent.
- Nine in ten U.S. cities do not have the legal authority to levy an income tax, and 45 percent do not have the authority to levy a sales tax.
- Less fragmentation of local governments.
- Reform public pensions to be more affordable and financially sustainable.
- Move away from incremental budgeting to make better decisions about spending limited resources.