Local government revenue structure: Trends and challenges

Abstract

This paper examines trends in local government revenues and current challenges that local governments face in raising revenue. We also look into the future in an effort to make recommendations to local governments regarding their revenue structure. Important trends that we document include a long-term decline in the property tax and an increase in both state aid and user charges. Recent economic changes present serious challenges for local governments due to volatility of sales taxes, decreases in property values, and threats to state aid. As local governments shape their revenue structure, they will need to respond to external economic, technological and demographic changes. Only user charges offer hopeful prospects as a productive revenue source.

Local revenue structure under economic hardship: reliance on alternative revenue sources in California counties

“…Thus, localities with unstable revenues tend to increase reliance on nontax for services, fees and charges in particular (Cain and Mackenzie 2008). Collection of nontax revenue becomes less administratively costly due to technological development (Bartle et al 2011). More so, public opinion favors user charges during hardship, although not without resistance (Downing 1992;Hendrick 2013).…”

“…It has often been argued that local officials have little control over the economy determined by external factors (Bahl 2004), and their fiscal choices may not be predictable and rely on heuristics and bounded rationality (Morgan and Pammer 1988;Nelson 2012). However, local officials have diverse coping strategies depending on economic conditions that sometimes create entrepreneurial solutions (Bartle 1996;Bartle et al 2011;Cain and Mackenzie 2008;Levine 1978;Nelson 2012;Nelson and Svara 2015). Thus, the impact that economic recessions have on revenue varies across local governments.…”

“…However, localities under economic hardship have limited abilities to implement base-broadening measures that require considerations for the long-term impact on the economy and transitioning to a new tax report system. Accordingly, they may shift reliance to revenue sources that are less sensitive to economic conditions (Bartle et al 2011).…”

“…With increasing frequency, local governments are seeking out alternative, nontax sources of local revenue -such as fees, licenses, user charges, fines, forfeitures, and other miscellaneous revenues -to bolster traditional revenue sources such as property taxes, sales taxes, and income taxes (Krane et al 2004;Carroll and Stater 2009;Carroll and Johnson 2010;Gamkhar and Pickerill 2012). The revenue potential of these nontax sources becomes considerable and attractive for local governments, but scholarly attention to nontax revenue has been relatively thin (Blom-Hansen, Monkerud, and Sorensen 2006; exceptions include Krane et al 2004;Hoene 2004; Bartle, Kriz, and Morozov 2011).…”

Regional Differentiation of Revenues Collected by Local Governments of Lithuania

“…Scientific studies show that issues of local budget formation are becoming an important financial and economic research object, which is reflected in papers of the following authors: Wenli (2011), Shoup (2004), Alm, Buschman, Sjoquist (2014), Cal, Garrey, Renner, Clyde (1987), Whitney (2013), Bartle, Kriz, Morozov (2011), Zhang (2013, Haug, Nerre (2005). Lithuanian scientists also deal with matters of local self-government, among whom are Davulis, Peleckis, Slavinskaitė (2013), Astrauskas, Striškaitė (2003), Baltuškienė (2004), Astrauskas (2011), Bivainis (2005), Naraškevičiūtė (2008) and others.…”