Revenue & Budgeting
by Gianmarco Katz
What's the Problem?
Long-standing structural challenges and crises like the COVID-19 pandemic have left municipal budgets across the US in distress. While demands for public investment have grown, revenue has not kept pace. Between 1977 and 2017, state and local governments collected less than 96 cents for every dollar spent. The result? Chronic deficits, diminished public services, and growing inequalities — especially for working-class communities and communities of color. At the same time, corporations and wealthy individuals have increasingly avoided paying their fair share, leaving local governments to rely on regressive revenue mechanisms like service fees and fines. To ensure communities have the funds necessary for high road prosperity and development, local leaders must implement progressive revenue models that place financial burdens on those best equipped to bear them.
What are People Currently Doing?
Property Taxes
A key strategy for financial reform lies in property taxes. These taxes can be structured to curb land speculation and promote socially beneficial land use. For example, vacancy taxes create penalties for owners of unused or underused property. Vancouver’s vacancy tax charges property owners one percent of their property’s assessed value if it is unoccupied for more than half of the year. Oakland has passed a vacancy tax, and cities such as San Francisco are currently evaluating proposals. Split-rate property taxes separate taxes on land from the buildings or improvements on it. They are an economically efficient tool to incentivize property owners to maximize their real estate’s social and economic value. Split-rate taxes are especially useful in cities with large tracts of underdeveloped land, such as Minnesota and Pennsylvania. This report from the Lincoln Institute on Land Policy outlines findings and recommendations from Detroit's system.
Property taxes can also support equitable housing and community development. Mansion taxes include progressive annual property taxes that charge higher rates for high-value luxury properties or real estate transfer taxes that increase at a certain dollar amount. Los Angeles’s mansion tax applies a 4 percent fee to real estate transfers over $5 million and a 5.5 percent fee on real estate transfers over $10 million, with proceeds being used on affordable housing and homelessness prevention initiatives. The Institute on Taxation and Economic Policy (ITEP) suggests local governments improve housing affordability and equity by implementing targeted reforms such as circuit breakers, payment deferment, renter credits, land value taxes, and more equitable assessments. Intentional policies can ensure tax relief reaches those who need it most without destabilizing revenue systems or undermining public services.
Properties owned by tax-exempt entities still consume government services, shifting costs onto residents. Municipalities can institute Payments in Lieu of Taxes programs (PILOTs) to negotiate voluntary contributions for accessing public services from tax-exempt entities. These arrangements vary: some take the form of long-term contracts, others are one-time payments, and other agreements include the provision of services from NGOs to the community. Boston’s PILOT project raised $17 million in revenue and created a democratic process by which organizations could negotiate payment contributions. The Lincoln Land Policy Institute is a leader in PILOT policy and has published best practices and other research in this area. PILOTs, however, should not be used as backdoor subsidies for taxpaying entities. Take the example of Memphis, which offered corporations PILOT agreements that reduced property tax revenue in exchange for economic development goals that were never achieved.
Income Taxes
Local income taxes provide an opportunity to pursue equitable revenue generation in 17 states (see ProGov21’s Home Rule roadmap for more on state preemption). A report from ITEP makes a strong case for local income taxes as an equitable, underused tool to replace regressive taxes, stabilize local budgets, and ensure those with greater means contribute more to public services. Progressive income taxes with refundable Earned Income Tax Credit (EITC) provisions provide cash to lower-earning families and strengthen local economies. Despite being a powerful tool, the EITC is underutilized—with an estimated 20 percent of eligible households failing to claim it each year, leaving billions on the table that could support struggling families and stimulate local economies.
Local governments can establish support programs that help residents maximize state and federal tax credits, bringing more money into the local economy helping residents access benefits they are already entitled to. The National League of Cities offers resources to support localities, non-profits, and employers looking to maximize benefits for their workers and communities like this toolkit. The facilitation of stimulus checks during the Covid-19 pandemic showed that the IRS has the capability to automatically identify eligible individuals and deliver payments without requiring them to apply – showcasing the potential for cities to take proactive steps in benefits access. New York City, Washington, DC and Dayton, OH provide free tax-prep resources to assist residents in acquiring these benefits.
Fines and Fees
Fines and fees for public services and municipal code violations have become a major source of income for municipalities across the United States. However, fines are often flat fees with unforeseen consequences. For example, a $200 ticket means something very different to someone making $20,000 a year than to someone making $200,000. Local governments can ameliorate this through income-based fine scales, ability-to-pay programs, and segmented pricing. The Cities Addressing Fines and Fees Equitably (CAFFE) program helps municipalities reform harmful fines and fees practices that disproportionately burden low-income residents and people of color. This initiative showcases how cities like Dallas, Las Vegas, and Montgomery are reducing residents’ debt burdens through income-based reforms, community engagement, and financial empowerment strategies—lowering fines and fees by an average of $981 per participant. San Francisco and Chicago have also implemented programs that adjust traffic tickets to income, provide time extensions for those struggling to pay, and sometimes waive old debts in exchange for one-time payments. Finally, this report from the Urban Institute outlines in-kind and non-monetary value capture strategies that can be used in place of fines and fees.
Cities that own their utilities can charge higher user fees to commercial and/or bulk users of utilities. Conservation pricing models, like the one that Madison, WI uses for water billing, apply higher fees for heavier use, shifting revenue burdens away from residents and onto bulk users like tax-exempt institutions and commercial entities. Traditional flat-fee garbage systems discourage waste reduction and overburden landfills, while offering residents little control over their trash costs. Pay-As-You-Throw (PAYT) programs charge households based on the volume of waste they produce, incentivizing recycling and composting, reducing landfill use, and creating a fairer, more sustainable system to fund waste management services. In Tomahawk WI, PAYT cut landfill fees by nearly two-thirds and boosted recycling from 8% to 42%, for more information on PAYT programs, visit the Wisconsin Department of Natural Resources website for resources and the Natural Resources Defense Council (NRDC) put together this compilation of resources on such programs. Cities with a diverse range of conditions like Gilbert, AZ, Tucson, AZ, Madison, WI and Arlington VA have implemented various models that have separate metering for commercial and residential users, and shift burdens from working families to bulk users.
Taking it to the Next Level
Special Assessment Districts (SADs) fund public works by taxing only the properties that directly benefit from new infrastructure, ensuring that rising land values generated by public investment help fund that investment and return value to the community. The League of Minnesota Cities has a toolkit on how local governments can use SADs, examining case studies and best practices. Washington, DC and Alexandria, VA both used SAD districts to fund the construction of metro rail stations. These projects increased the value of nearby real estate and supplementary SAD assessments captured a portion of the new value to help fund the initial infrastructure investments. Orland, CA created a SAD to fund new parks and improved park maintenance, and Santa Monica, CA has one to conserve green space. These SADs allowed the cities to reduce the costs to their residents.
Then again, cities already hold vast resources — land, buildings, infrastructure, and other public assets — that are often underutilized and poorly managed. Urban Wealth Funds (UWF) offer a way to leverage these assets as publicly owned investment vehicles that generate long-term revenue. Moreover, instead of privatizing publicly held land or relying on short-term contracts, UWFs retain ownership and can be aligned with policy goals. Cities like Atlanta use UWFs to generate sustainable funding for the expansion of affordable housing. Additionally, organizations like the Asset-Based Community Development (ABCDI) at DePaul University promote similar strategies. The ABCDI offers trainings, tools, and guides on starting and advancing this work, demonstrating how community-led development can build resilience, foster equity, and reduce reliance on extractive, top-down models and races to the bottom.
Finally, local leaders must work to ensure the above policies are implemented democratically. For example, participatory budgeting (PB) directly engages residents — particularly those historically excluded from decision making processes — in deciding how to allocate portions of the public budget. From New York City, to Nashville, TN, to Durham NC, PB has been used to empower communities to fund local priorities and has fostered trust between residents and government. Local volunteers manage these budgets through community outreach, proposal development, and a combination of in-person and online voting so that all residents can participate. Cambridge, MA’s PB program allows residents to design and vote on projects funded by a dedicated portion of the municipal budget. Integrating PB into fiscal policy development advances accountability by ensuring that public spending is not occuring outside of public knowledge and oversight.
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