URSI 100--Introduction to the City

Financing the City

Much of the revenue collected by the Federal government is transferred to other units; substate (local) government provides the largest share of public service.

Public education takes the largest share of local government funding. Public welfare is the largest county expense. Utilities is the largest municipal expense.

Sources of local government revenue:

a.       transfers & grants (24%)

b.      fees & licenses (21%)

c.       property tax (16%)

d.      sales tax (9%)

e.       local income tax (7%)

f.        investments (4%)

Property tax:

a.       40% goes to schools (rest divided between city & county)

b.      government and nonprofit property does not pay property tax

c.       property tax not directly tied to ability to pay—so “homestead exemptions” and “circuit breakers”

d.      “fiscal zoning”—using land-use controls to generate mix of uses that will hold down property tax

Borrowing (“municipal bond”)

a.       capital expenditures tend to be “lumpy”

b.      “user benefit equity”—those who benefit should pay the cost

c.       municipal debt is limited by statute (6.67% of total assessed value, in Minnesota)

d.      bonds can be used only to finance capital expenditures

e.       types of bonds:

1.      general obligation (GO)—many states require ballot measure

2.      revenue—no debt limits

f.        bond rating (Moody’s or Standard & Poor’s)

Budget—two parts, operating (must balance each year) and capital. Generally prepared by mayor/administrator, and adopted by council

“Fiscal disparity” problem—communities that need the most help have lowest capacity to provide it (“Minnesota Miracle”—Fiscal Disparities Act—shared the property tax base among the Twin Cities metropolitan communities).


Based on LEVY, J.M. 2000. Urban America: Processes & Problems. Upper Saddle River, NJ: Prentice Hall.


2003 A.J.Filipovitch
Revised 1 January 06