Municipal public services — including libraries, transit, water and sanitation services, and community centers — help ensure everyone can have a better quality of life, regardless of how much money they earn. In fact, by making services widely accessible to everyone, cities and towns play a critical role in building fair and sustainable communities.
However, many of the revenue tools that municipalities use to fund these vital services are considered regressive. Lower- and middle-income households pay a higher share of their income in these taxes and fees than those with high incomes. Municipalities need greater access to progressive revenue sources that shift costs onto those who can most afford to pay.
The largest sources of municipal revenue are property taxes, user fees, and transfers from other levels of government. Municipalities also raise smaller amounts of revenue from other sources, including permits, fines, and development charges.
Municipalities can borrow money for capital costs, such as building a community center, which helps better distribute the cost among current and future residents in the community. However, municipal borrowing capacity is limited by the provinces. For example, all municipalities can levy basic property taxes, but not all can levy land transfer or other taxes.
The largest single source of municipal revenues is the property tax. Property taxes are regressive, as lower- and middle-income families spend a higher proportion of their income on property tax than higher-income families. Canada has some of highest rates of property tax in the world, while most European and American cities rely much more on income and sales tax. Municipalities have to adjust property tax rates annually if they want the revenues to keep pace with costs triggered by inflation and economic growth.
User fees are the second-largest source of revenues generated by Canadian municipalities, and are charged for goods and services such as public transit, water, parking, and recreation.
Municipalities facing political pressure to keep property taxes low sometimes increase user fees as an alternative to taxation. This can have unintended consequences, and ignores the wider benefits of public services to the community as a whole. Take the case of transit. For additional articles in this series please see:. Since the Summer protests, I have felt shaken by the events that unfolded.
I found myself wondering what my government has and has not done to promote justice and equity. I asked myself, how can I learn more about what my local government is doing about these issues? When I started to look, I quickly realized that municipal budgets can be complex! A budget is arguably one of the most important documents a government produces — it is a way for the government to communicate with their constituents.
To better understand how to interpret a municipal budget, there are a few key fundamentals to know about:. Municipal Government Revenue A large portion of the money available to a city government derives from property and sales taxes. These funds typically have the fewest restrictions on how they can be used.
City governments also derive revenue from other sources such as transfers from the federal government and service fees, though these funds often have more restrictions on what programs and initiatives they can be spent on.
For each of the different sources of revenue, municipal governments will have different types of funds. These can include general funds, special revenue funds, enterprise funds, and permanent funds. You can read more about the restrictions assigned to each type of fund in this handbook constructed by the Wyoming Association of Municipalities.
This is something Bilbao has done quite well, as have Hong Kong and Vancouver. Build a city brand. Because brands are perception-based, you can always combine capital and ideas in new ways to leverage your city brand.
Smaller cities are creating their own currencies and digital currencies. Money flows matter to your city; and remember, if money outflows from your community exceed money inflows, then your community will not be vibrant no money in local business, thus no jobs.
This point is often overlooked. You need the right federal funding and infrastructure, so put your hand out for useful transport and mobility or digital infrastructure. There are ways to choose, but go for the biggest broad projects.
Support your local global success stories, but look for segments where you do well i. An example of this is the sports industry in Melbourne, or the music industry in Seattle remember Nirvana? New segments emerge all the time, so you must be vigilant to see and leverage them. Arts businesses have helped many a city create both a brand and inbound visitors with inbound dollars. This is critical to the wealth of cities.
Your city should give away samples of what makes it great, and trade with others to set a price for its outputs. Higher price means more pie. What are health reimbursement arrangements and how do they work? How might the tax exclusion for employer-sponsored health insurance ESI be reformed? Taxes and Homeownership What are the tax benefits of homeownership?
Do existing tax incentives increase homeownership? Taxes and Education What tax incentives exist for higher education? What tax incentives exist to help families pay for college? What tax incentives exist to help families save for education expenses? What is the tax treatment of college and university endowments? Tax Complexity Why are taxes so complicated?
What are the benefits of simpler taxes? What policy reforms could simplify the tax code? Wealth Transfer Taxes How do the estate, gift, and generation-skipping transfer taxes work? Who pays the estate tax? How many people pay the estate tax?
What is the difference between carryover basis and a step-up in basis? How could we reform the estate tax?
What are the options for taxing wealth transfers? What is an inheritance tax? Payroll Taxes What are the major federal payroll taxes, and how much money do they raise? What is the unemployment insurance trust fund, and how is it financed?
What are the Social Security trust funds, and how are they financed? Are the Social Security trust funds real? What is the Medicare trust fund, and how is it financed? Excise Taxes What are the major federal excise taxes, and how much money do they raise? What is the Highway Trust Fund, and how is it financed? Energy and Environmental Taxes What tax incentives encourage energy production from fossil fuels?
What tax incentives encourage alternatives to fossil fuels? What is a carbon tax? Business Taxes How does the corporate income tax work? What are pass-through businesses? How are pass-through businesses taxed? Is corporate income double-taxed?
Tax Incentives for Economic Development What is the new markets tax credit, and how does it work? What are Opportunity Zones and how do they work? Taxes and Multinational Corporations How does the current system of international taxation work?
What are the consequences of the new US international tax system? How does the tax system affect US competitiveness? How would formulary apportionment work? What are inversions, and how will TCJA affect them? What is a territorial tax and does the United States have one now?
What is the TCJA repatriation tax and how does it work? What is the TCJA base erosion and anti-abuse tax and how does it work? What is global intangible low-taxed income and how is it taxed under the TCJA? What is foreign-derived intangible income and how is it taxed under the TCJA? Comprehensive Tax Reform What is comprehensive tax reform? What are the major options for comprehensive tax reform?
Broad-Based Income Tax What is a broad-based income tax? What would and would not be taxed under a broad-based income tax? What would the tax rate be under a broad-based income tax? National Retail Sales Tax What is a national retail sales tax?
What would and would not be taxed under a national retail sales tax? What would the tax rate be under a national retail sales tax? What is the difference between a tax-exclusive and tax-inclusive sales tax rate? Who bears the burden of a national retail sales tax?
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