Primary Revenue Sources for U.S. Local Governments

Property taxes are the dominant revenue source for U.S. local governments (counties, municipalities, townships, school districts), typically comprising 30–40% of general revenue.

Revenue Breakdown (National Aggregate)

• Property Tax: ~30–40% (highly variable by state)
• Intergovernmental Transfers: 30–35% (state aid, federal grants — education, transport, housing)
• Sales Tax: 10–15% (local option; not all states allow)
• Income Tax: 2–5% (only ~15 states permit local income tax; e.g., NYC, PHL, Ohio cities)
• Charges & Fees: 10–15% (water/sewer, permits, fines, tuition, hospital)
• Other: Licenses, utility revenue, interest, special assessments

Control Hierarchy

• Most control: Property tax rates (within state limits), fees, local sales tax (if authorized)
• Shared: State-shared taxes (formula-based)
• Least control: Federal/state grants (categorical, competitive), state-mandated spending

Variation Drivers

• State laws: Prop 13 (CA) caps property tax; NH/TX rely heavily on property tax (no income/sales)
• Service scope: School districts = separate taxing authority in many states
• Economic base: Tourism → sales tax; commuters → income tax; industry → property tax

Trends

Post-Great Recession: property tax share rose (stable base). COVID: federal aid (ARPA) spiked intergovernmental share temporarily. Long-term: pension/OPEB pressures squeeze discretionary revenue.