Revenue from Other Sources

In order to bolster revenue, there are several other revenue sources, including local option taxes, service charges, and fees levied by municipalities, counties or special district governments with state approval. These additional sources help municipalities, especially smaller cities, gain financial stability, broaden the tax base, expand the types of activities taxed and increase their independence from state and federal finances.

Fees are voluntary charges imposed on an individual or business for a service or facility provided directly to that individual. For example, municipalities charge patrons access to recreational facilities or street parking. Another example is the Street Rental Fee in which a non-government owned water utility pays the municipal government for access to public streets to lay its pipes. Between 1977 and 2002, user fees jumped from 30 percent to 40 percent of own-source municipal revenues.

Licenses are charges that authorize an individual or business to operate an ongoing activity. For example, a Business License charges a business operating within a jurisdiction on an ongoing basis, usually based on the gross receipts of that business.

Permits authorize an individual or business to undertake a one-time activity for a fixed period of time. An example is a parade that occupies specific streets at a specific time.

Development Fees are charged to construction companies for building inspections and impact assessments, which are compensation for the impact of that construction on public services. In addition, these fees help municipalities regulate new construction.

Special Assessments recoup the costs of municipal expenses from the individuals who benefit. For example, the property owners along a street will measurably benefit when a municipality undertakes a street improvement, like a sidewalk installation. Revenue from this levy usually cannot exceed the increase in property value that it creates.  

Excise Taxes are 'selective sales taxes' that levy specific classes of transactions at a specific rate. Their use results from separate statutory authority and is widespread. The three types of excise taxes are:         

  • Benefits-based: like a service tax, it recovers the partial or full cost of a public service by its beneficiaries. Hotel room taxes and motor fuel taxes are examples.         
  • Sumptuary: also known as a 'sin tax,' it is levied in part to discourage consumption of certain classes of goods, like alcohol and tobacco. Motor fuel taxes are also considered a sumptuary tax.         
  • Privilege: it is levied for the privilege of conducting a particular type of business or transaction. This includes occupational privilege taxes on particular professions or individual employees, admissions, restaurant meals, deed transfers and bank franchises.

Utilities - electric, gas, wastewater, potable water, sewer - are required to earn enough revenue to support the service they provide to local customers in addition to operations, overhead, capital improvements, and debt service costs. Additional profits are either transferred to the municipal general fund or reinvested into infrastructure or other enhancements for the specific utility. Cities may own and operate a utility or may contract its operation out to a private business. Utilities may also be wholly owned and operated by a private business but subject to government regulation and oversight, often by a Public Utilities Commission. They may be owned by the consumers they serve, stockholder-owned or privately owned, or they may be designated a special purpose district by a municipal, county or state government.  

Use of Money and Property indicates the revenue gained through interest from municipal investments. Municipalities also earn fees from renting out property and equipment to businesses or for events, like parking garages, pay phones, vending machines, concession stands and community centers. Further examples include revenue from advertisements in city publications or royalties from natural resources taken from city property. Additionally, cities may charge franchise fees to businesses for the use of city streets, including refuse collectors, cable television companies, electric utilities and oil and natural gas pipelines.