Revenue is the income a local government needs to pay for all of the services it provides. A revenue structure describes the many sources of income a local government receives. The major sources of revenue include taxes, other revenue sources and intergovernmental transfers, which are defined below.
Since local governments are corporations of state government, local revenue structures are largely determined by state doctrine. While state governments generally aim to provide sufficient autonomy and support to local governments, there are fifty state-local revenue systems that even vary within states. In this case, autonomy refers to the amount of authority a municipality has over its ability to initiate or modify the types and amounts of revenue it receives.
A local revenue structure is influenced by a municipality's size, geography, metro type, land use and coverage of government services. Other local determinants include numerous legal, political and economic influences, including historical precedent, national economic trends, federal mandates, state laws, intergovernmental relations, regional precedent, citizens' preferences and the city administration's preferences. Additionally, a municipality's political policies towards new growth, social welfare and business competition are reflected in its revenue structure.
Taxes are an essential source of revenue for all levels of government. Like other parts of the revenue structure, tax revenue setting by municipalities is restricted by state governments. States are not uniform in their approach to allowing municipalities to utilize the three major sources of tax revenue - property, sales and income taxes - usually permitting some combination. In some states, municipalities receive revenue from two of these taxes, usually some combination of property and sales taxes. In addition some states assign a portion of state tax revenues to those municipalities with a substantial share of the state population (New York City, St. Louis, and Kansas City, for example). Municipalities in other states are reliant on one tax with only a limited degree of reliance on a second. And in other states, municipalities rely on only one revenue source, usually the property tax. Municipalities in this latter category are either heavily reliant on that one source (as in Connecticut), or that one source is a relatively low percentage of total general revenues (Idaho).
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.
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