Local government agencies in the United States include county governments, towns, municipalities, and special purpose local governments such as school districts and special districts. County governments are authorized in state constitutions and statutes.
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Similarly, town governments are allowed by the existing laws of the land governing various states such as the Northeastern and the Midwestern. However, they only govern a defined area.
Municipal governments govern a corresponding population Centre. School districts govern public elementary and secondary schools while the special districts are authorized by state law to provide specific designated functions (Wilson & Reck, 2006).
Revenues for these levels of local government are derived majorly from intergovernmental funds transfers, taxes (property tax, local sales tax user fees), sales of services and other revenues such as proceeds of crime, tickets and fines, public infrastructure and land development.
Local governments also earn revenue from sales of services such as garbage collection, municipal solid wastes, and provision of energy in form of hydroelectricity, biomass and wood. They also provide drinking water and waste water treatment in form of sewerage plants.
Franchise fees are charged on the use of utilities like streets, alleys, poles and conduits which are normally charged to utilities companies such as electricity, cable, telephone and pipelines. The special districts are authorized to provide specially designated services that bring in revenue such as school irrigation, city conservation, emergency medical services, waterway management and many more (Lee & Johnson, 2008).
Of these revenue sources, there are ways to which they are put to use, governmental, proprietary or fiduciary. Governmental funds include general funds. This is money that is spent on government activities that need no additional money other than the money allocated. Special revenue funds are funds that are meant by law for a specific purpose. There are also debt service funds.
This is the money that a government spends in clearing any outstanding interest for debts which have been there for a long time. Governmental funds include general sales tax, income tax, property tax, street and road funds, bonds, leases and property tax.
The money that is termed as proprietary funds is got from charges on assets like government vehicles or reimbursement for services rendered to the government. Fiduciary funds include external donations, employee pension funds and trust funds.
The local government has its existence authorized by state constitutions and as such can have its affairs under control by the state. Local governments sustain themselves through revenue generation. However, the state can impose restrictions on these sources of revenues. The state can restrict revenues by presetting the limit of the amount of revenue that the local government units can generate.
For example, the state, through the revenue restriction amendment bill, can set a limit on how much the local government can charge in parking fees or utilities like electricity and water or in the sale of their services such as commercial garbage collection or energy (Zlotocha, 2006).
Public policy decisions, such as the revenue restriction amendment bill, are meant to uphold transparency in the use of public funds. In such cases, the control of funds is removed from the local government and shifted directly to the state.
Public policies often leave local governments without a choice but to carefully monitor how the little funds they have access to be spent.in one way, this ensures that the little available funds are directed towards the necessary expenses. Such actions are particularly beneficial during periods of economic downturn like the global recession.
Funds are monitored to avoid wastage on unnecessary expenses. Imposing these public policies ensure that funds bypass the local governments and go directly to the state, or by restricting the amount of money the local authorities get from revenue sources, they limit the amount of money accessible for use (Lee & Johnson,2008).
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Economic conditions that affect revenue projection include economic growth and inflation. When the country’s economy is on a positive growth curve, the revenue projections for government agencies including the local government are much higher. This is because there are many sources experiencing positive economic growth from which revenues can be accrued.
Let us take a practical example with sales tax revenues. They account for about 13% of general funds from the governmental funds and also support criminal justice, child and family services and mental health, all of which vary significantly depending on economic conditions that affect income, employment and price of goods and services (Lee & Johnson, 2008).
Economic recession causes a slump in the economy where prices for goods and services increase due to scarcity. Recession also causes reduced property values due to a weak housing market, causing a reduction in property tax revenue. Unemployment, a result of economic downslide, also plays a major part in reducing revenue allocation.
Since people cut unnecessary spending, their economic capacities are slashed to such an extent that their contribution to revenue are restricted to necessities. Fees that would normally go towards expenses such as parking fees or services that one can do without are greatly reduced.
Lee, R., & Johnson, R. (2008). Public budgeting systems. Sudbury, MA: Jones & Bartlett.
Wilson, E., & Reck, J. (2006). Accounting for governmental and nonprofit entities. New York: McGraw-Hill.
Zlotocha, S. (2006, February 10). Revenue restrictions amendment would destroy local control. Retrieved from In effect: <http://ineffect.blogspot.com/2006/02/revenue-restrictions-amendment-would.html>