Treasury and Investment Management, Budgeting and Forecasting

New Taxes That Work: How Local Governments Can Raise New Revenues

Local government leaders often consider it a truism that citizens will not vote for more taxes. Public opinion on local taxes, however, may not be as rigid as the conventional wisdom suggests. To illustrate, since 2004, 3,023 different local revenue initiatives were posed to California voters
and 2,094—or 69%—of them passed!

Of course, these statistics do not show that the public is eager for new taxes. For example, local governments in communities with a strong anti-tax sentiment would probably not submit a local revenue initiative to voters in the first place. These statistics do suggest, however, that the public is often willing to consider new taxes. This 69% passage rate is even more impressive when one considers that, due to the requirements of California election laws, 38% of the 3,023 revenue initiatives were held under rules that required approval by two-thirds of voters to pass, instead of the customary simple majority.

The public’s willingness to consider new taxes is not limited to California or other higher-tax states. The objective of this paper is to identify the key features a proposed new tax should exhibit in order to be successful. To do so, we examine the experiences of local governments from Florida, Oklahoma, Missouri, and other states. Before reviewing these and other examples and distilling the features of a successful tax, it is important to understand a critical tension at the heart of public management that impacts any local government’s strategy for raising revenue.

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