The Impact of Tax and Expenditure Limitations on User Fees and Charges in Local Government Finance: Evidence from New England

American local government financing shifted from taxation toward user fees and charges (UFCs) in the late 1970s, with substantial efficiency and equity implications. Normatively, the shift aligns with the benefit principle; positively, the shift is often attributed to tax revolts. We test the two associations via a difference-in-differences design and a fiscal stringency measure of tax and expenditure limitations (TELs); we also test the moderating effects of overrides on TELs. Our results confirm that state-imposed TELs caused the shift in local public finance; the results are robust to change of sample and empirical strategy. This article helps explain the relationship between tax revolts and non-tax revenue and provides evidence that fiscal constraints imposed by a higher level government on a constituent level can have significant effects, including effects beyond the intent of the constraints’ framers.

PILOTs as a Means of Circumventing TELs and Managing a Recession: The Case of Wisconsin Municipalities

Following the rise of tax and expenditure limitations in the 1970s, scholars have focused on assessing the effects of these limitations on local government fiscal outcomes. One key takeaway has been local governments’ decreasing reliance on property taxes and increased use of nontax revenue sources, in particular fees and changes. This study builds on this work by focusing on a particular type of fee—that is, payments in lieu of taxes (PILOTs). We find that, in Wisconsin, revenues received by municipalities from two PILOTs programs are affected quite differently. The extent to which the economy, municipal fiscal condition, tax and expenditure limits, and community characteristics affect PILOTs’ revenues depends on the extent to which the municipality can manipulate the payment structure.

Leviathan or Public Steward? Evidence on Local Government Taxing Behavior from New York State

Fiscal federalism argues local governments compete to provide optimal tax-service bundles as responsible public stewards. In contrast, Leviathan theories argue tax and expenditure limitations (TELs) are necessary to make local governments fiscally responsible. We analyze local taxing behavior in New York State, which implemented a levy limit in 2012 that allows legislative overrides with 60 percent vote of the local governing board. Our 2017 survey of all general-purpose local governments measured fiscal stress, service responses, and local political attitudes and found 38 percent of municipalities voted to override. Logistic regressions show local governments that have more fiscal stress, weaker property tax bases, higher need, and higher employee benefit costs are more likely to override. These findings support fiscal federalism, as local governments that override are pushing back against state policy in order to respond to local needs. TELs introduce unnecessary rigidity and run counter to the precepts of fiscal federalism.

The Impact of Tax and Expenditure Limitations on Municipal Revenue Volatility

Stable revenue flows are paramount for policy makers at all levels of government in order to effectively and efficiently provide goods and services to constituents. This work examines the relationship between tax and expenditure limitations (TELs) and municipal revenue volatility. The current literature suggests that more stringently binding TELs at the state level are associated with greater levels of revenue volatility. This work tests whether this finding extends to the local level of government as well. Examining ninety-nine municipalities over eight years (2004–2011), this work provides evidence that the stringency level of TELs is associated with reduced fluctuations in municipal revenue streams.