What is Revenue Structure?
Revenue Structure: Balancing Stability and Equity in Montana Local Government Budgets
The revenue structure of a budget is described by the types of revenues, their shares in the total budget, and the reliability and rapidness with which different revenues grow over time.
A structure dominated by tax revenue, for example, creates a strong dependence between city revenues and health of the local economy. When the economy turns down, tax revenues may not keep pace and expenditures that were affordable during strong economic growth will be insupportable in economic recession. On average, local governments around the nation raise about 40 percent of their revenues from taxes and about 25 percent from user fines, fees, and charges. Their reliance on federal and state aid averages 35 percent. There are important merits to a tax-dominated structure:
5. Financial Management 160
• A tax system, as opposed to a fee‐based system, separates the use of public services from the ability of users to pay for those services.
• A tax‐based system can place a relatively greater financial burden on prosperous citizens in order to lessen the financial burden of government on poor citizens.
• A tax system can match or exceed the growth of an expanding economy.
• Unfortunately, this structure succeeds in balancing budgets only in strong economic
expansions. When the economy slows down, taxes slow down, but social services expenditures generally accelerate.
A structure dominated by tax revenue, for example, creates a strong dependence between city revenues and health of the local economy. When the economy turns down, tax revenues may not keep pace and expenditures that were affordable during strong economic growth will be insupportable in economic recession. On average, local governments around the nation raise about 40 percent of their revenues from taxes and about 25 percent from user fines, fees, and charges. Their reliance on federal and state aid averages 35 percent. There are important merits to a tax-dominated structure:
5. Financial Management 160
• A tax system, as opposed to a fee‐based system, separates the use of public services from the ability of users to pay for those services.
• A tax‐based system can place a relatively greater financial burden on prosperous citizens in order to lessen the financial burden of government on poor citizens.
• A tax system can match or exceed the growth of an expanding economy.
• Unfortunately, this structure succeeds in balancing budgets only in strong economic
expansions. When the economy slows down, taxes slow down, but social services expenditures generally accelerate.