Effects of State-Imposed Tax and Expenditure Limits on Municipal Revenue Reliance: A New Measure of TEL Stringency with Mixed Methods

Abstract

How state-imposed tax and expenditure limits (TELs) affect municipal revenues depends on both the terms the limits and the municipal revenue level. The majority of TEL literature assumes that the same TELs have the same stringency for municipalities with varying property tax efforts. I construct a “TEL gap” measure that accounts for different maximum allowable rate for property tax growth across states and incorporates different levels of the actual levies across municipalities within a state. Using a sample of 100 large cities in the United States from 1995 to 2011, this study examines the effects of TELs on revenue reliance by source and shows that cities with more restrictive TELs do not have higher reliance on non-property-tax revenues. In a sample that includes only cities with TELs, the results suggest that cities subject to more restrictive TELs rely more on sales taxes and less on user fees.