Assistance to Local Government
Local Government Fiscal Conditions

The economic outlook is generally positive for all regions of the state, and local revenues are expected to show continued growth. Due to the termination of ERAF III payments in 2006-07, the share of the property tax going to local governments has increased to approximately 63 percent. Historically, property taxes have been a very stable source of revenue for local governments, and they continue to show healthy growth. The recent growth in property tax revenue has also benefited the state by reducing the amount of General Fund that must be provided to K-14 schools.

Property tax revenues are expected to increase almost 12 percent in 2006-07, and by almost 10 percent in 2007-08. The projected growth rates translate to an additional $2.5 billion for local governments in 2007-08, thereby increasing their total property tax revenues to approximately $29.7 billion.

The moderating growth rate in 2007-08 property tax revenues is attributable to an estimated decline in new and existing home sales in 2006. This decline is tempered by retained growth in values that will impact the roll as properties are sold, by moderate growth in median home prices in 2006, and by continued growth in new commercial construction.

The sales tax, local governments' other major source of discretionary revenue, also is expected to show modest growth in 2007-08. The sales tax should provide over $4.4 billion for discretionary purposes, in addition to $3 billion for public safety, $3 billion for health programs, and $1.5 billion for county transportation purposes. Vehicle license fees, which provide partial funding for local health programs and discretionary revenue for cities, were up 4.5 percent in 2005-06 and are expected to show gains of four percent and 3.9 percent over the next two years.

While the outlook for local government revenues is positive, the growth in pension obligations and post-employment healthcare benefits continues to be a source of concern. Non-urban areas have not experienced as much revenue gain, and individual counties and cities face a variety of fiscal challenges.
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CHAPTER HIGHLIGHTS for Assistance to Local Government Back to Top

 State-Local Fiscal Relationship
image of black pointing arrowLocal Government Fiscal Conditions
 State Aid to Local Government
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