Sources of Local Finance in the United States

Abstract

This chapter presents an account of the sources of local finance in the American political system. ‘Local’ refers to local governments, but principally municipalities, rather than school districts, townships or other special districts. Altogether there are over 80,000 units of local government in the United States. The purpose of this review is to contrast the situation in Britain with that of the United States against the capacity of local authorities to raise and control their finances. The central argument is that the differences between the two countries in this regard hinge critically upon the degree of local autonomy found in each political system. Local autonomy is fundamentally a political issue deriving from the nature of central-local relations in each country and the political assumptions informing these respective relationships influenced by the political culture. The United States is a federal polity imbued throughout with the culture of decentralization and local autonomy: local governments remain creatures of their regional states (see below), though they exercise some autonomy within those constraints. By contrast, British local authorities are tightly constrained by Parliamentary legislation as to what they can and cannot do. But there is an important tradition of local authorities determining their own revenue needs and allocation of their funds in Britain: it is this tradition which has been eroded since the 1970s by the central government, manifested most forcibly in the realm of central-local financial relations. This erosion of local autonomy is a political process motivated and shaped by political interests and concerns. Economic, and other, rationales may well be produced for particular arrangements but these must be analysed in their political context.