Do Equity and Accountability Get Lost in LOSTs? An Analysis of Local Return Funding Provisions in California’s Local Option Sales Tax Measures for Transportation

This study explores how local return provisions of local option sales taxes (LOSTs) for transportation are allocated and spent to meet local and regional transportation needs. Local return refers to the component of county LOST measures that provides funding directly to municipalities in the county to be used to meet local needs. Local return has become a fixture in LOSTs; 58 LOST measures placed on the ballot in California (as of 2019) that have included local return in their expenditure plan have an average of 35% of revenues dedicated to local return. Local return provisions in the ballot measures often contain guidelines on how a portion of the money should be spent. The allocation of local return funds to localities has rarely been discussed in research, and spending decisions have to our knowledge never been analyzed. This paper conducts a mixed-methods analysis of all LOSTs with local return, relying on ordinances and other public documents related to local return expenditures, and supplemented with interviews with officials in six counties. Findings indicate that local return provisions are crafted to balance the needs of the county across different dimensions, including trying to achieve equity between urban and rural residents, investment in different transportation modes, and meeting both local and regional policy needs. Moreover, significant accountability mechanisms provide regulations to ensure that funds are distributed to and spent by jurisdictions as promised by the measures. Overall, this research finds that local return is a vital part of LOST measures in California, allowing cities to meet local needs ranging from maintenance of local streets to funding for special programs, while simultaneously aligning local investment with regional priorities.

An Exploration of Revenue Structure Characteristics in Rural Municipalities

This article tests for differences in revenue structure between small rural and nonrural municipalities. Colorado serves as a case study owing to its large number of small municipalities. Empirical analyses indicate that rural municipalities are less likely to adopt a local option sales tax, receive a smaller share of their total revenue from intergovernmental aid, and have less diversified tax systems compared to similarly sized nonrural municipalities. The article also shows these conclusions are sensitive to how one defines ruralness, indicating that what scholars know about public finance in rural communities is sensitive to the definition as well.

Lost and found tax dollars: The impact of local option sales taxes on property taxes and own source revenue

The relationship between the local option sales tax (LOST) and property taxes and own source revenue is not well documented in the literature. This may be due in part to the aggregated nature of the data, which fails to capture different motivations for adoption of LOSTs. Using county-level data from 35 states, this study finds that LOSTs increase own source revenue and in some circumstances decrease property tax burdens. The primary contribution of this research is that it uses a policy variable, the LOST rate, to distinguish between the two types of counties that use their LOST revenues differently. This research represents the first step in bridging the gap between the LOST literature and the tax mix choice literature.

Local option sales tax, state capital grants, and disparity of school capital outlays: The case of Georgia

In recent years, the disparity of school capital outlays has received increasing attention as many schools are facing challenges to meet increasing capital needs. With data of Georgia county school districts during FY2003-2008, this study examines how the disparity of school capital outlays is affected by the mix of capital revenues. Using multiple methods including spatial data analysis, quartile analysis, and inequality decomposition, we find that (1) school capital outlays in Georgia counties are negatively associated with the percentage of black population and the poverty rate, (2) state capital grants do not play an equalization role in school capital outlays, and (3) the use of ESPLOST has some equalizing effects on the funding for school facilities, contrary to earlier findings in the literature.

Local Sales Tax and Revenue Volatility

States have long used the sales tax as a revenue source. Since the 1970s states started granting localities the option of levying local sales taxes to enrich their revenue portfolio. Local sales taxes are often structured to reduce local property taxes; in most localities this strategy prevails in referendum. Since sales taxes are more elastic than property taxes, substituting away from the latter poses the threat of increased revenue volatility. We employ a panel dataset of counties in the state of Georgia to examine the effects of local option sales tax on own-source revenue volatility. We decompose volatility into the long- and short-run, use a mean-variance approach in considering correct revenue portfolios across tax-instruments, and find that substitution towards sales tax amplifies revenue variability. Our study fills a niche in die revenue volatility literature; our results imply that sales taxes may have been overweighed in current revenue portfolios.