Cities and other municipalities: How they are funded

Cities and villages raise revenues to support their operations in a few key ways. For U.S. cities, the biggest source of revenues are taxes and user fees.

Cities and villages levy property taxes on landowners. In Illinois, more than half of all local tax revenues come from property taxes. Municipalities also often collect local sales taxes, and special taxes on specific purchase categories like alcohol, tobacco and gasoline. There sometimes are special hotel rooms and restaurant taxes aimed at tourists and visitors, often as part of development deals. Some states–but not Illinois–allow municipalities to collect local income taxes from residents.

User and service fees can include: utility fees for water, sewer, gas and waste disposal; transit operations fees; funding for libraries; fees for park and recreation programs; business licenses; construction and development permits; public parking fees; auto and pet licenses.

Cities also collect revenue from fines, which can include tickets and fines for moving violations, building and construction code violations, or illegal behavior in public spaces.

Cities also receive funding from the federal government and their state government, either through taxes transferred from one level of government to the municipality, or via specific grants and program funding. Finally, cities can collect revenue from their assets and investments.