ABSTRACT
This chapter describes how states regulate the taxing, borrowing, spending, and financial administration of their municipalities. She discusses the effect such regulations have on the financial conditions of cities and identifies some of the new forms of state assistance designed to strengthen the financial condition of municipalities and to prevent future fiscal crises. States are the principal architects of municipal finance. Intergovernmental revenues come from either the federal or state government in the form of grants-in-aid or shared revenue. Intergovernmental revenues are generally referred to as “external” sources of municipal revenue. State limitations on municipal property taxing powers are of five types: tax rate limits, tax levy limits, full disclosure requirements, assessment limits or constraints, and removal of property from the tax base through exemptions. Municipal use of nonproperty taxes first began during the Depression of the 1930s in reaction to the financial crises in a number of large cities.
