Over a quarter of Americans don’t know how their tax dollars are being spent, according to the Office of Management and Budget. This lack of awareness highlights the need for transparency and education on municipal spending, especially as local governments are exploring innovative ways to utilize tax revenues to enhance their communities.
Sales and use taxes represent a significant source of revenue for many governments, and this revenue stream, when managed effectively, can be a powerful tool for driving community development and public health initiatives. Government leaders have a variety of strategies at their disposal to maximize the impact of sales and use tax revenues.
Here are 6 key areas where these funds can be effectively applied to enhance communities in both the short and long term.
1. Infrastructure Development
One of the most direct ways to utilize sales and use tax revenue is in infrastructure development. Upgrading and maintaining roads, bridges, and public transportation systems not only improves the quality of life for residents but is also attractive to businesses, which can boost the local economy.
For example, Oviedo, Florida, adopted the Third Generation One Cent Infrastructure Sales Tax in 2014, often referred to as the Penny Sales Tax, to fund substantial improvements in infrastructure. Since its inception, the tax has funneled over $22 million into Oviedo’s infrastructure projects, notably improving road conditions across the city. The funding has supported extensive work on multiple roadways, benefiting at least twelve major road projects.
2. Educational Programs
Investing in education is another effective way to leverage sales and use tax revenues. Enhanced funding can lead to better school facilities, more resources for teachers, and after-school programs that contribute to a well-rounded educational experience.
A notable example is Denver, Colorado’s use of a 0.15% sales tax to enable high-quality preschool access for all Denver families. This tax was approved in 2006 and by 2019, the Denver Preschool Program had allocated nearly $138 million in tuition support aiding more than 60,000 children.
The funds generated by this program were especially useful during the COVID-19 pandemic. The program distributed about $11 million to preschools serving children of essential workers and created a $250,000 sustainability fund to support educational providers during the pandemic.
3. Public Safety Enhancements
Public safety is a top priority for any community, and sales and use tax revenues can play a critical role in this area. Funding can be allocated to fire and police departments to ensure they are well-equipped and adequately staffed.
In 2014, voters in Benton County, Wisconsin, approved a 0.3% sales tax increase dedicated to enhancing public safety. The funds from this tax are being used to hire additional law enforcement and court personnel, support drug and mental health court programs, and purchase necessary equipment for new police positions.
4. Health & Social Services
Sales and use taxes can also fund public health and social services that address various community needs, including mental health services, addiction treatment programs, and homeless shelters.
Cities like Seattle and Philadelphia have successfully implemented “soda” taxes and have redirected funds to health and social services benefiting lower-income communities, with net annual benefits ranging from $5.3 to $16.4 million. Seattle has used these funds to increase access to healthy food and support child health and learning, and to aid communities disproportionately impacted by the COVID-19 pandemic.
5. Environmental & Recreational Projects
Local governments can use sales and use tax revenues to fund environmental conservation projects, park improvements, and recreational centers that enhance community well-being. Such initiatives not only provide residents with beautiful, sustainable environments but also promote healthier lifestyles.
Saint Paul, Minnesota’s City Council approved $45.1 million from a new 1% sales tax for enhancing streets, parks, and recreation centers. This tax, backed by voters, funds major projects including athletic field revitalizations and the first phase of geothermal conversion at Como Park Zoo.
6. Economic Development
Sales and use tax revenues can be directed toward economic development programs. These programs might include small business support, job training initiatives, and incentives for attracting new businesses.
The Anchorage Economic Development Corp in Alaska recently proposed a new 3% city sales tax, aiming to dedicate two-thirds for property tax relief and one-third to fund public projects, inspired by Oklahoma City’s successful MAPS initiative.
The Key to Maximizing Revenue From Sales & Use Tax
While these ideas for how agencies can leverage sales and use tax to enhance their local communities can be highly effective, they risk falling flat without the right tools in place.
Implementing digital software solutions can streamline these processes, ensuring that funds are used effectively and transparently. Having the right tax collection solution can provide real-time data analytics, allowing leaders to make informed decisions about where to allocate funds for maximum community impact.
Plus, by utilizing advanced software platforms, governments can enhance their operational efficiencies, improve compliance and reporting, and ensure that every dollar collected is directed toward initiatives that provide the greatest benefits to their communities.
Does Your Agency Have the Right Tools in Place to Use Tax Revenue Efficiently?
Sales and use tax revenue, when strategically managed and allocated, can significantly enhance local communities’ initiatives around infrastructure, education, public safety,and more.
Government leaders should explore these opportunities to ensure their communities not only thrive economically but also provide a high quality of life for residents. With the aid of the right cloud-based software solutions, the potential of sales and use tax revenue to transform communities is limitless.
