Future outlook for local governments budgets
Current fiscal and political environment at national and state level

It is not easy to predict the future for any thing, especially when it comes to economics. The economists differ in their opinions more widely than any other profession. However the ability of of local governments in any metropolitan area to provide basic public services and interrelations between cluster of cities in the metro area is directly related to the tax policy.
As we enter the 21st. Century, local governments will face challenges to how they raise revenues. Existing local tax system has over the years, developed inherent problems that raise doubts about their ability to meet the future basic needs. None of the major sources of local revenues have significant growth potentials. Indeed some local taxes are likely to decrease in importance. Existing local government tax systems were not designed to function in a service-dominated economy dominated by electronic commerce, mobile capital, or rapidly expanding international trade. The problem with the outdated tax system and future economic challenges will likely lead us into an environment in which local taxation will be limited to an extent unseen in the American history.
There are three significant consequences of these limitations for metropolitan governments. First they effect each other’s ability to fund basic services. Secondly the limitations will effect the relationship between local governments, which will reduce the ability of the local governments to use tax policy as a means of furthering economic development. Finally, limitations will lead local governments to seriously consider an alternative system for collecting revenue—land Value Taxation.
From a political prospective, there are two imperatives for the local governments in any metropolitan area. First, they must provide basic public services to their residents, like police, fire protection, road repairs etc. When basic public services are not provided consistently and adequately, citizens and businesses eventually leave or decide not to locate in a particular jurisdiction. Government leaders also often incur the wrath of voters; a fact not lost on local politicians.
The second imperative is that local governments must offer economic growth and development, even at the expense of neighboring jurisdictions. The permeability of metropolitan government boundaries and the relative autonomy of local decision making create an environment in which local governments strive to lure and maintain “ above average” tax payers, i.e. those who contribute more tax revenue than they consume in government services.
Local governments can also use tax policy in their quest for business, jobs, and residents. Some governments set their overall tax burdens at level that are competitive with their neighbors. Others use targeted tax incentives aimed at specific firms. Since the other variables like, transportation and labor cost are the same in a metro area, some governments use tax policy to compete.
Providing tax incentives is thus a politically effective means of fostering economic growth. But its effectiveness is attributable to the fact that it is expedient. Local governments use tax policy in this way because they have had flexibility over their fiscal affairs. Despite or perhaps of property tax limitations, local governments had diverse enough sources of revenues to selectively reduce tax burden when the need arose. Intergovernmental aid, the growth of the local sales tax, user’s fee, and to a lesser extent local income taxes all added to this flexibility. The challenge for local government in the future is that they will have fewer options and less flexibility over their fiscal affairs.

Future challenges

As we enter the 21st century, the local governments will be faced with the serious challenges to the way they raise revenues. The first and perhaps the most serious, challenge will be that existing tax systems are unlikely to meet the needs of the local governments. Local governments in any metro area rely on five main sources of revenues: property taxes, income taxes, sales taxes, user's fees and intergovernmental aid. All five of these sources have economic, structural, or political problems that at best, will reduce their effectiveness in raising future revenues.

Property Tax

The property tax remains a formidable source of revenue, and the large amount of revenue collected will ensure its viability far into next century. Still public’s dissatisfaction with the property tax is unlikely to recede. The accompanying political pressure directly results in large scale limitations of the