Which statement best describes local government revenue sources and constraints on property tax rate setting?

• A. Revenue sources include property taxes, sales taxes, user fees, fines, intergovernmental transfers, and grants; property tax rate setting is not constrained.
• B. Revenue sources include property taxes, sales taxes, user fees, fines, intergovernmental transfers, and grants; property tax rate setting is constrained by state law, caps, voter-approved limits, and budget balance.
• C. Revenue sources are only property taxes; property tax rates can be unlimited.
• D. Revenue sources exclude intergovernmental transfers.

Answer: (B)

Local governments rely on a mix of revenue sources, not just property taxes. A realistic funding picture includes property taxes, sales taxes, user fees for services, fines, intergovernmental transfers, and grants. Property tax rates aren’t free to set at will; they’re constrained by state law, caps or levy limits, voter-approved limits, and the requirement to keep the budget balanced. This combination—multiple revenue streams plus formal limits on how high taxes can go—best describes how local government financing works. Statements that say revenue comes only from property taxes or that there are no constraints on tax rates miss that diversity of funding and the common legal/political limits.