Beyond Sales Tax
Additional Funding Ideas for Small Municipalities
Here is a fact worth sitting with before we talk about municipal finance: three out of four incorporated places in the United States have fewer than 5,000 people. According to the U.S. Census Bureau’s Vintage 2024 population estimates, 75% of the nation’s 19,479 incorporated places fall below that threshold — 14,603 cities and towns. Nearly half of those have fewer than 500 residents.
The consultants, the bond attorneys, the TIF experts, the economic development literature — most of it has been built around the other 25%. The towns big enough to have a full-time finance director, a bond counsel on retainer, and a staff member whose actual job is grant writing.
The other three-quarters are largely solving their own problems with very little tailored guidance, whatever revenue tools their state gives them access to, and whatever institutional knowledge hasn’t retired or moved away yet.
In Oklahoma, they’re doing it with one hand tied behind their back.
Oklahoma: A Case Study in Sales Tax Dependency
Most states give municipalities two primary tax tools: property tax and sales tax. Oklahoma municipalities rely almost entirely on sales tax. While the state does have a property tax system, it flows primarily to counties and school districts — city general funds see very little of it.
The result is a structural dependency that is, by the numbers, the most extreme in the country. Oklahoma is first in the nation in local sales tax reliance, with sales taxes accounting for 66% of total local tax revenue. For context, the national average is 13.5%.
This matters because sales taxes are volatile. They track retail activity, which tracks the economy, which tracks things no small town controls. When retail is up, revenues are up. When a major employer closes or a Dollar General becomes the anchor of your commercial district, revenues reflect that too.
Property taxes, by contrast, are among the most stable revenue sources available to local government — values grow at relatively constant rates even during economic downturns.
And the state just made it worse. The Oklahoma legislature recently capped property assessment increases at 1.5% per year, down from 3%. The intent — protecting senior citizens on fixed incomes from being taxed out of their paid-off homes — is sympathetic. The mechanism is a blunt instrument.
During periods of high inflation, that cap becomes a vise, squeezing county and school revenues even as costs rise. New York State has a similar cap, and local officials there have described it as sometimes so restrictive that overriding it is the only way to keep collecting garbage and keep the streetlights on.
Meanwhile, Oklahoma’s Freedom Caucus has floated eliminating property taxes entirely. Oklahoma currently ranks 50th in the country in overall education quality. The schools that serve our rural communities run primarily on property tax revenue. It is not clear what problem is being solved by removing the floor from beneath them.
But this piece isn’t primarily about Oklahoma, and it’s not primarily about politics. It’s about what municipalities — especially small ones — can actually do to fund the services their residents expect, in a national environment where anti-tax sentiment is high, state legislatures are restricting local revenue authority, and the federal government is pulling back from the support programs small communities have historically depended on.
Most small towns are leaving tools on the table. Here’s a look at what’s available, who it works for, and where the limits are.
The Practical Toolkit: What Works, for Whom, and What Doesn’t
What follows is not an exhaustive list of every revenue mechanism available to municipalities. It is a practitioner-honest assessment of the tools that are actually accessible to small towns, with real examples of communities that have used them.
The MAPS Model: Oklahoma’s Most Exportable Innovation
In December 1993, Oklahoma City voters approved a temporary one-cent sales tax dedicated to a defined list of capital projects. The money didn’t go to the general fund. It went into a separate trust. A citizen oversight committee — not the city council — supervised the spending.
The projects were designed to appeal across demographic groups: something for everyone, geographically distributed to create synergy. The tax had a start date and an end date.
Thirty-two years later, that original vote has driven more than $5 billion in public and private investment in Oklahoma City. Voters have approved the model three more times. MAPS for Kids renovated 70 public school buildings. MAPS 3 built Scissortail Park. MAPS 4 is projected to raise $1.07 billion through 2028.
The MAPS model didn’t invent anything. A dedicated temporary sales tax is a tool every municipality already has. What MAPS added was structure and accountability: citizen oversight, locked funds, defined projects, a sunset. Those features are what got it through a ballot box in a city that, in 1993, was genuinely struggling.
Elk City, a western Oklahoma community of about 12,000, replicated the model at small-town scale. Their Community Action Plan Projects program — C.A.P.P.S. — put a one-cent sales tax before voters in 2019 for a defined list of quality-of-life projects, including synthetic turf on 17 baseball and softball fields, making Elk City the only city in Oklahoma with that many high-quality fields. The measure passed 2-to-1. Over twenty years, it will generate $70 million in debt-free capital investment.
The structural features that made it work are the same ones that made MAPS work: citizen committee, dedicated trust, specific projects, no new bureaucracy.
Here is the honest limitation: this model scales to your retail base. Elk City draws from a trade area of nearly 80,000 shoppers. A one-cent sales tax on that volume generates real money. A one-cent sales tax on a gas station and a Dollar General is still a one-cent sales tax — it’s just doing a lot less work.
For truly small towns, this tool can fund a park shelter or a sidewalk project. It will not fund a community center. The mechanism is sound; the math is constrained by reality.
The takeaway is not that small towns shouldn’t try this. It’s that they should right-size their project list to their actual revenue capacity, set honest expectations with residents, and use the political infrastructure of the model — the citizen committee, the dedicated fund, the defined projects — to build the institutional trust that makes the next ask easier.
Tax Increment Financing: Not Just for Cities
The conventional wisdom is that Tax Increment Financing is a tool for cities with active real estate markets, a functioning property tax base, legal staff, and bond counsel. The conventional wisdom is wrong, or at least incomplete.
Dieterich, Illinois has a population of roughly 900. In the late 1990s, community leaders were considering closing the town’s school and merging it into another district. Instead, they created a residential TIF district — a tool most people associate with Chicago downtown development — to reduce financial barriers for housing.
Here’s how it works: when a TIF district is established, the existing assessed value of the land is frozen. As new homes are built and assessed, all property tax revenue generated above that frozen base flows into the TIF fund rather than to other taxing bodies.
Dieterich used that accumulating increment to subsidize lot prices dramatically — selling half-acre lots to contractors for $3,500 and to residents for $5,000, far below what it cost to develop them. That subsidy made it financially viable for builders to come in.
Importantly, TIF funds under Illinois law can also cover the cost of roads, water lines, sewer connections, and other infrastructure needed to make lots buildable in the first place, which is often the biggest barrier to residential development in small towns.
Ten homes were built in the first year. Thirty within four years. Ninety-three within the first fifteen years. The TIF increment generated by each new home helped fund the next round of subsidized lots, creating a self-reinforcing cycle of growth.
In the decade following their last census, Dieterich’s population grew by over 44% — from 617 residents to 890 — adding 142 children to the school district that had once been on the verge of closure.
A town of 617 people used a Chicago-scale financing tool to save its school. The tool didn’t care about the population.
The genuine barriers to TIF for small towns are capacity, not eligibility. Setting up a district requires legal counsel, a project plan, public hearings, and ongoing administration. For a town with a part-time clerk and no economic development staff, that’s a real obstacle.
The answer is regional cooperation. Take advantage of economic development districts, councils of government, or state agencies to access the expertise without hiring it full-time.
General Obligation Bonds: The Tool Most Small Towns Never Try
Oklahoma has 566 municipalities. As of recent data, only 37 have active GO bonds.
Before we talk about why that number is low, it’s worth being clear about what a GO bond actually is: a debt instrument. When a municipality issues a general obligation bond, it is borrowing money that must be paid back, with interest, backed by the full faith and credit of the issuing government, meaning its taxing authority. If revenues fall short, the municipality is still on the hook.
Defaults are rare but not impossible, and for a small town already operating on thin margins, taking on long-term debt is a decision that deserves serious scrutiny. Some communities have made a deliberate philosophical choice to avoid debt financing entirely. They build only what they can pay for, when they can pay for it, without obligating future residents to service debt on decisions made today. That approach has real constraints, but it also has real integrity.
GO bonds are nonetheless a legitimate tool for municipalities with the financial health to use them responsibly. The gap between 37 active bonds and 566 municipalities is not entirely explained by towns that tried and failed. A significant portion of it is towns that never tried — that assumed they couldn’t pass a bond election, couldn’t afford the process, or didn’t know where to start.
The research on what makes bond elections succeed looks a lot like the research on what makes dedicated sales tax elections succeed: specificity, visibility, and a direct connection between the ask and something residents can see and touch.
Revenue bonds are a related but distinct option worth understanding separately. Where a GO bond is backed by a government’s general taxing authority, a revenue bond is backed only by income generated by the specific project being financed — water bills paying off a water system bond, for example, or utility fees paying off infrastructure improvements.
Because the repayment comes from the project itself rather than the general tax base, revenue bonds typically don’t require voter approval. They carry slightly more risk than GO bonds from a lender’s perspective. If the project doesn’t generate the projected revenue, the municipality has a problem, but for specific infrastructure purposes with predictable revenue streams, they’re a lower-barrier entry point to capital financing that many small towns overlook entirely.
Municipal Real Estate as a Revenue Stream
When a municipality owns property and leases it to a business, it’s not just doing economic development — it’s generating recurring revenue. That distinction matters, and it applies to both of the models most towns consider: industrial parks and existing buildings.
Industrial parks with municipal ownership are a legitimate revenue model. When a town develops a park, retains ownership of the land, and leases it to manufacturers or distributors, that lease income can fund operations, service debt, or build reserves over time.
The problem isn’t the ownership structure; it’s getting the industrial park built. With site surveys, utility extensions, infrastructure installation, rail access, environmental review, the upfront development cost is enormous, and the payoff horizon requires a business to actually come.
For a small town dependent on sales tax and running lean, that’s a significant gamble on a long timeline — and the political cost can be brutal. Residents and even city councilors who see an empty industrial park for years after the investment was made often don’t connect the infrastructure to the eventual payoff. It gets tagged as a waste, a boondoggle, the road to nowhere.
That doesn’t mean it never develops into a functioning, revenue-generating park — sometimes it just takes fifteen or twenty years. But in the meantime, you’ve got an angry constituency and elected officials who inherited someone else’s unpopular decision, and that political reality shapes what the next council is willing to try.
The building-first approach gets to the same destination — municipally owned, lease-generating real estate — at a fraction of the upfront cost. A vacant building in the middle of town already has water, sewer, gas, and electricity. It already has address infrastructure and parking. It often has historic character that new construction can’t replicate.
The renovation cost is usually a fraction of greenfield development, and the risk profile is fundamentally different: you’re improving something that exists, not betting on something that might come. A town that acquires a vacant building, whether through purchase, donation, or cheaply at a tax resale, and renovates it for a tenant is on the same path as the industrial park model, just with a much lower barrier to entry and a faster path to lease revenue.
In Bellefontaine, Ohio, a local entrepreneur named Jason Duff launched a company called Small Nation to invest in the city's vacant historic building stock. Over fifteen years, the effort renovated 56 buildings in downtown Bellefontaine, helped launch about 60 new businesses, and generated more than $30 million in private investment in a city where more than 70% of the business district had once sat vacant.
The municipality wasn’t the developer in that case, but nothing prevents a town from playing that role directly, especially when the building is already on the tax rolls as a liability and can be acquired for little or nothing.
Nebraska’s Local Option Municipal Development Act allows incorporated cities to collect and appropriate local tax dollars for economic development, including infrastructure improvement grants for business owners who invest in building upgrades. The principle is transferable even where the specific statute isn’t: municipalities that think of their existing building stock as a revenue-generating asset are working with more than they realize.
Cell Tower Leases: The Asset on Every Water Tower
This one requires almost no political lift and is genuinely underused. Municipalities that own water towers, rooftops on public buildings, or open public land sit on assets that wireless carriers actively want as 5G networks expand and antenna density requirements increase.
A municipality leasing land or structure space to a wireless carrier typically receives between $12,000 and $24,000 per year, depending on location and negotiation. For a town of 600 people running on a shoestring general fund, that is a meaningful line item — and it requires no new tax, no voter approval, and no ongoing operational burden.
The barrier is awareness. Most small-town officials don’t know this market exists or that their water tower qualifies. Regional development specialists, state municipal leagues, and councils of government are natural channels for getting this information to the towns that need it.
Franchise Fees and Utility Revenue: The Money Already Coming In
Franchise fees — charges assessed on utilities, cable companies, trash collectors, and pipeline operators for use of public right-of-way — are legal in most states and often already exist in some form. The problem is that many small towns negotiated these agreements years or decades ago and haven’t revisited them.
Regular review and renegotiation of franchise fee structures is basic revenue hygiene that many municipalities skip.
Utility revenues are already the largest single source of income for many small municipalities across the country — water, sewer, and electric fees collectively dwarf sales tax in communities that lack a strong retail base. The structural challenge is universal: aging infrastructure requires more revenue to maintain at the same time that flat or declining populations reduce the customer base.
Regionalization of utility systems — shared infrastructure across multiple small towns — is one solution that reduces per-customer costs while maintaining service levels. It’s an approach that’s been used effectively in the rural Midwest and Southeast but remains underused in many states where small towns are still trying to go it alone on systems they can no longer afford to maintain independently.
The Honest Conclusion
The tools exist. Not all of them work at every scale, and the article that tells a town of 400 people that they can replicate MAPS is not doing them any favors. But the gap between what small municipalities are using and what’s available to them is real, and it’s largely a gap of awareness and political will rather than eligibility.
The anti-tax environment isn’t going away. Federal support is tightening. State legislatures are restricting local revenue authority in ways that will take years to fully manifest in service cuts and deferred maintenance.
The towns that figure out how to layer these tools — a dedicated sales tax for capital, a TIF district for development corridors, franchise fee revenue for operations, a cell tower lease for a small unrestricted fund — will be in a different position than the towns waiting for a grant to solve a structural problem.
None of this is easy. Most of it requires more capacity than many small towns have on staff. That’s an argument for regional cooperation, for state technical assistance programs doing more outreach, and for economic development professionals treating municipal finance as part of the job description rather than someone else’s department.
The tools are there. Most of them don’t require new legislation, a large staff, or a perfect political environment. They require someone in the room who knows they exist and has the will to try.
The Honest Economic Developer is a publication of EconDevOps. We connect chambers of commerce and economic development organizations with pre-vetted remote operations specialists. Learn more at econdevops.com.