Most community residents realize that taxes are necessary to fund local, state and Federal governments, but how many of them think of taxes and government services in terms of money flow? When local businesses and residents pay taxes and fees to their local governments, money circulates in the local jurisdiction, but no new money is attracted. The best communities can do to leverage the economic benefits of local tax dollars is to keep the money circulating locally for as long as possible. Taxes paid to state and Federal governments represent outflows of money. Magnetic Communities seek to insure that local businesses and residents receive their fair share of these taxes back in the form of services and infrastructure.
Local Governments Employ Residents and Nonresidents
The above illustration shows the flow of money when local governments employ and pay wages to residents and nonresidents. Wages paid to residents continue to circulate locally, while wages paid to non-residents flow out of the local economy and are lost to future spending. Because local governments are funded primarily with local money and attract a limited amount of new money, it is important that labor, materials and services are sourced locally.
Local tax revenues usually represent the largest source of income for local governments. Knowing that most of a town’s revenue is generated locally and does not represent new money should make keeping it in the local economy a top priority. To insure that local tax dollars used to pay employees remain in the community, local governments should require that local government employees and top managers live in the local jurisdiction. Do not be fooled into thinking that local government paychecks to residents or in-commuting employees represent new money attracted to the local economy.
Attract Money Strategies
- Maximize the inflow of money.
- Maximize benefits from the transfer of intergovernmental funds.
Retain Money Strategies
- Identify and purchase locally available materials, supplies and services.
- Hire residents and require transferees to live within the local jurisdiction.