Revenue Retention

Assist local governments identify locally available materials, supplies and servicesWhen available and competitively priced local governments should make every effort to purchase goods, services, and raw materials locally. Also, make it a priority to consider local vendors when awarding contracts.

For example, many local governments provide residents with garbage collection services. As costs rise over time, local jurisdictions are tempted to contract with regional and national companies to take over these duties. Local taxes or fees still pay for the service, but rather than paying local workers, local governments pay outside workers and create an outflow of money. Assisting local citizens start a garbage collection business or organizing several small businesses to bid on the local contract keeps the money in the local economy.

Local governments that try to save money by paying as little as possible for materials, supplies, and services, no matter where they are purchased, are probably not retaining as much money as possible. Any savings are most likely lost to a decline in the local multiplier attributed to local purchases. To illustrate, let’s say the town council votes to eliminate a maintenance function and outsources it to the low bidder, a company in a neighboring town. By awarding a $200,000 contract, the town eliminates a $250,000 budget line item, saving the town $50,000. The first thing to recognize is that the $250,000 budget line item represented three local jobs and spending on locally purchased services and supplies. The town may save $50,000 and reduce its budget, but it lost $200,000 in wages, local spending, related sales taxes and multipliers created by local spending. A more carefully worded request for proposals, one that gives local firms a priority may result in a local firm securing the contract. In this case, the town still saves money but payments to the contractor stay in the local economy.

Encourage governments to hire locally and to require new hires to live within the local jurisdiction When local governments hire employees without regard to where they live, local tax dollars are inevitably going to flow out of the community. By establishing a policy, formal or informal, that local government positions be filled first by qualified residents, second by qualified applicants willing to relocate, and third by non-residents, insures that local tax dollars used to pay public sector employees have a better chance of remaining in the local economy.