Fiscal Implications of Population Declines and Demographic Changes in Small Rural Municipalities
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Demographic trends suggest continued population declines and increases in the elderly population of small rural communities during the next decade and beyond. These changes could have significant implications for communities facing a need to provide the types of services needed to not only retain current residents but also to attract others. These changes in service delivery are occurring even while property tax bases are eroding, and tax rates are increasing. This article examines the evidence suggesting demographic trends and models the determinants of effective property tax rates in smaller Illinois municipalities. Factors associated with higher effective property tax rates include the decline of the property tax base, lower reliance on intergovernmental aid and charges and fees, less retail trade area captured, more services provided, and proximity to metro areas. The analysis also includes a discussion of innovative local economic development strategies in small municipalities to combat pending population declines.