Cozen Cities: Major Cities Are Rethinking Who Pays as Fiscal Pressures Rise

Major Cities Are Rethinking Who Pays as Fiscal Pressures Rise

As pandemic-era federal aid expires, downtown office values remain under pressure, and cities face growing demands for public services, local governments are searching for new ways to close budget gaps. More than half of the nation’s 25 largest cities reported significant fiscal challenges heading into FY2026, forcing policymakers to look beyond traditional revenue tools. Rather than relying exclusively on broad property or sales tax increases, many cities are experimenting with narrower, more targeted revenue sources tied to digital activity, high-income taxpayers, tourism, luxury property, and other forms of economic activity.

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The result is not simply a wave of tax increases. Instead, cities are increasingly redefining who should bear the cost of government services and which economic activities can support local budgets in a post-pandemic economy. Some jurisdictions are looking to digital users and online transactions; others are targeting high compensation, pass-through business income, luxury property ownership, or visitor spending. At the same time, many cities continue to rely on traditional property tax increases when alternative revenue options prove politically or legally challenging.

What’s Happening

Several structural pressures are driving these experiments.

First, the American Rescue Plan and other pandemic-era federal funding sources have largely expired, leaving cities to absorb ongoing spending commitments with recurring revenue rather than one-time federal assistance.

Second, remote and hybrid work continue to weaken traditional urban tax bases. Commercial office vacancy remains elevated in many downtowns, reducing property tax growth and weakening the connection between economic activity and physical location. As a result, cities are increasingly exploring ways to tax customers, users, digital transactions, and other activity that remains tied to place even when employees are not.

Third, rising service costs and shifting responsibilities are creating additional fiscal pressure. Federal workforce reductions, programmatic changes, and increasing demands on local governments have forced many cities to identify new revenue streams while maintaining competitiveness and continuing to provide core services.

Where cities increasingly differ is not whether they need additional revenue, but who they ask to provide it. Property, sales, and income taxes remain the primary sources of local revenue, but state law often restricts how aggressively cities can raise them. Facing those constraints, cities are increasingly reaching beyond traditional tax bases toward narrower groups of taxpayers and more targeted forms of economic activity.

Where We’re Seeing It

Redefining Taxable Presence

As hybrid work, digital commerce, and online transactions weaken the connection between economic activity and physical office locations, some cities are rethinking how they determine taxable presence. Rather than relying solely on property values, payroll, or traditional business activity, cities are increasingly tying tax liability to digital users, cloud consumption, customer location, and online transactions.

• Chicago: Facing a nearly $1.2 billion budget gap, Chicago’s FY2026 budget increased taxes on software licenses, cloud services, and other leased digital products; created a Social Media Amusement Tax based on local user counts; and imposed a 10.25% municipal tax on online sportsbook revenue attributable to wagers placed in the city. Together, the measures represent one of the most aggressive efforts by a major city to redefine taxable activity around digital use and geographically sourced online transactions.
• San Francisco: Responding to the erosion of its payroll-based tax base caused by remote and hybrid work, San Francisco voters approved Proposition M in 2024 by a 69% to 31% margin. The measure restructured the city’s Gross Receipts Tax by placing greater emphasis on customer and market location and less emphasis on employee payroll, while also extending potential tax liability to some businesses with no physical presence in the city. 

Targeting Wealth Through Proxies

Rather than pursuing direct wealth taxes, cities are increasingly targeting observable indicators of wealth, including high compensation, luxury housing, high-value property transactions, and income generated through pass-through businesses. 

• New York City: In August 2026, the City Council reduced the Unincorporated Business Tax (UBT) credit available to city residents with taxable incomes above $1 million. The measure reflects a broader effort to raise revenue through changes affecting high-income taxpayers and pass-through business income rather than through broad-based tax increases.
• Seattle: Voters approved a 5% employer payroll tax on annual compensation exceeding $1 million, with revenue dedicated to social housing. Structuring the tax as an employer obligation allowed the city to target exceptionally high compensation levels while avoiding many of the legal challenges associated with local income taxes.
• San Francisco: Voters narrowly rejected Proposition D, an executive compensation tax measure that would have increased taxes on companies whose highest-paid executive earned more than 100 times the compensation of the median employee. The measure was projected to generate approximately $300 million annually and was advanced as a response to the city’s roughly $600 million budget deficit. Its defeat illustrates both the political appeal and political uncertainty surrounding efforts to raise revenue through taxes aimed at high-income earners and executive compensation.

Testing the Limits of Consumption Taxes

Consumption taxes remain attractive because they can generate substantial revenue quickly, but recent experiences suggest voters and policymakers often distinguish between broad-based taxes and taxes tied to a specific activity, industry, or public purpose.

• Los Angeles: Ahead of the 2026 FIFA World Cup, Super Bowl LXI, and the 2028 Summer Olympics, Los Angeles officials have explored several visitor- and event-oriented revenue measures. In June, voters rejected Measure TT, which would have increased the city’s hotel occupancy tax and extended it to certain short-term rentals, while simultaneously approving Measure TC, which requires online travel companies to remit hotel taxes based on the full price paid by customers rather than the discounted wholesale rates negotiated with hotels. City leaders have also introduced a proposal to place a 10% tax on Olympic and Paralympic ticket sales, highlighting the growing interest among cities in leveraging major events and tourism-related activity to offset public safety, infrastructure, and transportation costs.
• Philadelphia: Mayor Cherelle Parker’s (D) FY2027 budget proposed several targeted consumption taxes, including a tax on hotel and short-term rental stays, a retail delivery fee, and a rideshare fee that ultimately increased from an initial $0.20 proposal to $1 per trip. The Philadelphia City Council ultimately removed all of the proposed taxes from the final $7.1 billion budget. This highlights both the appeal of narrowly targeted consumption taxes and the political resistance they can encounter when policymakers perceive them as placing new costs on residents and consumers.

Property Tax Realignment

Property taxes remain the cornerstone of local government finance, but major cities are increasingly debating who should bear the burden and how property should be treated based on ownership, occupancy, or market conditions.

• Los Angeles: Los Angeles’ voter-approved Measure ULA imposes a 4% transfer tax on property sales above $5 million and a 5.5% tax on sales above $10 million, with revenue dedicated to affordable housing and homelessness programs. While the measure was initially projected to generate between $600 million and $1.1 billion annually, it had raised approximately $1.2 billion total through May 2026. Research from UCLA has associated the tax with a significant decline in high-value property transactions, including commercial, industrial, and multifamily properties, illustrating both the promise and potential limitations of narrowly targeted taxes on high-value economic activity.
• New York City: New York City’s new pied-à-terre tax targets certain qualifying second homes and non-primary residences and is expected to raise approximately $500 million for the city’s budget. The rollout has been met with immediate legal challenges, including a lawsuit that temporarily halted implementation before the city appealed. The dispute highlights both the growing interest in taxing specific forms of property ownership and the administrative and legal challenges that often accompany novel local tax policies.
• Minneapolis, St. Paul, and Pittsburgh: While some cities are experimenting with digital taxes, sports wagering taxes, and other targeted revenue mechanisms, Minneapolis, St. Paul, and Pittsburgh have largely turned to the traditional approach of raising property taxes. Minneapolis Mayor Jacob Frey (D) proposed an 11.3% property tax levy increase as part of his FY2027 budget; St. Paul Mayor Kaohly Her (D) proposed a 6.8% levy increase to address a projected $26 million shortfall; and the Pittsburgh City Council approved a 20% property tax increase as part of the city’s 2026 budget after scaling back a larger proposal. Together, the three cities demonstrate that despite growing interest in alternative revenue sources, property taxes remain the primary fiscal backstop for many local governments.

Why It Matters

• Technology and Data Infrastructure: Chicago’s cloud services tax, social media tax, and online sportsbook tax, along with San Francisco’s move toward customer-based sourcing under Proposition M, signal that local tax exposure may increasingly depend on where customers are located, software is used, and digital activity occurs rather than where a company maintains offices or employees. For technology, media, and platform companies, taxable presence is becoming more closely tied to users and transactions than physical footprint.
• Large Employers & Professional Services: Seattle’s tax on compensation above $1 million, New York City’s reduction of the UBT credit for high-income taxpayers, and San Francisco’s failed executive compensation tax proposal demonstrate growing interest in using compensation and pass-through business income as proxies for wealth. Businesses with highly compensated employees and partnership structures should expect continued scrutiny of these revenue sources.
• Hospitality, Tourism & Events: Los Angeles’ hotel tax proposals, hotel tax reforms, and proposed Olympic ticket tax reflect a growing effort to capture revenue from visitors and major events rather than resident taxpayers. Philadelphia’s failed rideshare, delivery, and lodging tax proposals underscore both the appeal and political challenges of these targeted consumption taxes. Businesses operating in hospitality, tourism, transportation, and event-related industries should expect cities to continue exploring similar revenue mechanisms.
• Real Estate & Property Owners: Los Angeles’ Measure ULA and New York City’s pied-à-terre tax demonstrate how cities are increasingly targeting specific forms of property ownership and high-value transactions rather than broadly increasing property tax rates. At the same time, Minneapolis, St. Paul, and Pittsburgh illustrate that traditional property tax increases remain one of the most common responses to budget pressure. For real estate owners and investors, the relevant question is increasingly not simply the tax rate, but how ownership, occupancy, use, and transaction activity are treated.

The Cozen Lens – What This Signals

The central question facing major cities is no longer whether they need additional revenue. It is which economic activity remains sufficiently connected to the city to be taxed without undermining competitiveness, discouraging investment, or triggering significant political backlash.

The examples above suggest that cities are increasingly moving away from broad, one-size-fits-all revenue models and toward narrower, more targeted approaches. Some are redefining taxable presence around customers, users, and digital activity. Others are targeting proxies for wealth such as high compensation, pass-through business income, luxury property ownership, or high-value transactions. Still others are looking to visitors, tourism, and major events as alternative sources of revenue.

The broader takeaway is that local tax policy is increasingly becoming a window into how cities are adapting to the post-pandemic economy. Traditional tax bases tied to offices, payroll, and physical presence are becoming less reliable. In response, cities are experimenting with new definitions of taxable activity and new approaches to allocating tax burdens. Whether those strategies prove durable will help shape the next generation of urban fiscal policy.

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