Seeking Alternative Funding Sources

How to evaluate (and justify) potential revenue streams

By Mark Nagel

As one final project before I retired from the city of Elko New Market, Minn., I was asked to scan the nation for potential revenue sources for evaluation, and make recommendations to diversify our current revenue base for future park projects. 

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As has been well-documented, most cities depend primarily on property taxes and programming revenue to fund their operating budgets; our city was no different. To do more, we needed new sources of operating fund revenue for park department facilities and programming, as well as the enhancement of those primary sources of revenue.

The goal was to identify, evaluate, and prioritize possible new revenue sources by focusing on smaller, additional, stable sources that would increase operating budget funds.

The first step was to develop criteria to evaluate and prioritize the sources:

1. Ease of approval (political hurdles that occur whenever citizens are asked to pay more)

2. Stability of income year after year (important for budgetary purposes)

3. Cost-benefit of the revenue source itself (i.e. does the cost of implementing the new revenue source outweigh the possible revenues from that source?)

4. Showing that the money is going to park and recreation needs, thus meeting the “transparency” criterion

5. Meeting the goals of diversity, equity, and inclusion.  

Note: These are only five of many evaluation criteria that can be used to fit a city’s specific needs. This approach adds objectivity to any recommendations for pursuing new funding sources with a parks commission and/or city council.

Ranking The Possibilities

The table below shows some of the potential funding sources that other cities have used to diversify their revenue, matched against the above criteria (or more). Using a scale of 1 to 10 with 1 being poor and 10 being excellent, one can objectively rate each option for a city. Options can then be weighed (for example, ease of approval might be worth 20 points instead of 10 points). The total points for each option set the priorities to add these funding sources. To increase validity, other staff can rate the options, or better yet, the park board or commission as a group can build a consensus for a new funding selection. 

So, how does this work on two examples of the identified funding sources in the chart? A common one in Minnesota is the “Utility bill round up to the nearest dollar,” in which participants in the program authorize the city to “round up” the monthly utility bills to the nearest dollar OR add a fixed donation amount. First, looking at the cons, there are set-up costs, marketing costs, and ongoing staff costs to consider, but what are the potential revenues? Using a small city with a population of about 5,000 as an example—the Minnesota average for customers that “round off” is $11.88/year, so if 850 of the 1,700 households sign up, then the amount the city would obtain each year would be about $10,100. It has proven to be a stable source of revenue in other cities, so in 10 years, this would amount to $101,000. Now we have your attention! We gave this source 45 points to recommend to the council to implement.

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Let’s try another possible source of revenue and match it to the criteria. Parks-endowment funds, park-development funds, and capital-improvement funds have a common thread: it is an established line-item in the city’s budget that designates funds that can only be generally used for park and recreation improvements, new equipment, and equipment repairs.

How broad that definition is depends on the fund-contribution policy. For example, some cities use donated funds from citizens; others take general-fund reserves and transfer about $500,000 for a park-development fund; and some small cities make a budgeted transfer on an annual basis—about $15,000—to build that fund. Then, a city continues to build the fund principal, while only using the interest income for projects. That becomes a steady, stable source of annual income that parks and recreation departments can budget for projects. We gave this one a total of 42 points.

From these two examples, even a small city might have $25,000/year more revenue for park projects and repairs. What’s more, that number is generated every year to grow over time!  

More To Explore

Here are additional funding methods: 

• Public-private Partnerships for park amenities are popular throughout the country. One example of a city partnership is a privately-owned climbing wall on city property. In exchange for using the city-owned property, a company pays a percentage of its revenues to the city for parks projects. In another city, space is provided for an indoor playground that is run by a private company in exchange for a percentage of the revenues; it’s a “win-win” for both the city operating budget and the private company’s bottom line.

• Many states establish a Community Foundation that includes funding park projects as part of its bylaws. Then annual contributions to specific projects are made by the foundation—saving operating fund dollars.

• Many states have Local Option Sales Taxes,, which, for example, in Minnesota—with legislative and voter approval—allow cities to add a half-cent sales tax to fund specified park capital projects. This enables cities to use operating funds for other needed projects. A “selling point” is that once the project(s) debt is paid off, the sales tax can expire.

• Another avenue might be a Motor Vehicle Excise Tax. Cities in Minnesota can add on a $20 excise tax to the sale of any new/used motor vehicle within the city, which then can be designated for park projects. This funding source can be more elastic depending on the economy, so budget conservatively.

• Some states allow local governments to collect a Real Estate Excise Tax, where a set amount (or percentage) of the sale of a new house or the sale of an existing home is collected for park and recreation purposes. This source of revenue can fluctuate with the housing market, so it’s prudent to budget these funds accordingly.

• Even the success of “tried-and-true” funding sources like Grants can be increased by a full-time or part-time grant writer for specific projects. The more grant dollars secured means more operating dollars to use on other park programs. 

• Park Donations are another common approach. The key to growing this revenue source is a proactive city outreach that links community members’ donations to specific park needs. As with increasing grant revenue, more dollars in the operating budget can be freed up for other park purposes.

• Or try a Park-project Sponsorship, where an individual or business provides major funding for an agreed-upon park facility; the individual/business then names the facility.

• Let’s go even more “outside the box.” How about Crowdfunding? This approach has been successful when used for small, recreational infrastructure projects. A well-documented and clear public need are the keys to success for crowdfunding, along with a well-established online platform. 

The surface has only been scratched for ways to increase revenue and evaluate the sources in terms that decision-makers understand. Adding ones appropriate to a community will help diversify revenue sources; allow the existing revenue sources to be used for needed projects/programs that are difficult to fund; increase the visibility of programming and facilities; and improve the quality of life in a community.  

This will also show decision-makers that everything is being done to improve parks and recreation in a community while being fiscally responsible. That may make it easier to convince the decision-makers to increase primary sources of funding, too.

*Note: Data used in this article is current through 2022.

Mark Nagel is now retired as Assistant City Administrator from the city of Elko New Market, Minn. He is also a Senior Community Faculty Member for Metropolitan State University in St. Paul, Minn.

Chris Austin, a profit-growth pricing expert and a former economics professor at Normandale Community College in Minneapolis, Minn., contributed to this article.   

Tom Terry, City Administrator for the city of Elko New Market, Minn., contributed to this article.