Local governments face heterogeneous frictions in raising property tax revenue, such as reassessment lags and tax rate caps. These frictions result in property tax revenue growth being smaller than the property market value growth. I document significant cross-sectional variation in the elasticity of property tax revenue relative to property market value and demonstrate that this elasticity carries a positive price of risk within a no-arbitrage asset pricing framework. Specifically, municipal bond yield spreads increase by 23 basis points for bonds issued by local governments with high elasticity of property tax revenue to market values. Using a no-arbitrage asset pricing model that prices municipal bonds based on expected local government surpluses, I show how revenue-raising frictions shape the risk premium of municipal bond yields.