The IRS has a page dedicated to Local Governments that can be a great resource.

Some of the topics discussed include:

Is My Entity a Govenment Entity?

Local Governments Tax Exempt status

De Minimis Fringe Benefits  (see treatment of cells phones)

Unrelated Business Income

http://www.irs.gov/Government-Entities/Federal,-State-&-Local-Governments/Issues-for-Government-Entities