City Builder- A Small Start

Well I don't have an xbox but if I did, I would play skyrim. More to the point, you're game sounds interesting. The way I see it, what you want players to experience will determine how buildings will work. It will depend on what kind of strategy you want and where you want the tension to originate from. Is it meeting conflicting demands (you need this AND this AND that but not enough money to do them all) or do you want it to be from limited opportunities (you only have access to building A, B, and C; OR you only have resources for Building A, B, and C). I hope that makes sense.

I am a Master of Public Administration student going into city government so your game excites me a bit just based on theme. Here's some insight you may find useful to proceeding with your game. I'm not an expert at city government so my info (while somewhat informed) is not comprehensive, still... here goes:

There are two main things that limit cities that they have control over. They are (1) tax base and (2) infrastructure. There are many other factors that affect the success of a city in one way or another, many of them include geographic features that are not directly controlled by the city i.e. access to large bodies of water, natural resources, centralized location, tourist attractions.

(1) Taxes base not only determines direct revenues (primarily from property tax and sales tax) but also their ability to issue debt (borrow money to build stuff). Taxes bases are interesting because usually you need a stable and high amount of citizens to warrant businesses moving into an area. Conversely, a large business can arbitrarily decide a town to locate in and growth can spur from there. This choice to locate is usually based on transportation benefits and/or other incentives. These incentives could be awesome in a competitive board game because cities often compete for who gets what by offering reduced taxes or other forms of incentives to get a business to locate there. Players could low-bid against each other for businesses that have strong peripheral impacts but this bidding reduces the direct-benefit of a business (you get less tax revenue from the business itself but more because of all the people that move in and other businesses).

(2) Infrastructure is arguably the most important thing a city does because it is what enables everything to work and no one else is going to do it (or it's not really practical to have them do it). Individuals and businesses often choose to locate somewhere because the transportation network is in place to satisfy their needs (roads, mass transit, heavy freight, etc.). Equally important are adequate utilities (power, water, gas, etc.). This could easily be incorporated into your game in that buildings can have "infrastructure requirements" where players can only build buildings that they have the utilities to support. OR, buildings would offer variable benefit based on the level of infrastructure provided.

If you could provide a little more vision of what you're going for, we might be able to give more direct mechanic suggestions.

How you could have taxes work is by multiple levels of tax revenue generated by each building. Players can choose a particular tax level that they are locked into for a certain amount of time (maybe randomly determined). The higher the tax level, the higher the revenue generated BUT buildings are either more costly to place or cannot be placed unless their taxes are below a certain point. Things can only get more complicated from here. This makes players want to keep taxes low to get new buildings but they forego additional income of higher taxes.

You may also want to add a system to punish players for high taxes by way of having businesses close down/leave.

I don't love this idea but it's a start and might help you think of something.