Adria Dilme-Bejel Student # 1309968 April 13, 2010 Final Paper – User Fees PAD 6227 Professor: Theodore Carrasco, Ph.D.
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With local governments looking towards greater revenue diversification, user fees and charges have gained prominence and have become the fastest growing local revenue source in recent years. “In 1996, user fees and charges levied by local governments made up roughly 25 percent of all local revenues, up from less than 15 percent in 1966” (Bland). “The federal government will need to make the most of its resources to meet the emerging challenges of the 21st century. As new priorities emerge, policymakers have demonstrated interest in user fees as a means of financing new and existing services. User fees can be designed to reduce the burden on taxpayers to finance the portions of activities that provide benefits to identifiable users above and beyond what is normally provided to the public. By charging the costs of those programs or activities to beneficiaries, user fees can also promote economic efficiency and equity. However, to achieve these goals, user fees must be well designed” (GAO-08-386SP May 29, 2008).
As to how user fees and charges are defined, they are generally considered “a mix of payments for services and goods, which provide for individual benefits, to those willing to pay. Unlike "public services and goods," user fees and charges are services and goods sold in discrete units for a price, and non-buyers are excluded from receiving any of their benefits” (Bland). They are based on a quid pro quo principle, and are not considered taxes since they are generally, but not always, noncompulsory and have no effects of redistribution (i.e., to those individuals not paying the fees or charges and not receiving the consequential benefits).
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According to Mikessell user fees and services cover a number of services and activities. These include services such as recreation and leisure activities (athletic fields, greens, parks, and swimming pools), utility services, sanitation control, police protection (funeral escorts, vehicle impoundment and serving warrants), health, and transportation (parking garages, parking meters and hangar rentals). Activities commonly regulated by local governments, for which a fee or charge is required, include animal regulation, amusements (fireworks, movie theaters, and parades), building construction, food service, businesses and occupations, and zoning and redevelopment.
The primary advantage is that user fees and charges reduce the wasteful utilization of governmental services and, therefore, reflect more accurately the true costs associated with a particular service or good. This is obvious since the service fee or charge is tied directly to usage. The more water one uses, for instance, the more one pays. Hence, people will be more conservative and constrained in water consumption if it is not "free." This in turn allows for better costing of services.
Other advantages include: Service fees and charges give local governments a precise record or documentation of service demand. quantity used by each user, they give local governments a clear indication of the level of service preferred by the user, thereby limiting the unnecessary expansion of government facilities, equipment and personnel. fairness since those using the service pay in proportion to usage and benefits received. Those not using the service, of course, do not pay 3
administrative rules, regulations and ordinances since they can be used to influence social behavior towards desirable social ends (e.g., solid waste fees to reduce waste refuse and the costs associated with landfills and pollution). Disadvantages associated with user fees and charges also exist. One such disadvantage is that user fees and charges have sometimes a "regressive pattern" associated with them, taking a larger percentage of monies from low-income persons than from more affluent ones. This is especially true for user services and goods that are necessary to everyday living conditions and needs. For example, everyone needs fresh, potable water, the poor as well as the rich. But if everyone, rich or poor, pays the same price, than the poor pay a far greater share of their available income than the rich. Hence, user fees and charges can be regressive. Another disadvantage to user fees and charges is a political one. Local government officials are reluctant sometimes to add fees or charges for services since many people assume that they are already paying taxes for these services. When people resist paying fees or charges because they assume they are already paying taxes for them, and when these same people are particularly vocal about such fees, politicians tend to avoid such funding mechanisms. A recent article from the Miami Herald posted on Wednesday, March 17th, 2010 describes how the increase of fees has left the Fl. Department of Motor Vehicle strapped. Florida last year taxed motorists' wallets. Now, it's taxing their patience. The Legislature in 2009 dramatically raised a wide range of fees collected by the Department of Highway Safety and Motor Vehicles. Yet, the agency is so strapped for cash it's skimping on supplies, travel and other expenses, closed some offices and frozen hiring, leaving 335 positions vacant. That's contributed to longer lines at driver's license offices and more busy signals for motorists who phone the department. The service problems are due to a budgeting glitch and overly 4
optimistic forecast of how much money the fee increases would bring in as well as new federal identification requirements. Just about every motor vehicle fee went up in September, including a 35 percent increase in annual tag fees that ranges from $5 to $11.40, depending on a car's weight. The initial vehicle registration fee more than doubled, going from $100 to $225. The cost of an initial driver's license went up from $27 to $48 and a renewal increased from $20 to $48. One break for motorists, though, is they'll have to renew their driver licenses just every eight years instead of six. The service problems got worse in January when Florida began implementing new requirements for obtaining or renewing licenses. A federal law passed in response to the Sept. 11, 2001, terrorist attacks requires states to have the new requirements in effect by mid-2011. Motorists must provide a primary form of ID such as a birth certificate or passport. They also must have a Social Security card or some other documentation to verify their Social Security number and two proofs of residency such as utility bills, bank statements or mail from government agencies. A married woman who has taken her husband's last name also needs a marriage certificate. The department's latest quarterly report shows only 54 percent of driver's license customers waited less than 15 minutes at its 54 highest volume offices during the six months before the new identification requirements went into effect. An exact comparison with the prior budget year cannot be made because that figure of 89 percent includes all offices. Lower volume offices usually have shorter wait times. The report says nearly 100 vacant positions in field offices have contributed to the longer wait times. The department's other vacant positions include 133 in the Florida Highway Patrol. Only 40 percent of customer service calls were answered within two minutes. The department tried to remedy the problem by adding 46 phone lines in February. Within a minute, the lines were full and customers again were getting busy signals due to the huge calling volume, the report says. The service problems could have 5
been avoided if not for the staffing vacancies, Westberry said. He said the encouraging news is that the agency processed 500,000 driver's licenses in the first 60 days after the new ID requirements went into effect. The fees had been estimated to bring in $800 million during the current budget year that runs through June 30. They're now expected to miss that mark by about $80 million. Most of the new money goes into the state's general treasury with the Department of Highway Safety and Motor Vehicles getting 15 percent. The department's share is expected to be some $40 million less than originally forecast, or about 10 percent of its annual budget, said Diana Vaughn, the agency's chief of finance and accounting. That's after spending cuts totaling about $45 million in the prior two budget years. About $10 million of the agency's shortfall is due to a decline in original tag fees paid by people moving into Florida from other states and motorists who just want a different plate for whatever reason. Insurance and car rental companies also have balked at huge fee increases for obtaining driving records. Sales have dropped 25 percent since the fees went up including an increase from $2.10 to $8 for a driver's three-year record and from $3.10 to $10.00 for a seven-year history. Part of the overestimate was a failure to anticipate a large number of motorists who renewed plates and driver licenses early to beat the fee increases. Some doubled their savings by taking advantage of a recent policy change permitting two-year tag renewals. The Legislature's decision to fund the department entirely from motor vehicle fees also added to its financial woes. Until this budget year, the agency also received general revenue, which consists mostly of sales tax receipts, to pay state troopers' salaries. The funding switch was made July 1; the start of the budget year, but the new fees didn't go into effect until two months later. That left the department scrambling to find $21 million to pay the troopers in July and August.
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As per the above example of the troubles that the Florida Department of Highway Safety and Motor vehicle is facing it is of extreme importance that the method and principles applied when determining when and how to collect fees takes into account a balance between ensuring compliance and minimizing administrative costs. In some cases, the collection systems of another agency or a nonfederal entity, such as a private sector enterprise, may be leveraged, as when the airlines collect passenger inspection fees. Determining how fees will be used is a balancing act between Congressional oversight and agency flexibility. Congress gives agencies various degrees of access to collected fees. For example, fees may be dedicated to the related program or may instead be deposited to the general fund of the U.S. Treasury and not used specifically for the related program or agency. In addition, fee collections may be subject to appropriation or obligation limits, which increase opportunity for oversight but may limit agencies' ability to quickly respond to changing conditions. To conclude agencies must substantively review their fees on a regular basis to ensure that they, Congress, and stakeholders have complete information. Reviews provide information on whether the fee rates and authorized activities are aligned with actual program costs and activities, may provide opportunities for stakeholder input, and can help promote understanding and acceptance of the fee.
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References
Bland, Robert L. A Revenue Guide for Local Government. op.cit. Mikesell, John L. Fiscal Administration: Analysis and Applications for the Public Sector. Fourth Edition. Wadsworth Publishing Company: Belmont, CA. 1995. General Accounting Office Reports and Testimony: Federal User Fees: A Design Guide, Sunday, June 1, 2008. GAO-08-386SP Kaczor, Bill: The Miami Herald: Fees up but Florida Motor Vehicle Agency Strapped,Posted on Wednesday, March 17, 2010. http://www.miamiherald.com/2010/03/17/1533284/fees-upbut-fla-motor-vehicle.html
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