As we all know, these are desperate times for states and localities. Even the bounty that is the federal stimulus program can't supply enough cash to meet the demand for services. That gap has state and local officials looking under every rock for additional revenue.
As in other recent recessions, fees are the rock of choice. They tend to work best when attached to a tangible service. The broader the base for that service, the lower the fee or fee increase can be and still serve its purpose. "A relatively small uptick in a toll can raise a lot of money at a busy toll booth," says Ivan Kenneally, who teaches political science at the Rochester Institute of Technology. "You won't get upset if a toll is a quarter higher, and with E-Z Pass, you won't even see it."
Other fee sources are more troubling. John McGlennon, who's chairman of the Department of Government at the College of William and Mary, doesn't just lecture about revenue issues. He lives them. As a member of the county board of supervisors in James City, he reports that the county is struggling with whether to raise fees for after-school recreation programs, used by many residents for extended day care. "There's so much financial stress on families," he says. "If we're talking about a $5 a week increase, that's $250 a year for that family, whereas a 1 percent increase in the real estate tax would cost $25 to $30 a household. So I am trying to balance the broader interest of community versus whether people should cover the cost of services they use."
Fee increases can backfire, especially if people see the fee as paying for something that their taxes are supposed to cover-such as police and firefighter rescues. Winter Haven is a case in point: Over 80 percent of the fees billed to at-fault drivers remain unpaid and the pushback has been considerable. "People feel that being helped at an accident scene is an essential human service that everyone is entitled to through taxes," Kenneally says. "The states and localities that are doing this can't not know they're on shaky political ground. It's an indication of how bad things are economically."
That hasn't stopped state and local officials from looking for new places to impose fees. One of those places is charitable institutions-also known as 501(c)(3)s. They don't have to pay property or sales taxes, but they are liable for fees. One Minnesota city is charging a curb fee based on property frontage as a way of generating revenue for street upkeep-and as a way to get 501(c)(3)s to chip in for the local services they receive.
There's some concern that the increased use of fees as a revenue source is largely tapped out, that localities already have moved aggressively to shift the cost of government off the general public and toward specific users of government services. "The go-to solution," says McGlennon, "is gone."
There are numbers to back up that point. Mike Pagano, dean of the College of Urban Planning and Public Affairs at the University of Illinois, follows local revenue trends and reports that user fees now account for 40 percent of localities' own-source revenue. Property taxes constitute a mere 30 percent. Still, he's not sure we've seen the end of fee expansions. "Fifteen years ago, I predicted we may be reaching limits of user fees," he says. "Boy, was I wrong."
