User charges and fees
C. Kurt Zorn

The U.S. Bureau of the Census defines current charges, a category used in its statistical compilations, as

amounts received from the public for the performance of specific services benefiting the person charged, and from sales of commodities and services except by government utilities and liquor stores. Includes fees, assessments, and other reimbursements for current services, rents and sales derived from commodities or services furnished incident to the performance of particular functions, gross income of commercial activities, and the like... Current charges are distinguished from license taxes, which relate to privileges granted by the government or regulatory measures for the protection of the public.8

Due to the limitations inherent in the Census Bureau definition of current charges –it excludes utility charges and license and permit fees, but includes assessments– it is not possible to focus specifically on trends in the utilization of user charges and fees as defined in this chapter. Instead, trends in “generic user charge” financing are discussed, in deference to data and definitional limitations. This operational definition, which is consistent with available census data, is employed in a recent study of user charges conducted by the Advisory Commission on Intergovernmental Relations (ACIR).9 The ACIR defines user-charge financing to include current charges, special assessments, and utility charges.

Table 3 shows that local governments have been increasing their reliance on user charges since at least 1957. In 1957, for every $1 raised in tax revenue, $0.40 was raised by user charges. By 1977 this percentage had risen slightly to more than $0.45 for every $1 in taxes. The ratio of user charges to taxes rose significantly between 1977 and 1983, the period when most of the state and local tax limitations and two significant recessions were experienced. By 1983, user charges amounted to $0.64 for every $1 in taxes, a ratio maintained through 1987.

Without exception, all categories of user charges represented in Table 3 grew more quickly than local taxes during the 1977-83 period. Sanitation, parks and recreation, special assessments, water revenues, and other utility and transit charges experienced the largest increases relative to pre-1977 growth rates. Between 1983 and 1987 most categories, except education, either equalled or exceeded the annual compound growth rate in local taxes, but none experienced growth rates greater than their 1977-83 rates.
A survey published in 1987 by the United States Conference of Mayors (USCM) provides further information on the implementation of user-charge financing by U.S. cities. The USCM definition of user-charge financing differs from ACIR's; it excludes special assessments but includes license and permit fees. (Table 2 lists the major service categories covered by the survey.) Of the 402 cities that responded to the survey, 39 percent had 50,000 or fewer inhabitants, 32 percent had populations between 50,000 and 100,000, 17 percent had between 100,000 and 250,000 inhabitants, and 12 percent had populations in excess of 250,000.10

Fifty-one percent of the respondents indicated they had adopted user-charge financing primarily to generate revenue rather than to regulate demand for services. Respondents indicated that sewerage, sanitation, and recreational services were best suited as income generators and had the greatest profit-making potential among services financed by user charges. Regulation of demand and reduction in waste and abuse was linked most closely with charges levied on public safety services, including building licenses and inspections, false alarms, and zoning.

The survey indicated that interest in user-charge financing continues. Approximately 70 percent of respondents had adopted fees within the last ten years and 15 percent had instituted charges during the past five years. In this latter group, 32 percent of the adoptions occurred in the public-service category, 23 percent in the recreation/cultural category, and 25 percent in the category “other.” This last category includes cable television; license and permit fees; library fees for video and film rentals, database searches, and microfiche printers; electricity; telephone; cemeteries; subway and bus fares; on-demand transit; bridge tolls; and airport landing and departure fees. The services that experienced the greatest activity in new-charge adoptions share two characteristics. First, fees can be collected easily and relatively cheaply. Second, there is general popular support for the institution of charges.

8 U.S. Bureau of the Census, Governmental Finances in 1985-86 (Washington, DC: U.S. Government Printing Office, 1987), Appendix A.
9 Advisory Commission on Intergovernmental Relations, Local Revenue Diversification: User Charges (Washington, DC: ACIR, 1987).
10 U.S. Conference of Mayors and Arthur Young and Company, User Fees: Towards Better Usage (Washington, DC: U.S. Conference of Mayors, April 1987). The survey was sent to 800 cities with populations above 30,000 and 402 cities responded.