As the nation’s cities attract an ever-growing share of the U.S. population, their capacity to honor service commitments, build and maintain necessary infrastructure, and meet their financial obligations will have a profound effect on local and regional economies, public safety, education, and overall quality of life for hundreds of millions of Americans. But U.S. cities are in a bind. Faced with a requirement that they balance their budgets every year, they have borrowed a page from the airline industry: increase fares (i.e., taxes) just a little if at all, and start charging big time for the “extras” that passengers (i.e., taxpayers) want. In the airlines’ case, it’s bag fees and the like that are going up. For cities, it’s charges for little things like, say, putting out fires…
In an annual survey [PDF] administered by the National League of Cities, more than four out of ten cities (41 percent) reported last year that they were increasing service fees in an effort to stanch the bleeding in city budgets. For the last two decades, when asked to identify a revenue action that their city had adopted in the previous year, city finance officers overwhelmingly selected “increase the level/rate of user fees or charges” and “impose new user fees or charges.”
Much like Newton’s Third Law, as cities raise fees, they decrease their reliance on taxes to support general municipal services. Back at the start of World War II, city taxes on sales, income, and property amounted to some 89 percent of all revenues cities raised (excluding aid from state and federal governments and borrowing or debt), with property tax generating 78 percent of “own-source” revenues. Fees amounted to some 11 percent. Today, nearly 40 percent of “own-source” revenues are derived from fees on services, and 60 percent from all other taxes (and less than 30 percent from the property tax). In other words, we have seen a sea shift over the last three generations from a city fiscal system that collected taxes—almost all of which were property taxes—to pay for the bulk of municipal services to one that identifies individual beneficiaries or users of services who can then be assessed a fee (e.g., fire suppression in Mondovi).
I wonder about several pieces of this:
1. What about the declining federal and state support for communities? If the federal government and individual states have less money themselves, there is less to pass along to communities as well as other taxing bodies.
2. The share of revenue from property taxes has decreased over time and I wonder how much of this is tied to an increasing number of taxpayers arguing against paying more property taxes. This has been gaining steam since the 1970s (see more about Prop 13 in California) and limits what communities can collect. It sounds like more communities see fees as a solution but is this because their other options are limited? Of course, municipalities aren’t the only ones who get money from property taxes as there are others who take more of this pie.
3. It would be interesting to see these numbers alongside figures about the size of municipal budgets and what the money is spent on. As fees increase, where is the money going and how much is it contributing to or paying for larger budgets? Some of this increase could be hard to stop; communities do age, infrastructure needs replacing, and the costs of services tend to go up.