Responsible government means tough decisions
As the economic downturn grew into a recession the revenues of governments fell leaving many municipalities to adopt user fees as as an alternative way to deliver some services.
Cutbacks on federal programs and reduced state revenues have had a deep impact on states and municipalities which as a rule, are not permitted to bank savings for future use. This makes their budgets especially sensitive to revenue interruptions. Understanding that the average taxpayer faces the same predicament many governments have turned to user fees, hoping to minimize the impact of taxes.
Politicians haven't wasted any time jumping on this, claiming that user fees are just more taxes. Senate President Stephen M. Sweeney commented that user fees were not what he had in mind when approving the 2% cap. He said he will propose a bill that would include revenue from any user fees created after 2010 to fall under the cap.
Gov. Christie's spokesman, Michael Drewniak said, "We will have to see the particulars, but the governor has been critical of these cap-evading moves by local governments." But the men differ on what exactly constitutes a user fee. Currently several towns are attempting to remove trash pickup, first aid, and even even police response from their budget and begin charging usage fees for these services.
But are the municipalities taking advantage of loopholes, or doing what is necessary to continue providing services? How realistic is the 2% cap when the Cost of Living index has averaged an increase of 4.8% over the past 2 years and 6.3% per year since 2001. How effective is the cap when certain costs, such as pension payments and health care costs, are granted "exclusions" which are not considered in cap calculations.
At first glance it looks like municipal spending has continued to increase, despite the cap. Closer examination reveals that the majority of municipal budgets have gone down since 2009, but that has not reduced taxes. In fact they have pretty much gone up across the board due to cuts in funding from Trenton and reduced local income.
Faced with shrinking revenues from lowered property values and reductions in state funding, municipalities are faced with tough decisions. Charging for services that were once provided freely is the last viable alternative before simply reducing those services. But what stays and what goes?
Sen. Anthony Bucco, R-Morris, said he will introduce a bill that would limit towns’ ability to increase or impose fees for police, fire and EMS responses. Few will disagree with his position. Public safety and first response services should never be subject to costs that users would consider before calling for help. So where do we cut?
There is constant debate over what constitutes a fair system of taxation and a fair allocation of the tax burden. A substantial amount of income redistribution and cost shifting of public goods and services takes place through the tax system. Princeton graduate, economics professor, public finance expert and author David N. Hyman wrote: "Taxes, the principal means of financing government expenditures, are compulsory payments that do not necessarily bear any direct relationship to the benefits of government goods and services received."
The debate of taxes vs. fees is just heating up. It seems that there are as many opinions as there are those willing to voice them. But a common sense approach needs to be taken so that governments can continue to provide needed services while offering additional services to those that request them. In a 2011 report, the Morrison Institute for Public Policy released a report on the proliferation of user fees being imposed by states and municipalities facing budget shortfalls. In that report they stated that "A user fee is related to some voluntary transaction or request for government goods or services above and beyond what is normally available to the public."
We must recognize that there are different kinds of fees; those for commodities or services purchased, and those for offsetting burdens created by human activity. Simply speaking, taxes are to raise money while fees are to regulate. For example inspection fees and processing fees are charges to people who ask the government to pay them special attention, or whose activities give rise to special regulatory oversight. In either case, governments must allocate resources to those projects or activities beyond those provided to the community overall.
The cost to allocate those resources should not be borne by all. User fees are to pay for the share of the burden an service or activity places on government operations; such fees are not permitted to exceed the proportionate share of providing governmental oversight of the regulated activity. Within these parameters, user fees are true regulatory fees in that each one is charged to cover the cost of a regulatory program.
As a rule, distinguishing a user fee from a tax follows three main criteria: (1) a user fee is designed to defray the costs of a regulatory activity or government service, while a tax is designed to raise general revenue; (2) a true user fee must be proportionate to the necessary costs of the service, whereas a tax may not be; and (3) a user fee is voluntary, whereas a tax is not.
If a municipality operates an activity such as a summer camp it has a duty to assure that all associated expenses are met with user fees, and that no tax money is expended. This is effectively the same as someone requiring building inspections. Taxes should only be used to run the government and provide broad services such as public safety, paving and maintaining roads and providing parks and recreation.
When municipalities operate programs beyond basic services, they have a responsibility to the taxpayers to assure that the cost to operate those programs are met strictly with user fees. Anything less would be unfair to the taxpayers who have no need of these extraordinary services. In properly safeguarding the public trust, municipalities can continue to bring expanded service offerings to residents that will not impact the tax rate.