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Why City Fees Keep Rising Instead of Taxes

No overall source of city revenue has steadily increased as much in recent years.

Between 2007 and 2012, through the Great Recession and into the recovery, fees on everything from hospitals and airports to schools and social services increased by more than 7 percent. In tough times—in particular, tough times brought on by a national mortgage crisis—property taxes and other revenue sources declined.

Now that the economy is on the mend, all those annoying fees are going to fall back to normal levels, right? Not exactly.

According to a report released in May by the Lincoln Institute of Land Policy, user charges and fees are the only sources of city revenue that have increased in recent years. In many cities, this trend represents a surge in a form of revenue that is often regressive: People who require more city services wind up paying more fees for those services.

(Lincoln Institute of Land Policy)

The Lincoln Institute measured revenues from 112 cities in its Fiscally Standardized Cities database, which uses fiscal data from the U.S. Census Bureau. Per the report, the categories of fees represented by user charges include “sewer systems, hospitals, airports, solid waste management, parking, seaport facilities, highways, school lunch programs, higher education, parks and recreation, and natural resources.”

Per capita sewer fees, for example, increased by 16 percent across the 112 cities in the Fiscally Standardized Cities database. The average sewer charge is $221; residents in Detroit and Seattle pay more than three times the average. Growing fees are one reason Detroit residents can’t afford their water bills.  

(Lincoln Institute for Land Policy)

The spike in municipal fees is worse than a temporary austerity measure. Municipal fees have been rising steadily for decades. Since the late 1970s, user charges and fees have increased more than any other source of revenue. The last time any other source of revenue grew nearly as fast as fees was roughly 1985.

“Municipalities make desperate choices like [increasing fees] to improve fiscal status in part because of popular opposition to property taxes, the dominant source of local revenue,” writes George W. McCarthy, president of the Lincoln Institute of Land Policy, in the latest issue of the group’s magazine. “Any municipality that considers raising property taxes to cover obligations faces the prospect of local tax revolts or increased pressure to relieve residents and businesses of tax burdens.”

(Lincoln Institute of Land Policy)

Two kinds of municipal fees are not just arbitrary, or worse, regressive. Court fees and tax liens are dangerous.

The use of predatory court fees in Ferguson, Missouri, earned the city the rebuke of the U.S. Department of Justice. While Ferguson is an outlier in the extreme way that it relies on court fees for general revenues, it is hardly the only place where cities have turned to court fees to make up revenue shortfalls. As McCarthy writes, a study of North Carolina counties conducted by the St. Louis Federal Reserve Bank found that “a 10 percent decrease in annual revenues led to a 6.4 percent increase in traffic citations.”

Court fees are dangerous to individuals because they’re enforced by law enforcement, bringing people into more frequent (and sometimes fatal) contact with police. The effects are frequently compounding: Failure to pay one fee or meet one court date leads to larger fees and major consequences.

Tax liens and foreclosure sales, on the other hand, are dangerous to neighborhoods, since speculators tend to be absentee owners.

“Although this practice attracts needed revenue, conveying powerful tax liens leads to unintended consequences that are difficult to manage,” McCarthy writes. “The dominance of tax liens over all other liens gives extraordinary power to those exercising foreclosure. Savvy investors who pay a small share of outstanding arrearages to purchase liens can acquire properties at pennies on the dollar of actual value.”

Worse still, over the period of the Lincoln Institute’s study, increased fees did not lead to increased spending. Per capita spending on things like schools and public safety declined from 2009 to 2012, as did capital outlays and basic infrastructure investments. Tacking fees onto any and all services is not proving to be the path to a sound tax base.

Recovery notwithstanding, the fiscal situation facing many cities looks more like austerity than a return to good health.

About the Author

  • Kriston Capps
    Kriston Capps is a staff writer at CityLab. More

    Kriston Capps is a staff writer at CityLab, where he writes about housing, art and design. Previously, he was a senior editor at Architect magazine.