IBM data servers in Armonk, NY
There's money to be made in the wealth of data that governments provide, for free. PR Newswire

What do cities owe their taxpayers when businesses use their data?

Most cities today are operating under an assumption, which may turn out to be mistaken, that the data they collect and publish—all paid for by taxpayers—should always be available at no cost, including to business.

This assumption is part of the “open data” movement. This movement begins with noble intentions. Taxpayers have a right to transparency and to access digital assets they fund. It promotes accountability, clean government and better internal performance management. The democratic case is pretty solid for public data to be unconditionally free to NGOs, the press, or the casual civic hacktivist. But should it under all circumstances be free to a company looking to exploit a free—but valuable—resource like data for a profit?

It is often said that government lags the private sector by at least a decade. This could be the case with free and open data, which the private sector is actually moving away from.

In the 2000s, the internet was awash with a new world of free stuff. The tech community embraced shareable open-source code, so that software developers could build upon each other’s innovation. This is similar to the open government data philosophy—a free resource for business will allow for more and multiplying innovations that benefit the public.

But the tech world’s embrace of the “everything should be free” philosophy has cooled somewhat. The free app model has given way to limited Bronze versions pushing you to pay more for the quality Platinum versions. Google and Facebook ads have become more targeted and visible. Gmail is free only up until an email storage limit. Consumers eventually began to accept paywalls for news media and purchasing songs. They are more willing to sit through ads on YouTube.

And businesses have figured out there is serious market value in data. Google, Twitter, and Facebook are making a fortune repackaging and selling their user data. Microsoft bought LinkedIn in a thinly-veiled data grab. Congress seems to be on the side of protecting business data ownership, passing legislation last month that would make it easier for communications providers like AT&T, Comcast, and Verizon to sell their data, too. Uber has made limited trip data available to cities, but only on its terms and only after beating back city demands for broader data access. Uber knows how valuable its data is.

As businesses have gone seriously proprietary and big-bucks about their own data, governments continue to operate under the opposite assumption. There are already plenty of businesses that exploit open government data for profit. Corelogic assembles free property data and sells it to insurance and mortgage companies. Accuweather uses free satellite data. Businesses have long accessed freely available Bureau of Labor Force Statistics or Census Bureau data.

But now fancy tech tools have made exploiting that data at high volumes much easier. Some companies do it for genuine public benefit—for example, giving the public better real-time transit options or better health monitoring devices. It is hard knowing where the business opportunities in government data will be in the future. But what is certain is that the amount of data collected will skyrocket as cities build “smarter” infrastructure and more seamless data portals. And we know big profits are to be made: According to McKinsey the open data economy could be worth upwards of $5 trillion globally.

The software already exists to control who accesses how much data. Cities could design access in a variety of ways. You could charge based on volume, so only high-volume users pay anything. Or you might give everyone a month of free access, or waive fees for NGOs, press, or individual citizens. Or maybe there could be a quid pro quo where companies like Uber do a data exchange with governments.

To be sure, cities are nowhere near actually being able to monetize their data yet. Most governments are still struggling to digitize and standardize their data, not to mention convince overworked bureaucrats it’s worth their time. And there would be an opportunity cost to erecting a barrier to data access, probably resulting in less private-sector innovation. But cities owe it to their taxpayers and residents to have an honest discussion about whether at some point—maybe in five years for the data-savvy New York Citys or ten years for the Omahas—they should charge businesses for using taxpayer-owned data.

In the physical world, there has been a generally unquestioned assumption that taxpayer-funded assets should not be exploited by business for free. Parks are the clearest example, where businesses must pay a concession fee to operate. Or take the Smithsonian, which is a federal institution and has strict rules about anyone making money off their assets.

And user fees tied to consumption levels are standard practice for government services. The gas tax, for example, and its modern version the Vehicle Miles Traveled (VMT) tax, charge motorists for their proportionate wear on roads. Or take utilities like water. It used to be that piped water was free—until municipalities figured out how to meter water use. Even FOIA requests, which are legal requests for behind-the-scenes government information, are commonly charged an administrative or filing fee.

Why should public data be treated so differently? Shouldn’t the rules and assumptions that govern valuable public physical assets be applied to information assets? At the very least, any data user fee could go into a dedicated fund to pay for the data collection and data science budget.

But a case could also be made for these user fees becoming a regular staple of any municipal budget. Raising taxes is always a contentious battle. As a workaround, there’s been a huge shift toward adopting more user fees, which now account for about 40 percent of city revenues—more than property taxes. Cities have struggled to adjust their tax systems to the modern information economy. They are gradually winning online sales tax battles and corralling sharing economy firms like Uber, Lyft, and Airbnb into the taxable realm. Why not include a data user fee when the data is used for commercial purposes?

I’m a big proponent of using tax incentives to promote economic development, but admittedly, cities have been poor at tracking these incentives and prioritizing them with their like—other spending. In ten years, smart city data could be another hugely profitable industry. That’s great—but we should ask whether those companies owe something back to taxpayers.

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