Cost Accounting in Local Government

Framing the Case for Fees

As the typical reader of the RCS blog articles, you are a technically skilled government finance professional and can make a strong financial or accounting argument to support your professional recommendations. When you have a thoughtful and technically literate audience, you will win your case.  Sadly, the longer I’ve worked, the more I’ve noticed a trend away from this kind of audience. Why? That would be an interesting topic for another article.

Your success in having your recommendations adopted will often be dependent on how well you can “frame” the issues in a way that “speaks” to your audience. The opinions of their neighbors, friends and associates will often trump the logic of your recommendations. The goal of this article is to assist you in “framing” your FEE recommendations in a manner that speaks to both the legislative body and their “influencers.”

Your starting point should be a technically competent study that identifies your various fee services and compares the fee with the cost for each service.  You now have information that defines the impact that the present fee has on the influencers.

Regarding current fee services:

  • If the user is paying the full cost of the service, then there is no issue.
  • If the taxpayer is subsidizing the service, is there a social or quality-of-life reason for subsidizing the groups? If there is, then the questions become:
    • Are the correct groups benefiting?
    • Is the subsidized program the most efficient and effective way to benefit those groups?
  • If the taxpayer is subsidizing the service and the only one benefiting is the service recipient, then the questions become:
    • Is there a less expensive way to provide the service that would be just as satisfying and would eliminate the subsidy?
    • Would it be “better” to eliminate the service rather than charge the full cost?
    • Can the legislative members justify to their influencers that their tax dollars are going to subsidize the service in question?
    • If the subsidies were eliminated, could the agency hire more police or improve the streets?

Regarding impact fee services:

  • There is an important difference between “current” fees and “impact” fees. As we saw above, a subsidy to a current fee comes out of the taxpayer’s (influencer’s) pocket immediately by diverting tax dollars that could be spent on tax services (police, fire, parks, etc.) to subsidizing the cost of the current service. For impact fees, the cost of non-existent or inadequate fees is recognized by a deterioration in quality of life measures. Several examples of the impact of new development without adequate impact fees might be:
    • increased street congestion and longer commute times,
    • street flooding during storms due to undersized storm drains,
    • inadequate numbers of library books,
    • shortage of ball fields and tennis courts,
    • increased fire response times, and
    • inadequate police facilities.
  • To the extent that your agency finances the missing infrastructure through the regular capital improvement program, the taxpayer (influencer) is paying tax dollars for something that should have been paid for by a developer. This largesse is often shared during election campaigns, but the developer is still the big winner.
  • Often developers will claim:
    • The impact fee makes the project unprofitable. Then, your agency can wait for another developer or subsidize this developer if it makes “sense.”
    • The home buyer will end up paying the higher cost which will make homes (if that were the development) less affordable. Actually, home prices are determined by the marketplace. If the home is priced higher than the market, buyers will go elsewhere. Most studies have shown that the cost of impact fees falls on the developer’s profit not the homebuyer’s pocket.
    • Even if homebuyers pay part of the impact cost, remember that current residents paid taxes for many years to develop the current infrastructure. Imagine a community that pitches in year after year to build a community pool with the understanding that it would be free to residents. Then. a new tract is built after the pool is operating and the new residents come to use the pool for free and there are so many new residents that the original community barely gets to use the pool. The issue is equity between existing and new residents that impact fees address.

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