Monday, March 28, 2011

Illusory Cost Savings in City Budgeting

Every year most large cities go through a painful budgeting process that usually results in property tax increases. A particular pet peeve of mine is hearing city bureaucrats or politicians describe some change as a cost savings when it is really a tax increase.

Over the years I’ve been a homeowner I’ve seen an explosion of user fees for city services. These services were once provided free of any additional charge and paid for from general property tax revenue. Now they are at least partially paid for by user fees.

Leaving aside the question of whether slapping user fees on everything is the right thing to do, it is annoying to hear some bureaucrat or politician describe the change as a cost savings rather than calling it what it really is: a tax increase.

If the change were made in a revenue-neutral way that would be one thing, but that’s not how it works. If the city collects $100 million in property taxes one year and collects $100 million in property taxes the next year plus $5 million in user fees, but provides exactly the same services for that money, this is a 5% tax increase.

What isn’t clear to me is whether those who play these semantic games are just cynically trying to make their actions seem like less of a tax increase or whether they are so caught up in the battle between city bureaucrats and property taxpayers that they really think of these tax increases as cost savings.

4 comments:

  1. This is tangential to your post, but user fees are somewhat disturbing. Say a free wading pool becomes a pay-for-use wading pool. The poor will no longer allocate scarce resources to having their kids enjoy the pool - two-tier recreation.

    I'm happy my city has so many free events. It's not always possible, but they do a good job balancing free and pay venues.

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  2. @Gene: User fees make sense in some situations, but not others. Outdoor wading pools are a good example where fees are counter-productive. But, I fear that in a desperate desire for money, bureaucrats have little concern for whether a fee makes sense; their concern is whether it is practical to collect and whether they can get away with it.

    Another concern I have is the level of fees. My city often quotes how much it costs them to provide a service. However, they include a slice of the obviously bloated administration in this cost.

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  3. The experience in Toronto with the last administration was that: (i) no one wanted large property tax increases BUT (ii) no one was willing to pay any user fees or accept less services in lieu of no user fees (or user fee increases). This was all in the backdrop of a municipality that only balances budgets by dipping into emergency funds, receiving provincial grants and hoping we don't use all the snow removal budget and can raid it (this year's budgetary trick). So is this budgetary sleight of hand a comment on politicians, the taxpayer or both? All I know is that you could not pay me enough money to be the CFO of a City, Province/State or Federal government right now.

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  4. @Thicken: It seems obvious to me that the solution is to eliminate some jobs in the administration that contribute nothing directly to delivering city services. But this is unlikely to happen until we hit some sort of breaking point.

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