User Fee Analyses
Where The Opportunities Are

In the February 1988 issue of the Illinois Municipal Review, David M. Griffith & Associates (DMG) presented an article on how to analyze a city's user fee services. The article described the general methodology used to identify the costs of individual services. Knowing the full costs of services allows local officials to make informed decisions regarding appropriate fee levels. The purpose of this article is to describe the results of several user fee studies. These five studies illustrate opportunities available to Illinois municipalities.

In conducting over 150 user fee studies around the nation, interesting patterns have emerged. Fees often have little relationship to costs. Even in cases where fees were originally meant to recover the related costs, over time costs have risen faster than the corresponding fees. In addition to inflation, structural changes in the local government can effect the costs of service delivery. Costs vary based on staffing levels, degree of automation, volume, etc. Often changes in these factors are neglected.

In many cases, fees are established using a "market" rate with little concern given to actual service delivery costs. It is often assumed that the prices charged by neighboring communities set the limits of the local market. However, costs do vary among communities for the same reasons outlined above. Interestingly, we have found that when one community in a particular area raises its fees to increase cost recovery, others soon follow suit — without significant volume impacts.

On average we have found that communities provide a subsidy to user fee services of $35,000 per 1,000 residents. We have chosen five studies to illustrate opportunities available to lessen this subsidy. The communities represented are Aurora, Rock Island, Skokie, and Springfield, Illinois and Kenosha, Wisconsin.

City of Aurora, Illinois

City services for which fees of $1,372,645 were assessed in 1986 cost the City $2,596,117 to provide resulting in a subsidy of $1,223,472 from General Fund revenues. This subsidy is approximately $14 per City resident. If sanitation services are included in this total the subsidy rises to approximately $31 per City resident. The City made a conscious decision to forego recovery of the sanitation costs at this time.

Based on the cost of services data, DMG consultants and City administrators developed preliminary recommendations to implement $754,807 in increased fee revenue. Ultimately, the City Council adopted increases of $300,000. A significant portion of this total ($120,000) is to be realized from increases in the Building Department. Aurora is a community experiencing high growth with a resulting demand on the Department. The other large increase will come from the Parking Utility ($96,000). Aurora's growth and its acting as a regional center for Chicago commuters has increased the costs and demands on the Parking Utility.

City of Rock Island

In Rock Island, user fee services costing $3,144,000 were analyzed. The related revenues were $1,126,000: an overall recovery of 36%. Here, three programs stood out as candidates for increased fees. The building permit area had costs of $156,000 and revenues of $66,500. It was suggested that 100% of costs should be recovered through fees. If implemented this would mean an additional $89,500. The fees for restaurant permits were also under-recovering costs. In this case, costs were approximately $28,500 and revenues $6,400; a difference of $22,100. Finally, the City has a quite extensive recreation program. Costs for the program were $858,000 and revenues $650,000; a difference of $208,000.

Village of Skokie

An assessment of user fee services for Skokie found costs for these services to be $2,876,000 and related

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revenues of $988,000; a subsidy of $1,888,000. Again restaurant permits for food service inspections were a prime candidate for fee increases. Total costs for the inspection work were $96,200 and revenues $8,800; a difference of $87,400.

Another slightly unique area concerned auto lockouts for the Police Department. In addition, to the liabilities associated with opening the cars, given the volume (2,270 units) this consumed a significant portion of the department's time. Costs for this service were $45,500. The City sought to defray this cost by securing an independent contractor to handle this service. It is envisioned that this will work in a manner similar to that of the towing roster.

City of Springfield

User fee services costing $13.54 million were analyzed for the City. The related revenues totaled $6.43 million; a General Fund subsidy of $7.11 million or $35 per resident. DMG's recommendations would result in increased revenue of $4.83 million. Preliminary indications are that the City will implement over $1 million in fee increases.

The study focused on the following departments: Health, Planning and Zoning, Building, Fire, Police, and Public Works. The Recreation Department and the cemetery were also examined. As in the case of Aurora, the Building Department represents a significant opportunity for increased revenues; the proposed increase totals $1,185,923.

Another benefit of analyzing user fee services is apparent in the Springfield study. Given the total costs of some programs the question arises as to whether they should be continued, or modified to take advantage of operating efficiencies. The City currently runs a campground at its Riverside Park facility. This program costs the City $321,132 and has revenues of $25,239. One possible alternative to running the park itself would be to turn this over to the State Department of Conservation which could in all probability run it at less cost.

City of Kenosha, Wisconsin

The analysis for the City of Kenosha was limited to

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the enterprise and internal service funds: the water utility, harbor authority, golf course, airport, garage, stores, office services and insurance. The aim was to identify the full cost of supporting these various operations to ensure that the general fund was adequately reimbursed for supporting these operations.

The analysis identified an additional $195,500 of potential enterprise fund recoveries. To date, the City has pursued additional funds from the Water Utility of $95,000 ($180,000 over two years) and $45,000 from the transit operation. An additional $199,000 of indirect costs were identified for the internal service funds. A portion of these internal service fund costs will also be recovered from the enterprise funds, though the majority of these costs would be recovered from other general fund departments.

Fees for services are often considered another form of taxation. However, user fees are a legitimate revenue alternative. Unlike property tax revenue, user fees are not passive income — they are a result of a conscious action by a consumer to utilize a service. Local officials have started to view increases in user fee revenues much like other revenue sources. Instead of being a miscellaneous revenue catch-all for "fines, permits and fees" this type of revenue is being used to moderate the rate of increase in property tax increases as the fees will be collected from all users, whether or not they contribute to the property tax base. •

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