Charging user fees for programs and facilities is common practice in today's operation of leisure service agencies. Over the past decade, the practice has retained its attractiveness to professionals and earned public support as well. During that period, considerable discussion of the pros and cons of levying fees has occurred, and the economic and social consequences of the practice have been the topics of much debate.

It has been argued from a social welfare perspective that charging user fees is not in the best interest of all citizens. It has been argued from an economic standpoint that charging user fees benefits the community by improving the efficiency of resource allocation. However, regardless of one's social or economic convictions, it is clear that the practice of charging user fees is firmly established in virtually all sectors of the leisure industry.

One regional¹ and one national² study of parks and recreation departments found that user fee revenues account for 20% or more of total budgeted operating revenue. In Illinois, park districts reported that approximately 17% of total revenue (all government fund types) was generated by user fees in PY 1991. Since the total revenue figure reported by Illinois park districts typically contains a debt service component funded from tax revenue, user fee revenue as a percentage of total operating revenue is actually greater than 17%.

Another example of how pervasive user fees have become in Illinois park district administration is the large proportion of districts that report charging fees for programs offered through government fund type operations. In FY 1991, 78% of the districts that reported financial statistics to the State charged user fees for non-enterprise fund type programs.

It appears that current interest in the topic of user fees is driven largely by pragmatic considerations. Questions of how to implement and price user fees have supplanted the question of whether user fees are appropriate for traditionally non-revenue producing programs.

Changes in user fee discourse come as no surprise. From the literature and direct accounts of parks and recreation practitioners, the industry view of user fees is different now from what it was even a decade ago. Since change is clearly underway, we should strive to understand the dynamics of the process and position ourselves to better manage it.

Managing change in user fee philosophy and related program pricing decisions would be facilitated by information on current practices of Illinois park districts. For example, it would be useful to know how districts' fee policies are affected by economic and political pressures to expand the user fee base. Further, we should attempt to determine how fee policies deal with differential pricing issues (nonresident and senior citizens in particular), and whether districts have goals to alter their current revenue mix through user fee adjustments. Finally, since there is no readily available data that permits inter-district comparisons of Illinois park district program and facility prices, comparative pricing data should be collected.

To learn more about park district fee policies and practices, Management Learning Laboratories (MLL) conducted a pilot survey in July 1993. A multiple choice and short answer questionnaire was distributed to 54 members of the Illinois Association of Park Districts. The questionnaire contained 10 items relating to fee policies, and it re-

User Fees
The industry view of user fees is different now from what it was even a decade ago. Since change is clearly underway, we should strive to understand the dynamics of the process and position ourselves to better manage it

Illinois Parks & Recreation * January/February 1994 * 29

Following is a summary of the survey findings concerning district fee policies only; pricing comparison results will be presented in a subsequent article. The results are presented under sub-headings which correspond to the survey's major topic areas. The accompanying chart briefly reviews the economic concept of Service Domain and is provided to familiarize the reader with the survey's terminology.

SERVICE DOMAIN CONTINUUM
Districts were asked if their fee policy specified the degree to which fees should finance programs in different service domains. Approximately 53% of the respondents indicated that their policy does not link user fee pricing directly to service domain categories.

At face, this is a surprising finding since the service domain paradigm is widely endorsed in professional journals and parks and recreation texts. It is an intuitive concept that appeals to one's sense of logic and fairness. Service domain based pricing integrates social welfare and economic considerations into a balanced and defensible course of action.

It is possible that some district fee policies embrace the service domain concept, but do not refer to it using the standard terminology. This is a plausible explanation for some of the negative responses to the item, but we doubt that it constitutes the predominant reason respondents answered no to the question. It appears that there are a substantial number of districts that do not price services differently based upon service domains.

APPLICATION OF SERVICE DOMAIN PRICING PRINCIPLES
Those respondents (47%) who indicated that their district's policy does link pricing decisions to service domains were asked to describe their pricing objectives for each domain category. The response alternatives were: recover full cost; recover direct cost; recover some (unspecified) portion of costs; fees are based totally on non-cost factors.

We expected to find that public domain pricing objectives would be based predominantly on "non-cost" or "a portion of cost" approaches. Contrary to expectations, 20% of respondents indicated that user fees charged for public domain programs were intended to recover full costs. An additional 40% cited direct costs as the objective of their pricing structure.

Responses to the cost recovery objectives for merit program fees were more consonant with our expectations. Adherence to the service domain paradigm would involve financing a portion of merit program costs (possible direct costs of some other fraction of full cost) from user fees and the remaining cost from tax revenue. Twenty percent of the respondents identified full costs as an objective of their pricing structure, and an additional 40% cited direct costs as the objective of their pricing scheme.

Responses to the cost recovery objectives for private program fees were also fairly consistent with our expectations. Over 53% of the respondents indicated that full cost recovery was the objective of pricing decisions for this category of programs. Only 6.7% cited direct cost recovery as an objective. The chart on the following page summarizes the responses of the 15 districts that reportedly base fees on service domain considerations.

The overall responses to this item reveal that

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the pricing approaches used for merit and private programs conform with the service domain model, while the pricing approach to public programs does not. Since the public programs are non-exclusive and benefit the entire community, the service domain paradigm would assign the costs of the programs to public sources (tax revenues) rather than user fees. The objective of recovering full, or even direct, costs for the public programs from user fees is inconsistent with the service domain concept.

One explanation for this pricing anomaly is that the practice of charging user fees has become so common in the leisure industry that it seems appropriate for all activities. After all, user fees do contribute to revenue growth, and they are an appealing alternative to tax increases and program cuts. Given the economic appeal of user fees, it is at least conceivable that pragmatic considerations overshadow philosophical positions on pricing public goods.

NONRESIDENT FEES
Districts were also asked if their fee policy prescribes a formula for setting nonresident fees. Only 15.6% of the respondents reported that their district's policy does not contain a specific nonresident fee formula.

Those districts that do incorporate nonresident fee formulas in their fee policy were asked to chose one of five alternatives as a "best description" of their nonresident fee formula. The two most frequently chosen alternatives were (1) a fixed percentage more than residents pay; and (2) a variable percentage more than residents pay (which varies by program or facility). The fixed percentage alternative was chosen by 30% of the respondents, the variable percentage alternative was selected by 22% of the respondents and a combination of the two alternatives were selected by 11% of the respondents.

The districts that employed a general fixed rate nonresident premium charge were asked to identify the magnitude of the premiums. The two most frequently identified premiums were as follows: 54% of the respondents charged a 50% fee premium, and another 23% of respondents charged a 25% fee premium.

There is considerable variation in the type of techniques used to establish nonresident user fee premiums. For those that use a general fixed premium approach, the range of premiums is relatively small (20%-50%).

Since our goals were to determine how widely nonresident fee premiums are used and to gauge the magnitude of those charges, we did not ask respondents to explain the rationale behind the charges. A similar study³ conducted in Southern Minnesota, however, concluded that its respondents used arbitrary means of setting nonresident fee premiums.

Cost Recovery Objective by Service Domain Category

Service Domain Public Merit Private

Full Cost 20% 20% 53%

Direct Cost 40% 40% 7%

Some Cost 20% 13% 13%

Non-cost 13% 0% 0%

No Response 7% 27% 27

We gained some insight into this process from supplemental materials provided by a few of our survey participants and informal discussions with others. Some districts' fee policies state that nonresident fees (for merit type programs) are to be set higher than resident fees to recover the tax subsidy provided to these programs. This is a sound rationale for establishing fee premiums. In general, however, the process begins to appear arbitrary when the tax subsidy targets are set without benefit of detailed cost data.

The survey revealed another interesting aspect of nonresident fee practices: several districts charge a nonresident fee premium for membership in and use of certain Enterprise Fund facilities. Twelve districts reported operating one or more of the following facilities under an Enterprise Fund structure: Indoor Ice Arena; Swimming Pools; Racquet/Fitness Center; Indoor Tennis Courts. Nine of the districts (75%) reported charging nonresident fee premiums for one or more of these facilities.

This is surprising because Enterprise Fund operations usually receive no tax subsidy, and are in fact run as quasi-commercial enterprises. Commercial enterprises certainly practice differential pricing, but they do not base differentials on residency status.

Perhaps an argument in support of the practice is that it recovers the value of the community land or other resources dedicated to the facility. On the other hand, nonresident fee premiums for Enterprise Fund facilities might simply represent an extension of pricing practices followed for other district programs and facilities.

SENIOR CITIZEN DISCOUNTS
Senior citizen discounts for programs and for facilities are offered by 60% of the respondents. Of those offering senior discounts, 30% reported offering a general fixed rate discount for all programs and facilities. Fifty percent of the respon-

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Current demographic data suggest that seniors as a group are economically more well off than most other groups. Are we discounting prices for those who don't really need it?

dents report offering senior discounts that vary by type of facility, and the remaining 20% offer a combination of general fixed and facility-specific discounts to seniors. Sixty percent of those districts that offer a general fixed discount to seniors provide at let a 25% reduction in the regular fee rate. The range of fixed senior discounts was 10% to 50%, and the range of facility specific discounts was 15% to 67%.

The fact that senior discounts are offered by a majority of our respondents is consistent with the results of an earlier study by Brademas & Readnour⁴ that found senior discounts offered by 51% of its Illinois respondents. Offering senior discounts is a popular practice in many districts, but is it beneficial?

Parks and Recreation literature and anecdotal accounts of professional staff express concern that senior discounts no longer serve their intended purpose, and in fact may be unfair to other groups of citizens. Common wisdom holds that these discounts were conceived to compensate for the economic disadvantages faced by senior citizens. However, current demographic data suggest that seniors as a group are economically more well off than most other groups. Are we discounting prices for those who don't really need it? For that matter, are discounts really based on a perceived need or are they part of a capacity management plan?

An alternate perspective on senior discounts is that we discount prices to increase participation levels of a group that is more price sensitive than their relative wealth might suggest. Since benefits of increased senior participation in district programs accrue to the community as a whole, the value of the discounts extends beyond merely the seniors who receive them. To some extent, senior discounts may represent a reinvestment to the community resources in itself.

Capacity management is another motive for offering senior discounts. The notion here is to entice a group of individuals to utilize facilities and programs at times when these services are normally underutilized. The restaurant industry piloted this concept years ago, and many establishments continue to offer senior citizen discounts during regularly occurring slack business periods (early weekday evenings, for example). Firms in the airline industry also offer senior discounts as part of their capacity management programs.

COMMERCIAL FEE RATES
Approximately 94% of the respondents reported that they consider fees charged by commercial operations and other public agencies as a factor in setting district user fees. This finding is consistent with our expectations. Many districts operate facilities and programs that offer services similar to those marketed by commercial enterprises and other public leisure agencies. Going rate (market) price comparisons are a valuable tool to fine tune the price floor derived from program cost information.

OBJECTIVES FOR FUTURE REVENUE GENERATION
Districts were asked whether they planned to increase the proportion of revenue generated from user fees, increase the proportion generated from taxes, or maintain the current revenue mix. A significant proportion of the respondents (78%) reported that their future objective is to increase the share of total revenue generated by user fees. Twenty-two percent of the respondents indicated that their goal was to maintain the current revenue mix; none of the respondents planned to increase their reliance on tax revenues.

PLAN TO INCREASE PROPORTION OF USER FEE REVENUE
Of those districts that planned to increase future proportions of user fee revenue, 58% indicated they plan to use a combined tactic of (1) increasing current user fee rates and (2) adding new programs/facilities which charge user fees. The second most popular tactic (15% of respondents) was to adopt a three-pronged approach comprised of the two measures above plus implementing user fees for existing programs/facilities that do not currently charge fees.

CONCLUSIONS
We preface our concluding remarks by cautioning readers that the results of this study are not strictly generalizable to all other Illinois park districts. The study was designed to investigate policies and practices of a limited group of districts; therefore, it did not employ random selection techniques or other design features that would permit drawing statewide inferences from the data.

Nevertheless, we believe the study highlights several aspects of user fee policies that deserve careful examination. The fee policy checklist presented below provides a tool for quickly evaluating some major strengths and weaknesses of your policy.

1. Does your fee policy utilize the service domain concept (or equivalent classification scheme) as a basis for setting user fees?

The user fee policy should link the district's

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pricing structure to its mission. If the mission entails providing some programs as free goods (public programs), the fee policy should provide clear guidance for attaining that objective. Further, the fee policy should clearly identify the district's private programs, and it should specify cost recovery objectives for merit programs.

2. Do you develop program cost data and use it in making pricing decisions?

User fees are often defined and expressed as a cost recovery objective (full cost, direct cost or a percentage of full cost). Under these circumstances, accurate cost data are absolutely essential elements of all private and merit program pricing decisions. Cost data provide valuable management information for other financial and operational decisions as well.

3. Does your current pricing structure conform with the district's fee policy?

From time to time, the salience of each factor considered in making pricing decisions may change. For example, pressure to become self-supporting and/or more fiscally accountable can obscure the importance of fee policy in making a pricing decision. It is possible for program prices to stray from provisions of the fee policy inadvertently.

4. Does your fee policy prescribe a logical and defensible method for setting nonresident fee premiums?

Common wisdom in the leisure industry dictates that nonresidents should pay higher fees than residents for programs that are subsidized from property tax revenue. This makes sense for a variety of political and economic reasons. In many communities, however, the issue emerges intermittently and becomes controversial and somewhat emotionally charged. While there is no universally effective solution to this problem, defending nonresident premium charges (actual amounts) is facilitated by the presence of a logical, cost-based methodology contained in the district's fee policy.

5. If your district offers senior citizen discounts, does the fee policy accurately reflect the nature and objective of the discounts?

Senior discounts may be offered as a benefit entitlement program or they may be intended to function as a capacity management tool. Public relations and operational problems can be avoided by ensuring that the fee policy accurately links district philosophy with the operational characteristics of the discount program.

BIBLIOGRAPHY
¹D. James Brademas and Julie K. Readnour, "Status of Fees and Charges in Public Leisure Service Agencies," Journal of Park and Recreation Administration, Vol. 7, No. 4, pp. 42-55.

² The MACPARS Working Group, Local Opportunities for Americans: Final report of the Municipal and County Park and Recreation Study, September 1988, p. 10

³ RogerA. Johnson, "Non-resident Fees: Revenue or Budget Woe?", Parks and Recreation January 1992, pp. 70-72.

⁴ D. James Brademas and Julie K. Readnour, "Status of Fees and Charges in Public Leisure Service Agencies," Journal of Park and Recreation Administration, Vol. 7, No. 4, pp. 42-55.

Richard King, M.B.A., is Assistant Vice President, Office of Planning and Budgeting, University of Illinois. Joseph J. Bannon, Ph.D. is President, Management Learning Laboratories, Champaign, Illinois.

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