Revenue From User Fees, User Charges, and Sales by Public Monopolies Troy University PA6650- Governmental Budgeting Chapter 11

Overview Taxes are paid because governments have the power of coercion Governments sell some goods and services to willing buyers and these transactions are not coercive, but are a voluntary exchange Three categories: USER FEES (e.g., licenses) USER CHARGES (e.g., services) Fiscal-monopoly and utility revenues (state-owned utilities, liquor stores, lotteries) Page 462 Table 11-1 – Sales revenue patterns

Federal Income The federal government collects quite a bit of revenue from licensing and other charges FCC almost entirely funded from spectrum licensing Postal service also a prime example Page 465 Table 11-2

User Fees and Licenses License taxes (hunting, massage parlor, DMV) Licenses are coercive…must have them to operate Not a user charge…not buying any government services or goods Not a franchise fee…open to anyone who wants it…no specific rights or responsibilities Licenses can be for revenue and for regulation Revenue…no inspections or business regulations Regulation…many controls, difficult to obtain Fees Privilege granted by government, may offset cost of service

User Charges User charges can induce production and consumption efficiency while gauging preferences and demand for government services Two necessary conditions: Benefits separability (certain individuals/firms benefit) Chargeability (economical methods for exclusion)

User Charges Advantages They register and record public demand for a service City tennis instruction, swimming pool User charges improve financing equity (prohibits non-residents and tax-exempt users) Improves operating efficiency Only justifies what citizens want and are willing to pay for Corrects cost and price signals in the private market Traffic control

User Charges Limitations Many government services don’t fit the criteria Fire protection, snow plowing Services may intentionally subsidize low-income or disadvantaged recipients Transit Some charges may be difficult to collect Beach badges Political issues “If I’m paying taxes, I deserve the service without being charged again!” Unpopularity (people that don’t pay get excluded) “the city turned my water off!”

User Charges Charge Guidelines (Mushkin & Bird) Household support functions Water Refuse collection Sewerage Industrial development support Airports Parking Special police/fire services Amenities Specialized recreational facilities Cultural facilities Services provided to tax-exempt entities Page 474 Table 11-3

Public Monopoly Revenue: Utilities, Liquor Stores, and Gambling Enterprises Government Utilities Water Electrical power Transit Gas Internet

Public Monopoly Revenue: Utilities, Liquor Stores, and Gambling Enterprises 17 states State-owned and operated

Public Monopoly Revenue: Utilities, Liquor Stores, and Gambling Enterprises Gambling Enterprises ($72.8B revenue in 2003) Highly taxed and restricted State runs some of it Lotteries (5 types) Passive (pre-numbered tickets, then a drawing) Instant (rub-off and you win or lose Numbers (pick your own, then a drawing) Lotto (pari-mutuel, group of numbers from a larger field) Keno (continuous, variety of bets)

Public Monopoly Revenue: Utilities, Liquor Stores, and Gambling Enterprises Lotteries Painless and enjoyable? Only contribute a small amount of revenue Expensive (security and advertising and prizes) Proceeds are volatile Regressive burden to poorer families Values…should the state be in this business?

Conclusion Public prices can be an attractive alternative to taxes Public prices can add equity Cities are the primary user of user charges Lotteries produce more fanfare than revenue Some monopolies have questionable public purpose