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

2. 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

3. 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

4. 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

5. 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)

6. 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

7. 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!”

8. 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

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

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

11. 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)

12. 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?

13. 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