Tax Caps and User Fees: Caution Needed
Regressivity is a more common outcome of user charges than is commonly acknowledged. That ought to change. City services based on value (i.e. a user charge on publicly created land values) can be made more progressive than resorting to invisible charges or flat fees.
An ever-more-common urban finance scenario: Homeowners are upset about tax increases every year. The specter of those unable to pay (the "poor widow") provides ammunition for unflattering press, angry citizens and increased agitation from opponents. A natural reaction in the United States over the past 30 years has been to “do something”.
This is the root of most property tax limitation movement from Prop 13 in California Prop 2 1/2 in Massachusetts, New Jersey’s recent 2% annual tax increase in property taxes, and late but loudly to the game New York State's 2% annual cap. A victory for the poor and middle class? Not quite.
Government, particularly local government, is actually quite sensitive to the needs and desires of its citizens. Restricted by tax caps, other means are used to keep revenue flowing for parks, garbage pickup, and all the various services that constituents demand.
So, government finds other ways to keep the tap running, but in ways that are nearly invisible: borrowing (paying off the principal and interest is put off until everybody involved is long gone), hidden taxes – usually the sales tax – or the ever-growing popular option “fee-for-service.”
The economically impoverished town of Clairton Pennsylvania provides a simple explanation of how this works. Homeowners and business pay for how much water they use. Sounds almost fair enough. Leave the bathwater running all day long you pay more. But what’s really creating an issue and angst is another part of the water service: a flat fee. For residents, it’s $50 a month, whether you are a long retired steel worker who has little income or somebody making hundred thousand dollars a year. For business, you could be struggling storefront shop or a thriving pizza delivery and you pay $100 a month.