Revenue From User Fees, User Charges, and Sales by Public Monopolies

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

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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

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User Fees and Licenses

• License taxes (hunting, massage parlor, DMV)
• Licenses are coercivemust have them to operate
• Not a user chargenot buying any government
  services or goods
• Not a franchise feeopen to anyone who wants
  itno specific rights or responsibilities
• Licenses can be for revenue and for regulation
• Revenueno inspections or business regulations
• Regulationmany controls, difficult to obtain
• Fees
• Privilege granted by government, may offset cost
  of service

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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)

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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

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User Charges

• Limitations
• Many government services dont 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 Im paying taxes, I deserve the service
  without being charged again!
• Unpopularity (people that dont 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

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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

• Liquor Stores
• 17 states
• State-owned and operated

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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)

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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
• Valuesshould the state be in this business?

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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