Revenue From User Fees User Charges and Sales

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Revenue From User Fees, User Charges, and Sales by Public Monopolies Troy University PA

Revenue From User Fees, User Charges, and Sales by Public Monopolies Troy University PA 6650 - Governmental Budgeting Chapter 11

Overview • Taxes are paid because governments have the power of coercion • Governments

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

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

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

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

User Charges • Advantages – They register and record public demand for a service • City tennis instruction, swimming pool – User charges improve financing equity (prohibits nonresidents 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

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

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

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 • Liquor Stores – 17

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

Public Monopoly Revenue: Utilities, Liquor Stores, and Gambling Enterprises • Gambling Enterprises ($72. 8

Public Monopoly Revenue: Utilities, Liquor Stores, and Gambling Enterprises • Gambling Enterprises ($72. 8 B 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

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

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