Wednesday, July 9, 2008

Word Games: Taxes versus Fees

'The difference between the almost right word and the right word is really a big matter- it's the difference between the lightning bug and the lightning.'
-Mark Twain

The recent consideration of a Stormwater Management District for Birch Bay by the Whatcom County Council has renewed the local 'debate' about the difference between 'taxes' and 'fees'.
I believe the Council is now being given accurate advice about this distinction, as well as its appropriate applicability to the measure being considered.
That is so largely because a previous iteration of the County Council was bullied into revising its use of the former Flood Taxes for County-wide water planning by a lawsuit filed by those against such planning efforts.
But, in retrospect, that lawsuit was probably as justified as it was instructive in helping the County determine the proper use of such funds, as well as learn about some other funding mechanisms available for its future needs.
One of those 'future' needs has become a current one - the very Stormwater Management District now being proposed for Birch Bay.
And, of course its appropriate to revisit what has been learned, even if some here remain in denial that any difference exists between taxes and fees.

A Google search of 'taxes versus fees' resulted in a total of 8,820,000 different results in only 0.15 seconds!
Since that number is far more than I needed to get a fair idea of the arguments, I decided to look at only the first ten references on page one.

Here's a brief synopsis of some Fees vs. Taxes findings, bearing in mind there are differences in State Laws.

First, from the website of organization below:

The Orange County Taxpayers Association (OCTax) likes fees better than taxes. We prefer that the users of a service, rather than the general public, pay for the service.

• Fees are paid only by users of a service. Examples are toll roads, permits, licenses, public parking, small claims court, entertainment. Motor vehicle fuel “taxes” which are spent on roads are actually fees; motor vehicle fuel taxes that are diverted to general governmental services are true taxes.

• Taxes are paid by the general public for general governmental services, provided for the general public’s benefit, and for which it is infeasible for the users of the services to pay. Examples are jails, police and fire protection, municipal and superior courts, voter registration and elections.

Here is a summary of the differences between a tax and a fee in 5 different ways.

1. Tax: Pays for any government service. Nexus between payer and service not required. 

Fee: Pays for a specific service,to regulate payer. Nexus required.

2. Tax: General public gets the primary benefit. 

Fee: Payer gets the primary benefit.

3.  Tax: Payment is mandatory.

Fee: Payment is contingent on use of  service, or choice to engage in regulated activity.

4.  Tax: May be levied in any amount.

Fee: Covers only cost of the service:  construction, maintenance,  regulation, permitting, inspecting.

5.  Tax: Levied equally on all similar payers. 
Fee: Levied in proportion to impact or  extent of activity.

Next, from this website:

Tax vs. Fee

You may opt not to require a fee. You must pay a tax.

tax: A contribution for the support of a government required of persons, groups, or businesses within the domain of that government.

fee: A fixed sum charged, as by an institution or by law, for a privilege.

Within the state of Utah, it is illegal for municipal governments to levy taxes without the approval of the state legislature, or a ballot initiative.

Thus, every city in Utah has a proliferation of "fees" to meet budgetary needs. Within the development process, this includes fees for plat approval for subdivisions. Legal trials have been brought on the basis that such fees are taxes and thus illegal. However, their constitutionality has been upheld because the choice to subdivide is "voluntary" exercise of a privelege, and as such subject to fees.

The same thing applies to cell phone bills. Because cell phone companies cannot tax their users, they instead institute "variable fees", which are in effect taxes that have been enabled by your voluntary agreement to be party to the cell-phone contract.

From yet a third website:

These folks don't care what name is used, they just want to know why its needed and whether the measure is effective and fair. [A pdf report]

From a fourth source in Topeka, KANSAS, the THE CAPITAL-JOURNAL:

Semantics: Tax vs. fee

The state's most aggressive anti-tax organization Thursday defined a provision in a Republican-backed coal bill as nothing less than the three-letter word dreaded by politicians anxious to win re- election.
"It appears it would be appropriately framed as a tax," said Alan Cobb, Kansas director of the conservative group Americans for Prosperity.
He referred to a bill passed Thursday night by the House 78-46 that served as companion to a measure allowing expansion of the coal- fired electric plant in southwest Kansas. This side bill requires all Kansas utilities to pay the state 2 cents a month for each commercial or residential electric meter. Legislators suspect the additional cost would be passed to customers, but lawmakers disagreed on what to call the new assessment.

Republicans in favor of the proposed $3.6 billion coal-fired plant at Holcomb prefer the terms surcharge or fee, while Democrats opposed to the utility development like the word tax.
In this instance, however, Democrats had an unusual partner.
"If it looks like a duck, quacks like a duck, it is a duck," Cobb said.

NOTE: This tells me that this word game can be played by either side, depending upon whether they FAVOR a measure!
What does that do to objectivity?

Next, from the same arch-conservative group that advocated for the Kansas measure abstracted above!
Rain taxes? Really?

Website of ""

Governments often turn to “fees” in order to avoid the stigma of tax hikes or to circumvent restraints on their ability to raise taxes, but the savvy taxpayer can easily distinguish between a legitimate “fee” for a defined quid pro quo and a “tax.”

If citizens can opt to not pay the fee, and forgo the service provided for that fee as a result, it would appear to be a genuine fee. A fee is charged for a privilege that you can start or stop at will, whereas a tax is a contribution for the support of a government required from those who live within the jurisdiction of that government.

The latest outbreak of these pests to spread across the country are stormwater run-off fees, or as I like to call them, rain taxes. The eruption of these new taxes stems from stormwater management programs required by the EPA as a result of the Clean Water Act. These ridiculous newly-enforced regulations require small and large municipalities to process “non-point source pollution,” or in other words the water that spills off of your car, house, lawn, parking lot, property, etc. when it rains. Communities of 50,000 or more must create programs to address stormwater, but rain taxes will soon even be falling in less-populated towns.

Finally, from this lengthy, boring, but factual take at:


The best-designed stormwater pollution management plan will flounder without sufficient community support and funding. Community support is often necessary for official government support, although in many of the cases studies the government took the lead and the broader support followed. A major aim of many public education programs (and a critical task for local community and environmental organizations) is to build this political support. An equal emphasis is needed to establish a stable source of funding to keep a program moving forward, once implemented. While the two often go hand-in-hand -- adequate funding almost always requires political support and, conversely, a healthy community consensus on the need for runoff pollution control will generally lead to sufficient funds -- the traditional funding mechanisms available to local governments demand continuous political support, which can be difficult at times. Nonetheless, there are several approaches a municipality can take to establish a dedicated funding source. This chapter describes one of these approaches -- stormwater utilities -- and discusses the authority of local governments to implement them.

Traditional government funding sources may prove problematic for stormwater pollution program. Grants for water pollution from the federal government are far smaller than in earlier years. Low interest loans from the federal/state revolving loan fund many not be attractive, especially for the non-capital elements of a stormwater pollution program. Allocations from local taxes may be an unreliable means of generating revenue: though essential for ecological and public health reasons, community leaders are hard-pressed to divert adequate funds from general municipal budgets for stormwater pollution control, because the money comes from the same pool as more politically popular uses.

In light of these difficulties of traditional grant, loan, and tax funding, many local governments have successfully turned to alternative funding strategies. Local governments have funded stormwater pollution measures through charging inspection and permit fees, collecting dedicated contributions from land developers, taxing new development at an increased rate, forming regional stormwater management districts, and creating stormwater utilities. NRDC's research collecting these case studies, as well as work with specific municipalities on water pollution issues, suggests that one of the most effective and equitable funding mechanisms, and yet one of the least well-known, is the use of stormwater pollution utilities that operate stormwater measures entirely through self-funding entities.

The Utility Structure

Stormwater utilities are a well-established, efficient, and feasible financing option that provides a dedicated revenue source for stormwater management.

1 A stormwater utility operates similarly to water, sewer, or fire districts, which are funded through service fees and administered separately from the general tax fund, ensuring stable and adequate funding for these public services.

An EPA study identified three major advantages of stormwater utilities over funds generated through property tax revenues:
(1) increased stability and predictability,
(2) greater equity, and
(3) the opportunity for incorporating incentives for implementation of on-site stormwater management.

2 As of 1996 almost 300 stormwater utilities were in operation in at least 20 states. (By contrast, there are thousands of water, sewer, and irrigation districts in the country that work under a similar framework.) Experts now estimate that there are more than 500 stormwater utilities in communities through the country. These stormwater utilities serve cities with populations ranging from under 5,000 to over 3.5 million.

3 NRDC's survey found stormwater pollution utilities in localities of all sizes and types; however, utilities appear more prevalent in growing communities in metropolitan or suburban areas, where changes to the landscape and hydrology are occurring.
Stormwater pollution utilities differ from most other utilities such as power or drinking water utilities because consumers often do not see an immediate benefit from paying their fee. Since most consumers want, for example, electricity, they are willing to pay in advance to receive it on demand. On the other hand, stormwater ratepayers are being asked to pay to prevent something they don't want, water pollution. If residents have never thought about stormwater, they probably will not recognize or appreciate the benefits of preventing stormwater pollution, and therefore will not want it in the same way as a power utility. This will likely affect their willingness to pay. Moreover, there is less an individual can do to change the magnitude of the fee. Improving the public's knowledge and understanding of the benefits of stormwater pollution prevention can go a long way to increasing their acceptance of a stormwater utility. Nonetheless, these problems are even greater with respect to taxes, and can be minimized (and explained) by linking the fee to a property's contribution to stormwater pollution and by quantifying to the extent possible the benefit that the ratepayer derives from the improved stormwater management.

Creating a Stormwater Pollution Utility

Generally a municipality enacts two ordinances to create a stormwater utility, one to establish the various components of the utility and the other to determine the rate structure. Forming the utility through two separate ordinances allows the flexibility to alter the rate structure at a later date without having to revise the ordinance governing the basic structure of the utility. The components of a stormwater utility will often include administrative, planning, and programmatic elements:

1. An administrative structure to collect fees and implement stormwater pollution prevention measures.
2. Development of a stormwater pollution prevention plan and related ordinances.
3. Erosion and sediment control requirements and related inspections or enforcement programs.
4. Detection of illicit connections to storm sewers.
5. Water quality monitoring and/or treatment.
6. Maintenance of stormwater drainage systems.
7. Public education.
8. Flood protection.

The first ordinance may also include a statement of the goals of the utility, discussing the benefits of stormwater pollution prevention. The second ordinance tries to structure the service charges to create a logical and equitable relationship between the amount, and perhaps quantity, of stormwater leaving a property, the benefits received by the stormwater system, and the amount assessed.

From the above excerpts, the semantic 'debate' picture is somewhat clarified.
There are essential, objective differences between Taxes and Fees, although both do cost the public something.

While it is always useful to have debate about fees and taxes, these discussions are dumbed down by the silly rhetoric that seeks to appeal to emotions, and only follows the wishes of whatever party is for or against the main issue at hand!

Our government, at all levels, is there because we need it, established it and have voter control over it. So, let's not pretend its there because of any other reasons. If our elected officials do things that are contrary to good sense, then our remedy is to vote for others who will carry out this task better.
But, to simply seek to paralyze government from taking those actions that are prudent and necessary, serves no one's interest well.
The ones who will most benefit or suffer from poor government decisions- including non-decisions- , are those who are too young to vote, or have not yet been born!
Please, let's keep that in mind.

Laws too gentle are seldom obeyed; too severe, seldom executed. - Benjamin Franklin

Conservatives define themselves in terms of what they oppose. - George Will

"You can't teach what you don't know, and you can't lead where you won't go" - Jesse Jackson

"Nothing will ever be attempted if all possible objections must first be overcome." – Samuel Johnson

"Those who would give up quality of their environment to purchase a little temporary 'good business climate' deserve, and will get, neither."
- Benjamin Franklin

"The purse of the people is the real seat of sensibility. Let it be drawn upon largely, and they will then listen to truths which could not excite them through any other organ." -- Thomas Jefferson