The Fee State

Higher taxes translate into political death sentences, leading many cash-strapped states to embrace fees, but experts note few differences and possible abuses.

April 04, 2004|By Michael Hill | Michael Hill,SUN STAFF

NO new taxes has been the mantra of the Republican party ever since George Bush said "Read my lips" in 1988, then raised taxes and lost the next election.

But no one says anything about fees.

Like his GOP colleagues - and virtually all Democrats who want to win an election - Gov. Robert L. Ehrlich Jr. promises no new taxes. But he has made fees a big part of getting more money from citizens without uttering the words "tax increase."

With few exceptions, voters seem to give these fees a free ride. "They are just not on the psychological radar screen like taxes," says Donald F. Norris, professor of public policy at the University of Maryland, Baltimore County.

In raising fees, Maryland is no exception to what experts say is a nationwide trend.

This year, Ehrlich has proposed increasing car registration fees by $23.50 a year - $36 for sport utility vehicles - to finance road projects. A $30 each year addition to water bills would go for sewage treatment plant upgrades.

Fishing licenses would cost $8 more, boat registration another $16. Many other increases are hidden in departmental budgets that include requests for permission to increase various fees to raise more income. The Motor Vehicle Administration is looking for $21 million more in unspecified boosts to fees such as those charged for driver's licenses.

"This is very common," says David Brunori, a professor at George Washington University law school who is head of editorial operations at Tax Analysts, a nonprofit publishing company. "There has certainly been in the last quarter-century a decided anti-tax bias in state government. There have been some exceptions, but in general political leaders in both parties have [been afraid] to raise broad base taxes - sales, income or property."

Fees became an alternative source.

"They invented a million and one ways to collect fees, sometimes just to avoid calling them taxes," says economics professor Jonathan Hamilton of the University of Florida.

Florida is considered particularly inventive at coming up with fees as it has no income tax and it would be political suicide to suggest imposing one.

So, is there a difference between a tax and a fee? Well, yes - and no.

Economists say that properly levied and administered, fees can bring an efficiency to government that broad-based taxes cannot. "The appeal of fees is that they are typically tailored toward the cost of providing that specific service," says Mahlon Straszheim of the University of Maryland, College Park. "If the government charged for services based more on the cost of those services, the whole financial system would be more efficient."

The idea is that fees can introduce the discipline of the marketplace to the financing of government.

"There are two aspects to it," says Steve H. Hanke of the Johns Hopkins University. "The user pays and finances at least in part some of what he uses. ... So those who benefit pay. And the price is used, at least in part, to ration the use of whatever it is the public is using. This eliminates, or at least mitigates, the use of political pull in deciding what services the government offers."

He notes things such as water meters and admission at the zoo as examples of user fees that confer the benefit of a free market on a government service.

But as Christopher D. Carroll of Hopkins notes, to work in this way, the consumer must have some choice - such as in how much water to use or whether to go to the zoo. "It really depends on whether the things that the government is charging fees for are things people can choose not to do," he says. "If it is things people can't avoid, then basically it is like imposing a tax."

Voluntary charges

Some fee increases proposed by the Ehrlich administration meet this criterion - you can choose whether it is worth the extra money to buy a fishing license. But others probably do not. The addition to the water bill is not voluntary. If you have a car, you have to register it. Those are more like taxes.

Then there is the aspect whether the fee is going to support the service. The boat-slip charge seems to meet this test - state officials say the $2 million it is expected to raise will go the Maryland Department of the Environment's Wetlands and Waterways Program.

But it is not as clear for the auto registration fee. It will go to pay for roads. Those costs are not unrelated to registered cars, but it would be a much clearer relationship if the money were going to pay for the costs of reg istering cars.

In fact, one fee does have a much closer correlation with road costs - the tax added to the price of a gallon of gasoline, which is the primary means of funding road projects. "The gas tax is clearly a better charge than the vehicle fee," says Straszheim of Maryland. "It is directly related to how much gas you are using so approximately to how many miles are driven and the weight of the vehicle. So there is a very good reason that gas taxes are the centerpiece of road financing."

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