Taxes v. Fees

At recent City Commission meetings, comments were made by persons at the podium regarding the difference between a tax and a fee, and the acceptance of either method of raising revenue for fundamental government operations. It was also asked if the City was going to explore the use of fees to reduce reliance on taxes. In this era of property tax reform created by the state legislature, it is inevitable that this discussion would take place – as many local governments, Lake Wales included, are searching for alternatives to property taxes. User fees are now a hot topic.

Taxes v. Fees

Simply put, a tax is an exaction of one’s personal funds by a government, often based on the perceived value of the item being taxed (such as real property), without a precise connection to how the tax money is going to be spent.
In this context, a fee is an amount charged by government which represents the cost of a service provided to a person or property.

These are two different concepts, as one is based on the cost of the service provided (fees) and one is not (taxes). For example, water bills are viewed appropriately as fees, since the amount on the bill is determined by how much water the customer uses and has available to him or her. But people get them confused, I believe, since government charges both taxes and fees. It can also be confusing when the service is provided city wide, and the customer has no choice but to pay.
One of the arguments commonly heard to advance the utilization of fees is that the fee is determined by use or a calculation of cost to provide the service. Therefore, it is a more equitable revenue source than taxes. When the fee is not charged citywide, it is appropriately charged only to the persons who use that service. One example is the charging of fees for the rental of city facilities, like the James P. Austin Community Center or the Tourist Club. These fees help to offset the cost of operating these facilities; without the fees, taxes would have to go up to pay for that cost.

Generally speaking, citizens dislike taxes – presumably because their calculation is not directly linked to a specific service. A citizen recently asked the City Commission if fees could be charged on services other than fire suppression, to further reduce taxes.

What is Available: Fees

Per state law and the findings of the courts, there are not many fees that can be charged citywide. In addition to a fire assessment, many cities charge a stormwater fee. The revenue realized from this fee is used to maintain and improve the stormwater system in a city. Funding for this operation currently comes from the general fund, which receives revenue from a combination of taxes, state shared revenues, and other sources.

Other fees that cities across the state are looking at include the following:

• Traffic accident fees, to pay for emergency response costs


• Fees for specific services, such as checking records for liens on individual lots or parcels


• Red-light cameras – while not a fee, these cameras provide evidence for citing drivers who run red lights


• Recreation league fees – this fee will soon be implemented, charging players $4 per season to help offset the cost of maintenance and lighting at recreation facilities

There may be other revenue raising methods in addition to taxes and fees that need to be researched – such as advertising at recreation facilities by businesses, allowing them to hang signs on outfield fences. This is already done at Legion Field and the little league fields by the High School and the little league organization. It could also be permitted at the new soccer/multi-purpose fields on Hunt Brothers Road. In addition, it may be possible to sell field-naming rights – to allow a field and the entire new complex to be named for a set period of time after a sponsor, much like Raymond James Stadium in Tampa and Amway Arena in Orlando.

With mandated reductions in property tax revenue, and a poor economy, government is stepping up its efforts in looking at new ways of doing things – including doing more with less, and innovative methods of funding basic operations. Your comments and suggestions are welcome.

Adopting a Fire Assessment Fee

The City Commission will finally get to consider the fire assessment fee this month! First reading is scheduled for the July 15th meeting, and if approved, it will be heard on second reading at a special meeting on July 29, at 6 p.m. in the City Commission chambers at the Municipal Administration Building.

The fire assessment fee has been discussed at four open forums. It wasn’t until the final forum that City staff could present preliminary numbers on the effect of the fire assessment fee on the City budget in terms of a tax reduction – the tax base figures from the county property appraiser’s office were not received until Monday, July 7. This figure is the basis for determining how much property tax revenue will be received by the City. The formula is: Tax base x millage rate = property tax revenue. The millage rate this year is 7.3521.

The preliminary figures indicate the following:

1. If institutions such as non-profit agencies and churches are charged the fire fee, the millage rate can be reduced to 5.7157


2. If institutions such as non-profit agencies and churches are not charged the fire fee, the millage rate can be reduced to 5.7451

The latest draft of the report on fire assessment fee indicated the fees to be as follows:

• Residential & Duplexes - $68.68 per unit


• Multi-Units & Mobile Homes - $52.72 per unit


• Commercial - $88.13 per 1,000 square feet


• Industrial/Warehouse - $108.08 per 1,000 square feet


• Institutional - $13.68 per acre


• Vacant/Agricultural - $87.56 per acre

It is important to note that if the City Commission adopts the fee, the fee amount will not be set until the Commission meeting on August 26th before the Commission adopts the millage rate, budget, and all other fees for the next fiscal year.

The Effect of the Fee

A good argument can be made that user fees are more equitable than property taxes. A user fee is based on the cost to produce the service; the property tax is based on the value of one’s home and has no relation to the cost of providing services to that home or that type of house.

At the last forum, which was held on July 8th, I pointed out that while a user fee is more equitable as noted above, the imposition of the fee, coupled with a reduction in the millage rate, will affect homeowners in different ways depending on the assessed value of the house. For example, there is an exemption on the first $25,000 on assessed value of a home (assuming it is listed as the owner’s homestead). This means that anyone who owns, lives in, and has a homestead exemption on a home that is assessed at $25,000 or less has never paid any property taxes. (It has been estimated that there are about 130 such properties in the City). However, if the fire fee is implemented, this home owner will now pay a fee for fire protection – a service that is provided to the homeowner’s property but one that this exempted homeowner has never before paid for. City staff is recommending that the City implement a lifeline program for such properties, similar in concept to the lifeline rate adopted by the City Commission in the water billing rate structure last year.

Some property owners with large tax bills will see a reduction in their overall payments. Why? Because the millage reduction is going to be greater on a highly assessed property than the amount of the fire fee. Taking the amount of cash raised by the fee and lowering the millage rate by that amount is revenue neutral for the City – but as noted above, it affects individuals differently, depending on the value of the property.

Why do this?

The fire fee will raise about $1.1 million, which the City staff is proposing to reduce from the cash raised by property taxes by lowering the millage rate. Again, why are we doing this? For three very good reasons:

1. For economic development – our town is in competition with every other town in this area to attract new industry and commercial businesses. One of the cost factors that stands out is a city’s tax rate, and this year ours is the second highest in the county. We have a great opportunity here to significantly reduce our tax rate. The fact that we are raising the same revenue with a fee is not felt as much, since every city has different fees – some have stormwater fees, some have downtown development fees – we have neither of those fees.


2. More equitable - every property owner will pay what it costs our town’s fire department to serve their category of property.


3. A sure revenue stream for one of our most critical services – as the state legislature set up two waves of tax reforms that are being felt by every city and county statewide, some legislators have said there is still more cutting to be done. The fire fee provides a sure revenue stream for one of our most basic, critical services. Unfortunately, this is the only public safety service for which such a fee is permitted.

Discussing a Fire Assessment Fee

One of the topics that has brought out a great deal of citizen interest is the discussion of the feasibility of having a fire assessment fee for city property owners. There has been good attendance at the first three forums on the subject, and the City Commission is scheduled to hear the proposal on first reading at the July 15 regular meeting (6 p.m. in the City Commission chamber at City Hall). Baring technical difficulties, this meeting will be broadcast live on Comcast channel 5.

The City staff is bringing this proposal forward for the City Commission to consider. In this article, let’s take a look at what the fee is and why staff believes that this fee is a good idea to pursue.

What is the Fire Assessment Fee?

Cities and counties are permitted to assess a fee for the cost of providing fire response services. When approved, this fee appears on the property tax bill and is paid along with the annual property taxes. The residents of unincorporated Polk County pay a fee for fire service, as do property owners in the City of Avon Park. The City of Sebring is considering the fee and recently voted to proceed with it.

The fee charged to each property must reflect the actual cost of that fire department to properly respond to that type of property to combat a fire. Without the fire assessment fee, the cost of fire service is paid with general fund revenues, including property taxes. The goal of assessing the fire fee is to remove the amount of money raised by the fee from the amount needed to be raised by property taxes -–thus allowing the City Commission to lower the tax rate.

Determining the actual cost to provide fire service to each type of property is a task with very exacting requirements. A company has been hired to make these calculations, which includes a review of our fire department’s response to fire calls at all the different types of property, with the number of firefighters needed and the equipment used. Costs are then calculated, and the cost per property type is determined.

There is a great deal of work required, with its attendant cost, to set up a fire assessment fee system – so why would this be of interest to the City?

Facilitating Economic Development

One reason for considering this fee is that it helps facilitate economic development. One of the most important goals for the City is to set conditions that encourage business expansion and attract new businesses to locate here. Our county includes two other towns (Auburndale and Haines City) that are about our size, and by comparison we have the lowest tax base and the highest tax rate. The City Commission has directed that major efforts be made to encourage economic development, and this goal is included in the City’s Strategic Plan. (The strategic plan can be viewed on the City’s website: http://www.cityoflakewales.com/)

When considering whether or not to move to a community, one of the criteria that is reviewed by company representatives is the city’s tax rate. Our present rate of 7.3521 mills is not the highest in the county, but it is not far from being so. Only Mulberry is higher, at 7.8358 mills. The implementation of a fire fee would permit the City to decrease the present millage rate to a rate that is below a number of other cities in the county.

The addition of the fire fee is one of many potential fees that new business reps would expect to find in a prospective new location – but the tax rate always stands out as a key indicator.

Fairness

The argument has been made that the charging of a fee that is based on the service provided is more equitable than a tax based on the value of property. Many citizens have expressed their distain of the property tax system. Some cities seek to charge user fees as much as possible to keep their property tax rates low. User fees are directed at the persons or entities benefiting from a particular service, and thus make a direct connection to a service made available.

In this era of state legislature mandates for property tax reform, Lake Wales and many other cities are exploring the use of fees (rather than taxes) to pay for city services. This is especially important for the critical services provided by our fire department.

Next week let’s continue on this topic and take a look at the fees recommended by the independent company hired to conduct the fee study.