Thursday, March 12, 2009

Minneapolis User Charge or Tax?

In class yesterday, we discussed user charges on a more general, macro level. The discussion left me wondering, what is Minneapolis’ approach to user charges? Within the City of Minneapolis FY 2009 Budget, the city outlines the Financial Policies concerning user fees. As a background information, in July 2002, the Mayor and City Council capped the total property tax levy collected by the City, at no more than 8 percent from the previous year’s amount effective in 2003. Because of this property tax policy,
The City shall implement user charges in lieu of general revenue sources for identified services where the costs are related to the level of service.
To that, the city has laid out some very specific policies around user charges, the highlights include:
  • The City shall establish user charges and fees at a level that reflects the service costs.
  • The City shall consider market rates charged by other organizations.
  • Non-Resident Charges will be used “whenever practical…to minimize the tax burden on City residents”
  • Charges for water, sewer, stormwater and solid waste collection shall be set at rates sufficient to finance all direct and indirect operating, capital and debt service costs.
What seems confusing to me is the next statement in this policy document, that
Except where required by law or generally accepted accounting principles (GAAP), no revenues shall be dedicated for specific purposes. All non-restricted revenues shall be deposited in the General Fund and appropriated through the annual budget process.
I see this policy document as an articulation of the City of Minneapolis' conscious decision to cap the increase in property tax rate and rely on user charges to make up the revenue differences. These revenue differences are then plopped into the general fund, unless otherwise mandated by law or GAAP. Given Fisher’s definition of how a user fee should behave, the City of Minneapolis’ version of user charges seems to me more like a local tax than anything else. What do you think?


  1. "The City shall establish user charges and fees at a level that reflects the service costs." It would be interesting to interview some city leaders or managers to see whether it is seriously enforced or ... maybe it is simply rhetoric.

  2. A "streetlight fee" for maintaining and operating streetlights is a new fee in the Minneapolis city budget. Here's a service that was previously paid for by general tax revenue and is now being charged as a user fee to bring in more revenue for the city. Apparently it will cost about $20 per resident per year. I'm not sure if this money is dedicated for the specific purpose of streetlight repair but it effectively creates more revenue for the city at a time when revenue from property taxes and local government aid is down.