I am just back from Toronto where I was presenting my work on a User Fee Implementation Guide for Canadian Municipalities at the annual Tax Policy Symposium: Perspectives from Law and Accounting. The Guide is not yet available publicly as we are just entering into the peer review process. I will keep you advised on when it will be available from our publisher, the Canadian Tax Foundation. One of the discussants for my work was Dr. Marion Steele from the University of Guelph. Marion advised me that the City of Toronto has a User Fee Policy which, while no where near as comprehensive or accurate as our guide, does contain interesting information about discounts, exemptions, and subsidies.
The City of Toronto Policy indicates that user fees should be used to finance goods and services that provide direct benefits to specific users as a way to promote equity (which they appear to define based on the benefits received principal) and that fees should be set to recover the full cost of services, conditional on concerns regarding a user ability to pay. The policy notes it “is designed to ensure a consistent, transparent approach to setting user fees in compliance with best practices” and sets out a policy regarding reviewing and updating of fees.
These are all elements that we discuss in much more detail in our Guide, though we are much more comprehensive regarding the requirements of these technical requirements and also consider policy and political aspects of user fee implementation, issues overlooking by the City of Toronto Policy. In short, I am not worried about the City of Toronto Guide being a substitute for ours.
The Policy though does uncover some interesting things. First, City of Toronto user fees have likely been set too low, not allowing for full cost recovery and meaning the property taxes have had to cover the gap. That said, the Policy notes that in many cases the basis for setting the fee was not even know. How does it feel to know that municipal officials were willy nilly setting user fees? This is exactly the type of behaviour that would open the City up for a legal challenge of their user fees. Oddly, the Policy later states that a fee can be more than 100% of full cost, but this is not true. A user fee set to purposefully incur a surplus is against the legal requirement of a user fee. The City of Toronto needs to ensure that it is knowledgeable of the legal requirements, and its User Fee Policy is consistent with those requirements. This is also a concern with its classification of some fees as being market-based. The market is permitted to earn a profit on its prices, a municipality is not.
Second, the City of Toronto has an amazing array of user fees, with over 3700 individual fees, most in the field of park, forestry, and recreation. That makes me wonder why they don’t have a dedicated shop for creating, monitoring, administering, and reviewing their user fees. It would likely pay off for them. That is probably true actually for any large municipality.
Third, the City of Toronto needs to be very careful about waiving user fees. For example, it considers waiving fees for “not-for-profit” organizations, yet CRA has been on a huge review of these organizations and is finding that many of them are, in fact, not “not-for-profit” and very much pro-profit. It is also equally difficult for municipalities to truly identify ‘low-income’ individuals. Instead, groups are targeted, like seniors and students, yet these groups are not, on average, low income. Or they may be low income, but high wealth. And why should we waive fees for groups who disproportionately benefit from the service for which the fee is being waived? I think greater thought needs to be put into the waiving and reduction of user fees.
Otherwise, it is nice to see a municipality taking the setting of its user fees seriously. I can also see that my User Fee Implementation Guide is greatly needed in the municipal community and I look forward to its impending publication date.