Many of us in the public safety business have always believed that through property taxes or other publicly funded methods, the fire service would be able to provide a full range of services in an ever-changing and challenging environment.
There are a lot of hands reaching out for limited pubic money to adequately fund parks, police, parks, potholes and other necessary services provided by government and now is the time to discuss the elephant in the room, cost recovery.
Municipal services depending primarily on property tax to enable the municipality to provide many services to include water, sewer, parks, public works, fire, police and other municipal services. As we are seeing across the state and nation, many municipalities are beginning to charge for those essential public services through the use of user fees to maintain the viability of the service at the breakeven point or with a slight surplus to hopefully fund other services. It appears to be the “total” re-awakening of the public sector to seek additional funding sources through “fee for service”.
The need to adequately fund public emergency services has become increasingly evident over the past twenty years in the face of decreasing property tax revenues and increased expenditures for all municipal services. For example, several small towns in Washington are “going out of business” and we are seeing cities in California declaring bankruptcy due to the burdening costs of city operations, pensions and declining property tax revenues. This becomes an issue of critical nature when a municipality relies primarily on property tax and does not seek alternative funding sources that include fees for service or user fees.
One example is more and more municipalities and fire districts are charging for excessive emergency response by police or fire to residential false alarms and other municipalities are charging for fire based ambulance transportation to local area hospitals. It is not inconceivable that most if not all additional services provided by municipalities will be charging for essential services not covered by property or other tax.
The concept of “cost recovery” then becomes a method of paying for essential or emergency services. For example, those who are charging for ambulance transport services reportedly recovers more than 50 to 80% of those billed services with an efficient billing service, adding thousands of additional dollars to the revenue side of the budget.
Fee for service has been the cornerstone for the private sector to economically survive and provide services to the public. As an example, the entertainment and sports world charges an admission fee and other fees tacked on to the price of admission to enable the private entity to continue to stay in business and provide a service to the community as it relates to the survivability of their services and provides a revenue stream to the local government.
Tax or Fee - There has been several articles determining the application of fees are not to be a tax, although some equate this fee for service as a tax, to offset the actual cost for service with taxes. University of Washington law professor, Hugh Spitzer authored an excellent article in the Gonzaga Law Review, often cited in subsequent Appeals Court cases, about the differences between fees and taxes.
The opening commentary the article states:
“(I)n recent years, local governments have been called upon to provide an increasingly broader range of services and regulatory activities. Those governments have constantly searched for ways to finance the demands placed on them through tax increases, user fees, and other types of charges.)”(t)here are constitutional and other restraints on how taxes and fees are structured and applied. In Washington, the distinction between taxes and fees can be decisive in determining whether a particular governmental charge will sustain judicial scrutiny. Unfortunately, Washington case law concerning the distinction between taxes and fees has been murky and confusing, primarily because the courts often resort to a simplistic dichotomy between taxes and regulatory fees (sans citations).”
There is an extensive analysis and the bright line test noted in the 1995 decision, Covell v. City of Seattle which opines that to determine the difference between a tax and a fee is dependent on three factors.
• First, is "'the primary purpose ... to accomplish desired public benefits which cost money, or [is] the primary purpose ... to regulate
• Second, is "the money collected allocated ... only to the authorized ... purpose
• Third, is there "a direct relationship between the fee charged and the service received by those who pay the fee or between the fee charged and the burden produced by the fee payer
In the words of a leading public finance economist, "Taxes, the principal means of financing government expenditures, are compulsory payments that do not necessarily bear any direct relationship to the benefits of government goods and services received."' From a legal viewpoint, taxation is viewed as a fundamental, necessary, and sovereign power of government. Taxes are a statutory enablement allowing government to raise funds for the general population with sufficient safeguards protecting the use of those funds.
There are several different types of user fees and charges recognized in Washington law. They are closely related and generally share certain basic characteristics. First, they are imposed on specific persons, activities, or properties that receive a service or benefit, or that cause negative externalities that burden the rest of the population. Second, they come with a distinct set of legal protections to ensure that the level of each charge does not exceed the cost of the service, benefit, or mitigation of the public bad allocated to the person charged and to ensure that the proceeds of the charge are used solely for the provision of services, benefits, or mitigation and not used for general governmental purposes.
As an example of user fees, ambulance transportation fees have been implemented in many municipalities to offset the costs of providing an Emergency Medical Service (EMS) to the community. These fees offset the costs of delivering EMS transportation services under the police powers of a community and to supplement the fees collected by special levies that are periodically voter approved. Another fee imposed is the fee to clean up hazardous waste material through various federal funds notwithstanding a CERCLA and other fees charged directly to the company or polluter.
In a 2002 study undertaken by The Vermont Legislative Research Shop for a position paper for the Vermont legislature Senator Vince Illuzzi that has application in practice and principle in Washington State discusses the concept of User Fees for Firefighting.
The paper opines user fees allow for those citizens who utilize specific services to pay for them as opposed to a tax burden that disperses the fees for services amongst all citizens. Since the mid 1970’s three quarters of local governments in the United States and Canada have adopted user fees in one form or another.
Types of User Fees at Fire Departments
The Fire Service Financial Management textbook written by the Federal Emergency Management Agency (FEMA) indicates that the additional revenue generated through user fees assists in the maintenance of fire departments and lists (although not a complete list) the following as the more common fees charged by fire and emergency medical service agencies:
• Fire prevention fees i.e. permit fees, inspection fees; plans review fees and false alarm fees;
• Emergency Medical Service (EMS) and transport fees;
• Fire suppression and rescue fees;
• Cost recovery for routine fire and hazardous materials response;
• Standby and fire watch or fire guard fees;
• Special services that can include technical or water rescue, wildland fire response;
• Community Training fees for first aid/CPR and other community emergency training.
The most notable form of fees charged by fire departments is related to fire prevention activities utilized in order to offset other costs incurred by the department and continue to be a common revenue source. It is noted that the willingness of individuals to correct violations has increased dramatically among those fire departments that charge fire inspection fees. Concerns do arise relating to the relationship between the fire department and their local business community. Inspection fees may produce a negative effect on a department’s fire prevention program. As a result many departments have opted to charge for re-inspection fees as opposed to charging for the initial inspection.
False Alarms - There are various fees associated with false fire alarms. These are similar to fees assessed by the police department for responding to false burglar alarms. It is noted that in fire response to a false alarm, an element of danger was created for the general public and the fire department. This is due to the fact that in the false alarm, valuable resources were utilized unnecessarily and firefighters were unavailable for actual fires or other calls. Charging a fee for these particular types of responses not only assists in fire department costs but also helps to address concerns related to fire alarm system maintenance. It is noted in the 1993 FEMA study, most fire departments that utilize this type of fee schedule allow for a set number of false alarms per year.
Miscellaneous Fees - There are many other miscellaneous fees that fire departments charge as a way to supplement revenue. Fees for things such as document preparation, training, instruction, facility rental, and special event standby are all different ways fire departments increase revenue for services provided that are more than the basic call to 911.
The most obvious reason for the institution of user fees is to generate additional revenue for the fire department. Besides community donations and tax allocation this is the department’s only other means of receiving financial backing. Berman notes (supra), as the government’s budget allocation for fire departments continues to shrink, user fees are becoming a more pertinent source of revenue and may dictate whether a department has the ability to function.
Another argument offered for user fees is that it creates fairness and equity among all citizens. It is noted that a portion of all taxpayer revenue is allocated towards the department, user fees allow those who actually utilize the services to pay for them. (Starling 1998). User fees also generate a modification in behavior and compliance among the general public. It is noted that the implementation of fees encourages businesses to make the necessary modifications to meet the department’s specifications.
Calculating Fees: Two main ways for calculating user fees were discussed in a study on accessing fees for fire department responses. The study suggests that flat fees should be calculated based upon equipment costs plus the cost of the water usage. The flat fee could also incorporate the cost of skilled labor. The second procedure used by fire departments in Iowa is fully calculated fees. These types of fees would incorporate the actual costs of the labor, vehicles, equipment, billing and collection. A means for calculating the costs of the vehicles would be $1/1000 of the estimated value of the vehicle, this is a method used by construction trades.
The Fire Service Institute of Iowa State University Extension suggests the following schedule of fees:
• Grass fires $100 - $300
• Car fires $150 - $500
• Commercial fires $300 - $1,000
• Residential fires $300 - $500
• Hazardous material fires $100 per truck + $30/hour/firefighter.
State Data from the Callahan Study
Iowa: In 1996, 3% of fire department in the state of Iowa accessed fees for firefighting, 35% for water rescue, and 65% charged fees for hazardous materials spill response. Many departments also charge for EMS services as well.
Arizona: Rural/Metro Corporation provides private sector fire protection in parts of Arizona. In some communities they serve, where the local government does not offer fire protection services and/or there is no tax base to support fire protection, Rural/Metro contracts directly with individual homeowners and business owners who pay annual subscription fees for fire protection.
Insurance Companies - Many insurance companies’ policies cover fire department user fees. Policies written on Insurance Services Office Inc. forms typically cover fees up to $500 dollars for residential policies and up to $1000 on commercial policies written on their forms. Their automotive insurance forms will not cover fire department fees (Callahan, 1999). Insurance Services Office Inc. is a major insurance firm supplying statistical, actuarial, and underwriting information for the property/casualty insurance industry. ISO provides services, including standardized forms, to 1,500 insurance agents throughout the country.
Evaluation and Appeal Criteria - As in all municipal programs, the first consideration must be made to the taxpaying citizen who will bear the brunt of a cost recovery program. In many instances, the citizen’s insurance carrier will be billed for services provided by a municipality as covered in the enabling Ordinances and a through and detailed evaluation criteria must be undertaken to determine all possible cost recovery areas in services.
Enactment and Implementation of Cost Recovery Programs - In order to enact and implement such a cost recovery program a municipality must create an Ordinance that is detailed in scope. Departments and municipalities must take a thorough evaluation of all other options should be made to determine if cost recovery is the preferred method of providing sufficient funds for essential municipal services such as police, fire and EMS
Conclusion – In many areas of the country, the laws are clear as to the police powers of local government to provide essential public safety services. The question is how will those services be funded and at what level. As government appears to underfund fire service providers there is a strong recommendation to enable a cost recovery program to collect user based fees for essential public safety services. The law and case law is clear as to a municipality’s ability to enact such a cost recovery program with the essential safeguards in place for audit, oversight and a method of appeal.
Is it time for fee for service?
1. Spitzer, Hugh; Gonzaga Law Review, Volume 38.2; 20 02/2003. Taxes vs. Fees: A Curious Confusion
2. Covell, 127 Wash. 2d at 879, 905 P.2d at 327
3. 879, 905 P.2d at 327.
5. Covell, 127 Wash. 2d at 879, 905 P.2d at 327.
6. David N. Hyman. Public Finance: A contemporary Application of Theory to Policy 23 (3d ed. 1990).
7. Lawrence v. State Tax Comm'n of Miss., 286 U.S. 276, 279 (1932) ("[T]he most plenary of sovereign powers, [used] to raise revenue to defray the expenses of government and to distribute its burdens equably among those who enjoy its benefits."); Love v. King County, 181 Wash. 462, 467, 44 P.2d 175-77 (1935).
8. 75 WASH. REV. CODE § 35.92.010 (2002) (city water rates); WASH. REV. CODE § 35.87A.010 (2002) (commodity charges)
9. 76 WASH. REV. CODE § 35.87A.010.
10. 7 7 WASH. REV. CODE § 35.92.010
11. Fire District Emergency Medical Service Fees RCW 52.12.131
12. EMS Levy RCW 82.52.069
13. Completed by Erik Weibust, Lauren Haymond and Charles Megivern under the supervision of Professor Anthony Gierzynski on March 13, 2002 in response to a request from Senator Vince Illuzzi.
14. Berman, R. 1997. Paying the bills. NFPA Journal (March/April), 91, 66-72.
15. Federal Emergency Management Agency. 1997. Fire Service Financial Management.(FEMA/USFA/NFA-FSFM-SM). Emmitsburg, MD.
16. Federal Emergency Management Agency. 1993. A Guide To Funding Alternatives For Fire And Emergency Medical Service Departments. (FA 141). Washington DC: U. S. Government Printing Office
17. Godwin, R. 1995. Benefits Associated With Charging For Fire Inspection Fees. (Emmitsburg, MD: National Fire Academy.)
18. Watkins, Kenneth R. 1998. The “Business” of User Fees: A Superior Revenue Source for Fire and Emergency Medical Service Agencies.
19. United State Fire Administration of the Federal Emergency Management Agency. November 1998. http://www.usfa.fema.gov/pdf/efop/efo29056.PDF
20. Starling G. (1998). Managing the Public Sector. Orlando, FL: Harcourt Brace.
21. Wenke, R. 1995. Alternative Funding Sources for a Rural Fire District.
22. Callahan, Patrick and Oster, George. 1999. “Assessing Fees for Fire and Emergency Services” Fire Service Institute of Iowa State University Extension to Communities, University of Iowa, Institute of Public Affairs. http://www.state.ia.us/government/dps/fm/fstb/assessingfees.PDF 11 March 2002
23. Rural/Metro Corporation. http://www.ruralmetro.com/services/fire.htm
24. Insurance Services Office. 2001. “About ISO”. Insurance Services Office Inc. March 13, 2001. http://www.iso.com/docs/about.htm