User Fee Policy, September 9, 2011.
In interpreting the distinction between fees and taxes, the courts require that a fee charged for a service or activity must bear a relationship to the cost of providing the service or activity for which the fee is charged. Subsection 259(2) of CoTA provides that the costs included in a user fee may include costs incurred for administration, enforcement and the establishment, acquisition and replacement of capital assets.
Division Heads need to determine whether the benefits
each service provides accrue directly to specific individuals or groups of individuals (a private service), and should therefore be paid for by users of the service; or whether the service benefits the entire society (a public service) and should be funded from the property tax revenues.
The characteristic of the service and the nature of the benefits derived will help to determine the type of service and when to charge user fees. Services delivered by government are generally classified into the following major categories:
Public Service: Benefits the general public; it is impossible to exclude someone from using or enjoying the benefits provided by the service.
Private Service: Benefits specific individuals, groups or businesses; it is possible to prevent someone from using the service.
Mixed Service: Benefits the general public as well as the specific individual, group or business using the service.
The analysis distinguishes the degree to which a service benefits the community as a whole and should be funded by property tax revenues, or benefits an individual or groups of individuals and should be funded by user fees. Furthermore, where it is established that consumers have choice in the amount of a specific product or service they consume, the service should also be cost recoverable.
Notwithstanding that a service qualifies for cost recovery, the service may be subsidized by
other sources of revenue either entirely or partially, if it is determined that full cost recovery would not be cost effective or would be inconsistent with achieving the City’s policy objectives,
or legislative requirements.
Granting relief from full cost recovery promotes or advances economic or social benefits,
specific City policy goals and objectives, including:
a. Supporting non-profit organizations in the development of projects or activities with clear societal benefits; and,
b. Intergovernmental events that benefits society as a whole.
Policy Statement (p.15)
City Programs and Local Boards will collect user fees to recover the full cost of services where it is determined that a service, product or the use of City facilities or resources provide direct benefits to identifiable individuals, groups of individuals or businesses, beyond those that accrue to the general public.
A direct benefit is deemed to accrue and a user fee will be considered when a service, product or use of City facilities or resources:
(i) Enables the recipient to obtain a more immediate or substantial benefit that is distinct from or greater than that enjoyed by the general public; or,
(ii) Is performed at the request of, or for the convenience of the recipient, and is beyond the services regularly performed for other individuals, groups of individuals, business sectors or for the general public.
The following principles will govern the City’s user fees:
1. When to Charge User Fees:
Where it is determined that a service or activity provided by the City or Local Board confers a direct benefit on individuals, identifiable groups or businesses, a user fee will be set to recover the cost of providing the service [a "User Fee Service"]. Ordinarily, User Fee Services will be funded fully through the user fee charged for the service.
Where it is determined that a service or activity provided by the City or Local Board confers a direct benefit to individuals, identifiable groups or businesses but also results in benefits to the general public (positive externalities) that service or activity will be partially funded by other revenue sources by way of a subsidy (see Principle 4 below).
Services that benefit the general public will be funded by property tax revenues.
2. Full Service Costs:
The full cost of providing each User Fee Service will be determined as the starting point for setting the user fee, regardless of whether the full cost will be recovered. The full cost of providing the User Fee Service will be reviewed annually to confirm that it continues to be accurate.
3. Calculation of Full Service Costs:
The full cost of each User Fee Service shall include the direct costs and the indirect costs, including operations, maintenance and overhead, of providing the service or activity; and the capital cost for the replacement of assets utilized to provide the service or activity.
Where less than the full cost of providing a User Fee Service is to be collected, the cost of providing the User Fee Service has been subsidized by other revenue. The reasons why a subsidy should be provided for a particular User Fee Service will be detailed in a report to City Council which seeks authorization for the subsidy and level of subsidy.
The report will include conditions and criteria for awarding subsidies.
5. Waivers and Exemptions:
User fees may be waived, in whole or in part, for groups of individuals or businesses based on criteria such as ability to pay, City policy or other criteria.
P.21 Notwithstanding the principle that the full cost of user fee services should be recovered, certain factors may exist that warrant recovery of less than full cost, or not to recover costs at all. In such situations, the service is being subsidized by revenue other than user fees. A subsidy should be considered where:
The justification for the level of cost recovery associated with individual user fee services should be clear and explicit. Furthermore, the amount of subsidy should be well defined and transparent to those providing and monitoring the user fee service.
Waiving User Fees:
Waiving of user fees, in whole or in part, should be considered to ensure that identifiable vulnerable groups are not excluded from using particular user fee services. Waivers (and/or exemptions) should be considered where: Groups of individuals without sufficient income to pay the full amount of the user fee would otherwise be denied the privilege of consuming the service.
Granting relief from full cost recovery promotes or advances economic or social benefits, specific City policy goals and objectives, including: a. Supporting non-profit organizations in the development of projects or activities with clear societal benefits
p. 23 Costing of Services: Sound decision-making should be based on consistent costing practices. A consistent costing methodology for all City services will facilitate effective planning, and will be useful for comparative purposes across programs and among activities. The Full Costing Model developed by Accounting Services is recommended for the costing of City services. Major elements comprising the Full Costing Model include the following: Direct costs / expenditures attributed to the delivery of the service; for example salaries (wages and benefits), materials, supplies and purchase of services.
Indirect costs / expenditures that cannot be identified and charged directly to a specific program but are related to the resources dedicated to support it; for example support staff within a Cluster, costs that are administered centrally on behalf of the different divisions and insurance costs.
Capital cost component or asset utilization / rental costs referred to as capital amortization.
Amortization is defined as the original cost of the tangible capital asset divided by its useful life. Examples of capital assets used in the delivery of a program include buildings, vehicles and equipment. In addition, capital costs should also include interest payments.
City Programs and Local Boards with user fee services shall be responsible for establishing full cost in accordance with the Full Costing Model developed by Accounting Services.
p. 25 Allocating User Fee Revenues:
Revenues generated from user fees must be used to pay for direct and indirect expenses and capital costs incurred to provide the services. Revenues will be allocated to the specific Program or Programs that incurred the costs of providing the user fee; however, any revenues collected for the recovery of capital costs will be contributed to a reserve for purposes of funding the replacement of the capital asset.
In situations where a service is provided by more than one City Program or Local Board, the revenues should be reallocated to the respective Program and/or Local Boards based on the direct and/or indirect costs incurred in providing the service. In effect, user fee revenues should not be available for general expenditure purposes.