"Fee-for-service" Government

Programs must be cut. Choices must be made. It's budget time and State and local governments, struggling to set their budgets in times of declining revenues, are turning to fees-for-service to fill the gap.

The trend to finance government with user fees has been growing as more politicians adopt an attitude of "no new taxes," preferring instead to make those that use a service it pay for it. Are user fees an untapped resource or an overused revenue source? A blog entry for an online U of M State and Local Public Finance course explains some of the advantages and disadvantages of user fees.

Recently, Minnesota has seen an increase in the use of fees and charges to finance government services. From 2003 to 2008, the revenue growth from user fees and charges increased at rates greater than both inflation and population growth.

At the local level we are increasing existing fees and adding new fees. Following the Governor's unallotment of local government aid (LGA) last December and an expectation of reduced LGA for the 2010-2011 biennium, Bemidji City Council has been exploring ways to meet their budget and avoid either layoffs or raising property taxes.


The City has considered the addition of a street light fee and earlier this month asked the Jaycees to pay for a portion of the police security coverage for the July 4th Water carnival celebration. According to The Pioneer, the Jaycees will pay $2,000 to subsidize police service for the event.

What should the City do? Pick your poison: raise property taxes, raise fees or reduce the budget through layoffs and reduced services.