Oregonians pay for their state and local governments with either taxes or fees. So, what is the difference between the two?   According to dictionary.com, fees are paid for a privilege like admission to a movie, and taxes are what the government charges for specific facilities. Basically, you pay fees for services like driver licenses. Taxes cover the general functions of government like roads.

Under Oregon law, there are a lot more restrictions on taxes than there are on fees. It requires a 3/5 majority to raise taxes in the Oregon legislature. Property taxes are limited to a 3% raise per year. Taxes tend to be the bigger political issue because they represent a larger sum of money than fees. Taxes are simply a bigger political hot topic. On the other hand, there are no restrictions on how fees are managed.Isn’t it odd that one revenue source for the state is restrictive and the other is not?

It makes no sense that fees have no real restrictions on them. Because we restrict taxes but not fees, the government is going to look to fees to help close shortfalls. I don’t want the government looking to fees to close shortfalls. I want them to work to improve efficiency and reduce waste.

Fees are an issue of access

You tax the behavior that you want less of. This is one of the rules of economics that government tax policy is built on. When it comes to behavior, fees work just like taxes. If the fee is expensive, then we change behavior. There are numerous examples of this in practice. Last year, the legislature proposed putting GPS units on cars. The goal was to reduce total trips by making driving more expensive. Take a look at the Oregon University System. As tuition and fees increase, our universities have a harder time keeping people in school because of the rising costs.

So, I have shown an example of how fees impact behavior. Let’s take the argument a little bit further, and tie in the tax protections described above. First, Oregonians have a lot of protections from tax increases, but almost no protections against fee increases. As the state tries to balance the budget, this can create unintended consequences.   As fees go up to balance the budget, Oregonians are priced out of their rights as citizens. Talk to a college student that struggles to pay higher tuition. This happens every day. Second, fees aren’t progressive like taxes. Low and middle income people are going to be the first not to use these privileges of society.   The point is that the government looks to fees to raise money, but doesn’t consider that raising fees keeps people from using those services.

Reform Fees to Improve State Efficiency

As a fiscal conservative, my goal is to improve government efficiency and reduce waste. If we close the fee loop hole, it will force the government to close budget shortfalls with innovation and efficiencies. So, what policies should we consider to reform fees in Oregon:

• Require that increases in fees pass the legislature: Should fees be able to be raised by administrative rule in Salem? My opinion is that they shouldn’t. I want my State Representatives to have to vote for and approve fee increases.
• Use an expiration date: Fees are often used to pay bonds to finance infrastructure improvements. We should put an expiration date on fees used in this way. When the bond is paid off, we should schedule fees to be reduced or eliminated.
• Create categories to regulate fees: If we create categories of fees, we can apply additional restrictions to fees. For example, it might be appropriate to cap hunting or fishing licenses at a 3% annual growth rate. But, we might not want to put that restriction on local public works departments that need their city councils to approve raising rates and fees.
• Use the internet to publish more information about the budget: For departments that use fees, it needs to be clear what these fees are being used for and how fees tie into the total budget for the department. It will force a partnership to be built between the state and its citizens.
• Over communicate: We need to over communicate changes to the people that use these resources. We should be explaining to them how fees are changing and impacting the part of the government they access.

Conclusion

There is a broader lesson than reforming fees here. The State of Oregon has an opportunity to reset its relationship with Oregonians. The state needs to begin to treat citizens like customers. It needs to consider the experience that people have when they access the government. By keeping fees to a manageable level, we can keep people using the services that the state is supposed to provide.

We have protected ourselves from excessive tax increases. We have no protection from fee increases. This has given the state the wrong set of incentives. We have made it easier to raise fees than innovate and be creative. Innovation and fiscal responsibility was the point of the property tax revolution. The state needs to understand that it can’t afford to grow the budget year after year.

When the state budget is growing too fast, we can’t just switch to diet soda. We need to stop smoking, eat healthier, and exercise too. The state needs to work on providing the same services with less tax revenue. This is the same problem that every company in Oregon is facing right now, and it isn’t easy. It requires creativity and hard work. With the right elected leaders in place, Oregon can be the first state to succeed at this.