This is an item in our Local Government Toolkit.
Taxes are collected to raise the revenue necessary to fund the local roads, law enforcement, fire department, and other services that cannot be attributed to a single user or beneficiary. This is in contrast to fees, which fund services that can be measured and attributed to an individual user (such as water).
This distinction may sound semantic, but for local government officials such as yourself, the difference is a matter of state law and has important legal ramifications. For example, in 1985, Utah enacted a “Truth-in-Taxation” law that requires local governments to officially notify residents of proposed tax increases. Notably, this process is not required for increases to services that can be classified as fees (such as a water service rate increase).
Some cities and counties, desiring a politically easier avenue than raising taxes to make up for budget gaps, have noted this difference. They subsequently passed ordinances that create a “Transportation Utility” and began charging new fees on different utility bills that had nothing to do with transportation.
For a number of years, and as noted by courts in Utah and in other states, this tactic was on shaky legal ground. After a Utah Supreme Court ruling, it was determined a Transportation Utility Fee qualifies as a fee as long as certain requirements are met.
Independent of their legality, we do not recommend cities and towns adopt the practice of adding new, unrelated charges to utility bills to make up for budget shortfalls or to circumvent the truth-in-taxation process.
Are you a local elected official and interested in chatting with us more about this topic? Please reach out to us at localgovt@libertas.org—we’d love to chat!
Relevant Libertas Work:
- 2020 Transportation Utility Fee Legal Challenge Ruling | Libertas Article
- 2018 Transportation Utility Fee Lawsuit Press Release
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