1.
Tonight city council approved user fee increases for 2018. In this column I'll talk about what the increases are, how they were created and how we judge if the fees are appropriate. (Hyperlinks to related documents are in blue.)
No one likes increasing user fees for municipal services, but the question we have to answer is what is a fair charge for using the Family Leisure Centre or renting out the Studio Theatre at the Esplanade or playing hockey? How do we know if it’s a fair fee? This isn’t an exact science and it depends on many things. There will be a range of acceptable fees for any community. Here are the proposed user fees increases for Parks and Recreation for 2018.
Last year, December 5, 2016, city council changed the way we set our user fees. City Council passed Policy 160: Subsidy Levels and User Fees for Public Services Policy. Previously staff had used an average of six other cities in Alberta to set fees. Now the city uses something called the GreenPlay Framework to set user fees. This framework, increasingly used as a standard by other municipalities, helps the city determine what a reasonable standard for cost recovery is. It's important to remember the framework doesn't aim for complete cost recovery, but tries to determine different levels of cost recovery depending on the level of community benefit.
The principle behind it is essentially this—those who benefit should pay according to level of community vs. individual benefit. The wider the community benefit the greater the costs are covered, the narrower the community benefit the more the cost is borne by individuals. Programs, classes, rentals, et cetera, are grouped into categories which correspond to different subsidy levels. This pyramid will help illustrate the point. The categories are hard to read in the image. Here they are from bottom to top:
Mostly Community Benefit: Maximum Subsidy (For example, non-monitored parks)
Considerable Community Benefit: Limited Cost Recovery 80% Subsidy Range
Individual/Community Benefit: 50% Subsidy Range
Considerable Individual Benefit: 30% Subsidy Range
Mostly Individual Benefit: Minimal Subsidy to Revenue Positive (For example, renting a city facility for a private function)
Of course the danger of using this principle for setting fees is that it doesn’t consider what the local market is willing to pay. How can we judge whether the price the framework sets is reasonable?
First the city sets this framework against benchmarks from other cities.
Second, it also looks at what local private business charge for similar services.
But we can also look at attendance numbers. If numbers go up or hold steady that should be an indicator that fees are acceptable. This year revenue from user fees is up about $450,000 above forecast. That's a good indication.
However, there is another way to look at user fees. Rather than trying to recover a reasonable amount of cost we could aim for a certain level of usage. After all we’ve built these facilities for community benefit shouldn't we try to maximize use?
It’s a good question, but it supposes that lower fees or even free user fees would increase use. It might increase some use, but it might not. Let’s remember that for almost the entire history of Medicine Hat we have never wanted for money. Our gas dividend allowed us to offset our expenses and so we rarely had to make hard decisions. I think it’s fairly uncontroversial to say that we have overbuilt for our needs. We have more facilities than any other community of our size. That would likely mean that no matter our fees our facilities will be under-utilized.
But higher utilization and lower fees could lead to the same amount of revenue that we gain through higher user fees. That would be a better outcome. How do we know that enough efforts are being made to make city facilities as accessible as possible before we resort to more fee increases? How responsive are we to user groups?
These are good questions, but first we must remember that the current increases stem from Policy 160. This policy is focused on reasonable cost recovery rather than maximizing utilization. If we disagree with the current framework we'd need to offer an alternative to this policy. That maybe in order, but right now I'm unsure how to begin that review process in a logical systematic way.
2.
The background of this discussion is the $15 million deficit and the Financially Fit for the Future plan. The Financially Fit survey was seriously flawed. Asking people to rank which services are important and which aren't isn't a helpful way to have this conversation. But when faced with serious financial challenges it is reasonable to review everything—including our user fees.
Now you could argue that there is plenty of city waste and there other programs that should be cut or scaled back. I don’t disagree and city council will be looking at other things, but that is a different point. We still have to judge what are reasonable fees.
There are two ways to solve our current deficit. One extreme is to just raise taxes to close the gap. If we solely increased taxes this is what it would cost you—about another $489/house up to about $4,736/house for the year. The other extreme would be to close the gap solely by spending cuts. Judging by the Financially Fit survey libraries, culture and transit were the least needed services, but even if we cut those completely (no transit, shut the Esplanade and closed the library) we couldn’t close the gap completely.
I think some taxes increases and some spending cuts is the best way to solve it. Increased user fees could be thought of as a tax increase. Jeremy Appel of the Medicine Hat News argues in this editorial that rather than increase fees we should increase taxes. When trying to balance cost recovery and community use he'd favour maximizing accessibility. We can either have higher taxes that everybody pays (in this case about another 1% increase), and more accessibility to these services, or you can have slightly lower taxes and higher fees for people that use them.
I voted to support the user fee increase for 2018. While I have some concerns I did not have a credible alternative option at this point. I don't like to say no without offering a constructive alternative. But we have to review fees every year. It could turn out next year that attendance and usage has gone down. Then we'll adjust. Perhaps we should also consider a different standard, tilting towards accessibility rather than cost recovery, but we'll need time to explore that option and the tradeoffs of this option.
3.
I would also like to give you fair warning that the fee increases for 2018 aren't the end of the planned increases under Policy 160. Some increases were phased in so for a few categories fees will go up next year as well. Here is a table that outlines to what extent certain programs are covered by taxes and what the goal of the framework is. The lower the target subsidy the higher the user fees.
