A Primer on User Fees and Taxes

October 18, 2011

Triad Strategies recently posted an item on its blog, The Triadvocate, explaining the difference between general taxes and user fees. The following is a re-post of that blog:

Your teacher told you in grade school that it would be important to know how to use a dictionary. Now, the current Pennsylvania public policy debate on transportation funding has given you the perfect example of why she was right.

Most people say they don’t want new taxes. At the same time, people say they want better, safer roads and functional mass transit systems in urban areas. They are willing to pay a reasonable sum for using these facilities. So it’s important to know how you are paying for what you want and need and what the labels mean.

Perhaps the first lesson on definitions comes from Gov. Tom Corbett himself. He has opposed a Marcellus Shale severance tax with proceeds landing in the General Fund.

Instead, he’s proposing that counties be allowed to impose a 10-year “impact fee” on the shale gas industry to pay for the cost to regulate, inspect and police the drilling, to fix the damage drilling causes to the environment, and to help local governments provide services to absorb the population growth associated with the industry. In short, it’s a user fee to cover the costs incurred by government to enable the private sector to drill for natural gas.

There are other examples of user fees. A tipping fee at a sanitary landfill is a one. Trash haulers pay so much per ton to “tip” their loads of trash into the landfill, and the proceeds are used to cover the costs of operation.

Highway user fees come in several forms. License and registration fees cover the cost of permitting, testing and licensing and, in some cases, policing the roads.

Tolls, where they exist, cover the cost and maintenance of the roads and bridges involved. Levies on gasoline – the cents-per-gallon tax we pay at the pump – are clearly “user fees” because they are earmarked specifically for road and bridge construction, maintenance and policing. In Pennsylvania, the Oil Company Franchise Tax, levied on the wholesale price of fuel, is also a user fee.

No less a source than anti-tax guru Grover Norquist, a Washington lobbyist, said this week that the Marcellus impact fee proposal qualifies as a “user fee” because it covers specific expenses. Unlike an increase in general taxation, he said, it does not violate the no-tax pledge promoted by his organization.

Which brings us back to our political dictionary: What is a general revenue tax? What is a user fee? It’s the question for every legislator – whether he or she has signed a “no-new-taxes” pledge or merely wants to ensure that proposed new revenue reaches the target.

If the Marcellus fee is acceptable because the revenue is for a dedicated purpose rather than for General Fund programs and services, then the recommendations of the Transportation Funding Advisory Commission (TFAC) pass that test also. Under the Pennsylvania Constitution, revenue generated by license and registration fees, the flat state gas tax and the Oil Company Franchise Tax cannot be used for anything other than highway and bridge purposes.

If the Marcellus fee is acceptable because the need for the proceeds has been solidly documented, again the TFAC recommendations pass the test. No one disputes the extent of Pennsylvania’s transportation funding needs.

The Keystone Transportation Funding Coalition has secured support from most members of the General Assembly, media, scores of organizations, more than a dozen regional chambers of commerce, labor unions, AARP and many others. There has never been, nor is there likely to be, a better time for the governor and lawmakers to get behind a long-range comprehensive transportation funding plan.

The TFAC report projects that its recommendations would cost a typical motorist 70 cents per week in the first year, growing to $2.50 per week by Year Five. Anyone who supports the idea of improving safety and relieving congestion, with an investment of less than the cost of a gallon of gas per week, is welcome to sign an on-line petition at

Sorry, Comments are closed.