Should “Good Actors” Subsidize Bad Actions?

The General Assembly is considering intriguing issues about how Maryland, and its local governments, assess and collect fees, user charges, and penalties. These bills raise policy questions about cross-subsidies between people who pay on time, and those who don’t.

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Fairness In Revenues, Large and Small

HB 228 and SB 453 would limit governments’ ability to collect late water bills. SB 136 does the same with overdue parking tickets. Local governments always stand up for autonomy — but here, there are broader fairness issues at work, too.

Nearly everyone understands debates over tax policy. Taxes are the main engine behind governmental services, and policymakers have a duty to assess and administer them fairly. MACo and other stakeholders routinely address the legislature in Annapolis to raise concerns with fair application of taxes.

It’s less obvious, but the same debate exists with other government fees, charges, and penalties. These don’t constitute as central a question for governmental revenues as taxes themselves — but two sets of proposals before this year’s General Assembly session show that the policy and equity debates are similarly important.

Parking Tickets – What if they aren’t paid on time?

The first bill is SB 136 – which is currently “on hold” on the Senate floor. The bill deals with parking tickets issues by local governments.

This is a new subject area to most legislators — and for good reason. The state plays virtually no role in parking restrictions and enforcement. This is a purely local function. The elected officials of our state’s counties and towns respond to local needs by setting parking standards, and creating enforcement to back those standards up.

SB 136 adds to the section of state law that (paraphrasing) empowers local governments to manage these programs locally, and creates a new over-arching schema: tickets cannot have an escalation in their fine until at least 30 days.

First – we can acknowledge that nobody likes to receive a parking ticket. But whether the parking rules are driven by pedestrian safety, community concerns, or fair access to congested areas — nearly everyone recognizes that a ticket/fine for violations is the means to ensure compliance. In many places, a parking ticket has a face value due immediately, and then as an incentive for prompt payment, an escalated fine after a certain date. These mechanisms are not unique to parking fines – penalties for late payment are an effective means to keep collections timely and complete.

Under SB 136, local governments would suffer a loss of revenues from the proposed change, in some cases substantial. These revenues are part of what funds the jurisdiction’s costs of staff and technology for the parking enforcement itself. To respond to these community concerns, the county or town will still need to enforce parking — just with less revenue.

So, who pays MORE under SB 136? There’s really only two ways to go here:

  • Other parking violators who pay on time (raise the base ticket fine amount)
  • Local taxpayers who haven’t even violated a thing (raise property taxes)

MACo testified against SB 136 on the central principle that parking is simply a local matter. But Senators considering this bill should also think about the consequence of undermining late fees — higher costs on those who pay on time, or on those who didn’t even break the rules to begin with. That sort of cross-subsidy raises the same policy concerns as an unfair taxation system.

Water Bills – What if they aren’t paid on time?

Beyond fines imposed for violators, governments also impose user fees for specific services. None is more central than providing public water. While in general the charge for delivering water is based on public usage, with community and citizen oversight, there are still policy questions about fairness in their collection. Once again… how should local governments deal with those who don’t pay?

Water is surely different than a parking fine. It’s an essential service, and in many areas water service is considered a precondition for “livability” of a structure. But when a water user fails to pay a utility charge, the government is faced with a fairness conundrum. Just like taxes (and even parking tickets) – the system is best when each user pays his or her fair share.

Basically, public water systems have three main methods to employ to secure payment for their services (in ascending order of seriousness):

  • Finance charges for one or more late payments
  • Water “shutoff” for longer term failure to pay
  • Enforcing the unpaid charges as a property lien, through the possibility of tax sale

To begin, in every public water system the sizable majority of users pay their bill on time. All these enforcement provisions apply to those who fail to do so.

Given the nature of water as a critical public service, legislation has been introduced to limit these enforcement steps:

HB 228/SB 546 would dramatically limit the ability of a government to terminate water service for nonpayment

HB 453 would eliminate a government’s ability to collect a water bill lien through tax sale

In both cases, a well-intentioned idea carries these same cross-subsidy consequences. Water systems are usually set up by governments as “enterprise funds,” meaning they cover their own costs. This “user pays” principle is widely embraced for similar public services.

But if the prospect of losing service… or the potential to see your property face tax sale… is off the table, surely compliance will drop. The state’s largest water system in Baltimore City estimates that without the lien process available they could face some $7 million in reduced payments, as non-payers would no longer be eventually compelled to cover their own share of system costs.

Reduce the consequences for nonpayment, and those costs simply get reassigned to others. Those who pay their water bills on time (through higher base rates), or the general taxpayer base (through property taxes). It’s the same fairness issues raised above with parking tickets – though likely on a larger fiscal scale.

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In general, MACo consistently advocates for local matters to remain in local hands. The county and municipal officials elected by and accountable to their own communities are in the best position to judge these needs, and to balance these issues of fairness. With the bills referenced above, MACo urges state policymakers to refrain from statewide intrusion — both out of respect for local autonomy, but also to avoid creating fundamental new unfairness in local revenue systems.

Michael Sanderson

Executive Director Maryland Association of Counties