Cities Jack Up Fees, but Deficits Are Here to Stay

Cities across the country are raising fees on city services to fill their gaping budget deficits. Las Vegas is raising the fees for city sports leagues and tournaments to offset an $80 million deficit. Austin, Texas, is raising property and utility taxes to close its $31 million deficit, as city tax revenues are projected to end the year at 10% below fiscal year 2008. Wichita, Kansas is imposing "false alarm" fees on those residents with security systems; the city estimates are 98% of all security alarms are false, but responding to them costs the city about $3 million a year.

Other cities are raising yard-waste fees, local gasoline taxes and adding "fire utility fees" to utility bills. Popular revenue-enhancers include raising vehicle registration and trash collection fees.

No stone is left unturned as cities scrounge for ways to increase revenues from fees that don't need voter approval.

San Francisco: Auto Accidents Will Cost You

Few cities face a larger deficit than San Francisco (a whopping $483 million deficit for a city with an estimated 845,000 residents), and perhaps as a result, few cities are reaching as deep into residents' pockets.

Euthanizing your dog or cat at the city's animal agency will soon cost $25, up from "no charge," and it will cost $20 to have the city dispose of a dead dog or cat. The Fire Department wants to charge $498 to clean up the broken glass from the scene of an auto accident, though the bill could be higher if the work takes more than an hour.

The city's tourists -- 15 million in 2009 -- will also get dinged. Though they already pay a hefty 14% hotel room tax on the city's 32,000 rooms that generates $210 million for the city coffers, they will now have to pay for admission to the Botanical Garden in Golden Gate Park. (Residents will still get in for free, at least for now.)

That fee is expected to raise $250,000 -- a nice chunk of change, but a drop in the bucket compared to the city's $493 million deficit. A proposed wholesale tax on alcohol is projected to raise $15 million annually, but even this sum pales beside the nearly half-billion dollar hole in the city's $6.5 billion budget.

Higher Fees, but Structural DeficitsRemain

Nickel-and-diming residents and visitors isn't going to make that deficit go away, and politicians are avoiding the structural causes of the huge deficit which were laid out in detail back in the 2003 recession in a detailed report on the city's finances.

Though the report is specific to San Francisco, many of the same issues are at the heart of other city and county deficits:

* workforces which expanded far faster than either population or inflation;

* overly generous pay, perks and benefits;

* the assumption that the unprecedented rise of the stock market in the late 1990s would continue forever, thus relieving cities from funding their pension plans.

The San Francisco budget grew by 70% between 1996 and 2003 -- three times faster than inflation, rising from $2.9 billion in 1996 to $4.9 billion in 2003. The 2010 budget is $6.5 billion, a 33% increase in seven years that is almost double the 17% percent rise in total inflation in that time span.

The city has more than 32,000 employees. From 1996 to 2003, its workforce grew by 30% while population grew by only 7%. That means there is one city employee for every 25 residents. Police and fire protection costs per resident are double other major cities such as San Diego.

More than 30% of city employees make in excess of $100,000 in 2009 -- and that doesn't include benefits. According to the report, pay scales are roughly 20% to 30% higher than comparable regional compensation.

The unprecedented rise in the stock market saved the city $100 million in pension payments in the late 1990s, a stellar performance which was then baked into future revenue expectations. The stock market has essentially treaded water from 2000 to 2010, and now the promises made in an era of lavish stock market returns in the city pension funds must be paid out of the dwindling general fund.

What Can Be Done?

A recent report, "Pensions Beyond Our Ability to Pay," revealed that the city will have to increase its contributions to its employees' pensions by over 50% by 2011. Due to the demographics of an aging Baby Boom-heavy workforce, half of the city's workforce will be eligible for retirement in the next five years.

Meanwhile, as the city's payroll rose, the city's private workforce shrank, down from its 2001 high of 437,000. Commercial real estate occupancy rates are sagging, and the city suffers from a vacancy rate of almost 18%.

Does anyone, politician, city employee or resident, think that this is a sustainable set of policies? Does anyone seriously believe that nicking grieving pet owners $25 to put their pets to sleep or nailing tourists for another $7 is going to fill a half-billion-dollar budget hole that will only widen as half the city's workforce retires in the next decade?

Though city politicians and employees may not believe it, indiscriminate fee increases cause businesses, private-industry workers and residents to leave, a movement which will only exacerbate the migration of employers and taxpayers that the city is counting on to pay its rising taxes and fees. If the trend continues, massive deficits may become a permanent part of the urban landscape.