A Backlash Against Rising State Fees

Want to renew your driver’s license, go to a state park, or sue someone in civil court? Chances are you’ll pay higher fees for those and other government services than you would have just a few years ago. Raising fees — instead of taxes — is one budget tactic many states have used to weather the weak economy.

A backlash against fee increases is underway, however, as Republicans at the state level turn tea party enthusiasm against the rising cost of government transactions. In New Hampshire, Republicans succeeded in rolling back fees that went up during the recession. Florida’s Republican governor, Rick Scott, wants to do the same, at least for certain vehicle-related fees. Meanwhile, a wider effort from California to West Virginia is aimed at changing both language and legalities so that “fees” and “taxes” are treated as one and the same.

In New Hampshire, a legislature taken over by Republicans this year slashed most fee increases enacted since 2007. For example, the cost of a marriage license dropped from $50 back down to $45, and the cost of a saltwater fishing license slid from $15 to $10 for state residents. Businesses saw fees drop, as well. Renewal fees for meals and rooms operator licenses were eliminated. And pet stores will now pay $150 less for their initial licenses and renewal, dropping from $350 to $200.

The fee reductions took effect in September and are projected to cost the state $5.7 million for fiscal year 2012. That’s roughly 0.1 percent of the state’s budget. The moves came at a time when the state’s overall budget was reduced by 11 percent, resulting in significant cuts to social services and highway repairs, as well as layoffs for government employees. “We delivered on what we said we would do,” says state Representative Gene Chandler, a Republican who won election last November promising to reduce state fees. “Now people have to decide if they like it, but we were honest.”

Fee figures

Fees represent a small but not insignificant portion of state revenues. According to the U.S. Census Bureau, “licensing” — a major source of fee-driven revenue — brought in about $50 billion in 2010, or about 7 percent of states’ total tax collections.

Despite the backlash, many states are still raising fees on everything from hunting licenses to marriage certificates to vanity license plates (see sidebar). Jennifer Burnett, senior research analyst at the Council of State Governments, says many states are raising fees because they are largely out of options. “I don’t know that states have much of a choice,” Burnett says. “The user fees seem to be more politically palatable than a broad tax increase. You do choose to use those services or not, and a fee is targeted at only people that use particular services.”

But the trend toward raising fees seems to have peaked a couple of years ago. According to annual fiscal surveys by the National Association of State Budget Officers and the National Governors Association, new fees enacted for fiscal year 2010 amounted to more than $5 billion. By fiscal 2011, the amount had dropped to $1.2 billion. For fiscal 2012, governors proposed $1.3 billion in fee increases; data on the enacted amount have not yet been released.

‘Nickel-and-dimed’

Complaints about fee hikes began to be heard last year. In California last November, voters approved Proposition 26. The ballot measure mandated that any fee increase by the state legislature be approved by a two-thirds majority — the same standard required for a tax increase. It also required that for any fee levied, the payer must be able to see a direct benefit, such as the ability to drive, get married or go fishing. Kris Vosburgh, executive director of the Howard Jarvis Taxpayers Association, which supported the ballot measure, says passage of Proposition 26 represents the public’s anger with the cumulative effects of the state’s high taxes, fee hikes, and the overall bad economy. “There’s a general frustration of being nickel-and-dimed to death,” Vosburgh says.

The proposition was initially supported by the business community. It also garnered public support from voters who seemed to grow tired of legislators getting around the supermajority requirement for tax increases by calling them fees. “If you’re just getting charged $5 and you don’t know why, that’s a tax,” Vosburgh says. “You don’t always get things in return for taxes, but fees are different.”

Other moves against fees haven’t been successful. In Florida, Governor Scott proposed reducing fees on motor vehicles that were raised in 2009. The idea didn’t pass this year, but many expect the plan, which would cost the state about $235 million in revenue, to resurface again next year. “The legislature has to decide to go along with it,” says Kurt Wenner, vice president of tax research at Florida Tax Watch. “I don’t know how much they will be willing to cut when revenue estimates come back.”

Another anti-fee move failed in West Virginia this year, where Delegate Eric Householder says he’s had enough of lawmakers increasing fees while saying they won’t raise taxes. Householder, a Republican elected to the  legislature last November, introduced a bill called the “Tea Party Act” along with his fellow Republican Delegate Jonathan Miller. The bill would have forced legislators to call any fee increase a tax increase.

“We wanted to prevent legislators from saying ‘we’re just increasing fees.’ It’s a tax increase, anyway you slice it,” Householder says.

The bill didn’t make it through the Democratically-controlled legislature. But Householder says he thinks the people of West Virginia are tired of the fee hikes, and plans to reintroduce his bill in the upcoming session. “Fees are tax increases,” he says. “Taxpayers would rather have his or her money back rather than having a politician spend their money.”