Public as Customer: Fees, Opinions and Equity

Portland and Oregon have been stuck in a revenue trap for over a decade. Limitations on property tax in the 1990′s have impacted local governments heavily. While property tax growth is limited, the costs of providing local services have grown much faster. Figure 1 shows the statewide experience of local governments as the direct expenditures have grown faster than than the local revenue – causing a need for transfers from state and federal government, and creative fixes through other revenue sources.

Local Direct Expenditures versus Local Property Tax Revenues

Figure 1: Local Direct Expenditures versus Local Property Tax Revenues (Source: US Census, Annual Surveys of State and Local Finance)

The proposed Portland Street Fee is one of these creative fixes. Not a tax, not quite a fee, but a short term fix to address infrastructure maintenance issues. The proposal would raise at least $34 million a year by assessing a new fee on households and business in the city of Portland. The household fee may range from $8-$12 per month. Revenue from residences and business would each make up half of the total revenue.

The fee would join other flat fees such as the Portland Art Tax and system development charges. These each have their own histories, mitigation and logics. But they share a common disproportionate impact on those that have less income and wealth. Three problems arise with the Portland Street Fee: it is unfair and inequitable, it transforms public infrastructure in to a fee for service commodity, and it is being pursued via poor governance.

Equity, Fairness and Distributions

An immediate challenge to the street fee program is to ask if it is fair. It is not. The fee is a regressive tax that asks the poorest to pay the most, and the wealthiest the least. Not in absolute terms, but as a percentage of their income. The chart below shows the distribution of households in the City of Portland based on annual income. This is data from the US Census’s American Community Survey.

The first three columns on the left are the households that have income under $25,000 a year. Under the proposed street fee of $12 per month, these households would pay, as a group, a total of $9 million a year. Looking at the other side of the chart, the households making $100,000 or more a year as a group would only pay $7.6 million a year. The middle group between $25,000 a year to $100,000 a year would pay the remaining $19 million. So this fee asks the poorest 25% of households to pay more than the richest 21% of households.

In reality these numbers are on the high end as a total – that is because I am assuming 100% compliance with the fee. The Arts Tax has reported a 62%-68% compliance rate - and one might assume a similar rate here. This may also alter the distribution of who pays under the proposed system.

The pie chart above shows how the richest households would actually pay the least total share. There is no way to accept this as fair policy. And this is before we ask about how the economic characteristics of these households actually use the road network. Those questions include who owns more vehicles, commutes by car more, has delivery services such as Amazon Prime, and so on.

Converting Public to Customer Goods

Another challenge for fees is how they alter the relationship between the public as a community and the services government provides in common. Fees introduce a logic of markets to previously public and shared systems. This works by creating an individualistic perspective on roads. A household pays a fee, and therefore expects a specific and personal service. The scrutiny by the person paying the fee in not on how well is the system working for the larger city, but how much are they getting for their payment. This becomes a myopic view on public policy.

Fees can also welcome the increased privatization of public services – it is a business model that can be sold or leased by private owners. Private toll roads are a clear cousin to this model – why not sell the City of Portland road network and lease it back with fees? Chicago sold and then leased back portions of its road network. I intentionally introduce this example to provoke thoughts on the ramifications – in reality I do not expect the City to sell the streets. But it does alter the community relationship with the public service, and with each other.

Polling is not Governing

Public polls are a powerful tool to assess how the public is thinking about a key issue. But they need to be carefully managed. First, issues rarely standalone. Testing the perception of an issue requires framing in contexts, and with the tradeoffs. This is not news to pollsters, and the City poll provides tools to address this. But even in the best of work, it has to be taken with a grain of salt because people can only process so much information. But the real concern for me is not the polling method – but the problem of fairness and polling. We can all think of issues that would poll well, but that would not be just. They can be historic examples, or more contemporary political dilemmas. Just because an issue polls well, does not mean we should adopt it as policy.

Polls help make for good politics – they identify the easy agreements, the areas where coalitions won’t come after you. But as the old saying goes, it may make for good politics, but bad policy. As the equity discussion above suggests, there are very real impacts to how we share wealth in our city if we adopt this fee. And the math of polling makes sense why it would seem to gain a majority – because for many the costs for the program would be very low compared to their household income. Respondents to the poll also did not welcome the idea of a new income based tax (which would be more fair.)

So the majority has spoken, right?

No. Polls do not tell us the right thing to do. Optimistically, we expect representatives to do what is right, and its a complex idea of right. It is one based on sharing views, information and publicly battling out over ideas. Cynically, it seems to happen rarely and should not be a surprise because the logic of polls can be the same as voting patterns. But I tend towards the optimistic on this topic – I am hopeful that the elected council members are willing to walk the equity talk. Leadership by those elected to the city council need to be expected to make the right call, even if the politics are not optimal. This is an experience that we should remember for the next election.

A Way Out?

The crux of the challenge with fixes like these is that there is an imperative and a public desire to provide more and better public services, but no tools to raise the revenue. It is easy to shrug one’s shoulders about Measures 5 and 50, saying its too hard to change. But the incremental fixes in the mean time are eroding the fairness of our revenue system. There are some possible short term fixes the street fee could consider, such as large discounts for low income, waivers for transit only households, fees for extra vehicles registered to the home, and limits on future fee hikes.

But these are band-aids on an interim solution to a larger tax crisis. The Institute on Taxation and Economic Policy’s annual report card for Oregon shows a statewide regressive taxation problem in our state and local systems. Revisiting local government revenue is long overdue and should be priority number one. So long as ballot initiatives tie the hands of local governments, the strong drive to meet public demands will continue to generate “creative” revenue fixes – and these will continue to be unfair.

Until we can address the statewide tax policy problems we need to continue asking the hard questions on new revenue proposals: Who pays the most? Should they pay the most? Are we building a stronger sense of public good, or eroding it? And are our leaders working towards what is right or what is easy?

 

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