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Published in Print: October 1, 2003, as Reluctant to Tax, States Turn To Fees for Quick Cash

Reluctant to Tax, States Turn To Fees for Quick Cash

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Tired of cutting budgets and wary of hiking taxes, many states instead are raising fees to help make up revenue shortfalls in their budgets. In some cases, schools will see at least a portion of the proceeds.

A recent report by the National Conference of State Legislatures shows that 34 of 47 states have raised fees, for a total of $2.8 billion, for fiscal 2004. Massachusetts led the way with $500 million in new fees.

The three states not included in the report are California, Connecticut, and Pennsylvania.

New fees have been tacked on to a variety of areas, from vehicle licenses to bar exams to riverboat gambling. Most state colleges and universities also have raised tuition and fees to overcome budget woes.

Net State Revenue Changes (in millions) for Fiscal 2004

With 47 states reporting, the figures below represent increased revenues that states anticipate collecting in fiscal 2004 to help shore up budget shortfalls.

Taxes $7,730.7
Fees 2,853.0
*Accelerations 305.6
Other 866.8

Total $11,756.1
* Reflects accelerated collection of taxes
SOURCE: National Conference of State Legislatures

States have turned to higher fees because there is little appetite in most legislatures for raising taxes, said Corinna Eckl, a fiscal analyst with the Denver-based NCSL. And while last year many states increased taxes on cigarettes and other tobacco products to pay for schools, those efforts have waned considerably, she said.

"States are reluctant to raise taxes," she continued. Instead, "they're looking to nibble around the edges."

Some of the revenue from the fee increases is simply going back into the states' general funds, or to plug the holes left by budget shortfalls.

New Jersey, for instance, raised fees for nursing homes, hotel lodging, and casinos in order to boost general-fund revenue.

But some of the money is targeted to specific programs, including education.

Illinois, for example, has imposed new riverboat-gambling taxes and fees and will allot a portion of the proceeds to education. In another instance, Ms. Eckl said, Minnesota has allowed bars to pay a fee to stay open for an extra hour. The revenue will be used to pay for 50 new state troopers.

It All Helps

In most cases, the revenue from the higher fees that will go to education will be small. Nonetheless, educators are grateful to see the new funding sources, given the grim budget situations many schools are facing, some observers say.

"Most of the time, [the fee increases] are not going to make or break funding for education, but they've certainly been helpful," said Kathy Christie, a policy analyst with the Education Commission of the States, located in Denver. "Obviously, everyone wants every dollar they can get for education, so nobody is complaining."

David A. Ritchey, the director of public affairs and government relations for the Association of School Business Officers International, said his members were reporting one of the worst years they'd ever seen—and were looking for relief anywhere they could find it.

"They're all facing real financial problems," he said from the group's Reston, Va., headquarters.

But others say the increased fees are not fair.

Pete Sepp, a spokesman for the National Taxpayers Union, an Arlington, Va.-based group that advocates lower taxes and what it sees as more responsible government spending, says that much of the funding from the new fee increases is being used for projects that have nothing to do with the purposes of the fees.

"More often than not, these fees only bear a tenuous relationship with services provided, and in those cases they are indistinguishable from tax increases," Mr. Sepp said.

Further, some lawmakers and other critics argue that the fee increases will have a regressive effect because the lowest-income residents will bear the brunt. Mr. Sepp noted that most states' residents have no choice but to pay increased vehicle licensure fees because they must rely on their cars for transportation.

Higher education has been a prime subject of fee hikes. Practically every state has raised tuition and fees at public institutions this year, according to the NCSL.

Higher Ed. Fees

An analysis by the National Association of State Universities and Land-Grant Colleges, or NASULGC, shows similar findings.

For instance, at the University of Arizona, an 8 percent cut in state funding has translated into a 39 percent rise in in-state tuition this year, from $2,593 to $3,593. California's university systems raised in-state tuition 30 percent this year to an average of about $5,400 after the state made midyear cuts, and was also forced this past summer to make significant budget reductions for fiscal 2004.

And nearly every other state college or university is seeing double-digit percentage increases in their tuition and fee scales.

"It's certainly a year of much larger tuition increases than we've seen probably in the last decade," said Cheryl Fields, the director of public affairs for NASULGC, based in Washington. At the same time, the tight budget situations mean states have not been able to offer increases in financial aid for students. But the situation could be much worse, Ms. Fields added. Many state universities had capped tuition and fees in the 1990s, so while the increases may be significant, they are the first that many institutions have put in place in several years.

Still, many institutions are worried that the higher cost of attending college could translate into less access to their programs, particularly for low-income students, Ms. Fields said. Her group is trying to emphasize that financial aid and loans are still available. "We're hopeful that people won't decide that they can't afford to go," she said.

Vol. 23, Issue 5, Pages 16,19

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