Best Practice: User Feel Policy

Governments need to have a strategy, vision, and/or purpose when setting user fees.

Governments rely on user fees for many different reasons and to fund a wide variety of services. Some user fees may be established to recover costs for a particular service while others may target a market competitive rate or be used to incentivize or discourage behaviors. A clear strategy or vision for why it is charging a particular fee not only helps decision makers identify the most appropriate fee, but also it provides transparency for the public.

Note: For the purposes of this best practice, GFOA defines “user fees” as fees that are charged in exchange for providing a service. Examples include: utility fees, development fees, zoning fees, building permit fees, transit fees, and parks and recreation program fees. User fees are different from business licenses or taxes where fees are not directly related to a service that is provided.

To prepare a strategy for user fee pricing, governments should:

1) Develop an inventory of fees.  Fees may be charged and collected by the finance department or any other area of the government.  The government should create a comprehensive fee list that identifies all user fees.  (note: The list of fees could be defined by each individual fee or by fee type).

2) Document any applicable laws or regulations. Some user fees will be constrained or restricted based on existing law or policy.  Governments should clearly identify any restrictions on user fees need to be implemented.

3) Define the purpose and strategy for each user fee. Governments need to identify the purpose for the fee and clearly state why the organization is charging a fee (and not funding the service through other methods)

• If the purpose of the fee is to recover costs, the strategy should identify cost recovery goals and how costs are to be calculated. Governments should be aware that cost recovery goals for a particular fee may conflicts with the goal(s) of the program or service that the fee is intended to fund or with other related program goals. For example, setting a high cost recovery goal for a fee for requesting access to a police report could conflict with the goal of providing assistance to victims of crimes if they are required to pay the fee in order to provide documentation that they were the victim of a crime.
• If the purpose of the fee is to benchmark the price of service to other governments, the ability for customers to pay, to deter use or certain behaviors, or other strategies, this should be clearly defined.

4) Identify frequency of policy review. Define how often the government will review and update the fee or group of fees

The user fee policy should be adopted at least at the level at which fees are approved. For example, if the governing body has to approve fees, the governing body should formally adopt the policy. If fees are set administratively, then the policy may be adopted by the governing body, but could also be adopted at the executive or administrative level.