Rethinking Revenue, Treasury and Investment Management

Segmented Pricing for Fines and Fees

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Cities and counties across the U.S. increasingly rely on fines and fees to balance their budgets. For example, an indepth study of the 39 largest cities in the U.S. showed that charges grew so much from 2003 to 2018 as to equal tax revenue for half the cities. However, fines and fees disproportionally fall on low-income residents who often are strained to pay. This has many ill effects: from causing harm to the most vulnerable communities that government serves to reducing the revenues raised by local government.

For these reasons, local governments must become savvier about how they manage fines and fees. A good start would be to define fines and fees and the purpose they serve. A user fee attaches a price to a public service. This raises revenue by allocating part of the cost of the service to the person who receives the service. User fees also limit demand for a service. A fine is meant to punish transgressors of regulations and deter potential transgressors.

The contention of this article is that a pricing strategy called “segmented pricing” can serve these purposes while reducing the hardships that fines and fees can place on low-income citizens. The essence of segmented pricing is to charge the citizen the price they can afford—no more, no less