The Revenue Potential of User Charges in Municipal Finance

Abstract

This article explores the revenue potential of user charges in financing municipal governments in the next decade. Noting that some municipalities charge fees that cover a large percentage of costs, it is reasoned that others could do likewise. This approach suggests a potential for increases in user charges of up to 400% for some services. An alternative approach based on an analysis of marginal costs and externalities suggests that overall revenue increases potentially available from user charges are quite substantial. User charge reliance could increase from the current level of .259 to as much as .848. This is not a prediction that user charges will become this important in municipal finance. However, the analysis does suggest that the past trend toward user charge finance has substantial room to continue.